Edison Investment Research

HERE – Pole position.

HERE is closing the gap to Google with the Chinese and Intel joining up.

 HERE gets one over on Google by filling the biggest hole in its portfolio with the formation of a strategic partnership with NavInfo to provide maps and services into the Chinese market.
 It has also announced a key partnership with Tencent which, together with GIC (Singapore sovereign wealth fund) and NavInfo, will become 10% shareholders in HERE.
 HERE has also announced that Intel will become a 15% shareholder
 Details include:
 First: a 50/50 joint venture with NavInfo to supply maps and services into mainland China.
 We see this relationship as NavInfo having the data and HERE having the software and services to bring it to life in the Chinese market.
 This will begin with the HERE Auto SDK for in car services and then continuing into HD maps, autonomous driving and advanced location based services.
 We suspect that foreign car makers selling their models in China will be the first customers but it to be successful the local makers need to also be won over.
 This is a major challenge to Baidu which uses NavInfo data in its map which has helped it to become by far the leader at home in all things to do with location.
 It is also a big challenge to Alibaba which owns AutoNavi, the mapping company that supplies much of the Chinese auto industry as well as its map of China to Google.
 Second: Tencent looks set to use HERE’s location platform and its map in all areas of its ecosystem both in and outside of China.
 This is HERE’s second win of a major ecosystem which, combined with Facebook, gives it the world’s two largest ecosystems by number of users.
 However, both of these ecosystems are very immature but should they successfully execute their strategies, then HERE will find itself as the leading provider of location globally.
 Third: NavInfo, Tencent and GIC will jointly acquire a 10% stake in HERE with the three existing shareholders (Audi, BMW and Daimler) correspondingly reducing their shareholdings.
 Fourth: HERE will work with Intel to ensure that all of HERE’s systems are optimised to run on Intel’s chips which should provide Intel with a good boost to getting its silicon more deeply embedded in the car.
 Having Intel as a shareholder will provide HERE with a big boost to its credibility in its objective to become the pre-eminent supplier of global location.
 These announcements are a major step forward for HERE as it has fixed its previously blank spot in China as well as added another major ecosystem and the global silicon leader to its stable.
 Furthermore, this will increase and enrich the data that is available to HERE to train its algorithms which should help it to make its services smarter and richer than those of its competitors.
 This will also help HERE close the gap on Google which has an excellent map in China (from Autonavi) but which is effectively useless as it does not work when the user is in China without a VPN.
 We suspect that data from Tencent and NavInfo will be used to create points of interest, thereby enriching the Chinese map.
 This is an area where HERE has really struggled to keep up with Google historically.
 We see the risk of the China transaction lying in the regulatory approvals.
 Both the j.v. with NavInfo and the co-operation with Tencent require Chinese regulatory approval which may not be as straightforward as it would seem.
 This is because HERE is a foreign company whose venture with NavInfo is a significant challenge to two of the homegrown ecosystems Baidu and Alibaba.
 China has a history of making it difficult for non-Chinese companies to compete in its home market where the foreign company threatens to take share from locals.
 The one exception is Apple, but we have long believed that Apple has succeeded in China by taking share from Samsung rather than any of the local companies and hence it has represented no real threat.
 Hence, we think that HERE needs to tread carefully and show that in China, it is its local partners (Tencent and NavInfo) that will derive the most benefit from working with HERE.
 Should these announcements win regulatory approval then HERE will have filled the biggest hole in its global coverage as well as moved into pole position to become the biggest supplier of global location to the digital ecosystems.
 Just Japan remains as a blank spot.

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