Nokia has agreed to buy the digital mapping company Navteq for US$8.1 billion, supporting a plan to add navigation capabilities to more of its devices.
The acquisition, announced this week, also helps Nokia to grow the services side of its business at a time when profits from mobile phones are being squeezed.
Navteq provides the digital maps behind Mapquest and other online services, as well as for navigation systems from Garmin, Magellan Navigation and others. Its main rival is Tele Atlas, which currently provides mapping services for Nokia.
The deal between Navteq and Nokia comes about two months after TomTom, a big European maker of GPS (Global Positioning System) products, announced plans to buy Tele Atlas. TomTom has said it will make a formal acquisition offer this week.
TomTom is expected to keep offering Tele Atlas as a stand-alone service, but the acquisition creates uncertainty for Tele Atlas customers such as Nokia, said Chris Jones, a principal analyst at Canalys. Buying Navteq will assure Nokia that it has continued access to the digital maps it needs, he said.
Navteq, based in Chicago, will be one of Nokia's largest corporate acquisitions. The Finnish company has agreed to pay US$78 in cash for each Navteq share, a 34 percent premium over its stock price one month ago. The aggregate purchase price is US$8.1 billion, or US$7.7 billion including the cash Navteq has on hand.
The deal must be approved by regulators and Navteq shareholders and is expected to close in the first quarter of 2008, Nokia said.
The mapping services are important to Nokia, which is making GPS capabilities a central part of its phone strategy. The company released its first device with integrated GPS, the N95, in Europe and Asia earlier this year, and is expected to offer GPS in less expensive phones in the future.
Nokia said it would continue to serve Navteq customers such as Mapquest, while also using the map services to offer more location-based services of its own. Such services make it easier for people to get traffic reports or find local restaurants and gas stations from their mobile phones.
Buying Navteq may be a defensive move to prevent another company from buying it first, Jones said. He named Microsoft, Yahoo and Google as potential suitors. All three have been increasing their map-based services.
Navteq also gives Nokia a profitable services arm at a time when average selling prices for its phones have been falling. The company is already building new services around games and music.
"Most of the profit in the navigation market has been taken by device vendors like TomTom and Garmin. But we still believe there's a huge amount of value in the map data," Jones said.
Navteq reported revenue of US$202.3 million for the second quarter, up 49 percent from a year earlier, and net income of US$40.9 million. By contrast, Tele Atlas reported revenue of US$103 million for the same period, an increase of 21 percent, and a net loss of US$1.7 million.
If the industry's two main digital mapping companies -- TomTom and Tele Atlas -- were both acquired, it wouldn't necessarily be bad for consumers, Jones said. Prices for the services may increase slightly, he said, but they will be offset by falling prices for GPS-enabled products.