諾基亞 (NOK) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your NAVTEQ Corporation fourth quarter 2006 earnings conference call.

My name is Jean and I will be your conference coordinator today. [OPERATOR INSTRUCTIONS].

At this time I'll turn the call over to your host, Mr. Tom Fox, Director of Investor Relations.

Sir, please proceed.

Good afternoon, everyone.

This is Tom Fox, Director of Investor Relations at NAVTEQ and welcome to our conference call to discuss financial results for the fourth quarter and fiscal year ended December 31, 2006.

With me today are Judson Green, President and CEO, and Dave Mullen, EVP and CFO.

By now you should have received a copy of our earnings release which was distributed earlier over the wire.

Today's call is available by webcast and is being recorded.

Information on the replay and the webcast is available in the release and on the Investor Relations section of our website at www.navteq.com.

Today's webcast also includes a PowerPoint slide presentation which you may access in the news and events section of our IR website.

Before we begin, I would like to remind you that some of the statements made during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based on management's current expectations, assumptions and projections about NAVTEQ at the time that the statements are made.

Such statements may include, but are not limited to, expectations of future financial performance and operating results, growth in unit volume including updates, our share of business, penetration rates, product release schedules for NAVTEQ and our customers, the decline of our distribution business, receipt of payments from customers, and the results of the integration of acquisitions or pending acquisitions.

The forward looking statements are subject to certain risks and uncertainties that may cause the actual results to differ materially from our past performance and our current expectations and projections.

For a discussion of these risks and factors that may affect future performance, please review the reports filed by NAVTEQ with the SEC.

In particular, note the risk factors set forth under item 1A, Risk Factors, in the Company's annual report on form 10-K for the fiscal year ended December 31, 2005, and under the same heading in the Company's quarterly report on Form 10-Q for the quarter ended July 2nd, 2006.

NAVTEQ disclaims any obligation to update or revise any forward-looking statements except as required by law.

A registration statement on Form S4 containing a proxy statement and prospectus of NAVTEQ and Traffic.com relating to the proposed merger of NAVTEQ and Traffic.com was declared effective by the SEC on February 1, 2007.

The definitive proxy statement prospectus has been sent to security holders of Tracffic.com seeking their approval of a proposed merger.

Investors and security holders are urged to read carefully the definitive proxy statement prospectus and any other relevant documents filed by either party with the SEC before making any voting or investment decision because they will contain important information regarding NAVTEQ, Traffic.com and the proposed merger.

We will begin today's call with some opening remarks from Judson, then Dave will walk you through some additional details on the quarter.

Judson will add a few closing remarks and finally we will take your questions.

During the question and answer session we would ask that you limit yourself to one question and one follow up.

If you have additional questions, please re-enter the queue.

We will finish at 6:00 p.m.

Eastern Time.

I would now like to turn the call over to Judson.

Thanks, Tom.

Good afternoon, everybody, and thank you for joining us.

We are pleased to report another quarter of record performance and the end of another productive year for the company.

For the quarter, we achieved revenue of $180.7 million which represented growth of 24% over the fourth quarter of 2005.

Excluding the distribution business which was down in the quarter compared to the prior year, revenue was up 30%.

The revenue increase was driven by continued growth in map units or onboard applications which were up 33% when compared to the fourth quarter a year ago.

Operating income in the fourth quarter grew 51% over the year ago period to $62.8 million.

Net income grew 55% to $42.9 million in the quarter and earnings per diluted share increased 54% to $0.45.

In terms of full year results, revenue of $581.6 million grew 17% over 2005.

Excluding the distribution business, which was also down on a full year basis, revenue grew 23% over 2005.

Full year map units rose 39% over 2005 to 10.9 million.

Operating income for the full year climbed 15% to $153.7 million.

Net income for 2006 was $110 million and earnings per diluted share for the full year were $1.15.

The company continued to generate strong cash flow.

Net cash provided by operating activities was $140 million for the full year.

Even after funding the Map Network acquisition, we ended the year with $322.5 million in cash and marketable securities and no debt.

2006 was another remarkable year with respect to the growth of the navigation industry.

First, penetration of In-Dash systems continued to rise steadily despite a sluggish vehicle environment and the fact that the retail price of the systems generally remained at $2,000 or more.

Second, portable navigation devices sustained their growth momentum with NAVTEQ units for these devices climbing 42% in the fourth quarter over the prior year.

And third, wireless applications for the mobile phone gained their first real traction with consumers in the U.S. led by Verizon's aggressive marketing of its VD Navigator service.

Looking back on the year, I am pleased with the way we executed in light of three significant challenges.

First, on favorable conditions in the automotive sector, particularly in the U.S., caused in large part by higher interest rates and surging oil prices during the summer months.

Second, the anticipated decline in our distribution services business which we have discussed on a number of our calls.

And third, the delinquent customer situation which has improved but still remains an issue.

During the fourth quarter we received additional payments from this customer but because we went to a cash basis for revenue recognition in the third quarter, we have deferred recognition of $4 million in revenue as of year end.

Turning to our revenue performance, as was stated in the press release, our European business grew 34% in dollars and 25% on a constant currency basis in Q4, its best year over year quarterly growth rate in nearly 2 years.

The improvement was primarily due to strength in our portable device business.

For the full year, European revenue grew 14% in dollars and 12% on a constant currency basis.

