Dutch firm TomTom's bet on services business starts paying off

(Reuters) - Dutch digital mapping company TomTom TOM2.AS beat second quarter expectations as strong performance at its automotives and licensing businesses partly offset weakness in its consumer products division, mainly wearable devices.

Its shares were up 6.5 percent in heavy volumes at 0857 GMT.

TomTom is betting on higher margin services, such as the sale of maps and software to car makers, fleet management systems and technology for self-driving cars, after a fall in popularity of portable navigation devices in recent years.

TomTom said its adjusted net profit in the second quarter fell 10 percent to 21.0 million euros ($24.22 million) due to the drop in consumer product sales.

“We view the weaker figures and write-downs in consumer (products) as less material,” Morgan Stanley analyst Andrew Humphrey said, adding the beat in automotive and licensing business gave the firm “firepower” for investment in technology.

The group said it had nominated SAP SAPG.DE executive board member Bernd Leukert to its supervisory board, a move Humphrey said was positive because of TomTom's technology shift.

Earlier this month, the Amsterdam-based company signed a deal with Chinese internet company Baidu BIDU.O to collaborate on digital maps used for computer-assisted driving.

The step was seen as an important step in TomTom's competition with digital map maker HERE, the digital mapping firm owned by BMW BMWG.DE, Daimler DAIGn.DE, Audi VOWG_p.DE and Intel INTC.O.

While the automotive and licensing business had expanded, the consumer products division still makes up half of total revenue. Revenue in from its consumer products business, which includes sports, fell 20 percent in the April-June quarter.

The weakness prompted TomTom to forecast annual revenues at the lower end of its 925 million to 950 million euro target. It said it was considering options for its sports business that sells wrist-based wearable devices for sports and fitness activities.

“This business line has been loss-making since inception,” Morgan Stanley’s Humphrey said.

TomTom Chief Executive Harold Goddijn said he expected to give more clarity on the options for its sports business when the firm reported third quarter results in October. “We are not satisfied with the progress we are making (in sports),” he said.

The company said it expected combined revenue of the automotive, licensing and telematics businesses to grow about 15 percent year on year in 2017, in line with its strategy.

“We believe the growth in automotive and telematics could drive strong earnings growth in the coming years,” Kepler Cheuvreux analyst Peter Olofsen said.

($1 = 0.8672 euros)

Additional reporting by Bart Meijer; Editing by Biju Dwarakanath and Edmund Blair