Semiconductor Advisors Breaks Down The Intel-Mobileye Deal

Semiconductor Advisors, a provider of financial and strategic advisory services to companies operating in the semiconductor equipment and clean-tech sectors, commented on Intel Corporation INTC's $15 billion acquisition of Israel-based Mobileye NV MBLY.

Intel's acquisition is "clearly a transformative event," or at the very least an attempt at transformation as Intel is "taking a leap of faith" to divest outside of its core business franchise.

On the other hand, the acquisition could also be seen as an admission that its semiconductor business isn't expected to significantly grow any time soon and the acquisition marks "something new to jumpstart growth."

Nevertheless, Intel has been spending a lot of time talking about operating in sectors other than semiconductor so the acquisition is at its core proof Intel is willing to put money where its mouth is. The acquisition now gives Intel a "concrete foot forward" in a non-semiconductor business.

"We see the acquisition underscoring the need for growth outside of core Semi's and less focus on Semi's," the advisory firm wrote. "Intel hasn't announced something to specifically kick up the Semi side and we may need some "sizzle" to deflect investor concerns about a slowing core business."

After all, the company has been active in lowering its capex spend levels, slowing technology transitions and reducing staff which are moves to "squeeze more profitability out of a slowing business."

What About Synergies?

The language used in Intel's press release mentions synergistic opportunities with its data center group although the advisory firm doesn't agree. While self-driving cars do generate a lot of data the actual amount of data which goes into the cloud is minimal since cars are supposed to be autonomous after all.

Intel's acquisition doesn't necessarily help the company stave off competition from NVIDIA Corporation NVDA, Advanced Micro Devices, Inc. AMD and other rivals within the crowded data center space.

As such, the acquisition should be viewed as a "small incremental net negative" to Intel given both the new focus on businesses outside of semiconductor and the high price tag of the deal relative to near-term revenue and profits.

"It certainly doesn't support a more positive view of the core Semi business and more likely points to more weakness," the advisory firm concluded.