A sharp downturn in net sales at Mobileye Global Inc., a key subsidiary of Intel Corporation (INTC), spells trouble for the chipmaker’s revenue stream. Mobileye, a leading player in autonomous driver assistance technology (ADAS), recently outlined its financial forecast for fiscal 2024, raising concerns about its impact on Intel’s performance in the upcoming quarters. The subdued outlook from Mobileye has ominous implications for Intel’s financial health, given its significant stake in the company.
Downturn in Mobileye’s Revenue
Mobileye’s forecast indicates a drastic 50% drop in net sales for the first quarter of fiscal 2024, compared to the previous fiscal year. The company expects fiscal 2024 revenues to decline, paving the way for a challenging period for Intel. Intel’s chunk of revenues from Mobileye in the September quarter stood at $530 million, highlighting the potential blow to the chipmaker’s top-line performance in the near future.
Factors Contributing to Slowdown
The downturn in Mobileye’s net sales stems from an excessive inventory buildup at some of its tier 1 customers, resulting in an estimated surplus of 6-7 million units of EyeQ SoCs. The decision by these customers to bolster their inventory levels is a strategic response to mitigate the impact of supply chain constraints and production cuts faced in prior years. Despite the slowdown, demand for driver assistance technology among automakers remains robust.
Projected Shipment Decline
As a consequence of these factors, Mobileye anticipates a decline in the shipment of EyeQ computer chips from 37 million units in 2023 to 31-33 million units in 2024. This projected decrease in shipments is poised to eat into the company’s profit margins, further exacerbating the situation. The anticipated operating loss for full year 2024 is considerably higher than the expected loss in fiscal 2023, signaling a challenging road ahead for the company.
Light at the End of the Tunnel
Despite the current challenges, Mobileye sees a silver lining with a potential drop in excess inventory levels by the end of 2024. The company also anticipates a significant uptick in SuperVision shipments, projecting a promising outlook from Q2 to Q4 in terms of revenue. This, however, would add pressure to Intel’s overall revenues, given the company’s substantial interests in Mobileye’s performance.
Intel’s Strategic Moves
Intel’s acquisition of Mobileye was aimed at solidifying its position in the autonomous car technology market, providing access to a wide array of technologies and expertise. In a separate strategic move, Intel launched AI chips for data centers and PCs, representing a significant architectural shift. These initiatives highlight Intel’s determination to carve a niche in the rapidly evolving AI sector, a key area of focus for the company.
Stock Performance and Future Prospects
Intel’s stock has witnessed a 63.2% gain over the past year, a figure that pales in comparison to the industry’s growth of 129%. Amid the current predicament, the company carries a Zacks Rank #3 (Hold), signifying a mixed outlook.
Alternative Options for Investors
For investors seeking alternatives, NVIDIA Corporation (NVDA) and United States Cellular Corporation (USM) stand out. NVIDIA, with a Zacks Rank #2 (Buy), has displayed impressive earnings surprises in recent quarters, underlining its resilience and potential for growth. Meanwhile, USM, also with a Zacks Rank #1, is well-positioned to capitalize on the growing demand for wireless products and services in the U.S. market.
As Intel grapples with the fallout from Mobileye’s revenue slowdown, investors will be keenly observing how the company navigates through these challenges and whether its strategic initiatives bear fruit in the long run.