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

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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Read/Post Comments (7) | Recommend This Article (0)

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  • Report this Comment On June 03, 2014, at 1:27 PM, user1244 wrote:

    Just for the author's information, Apple and Nokia really aren't direct competitors any more, not with the Nokia Devices and Services having been sold to Microsoft.

    HERE primarily provides back-end services, usually to other businesses. Apple generally focuses on the front-end experience and is consumer focused.

    Apple Maps is more of a TomTom product than an Apple one despite the name. Apple doesn't own or maintain a base map like Google or HERE. All those gaffs that occurred when Apple Maps was first released were mostly TomTom's issues. Nokia is completely out of the smartphone business and almost entirely out of the consumer business (for now at least).

    If Apple expands CarPlay's functionality they will need to rely on vendors to provide many of the back-end services, that seems more like an opportunity for HERE to work with Apple instead of competing. Or Apple could continue to work with the inferior TomTom product. In fact, if Apple is serious about competing in the automotive space they would be better off switching to HERE as a data vendor or buying TomTom outright.

    HERE and Google Maps are clear competitors in most aspects, so at least you got that right. Would have been better to focus on that instead of Apple. But you don't seem know what you are talking about so it makes sense why this article reads the way it does.

  • Report this Comment On June 03, 2014, at 3:00 PM, will1946 wrote:

    You, sir, are wrong.

  • Report this Comment On June 03, 2014, at 7:28 PM, Bull683 wrote:

    You really shouldn't present such an ill-conceived article, when three minutes of simple online research presents an entirely different aspect of Nokia HERE.

    There is nothing to believe in this article's Apple-Google drivel other than the apparent zero-effort to present concrete facts. I own Nokia stock and HERE is for real.

  • Report this Comment On June 04, 2014, at 1:00 AM, FishingPhil wrote:

    The acquisition of Desti is very significant as it aligns well with Seri and then of course, Apple's Carplay vision. A vision that is starting to gain traction with auto manufacturers. So if you're using your noodle, take a step back from the last year, this year revenue generators and look were this could be going.

    The playground is changing fast. Personal navigation devices are on the decline and built-in navigation in your car soon will be declining because smart phones are on the rise for mapping services. Apple isn't about to dump a billion dollars into someone else's mapping services and you don't just throw a bunch of money at something like that and end up four months later with excellent maps. That takes years in the making.

    Here's what I think is happening. Nokai and Apple are in discussions and they went something like, "We like what you have, but it's not quite aligned where we see the market going." So Nokia went out, purchased Desti, and is going to align with Apples vision of navigation. That is, to replace on-board navigation packages with Carplay.

    Nokia made phones for Windows and Microsoft bought it. They will make great maps that integrate perfectly with Apple's vision, and Apple will buy HERE.

    HERE is a side-show for Nokia, it's not relevant to their business anymore and they are looking to unload it. But first they need to meet Apples integration requirements. And Apple needs it to move Carplay forward on a serious note with auto manufacturers.

    When customers are including in their decision making process who's car interfaces the coolest way with their phone (and do not make the mistake thinking that people buying cars are not that shallow), Carplay will become a must have. Because when you and your wife own cars from different manufacturers and you switch cars and suddenly have lost all your mapping points, music, contacts, etc., you're going to wish you had something like Carplay.

  • Report this Comment On June 04, 2014, at 10:08 AM, lee654 wrote:

    LOL ! Check your facts.

  • Report this Comment On June 05, 2014, at 1:44 AM, doubledownman wrote:

    Do your homework before writing useless article!

  • Report this Comment On October 15, 2014, at 9:36 AM, jessievera wrote:

    I love it when I hear about new romantic hotels that are in the area. I'm hoping to take a vacation soon with my husband and we want to find all the coolest places to go. Of course we will need a map if we're going to be visiting a whole new city.

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George Kesarios

I focus mostly on technology stocks, but I also venture out to other sectors. Mostly focusing on valuations instead of what makes companies tick. My greatest challenge, finding stocks that can double in 12 months or less.

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