Navteq Deal Great For Nokia; Let Garmin Breathe

Nokia (NOK) has really been an impressive performer of late, with the stock rising some 35% since mid-August and 90% year-to-date.

First, lets talk about this Navteq (NVT) deal. I believe Nokia got them on the cheap. I mean Navteq is the number one player in the online map space and I am surprised that neither Google (GOOG), nor Garmin made a counter bid. $8 billion for a dominating player of navigational technology is dirt cheap and disappointing to me as an investor considering I own Navteq and was expecting to make a lot more over the next few years. Regardless, for those who bought this stock on my recommendation back at the beginning of August, the stock is up 27% in two months.

This deal will definitely hurt Garmin (GRMN), a stock that I first recommended early this year, then again in March when Garmin hit its 50 day average. If at any point, you bought Garmin on my recommendation, you have a gain of up to 190%. While it is hard to say how much the Navteq deal will hurt Garmin, I believe it is a good time to sell the stock and let Garmin breathe after its fantastic run this year.

Now, lets see what this deal does for Nokia. Keep in mind, that this purchase cost Nokia much less than $8 billion, considering the weak dollar. In exchange, Nokia now makes money from Google, Garmin and cell phone and service providers who use this technology. More importantly, this adds to Nokia's neat list of acquisitions that will enable it to provide an advanced array of services on its wireless phones.

The wireless handset maker, while not as popular in the US, has a dominant market share in Asia and Europe. Second quarter operating margins came in at a healthy 21%. Many would be surprised to know that Nokia has over 50% of the global smartphone market, with its latest offering, the N95, looking like a Maybach in a world of Benz's, BMW's and Lexus. The N95 has a 5 mega-pixel camera, a far cry over the 2 mega-pixels offered in new phones just hitting the market, along with all the bells and whistles and a super-fast wireless network that makes internet browsing on this wireless beauty, a pleasure.

In their most recent quarter, Nokia grew revenues by 30% and earnings at a whopping 150%. $12 billion in cash and no long-term debt means that the company can buy back shares without having to borrow, and thats exactly what Nokia is doing. It plans to buy back $6 billion worth of shares over the next year. I believe Nokia needs to be bought here and any dips going forward.

Comments

[User 70878]

I think Nokia might survive with the purchase of NVT. They were going down the drain as far as I am concerned. Their phones are ass-ugly now. The technology is there but they don't know how to package it. The N-95 is a bout the size of a building brick. It's still a thinner package if I carry a phone, a gps device, and 12MP camera in my pocket than the N95.

[Gary Busey]

The NOK proposal was a no-shop offer. Garmin is in a tough spot considering an $8 billion charge probably wouldn't go down that well with investors either. They are more of a reactive bunch over there in Olathe, so it's no surprise to me that they got caught with their thumbs up their asses when TomTom made the move on Tele Atlas.

GRMN could prob pick up TA for $4 billion right now since there's no way the necessary 80% of TA's holders are now going to let the company go for the $2.5B on the table. They'd be wise to do so.

[Carpe Max]

NewsVisual created a really interesting and interactive map of the corporate ties between Nokia and NavTeq that might have played a role in facilitating this deal www.newsvisual.com/new... . Some really great info here.

[John M]

I could not agree more with Faisal's article. Nokia definitely got Navteq really cheap. For those in the know, there's loads more good news to come with Navteq's position and the navigation market in general.

[cseilern]

5 long paragraphs about the author, Nokia and Garmin and hardly a mention of the merits (or lack thereof) of the Navteq/Nokia deal!

Aside of being obviously proud of himself, I suspect, by looking at the lack of analysis here, that the author has been lucky with his stock picks.

Seeking Alpha could do better than afford Mr Laljee an audience.

[Bead Trader]

I can not agree. NVT at 50 time earnings is expensive. They are not a startup waiting for earnings, but a company that has solid earnings record. With growth slower than GRMN who is trading at 33 time earnings, and a stronger growth curve, it is simply too expensive a purchase. NOK is still going to sell GRMN the data, GRMN will still continue their growth rate and this will be a non event next quarter! My $$$ is on GRMN for this one.