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Thursday, April 16, 2015

Nokia Looks to Sell Its HERE Mapping Unit

Nokia is considering a potential sale of its location services unit HERE.
HELSINKI–Network equipment maker Nokia said Wednesday it is considering a potential sale of its location services unit HERE, which supplies digital mapping software to car navigation systems and to portable devices such as smartphones.
Nokia disclosed its review of HERE’s future on the heels of announcing its plan to acquire French rival Alcatel-Lucent .
The Finnish company said in a statement that it “believes this is the right moment to assess the position of HERE within the proposed new Nokia business.” Nokia gave no timeframe for the review of HERE’s future.
HERE’s visibility in the consumer market has been low compared to Google Maps, partly because the company has been mainly licensing its product to outside parties such as Yahoo , Baidu and Amazon.
Google Maps, on the other hand, has been integrated into Google’s wider offerings, including search and Android.
A free-to-download HERE application for Android was launched last fall and for Apple’s iOS platform only as recently as last month. So far the applications have accumulated about six million downloads combined, according to HERE.  That figure is very low considering that over 1 billion Android and about 191 million iOS smartphones were sold in the world last year.
Despite its currently limited consumer reach, HERE is an attractive asset because only HERE and Google own high-quality and constantly upgraded digital maps that can form part of a software ecosystem, said Mikael Rautanen, an analyst with the research firm Inderes in Helsinki.
HERE’s strength is the automotive sector. According to HERE, about 13 million new cars sold in North America and Europe last year used HERE’s maps in their built-in navigation systems. That translates into about 80% market share among the vehicles that were sold with a built-in navigation system. HERE doesn’t provide revenue figures for this sector.
Berlin-headquartered HERE is not part of Nokia’s main business of supplying equipment and software to network operators, and there has been speculation that Nokia could sell it.
According to Mr. Rautanen, potential buyers could include a group of automotive companies, or an Internet company such as Microsoft , which acquired Nokia’s handset business last year.
Microsoft doesn’t have digital maps of its own. Instead, it has a licensing deal to use HERE’s maps in its Bing search engine and its Windows Phone mobile device operating system.
Microsoft declined to comment, as did the ride-sharing service Uber, which was mentioned as a potential buyer in a recent Bloomberg story.
Nokia bought HERE, known as NAVTEQ at the time, for EUR5.7 billion in a deal that closed in 2008. Nokia was then battling to remain the world’s top handset supplier, and it wanted to add a digital map service to its mobile device software platform.
After Nokia exited the handset business, it has had no direct need for a digital mapping service. Nokia now gets revenue from HERE through licensing deals, but it has struggled to make a financial profit from it. Last year HERE made an annual operating loss of EUR32 million on revenue of EUR969 million.
The loss figure excludes a EUR1.2-billion impairment charge Nokia took on HERE’s book value last year. After the writedown, Nokia estimated that the fair value for HERE is now at EUR2 billion.
Analyst views differ on how much HERE could fetch in a potential sale. Research firm and brokerage Sanford C. Bernstein said in January that HERE “is cornered to a small opportunity and against tough competitors” and estimated that HERE wouldn’t attract “bids much above the €1bn region.”
In contrast, Citigroup said in a note last week that a strategic buyer could well be prepared to pay “a substantial premium” for HERE and estimated that the unit could sell for EUR4 billion.
Nokia doesn’t urgently need the money from a potential sale of HERE because it had EUR5 billion in net cash at the end of 2014 and because it will pay for the purchase of Alcatel-Lucent by issuing new shares to Alcatel-Lucent’s shareholders.
Nevertheless, extra cash would help Nokia to cover the restructuring costs related to its planned acquisition of Alcatel-Lucent. A strong cash position would also enhance Nokia ability to provide loans to network operators that purchase its products, a key factor affecting sales in the highly competitive wireless equipment industry.

Lisa Fleisher contributed to this report.

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