IPO VIEW-China's AutoNavi depends on handful of customers
* Handful of customers control majority of revenue
* Contract with China Mobile ends in December
* Company could be acquisition target -analyst
NEW YORK, June 25 (Reuters) - AutoNavi Holdings Ltd AMAP.O, whose mapping technology comes pre-installed in some Audi AGs (NSUG.DE)s and BMWs (BMWG.DE)s in China, may be too dependent on a few customers -- including one whose contract is up for renewal in December -- to be a good bet for investors.
The Beijing-based company, which hopes to raise almost $100 million in its initial public offering next week, is betting that as disposable income and travel in China increase, more people will use digitized maps embedded in the dashboard of their car or on their mobile phone to navigate.
Based on its financial statements, so far AutoNavi's bet is correct: revenue grew each of the past three years and by 26 percent to $57.16 million in 2009. Net income due to shareholders nearly quadrupled to $10.39 million in the same period.
The company's backers also include funds affiliated with well-known venture capital firms Sequoia Capital and Kleiner Perkins Caufield Byers.
But AutoNavi's success is thinly sourced and revenue from one top customer could disappear entirely in the next six months.
Sales of auto-based navigation technology accounted for more than 60 percent of AutoNavi's 2009 revenue.
But only five customers, including Alpine Electronics (China) Co Ltd, China Ministry of Land Resources and AW (Shanghai) Autoparts Trading Co Ltd, accounted for about 70 percent of that business.
"(AutoNavi) faces potential significant disruptions in its operations if any one of these customers goes away, let alone the fact that it holds reduced negotiating power when contracting with these firms. Most notable on that front is the firm's relationship with China Mobile," said Morningstar IPO analyst Michael Gaiden.
AutoNavi also sells mapping technology for mobile phones to China Mobile (0941.HK), the world's largest mobile operator by number of subscribers.
Its claim on that relationship is tenuous. Its contract with China Mobile, which is a main component of a revenue stream that accounted for 9 percent of 2009 net revenue, expires in December. AutoNavi did not say whether the contract would be renewed and said it had little negotiating leverage because of China Mobile's dominant market position.
"We are looking at a relationship that could be a catastrophic loss," said IPO Boutique Senior Managing Partner Scott Sweet.
Analysts further warn that mapping data is becoming commoditized and AutoNavi faces stiff competition from a range of competitors including Nokia's (NOK1V.HE) Navteq, TomTom (TOM2.AS) and Google (GOOG.O).
They further warn that more cash-rich competitors could squeeze AutoNavi out of the market.
"There is definitely a large market for their products. The question is will they be able to keep their market share. It's my belief that they will not be able to keep their large market share based on the current and future competition," said Sweet.
AutoNavi -- with a price-to-book ratio of 3.1 -- is richly valued compared with some competitors, said Francis Gaskins, president of research firm IPOdesktop.com. Top U.S. navigation device maker Garmin (GRMN.O), for example, has a price-to-book value of 2.5, Gaskins said.
AutoNavi plans to sell 8.625 million American Depositary Shares for $10.50 to $12.50 each in an IPO currently scheduled to price on Tuesday. The shares are expected to begin trading on the Nasdaq on Wednesday under the symbol "AMAP."
AutoNavi declined to comment, citing a U.S. Securities and Exchange Commission-imposed quiet period.
AutoNavi claims a nearly 50 percent penetration, each, in the Chinese in-dash vehicle navigation market and by Internet users accessing map data from within China.
Josef Schuster, founder of Chicago-based IPO research house IPOX Schuster LLC, cites competition as a major concern for AutoNavi, but says the company's market share could be an attractive asset.
"If they are able to grow and maintain their market position, Garmin, TomTom or a car manufacturer might look at them as an acquisition target," he said. (Reporting by Clare Baldwin; Editing by Sofina Mirza-Reid)
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