Nokia confirmed on Monday that it has agreed to sell its digital mapping and location service unit HERE to an automotive consortium consisting of Audi, BMW and Daimler for an enterprise value of 2.8 billion euros.
The sale is expected to close in the first quarter of next year.
The technology and software used by the automotive industry are undergoing significant changes. The importance of navigation systems is set to increase as a number of automotive manufacturers are developing self-driving vehicles. At present, digital maps are used in a wide variety of mobile applications and the on-board computers of vehicles.
“The growth potential of HERE arises from the growing popularity of on-board navigation systems. The standard today is to have a radio, but that is about to change for good. Navigation systems will be the new standard,” predicts Mikael Rautanen, an equity analyst at Inderes.
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He believes Nokia may yet come to regret the sale. “If you look at where the technology and software used by the car industry are heading, you may start to regret the sale price ten years from now,” he says.
Hannu Rauhala, a senior analyst at Pohjola Bank, is confident that the timing of the sale was considered carefully. “Car manufacturers are currently considering how to participate in the development of service concepts for smart cars. Nokia is aware of that. They're preparing for the future,” he analyses.
The sale price is equivalent to the estimates cited in the media in recent weeks but below the expectations of Nokia. Bloomberg, for example, reported in July that Nokia expects to receive roughly four billion euros for its digital mapping and location business.
A key factor contributing to the sale price is that HERE has generated most of its revenue through licensing agreements.
“Car manufacturers are able to estimate relatively accurately how many cars will be sold ten years from now, what kind of navigation solutions will be needed, what will be the average market share of HERE and what will be the average licensing fee,” points out Rauhala.
The sale is motivated particularly by the decision of Nokia to acquire its rival network equipment manufacturer, Alcatel-Lucent, early next year for 15.6 billion euros. The acquisition will be the largest corporate takeover in the economic history of Finland.
Rajeev Suri, the chief executive at Nokia, similarly called attention to the importance of the upcoming consolidation in a press release. “Going forward, we will focus on our planned combination with Alcatel-Lucent. Once that is complete, Nokia will be a renewed company,” he stated.
Rauhala estimates that Nokia will benefit from its strong balance sheet as it edges closer to completing the takeover. “A strong balance sheet is always beneficial for equipment suppliers. It's an indication that the company has the potential to develop products. You should prepare for the unexpected when faced with a consolidation,” he says.
Nokia has declined to speculate on whether or not the takeover will have an effect on the staff of HERE. “HERE will continue its regular operations as part of Nokia until the completion of the transaction,” a spokesperson for the network equipment maker said.
BMW has suggested HERE will continue to operate as a separate entity. Rauhala similarly estimates that the German automotive manufacturers have no reason to overhaul the operations of the mapping and location business.
“It's unlikely to affect the number of employees in that respect,” he gauges.
The takeover can, however, boost the service operations of HERE. “Car manufacturers have indicated their unwillingness to provide data to third parties. It's difficult to develop a feasible service concept without data,” explains Rauhala.
Sean Fernback, the head of HERE, assures that the takeover is good news to both the customers and employees of HERE. “The new ownership structure of HERE will allow us to accelerate our strategy, further scale our business and fulfil our intent to become the leading location cloud company across industry,” he says.
HERE was founded after Nokia acquired NAVTEQ, a Chicago-based provider of navigable maps, for 5.7 billion euros in 2007.
Reetta Heiskanen, Jani Timonen – HS
Aleksi Teivainen – HT
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