NVT – THE GPS NATURAL MONOPOLY
Navteq (Nasdaq NVT) – the provider of digital map database and location-based services solutions around the world supplies digital maps to every GPS maker as well as Google Maps, Yahoo Maps, Microsoft Maps (Local.live.com, Streets & Trips), MapQuest, Zillows, ...... -- has won the competitions and become the natural monopoly of GPS and Location-Based Services (LBS) businesses.
GPS is increasingly used in our daily life. Garmin (Nasdaq GRMN) – the world’s largest GPS maker has taken the lion’s share of profit margin and its stock has been skyrocketing for quite some years. However, because of the nature of Navteq business and its execution, the company owns many advantages way beyond those GRMN already has such as very low price erosion, little competitions, and the built-in low costs in its product structure.
Very High Entry Barrier with Competitions Fading
GPS gear makers such as Garmin and TomTom face fierce competitions from each other already. When the low-cost Asian manufacturers learn how to make GPS, it is difficult for Garmin to keep the high profit margin they currently enjoy. When in-dash GPS becomes more ubiquitous and low cost GPS devices - mobile phone, PDA, and many other portable devices inevitably crash the GPS industry, and the price has to come down dramatically probably from to $30-100 from $300-1500.
The GPS receiver chipmakers SiRF and GlobalLocate have locked in a patent battle and the competitions have kept them powerless in the negotiation with GPS gear makers due to the relatively low entry barrier.
Hardware makes more than 70% of the total costs and it increases proportionally as the sales grow. The digital map makes a relatively small portion in the price/cost structure of GPS devices - far less than one tenth of the total GPS cost. However, GPS is a complex system. The data and digital map information are even more so because you have to record all the kind of attributes that is only possible on the ground, and there is a lot of ground to cover. Navteq hires hundreds drivers equipped with very expensive high-tech gears in their customized caravan around the world recording every turn, lane, intersection, (one) way, ramp, POI (Point of Interest), …… and constantly transmitting and making the update to their digital map database.
The entry barrier is already extremely high. Still, at this stage, NVT is keeping prices as low as possible to prevent their competitors from gaining any ground and to discourage any idiot crazy enough to try and get into the business at this point in time.
Unlike GRMN, Tomtom, SiRF, and other hardware makers face, as long as the digital map database is established, the cost of one million copies of the map is almost the same as one. Every additional penny sale contributes almost 100% to Navteq’s profit and bottom line because there is no additional cost for its data and software.
GPS Technology Evolutions Goes On
NVT is not keeping static. They have been expanding to other LBS and traffic information system by organic growth and acquirng existing businesses such as Traffic.com and Map Network.
Everyone hates getting stuck in traffic. Knowledge is power when it comes to beating traffic. The newly acquired Traffic.com provides citywide hotspot alerts, up-to-the-minute traffic for your city roads/highways and personalized traffic reports for the roads you travel. They use email, text message, web, or phone alerts and traffic feeds for the feed reader to its customers. Navteq/Traffic.com is also an inseparable component of and growing with the emerging “smart highways” that use wireless sensor-based traffic flow control and management system.
The Map Network is a maps producer for travel destinations, special events and major hotels and marquee venues. The Map Network's content and capabilities are a natural extension of NAVTEQ's core map business and will enable NAVTEQ to augment its portfolio with rich, location-specific detail.
GPS technology evolution goes on. European countries are launching a new GPS satellite constellations called Galileo that is much more accurate than the US system currently in use. The new system inevitably creates new opportunities -- along with new competitions among all GPS players. However, no matter what change occurs, Navteq stands to benefit from the evolution, and NVT maps will still be used everywhere.
Where to Grow
NVT just made the first All-European map release for Tomtom installation – at its much smaller peer - TeleAtlas’s cost because of much more complete coverage and superior quality. Also Navteq’s maps win the business for the newly announced Nokia 6110 Navigator GPS mobile phones ( biz.yahoo.com ). In a bold move to accelerate the adoption of location services, the world's two largest handset makers Nokia and Motorola have each introduced their own navigation services, a move that could put them against mobile operators. (http://news.com.com/Handset+makers+get+in+on+location+services/2100-1039-6159778.html?part=dtx&tag=nl.e433 ). The handset makers - Nokia, Motorola, Sumsung, Sony-Erricson,... are different animals from the mobile operators/service providers/carriers such as AT&T, Verizon, Vodafone, ... . With a GPS imbedded, the handset makers do not need a mobile operator to provide their own navigation and location services. All these factors will speed up competitions among hardware makers already face, but bode particularly well for the digital map data business monopoly Navteq.
GPS is still in its infancy age. Although commentary by some analysts suggest that GPS adoption among new vehicles installation grew 66%, compared to 15% last year and Navteq’s map has covered world’s 60 countries, 95% of existing vehicles still have no GPS, and there are more than 100 countries that need digital maps and Navteq is making every effort to cover them.
Even in the best-covered North America, the vast majority places in the rural areas, forests, wild life refugees, trails, national parks, and countryside are still blanks. With a GPS and better-covered digital map, the tragedy that occurred several months ago to James Kim – the CNET Senior Editor (http://news.com.com/2009-12-6141617.html) would not happen again.
Navteq today reported 2007 first-quarter profit almost doubled than a year ago, which beats analysts’ estimation by a whopping 12 cents. And revenue in the quarter rose 31 percent to $160 million compared to the $148.8 million according to Reuters Estimates. The numbers have proved my thesis that I have brought up repeatedly.
Accurate information about LOCATION is as critical as TIME. How many timepieces do we own in every family? At least 30 in average. In comparison, 99% of people in the world do not own GPS.
If we compare future GPS with PC today, Navteq has the potential to become the Microsoft to the PC industry. However, the stock still has a long way to go before it reaches the all time high about 54 it reached a year ago. |
