Nokia Software Assets Grow with $8.1 Billion Navteq Purchase
Nokia pushed harder into software, paying $8.1 billion cash to acquire mapping data giant Navteq. The deal follows several software-focused announcements the past year, as Nokia has tried to reach beyond the hardware focus of Motorola and other historical rivals and lay the basis for fighting future competition from Google, Apple and Microsoft, analysts told us. “This is about growth,” not cost reductions, Nokia Chief Financial Officer Rick Simonson said in a Monday conference call. “Now is a time we can get out ahead of people.”
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Navteq is one of the world’s two major map data suppliers. The other, Tele Atlas, agreed in July to be bought by automotive navigation company TomTom. In 2006, Navteq brought in $582 million revenue by sending map data to customers such as LG, Motorola, Google, Yahoo, MapQuest, Sirius, XM and General Motors. Navteq approached several companies about a sale, but CEO Judson Green declined to give specifics.
Under Nokia, Navteq will run two mapping businesses, one for Nokia location-based devices and Internet services, the other serving map data to outside customers, Nokia CEO Olli- Pekka Kallasvuo said. As a wholly owned Nokia subsidiary, Navteq will remain “operationally independent” of Nokia, the buyer said. Navteq doesn’t expect to lose as map data customers competitors to Nokia, said its CEO, Judson Green. On the contrary, Navteq customers should see this deal as beneficial, since it enables Navteq to expand faster into emerging markets, add services and improve map quality, Green said. Jupiter Research analyst Julie Ask agreed that the deal won’t necessarily mean a shakeup among Navteq customers, since it’s “not unprecedented” for businesses to buy from a vendor owned by a competitor.
Location-based services are a “cornerstone” of Nokia’s Internet services strategy, branded as “Ovi” in August. Mapping is an “undeveloped market” in which Nokia expects high growth, Kallasvuo said. Nokia this year put mapping features into its N95 handset using Navteq data and software developed by Gate5, acquired in August 2006. In a survey of customers, Nokia found that all had used the map feature at least once, averaging three uses per week.
Nokia likes to own infrastructure, and the deal gives Nokia “unfettered access to mapping data,” said Current Analysis’ Avi Greengart. Nokia cited “business model evolution” and “unlimited service innovation” as the reason to buy Navteq rather than simply working with it. Acquiring Navteq lets Nokia more efficiently develop “innovative” mapping features for its phones, said Anssi Vanjoki, Nokia multimedia vice president.
The Navteq deal figures in Nokia’s push into software, Greengart said. The deal follows the 2006 acquisition of Gate5, the July purchase of P2P file-sharing developer Twango, and August announcements about Ovi Internet services, a Nokia music store, the N-Gage games service, and addition of Windows Live services. $8.1 billion is “a lot of money” but the price “makes sense” given Nokia’s overall strategy, Greengart said.
Motorola and other “traditional” Nokia rivals still focus on hardware, Greengart said, and most lack the cash to make so large a software acquisition. Motorola might have the money, but it needs to focus on “rejuvenating” its device portfolio, he said. Nokia, however, “has things locked up in the hardware space,” and its understanding of consumer desires is “outstanding,” Greengart said.
It’s not its historical, device-focused competitors that Nokia fears most, Greengart said. Nokia could be expanding its software business to ward off fresh mobile entrants Google and Apple, Greengart said. Apple “shook things up” with the iPhone mainly because of that device’s software, Greengart said. Meanwhile, Google is rumored to be developing a software-heavy cellphone of its own.
Nokia and Navteq’s boards have approved the acquisition, expected to close first quarter 2008, but the companies still need approval by Navteq shareholders, the U.S. and the European Commission, and “some other foreign approvals,” Simonson said.
The deal shouldn’t affect Nokia share buy-back programs, Nokia said. But the device maker expects reduced 2008 and 2009 earnings.