North American revenue grew 17% in the quarter and 25% for the full year.

I'd now like to spend a few moments talking about Q4 developments in each of the major businesses and provide some of the important statistics for the full year.

I'll begin with the European In-Dash business where Q4 unit growth and revenue contributions showed improvement compared to the first 9 months of the year due in part to a more significant contribution from our Map Update program.

According to Global Insight, overall car sales in Western Europe grew 3% in the fourth quarter over the prior year.

Luxury car sales were mixed with overall sales at BMW and Audi up and Daimler Chrysler down.

In terms of key models for navigation, Q4 sales of the BMW 7 Series, Audi A4 and Volvo V70 were all up modestly over the prior year, but the BMW 5 series, Mercedes E-Class, and Audi A6 were flat to down slightly.

For the full year, adoption, or the percentage of cars sold that offered In-Dash Navigation, was over 80% which has been the case for the past few years and effectively represents full adoption at the current price point for In-Dash systems.

Navigation take rates continued to grow in Q4 and we again detected relative strength in the mid priced C segment as we have all year suggesting a more modest substitution impact from PNDs than we had anticipated.

We estimate overall penetration of In-Dash navigation systems in Western Europe at approximately 13.6% in 2006 compared to 13.1% in the prior year.

In the North American In-Dash business, we faced a difficult year over year comparison due to particularly strong promotional activity by the Detroit automakers in the fourth quarter of 2005.

Economic conditions did improve with gas prices dropping and interest rates holding steady.

According to Global Insight, Q4 car sales in North America were up about 1% compared to the prior year.

Lower gasoline prices helped SUV sales rise 9%.

However, the growth was driven by compact SUVs which were up 34%.

Full size and luxury SUVs were actually flat year over year.

In addition, minivans and pickups were down 9%, luxury cars dropped by 11%, and small to mid sized cars were up 8%.

These trends are important because larger SUVs and luxury cars tend to have much higher take rates for navigation than smaller, less expensive vehicles.

While we are disappointed with these trends, we made significant progress in terms of the adoption of In-Dash systems on car models in the U.S.

On a full year basis, adoption rose to 51% in 2006 compared to 45% in 2005.

In Q4, navigation was offered for the first time on 6 models, the Mitsubishi Outlander, Dodge Caliber, Jeep Compass, Ford Edge, Ford Mustang, and Lincoln MKX.

For the full year, the penetration rate in North America increased almost 2 full percentage points compared to 2005 due primarily to good performance on the part of the Japanese manufacturers.

However, that penetration growth was dampened somewhat by the heavier mix of fleet sales for the domestic manufacturers.

We estimate overall penetration of in-dash systems in North America at 8.4% in 2006 compared to 6.7% in the prior year.

In 2006 we saw hard disc drive systems launched on several new platforms bringing the total number of vehicle models on hard disc platforms to 6 in Europe and 13 in North America.

We expect these figures to increase in 2007 to 23 in Europe and 32 in the U.S.

As I mentioned briefly a moment ago, our update program which we call the renewal program for Maps, delivered more meaningful results in Q4.

For the full year, Map Updates accounted for approximately 15% of our total In-Dash map units compared to roughly 12% in 2005.

We expect to build on this momentum this year.

Turning to the portable device business, we saw terrific performance overall in Q4 driven by significant improvement in our European business and remarkable volume increases in the U.S.

In Europe, we estimate that the portable device category overall continued to grow robustly in the fourth quarter and for the full year.

Growth was helped by mass merchandisers who played a much larger role in the category during the year.

During the quarter we recognized our first revenue from the new Tom Tom I Europe product offering full continental coverage which drove solid sequential improvement in our share of business.

We also saw particularly good performance from Garmin which strengthened its number 2 position in Europe and Median as well.

In the U.S., we estimate that unit sales for the entire portable device category nearly tripled in 2006.

Popular retailers like Best Buy, Circuit City, Staples, Target, Wal-Mart, Amazon.Com and CompUSA significantly increased the number of devices they offer and intensified their promotion of the category across a number of print, broadcast and digital media.

Moreover, retail prices fell steadily throughout the year.

It is now fairly easy to find nicely featured devices priced well below $500 and there are a handful of devices that have reached the sub $300 price level.

With respect to our Asia Pacific business, we wrote off significant receivables at our South Korean subsidiary in Q4 that caused revenue to fall short of our expectations.

We are taking actions to improve our performance in South Korea and expect better results in 2007.

Turning to the database, we did not launch maps of any new countries in Q4, but we did add 6 countries during the year and ended 2006 with a total of 59.

From a content perspective, 2006 was a very productive year in which we launched a number of new features and enhancements.

Since our last earnings call, we debuted 2 exciting content offerings which were featured in our booth last month at the Consumer Electronics Show.

First, NAVTEQ Discover Cities, which is a bundle of urban pedestrian content designed to give users of PNDs and mobile phones instant access to rich, location-relevant detail.

The product covers 10 of the largest U.S. cities and includes restaurant reviews, voters travel guide information, and useful information on city neighborhoods.

And second, we announced NAVTEQ Traffic Patterns which enables our customers to build intelligence into their routing algorithms by utilizing historical database of actual traffic conditions.

Our customers will now be able to suggest routes based not just on the shortest distance and posted speed limits, but also on the estimated traffic flow for a particular day and time.

