In November of 2016, Supply Chain Matters called attention to the building trend of high profile technology and semiconductor firms beginning to position themselves in automotive supply chains mostly via market acquisitions. This week provided further evidence of this strategy with the headline that semiconductor giant Intel will acquire advanced vision and driver assistance technology provider Mobileye for an estimated $15.3 billion.

As noted in our prior commentary, the strategic stakes involve which company and which advanced technologies will ultimately control and benefit from the movement of more advanced technology being embedded into automobiles, trucks, and other vehicles. Last year, fabless semiconductor and cellular tech provider Qualcomm announced its intent to acquire NXP Semiconductors, a major supplier of semiconductor chips and microprocessors that control more sophisticated automobile functions in power management, security access, media, and audio functions. Qualcomm was willing to pay a hefty sum, upwards of $39 billion, a 34 percent premium in existing NXP stock value, to gain entry into automotive technology value-chain needs. Samsung recently closed on its deal, the largest deal in the company’s history, on the acquisition of electronic components supplier Harmon International in an $8 billion all-cash deal. The deal again had the intent to gain deeper access to the automotive product value-chain, marrying Samsung’s technology based capabilities in mobile communications, electronic displays, memory chip and microprocessors with Harmon’s evolving capabilities to support connected vehicle and lifestyle audio product innovation.

In Intel’s case, the semiconductor and microprocessor provider was willing to pay a 34 percent premium over Mobileye’s closing share price at the time on the announcement. This Israeli-based technology firm, founded 20 years ago, at the Hebrew University of Jerusalem, develops the sensors and artificial intelligence that allow a vehicle’s on-board computer to know the context of where the vehicle is in relation to other vehicles and surroundings. Mobileye recently reported revenues of just over $358 million with net income of $108.4 million.

Our readers may recall that in July of last year, Mobileye elected to drop Tesla as a customer, and according to news reports at the time, the cause was attributed to “disagreements about how the technology was deployed.” Earlier in May, a fatal crash involving a Model S operating on semiautonomous mode autopilot control had reportedly motivated the decision to drop Tesla at contract renewal time because this supplier wanted more control as to how its camera technology would be operationally deployed. Tesla has since indicated that its autopilot system will rely more on its radar sensors and advanced software to detect obstacles, rather than the forward-facing camera. That decision impacted Tesla’s production cadence in Q4, requiring a huge spike of production in December to make customer delivery commitments.

According to Mobileye, the company’s technology is installed in more than 15.7 million vehicles globally, and includes relationships with 21 automotive brands including General Motors, Honda, and Volkswagen AG.

In statements regarding the acquisition, Intel CEO Brain Krzanich indicated to investors; “You can think of the car as a server on wheels.” In an internal note to employees, regarding the acquisition, the CEO indicated: “The saying ‘what’s under the hood’ will increasingly refer to computing, not horsepower.”

Indeed, that is how tech companies now view automotive value-chains, providing intelligent transportation services with lots and lots of on-board technology and autonomous decision-making.

According to reports, after the completion of the acquisition, Mobileye’s development and operations will remain headquartered in Israel and led by the company’s co-founder, chairmen and CTO, Amon Shashua.

As noted in our prior November commentary, when a major new technology trend emerges, innovators can try to capitalize on the trend by creating and fostering a consumer product or service, or by creating the tools and technologies (the product supply and value-chain) that both enables and controls the intellectual property of the consumer product or service.  Like the California gold rush analogy, you can either make money in providing the service to multitudes of consumers or in supplying all the pick axes and supplies needed to mine for gold. This is the analogy now emerging among today’s global automotive supply chains and there continues to be big money and large technology stakes at-play.

Who knows what the names of key automotive suppliers and brands will be over the next five years. Your shiny new auto or SUV made have an “Intel Inside” emblem on its dashboard. An automobile, a truck or a municipal bus could morph to an on-call or on-demand transportation services business controlled by a lots of embedded dat and technology.

One thing is certain, the march of technology continues to impact all forms of traditional industries and their supply relationships.

Bob Ferrari

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