The biggest buzz coming out of this year’s Consumer Electronics Show boils down to Intel Corporation (NASDAQ:INTC) putting its money where its mouth is on transforming the global transportation landscape.
It takes big bucks to go toe-to-toe with the likes of Apple Inc. (NASDAQ:AAPL) on smart cars, but INTC clearly wants to find its niche in the mix before this trend really takes off.
The major piece of news is that Intel is buying 15% of mapping startup company Here from a consortium of German carmakers, including BMW (OTCMKTS:BMWYY). The Germans paid $3.1 billion to buy Here a year ago, so I have a hunch that that the car companies are flipping for a profit and INTC is paying a premium.
But that’s okay for two reasons.
Why Buying Here Is Good for INTC Stock
First, the market took INTC’s decision to commit $250 million to autonomous cars back in November as a bit of a joke.
In a world where AAPL can blithely spend $1 billion to buy into a Chinese fleet management company and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has probably blown at least that much cash getting its cars on the road, the initial ante from INTC looked relatively unimpressive.
You’ve got to be serious about this market as it emerges and companies pick their partners. Spending this much money on Here proves INTC is very serious and creates a space for its hardware under the hood of some of the world’s leading car brands — including BMW, which will be testing self-driving systems powered by INTC in its prototype cars late this year.
Second, this is more than just another copycat mapping system; this is the platform originally pioneered for Nokia Corp (ADR) (NYSE:NOK) phones, which a lot of people still consider superior to anything that’s hit Android or iOS mobile devices. Buying a piece of Here guarantees that INTC will be relevant to any discussion around how cars, drones and everything else navigates across the Internet of Things.
This is a company that routinely books $22 billion a year in Ebitda (earnings before interest, taxes, depreciation and amortization), cash flow it needs to reinvest in its future in order to keep tech funds happy.
But unlike a lot of moon shots coming out of Silicon Valley, this bet can actually make an impact on INTC’s ultimate bottom line.
Bottom Line for INTC
The latest forecast indicates that vehicle automation might unlock $34 billion a year in the very near future. All of those cars may not have INTC technology inside, but even a 10% slice of that global opportunity can still double the company’s currently anemic growth rate.
At the end of the day, that’s what I and other investors want to see from events like CES: Not “concept” products that will never see real commercial deployment.
Smart cars are a real boom revving up. And in this race to the market, INTC now has a guaranteed place in the pit crew.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.