Both Discover Cities and Traffic Patterns are premium content for which we intend to charge incrementally.

After a major 5 year development effort, we implemented a completely new technology platform for map building and data delivery during the quarter.

This platform should enable us to work more efficiently in the field, integrate new content more rapidly, and deliver fresh data more frequently to customers.

The platform, which is based on Oracle and Sun technology, was rolled out to our field and production staff in Q4 and early results are promising.

During the quarter, we consummated the sale of our navigation software business to Navigan, one of our customers.

Some of you may be aware that NAVTEQ has played a role in the In-Dash navigation software business for a number of years.

We had developed our own suite of navigation software for route calculation, route guidance, and map display as well as a standard data storage format to facilitate the entry of new players into the in-dash navigation space which it accomplished.

For a variety of reasons, we felt we could not justify the significant investment required to keep the product technologically state of the art.

So in order to better serve the customers using the software and optimize our own product investment, we decided to divest the business.

This sale did not have an impact on our Q4 results.

Next, I'd like to provide a quick update on the acquisitions we announced in the fourth quarter.

First, the acquisition of the Map Network closed on December 15 and integration is proceeding smoothly.

Shane Green, TMN CEO, will continue to run the unit as a subsidiary.

The consolidation of two weeks of TMN financial results did not have a material impact on our Q4 results.

Second, the proxy statement prospectus has been declared effective by the SEC and has been mailed to the Traffic.com stockholders in connection with the Traffic.com stockholders' meeting scheduled for March 6.

We are excited about this acquisition and expect to close the transaction shortly after the stockholders' meeting.

Because there is an outstanding prospectus on the pending acquisition, other than what we discuss in our prepared remarks, we will not be able to answer questions about Traffic.com on today's call.

Finally, before I turn it over to Dave, I'd like to announce that NAVTEQ will be moving to a new corporate headquarters in the Chicago area during the second half of 2007.

Our new home will be in an office tower not far from our current location at the Merchandise Mart.

While we have enjoyed our 6 years here at the Mart, we came to the end of our lease and, after carefully reviewing alternatives, decided that moving made the most sense.

We look forward to welcoming visitors to our new home later this year.

I will now turn the call over to Dave.

Thanks, Judson.

As I provide some additional color on our results, please note that for comparison purposes, our fiscal fourth quarter had 91 days compared to 97 days in last year's Q4 and 91 days in Q3.

For the most part, my commentary will focus on fourth quarter trends.

Additional information on the full year results can be found in the PowerPoint presentation that Tom referred to earlier.

First, with respect to foreign currency, the average dollar euro exchange rate for the fourth quarter was $1.29, which compares to $1.19 in last year's fourth quarter.

The stronger Euro increased fourth quarter revenue by $7.5 million and EPS by $0.03 compared to 2005.

Excluding the favorable impact of currency, Q4 revenue would have grown by 19% over the prior year.

For the full year, the average exchange rate of $1.26 was slightly higher than in 2005 resulting in a $5.2 million benefit to revenue and a $0.01 benefit to EPS compared to 2005.

On board revenue represented approximately 88% of our revenue in the fourth quarter.

Distribution comprised approximately 13% of our total revenue.

We performed distribution services on 36% of our total In-Dash units, which was down from 41% in the prior year.

The year-over-year decline in distribution is caused by three factors.

First, the mix of business between distribution and non-distribution customers.

Second, the loss of distribution business to other non-map OEM suppliers on certain vehicle models at PSA, Peugeot, and Audi in Europe.

And third, to a lesser extent, the introduction of hard disk drive navigation systems.

As a result, on a standalone basis, distribution revenue was down 7% in Q4 from the prior year which of course has a dampening effect on overall revenue growth.

Excluding distribution, Q4 revenue actually grew 30% over the prior year.

We've calculated the change in the license fees paid to us from the fourth quarter of last year to the fourth quarter of this year by our top 10 customers in each of Europe and the Americas on their most popular NAVTEQ map product.

This percentage change reflects base license fee reductions as well as volume discounts and other considerations.

For the fourth quarter of 2006, license fees at our top 10 customers decreased by an average of approximately 9% compared to a year ago.

In terms of our full year 2006 revenue by customer application, In-Dash vehicle business represented 62% compared to 70% in 2005.

Portable device business represented 25% compared to 19% in 2005.

Internet and wireless business represented 5% as it did last year.

Enterprise revenue represented 4% compared to 2% in 2005.

And services and other revenue which includes the traffic business, our technical consulting services, and Map Network, represented 4% as it did last year.

With respect to our operating expenses, our costs grew 13% in Q4 over the prior year compared to 27% growth in Q1, 20% growth in Q2, and 14% growth in Q3.

On a constant currency basis growth in Q4 expenses would have been only 6%.

The decelerating growth in spending was due to first, a revised entry year spending plan which we described at the beginning of 2006, and second, a cost management program we began in the second quarter which was effective in reducing our second half non-distribution related spending.

Database creation and distribution costs were up 15% over the year-ago period.

Distribution related and other direct costs represented approximately 18% of total Company-wide expenses in the quarter.

SG&A expenses grew 8% in the quarter compared to the year-ago period.

Again, these modest growth rates were in line with our plans.

Q4 reflected the full expensing of options in accordance with FAS 123(R) which was not the case in Q4 of 2005.

