NAVTEQ Corporation - Company Profile, Information, Business Description, History, Background Information on NAVTEQ Corporation

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History of NAVTEQ Corporation

NAVTEQ Corporation (Navteq) is a Chicago-based company that provides the digital map information used by Internet mapping services, automotive navigation systems, and mobile navigation devices. Navteq builds its database from the streets up, rather than taking the approach tried by others reliant on government sources supplemented by geometric extrapolation. Navteq employs hundreds of field researchers to drive every street, back alley, and dead-end lane, keeping track of some 160 road attributes, including speed limits and turn restrictions. Territories are also periodically revisited to keep track of changes. All told, Navteq's database includes coverage of 40 countries on four continents, at different levels of detail, covering 8.7 million miles of roadways. In the United States and Canada, where the company offers the most detailed information, Navteq covers 5.4 million miles of roadways. Navteq is looking to move beyond mere digital maps to interfacing them with traffic information, which can then be delivered to vehicles using the XM Satellite Radio service, allowing drivers to avoid traffic jams. Navteq is a public company trading on the New York Stock Exchange.

Company Launched in Mid-1980s

Navteq was founded by Barry Karlin and Galen Collins, with the former supplying the inspiration for the company. Born and raised in South Africa, Karlin earned an engineering degree before immigrating to the United States in 1976. He continued his studies at Stanford University, earning a master's degree in 1978, followed by a 1981 doctorate in Engineering-Economics Systems. He stayed in the Bay Area, working as a consultant for Strategic Decisions Group, gaining valuable experience working with major corporations, but he was attracted to the entrepreneurial atmosphere of Silicon Valley and developed a desire to start his own business. Through mutual friends he was introduced to Collins, who like Karlin was in his 20s and eager to go into business. A Northern California native, Collins held an engineering degree from the University of California, Berkeley and had done work for several Silicon Valley companies. He was strong in all areas of engineering, making him a good partner for Karlin, who was more interested in management and marketing. The two men considered some ventures but no idea caught their imagination.

Then, one day in early 1984 Karlin got lost driving in the Bay Area. He had a paper map in the car, but spreading it out across the steering wheel while he attempted to drive proved to be more of a nuisance than a help. "That evening," he recalled in a 2005 interview, "I thought, 'Wouldn't it be nice if I had someone sitting next to me in the car who knew the way?'" He then wondered if it were technologically possible to create a navigational system that could emulate such human assistance and tell him in clear steps the turns he needed to make to reach his destination. The more he thought about it, the more obsolete he considered the traditional paper map. He began doing some research and was soon convinced that creating such a navigational tool using an electronic map was technologically feasible. Karlin shared his idea with Collins, who was excited by the idea as well, and the two men decided to develop the concept commercially.

Collins worked up a pilot system, essentially to show that writing navigational software was feasible. The major elements of the concept were simple enough: the system had to know where you were, it had to know how to get you to your destination, and it had to be able to render that information in step-by-step instructions. When Karlin tried Collins's mockup system he was told by the computer to do something that was not feasible, such as making a left turn where one was not permitted, and he realized that the underlying database of information had to include far more than just the layout of streets and their names. As a marketer he also knew that customers would be unforgiving with a system that proved frustrating. As a result, from its inception Navteq became very much detail-oriented in its approach to digital mapmaking.

Everyone with whom Karlin and Collins shared their idea recognized its potential, but when Karlin began looking for seed money he faced some major obstacles. In essence they were attempting to create a new industry, this at a time when venture capitalists took fewer chances, preferring to fund people with more stellar credentials. Moreover, the technology involved in making a navigational system was complex at every level. A massive database had to be built; GPS was in its infancy and overly expensive; and the software, which would be required to make driving decisions, had some artificial intelligence elements to contend with as well. Over the course of a year Karlin was turned down by virtually every venture capital firm west of the Mississippi River, everyone invariably questioning whether there was a market for a navigational device and intimidated by the disparate elements involved in making the concept work. There was a general recognition, however, that the idea made sense in the long run, but Karlin was warned he was embarking on an extended journey.

Because rental car companies were a likely customer for a navigational system, Karlin met with Budget Rent A Car's president, who suggested he contact T. Russell Shields, who had done some work for Budget and was known to sometimes provide funding for companies involved in database work. Shields was a Chicago entrepreneur who in 1969 founded a computer consulting company called Shields Enterprises Incorporated, later known as SEI Information Technology. Among its many accomplishments, SEI in the 1970s developed a mainframe business system for the U.S. Veterans Administration and real-time fulfillment systems for Time-Life, TV Guide, National Geographic, and Guideposts Publishers. Karlin met with Shields, who agreed to supply $500,000 in seed money, enough to prove the concept with greater specificity.

