Don’t Get Too Excited About Nokia Corporation's Recent Map Space Acquisition

HERE has been a dissapointment for Nokia for a long time, and the recent acqusition of mapping startup app-maker Desti, will probably not change things

Jun 3, 2014 at 12:45PM

As announced by HERE maps, Nokia (NYSE:NOK) acquired mapping start-up app-maker Desti, which incorporates artificial intelligence in maps to help people find what they are looking for.

As described on the HERE web site:

Desti uses artificial intelligence and natural language processing to create deep knowledge of destinations by reading everything about them. For instance, Desti mines the descriptions and reviews of places to understand the difference between a business or a romantic hotel. The search results are therefore more relevant because they naturally take into account people's preferences.

The question is, will this acquisition help Nokia grow its map business and will HERE ever become big enough to make a difference to Nokia's operating results?

ΗΕRΕ's results have been disappointing
First of all lets look at HERE's recent operational results. According to Nokia's first quarter results,  HERE registered 209 million euros -- about $280 million -- in revenue. The figure was 3% lower on a year-over-year basis and 18% lower on a sequential quarterly basis. So from the look of things, things are not going that great for HERE.

The main reason for HERE's dissapointing results is lower demand for PNDs, or Personal Navigation Devices. PND devices are the GPS devices that became popular several years ago, when everyone had one on his dashboard. But ever since smartphones came along -- and became more powerful and more sophisticated -- now consumers can download GPS map software on their smartphones and they don't need to buy a PND device. So even if Nokia has 80% of the automotive map market, Nokia is fighting a losing battle in the age of ever more sophisticated smartphones.

Nokia is outgunned and outnumbered
Nokia is outgunned and outnumbered by Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL). When it comes to map smartphone installations, Google has about 1 billion maps installed on Android devices vs about 100 million HERE apps installed on assorted Nokia and Windows 8 devices. And while Windows 8 devices are on the rise, the chances of Windows 8 ever reaching the penetration that the Android ecosystem has are slim.

Apple is also pushing to get in the map business, as well as the automotive car business. While there is no verdict yet, Apple's CarPlay made some very good headlines recently and there is a chance that Apple will participate in this space. The popularity of the iPhone, especially in the U.S. and Europe, is very enticing for car makers to have CarPlay installed in their vehicles.

And in the event that CarPlay becomes a household name in automotive electronics, then Nokia will really take a hit, because CarPlay will be using Apple Maps

Granted that Apple's map offering might still not be as robust as HERE -- but it is catching on fast --  Apple has both the economic firepower with cash in the bank and an armada of the best engineers money can buy to come out a winner in the map wars. At the end of the day, time and resources are on Apple's side.

HERE is a very small part of Nokia
HERE produced only 7.5% of Nokia's group revenue last quarter. Even if HERE maps was to grow by 50% over the next 12 months or so, -- and we have no indication that it will -- it will not make much of a difference for Nokia's results. Nokia's group revenue came in at 2.66 billion euros last quarter with HERE contributing about 206 million euros. 

The bottom line
The bottom line is that I wouldn't get too excited about Nokia's acquisition of Desti. HERE might be a very good product and it will probably become even better with the addition of Desti, but that might not mean much for investors.

The competition in the space is fierce, and with powerhouses like Google and Apple controlling the lions share of smartphone users, -- especially in the U.S. -- there is very little Nokia can to do entice people to use HERE, let alone find ways to increase its revenue from maps. 

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George Kesarios has no position in any stocks mentioned. The Motley Fool recommends Apple and Google (C shares). The Motley Fool owns shares of Apple and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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