Stock based compensation expense was $3.3 million in Q4 compared to $2.2 million in the prior year.

For the full year, stock based compensation expense totaled 14.5 million compared to 9.1 million in 2005.

Our operating margin in the quarter was 34.8% compared to 28.5% in the year-ago quarter.

Our effective tax rate was 34.7% in Q4 which was slightly higher than the rate through the first 9 months due to a greater mix of income coming form the U.S. which has a higher statutory rate.

To remind everyone, we are now a full cash taxpayer in Europe but not in the U.S.

Finally, I would like to finish up by sharing our expectations for 2007 financial results which are summarized in the press release.

We expect total revenue in the range of 720 to 750 million.

This includes 10 months of Traffic.com revenue and of course 12 months of the Map Network's revenue.

With respect to the major revenue areas, while Europe has reached more or less full adoption for In-Dash systems at over 80%, we think the adoption rate in North America should exceed 65% compared to 51% in 2006.

We expect penetration increases for In-Dash systems of about a percentage point in both Western Europe and North America.

We expect the distribution business to continue its gradual decline in 2007.

On a full year basis, the distribution basis might represent a low teens percentage of total revenue and we would expect the distribution mix of In-Dash Maps to drop below 40%.

Based on what our customers are telling us, our review of available third party research, and our own assessment, we anticipate continued growth in portable navigation and believe the overall category could be up by 50% in Europe and the U.S. driven in part by more significant contributions from Smart Phone Solutions in Europe.

Unit growth is again expected to be partially offset by license fee reductions in volume discounts which are an ongoing part of our business.

With respect to profitability, we're targeting roughly 100 basis points of operating margin improvement in our business excluding acquisition.

However, the dilutive impact of the acquisitions will depress our fully consolidated operating margin.

We expected earnings per diluted share for the year in the range $1.20 to $1.26 on a GAAP basis.

In arriving at this guidance, we assume the following.

An effective tax rate for the year of around 29%.

This is lower than 2006 due to the full year impact of favorable statutory rate adjustments in the Netherlands.

An average U.S. dollar euro exchange rate of $1.27.

Average diluted shares outstanding of approximately 100 million.

Stock based compensation expense of 18 million compared to 14.5 million in 2006.

Additional one-time rent expense of $3.5 million related to the move of our corporate headquarters which overlaps with rent expense we incur for our current location.

I should mention that this is not duplicate rent from a cash standpoint due to landlord concessions.

And finally, aggregate revenue of approximately $60 million and standalone EPS dilution of approximately $0.25 from the acquisitions of the Map Network and the pending acquisition of Traffic.com.

We would like to make it clear that this dilution is consistent with the guidance we provided when the deals were announced taking into account the fact that some of the synergies and cost savings expected from these deals are reflected in NAVTEQ's base business assumptions.

In terms of the sensitivity of our 2006 expectations to changes in the dollar/euro exchange rate, each $0.01 change in the average annual rate is expected to result in a 3.1 million change in revenue and a $1.1 million change in net income on a full year basis.

With respect to the seasonality of our business, the pattern of distribution of our revenue and earnings in 2007 including the acquisitions, should be similar to 2006 except for the following.

The consolidation of only one month of Traffic.com's revenue in our first quarter and the growing importance of the retail driven portable business means that we expect a slightly smaller portion of our total revenue to fall into the first quarter and a slightly larger portion of our total income to fall into the fourth quarter as compared to 2006.

The company expects fixed asset capital spending to be approximately $60 million in 2007 compared to about $18 million in 2006.

This is a significant increase compared to prior years and is due to 2 factors.

First, we sold improvements related to the move to the new headquarters that Judson mentioned.

The vast majority of these improvements will be reimbursed by our landlord.

However, accounting rules dictate that the Company record that reimbursement as an offset to rent expense over the life of the lease rather than as an offset to capital expenditures.

And second, the consolidation of 10 months of Traffic.com's capital spending, which should be about $15 million.

With that I'd like to turn it back over to Judson.

Thanks, Dave.

I would like to wrap up the call this afternoon, as I usually do, by offering a few comments on our outlook for the business.

I am pleased with all that we accomplished in 2006.

We were able to win a significant number of important platform decisions at major OEMs, some of which we have shared with you, that will make NAVTEQ the map that powers the next, the vast majority of next generation In-Dash systems in Europe and North America and preserves our leadership position in this business fro years to come.

On the consumer side, we grew and strengthened our relationships with the leaders in the PND space and cultivated new ones with wireless carriers and handset manufacturers.

We implemented a new and improved technology platform for map building and content management.

And we enhanced the quality of our database, expanded our portfolio content, and grew our global coverage footprint.

In terms of the challenges, it was really the car sales mix shift in the U.S. and a number of product launch delays in the European portable business that caused us to fall short of our original revenue target.

However, we are proud of the fact that when our revenue did not develop as we originally anticipated, we responded by decreasing our second half expenses and mitigating the earnings impact of the revenue shortfall.

In our base business, we expect good growth and continued margin improvement in 2007.

While there are clearly a number of factors that could influence our 2007 results, I see 5 in particular that are worth noting.

First, car sales trends in western Europe and North America.

In-Dash still represents well over half of our total revenue so conditions in this sector will again play a key role in our performance.

Second, the increasing consumer appetite for onboard portable solutions.

We expect the popularity of these devices to be the primary driver of our 2007 revenue growth.

