Car Safety IPO Mobileye Ties Future To Tesla, Others

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T echnology is moving fast. And it's not just about smartphones and smartwatches. With rearview cameras, automated braking, blind-spot detection and other sensor and control technology, cars are becoming smarter and safer to drive every year.

EnterMobileye ( MBLY ), a top developer of camera-based driver assistance systems.

The Israeli company says it offers automakers the only camera-based advanced driver assistance system (ADAS) technology available on the market to cover major safety and convenience functions.

That includes lane departure and forward collision warnings, adaptive cruise control and automatic emergency braking.

The firm was founded in 1999 on the work of Amnon Shashua, an expert in computer vision and machine learning. But it stayed in the development stage until 2007, when it released its first solutions.

Mobileye went public in August, 2014, amid growth acceleration.

Ziv Aviram, CEO and co-founder with Chairman Shashua, told IBD in a recent interview: "We are just at the beginning of penetrating the market. We sold only 5.2 million chips (through 2014) while the number of cars produced annually (worldwide) is 100 million."

Revenue Revs Up

Even so, revenue in 2014 jumped 77% to $143.6 million, driven by a 92% increase from original equipment manufacturers, to $121.8 million. The other 15% of revenue was from aftermarket sales.

Net income rose 41.5% to $46.8 million, or 21 cents a share vs. the equivalent of 16 cents in 2013.

Analysts expect 2015 earnings to grow 86% to 39 cents a share and another 79% next year, according to a Thomson Reuters poll.

"This is essentially a software company," said Ravi Shanker, an analyst with Morgan Stanley. "So that makes them more profitable than the average auto supplier. It's our top (auto) supplier stock pick."

Shanker expects Mobileye's revenue to grow 50% a year on average through 2020.

Mobileye's camera technology used in cars on the road today is based on monocular, or one camera, systems similar to human vision. Most uses have to do with safety.

Mobileye has more advanced solutions for autonomous or self-driving vehicles in development using a trifocal system -- three mono systems working together. That allows for deeper perspective on the road and surrounding environment, to spot such things as distant objects or cars suddenly cutting in.

Mobileye's technology "serves as the underpinnings for what will eventually be self-driving cars," said Tavis McCourt, an analyst with Raymond James.

Chips For Collision Avoidance

Mobileye's second-generation chipset, the EyeQ2, was launched in 2010 with Volvo.

More advanced is the EyeQ3. The newest Audi Q7, fromVolkswagen ( VLKAY ), is the first to use the EyeQ3 for camera-only full braking collision avoidance. Many more such launches will follow, management says.

Mobileye's software goes on chips made by partnerSTMicroelectronics ( STM ).

Mobileye sells mostly to Tier-1 auto suppliers, such asAutoliv ( ALV ),Delphi ( DLPH ),Gentex (GNTX),Magna (MGA) andTRW Automotive (TRW), among others. They in turn supply systems to their automaker customers.

Mobileye's next-generation chip, EyeQ4, intended for use in fully autonomous vehicles, is expected to be placed in production starting in early 2018 with an undisclosed European car manufacturer, as part of a scalable camera system.

Fully autonomous cars aren't expected to hit the market for several years. But semiautonomous cars for highway use are seen rolling out over the next few years, followed by urban and country-road driving capabilities.

There will be "all kinds of sensors providing cars with visual representation of what's going on" around them, McCourt said. "For image processing from a camera sensor, Mobileye is the market leader."

A U.S. carmaker will soon launch a semiautonomous, nearly hands-free-driving car for highway use, using Mobileye's camera technology, Aviram says.

The driver need only push a button and leave much of the highway driving to the car itself, he says. For speeds of up to around 40 miles per hour on the highway, it'll stay within a lane, keep the right distance from the vehicle in front and brake or adjust speed as it reads signs and traffic signals.

Aviram wouldn't disclose the name of the automaker behind the vehicle, but Shanker of Morgan Stanley said, "We believe it is going to beTesla Motors (TSLA)."

He expects Tesla's semiautonomous car to come out toward the end of the year, by way of the Model X.

Tesla And Autonomy

Mobileye says that Tesla is among eight carmakers that have bought into its most advanced technology. So are Audi, Volvo,Nissan (NSANY), BMW andGeneral Motors (GM).

"Tesla uses the majority of our advanced applications," Aviram said.

Consumers' and automakers' increasing focus on safety provides "near-term opportunities" for Mobileye, while semi- and fully autonomous cars are medium- to long-term opportunities, Shanker says.

Automakers are being spurred to offer more high-tech safety features by various safety ratings agencies, especially in Europe and Japan, analysts say.

Toyota (TM) plans to make camera vision features standard rather than optional and Nissan plans to do the same for models in Japan, which like Europe has taken the lead in setting new crash-safety standards for 5-star ratings.

Analysts expect ratings organizations in the U.S. and China to follow suit in the next year or two.

Though Toyota doesn't use Mobileye's technology for its planned standard-issue vision features, Shanker says that "virtually every other automaker will have to do the same thing or risk losing market share."

When they do, Mobileye will likely benefit. After all, of the world's top 25 automakers, 22 of them are using Mobileye's vision systems, Shanker says.

Beyond its Audi division, Volkswagen is not one of them. But it's expected to adapt a broad ADAS strategy, Shanker says. He noted that the Volkswagen brand will likely follow Audi in using mono-vision and may choose Mobileye for that technology, seeing that it's the dominant mono-vision provider.

Toyota, likeDaimler 's (DDAIF) Mercedes, uses an internally developed vision solution, McCourt says.

Vision Technology Rivals

While Mobileye is a pure-play in vision technology for vehicles, other more diversified auto suppliers compete, such as Continental Automotive and Bosch, based in Germany, and Japan's Denso, Shanker says. "They make mono-vision but primarily their products are in stereo-vision," he said.

Mobileye contends that stereo-based systems are more expensive than monocular systems, use more power and take up more space on the windshield, plus they have more trouble separating background objects.

Autonomous cars need a lot more than vision systems to get them to drive themselves. They also need a number of other hardware and software components, such as radar and multidomain controllers, Shanker says.

"You can't just have one technology -- you need to have redundant systems to support each other if something goes wrong with one," he said.

"Right now Mobileye has got the best solution on the market," McCourt said of its vision technology. "Five years from now, we'll see."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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