HERE Maps Might Be Hiding Nokia’s Future Path

When Nokia (NYSE:NOK) was still a mobile phone powerhouse, it bought a company called NAVTEQ. The transaction was made at around € 6 billion ($ 6,7 billion assuming the EUR/USD at 1.12), slightly less than the € 7.5 billion ($ 8.4 billion) that Nokia sold the once mighty mobile business to Microsoft (just to put some perspective on the whole matter).

(Photo credits: Titanas)

Although that could be considered as an obscene deal, it made sense when Nokia was still defending its leadership in the mobile industry. Location-based services were and still are expanding rapidly and are inseparable from the use of smartphones. However, paying € 6 billion ($ 6.7 billion) in 2007 for a company that currently is delivering sales around € 0.25 billion ($ 0.28 billion)with an operating margin between 9% to 12%, could be considered as pretty optimistic.

Now, we have the rumor about Facebook (NASDAQ:FB) Baidu (NASDAQ:BIDU) and Uber being interested in Nokia’s maps unit. I have seen a wide range of valuations attributed to this deal ranging from € 2 billion to € 7 billion. I think that the future of HERE might tell a lot about what is going to be Nokia’s future in the smartphone market.

If the company sells the maps unit for something around € 2 billion ($ 2.24 billion), in my opinion, this means that Nokia is not that serious about re-building a complete ecosystem around their rumored phones. The maps unit is a very good opportunity to build tailored smartphones with a higher degree of services differentiation. So if Nokia sells the unit at a € 4 billion ($ 4.48 billion) loss it must be because it is more worried about scavenging what’s left from the past than in leveraging its current assets for the future.

However, there is trade-off between securing the maps unit in order to fuel future services, and recouping the obscene amount of money used to buy it 8 years ago. In my opinion, if the offer allows the company to fully recover the invested money in the maps unit, I see a rationale for selling. In this case, the company could use the money to better prepare for a smartphone comeback, obviously without the differentiation provided by a state of the art maps unit. On the same note, it would be hard to justify that, after getting the opportunity to fully recover its money, Nokia chooses to keep an unit that has not evidenced stellar performance in 8 years. In conclusion, I see a € 2 billion deal as too low and a € 7 billion worth considering.

Bottom-line is: This rumor will play a very important role in identifying the Nokia’s management real intentions in relation to the future. In one hand, we have many people speculating about Nokia preparing a comeback. But on the other hand, Nokia’s management has been too blasé, always dismissing any kind of return. They have always stated that any hardware device will always be trough licensing to third parties (which is not the best way to keep a brands’ charisma and identity). Basically, now the execs will have to commit to something and this will give us a better insight to whether the company is going to become a low margin telecom equipment provider or will try to regain its status of a high tech corporation.


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