Nokia Buys Software Maker for $8.1 Billion

By KEVIN J. O’BRIEN
Published: October 1, 2007
BERLIN, Oct. 1 — Nokia, the world’s biggest cellphone maker, said today that it had agreed to pay $8.1 billion for Navteq, the maker of digital mapping and navigational software based in Chicago, as it seeks to migrate satellite-based location services onto its range of phones.


Charles Rex Arbogast/Associated Press
Navteq geographic analyst Rich Joyce used an electronic clipboard to pinpoint sites in Chicago in July. Nokia is buying the navigation-software maker for $8.1 billion.
The purchase, which must be approved by American regulators as well as Navteq shareholders, will bolster Nokia, analysts said, in efforts to compete with companies like Apple, whose iPhone comes with navigational software from Google.

Nokia shares fell as much as 4 percent in New York trading after the announcement as some investors questioned whether the Finnish company had paid too much for a company that had $582 million in sales in 2006. Its stock price rebounded, however, amid a broad rally in the market.

“This is Nokia’s largest acquisition ever,” said Mats Nystrom, an analyst at SEB Enskilda Bank in Stockholm. “This is a very high valuation for the U.S. company, so yes, this is a high price to pay. But navigation is a hot area and fits well with Nokia’s strategy.”

Nokia said it was paying $78 a share for Navteq, which was down $1.42, to $76.56 at midday. Nokia said it would finance the acquisition through cash and debt, and expected the sale to close in the first quarter. The company said the acquisition would not affect its share buyback and dividend plans, but expected the purchase to dilute earnings in 2008 and 2009.

Nokia’s president and chief executive, Olli-Pekka Kallasvuo, said that location-based services were a cornerstone of Nokia’s Internet services strategy, which is part of an overall plan to expand beyond the production of cellphones into user services like photos, video, music and games.

“The acquisition of Navteq is another step toward Nokia becoming a leading player in this space,” Mr. Kallasvuo said in a statement. In October 2006, Nokia bought gate5, a small company based in Berlin that makes navigational software applications for cellphones, for an undisclosed price. “By joining forces with Navteq, we will be able to bring context and geographical information to a number of our Internet services,” Mr. Kallasvuo said.

The president and chief executive of Navteq, Judson Green, said the sale to Nokia, which has 900 million customers, would help spread the use of navigational software to mobile devices. Nokia sells its Nokia Maps navigational software on three models, including its N95 high-end smart phone, but plans more next year.

“Nokia’s unique vision for location-based services aligns perfectly with Navteq’s vision to enable everyone to find their way to people, places and opportunities on mobile communications devices,” Mr. Green said in a statement. While automobile navigation systems are popular in Europe, the use of mapping systems on cellphones has failed to catch on with consumers. Chris Jones, a principal analyst at research firm Canalys in Reading, England, said there were less than 100,000 consumers in Europe using navigational software on handsets.

But that would probably increase, Mr. Jones said, as more manufacturers build global positioning satellite receivers into handsets and ultimately, generate sales from services selling detailed mapping information.

“We are starting to see this taking off,” Mr. Jones said. “We see a huge opportunity for handset vendors and believe that having maps in your pocket and something that can find things or locate you will be a plus.”

Gavin Byrne, an analyst in London at research firm Informa Telecoms and Media, said Nokia’s purchase of Navteq would enable the phone maker to halt the slide in sales price and volume forecast for the industry.

Informa estimates that global handset sales, which had risen by an average of 20 percent each year in 2005 and 2006, will slow to an average 5.6 percent annual growth from 2007 through 2012. In addition, the average sales price of most handsets is declining by an average of 10 percent each year, Mr. Byrne said.

“Against this backdrop, the addition of navigational software to high- and mid-end phone models should help Nokia halt the decline in average sales price,” Mr. Byrne said. He noted that GPS receivers tend to draw down mobile phone batteries quickly and viewing screens are still small.

But in the next two to three years, Mr. Byrne said he expected Nokia and other makers to develop models that will take advantage of GPS tracking features.