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Intel Buying Mobileye in Biggest Ever Deal in Israeli High-tech

The computer-chip giant will enter the self-driving-car market with a $15.3 billion acquisition of the Israeli company.

Omri Zerachovitz
Omri Zerachovitz
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Signage is seen at the offices of Israeli driving assistant software maker Mobileye, Jerusalem, September 14, 2016.
Signage is seen at the offices of Israeli driving assistant software maker Mobileye, Jerusalem, September 14, 2016.Credit: RONEN ZVULUN/REUTERS
Omri Zerachovitz
Omri Zerachovitz

Confirming Israel’s leading place in the global race to put autonomous vehicles on the road, the U.S. semiconductor giant Intel said on Monday it would buy driverless-technology company Mobileye for $15.3 billion in the biggest acquisition ever of an Israeli high-tech company.

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The $63.54-per-share cash deal, which values Mobileye at one-third above its value on the New York Stock Exchange before it was announced, will also be the largest of any company whose focus is on self-driving.

Credit: Haaretz

The deal, which was first reported by TheMarker early Monday, was so big and important that Prime Minister Benjamin Netanyahu called Mobileye CEO Ziv Aviram to congratulate him soon after it was announced. “The deal is a dramatic testimony to the vision that Mobileye has realized. Israel has become a world technology center, not just in cybersecurity, but in automobiles,” the prime minister said in a statement.

The moves comes as the world’s automakers and their suppliers race to develop self-driving cars, a technology that once seemed decades away from reality but now seems imminent.

“This acquisition essentially merges the intelligent eyes of the autonomous car with the intelligent brain that actually drives the car,” Intel CEO Brian Krzanich wrote in a note to employees about the acquisition.

The move was praised by industry observers and stock market analysts alike. Mobileye shares soared 29.7% to $61.31 late morning local time in New York, boosting its market cap to $13.6 billion. Intel, however, was down 2% at $35.19.

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“It’s an area where [Intel] has had very little presence — the automotive market — and so this is a tremendous opportunity for them to get into a market that has significant growth opportunities,” said Betsy Van Hees, an analyst at Loop Capital Markets, who has a Buy rating on Intel shares.

Citron, a Wall Street investment house that had been a short seller of Mobileye shares, admitted defeat.

“While we are scratching our heads at the economics of paying almost 30 times 2017 revenue, the deal is done and we will move on,” Citron said. “Neither Citron nor any analysts who covers Mobileye saw this coming.”

Intel said it expected the transaction to close within the next nine months and to immediately boost its non-GAAP earnings per share and free cash flow.

Intel will integrate its automated driving group with Mobileye’s operations, with the combined entity being run by Amnon Shashua, Mobileye’s chairman and the Hebrew University professor who invented Mobileye’s core technology.

While it once rode high making chips for PCs, Intel lost the smartphone-chip market to its main competitor, Qualcomm, and has sought to develop a major new market segment for its semiconductor technology with the rapid transition now underway to self-driving cars.

As part of these efforts, Intel began a partnership with Mobileye and the German automaker BMW on a project to put a fleet of around 40 self-driving test vehicles on the road later this year. Mobileye had also teamed up with Intel for its fifth-generation chips that will be used in fully autonomous vehicles that are scheduled for delivery around 2021.

Buying Mobileye will also significantly deepen Intel’s major presence in Israel, where it employs some 10,000 people in making chips and in research and development and exports billions of dollar of semiconductors annually — making it both Israel’s biggest employer and exporter.

Mobileye, which accounts for 70% of the global market for driver-assistance and anticollision systems, has 660 employees and had adjusted net income of $173.3 million last year.

Founded in 1999, the Jerusalem-based company initially offered collision-prevention technology, which gradually evolved into autonomous cars. The company listed its shares in 2014 on the NYSE, where it became an investor favorite.

Mobileye revenues surged from $40 million in 2012 to $358 million last year, while its market cap jumped 85% since the company went public as self-driving car technology came into its own. Analysts had been forecasting prior to the Intel deal that Mobileye revenues would grow 40% this year to $500 million.

U.S. automakers and some technology companies are testing autonomous vehicles in California, Michigan and a few other states. Nearly all use Mobileye’s software, which reads inputs from cameras, radar and laser sensors and makes decisions on what an autonomous car should do.

Mobileye says it has contracts with 27 different automakers. It also makes software that runs automatic emergency braking and semiautonomous cruise control systems that are in cars and trucks now on the road.

Mobileye’s relationships with automakers, leading suppliers and STMicroelectronics will continue uninterrupted, the companies said in their statement, and Mobileye’s current product road map will not be affected.

With reporting by Reuters and The Associated Press

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