By Therese Poletti
Intel Corp.’s plans to take its Mobileye business public next year should raise some much-needed cash to fund its big semiconductor manufacturing plans, but it’s too early to say how much.
Early Tuesday, Intel /zigman2/quotes/203649727/composite INTC -2.08% and its Mobileye subsidiary confirmed a Monday report in the Wall Street Journal that the chip giant is planning an initial public offering of the automotive-system company sometime in mid-2022. Intel plans to keep a “clear majority” stake, but it declined to be more specific.
One early question on the company’s brief conference call to discuss the news came from an analyst who asked whether or not the IPO was going to be a funding mechanism for Intel’s so-called IDM [integrated device manufacturing] 2.0 plan, which is what the chip maker calls its new manufacturing strategy. In October, Intel said its plans to spend approximately $25 billion to $28 billion on building more manufacturing facilities as part of its push to become a bigger player in contract manufacturing.
“There will be some cash benefits, but overall, Intel sees that we have the balance sheet, the debt ratings, the cash flows from our business, that we can execute our IDM strategy with or without this transition,” Intel Chief Executive Pat Gelsinger said Tuesday, adding that Intel wants to unlock the faster-growing Mobileye. “But we are anxious to see it fully realized in the marketplace, this is a unique asset.”
The report in the Journal mentioned a possible valuation of Mobileye above $50 billion, citing executives familiar with the matter. On the conference call, however, Intel executives would not discuss a valuation at this stage. And a few analysts were a bit dubious about that number anyway.
“We don’t really know what it’s worth, though in this market, and given the nature of the asset, it’s probably fair to argue that Mobileye is likely worth more than the ~$15 billion Intel paid for it in 2017,” Bernstein Research analyst Stacy Rasgon wrote in a note Tuesday.
But Intel is going to need some extra cash. After it first disclosed its capital spending plans, a few analysts have become concerned about its cash needs. In October, BMO Capital Markets analyst Ambrish Srivastava downgraded Intel, noting he was worried about Intel’s cash position amid its big expansion plans.
“We see Intel barely being able to cover its dividend commitments given the depressed FCF over the next two years,” he wrote at the time, adding that he was not worried about the dividend because of Intel’s capacity to take on new debt.
In a Tuesday note, Raymond James analyst Chris Caso wrote: “While we consider to be a shrewd move, it doesn’t change our thesis on Intel — the value in Mobileye is still small in relation to the overall company, and while the deal will provide much-needed cash, we aren’t confident in a return on that cash investment due to the significant challenges Intel faces in catching up onmanufacturing.”
Clearly, Mobileye is a hidden jewel within Intel, and as Gelsinger described it having created advanced driver-assistance systems, it also is expected to see big potential in autonomous driving. Intel is wise to capitalize on that asset, but it’s not clear how much value it will be able to realize, as it works to get back to its former manufacturing supremacy.