Mapping of Bay Area Began in Mid-1980s

In August 1985 Karlin & Collins, Inc. was launched in Sunnyvale, California, and began mapping the six counties and more than 100 cities that comprised the San Francisco Bay area. The company received another $2.5 million in seed money from Prudential Bache. The mapping proved time consuming and expensive. Aside from copyright infringement issues, relying on paper maps was not an option, since they proved to be fraught with errors and acceptable for their intended use but not suitable as a foundation for electronic navigation. Far more useful was the work done by the census bureau, which had begun to create a digital geographic network for demographic purposes. Karlin & Collins also took high resolution aerial photographs of the Bay Area, then developed technology to integrate the census information with the pictures. People were also hired to drive the entire road network, armed with a Dictaphone to describe in detail everything they observed. To keep track of a vehicle's location, a key element in a navigational device, a dead reckoning system was developed in lieu of the GPS satellite technology the company later adopted. In essence, the system relied on a gyro compass and a distance measuring device to keep track of where a vehicle was on an electronic map. Then the location was constantly matched to the map at certain markers, such as turns, so that the system updated itself.

Mapping the Bay Area took about two years to complete. Because the idea of digital mapping was so new, there was no initial market for Karlin & Collins's database. They had to create turnkey products, the first of which was called DriverGuide, a countertop kiosk, which was essentially a dedicated computer that could be used by customers in car rental offices and hotel lobbies to provide printed driving instructions. The company had two other products in development as well: Mobile DriverGuide, a vehicle navigation product, with backing from Ford Motor Company; and Dispatch DriverGuide for fleet operators. In the early months of 1987 DriverGuide was set up in a number of Bay Area locations on a test basis. By October 1987 the product was rolled out commercially, and after a year nearly 80 of the $12,000 machines were placed in car rental outlets, hotels, restaurants, and convenience stores. Users were charged 50 cents per set of instructions and the company received a 25 percent cut in the money they generated. The Business Journal of San Jose described the way the system made use of the database: "The algorithm that pieces that data together uses the information to construct two detailed maps that surround the starting point and the destination. The two maps are then incorporated into a map of the area as a whole, and the computer then sends out two 'cars' to explore all possible routes. The 'car' that achieves the best travel time is selected by the computer."

It had cost $3 million to $4 million to complete the mapping of the Bay Area. Shields, who was highly enthusiastic about the technology, offered to invest another $3 million, but on the condition that he also be named the chief operating officer. Given that he had experience managing large teams of engineers, which was not Collins's strong suit, Karlin agreed. Shields now spent part of each week in both Sunnyvale and Chicago. Moreover, the company changed its name, becoming Navigation Technologies Corporation in September 1987. Other companies were now looking to develop navigational devices. Most notably, in Silicon Valley, Etak Inc. was selling a product that used an onboard computer, compass, wheel sensors, and mapping software to show drivers their exact location on a display screen. But the Etak product did not offer driving directions, a fundamental shortcoming, and when the company tried to emulate Navigational Technologies it quickly came to realize that its underlying map was not up to the task and the company decided to seek other opportunities. Nevertheless, Etak at this stage was aligned with General Motors and looking for partners in both Japan and Europe. Virtually every major automaker in the world, in fact, was working on similar products. European giant Philips N.V. began investing in Navigation Technologies in 1989 as part of its own effort to develop an automobile navigation system.

Early in the 1990s Karlin came to better understand the expense involved in mapping the United States, as well as the time it would take. The company was mapping a handful of metropolitan areas, such as Los Angeles, Atlanta, Chicago, Detroit, and Miami, selecting them mostly on the basis of having potential customers. For instance, Miami was chosen because of ties to Ryder Trucks, and Chicago because of Hilton Hotels. The company's kiosk business was doing reasonably well, but Karlin had already shelved the Mobile DriverGuide idea, realizing that a vehicle navigational device was not yet a feasible idea. For one, there had to be a complete digital map of the country before anyone would really want to buy the product. Karlin now realized that the time and money involved in making kiosks could be better used in building the database. It was at this point that Navigational Technologies changed its business model, so that instead of selling hardware it now licensed its database, allowing others to develop products that made use of the digital mapping information. Karlin also came to realize that it would take a number of years before the company would come to fruition and that he was not interested in waiting. He decided instead to sell out to a corporation with the patience, and deep pockets, to nurture the company. He found a buyer in Philips, which had assumed from the start that a map database was a crucial element in any navigation system it developed. Collins also chose to leave around this time, as did most of the early employees who recognized the massive commitment involved and simply wanted to pursue other interests in their lives. Shields remained with the company, however, ultimately taking over as CEO and in 1996 moving the corporate headquarters to Chicago.

