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Intel Drives Autonomously Into A Glorious Future

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About: Intel Corporation (INTC), Includes: ACC, MEC, NEV, QCOM, TSLA, VLKAF, VLKPF, VWAGY
by: The European View
The European View
Long only, long-term horizon, dividend investing, dividend growth investing
Summary

With the rollout of 5G next year, there will be a multitude of new technical possibilities.

Accordingly there will be a multitude of opportunities for companies to earn a lot of money here as well.

One area of this is autonomous driving, in which Intel has positioned itself very well so far.

Overall, I think that the expensive acquisition of Mobileye could definitely pay off in the long term. This is indicated in particular by the latest growth figures.

Introduction

With the rollout of 5G next year, there will be a multitude of new technical possibilities and thus also a multitude of opportunities for companies to earn a lot of money. Most times, 5G is associated with the mobile phone market. That is only on a first view bad for Intel (INTC) because the company left the 5G smartphone modem business. But I believe that the demand goes far beyond pure 5G chips such as Qualcomm's (QCOM) Snapdragon X50 5G Modem for mobile phones. One area of this is autonomous driving, in which Intel has positioned itself very well so far.

Analysis

Autonomous driving is divided into five levels and starts with level 1 which includes standard driving assistants which can be found in almost every modern car.

(Source: Levels of autonomous driving)

At the moment, Level 3 is state of the art. The first car with full Level 3 support is the Audi A8 from Volkswagen. It offers to take the wheel independently in case of traffic jams or heavy traffic on the motorway. However, the maximum speed is up to 60 km/h. What Volkswagen (OTCPK:VWAGY; OTCPK:VLKAF; OTC:VLKPF) and others like Tesla (TSLA) are currently working on at full speed is Level 4 - at which the vehicle takes over most of the driving, but the driver must always remain fit to drive so that he can intervene if necessary. This point is always at the center of attention when it comes to serious accidents with autopilots.

In this respect, one can see that, apart from colored promises, one is still far from speaking of a mass market here. However, it is precisely the future that is traded on the stock exchange and not the present (and certainly not the past). And the future is closer than many investors might think. This has to do with another major development that is indispensable for autonomous driving.

But before I get into that, investors need to be aware of the problem which companies have to go from level 3 to level 4, or eventually to level 5. In order to enable self-driving cars in road traffic, the technology along the road must also be improved. Although radar systems can detect vehicles in front and other road users, traffic lights and traffic signs are not so easy to detect using sensors. In order to achieve error-free recognition, the infrastructure for self-driving still needs to be upgraded. To this end, new technologies are being developed for communication between traffic lights and vehicles, but also between vehicles and vehicles. Logically, these must function across manufacturers.

So what is meant by this is V2X or the communication between vehicle and everything. This V2C is a form of technology that allows vehicles to communicate with moving parts of the transport system. V2X consists of several components: Vehicle-to-Vehicle (V2V), Vehicle-to-Road (V2R), Vehicle-to-Infrastructure (V2I), Vehicle-to-Network (V2N), and Vehicle-to-Person (V2P). To make all this possible, a decisive development is needed and this development has a name: 5G. 5G is generally considered to be decisive in this respect.

With 5G, there will be a completely new market with an impressively high market volume. The global 5G chipset market was valued at USD 1.21 billion in 2017 and is expected to reach USD 9.22 billion by 2026 with a CAGR of 41.2 percent. Overall, after a ramp-up period in the late 2020s and early 2030s, it is estimated that the total global sales enablement potential of 5G to reach USD 12.3 trillion in 2035. And it seems that Qualcomm will own and rule big slices of this 5G mega market. The range of applications of 5G is extremely diverse.

And here, Intel did the right things. Firstly, Intel left the 5G smartphone modem business to instead focus on opportunities for 4G and 5G modems in PCs, internet of things devices, and other data-centric devices. The company has also presented 5G chipsets for automotive. Some relevant Intel products include:

Secondly, in March 2017, Intel announced that it plans to acquire Mobileye for USD 15.3 billion. The company produces software that conducts sensor fusion - interpreting data from camera sensors as well as radar and LiDAR sensors. Furthermore, autonomous driving requires many system redundancies to deal with unforeseen circumstances. Mobileye's Road Experience Management is a high-definition map for precise localization of the vehicle, relative to road boundaries and intersections, under all conditions. This crowd-sourced map is, according to Mobileye a unique, low-cost solution for building and rapidly updating this HD map. Thirdly, with Mobileye's Reinforcement Learning for Driving Policy, the company is aiming to provide the human-like intuition and behavior required to analyze multivariable situations and negotiate with human drivers. Given that, Mobileye achieved many industry firsts:

  • camera and radar fusion in 2007,
  • pedestrian-detection warning in 2010,
  • camera-only forward-collision warning in 2011,
  • camera-only automatic cruise control (ACC) in 2013,
  • hands-free assist in 2015, crowd-sourced HD-mapping in 2016,
  • the Responsibility-Sensitive Safety (RSS) safety model in 2017 and,
  • a “vision zero” horizon through a novel preventive system using RSS.

By the end of 2019, Mobileye expects over 100,000 Level 3 cars with Mobileye installed. Additionally, the company says that while it Level 4 systems will start production in 2021, many of its technologies are relevant to creating systems that may soon be purchased by consumers.

(Source: 3Q 2019 results)

The quarterly figures also show that Mobileye continues to grow at a double-digit rate and could well establish itself as a key growth pillar in the future. However, this is only the case perspectively in the long term, as the share of total sales is still relatively small. But I generally think that Mobileye should be seen as a long-term investment.

Conclusion

Intel is trying to position itself in future areas in good time. This applies, among other things, to autonomous driving. The expensive acquisition of Mobileye could definitely pay off in the long term. Furthermore, Intel still looks quite fairly valued fundamentally. This applies above all to a comparison with Qualcomm, which I believe is just as well positioned for the future. Mobileye's position and future growth prospects may even be insufficiently priced into the share price:

ChartData by YCharts

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Disclosure: I am/we are long QCOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.