Digital mapping may be Nokia’s gem

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For the first time in more than three decades, Nokia faces the future without being a player in the global phone business. The company has completed the sale of its beleaguered handset business to Microsoft for $7.5 billion.

The deal’s closing puts a spotlight on what remains of Nokia, which includes the Finnish company’s mobile networking business and a research and intellectual property unit. But it is Nokia’s efforts to map the entire world digitally that could prove to be the company’s hidden gem — or at least emerge as a compelling, multibillion-dollar takeover target.

Nokia’s goal with its mapping system, known as Here and developed in Berlin, is simple but ambitious: To build the world’s most detailed and up-to-date digital maps.

In smartphones, Here is outgunned by Google Maps, which has an estimated 1 billion mobile users and is aided by being standard issue on phones using Google’s Android operating system. Here, which is the default mapping application on Windows phones, has only about 100 million smartphone users.

In automobile mapping, however, Here dominates, with more than 80% of the global market for built-in car navigation systems — a field in which Google and Apple are scrambling to catch up.

Nokia contends that its mapping products, which are updated 2.7 million times a day, are more accurate than its rivals’ offerings and that its ability to customize its maps for different customers sets Nokia apart.

Google, for its part, counters that it makes tens of thousands of changes to its maps daily and that it uses complex algorithms and external information from the likes of the US Census Bureau to build maps for 198 countries.

While rivals like Apple have tried to break into the global mapping business, they have so far been largely unsuccessful, leaving Nokia’s 29-year-old Here mapping system as the only contender for companies and consumers looking for an alternative to Google.

“Mapping is an expensive business,” said Annette Zimmermann, an analyst at technology research company Gartner in Munich. “If you haven’t already built what these guys have built, it doesn’t make sense to start now.”

Despite the strong position, though, Nokia’s mapping unit last year generated only 7%, or $1.2 billion, of the company’s total revenue, excluding its handset unit, according to corporate filings. The division also reported an operating loss of $212 million over the same period, as the company continued to invest in the mapping operation, which has 6,000 employees, or around 11% of Nokia’s remaining workforce of 55,000.

The weak financial figures have led many analysts to question whether the company has the deep pockets required to keep pace in mapping, especially since it has few existing connections to Nokia’s other businesses. Besides its auto clients, Nokia licenses Here to companies including Microsoft, for its Bing search engine; to Amazon, for the Kindle Fire tablet; and to Yahoo for its Flickr photo service. FedEx uses Here mapping data to manage its delivery trucks worldwide.

Already, there is talk that Nokia could decide either to sell or to spin off the division, so the company can focus on its core mobile networking business. The networking unit, which manufacturers cellphone towers and other telecommunications hardware for carriers, will generate almost 90% of the company’s annual revenue after the handset deal is closed. That means Here might be more valuable to someone else than to Nokia.

“There are only a few mapping businesses in the world,” said Ehud Gelblum, a Citigroup analyst. “It’s a valuable asset.”

Microsoft fought to buy the unit as part of the recent handset sale. But it could not agree with Nokia on a price, according to several people with direct knowledge of the matter, who spoke on the condition of anonymity.

Analysts say that Nokia’s mapping division, whose price tag could reach more than $6 billion, might be attractive to the likes of Samsung and other large handset-makers to reduce their dependence on Android for smartphones and tablets.

Currently, phone-makers rely on Google for their mapping services.

Michael Halbherr, the head of Nokia’s mapping business, shrugs off the takeover talk, saying that Here remains part of the company’s overall strategy.

“Every company has an owner, and for us, it’s Nokia,” Halbherr, 49, said in his office in central Berlin. “It’s only a good thing to be part of a large organization.”

For now, at least, Here continues to be a major effort at Nokia.

Daily updates to Nokia’s map data are part of the company’s efforts to maintain close ties with the world’s largest carmakers, links that generate more than 50% of the mapping division’s yearly revenue.

In the auto industry, Nokia still commands the bulk of the market, thanks to relationships with giants including Toyota and Volkswagen. Google and Apple are trying to have their maps used in cars, but they have not yet had much luck, according to Gartner, the research company.

“There are a lot of applications for what we’re doing,” said Reno Marioni, an American who runs Nokia’s crowd mapping business, which feeds changes made by users into the company’s products. “Mapping the world is a pretty big thing.”

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