Third, contributions from emerging areas such as off board solutions for mobile phones and integrated real time traffic services for GPS enabled devices.

While neither of these is likely to be a material contributor in 2007 on its own, this should be an important year in terms of products news and the availability of new services for both consumers and enterprises.

Fourth, foreign exchange rates which can fluctuate significantly and sometimes mask the true growth profile of our business.

And fifth, the performance of our recent acquisition.

Before we open the line for questions, I will conclude by saying I feel very good about how we ended 2006 and I am confident about our ability to execute on our plans for 2007.

We look forward to reporting our progress to you in the months ahead.

This concludes our prepared remarks, so thank you for your attention.

Now, I would like to ask the operator to open the lines so that we might answer your questions.

[OPERATOR INSTRUCTIONS].

We'll take a question from Mr. Brett Manderfeld of Piper Jaffrey.

Good afternoon, guys, and nice quarter.

I was hoping you could comment a little bit about the outlook for pricing looking into '07 preferably by the two areas PNDs and auto, but just overall would be dine as well.

And then I have a follow-up.

Thanks.

I don't think -- Brett, I don't think that we've seen any particular change in the pricing environments in recent days.

And I think our expectations for '07 in both categories would be comparable to what they've been in the past.

So with the significant drop in the PND overall, retail price would you expect to see much change in your unit price?

I think that we feel constant pressure on our pricing from all of our customers.

It's not just limited in the portable space.

And I think that we have an expectation, as we've said all along, that our price will decline and we've outlined the parameters for that.

And as I said before, I don't think it's going to be much different in 2007.

Okay, good.

And just related to the dilution, I understand what you said, Judson, that you wouldn't comment on the deal right now.

But the $0.25, vis-à-vis the original $0.11 to $0.17 dilution, would -- is it fair to assume that you're at the high end of that and then the Map Network would be kind of the difference there, the delta?

It doesn't account for all the difference, Brett.

I think you have to add the two together.

We weren't as definitive about the Map Network because it was much smaller.

And what we said was, the difference is really incorporated into our base business assumption.

So some of the synergies and cost reductions comes about in our base business because of what we don't have to do there now that we own these properties.

Okay, very good.

Thank you.

We'll take our next question from Noelle Swatland of Lehman Brothers.

Hi, guys.

Just as a starting point for the first quarter, I think last year you planned your spending more heavily weighted towards the first half and then eased up in the second half.

Can you just talk about the dynamics and what we should expect this year?

Thanks.

Well, I think we did describe what we expected this year by saying that we expect that our spending patterns to be comparable to what they were last year.

With the exception of the fact that Traffic.com is not coming on until -- we only get one month of their operations in the first quarter.

And I think 2005 -- excuse me, 2006, relative to 2004 and 2005, those two years had steeper spending within the year.

Their quarter to quarter was much higher than it was in 2006 where the increases were flatter.

And I think we expect a spending trend more like 2006 than like 2004 and 2005.

I hope that's helpful.

Yeah, that's helpful.

I misunderstood.

I thought you were just talking about the revenue previously for the guidance this year.

That's great, thank you.

We'll take our next question from Bill Benton of William Blair.

Good afternoon, guys.

One quick one.

If you could just give me a little color on the A/R.

It was up obviously pretty significant last year sequentially.

Is that just the PND seasonality?

And then if you could just comment broadly on I guess discussion of new traffic congestion initiatives and how that could impact your business, how you guys intend to exploit that.

On the A/R Bill, I'll answer that and then Judson can talk to you about traffic.

But actually the A/R in Q4 is up seasonally and you're right, because of the heavy sales activity.

Actually our receivables are healthier in terms of weighted average days outstanding, at least the way we calculate it.

It's the healthiest it's been since I got with the company 4 years ago.

Bill, you then asked -- you mentioned new traffic congestion initiatives.

Can you clarify what your question is there?

Just as part of Bush's budget request to somehow reduce traffic congestion, obviously I think to reduce overall fuel usage and everything else I think.

So I think he's looking to put more dollars towards reducing highway congestion and I'm just trying to get a sense on how you think that may play into some of your business plans.

I think it would be impossible for me to estimate what the government might do or might not do or how successful it might be or it might not be.

I mean, I think if I go up to 40,000 feet and I think about traffic going forward, the immense infrastructure that would need to be successfully invested to make a difference in traffic congestion, we continue to see -- we've seen historical trends that traffic is getting worse year over year and I'm not optimistic and I'm not aware of what would fundamentally change that trend going forward.

So that's a long way of saying that I think that we feel that we're doing the appropriate thing to focus on expanding our existing real time traffic business and to find whatever variations to our traffic products and services might be appropriate to help with overall traffic congestion.

So it doesn't sound like you've seen anything specific that you are responding to at this time.

That's correct.

Okay, thanks.

We'll take our next question from Robert Schwartz of Jeffries.

Please proceed.

Thanks so much.

I was hoping you can help me reconcile some thinking here.

It looks like your PND unit growth was about 42% year on year compared to the guidance, potentially much higher next year and higher than the last 2 quarters.

And I think of your PND success and at the auto being much stronger, and I'm wondering why this -- how I reconcile that with the fact that it looks like you outperformed Europe this year given that you talked about European auto sales being stronger than the U.S.

So I'm trying to put those things together to try to figure out the dollar flow so maybe you can help me reconcile this.

