* Handful of customers control majority of revenue
* Contract with China Mobile ends in December
* Company could be acquisition target -analyst
By Clare Baldwin
NEW YORK, June 25 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
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
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
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
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
"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)