Garmin Ltd. (GRMN) is a company best known for its personal navigation devices (PNDs). These gadgets use satellite technology to pinpoint someone’s location, and assist him or her in reaching a desired destination. The idea for Garmin’s PNDs was born during the brainstorming session of a group of engineers around a card table in 1989. Now, more than two decades later, the company has sold millions of these gadgets worldwide, and is the leader in its home base of North America. Its closest rival is the Dutch company Tom Tom, whose products are similar to Garmin’s.
However, over the past few years, sales have been sluggish, and profitability weaker than in prior years. In fact, we expect Garmin’s top and bottom lines to decrease over the next two years. Although the lackluster sales have been partly due to the 2007-2009 recession, the company faces a bigger foe.
Indeed, the number of PND units sold over the past few years has been steadily declining. Unit sales have decreased from 16.9 million in 2008, to 16.6 million in 2009, and 16.0 million in 2010. The primary cause for the seeming loss of consumer interest has been the rise of smartphones. These wireless wonders give customers access to the World Wide Web at their fingertips. Therefore, people can now use one of the many search engines available online in order to get directions. In addition, Apple (AAPL) iPhone owners can download a navigation application, the price of which is much cheaper than if one were to purchase a dedicated GPS device offered by Tom Tom or Garmin. Further, most Google-enabled (GOOG) Android devices have a built in, voice prompted turn-for-turn navigation application on their phones straight out of the box.
And more speed bumps lie ahead for in-car navigation device manufacturers, such as Garmin, Tom Tom, and Magellan. It is estimated that about 81 million smartphones will be sold in 2011. And that figure is likely to jump to about 250 million by 2014. Therefore, smartphones will probably dominate the navigation market over the next few years. Although in-car devices have their advantages, such as bigger screens, better graphics, and a few other bells and whistles, these benefits are arguably not enough since smartphones offer some form of navigational tools for free, or at a relatively low cost.
Another challenge for PND manufacturers is in-telematic technology, which combines GPS and communications capabilities. The device is already installed in a vehicle when it is purchased. But the threat here is not currently as daunting as smartphones, because this feature can cause the price of a vehicle to increase. In addition, individuals are hit with high subscriber fees if they choose to utilize the navigational tools. However, if these high fees were to be addressed and product innovation was to allow cheaper options, the telematics market could potentially reach a significant number of subscribers in the not-too-distant future.
Since growth prospects for Garmin’s core business appear bleak, the company is seeking out other ways to stay relevant. It is doing so mainly through a re-focusing on other business segments. The company has three other units, namely, Aviation, Marine, and Outdoor/Fitness. Although the first two are doing well, competition is fierce. The rising star appears to be the Outdoor/Fitness unit, which contributed more to sales in 2010 than it did in the prior year. With ongoing technology enhancements, the company is likely to capture market share here, for now. At the end of the day, an evolving pipeline is crucial to in-car device manufacturers, such as Garmin, if they are to prosper.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.