January 21, 2010

Nokia To Offer Free Satellite Navigational System

On Thursday, Nokia announced the launch of a free satellite navigation system on its cellphones.

This move is expected to boost handset sales and prices after the No. 1 cellphone maker brings free navigation to 20 million smartphones.

"I'm sure Nokia's real enemy here is Google," analyst Tero Kuittinen from MKM Partners told Reuters.

Google has offered a blow to the satnav market leaders such as TomTom and Garmin. 

The satnav market is a $25 billion industry.

"It's a major shock for the navigation industry. Going forward profit margins have to come down," Gartner analyst Thilo Koslowski tolf Reuters. Koslowski predicted that if others follow, they could snatch up to $5 billion of the satnav market in the near-term.

Analysts believe the move by Nokia might spark a flurry of acquisitions from other mobile makers like Samsung, RIM and Microsoft, as consumers will expect free navigation to be a standard feature on smartphones.

"This has massive consequences for pure software companies. It is, of course, a watershed for the industry," Michael Halbherr, vice president for location-based services at Nokia told Reuters.

Halbherr said he saw navigation as a "function masquerading as an industry."

"If you are a pure software player, you've got a big problem. Who's going to pay for turn-by-turn navigation now Nokia and Google are giving it away," said analyst Martin Garner from British consultancy CCS Insight.

TomTom also sells navigation software, with 70 percent of sales coming from personal navigation devices.  It charges $70 for its North American iPhone navigation application.

Although Nokia still holds the lead in the smartphone market, Apple and RIM have started to play catch up.

"It will help us to sell smartphones," Anssi Vanjoki, head of marketing at Nokia, told Reuters in an interview. "It will serve as a defense to our product prices."

Google started offering free navigation in late 2009 on Motorola's Droid model smartphones in the North American market.

"Android vendors have been too slow in addressing the low-end smartphone market. If Nokia floods the market with cheap mapping smartphones next winter, it might undermine Android vendors effectively," said MKM's Kuittinen.

One of the key revenue sources for Nokia's services has been the turn-by-turn navigation.  The company said it expected one-third of its targeted $2.84 billion services revenue next year to come from navigation.

"The big question is -- can Nokia generate revenue enough to compensate for the revenue streams they kill," said John Strand, chief executive of Danish telecoms consultancy Strand Consult.

"The only way to do that short-term is through extra hardware sales and a higher average sales price. It will take time to develop all the new revenue streams -- years," he said.

One analyst speculates that the move could mean Nokia is readying to write down Navteq goodwill in its fourth-quarter report on January 28.

Nokia bought digital mapping for $8.1 billion from Navteq at the peak of the market in 2008, which is a rival to TomTom's Tele Atlas unit.

"Looking at what has happened in the last 12 months... the environment has become more challenging for Nokia and navigation services," said FIM analyst Michael Schroder.

"There is a risk that they will make a write down on Navteq when they report fourth-quarter data next week, but it is impossible to speculate on the size," Schroder said.

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