Global Insight Perspective | |
Significance | Nokia has made a major acquisition in acquiring the leading mapping data company that powers many map and navigation services. |
Implications | Nokia has previously shown its desire to expand beyond handsets and enhance the presence it has in the services market, and this is a major step in that direction. |
Outlook | This move will give Nokia an edge in developing navigation and location-based services, but it could be difficult for the soon to be subsidiary to balance its clients and owners’ interests. |
Nokia recently showed its intention to seriously impact the mobile services market with the re-launch of its range of services under the Ovi brand (see World: 30 August 2007: Nokia Boosts Platforms for Music and Games). This included a map download service with over 100 countries, with functionality including address search, 3D route finder and voice-guided navigation. The information released at the time also indicated that location would be integrated into other facets of the phone—for example, sharing GPS co-ordinates or recording them on images and videos, or improving local search facilities. NAVTEQ is a supplier of the digital mapping data that runs these facilities—it is in fact one of only two major mapping data suppliers for the navigation device and applications industry. NAVTEQ also operates Traffic.com, a consumer traffic information website and service.
Device vendor Tom Tom recently made a 2 billion euro (US$2.85 billion) offer for NAVTEQ’s rival mapping data company, TeleAtlas (1.8 billion euro including net financial cash position). TeleAtlas generated revenues of 264 million euro (US$375.6 million) in 2006 and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA)of 43 million euro, with a targeted EBITDA of 65 million euro in 2007. This compares to the US$8.1 billion offered for NAVTEQ (US$7.7 billion net cash position), which generated revenues of US$582 million in 2006 and an operating income of US$153.7 million.
NAVTEQ has apparent added value beyond the straightforward financial position. Nokia will use both companies’ data in its products—for example, TeleAtlas provides data for the Smart2Go platform used on Series 60 and Windows Mobile devices in the latest deal, announced in February 2007. Nokia is therefore well-placed to have thoroughly evaluated both companies' products, although the acquisition of TeleAtlas by Tom Tom, which begins its acceptance period tomorrow (3 October 2007), may also have pushed up the valuation of the remaining mapping data company, which will have attracted attention from a number of interested parties. Market interest in navigation, mobile search and location-based services has built up momentum over the last year, particularly with the attraction of advertising revenues adding to ongoing service revenues (see World: 9 January 2007: Yahoo! Searches for Mobile Winners; 28 September 2007: Third Screen: The Mobile Phone as The Emerging Advertising Channel; and United States: 19 September 2007:Sprint and Microsoft Launch Location-Aided Mobile Search).
Outlook and Implications
Nokia will benefit from rapidly growing revenues in this sector as more vehicles are built or upgraded with GPS systems, although the premium it has paid appears to account for this expected future expansion. With products such as the internet tablet and Sprint demanding a wider range of innovative devices for the forthcoming WiMAX network, this acquisition could spur Nokia on to establish a wider range of standalone navigation products, as well as more tightly integrating navigation into the whole device range.
President and chief executive of Nokia, Olli-Pekka Kallasvuo, noted the importance of the acquisition, stating that "location-based services are one of the cornerstones of Nokia's internet services strategy. The acquisition of NAVTEQ is another step toward Nokia becoming a leading player in this space … by joining forces with NAVTEQ, we will be able to bring context and geographical information to a number of our internet services with accelerated time to market. We also look forward to maintaining and enhancing the services and support provided to NAVTEQ's existing and future customers".
NAVTEQ supplies mapping data to a wide range of customers, including those in the desktop application market, such as Google, MSN and Yahoo! While competition is limited—and Tom Tom is a major competitor to many of the same clients—it will be difficult to maintain a client base that is largely competing in the same market. The statement from Olli-Pekka Kallasvuo outlines the dichotomy: Nokia aims to have an advantage in leading the market through closer operational ties to NAVTEQ, while also keeping competing clients satisfied. Nokia is set to maintain NAVTEQ as an operationally independent company within the Nokia Group organisation to maintain this balancing act, but it is betting a large stake on the ability to maintain a lead in a market where the new clients are also the competitors.