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Intel hits another speed bump with delayed Mobileye IPO

No biggie, it was only supposed to help fund a big manufacturing expansion

Analysis Intel's ambitious plan to become the leading chip manufacturer again has hit another speed bump as the planned initial public offering for its Mobileye business has been postponed.

The semiconductor giant announced in December it planned to take its automotive tech business public via IPO by mid-2022. But according to a Sunday report by Israeli technology news outlet Calcalist, that plan has been delayed as deteriorating market conditions have prompted Intel and Mobileye to hit the brakes, at least for now, over fears that a public listing would subject it to high volatility in the stock market.

In an internal memo seen by Israel's Globes as well as Calcalist, Mobileye CEO and founder Amnon Shashua said the Jerusalem-headquartered company's desire to have a successful IPO and sustainable business "requires us to wait for the market to stabilize."

"We still hope it will happen during 2022. This is all there is to it. In the meantime, our business is thriving, we are growing on all fronts and the future was never brighter," he wrote.

Shashua said he is less concerned about how the timing of an IPO would impact Mobileye's valuation:

Regarding valuation, we will do our IPO at the valuation which [is] commensurate with the market. Valuation is not the reason to wait. Lack of stability, or high volatility, on the other hand, could have a negative [effect] on the results of any IPO, both on the date of the IPO and going forward.

In a statement to The Register, an Intel spokesperson insisted a Mobileye IPO is still happening in 2022 and pointed us to Intel's announcement in March that it had filed a private draft Form S-1 statement for the Mobileye IPO with the US Securities and Exchange Commission.

"As we have said previously, we are working on our plans to take Mobileye public in 2022," said the company spokesperson.

However, the spokesperson did allow that timing for the IPO is not set in stone: "We will take a range of factors into consideration when determining the most opportune IPO timing, and we'll be sure to keep you apprised as we have more to share," the Intel representative said.

Intel and Mobileye are far from alone in delaying IPO plans as the market suffers from an economy that is dealing with inflation, high interest rates, and fears of a recession. As of mid-June, more than 300 companies were waiting for the stock market to stabilize before going through with IPO plans, according to Barron's.

Why Mobileye's IPO matters to Intel's comeback plan

Intel CEO Pat Gelsinger has said the chipmaker plans to use at least some of the proceeds from the Mobileye IPO to fund its costly manufacturing expansion.

The buildout, which includes new plants in the United States and Europe, is part of Gelsinger's ambitious comeback plan for Intel to rebound from past missteps and surpass Asian foundry giants TSMC and Samsung with cutting-edge manufacturing technology by 2025.

The issue is, Intel's investors have not been happy with how the high costs of the comeback plan will bring the company to a negative cash flow this year in the order of $1 billion to $2 billion in addition to causing gross margins to dip over the next few years.

The company's financials are set to take a hit because Intel plans to use roughly 35 percent of its 2022 revenue for capital expenditure, which will then go down to 25 percent for 2023 and 2024, when the company expects its cash flow to become neutral.

Intel is hoping these few years of big spending will allow it to come out on top in the industry with higher gross margins, double-digit sales growth, and significant free cash flow by 2025-2026.

But depending on how long the Mobileye IPO is delayed, Intel could face additional financial pressure in the near term if the company can't tap into the proceeds from the IPO when it had originally planned.

This represents yet another bottleneck in Intel's comeback plan in addition to the most pressing issues around whether Congress will pass the long-stalled chip subsidies bill that would help fund its US manufacturing expansion. ®

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