Intel has agreed to buy Israeli self-driving technology firm Mobileye for US$15.3 billion (A$20.2 billion) in a deal that thrusts the US chipmaker into direct competition with rivals Nvidia and Qualcomm to develop driverless systems and components for global automakers.
The acquisition of Mobileye could propel Intel into the front ranks of automotive suppliers at a time when the company has been downplaying its core semiconductor business.
It also promises to escalate the arms race among the world's carmakers and suppliers to acquire autonomous vehicle technology, and could fuel already-overheated valuations of self-driving startups.
The stakes are enormous. Last year, Goldman Sachs projected the market for advanced driver assistance systems and autonomous vehicles would grow from about US$3 billion in 2015 to US$96 billion in 2025 and US$290 billion in 2035.
Intel so far has not been a significant player in the sector, although it has invested in at least half a dozen start-up companies developing different components for self-driving systems, from robotics to sensors.
The acquisition of Mobileye could dramatically expand Intel's potential role in self-driving technology, with a broad portfolio that includes cameras, sensor chips, in-car networking, roadway mapping, machine learning, cloud software and data fusion and management.
"It's an area where [Intel] has had very little presence - the automotive market, and so this is a tremendous opportunity for them to get into a market that has significant growth opportunities," said Betsy Van Hees, an analyst at Loop Capital Markets.
"Mobileye's technology is very critical... The price seems fair."
The US$63.54-per-share cash deal represents a premium of about 33 percent to Mobileye's closing price of US$47 on Friday, but below its all-time high closing price of US$64.14 in August 2015.
The deal also could have an impact on the role of other self-driving component suppliers, including mapping company Here, as well as technology companies from Google to Chinese Internet giant Baidu.
Mobileye's shares jumped 29 percent to US$60.96 in afternoon trade, while Intel's shares were down 2.1 percent. Shares of systems integrator Delphi Automotive, which has partnerships with both companies, were up 3.4 percent.
Merging 'eyes' and 'brain'
Intel will integrate its automated driving group with Mobileye's operations, with the combined entity run by Mobileye chairman Amnon Shashua from Israel.
Intel CEO Brian Krzanich said the acquisition was akin to merging the "eyes of the autonomous car with the intelligent brain that actually drives the car".
Mobileye supplies integrated cameras, chips and software for driver-assist systems - the building blocks for self-driving cars - to more than two dozen vehicle manufacturers.
In January Shashua said: "If you want to build a truly autonomous car, this is a task for more than one player... The idea is to have a number of partners to share resources and data."
Mobileye was an early supplier of vision systems to Tesla, but the two companies had an acrimonious and public break-up last summer after the driver of a Tesla Model S was killed while operating the vehicle using Tesla's Autopilot system.
Mobileye, founded in 1999, accounts for 70 percent of the global market for driver-assistance and anti-collision systems. It employs 660 people and had adjusted net income of US$173.3 million last year.
Shashua and two other senior Mobileye executives stand to do well by the deal: together they own nearly 7 percent of the company. Shmuel Harlap, Israel's biggest car importer and one of Mobileye's earliest investors, also holds a 7 percent stake.
Battle for self-control
Mobileye and Intel are already collaborating with German automaker BMW on a project to put a fleet of around 40 self-driving test vehicles on the road in the second half of this year.
At the same time, Mobileye has teamed up with Intel for its fifth-generation of chips that will be used in fully autonomous vehicles that are scheduled for delivery around 2021. Mobileye also has partnered with Delphi on a self-driving platform that is being shopped to smaller car companies that may not have the resources to develop their own systems.
Last October, Qualcomm announced a US$47 billion deal to acquire the Netherlands' NXP, the largest automotive chip supplier, putting pressure on other chipmakers seeking to make inroads in the market.
The Qualcomm-NXP deal, which will create the industry's largest portfolio of sensors, networking, and other elements vital to autonomous driving, is expected to close later in 2017.
Intel is paying a premium of 60 times Mobileye's earnings, about four times the premium that Qualcomm is paying to acquire NXP.