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Intel Just Made a Huge Bet on the Automotive Industry

Intel (NASDAQ:INTC) made a huge strategic move into IoT by agreeing to buy Israeli driverless technology firm Mobileye (NYSE:MBLY) for $15.3 billion. According to the terms of the agreement, Intel will acquire all the shares of Mobileye for $63.54 per share in cash.

Intel and Mobileye have already been collaborating with German automaker BMW (MIL:BMW) to put 40 self-driving cars on the road during the second half of 2017. Now, Intel has taken things a step further by buying Mobileye, with its strong expertise in building driver assistance systems. The acquisition of 600-employee strong Mobileye will make Intel’s position stronger in the automotive industry because it will not only be a chip-maker but now also a company with in-house autonomous driving technology.

Intel’s decision to move in for the acquisition may have been hastened by the recent decision by Qualcomm (NASDAQ:QCOM) to acquire NXP (NASDAQ:NXPI), a company with strong exposure to the automotive industry.


Source: NXP

Chip-makers are facing a huge shift in the underlying market. Device sales around the world have slowed in recent years and are expected to stay flat over the next several years. PCs are on a never-ending decline, smartphone penetration in developed markets makes it impossible for rapid growth, and chip-makers either need to accept a slowdown or move into other growth areas.

Intel says the market for vehicle systems, data and services will be worth $70 billion by 2030. Most of the technology companies are competing with each other to get into that segment while traditional automakers such as BMW, Ford (NYSE:F) and General Motors (NYSE:GM) are tying up with partners or buying companies to move their autonomous driving technology forward. None of them wants a technology company to come in and disrupt their world.

Tesla (NASDAQ:TSLA) triggered the arms race in self-driving technology and possibly has the best self-driving technology available today. The threat level has been so high that Uber had to either move into the self-driving race or end up watching Tesla come in and steal the ride-sharing market. That’s primarily because, when autonomous driving technology reaches its full potential, nothing is going to stop a company like Tesla from creating an app and letting car owners allow their cars to become cabs when not in use.

The automotive market has reached a stage where competition is pushing companies to keep working on new technologies, and nobody can afford to sit still and watch others go by.

That situation, coupled with the growth of IoT technologies, the market for hardware and software related to driverless systems is going to keep increasing in the near future. Intel wants to get a share of that. With the acquisition of Mobileye, it may have just expanded that market share just a little bit.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

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