Nokia Buys Navteq In Bid To Broaden Web Data Offerings

Mobile phone giant Nokia will acquire Navteq, the world's top seller of mapping software, for $8.1billion, $78 a share, in a broad expansion into data services.

More than half of Navteq's sales come from makers of in-car navigation systems and personal navigation devices such as those made by Garmin.

But Nokia said the real growth opportunity -- and a key reason for its acquisition -- lies in so-called location-based services, which use a person's position to fetch more useful information and advertising.

Nokia phones with Navteq's software could let users find nearby restaurants, hotels and stores with a few clicks on the handset.

"While there is a lot of growth ahead in Navteq's core market, we think that's just the tip of the iceberg," said Nokia CEO Olli-Pekka Kallasvuo in a conference call. "The combination of Nokia and Navteq create a strong global leader in this fast-growing market."

According to research firm In-Stat, the number of mobile phones with mapping and navigation services could exceed 42 million units worldwide by 2012.

The navigation software market is dominated by Navteq and TomTom, which acquired Navteq rival TeleAtlas for $2.5 billion in July. TomTom also is the No. 2 maker of navigation devices, just behind Garmin.

With Navteq as the only other mapping software player in the market, its acquisition was considered inevitable.

That helps explain why Navteq shares rose more than 60% after TomTom bought TeleAtlas. Navteq fell 2% Monday to close at 76.45, suggesting investors were not expecting a higher bid.

Nokia shares ended the day up 3 cents, to 37.96.

With Nokia now a possible competitor, Garmin shares fell 10%.

"The portable navigation device market is strong right now," said Jack Gold, analyst at J. Gold Associates. "But long term, the market will shift from a standalone device market to a more multipurpose device market."

It is similar to what happened to the handheld computer market pioneered by Palm, he said. Stand-alone handhelds are virtually gone, subsumed by smart phones that combine wireless and handheld organizer features.

Navteq, with a market value of $7.5 billion, had sales last year of $581.6 million, up 17% from the year before.

Nokia uses Navteq's digital mapping services, as do Google (NasdaqGS:GOOG - News), Yahoo (NasdaqGS:YHOO - News), Microsoft's (NasdaqGS:MSFT - News) MSN and MapQuest. The technology also is widely used in in-car navigation systems and by Garmin.

Nokia has shifted focus to navigation in recent months. It also launched a restructuring in August that pushed Nokia's wireless data services up the ladder.

So it could not have allowed Navteq to fall into another company's hands, said Mark McKechie, an analyst at American Technology Research.

"The purchase price may seem rich relative to Nokia's trading multiples, but it's a small strategic price for Nokia to pay to drive its GPS business going forward," McKechie said.

H.P. Jin, chief executive of Tele-Nav, which provides GPS navigation services to many large cellular carriers, called Nokia's buy a defensive move.

"It was only matter of time before someone was going to take over Navteq," he said. "And if it was acquired by a competitor, they couldn't control the price or availability."

Analysts say it is too early to know what the deal means for Google, Yahoo, MSN and other customers.

Nokia said Navteq's current core business will operate as an independent subsidiary. But Nokia will also tightly integrate Navteq's mapping services into its emerging Web-based services.

"It's a great acquisition for Nokia," said Shiv Bakhshi, research analyst at IDC. "Some people say Nokia paid too much for it, but as a strategic acquisition it's a very good action."

In August, Nokia announced it would launch Web-based services to dish up music, games, maps and other services. Analysts said Nokia was reinventing itself as not merely a hardware maker but also as a provider of Web services.