Intel INTC is looking to free up resources by spinning off Mobileye, with big capital commitments for new foundries coming down the pike.
The chip giant said Tuesday it would float Mobileye onto public markets. Industry experts believe that Mobileye's value is north of $50 billion due to its lead in autonomous driving technology and key deals with the likes of Ford and Geely. A high valuation is supported by mobileye's attractive financials, the company has hauled in North of $442 million in operating income over the past 12 months, according to Wells Fargo.
The acquisition of Mobileye by Intel has been a great success. In a statement from Intel CEO Pat Gelsinger, Mobileye has achieved record revenue year-over-year, with 2021 gains expected to be more than 40% higher than 2020.
For the turnaround-focused Gelsinger, the spinoff makes sense for a number of reasons.
Gelsinger moved quickly after his return to Intel this year to commit the company to making chips for other entities. Intel is investing $20 billion to build new factories in Arizona as part of that ambition.
The cash from Mobileye would be helpful in seeing those projects through, and others Gelsinger is eyeing on the foundry front.
It would be nice cash infusion if Gelsinger decided to acquire capacity instead of going full bore with internal build-outs.
The WSJ reported several months ago that Intel was considering buying chipmaker GlobalFoundries for $30 billion. GlobalFoundries is one of the biggest specialists in the chip industry. The company was founded in 2008 by Advanced Micro Devices. It still counts AMD as a key customer, making any potential purchase by Intel difficult to make a rival to AMD.
Gelsinger didn't say anything about the speculation surrounding GlobalFoundries in an interview with Yahoo Finance earlier this year. He acknowledged at the time that one can't be a little player in the foundry business.
A way to not be little is to use money from the Mobileye spinoff and bulk up.
The fact that Mobileye and autonomous cars isn't a strategy that Gelsinger signed off on. In 2017, Mobileye was purchased for $15.3bn, according to former Intel CEO Brian Krzanich. Bob Swan, Kraznich's predecessor, bought mapping technology outfit Moovit in 2017 for $900 million, which was folded into Mobileye.
Gelsinger's playbook - gleaned from numerous chats with him throughout the year - is hyperfocus and is on restoring the history of Intel, which is making semiconductors.
Wall Street seems to be on board with Intel saying goodbye to an operations role in Mobileye.
We believe that Mobileye is one of the more dynamic pieces of Intel's portfolio and that the company is poised to deploy fully driverless delivery starting in 2023 in a partnership with Udelv. Wells Fargo analyst Aaron Rakers said that IPO proceeds can help with the potential capital intensive 2023 rollout, in addition to unlocking Intel shareholder value.
Brian Sozzi is an editor at large and anchor at Yahoo Finance. You can follow Sozzi on Twitter and LinkedIn.