Not a week passes without us hearing about another success story regarding Nokia (NOK). All three components of the company (i.e., mobile devices, Siemens-Nokia Networks and mapping and locations) are fighting the battle of their lives for survival. On Thursday, Nokia investors received yet another encouraging note regarding Nokia's mapping business. It turns out that Nokia was able to beat Google (GOOG) to become Toyota's (TM) mapping supplier in Europe. Last year, Nokia beat Google for Ford's (F) mapping contract and this is becoming more of a trend now.
Nokia's mapping technology will be used for Toyota's navigation and infotainment systems and the deal will be limited to the continent of Europe and parts of Middle East and Russia for now. The owners of these Toyota cars will be able to search for the nearest restaurant, grocery store or a specific address by using Nokia's newest mapping technology also known as Here. The system will not only find the location of the entity they are looking for, but it will also show additional information regarding the entity such as user reviews. Recently, Nokia made Here available for iOS when Apple's own mapping system received a lot of criticism and it took Google a while to release its own mapping application for the operating system.
Nokia's mapping system can be checked out in this link and this one. Mapping became one of Nokia's strongest elements after the company acquired Navteq several years ago for $8 billion. In the last couple years, Nokia released a lot of products including but not limited to Nokia Maps, Nokia Drive (i.e., a GPS service that works even when a phone is not connected to the internet), Nokia City Lens (i.e., an application that helps with finding local stores, restaurants, hotels or other attractions), Nokia Transport (i.e., an application that helps the users to utilize the public transportation in order to get from one address to another).
In the last quarter, Nokia's mapping business generated $361 million in revenues and $40 million in operating profits. For the full year, the revenue figure was $1.43 billion and operating income figure was $154 million. The operating margin was 13.9%. This compares nicely with 2011's figures where the revenue was $1.41 billion, operating income was $48 million and operating margin was 4.4%.
Nokia doesn't disclose how exactly it makes money from the mapping business except for giving some hints. When we look at Nokia's quarterly earnings reports, we see that the company collects license money from car companies for each car they sell where the buyer chooses to include a navigation system with the car. Obviously, Nokia's success in this field depends highly on car sales. This is particularly the case with higher-end cars because owners of these cars are more likely to spend extra money on a navigation system. Since a lot of smart phones come with a GPS system, the owners of cheaper cars might not feel like spending extra money to install a GPS system in their cars.
Outside of the car industry, we don't really know how Nokia's mapping system makes money. Nokia's mapping software comes with every Windows Phone even if the phone is not a Nokia brand. Also, Nokia provides Garmin (GRMN) with a lot of content for the company's GPS system. Again, we don't know if Garmin pays Nokia a fixed-fee or per-license fee. In addition, Nokia's partnership with Groupon (GRPN) led to a new smart phone application that shows Groupon deals in a Nokia generated map. The users can check the deals in the map and see which deal is closer to their current location. We also don't know the financial nature of this partnership and the companies did not disclose how Nokia would get compensated in this partnership. Furthermore, Nokia might also generate advertisement revenue from its maps in the same way Google does. However, the company doesn't disclose such information at the moment.
Currently, Nokia is also working on an indoors mapping technology which will help users find their seats in a stadium, a doctor's office in a hospital or a specific store in a mall. This type of technology will have to be very specific, detailed and accurate in order to be useful.
What is the take home message for Nokia investors? Well, Nokia's investors can be confident that the company is doing its best to survive and turn things around. Even though Nokia became smaller in size because of many cost cutting measures, the company continues to deliver results through hard work and innovation.
I am long Nokia because I believe in the company's management, quality of its products and its commitment to innovation.