It looks like PND -- the two questions I guess would be PND being at 42% growth, how does that compare to what your guidance is for Q4 and how do I reconcile that?

And then, too, why Europe appears not to have grown on a dollar basis as much given what you said about the automobiles?

You know, a lot of that is timing if I understood right.

For the full year, our nav units were up 63% year over year.

So we're talking about units going up 50%, as much as 50%, that's a slower growth rate than 2006.

So maybe we didn't explain that clearly.

With respect to automotive, our units were up, I think, 12% year over year.

And I don't think we gave unit guidance.

We gave some penetration guidance which should get you pretty much pretty close.

Right.

So Robert, if you want -- I'm not sure I answered your question right.

If you want to ask it again or make -- you know, clarify it, that would probably be helpful if we didn't get to your answer.

I'll follow up with you offline.

Okay, thanks.

And we'll take our next question from Jay of Merrill Lynch.

Thanks.

Good afternoon.

Two questions.

Judson, even without acquisitions, but certainly with the acquisitions, your business is becoming increasingly complex.

From the time we first got involved with the name two years ago, it was relatively straightforward with the auto OEM business.

Now you have multiple types of products, more customers of course, additional license models, pricing and the like.

So just at a very high level perhaps, just talk about how you're thinking about this increasingly complex business from the simpler business that you had just a few years ago.

And then secondly, in terms of investments in the business, maybe as a follow on to the first question, given the choices between or trade offs between coverage investments, new countries, new markets, building out existing countries -- versus investments in new applications and services of the kind for example that we did see at CES.

Talk about your thought process in terms of those tradeoffs.

You know, building out a country in Europe versus investing in software or some kind of application.

Thank you.

Okay.

The first question had to do with the fact that the business is more complex and it was a lot simpler several year, you're absolutely correct, Jay, that that is true.

But perhaps I should just say that fundamentally the vision and mission statement of the business hasn't changed since 2000 when I came in.

We are still focused on the map.

I would perhaps slightly broaden that term to say location based content and everything that we're doing has to do, today, with location based content.

I might also point out that even to the extent, as I said in my prepared remarks, that we were involved in some software, as we just reported we have divested ourselves of that software business.

So we are, I think very focused on what we think our core competency is and the complexity merely comes in from the fact that you are correct that there are more and more industries, more and more customers, more and more variations.

But at the heart of it, it's location based content.

So I think we have done a very good job of organizing the company, organizing our efforts, evolving that organization as we go forward to deal with this increasing complexity.

And relative to many other companies who try to do many different things in vastly different areas requiring vastly different core competencies, I would say that we're every bit as focused today as we were in 2000 when we reengineered the company.

With respect to the second question which had to do with really the allocation of investment dollars, we've described that in the past.

And although it may -- you mentioned applications and software and frankly that's really not what we're focused on.

We're again, focused on location based content.

But that could involve either static content or dynamic content like real time traffic or real time event information, etc.

And the process that has proven well for us, proven effective for us, has been to for us to not only do our own internal thinking about the future -- we have a strategic planning department, we have a five year planning process.

We've got a very disciplined and effective annual operating plan process.

But the most important component of what we do is to listen to the breadth of our customers and to spend in depth time with many of them to better understand their perspective of the market.

Where is it going?

What are the priorities?

And then of course we have what turns out to be frankly a multi month process internally to sort out what we think are the right priorities.

Now to be a little more specific, you mentioned a country.

You know, we may trade off, as we have in '06, opening one or two additional countries because when we did the analysis, we determined it wasn't as sufficient or the highest use, return on our use of limited resources.

And we may have put proportionately more money in some other new product.

I mentioned a couple of them on this phone call earlier.

So I think we have a very rational prioritization process that fundamentally is driven by what our customers tell us.

And what that means is fundamentally driven by what we think is going to be happening in the marketplace and what role we can best play in that marketplace which again, is really focused on location based content.

I hope that tries -- I hope that at least in part answers your 2 questions.

Sure, and just to clarify, I wasn't suggesting you were not focusing on the core business or your core competencies or the mission It was more about relating forecasting and outlook to the complexity because it just becomes I would think a little bit more difficult to deal with all the different variables, particularly the growth of wireless for example.

You're clearly right about that.

I think pre-IPO -- well actually if you go back to even 2000, I think it was most, the grand majority of our business was automotive based, I think.

And in the IPO it was probably in the 80% range.

I think we mentioned earlier in the prepared remarks, next year should be down in the low 60% range.

So what does make it slightly more challenging is the fact that the portable and consumer sector of this market is harder to estimate and forecast.

Now having said that, we're going to endeavor and we aspire to becoming better at that as we go through time.

We certainly expect to be better at it in '07 than '06, but it clearly is fundamentally just structurally a more difficult business to estimate than what we've been accustomed to.

Thanks guys.

We'll take our next question from Brandon Dobell with Credit Suisse.

Hi, thanks.

Judson, at the outset you talked a bit about some premium content, the Discover Cities and Traffic Patterns.

As you think about premium content and your intent to charge more kind of an up sell to that, how confident are you that you can actually do that, that you won't get too much pushback from your vendors or that they'll just view it as a nice to have, not a have to have?

Kind of how can we balance the opportunity versus the potential for kind of no extra ASP help or the potential for the value from the Traffic.com acquisition to be diluted if you can't charge more for what those guys do?

