Navigation devices from makers like TomTom and Garmin have become the must-have gadget for many drivers, runners, and others trying to get from point A to B. But those nifty boxes would be little more than dashboard ornaments without the data used to construct the detailed maps that keep users from getting lost.
Just how crucial those mapmaking guts are was made clear July 23, when TomTom, Europe's leading maker of personal navigation devices, said it would buy Tele Atlas, the supplier of most of its mapping data, for $2.8 billion in cash and debt.
The acquisition has far-reaching implications for the navigation device market, with perhaps the biggest impact likely to be felt by Navteq (NVT). For years, companies like TomTom, Garmin (GRMN)—the leading U.S. navigation device maker—and Magellan have relied on either Tele Atlas or Navteq for the labor-intensive business of supplying constantly updated and accurate street maps. That demand translated to sales of €264 million ($364 million) for Tele Atlas and $581 million for Navteq last year. And researchers at iSuppli expect the number of personal navigation devices (PNDs) to surge to 65.1 million in 2012 from 19.8 million in 2006.
As the main competitor to Tele Atlas, Chicago-based Navteq may pick up business from device makers that don't want to buy from Tele Atlas now that it's owned by their rival, TomTom. That, or Navteq just might find itself in the crosshairs of an acquirer.
Global Positioning Market
Garmin, with $1.8 billion in 2006 sales, is among the candidates, given its intense rivalry with TomTom (see BusinessWeek.com, 8/28/06, "TomTom on the Go-Go"). With only $573 million in cash and short-term investments, Garmin would have to either take on debt—it has almost none—or use stock to spend the $6 billion to $7 billion it would take to acquire Navteq. "If they wanted to get the deal done using stock it would be easy for them to do it," says Rob Sanderson of American Technology Research in San Francisco, though he considers the combination unlikely. As it is, Garmin buys about 99% of its mapping data from Navteq, says company spokesman Ted Gartner, while a tiny sliver of data concerning Malaysia comes from Tele Atlas. Gartner says Garmin sees no immediate reason for that to change.
But the view could be different at MiTAC, the Taiwanese electronics manufacturer that shook up the market last year with its Mio line of personal navigation devices. MiTAC is said to be Tele Atlas' second-largest customer behind TomTom, and the two companies have had close ties since they first became partners in 2004. Kiyoshi Hamai, Mio's head of North American sales, says the company's relationship with Tele Atlas won't alter. Mio's "continued gains in market share in North America will be unaffected by TomTom's agreement with Tele Atlas, and at this time our partnership with the company will remain intact," Hamai says. "Mio Technology and Tele Atlas have always had a great relationship. We believe Tele Atlas will continue to be an effective partner. That said, we're always looking to improve the navigation experience and deliver a value for our customers. We are constantly investigating suppliers of all types—map data, software, or components."
During the 2006 holiday season, MiTAC made headlines by slashing the price of a product called the DigiWalker to $150 in order to give it a price advantage against products from Garmin, TomTom, and Magellan (see BusinessWeek.com, 12/12/06, "Navigating the GPS Price War"). In February, Mio acquired Navman, a PND company with roots in New Zealand, from Illinois-based boat builder Brunswick (BC), which had owned it since 2004. That was good enough to put MiTAC in a solid third-place position with 20% of the global PND market, behind TomTom's 37% and Garmin's 25%, according to a recent iSuppli market estimate.
Navigating Possible Transactions
Another would-be buyer is Google (GOOG), given its ongoing interest in mapping data and services on Google Maps and Google Earth. It's also a Navteq customer already.
Even if they aren't eyeing a transaction, some companies are likely to reevaluate how they do business with Tele Atlas under TomTom. "If I were big enough I'd acquire Navteq," says H.P. Jin, chief executive of TeleNav, a Silicon Valley startup that specializes in putting navigation on mobile phones. "[Tele Atlas has] created a conflict of interest that they're going to have to address."
But TomTom's head of investor relations, Taco Titulaer, says his company's existing customers have no cause for concern. TomTom's plan, he says, is to create a two-way relationship with its customers, relying not only on Tele Atlas' regularly updated maps, but also on its user base. Typically, navigation devices transmit data in one direction—to the user.
But TomTom's latest line includes two-way devices that can share live data about where they are, giving an up-to-date picture of such things as traffic conditions. TomTom has teamed with Vodafone (VOD) in some European countries, and asks its customers to voluntarily allow their devices to share their location anonymously via wireless phone networks. TomTom President Jocelyn Vigreux says 70% of customers are taking part in the data sharing. "If we don't give comfort to Tele Atlas' other customers, there is the worry that they will walk away," he says. "I'd say to MiTAC, don't be afraid, because what we're going to give you is going to get much better."