Garmin Loses Way After Nokia Buys Map Maker Navteq

Navteq (NVT), the Chicago company that provides the digital maps that go into Garmin's global positioning system, or GPS, devices, agreed Monday to be acquired by Nokia (NOK) for $8.1 billion. Nokia already sells a GPS-capable phone, the N95, which carries a hefty $600-$800 price tag. By purchasing Navteq, it sets up the possibility of offering GPS services on mobile phones, which could eat into Garmin's market dominance for in-dash car-based navigation systems.

"The navigation area is a fast-growing business, and with location-based services expanding rapidly into mobile communications devices, the industry is poised for even further growth," Nokia said in a statement concerning one of its biggest — and priciest — acquisitions.

Ted Gartner, a spokesman for Garmin, which is headquartered in the Kansas City area, said the Navteq sale was fairly sudden, and the company was reserving comment on its implications.

"We have a good relationship with Navteq and we expect that to continue into the foreseeable future," he said. "But beyond that, there's just too much out there that's fluid right now."

That's pushed the stock up a robust 145% in the past 52 weeks, continuing the run that made Garmin a small-cap darling, sending its shares up 440% over the last three years.

But the Nokia-Navteq deal, as well as privately held rival TomTom's July purchase of Tele Atlas, the No. 2 navigation software maker, mean Garmin faces two big shifts: It must adjust to changes in access to content and to an attempt to take GPS out of the car and put it into cellphone users' pockets.

In the near term, at least, Gamin's in fine shape, wrote Deutsche Bank analyst Jonathan Goldberg.

"We think it will take Nokia some time to integrate Navteq into its organization," he wrote Monday. "Garmin has multiyear contracts with NVT and should still be able to obtain a supply of maps. In the case of Tele Atlas, even after being acquired it continues to supply data to numerous [personal navigation device] vendors. Any attempt by either vendor to cut off map data would likely result in antitrust or legal scrutiny."

David Niederman, an analyst at Pacific Crest Securities, says the impact to the threat to Garmin depends on Nokia's speed. "It really depends on how aggressive Nokia gets on ramping up their GPS devices and offering those services," he says.

Jeff Rath, an analyst at Canaccord Adams, says the mobile capability will probably find a distinct base of users that may overlap, but not impinge on, Garmin's car-bound customers.

"It's like digital cameras and camera phones," he says. "As soon as people started to incorporate digital cameras into cellphones, the digital camera market didn't collapse. Both markets will exist, but it's a question of which one gets bigger."

About a billion mobile phones are sold world-wide every year, dwarfing the estimated 25 million personal navigation devices sold annually, but analysts remain largely convinced that qualitative differences will remain between where in-dash devices can send drivers and what mobile phones can do for the same lost souls.

"If you're someone who's a regular user of navigation, I imagine you'd still want the device in your car, offering you real time driving capability," says Jupiter Media's Ask. "If I were heading out on a cross-country trip, I'd take the Garmin device with me, but if I'm in a different city and I'm lost, and the phone is the bets thing I have with me, I'll use my cellphone. It's about context."

Dougherty & Co. analyst Jeff Evanson, who wrote a report published Friday ahead of the Nokia announcement, also pointed to strong growth in European Union countries, where it's gaining ground on Netherlands-based TomTom.

The double-digit hit to Garmin's shares may be a bit precipitous, then, since vehicular GPS devices are still on track for "strong secular growth pattern," according to Evanson.

The mobile maturation has long been factored into the Street's outlook on Garmin, Deutsche Bank's Goldberg wrote.

"We think even if cellphones could someday displace personal navigation devices, this will take many years. Consumers are just becoming aware of GPS and mapping capabilities on their cellphones, and changing consumer behavior is always a multiyear process," he wrote.

And even if this shift occurs, Jupiter Media's Ask points out that techies and gadget fans tend to have a more-the-merrier outlook: "There's probably some overlap between someone who's willing to pay 800 bucks for a cellphone and someone who doesn't think that $500 for an in-dash device is too much."