QUOTE AND NEWS
Market Intelligence Center  Jun 25 
Garmin (NasdaqNM: GRMN) opened at $21.00. So far today, the stock has hit a low of $20.89 and a high of $21.83. GRMN is now trading at $21.74, down $0.54 (-2.42%). Over the last 52 weeks the stock has ranged from a low of $14.40 to a high of...
Business Wire  Jun 16 
Garmin International Inc., a unit of Garmin Ltd. (NASDAQ: GRMN), the global leader in satellite navigation, today announced the Foretrex 401 and Foretrex 301 GPS navigators, integrating a high-sensitivity, WAAS-enabled GPS receiver and USB interface
Value Investing Experiments  Jun 13 
Many car drivers have been noticing the increasing popularity of GPS navigators, they are offered optionally on many new models, but most people get them by purchasing them in a specialized electronics store. Investigating companies with a very...
Cellular News  Jun 5 
Navigational device maker Garmin Ltd. will start selling its oft-delayed wireless phone in Asia within the next month.
Business Wire  Jun 4 
Garmin Ltd. (Nasdaq: GRMN) invites shareholders and investors to listen to its 2009 annual shareholders’ meeting that will be broadcast over the Internet on Friday, June 5, 2009 at 11 a.m. ET, with executives of Garmin. What:   Garmin Ltd. 2009
Business Wire  Jun 4 
Garmin Ltd. (NASDAQ:GRMN), the global leader in satellite navigation, announced today that the company is conducting a voluntary product safety recall of the 2009 version of its marine cartography data card known as BlueChart® g2 and g2 Vision. The
Flightglobal  May 22 
HAWKER DELIVERIES Hawker Beechcraft has delivered three new Bonanza G36s to a customer in the UK and Baron G58 to a Polish operator. The aircraft are the first European Aviation Safety Authority-certificated piston-powered aircraft to enter...
Business Wire  May 20 
Garmin International Inc., a unit of Garmin Ltd. (NASDAQ: GRMN), the global leader in satellite navigation, announced today enhancements to http://my.Garmin.com, a convenient online portal that helps users manage software and map updates and displays
Forbes  May 11 
How to shop for a GPS device.
Motley Fool  May 7 
If you find something better, replace it.
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BULLS: REASONS TO BUY

 
100% agree
 
Portable navigation device market growing

 
100% agree
 
Strong Management and Financial health

 
100% agree
 
Hottest performers for Fiscal 2007

BEARS: REASONS TO SELL

 
50% agree
 
Cost pressure from asian manufacturers on the horizon

 
33% agree
 
GPS on cell phones threatens Garmin

 
0% agree
 
Distribution threatened with bankruptcy of Circuit City

 
GRMN AT A GLANCE
 
 
 
 
 
 
 
 
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If you have ever driven a car with a GPS system (installed or portable), then you are probably one of Garmin's many unsuspecting customers. Garmin has streamlined the navigation process by developing and marketing intuitive portable navigation devices (PND) for cars, planes, boats and pedestrians. The company sells its products directly to original equipment manufacturers such as automakers and airplane manufacturers, as well as to consumers through mass retailers like Wal-Mart Stores (WMT), Best Buy (BBY) and Amazon.com (AMZN).

The consumer GPS market was once limited to the wealthy, but increased competition from low-cost overseas manufacturers (Mio) in combination with Garmin's engineering and manufacturing expertise has helped to bring the cost of GPS devices to an affordable level. Garmin sells its products through a network of distributors such as Best Buy, Wal-Mart, and Costco, making its sales dependent upon the business of those retailers.[1] However, the company will face significant challenges in trying to extend its dominance to other markets. Europeans, for example, have enjoyed the conveniences of GPS devices for a considerable time, and as a late entrant, Garmin faces stiff competition from incumbents and new market entrants.[2] In the first quarter of 2009, GRMN showed some success in this area from the first quarter of 2008, as the share of total sales that occurred in North America fell by 1.35%.[3] In 2008, research and development expenses rose 29.3% from 2007 causing net income to fall even though sales increased.[4]

[edit] Business Financials

Garmin's Historical Financials
Garmin's Historical Financials[5]

[edit] Garmin's Financials

Garmin is the leading manufacturer of global positioning system (GPS) devices worldwide, with over 50% market share. Garmin has demonstrated strong average year over year revenue growth of 53% compounded annual growth rate each year since 2004. While Garmin has consistently turned a profit, its operating margin has eroded by 4% reflecting a fundamental shift in its revenue mix. Much of Garmin's growth has been driven by its lower margin automobile/mobile segment.

Garmin's Revenue by Segment
Garmin's Revenue by Segment[6]

[edit] Garmin's Revenue by Segment

[edit] Outdoor/Fitness

Garmin offers a number of portable GPS products designed for outdoor activities such as hiking, hunting, camping, running, biking and city exploring. Outdoor/Fitness revenue grew by 20% in 2006 to $285 million. Personal navigation devices (PNDs), which are handheld units used mainly by outdoor enthusiasts, make up 20% of sales.

