Big Tech Reshapes Automotive Sector -- WSJ

By Chester Dawson 

Intel Corp. sent a fresh shock wave through the automotive supply chain, becoming the latest tech company to gobble up a specialized car components supplier. The Silicon Valley company's $15 billion acquisition of Mobileye NV could unsettle established auto makers, but it may be the type of big bet needed to populate roads with self-driving vehicles.

Mobileye -- an Israeli company specializing in camera-based software -- was attractive to Intel because of its head start in high-tech automotive applications, including advanced cruise control and braking systems designed to avoid crashes even if the driver is unaware. Companies that can better connect or automate vehicles are commanding large premiums not seen in the broader car business.

"It shows there's an increasing belief that autonomous vehicles and assisted driving through the levels is real and needs to be industrialized," said Mark Wakefield, co-leader of the automotive practice at consulting firm AlixPartners. Companies with deep pockets and broad business portfolios are pouring into the auto industry as a result.

For decades, auto makers treated suppliers as subordinate partners, and dollars that flow from purchasing decisions have kept parts makers afloat. Tech company investments may weaken auto maker influence over the supply chain amid a race to reinvent automobiles as smarter and safer.

The deal follows similar acquisitions in recent months such as Samsung Electronic Co.'s $8 billion purchase of audio and telematics supplier Harman International Industries Inc. and Siemens AG's $4.5 billion takeover of Mentor Graphics Corp., which producers design software for automotive and other applications. Intel rival Qualcomm Inc. bought automotive chip supplier NXP Semiconductors NV for $39 billion.

Recent acquisitions of auto makers by Nissan Motor Co. and Peugeot SA resulted in much lower valuations for companies that sells millions of vehicles. Mitsubishi Motor Corp. and Opel were both snapped up for under $3 billion apiece.

Unlike the capital-intensive business of building cars, supplying the guts of tomorrow's automobiles is a growth target for spreading the Internet of Things. That involves embedding computing power and connectivity into everyday objects, and making money from cars that collect loads of data and become a platform for a suite of services, much like a smartphone.

"It just shows you the kind of companies that are considering this space interesting," said Ford Chairman Bill Ford, speaking at the South by Southwest Interactive Conference in Austin after Intel's deal was announced. "The question then for us at Ford is are they friend or foe? And if they are foe can they turn into a friend? There are great partnership opportunities out there."

Thus far, auto makers have struggled to compete with tech companies in areas such as dashboard infotainment or mapping. At the same time, tech companies have faced a learning curve and grown to appreciate how difficult it is to build a car from scratch.

Ford, GM and others are investing heavily to catch up, spending proprietary technology to develop autonomous vehicles or hiring teams of software engineers. Others aren't plowing down that path -- Fiat Chrysler Automobiles NV, for instance, is outsourcing its self-driving program to Alphabet Inc.'s Waymo, formerly known as Google's car project.

Both Apple Inc. and Google's parent have wavered on how they want to enter the auto industry. Once thought to be considering getting into car making, they have narrowed their scope to autonomous driving systems, leaving the metal bending to Detroit and its rivals.

"Auto companies need Big Tech as much as Big Tech needs auto companies," said Phil Magney, founder of Minneapolis-based technology research firm Vision Systems Intelligence. "They both bring different assets to the table and realize they can't do it all by themselves," he said.

Intel's acquisition seems to bear that out. The company remains more than an arm's length from auto makers as Mobileye sells to larger suppliers, not directly to vehicle assembly plants.

"Tech companies are realizing that auto suppliers [have] become the critical 'bridge' into auto industry," said David Leiker, an auto analyst with Robert W. Baird & Co.

Eliot Brown contributed to this article

Write to Chester Dawson at [e-mail]

(END) Dow Jones Newswires

March 15, 2017 02:47 ET (06:47 GMT)

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