Mobileye Global, a leading provider of technology for autonomous car systems, is facing a significant drop in revenue for the first quarter of this year. The company has announced that its revenue is expected to plummet by approximately 50% compared to the same period last year, which amounts to a decline from $458 million to around half that figure.
This decline comes as the entire chipmaker industry grapples with a bullwhip effect, resulting from customer stockpiling. Mobileye’s market value took a hit, with a 25% drop following the revenue warning. Moreover, suppliers of semiconductors used in artificial intelligence systems are also likely to face similar challenges due to excess inventory.
Despite the current setback, the demand for products from Mobileye and its peers is anticipated to continue rising. S&P Global Mobility predicts that the average value of chips in each vehicle will increase from $500 in 2020 to $1,400 by 2028. However, short-term forecasting can be challenging, as evident by the current situation where manufacturers struggle to meet buyers’ demands for cars in 2021 and 2022.
This discrepancy in demand and supply creates what is known as the bullwhip effect. A small change in demand can have significant repercussions throughout the supply chain. Carmakers, frustrated by component shortages, often overcompensate by ordering excessive inventory to mitigate risks of rationed shipments from suppliers. However, when the market becomes saturated, these carmakers reduce their orders, resulting in the opposite effect.
Chipmakers, who invested heavily to increase supply in response to the previous shortage, may now find themselves with an oversupply. Investors are consequently less optimistic about Mobileye’s prospects. Although the company’s market capitalization is still 40% higher than when it went public in 2022 with Intel, trading at 11 times expected revenue for 2024, its value is likely to face continued pressure as the industry ebbs and flows.
This situation serves as a reminder to other industry giants, such as Nvidia, which currently boasts a significant market value of $1.1 trillion as it dominates the design of specialized chips for training AI systems. Customer demand for Nvidia’s products is insatiable, and it is likely that they too are ordering more than necessary. Nvidia has previously faced challenges when shortages dissipated and excess inventory needed to be depleted. It is highly likely that they will face similar hurdles as the bullwhip effect affects the industry once again.
On January 4, Mobileye Global revealed that its first-quarter revenue decline is attributed to customers stockpiling excess inventory to avoid shortages experienced in 2021 and 2022. Additionally, production for some buyers was lower than expected in 2023. The company, backed by Intel, expects customers to utilize most of the excess inventory in the first quarter, leading to revenue normalization for the rest of the year. Following the news, Mobileye’s stock price dropped approximately 25% to $29.83. Intel acquired Mobileye for $15.3 billion in 2017 and subsequently sold a portion of the company in the 2022 initial public offering at $21 per share, valuing it at around $17 billion.
The chipmaker industry is navigating through challenging times, with the bullwhip effect impacting supply chains and affecting companies like Mobileye Global. While the long-term outlook for autonomous vehicles and AI technology remains positive, these short-term challenges serve as a reminder to industry players to navigate market fluctuations with caution. The continuous growth of the chip market will depend on balancing supply and demand effectively.
