Thursday, October 11, 2007

Hit #181 (Navteq)

Digital map provider Navteq (NVT) is being acquired by Nokia for $8.1 billion. The cash offer, of $78/share, represents a gain of 195.2% over my average cost of $26.42/share. Having been a Navteq customer since early 2000, I had added it to my watchlist when it was spun off from Philips. Though I missed buying early, bad news made the stock available at a significant discount once again in mid-2006.

Nokia has overpaid looking at the short term, but if integrated well this would look like a cheap buy in retrospect. Nokia may also have been forced to pay a higher price due to possible bids by others. Google might well have been interested given that Navteq provides data for its maps. Microsoft seems to be missing the boat again. Some of Microsoft's map presentation/usability features are actually better than Google's, but unfortunately not enough (yet) to veer users away from Google.

This acquisition comes just days after another digital map data provider, Tele Atlas, got an offer from TomTom. That deal itself could be in trouble with rumors of bids from other buyers who now face competition due to Nokia's deal.

The biggest potential loser is Garmin (GRMN). Garmin's standalone GPS devices now face competition from Nokia's phones, like the N95. Navteq provided data for Garmin, and while Nokia is unlikely to restrict Navteq's service clients, Garmin will be looking to do its own deal. Outbidding TomTom for Tele Atlas is one scenario.

For long-term investors Nokia is still a great bet. Think of where Apple was around 2001-2002. That is where Nokia is today. The potential for all connectivity/location applications to move into cell-phones is still not being appreciated. Even Apple seems to have missed the most important part of the puzzle from its iPhone - a GPS receiver (see my earlier post). Whereas Nokia's N95 with built-in GPS receiver, mobile broadband, and a high quality camera, increasingly looks like the dream phone. Nokia is unlikely to make any large acquisitions soon, but I do think that RealNetworks (RNWK) would be a great buy towards puting all the required pieces together. Nokia did make a smaller move in that direction earlier when it acquired Loudeye.

Nokia has also been selling standalone Bluetooth-enabled GPS receivers, like the LD-3W. When combined with a net-connected device (laptop, cellphone), this makes standalone GPS devices like the ones from Garmin obsolete.

While the digital map archives from Navteq provides Nokia with a jumpstart, community efforts like Wikimapia and Google Earth will be the way people annotate maps, and then download to their navigation devices in the future. There may still be some room for the likes of Cobra Electronics (COBR) that have additional useful data like the location of all traffic lights and cameras in the U.S.

For those interested in the brains behind it all, look no further than SiRF (SIRF). Its GPS chipsets power most of the receivers out there including Nokia's and Garmin's. I have been holding SiRF for a long time now, and added more recently on weakness. It is still worth buying as we have not yet seen anything when it comes to GPS enabled devices. We will soon see most cameras come with GPS receivers so that coordinates get added to EXIF data - Ricoh has one such camera on the market (also powered by SiRF). That would make geotagging on Flickr a real breeze!

There have been a few other acquisitions in the GPS area recently. Lowrance Electronics (used to trade under LEIX on Nasdaq) was acquired by Norway's Simrad Yachting, a leader in marine electronics. Novatel (NGPS), maker of high-end GPS chipsets/antennas (mostly for the aviation market) was bought out Sweden's Hexagon. Hexagon had earlier acquired Leica Geosystems after a bidding battle against Danaher (DHR).

One area of location services that hasn't received much attention yet is tracking (i.e GPS transmitters), whether of vehicles or other devices. Companies like LoJack (LOJN) and Ituran (ITRN) provide vehicle tracking services, though still mostly used for commercial fleets. The cost of using these for personal vehicles, even taking into consideration the discounts provided by vehicle insurers, is still too high. But at some point, just like with GPS receivers, the price will drop enough to make it a mass market service. LoJack has expanded into providing laptop tracking, and newer entrants like SlimTrak even allow tracking your checked-in luggage - now that is something worth paying for, though there are cheaper, non-GPS, non-universal solutions like Global Bag Tag! Niche mobile phone services like Wherifone allow one to keep tabs on people who need attention.

Others to keep an eye on include Trimble (TRMB) (see Hit #136 (@Road)) and Pitney Bowes (PBI), whose location intelligence service (see Hit #155 (MapInfo)) is still a small part of the overall business. Higher end satellite-based service providers like KVH Industries (KVHI)) and GlobalStar (GSAT) could become attractive partners for willing buyers. See earlier post for more picks related to increasing bandwidth demand/availability.

Returning to Nokia and the dream phone, we may be looking at some very interesting features to debut soon on cellphones. There is inkless printing from Zink (do watch the demo on the site - they have working devices already) and there is personal miniature projectors, from Microvision (MVIS). The projectors have a direct application to in-vehicle navigation as well. See the demos at Microvision. I would recommend Microvision as a speculative growth play. Along with the virtual keyboard, personal wearable displays (the one from iCuiti isn't yet impressive, but we will get there!) can take the pain out of using cellphones as full-fledged computers. Built-in fingerprint authentication devices (most newer laptop models allow you to have one) will solve some of the privacy issues. Authentec (AUTH), which went public recently, seems to be the dominant provider of these fingerprint readers.

With all this on your cellphone, you may start to worry about the charge running out in minutes. Well, even that is solved with this Solio device! If only those solar cells could be built onto the back of the phone!

One thing still missing is a universal satellite radio receiver that can switch from XML to Sirius to Worldspace (WRSP) (in Asia). Fix that, and we will be one step closer to full/true mobility.

Previous hit - United Rentals (#180)


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