[edit] Marine

Garmin offers a wide variety of built-in and portable electronics for the marine market. Its product line includes GPS chartplotters, sonar fish-finders, real-time weather receivers, sounders and radars. This business is Garmin's smallest and growth is expected to increase in 2007 following the planned release of 37 new products.

[edit] Automotive/Mobile

The automotive/mobile segment, which encompasses Garmin's portfolio of GPS-enabled portable navigation devices, is the most important part of the company's business in terms of both contribution and growth. Automotive accounts for 70% of revenues. In 2006, Garmin's PND sales grew 170% year-over-year to reach $1.1 billion.

[edit] Aviation

Garmin started off as an avionics company and remains the leading player in the sub-markets where it has chosen to compete, including the emerging micro-jet space. Garmin's avionics business was flat in 2006. Garmin's venerable aviation unit, 10% of sales, builds devices for use in aircraft cockpits.

Garmin and TomTom's R&D Spending
Garmin and TomTom's R&D Spending[7]

[edit] R&D Spending

Despite its small size, Garmin's focus on research and development is evident in the adjacent graph. With a signification proportion of revenue invested in R&D, Garmin has outmaneuvered perennial electronic leaders such as Sony (SNE) that have attempted to make forays in the GPS market. The company has not only been able to produce three times as many PND models as its closest competitor, but has also received consistent high praise from consumers for the ruggedness and user-friendliness of its products. Garmin's PND product portfolio is occasionally criticized for being too broad, and lacking focus, but in a high-growth, relatively young market, a broad portfolio provides Garmin with a chance of hitting upon an unexpected blockbuster.

[edit] Key Trends/Forces

[edit] Economic Factors

Consumer spending on non-essential goods such as Garmin's GPS devices is discretionary in nature. In times of economic recession consumer's quickly decrease expenditure on luxury items. In 2007, both the real estate and credit markets were severely affected by the subprime lending crises. Consumers were faced with an inability to draw on equity in their home to fund purchases. Additionally, other economic factors like the price of oil which approached the $100 mark near the end of 2007, further decreased disposable income available for discretionary purchases.

[edit] Potential Market

Global penetration rates for GPS devices are very low; in 2007, around 10% of the 35 million new cars projected to be sold in Western Europe and North America came with pre-installed GPS systems leaving a large potential consumer base looking for after-market GPS solutions.[8] Of the 430-450 million cars on the road in North America and Western Europe, only about 3% had in-dash navigation systems leaving Garmin with an addressable market of well over 400 million vehicles. [9] The market will only grow as manufacturing volumes increase and price points fall turning GPS systems into an affordable gadget.

[edit] Commodization

GPS prices have fallen quickly over the last two years and will continue to do so. As key components, such as semiconductor chips and lcd displays, drop, companies will compete more on price since key features (text-to-voice, bluetooth) will become standard in an increasingly commoditized industry.

To fight against commodization, GPS companies have also begun loading devices with new features such as real-time traffic and weather data along with more in-depth information on restaurants, hotesl and gas stations. [10]

Black Friday (day after Thanksgiving), the biggest sale day in the United States, exhibited the GPS manufacturers inclination to drop prices to attract business. Manufacturers cut prices on selected items by 35 to 50%. TomTom, Mio and Navigon chose essentially to discount their entry level device while Garmin and Magellan adopted another strategy with sales at different price points in their product range. [11]

[edit] Rising Energy Prices

The shrinking fossil fuel supply combined with the growing energy demands from developing countries, such as China, has dramatically driven up fossil fuel prices. China’s demand for fuel is projected to increase by 150 percent by 2020, a rate of 7.5% per year, seven times faster than the U.S. As a result, drivers are trying to find solutions to reduce fuel consumption and save time. A recent poll conducted by Circuit City found that 71% of drivers believe that a GPS system can help them save time and lower fuel costs. The impetus to purchase a GPS system will only increase as gas prices rise.[12]

[edit] Relatively Low Barriers to Entry for Established Consumer Electronics Companies

GPS devices will primarily be sold through electronics retailers and websites, channels that larger consumer electronics manufacturers know quite well. As the GPS markets tracks towards mass-market adoption, there is an expectation for large tradition consumer electronic manufacturers to view the space as incrementally more attractive because they can begin to gain economies of scale in manufacturing. With more competitors and increased pricing pressure, Garmin along with other competitors will face margin compression.

