Seeking Alpha
Research analyst, long/short equity, tech
Profile| Send Message|
( followers)  

Summary

  • The Finnish company acquired artificial intelligence firm Desti last month and announced its plans to buy predictive analytics company Medio Systems last week.
  • Nokia also launched a $100 million Connected Car Fund last month to identify and invest in companies which can help grow HERE's location and mapping ecosystem.
  • Although the division contributes only a fraction of its overall sales (~7%), the recent acquisitions suggest that Nokia is looking to add substantial value to its map offering.

Nokia (NYSE:NOK) is looking to bolster its mapping unit HERE with new investments and acquisitions in a bid to make it more personalized and intuitive and compete against rivals such as Google (NASDAQ:GOOG) (NASDAQ:GOOGL). The Finnish company acquired artificial intelligence firm Desti toward the end of last month and announced its plans to buy predictive analytics company Medio Systems last week. Nokia also launched a $100 million Connected Car Fund last month to identify and invest in companies which can help grow HERE's location and mapping ecosystem in the automotive space. [1] [2] [3]

HERE is Nokia's mapping and location intelligence business and it contributes less than 4% of the company's valuation, according to our estimates. Nokia has built the business primarily through acquisitions, starting with its buyout of Berlin-based gate5 in 2006, followed by the acquisition of Chicago-based navigable map company Navteq for $8.1 billion in 2008 and 3-D map technology expert Earthmine in 2012. [4] [5]

The division's sales declined 17% to EUR 914 million (~$1.2 billion) in 2013 over the prior year owing to lower HERE licensing revenues driven by a decline in Nokia smartphone sales. Although the division contributes only a fraction of its overall sales (~7%), the recent acquisitions suggest that Nokia is looking to add substantial value to its map offering by making it more intuitive, intelligent and contextual.

The company provides its map data to 80% of all car-navigation systems in the world and several major enterprises including Amazon (NASDAQ:AMZN), Yahoo (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT). [6] In fact, Microsoft is going to be one of Nokia's biggest customers in the short to medium term with its four-year licensing deal to use HERE on its mobile devices. We expect the recent acquisitions and investments to help the company lay a solid foundation for its long-term growth and attract customers going forward.

We have a price estimate of $7.30 for Nokia, implying a discount of about of less than 10% to its current market price.

Medio Systems Acquisition

Nokia announced it plans to buy Medio Systems for an undisclosed sum last week. Based in Seattle, the 10-year old start-up excels in predictive analytics which is likely to help Nokia in making its maps more personalized and intelligent. This is expected to provide HERE map users personalized map access based on habits and interests. For instance, this could help users find a restaurant for lunch or match a navigation route with weather conditions and driving styles. Nokia stated in its press release following the acquisition that this data analytics technology could be used to improve its offerings in its Networks and Technologies businesses as well.

Desti Acquisition

Desti is an artificial intelligence company financed by SRI International, the same company which made voice recognition software Siri, now part of Apple (NASDAQ:AAPL). Nokia acquired Desti toward the end of last month in a bid to make its HERE maps more interactive and personal. It was earlier available as an App for the iPad but has been removed from the iOS App Store following its acquisition by Nokia.

Desti uses artificial intelligence to analyze the context of the questions asked by users, in contrast to the currently followed approach of indexing keywords. This makes the search results more relevant to user preferences, habits and choices. We expect this acquisition to help Nokia effectively compete with its rivals going forward as technology becomes more and more personalized and interactive maps, through smartphones or portable navigation devices (PND), become more indispensable and integrated into users' everyday lives.

Disclosure: No positions.

Source: Nokia Looks To Bolster Its HERE Maps Business With Recent Buys