Pardon the expression, but Judson C. Green, CEO of digital mapmaker Navteq Corp. (NVT), insists his company is pointed in the right direction. The Chicago tech company etched a reputation selling maps for the navigation systems in luxury models from General Motors Corp.'s (GM) Cadillac Escalade to BMW's 7 Series sedan. Now some auto industry customers are mired in a sales slump that's dragging down orders of Navteq gear. Still, Green believes the company will "really take off in the future."
That may be more than stubborn optimism. Green displayed an uncanny ability to peer into the future back in 2000, when he and his team set out to reinvent the way people interact with maps. They married satellite technology with a deep database of road information: street names, speed limits, and commercial and residential locations. That data positioned them well for a boom in car navigation systems. Navteq's performance over the past three years propelled the company to the No. 5 spot on the BusinessWeek Hot Growth list for 2006.
Then came the speed bumps. Interest in car-based navigation guides began to wane, in part because of $2,000 price tags. Growth in the market for such systems has slowed, even as the percentage of cars that offer them has risen, says Brett Manderfeld, an analyst at Piper Jaffray Cos. (PJC) This trend showed in Navteq's second-quarter earnings, announced July 26: They were $23.8 million on sales of $136 million, well below Wall Street's expectations. Shares have sunk to around 28, down from 47 last January. On Oct. 25, the company was expected to announce third-quarter sales of $140 million. That's 13.7% more than the year before, but just half the size of previous third-quarter surges.
Despite the Street's harrumph, Green refuses to manage for the short term. He contends that demand for satellite technology, whether in cars or pocket devices, is bound to hit new heights. Do the math, he says. This year in Western Europe and North America, roughly 35 million cars will be sold. But the market for portable devices--from cell phones to pocket-size navigation tools--will total more than 315 million units. The turnover in this market is rapid, and in coming years, most of the new models will include location capability. Right now about 12% of vehicles have navigation systems, compared with only 1% of handheld devices. Thinking of tomorrow's households, "I'm imagining [location services] on both cars, all their cell phones, and even on their digital cameras, iPods, and games," Green says.
Navteq is leaving its mark on every form of technology suitable to location services. Ever use MapQuest or Google (GOOG) to get directions? Or maybe you bought one of the nearly 15 million handheld navigation devices sold worldwide this year. Navteq now owns the Internet mapping market with roughly a 95% share and splits the handheld market with European rival Tele Atlas. And it sells more map data to makers of handheld devices (1.5 million in the second quarter) than to makers of navigation-equipped vehicles (1 million). On a dollar basis, cars and trucks made up 100% of Navteq's revenue in 2000. This year the ratio has slipped to 70%, and Green figures it will barely reach 50% in 2008. Meanwhile, revenue growth from handhelds year-over-year is expected to double, while it will be lucky to hit 15% in the auto market.
That's not to say new markets always mean hot growth. When selling to the auto sector, Navteq makes $60 to $70 per batch of maps, according to Manderfeld. It gets only $20 to $30 for each mobile device, and on the Internet, it earns just a fraction of a penny per click. So Navteq has to sell many more units to match its historic revenue growth.
Green understands the challenge: Navteq needs to expand the market, and it can't do that alone. So the company has begun to sponsor conferences designed to foster the development of killer location services. The events, held every year at the national cellular convention, invite developers to build innovative applications for cell phones and other gear. Participants have free access to Navteq's map data and tools, and the winners compete for more than $2 million in cash and prizes.
The events attractattention from the likes of Verizon Wireless (VZ), Sprint Nextel (S), Nokia (NOK), and major venture capitalists. "Navteq has done a nice job of helping to move the whole industry forward," says J. Kim Fennell, CEO of deCarta, a provider of location-related software in San Jose, Calif. "They realize that they can't make everything happen on their own."
In the future, wireless carriers will probably rank among Navteq's biggest partners. In the U.S., Verizon Wireless and Sprint Nextel have already rolled out cell-based services that allow users to pinpoint where their family members are at any given moment or navigate from, say, Myrtle Beach, S.C., to the Lincoln Memorial in the nation's capital. Sprint and Verizon also offer location tracking technology for fitness enthusiasts developed by a winner of the Navteq contest. Software from Bones in Motion Ltd. lets runners and cyclists use their phones to monitor their distance, pace, and route via maps. Verizon Chief Technology Officer Dick Lynch says just what Navteq likes to hear: "We see an opportunity to sell location services to every customer we serve."
By Roger O. Crockett