[edit] Nokia's acquisition of Navteq

Nokia is serious about adding GPS capabilities in all future Nokia phones and leveraging its 900 million world-wide customer base to move into the GPS market. Nokia recently acquired NAVTEQ, a GPS service with ownership of "The Map Network", the largest maps supplier in the U.S. This means Nokia Maps will become even more detailed and interactive, thereby improving the quality of the user experience becoming a legitimate contender in the GPS market. [13]

[edit] Competition

Main Competitors by Business Segment
Auto/Mobile Outdoor/Fitness Aviation Marine
TomTom (US & EU) Polar Honeywell Simrad/Lowrance
Magellan (US) Magellan Avidyne Navman
Mio/Navman (US & EU) Simrad/Lowrance Rockewell Collings Raymarine
Sony (US & EU) Cobra Chelton Cobra
ViaMichelin (EU) Nike Simrad/Lowrance Furuno



This space is an extremely contested one. Prices on GPS devices are falling rapidly - Garmin's gross margin has fallen from 58% in 2003 down to 46% in 2007. If these devices level out at standard consumer electronics margin levels, Garmin is looking at a high 20% gross margin in a few years, which will significantly erode profits. In addition to direct competitor TomTom, the big consumer electronics companies like Sony (SNE) and LG Electronics have begun to introduce GPS units of their own. More competition leads to lower prices and increased spending on marketing and R&D to stay a step ahead. There are few ways for Garmin to build a lasting moat around their business. What's more, many believe the PND category is threatened by cellular phones, several of which now have GPS capability. While Garmin is planning to introduce the a GPS mobile phone named Nüvifone in the first quarter of 2009, it will be difficult for them to compete in this space with little experience and established competition like Nokia (NOK) and Apple (AAPL). However, the Apple iPhone is exclusive to the AT&T network until 2012 which could provide a niche market for the Nüvifone on other mobile networks in the United States. Despite other mobile phone companies trying to copy the iPhone, all have failed to approach the functionality of the iPhone. Garmin believes their Nüvifone could be the antidote.

[edit] TomTom

TomTom is the world's leading provider of portable navigation devices. It has over 50% market share in Europe and about 20% in the U.S. It has been in Europe since the early 1990s and entered the U.S. market in 2005. In counterpoint to Garmin's broad portfolio, its PND line is limited to a handful of clearly differentiated models.

[edit] Magellan

Magellan sells navigation products for driving, hiking, camping and boating. The company was bought by a private group of investors.

[edit] Polar

Polar is a leading brand in portable electronics for fitness and is best known for introducing the first wireless heart-rate monitor. Its devices are used by professional athletes and amateurs for running, cycling and other outdoor sports.

[edit] Consumer Electronic Companies

Brands such as Sony (SNE) , Phillips and Uniden has managed to enter the PND market, but none of them have grabbed any significant market share.

[edit] Market Share

Garmin controls the U.S. PND market with around a 50% market share, but lags behind industry leader, TomTom, in the more mature European market, with about 20% market share.[14] Garmin narrowly overtakes TomTom in the global mobile navigation device market in Q2 2007. The overall device shipments for the quarter stood at 7.4 million, up 116% on the same quarter one year ago.[15]

Top 5 GPS Vendors Q2 2007, Q2 2006
[16]

Rank Company Q2 2007 Shipments % share Q2 2006 Shipments % share Growth Q2'07/Q2'06
1 Garmin 1,852,150 24.9% 699,370 20.3% 164.8%
2 TomTom 1,806,970 24.3% 829,790 24.1% 117.8%
3 Mio Technology 683,500 9.2% 290,590 8.4% 135.2%
4 Magellan 421,080 5.7% 64,950 1.9% 548.3%
5 Navman 232,780 3.1% 171,410 5.0% 35.8%

[edit] References

  1. GRMN 2008 10-K pg. 13  
  2. Investor's Business Daily - Garmin Makes Tele Atlas Bid, Beats Views (11/1/07)
  3. GRMN Q1 2009 10-Q (March 31, 2009).
  4. GRMN 2008 10-K pg. 35  
  5. Garmin's 2006 10-K (Page 58)
  6. Garmin's 2006 10-K (Page 48)
  7. Garmin's 2006 10-K (Page 17) & TomTom's 2006 Annual Report (Page 36)
  8. Investors Business Daily - Digital Map Maker Plots A Course To Your Car And Your Cell Phone (8/16/07)
  9. NAVTEQ Q4 2005 Conference Call
  10. Newsweek - Can Garmin Maintain GPS Lead? (11/19/07)
  11. 2007 U.S. Black Friday
  12. Circuit City Poll - 71% Say GPS Can Save Time, Lower Fuel Costs
  13. NY Times - Nokia Buys Software Maker for $8.1 Billion (10/1/07)
  14. Investor's Business Daily - Garmin Makes Tele Atlas Bid, Beats Views (11/1/07)
  15. Canalys Online - Worldwide mobile navigation device market more than doubles (8/20/07)
  16. Canalys Online - Worldwide mobile navigation device market more than doubles (8/20/07)
 
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