Well I would say, since you brought up Traffic.com, and that is an example of premium price content or separately priced content, regardless of what business model ultimately -- or business models ultimately become in vogue, we've been charging incrementally for real time traffic since 2004 when we launched this business.

To your broader question about incrementally priced content, understand that each year we are going to be adding a variety of things into the core database and not charging incrementally.

We're going to make a judgment as to what really is a very -- some of the elements that are important to uphold and improve the value of the whole value proposition.

But there are in our opinion, and we now have evidence of this with respect to 8A attributes, with respect to real time traffic, with respect to the Discover Cities that I've mentioned and several other examples, premium points of interest for example, there are other forms of content that may, that fundamentally require incremental investment, that require extra effort, that are justifiable in terms of charging incrementally.

So I think it is going to be a balancing process, but we do see this as we've now seen for the last 2 or 3 years as an opportunity for us to at least in part offset some of the price degradation from the core map.

And we're very focused on it.

Do you think there's a difference between the In-Dash or the mobile markets in terms of the recent activity to content?

There will be differences I think because although they are very similar in many respects, there are some differences.

I think on the portable there might be more interest in things that are more pedestrian oriented.

Within the automotive arena, there may be more ability to handle more content and more sophisticated application which we are not able to do so easily on a portable device.

So there will be some fundamental differences between consumer and automotive, but obviously we'll be evaluating all of our opportunities and pursuing those that we think have the most promise for return.

Great, thanks a lot.

We'll take our next question from Maynard Um with UBS.

Hi.

Thank you.

Can you offer any thoughts on how the mobile business model might change?

You know, you have things like Google maps on handsets I presume as transaction based and then you have a model where you get a small piece of the per month fees.

And then you have Nokia that announced kind of the free downloadable maps.

I mean, can you just talk about how you anticipate that model to change over time?

And then secondly if you could, on the exchange rate of $1.27, kind of the thought process there.

It looks like it's below kind of the spot rate that we have today.

Thanks.

Yeah.

I think one thing that's very clear to us is that we need to be flexible with respect to the business model that we offer up and that we ought to be expecting that business models will change over time.

And if we're astute, we'll react to that.

If I can bring it home to, instead of speculating what's going to happen in the future, if I can bring it home to real time traffic, when we launched in 2004, initially through XM Satellite Radio, because they were on a subscription based model and their consumers were -- it was easy for their end consumers to adapt to that model, that was the model that we offered.

But the fact of the matter is, we think each customer will select either one or perhaps more than one and perhaps hybrids of different business models.

And beyond subscription, your thoughts then turn to transaction as a very realistic model.

Another very realistic model is lifetime pricing where, instead of having to do subscriptions of transactions, there is a one time fee paid at the beginning of the service for the lifetime of that device and service which has its own appeal in some respects to consumers.

And then of course an advertising based model where you might have it transparent to the consumer and it appears free, but there in fact is a way for the businesses to be remunerated.

So I think it would be -- I think we need to be flexible.

I think it would be foolish for us to try to estimate which is going to be the most popular and whatever turns out to be, I'm sure it will change over time.

The key is that there will be multiple business models going forward and we'll adapt to them as our customers and their end consumers require.

With respect to the -- you asked about the exchange rate.

And we simply chose $1.27 because that's what we used in our internal planning processes.

So it just makes it easier for us.

And if you can tell me what the rate will be at the end of the year and guarantee it, I would really appreciate it.

Lastly, will you be providing the quarterly breakouts for the traffic plus NAVTEQ and the Map Network once the Traffic.com acquisition is done?

You know, we've got -- unfortunately I don't have an answer for you yet.

We've got to see what that looks like when we put it together.

We're still evaluating what the best way to do that is.

And there is segment reporting requirements that we're trying to figure out how we respond to that.

I think we'll try to give you as much transparency as we feel comfortable doing, understanding that presumably there will be integration of the businesses and it will be harder and harder to perhaps -- it will perhaps be harder and harder to see what the differences are.

But I think in the near term we'll give you as much transparency as we can.

Great.

Thank you.

We'll take our next question from Steve Lidberg of Pacific Crest Securities.

Please proceed.

Good afternoon, this is David in for Steve.

Hoping you can provide some thoughts as to your view of the competitive dynamics in the auto segment.

You know, looking at market share, you're fairly dominant and I'm wondering how you see this progressing over the next say two years?

Thank you.

Well I think we've been at this part of the business really since just about our founding or shortly thereafter.

So call that 22 years of experience.

I think we're very pleased with our positioning, we're pleased with how we have learned on how to do this aspect of the balance sheet.

I think I mentioned earlier in my prepared remarks that I was very pleased with the number of platform wins.

Over the quarters we have shared some of that news with you as it comes along.

In some cases it's not appropriate or approved to be shared publicly.

But I would simply say that with respect to the dynamics of decision-making within this part of the business, the fact that it does take long lead times and decision times and build design in times, build in times, that we're very happy with where we are and we don't expect any significant change over the next couple of years, I think is maybe one way to summarize.

Great, thank you.

We'll take our next question from Jeetil Patel of Deutsche Bank.

This is actually Azim in for Jeetil.

Two questions.

Firstly, [inaudible] could you just sort of talk about the sort of earlier response to your receiving from integrating Taffic.com into your products and do you see more of an opportunity to sort of up sell it into the PND side or into the phone side or into the In-Dash side?