New Technologies Help Accelerate Mapping in 1990s

The emergence of satellite and other technologies in the 1990s helped to accelerate the mapping process but Navigation Technologies was still years away from turning a profit. All told, Philips invested about $600 million into the company, and in the end decided to scrap its plan to build an automotive navigation system. From the perspective of Navigation Technologies, however, it was a wise investment, given that there was clearly a future demand for mapping information, and that because of the high cost of entry into business, Navigation Technologies would eventually be advantageously positioned to reap a reward.

In 1996 Philips, which was under pressure to divest money-losing ventures, tried to cash out by way of an initial public offering (IPO) in hopes of raising from $125 million to $150 million. But at this stage all Navigation Technologies had to sell to investors were prospects. In 1994 the company generated $1.7 million and lost $41.1 million, followed in 1995 with sales of $3.3 million and a loss of $56.9 million. Because of poor market conditions the IPO was postponed. Philips continued to maintain majority control and Shields, still a major shareholder, stayed on as CEO and chairman.

In late 1998 Philips sold about 20 percent of its 60 percent stake in Navigation Technologies to a consortium of Dutch financial institutions. Several months later, in October 1999, Philips again took steps to prepare Navigational Technologies to become a public company. Shields was replaced as chairman by Richard de Lange, chairman of Philips Electronics Netherlands B.V., and a search was launched to recruit a new CEO, one with significant executive experience with a public company. In April 2000 Philips hired Judson C. Green, a longtime executive at The Walt Disney Company, who was raised in the Chicago area. He joined Disney in 1981 and eight years later rose to the rank of chief financial officer. Two years later he was named president of the company's theme park and resort business, Walt Disney Attractions, eventually adding the title of chairman in 1998. He launched a major investment program that resulted in the launch of a cruise ship line, the Animal Kingdom park in Florida, permission to build a theme park in Hong Kong, and a second theme park in Anaheim, California.

Green took over at Navigation Technologies in May 2000, charged with readying the company for an initial public offering of stock. The timing proved less than ideal, however, as the bottom soon fell out of the technology sector and the offering had to be shelved once again. But the postponement allowed Navigation Technology to at least spruce up its balance sheet. With an increasing number of automakers offering navigational systems and Internet mapping applications gaining greater usage, the demand greatly increased for Navigation Technologies' digital mapping information. Sales stood at just $51 million in 1999 but reached $110.4 million in 2001, then grew to $165.9 million in 2002 and $272.6 million in 2003, an increase of more than 500 percent for the five-year period. Moreover, the company finally posted a profit, $8.2 million in 2002, followed by $235.8 million in 2003. Although $165.5 million of that amount in 2003 was the result of a tax benefit, the company was clearly moving in the right direction. Its prospects were also likely to improve because it continued to map new countries and add greater detail to countries it already entered. The company was especially active in mapping Europe as well as the Middle East. Work also remained to be done in the United States, as researchers expanded its coverage level of rural counties. In addition, Navigation Technologies began working on dynamic maps, combining traffic reports with display-screen maps to help drivers find the fastest routes to their destinations. As the research progressed, the company forged an alliance with XM Satellite Radio to disseminate the information to drivers.

In 2004 management felt conditions were right to finally conduct an IPO. In preparation, the company changed its name to Navteq Corporation in February 2004. Then, with Credit Suisse First Boston and Merrill Lynch & Co. acting as the lead underwriters, the company completed its offering in August 2004. Interest was strong enough that the company was able to price its shares in the upper range of its asking price, $22, resulting in proceeds of $880 million. Philips reduced its 83.5 percent stake to 41.2 percent, while garnering $783 million, an amount that justified the company's backing of the venture for more than 15 years. Philips was expected to sell the rest of its stake over the course of the next year. It was likely to fetch an attractive price for the stock, which topped $40 by November.

Navteq's prospects appeared bright as it embarked on the next phase of its history as a publicly traded company. There was a great deal of the earth left to map, and with Navteq's head start, it had become prohibitively expensive for a new company to enter the field. Only Dutch company Tele Atlas stood as a serious competitor, as Navteq boasted a market share in the 75 percent range. More than 80 percent of the company's business was tied to navigation systems, and that business was very much in the early stages. In 2003 only 3 percent of new cars sold in the United States featured navigation systems, and in Europe, where the technology saw greater penetration, the number was probably 10 percent or less. As these devices inevitably gained in popularity, economies of scale would kick in, so that an option costing in the range of $2,000 would quickly fall and one day likely become as ubiquitous in cars as air conditioning. Moreover, Navteq's dynamic mapping service offered promise as an additional revenue stream, making the $376 million in revenues the company expected to generate in 2004 and $476 million in 2005 appear but a fraction of the numbers Navteq would likely post in the years to come.

Principal Subsidiaries: NAVTEQ North America, LLC; NAVTEQ International, LLC.

Principal Competitors: Tele Atlas NV; Intergraph Corporation.


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