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Why Intel’s purchase of Mobileye is the ‘innovator's solution’

14th March 2017 Print

Commenting on the $15bn purchase of Mobileye by Intel, Michael Baxter, Economics Commentator for The Share Centre, said:

“Intel used to promote the slogan ‘Intel Inside’ when talking about PCs. In a few years’ time, will car buyers pay less attention to what’s inside the engine, and more attention to whether Intel is inside the car’s artificial intelligence system?

“Since the company’s inception, Intel’s growth has been supported by the march of Moore’s Law – which describes how computers double in speed every 18 months to two years. Indeed, Moore’s Law is named after Gordon Moore, the co-founder of Intel, who, in 1965, famously predicted that the number of transistors on an integrated circuit would double every 18 months for a period of ten years.

“But Moore’s Law, in its traditional form, is close to ending. Whilst this does not mean the end of progress in computer technology, it does mean that the speciality which has underpinned Intel will become less relevant.  The scenario that is unravelling is classic innovator's dilemma, the phrase invented by the Harvard Professor, Clayton Christensen, to describe what happens when new innovations make the traditional specialties of market incumbents less relevant. But there are also potential solutions to innovative dilemma type scenarios.

“Intel has multiple options.  It can accept it dominates an industry that may not have need of its speciality for much longer, and compensate shareholders via dividends and share buybacks. Or it can look at options that involve diversification, and apply the lessons of innovators’ solutions.

“It can take the latter approach by acting a little like a venture capital firm, buying companies and backing start-ups in new areas, but which have technology that in some ways complement its speciality.

“Moves into autonomous cars certainly tick the box marked ‘response to the threat of disruptive technology’.

“Mobileye is especially interesting because it focuses on technology that saves lives and prevents collisions, the very areas that make autonomous cars so compelling. Its technology is also complementary to Intel’s own expertise, while Mobileye also applies machine learning techniques, an area which Intel must master if it wishes to remain relevant.

“A brief look at the list of the world’s largest companies reveals that most fall into one of three categories: tech, commodities such as oil or mining, and automobiles. The tech industry and automobile industry are converging; these are both exciting and risky times for key players in both industries. By its purchase of Mobileye, Intel is demonstrating its determination to remain relevant in the post-Moore’s Law landscape, and become a leader in the new era of autonomous cars, AI and the sharing economy.”