Or is it kind of all of the above?

And the second question is, could you also please talk a little bit more about the sort of commercial government opportunity?

It seems like the revenues for that segment more than doubled from '05 to '06.

I'm just trying to understand what sort of growth you're expecting for that in '07 and how we can kind of model it and what are sort of the margins associated with that category?

Thank you.

Okay, there was a lot in those questions.

I guess to start, I think as we said at the outset, we really don't think it is appropriate for us to answer any question with respect to Traffic.com.

We can talk about our real time traffic business because we have a balance sheet, an ongoing business.

We've been in this business since 2004.

But if your question specifically has to do with what's going to happen after we close Traffic.com, I think we would prefer not to go there because that's just not appropriate right now.

With respect to your second question, I think you noticed a slightly higher contribution from both government and enterprise if I'm not mistaken.

And the enterprise sector is not just government but also, if you will, commercial business solutions of various kinds, various applications in various industries.

This obviously represents another use of our products and services and although -- and frankly I don't have any macroeconomic numbers to, off the top of my head, to talk about the growth of enterprise solutions.

But it's a logical thing to use location based content in applications for productivity improvement, for asset tracking, for a variety of things to make business solutions more efficient when you introduce location and location based content.

With respect to your, the aspect of your question about margins and everything, I can just say this did double as you point out, but it's on a very small base and I would not read too much into it.

Okay, fair enough.

Thank you.

And we'll take our next question from Peter Barry of Bear Stearns.

Good afternoon, gentlemen.

I may have missed this, but did you speak to market shares North America and Europe?

And if not, will you share those with us?

Well we typically -- we just don't talk about our shares of business.

It's just not -- first of all, it's a very difficult thing to estimate and increasingly difficult in the consumer portable part of the business.

So we just don't typically disclose this is a quarterly call.

Judson, you can't give us some directional guidance in that regard, can you?

I think I've said that I'm actually very pleased with our positioning.

We're working on strengthening, building new relationships where we don't have then, strengthening the ones that we have.

And I think I have indicated that with respect to our automotive business, I think I just said a few minutes ago that we don't expect any significant change in that.

And my second question has to do with your sense of the opportunity that remains in the Asia Pacific market.

Well that's an interesting question.

We think -- we don't pretend to be experts on this although I will tell you that we have had employees in the Asia Pacific region for many years.

We've had an office in Tokyo for more than 10 years.

We've got multiple offices in half a dozen countries at least in Asia Pacific.

We see the opportunity as being pretty large.

The difficulty is -- I mean none of which meaningfully large, but the difficulty is estimating the growth, the rate of growth in this part of the world.

And so I think again we're looking at this as an opportunity for growth and we're going to continue to staff appropriately, but I can't be more specific as to how fast it grows and how big it gets.

It's obviously got our attention as I think it has the attention of most any company that's global in its aspirations.

Thank you very much.

Peter, we don't want to be evasive on the share of business question, but I think we'll have more visibility on that once other people report.

And we'll take our last question from Ronald Phillis of Banc of America Securities.

Hi, this is Jedam Nathan for Ron.

Looking at your In-Dash penetration in North America, I saw it to be up one percentage point.

That seems low compared to considering that your adoption rate goes up by 10 percentage points.

Can you kind of give us some more details on that?

Well, the adoption rate remember has to do with when cars are offering navigation.

So first of all, that is a process that goes on throughout the course of the year as new models are introduced and as the OEMs decide to offer navigation on some of them.

Obviously one o the many things that we're doing it to try to cheerlead to get as many models introduced with navigation as an option as possible.

With respect to the relation to penetration, remember that the adoption is kind of the beginning of the consumer's decision cycle, right?

I mean, you first have to get awareness.

First of all you need awareness that navigation is even an option.

You need availability that is that it is offered and that you can order a model with nav.

And then there are many other steps in the process including what we have talked about many times in the past which is efforts to try to educate the dealerships in the sale of this new technology.

So there is, as we've learned, it takes awhile for that to be realized because simply said, if you introduce a particular model to a particular dealership and they've never had it before, the first thing that has to happen is that the salespeople on the show floor have to learn the technology.

They have to experience it, they have to get facile in terms of talking about it so that they can sell it effectively.

And of course we do things to try to move that along but that does take time.

So we're very pleased that the adoption rate has gone up, and frankly we're also pleased that even in light of some difficult automotive industry macroeconomics, we're seeing improvement in the penetration rate.

Great.

One last question -- do you have a plan on how many countries you're planning to kind of launch out in '07?

We do have some preliminary ideas but we would not disclose those at this time because one of the things that we want to do -- we obviously have some initial plans built into our annual operating plan, but we do also have, in addition to the prioritization process that I explained, we also have another process that as, during the course of the year we may change some of those plans and we may change rather quickly.

And we may decide that in one case we're going to put off the launch of a new country another 3 months or 6 months for other reasons unrelated to that country.

It may be some new idea or piece of content that we decide is higher priority.

For that reason, although I will say that we are planning to open some new countries in '07, I don't think it's appropriate for me to be more specific because we will amend our thinking over the course of the year.

Okay, thank you.

With that, I'll turn the call over to the presenters for closing remarks.

Thank you all for joining us, we appreciate it.

Good night.