Analysts at Societe Generale have noted that investors are ignoring the HERE subsidiary of Nokia Corporation (ADR)(NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) as the limelight has been drawn towards the handset division and the turnaround at NSN. Analysts Andy Perkins, Peter Knox and Surendran Panicker feel that HERE has encouraging future prospects. The main business of HERE is selling mapping data to car manufacturers for “in dash” navigation devices, which are on the rise.
HERE draws its revenue from four major sources: vehicle navigation, mobile devices, internet-based mapping applications and other enterprise solutions. However, the largest revenue earner for the subsidiary is vehicle navigation.
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NAVTEQ (the creator of the mapping database that was acquired by Nokia in 2008 and that was renamed HERE in 2012) before being acquired by Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) revealed in a 10-k filing that 66 percent and 52 percent of the total revenues in 2006 and 2007 was raked in through vehicle navigation. Customers of the company basically included primary automobile manufacturers and systems suppliers.
At that time, Nokia was expecting a chunk of revenue to be contributed from the mobile device, but that did not happen; instead, volumes of personal navigation devices have been declining. This implies that vehicle navigation systems are the major source of revenue for the company. Automobile companies like BMW, Hyundai, Mercedes Benz and Toyota are the customers of the company.
Revenue of HERE is positively correlated with vehicle production over the past few months. Analysts believe that navigation businesses are taking bigger leaps, but are slowed down due to the grim performance of the mobile devices business, which has been on the decline since 2008 as PND sales have declined. Further, LMC automotive forecasts that vehicle production growth will be on average 6 percent in 2014 and 2017.
Rivals to Nokia HERE
HERE started its mapping database in 1985 and has shelled out a significant amount of money on maintenance and updates. The company invested €0.5 billion in research and development in 2012. At present, there are three dominant large-scale mapping databases available: the HERE database, currently owned by Nokia Corporation (ADR)(NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), the Tele Atlas database, currently owned by TomTom, and the Google Maps database, currently owned by Google.
Waze is the new entrant in the database market, which is trying to create the fourth-largest database in the market. Waze is working on refining maps from GPS data sent back by its users. However, Google has shown some interest in the company by offering $1 billion to buy it, which could result with Waze folding into Google, believe analysts.
Analysts at Societe Generale have assigned a Buy rating to Nokia Corporation (ADR)(NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V).