Shares of Mobileye Global Inc., a leading manufacturer of self-driving technology, sank by 25% on Thursday following the company's announcement of a revenue warning. The warning came as Mobileye's customers grapple with excess inventory, leading to a projected 50% decline in first-quarter revenue compared to the previous year.

In a press release, Mobileye disclosed that it had become aware of excess inventory at its customers, estimating the accumulation to be around 6 million to 7 million units of its EyeQ product. The company expressed optimism that the excess inventory would be absorbed in the first quarter, as supply chain concerns ease.

Analysts, however, had anticipated revenue to increase to $557 million for the period, as tracked by FactSet. Mobileye's lower-than-expected revenue projection of $458 million for the first quarter rattled investors, causing the substantial decline in its stock price.

Mobileye, which was spun off by Intel Corp. through an initial public offering in 2022, still retains approximately 88% of the outstanding equity interest in the company as of September 2023.

According to Piper Sandler analyst Alexander Potter, the excess inventory situation arose from tier-1 automotive suppliers hoarding components related to advanced driver assistance systems (ADAS) during the pandemic. With the easing of supply chain constraints, these suppliers are now adjusting their orders, leading to the volume shortfall.

Mobileye also warned of potential impacts on profits, projecting an operating loss of $242 million to $257 million for the first quarter. The company expects profit levels to significantly improve in subsequent quarters but still fall below previous expectations.

Looking ahead, Mobileye anticipates that the issue of excess customer inventories may continue to have some impact on revenues throughout 2024, albeit to a lesser extent. For the combined second to fourth quarters of 2024, the company expects revenue to be roughly flat to up in the mid single-digits compared to the same period in 2023. By the end of 2024, Mobileye aims to have normalized inventory levels at its customers.

The full-year outlook for Mobileye forecasts revenue between $1.83 billion and $1.96 billion, lower than the analysts' estimate of $2.56 billion. The company's revenue warning and the subsequent drop in stock price highlight the challenges faced by Mobileye as it navigates the evolving landscape of self-driving technology and supply chain dynamics.

Investors will be closely monitoring Mobileye's efforts to address the excess inventory situation and rebound from the projected revenue decline in the coming quarters.

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