QUOTE AND NEWS
Benzinga  Apr 22  Comment 
In a report published Wednesday, Citi analysts maintained a Sell rating on Garmin Ltd. (NASDAQ: GRMN), with a price target of $42. Garmin is likely to report its 1Q results short of expectations. Delayed availability of the vivoactive and...
Motley Fool  Apr 21  Comment 
Do the latest cameras from Garmin represent a credible threat to GoPro?
Benzinga  Apr 13  Comment 
Garmin International Inc., a unit of Garmin Ltd. (NASDAQ: GRMN), today announced the next generation of HD action cameras, VIRB X and VIRB XE. Compact and capable of shooting rich, high-definition, wide-angle footage, VIRB X and XE boast an...
Benzinga  Apr 11  Comment 
Garmin Ltd. (NASDAQ: GRMN) shares are getting hurt by the pending launch of the Apple Watch, but an analyst said a little more pessimism on the stock could make it attractive. Switzerland-based Garmin, which makes navigation and information...
Benzinga  Apr 6  Comment 
Joel Elconin is the co-host of Benzinga's #PreMarket Prep, a daily trading idea radio show. Garmin Ltd. (NASDAQ: GRMN) shares were trading low $0.35 at $46.14 in Monday's session. The issue has been under attack over the last two trading...
Benzinga  Apr 6  Comment 
Garmin Ltd. (NASDAQ: GRMN) shares reached a new 52-week low of $45.54. Citigroup downgraded Garmin from Buy to Sell. Apollo Education Group, Inc. (NASDAQ: APOL) shares fell 2.33% to touch a new 52-week low of $18.01. Apollo Education shares...
Benzinga  Apr 6  Comment 
Citi downgraded Garmin Ltd. (NASDAQ: GRMN) from Buy to Sell and cut its price target from $68 to $42. Analysts Jeremy David and Ehud Gelblum believed that growth in Garmin's GPS fitness watch business was "likely to stall" and that Outdoor...
Benzinga  Apr 6  Comment 
Digital Ally Inc. (NASDAQ: DGLY) shares declined 8.85% to $12.47 in pre-market trading following the announcement of sponsorship of golf tournament on Friday. Garmin Ltd. (NASDAQ: GRMN) shares dropped 2.33% to $45.40 in pre-market. Citigroup...




 

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 is the largest manufacturer of personal navigation devices in North America, with sales of $2.69 billion in 2010.[1] 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). Chairman and CEO Min Kao owns about 23% of Garmin.[2]

The consumer GPS market was once limited to the wealthy, but increased competition from low-cost overseas manufacturers, such as Tawain-based Mio Technology Corporation, 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. Its network extends to 3,000 independent retailers in approximately 100 countries sell Garmin's consumer products.

The company faces significant challenges to extend its dominance to other markets. In the US, Garmin commands a 47% market share. However, in Europe, Garmin only has a 26% market share. Europeans 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.[3]

Company Overview

Garmin is the leading manufacturer of global positioning system (GPS) devices worldwide. Most of these devices are enabled by Global Positioning System (GPS) technology. Garmin offers a wide range of hand-held, portable, and fixed mount GPS-enabled products and other navigation, communications and information devices to the aviation and consumer markets. Access to the satellites for the GPS is provided free of charge by the US government.

Garmin's two target markets are the aviation market, which includes panel mount and portable products for general aviation aircraft, and consumer segment, which primarily includes products geared for marine, recreational, fitness, automotive and personal digital assistant (PDA) use.

Business Segments[1]

Garmin designs, develops, manufactures, and sells global positioning system (GPS)-enabled products and other related navigation, communications, and information products worldwide. Its business is comprised of four distinct segments: Automotive/Mobile, Outdoor/Fitness, Marine, and Aviation.


Marine (6.03% of Revenues)

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 segment captures over 30% of the total market share.

\ Garmin.

Aviation (8.34% of Revenues)

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 venerable aviation unit builds devices for use in aircraft cockpits, enabling GPS-based navigation, very high frequency (VHF) communications transmitters/receivers, multi-function displays, receivers, and more.

R&D Spending

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.

Business Growth

FY 2010 (ended December 25, 2010)[4]

  • Net revenue decreased 8.7% to $2.69 billion.
  • Net income decreased 16.9% to $584.6 million.

Key Trends/Forces

Potential Market

Global penetration rates for GPS devices are very low; 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.[5] 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.[6] The market will only grow as manufacturing volumes increase and price points fall turning GPS systems into an affordable gadget.

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, hotels and gas stations. [7]

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. [8]

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 72% 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.[9]

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.

Smartphones Stealing Market Share

GPS is now competing with smartphones that have turn-by-turn directions and GPS-enabled features. Smartphones have become a large portion of the cell phone market. These phones, made by companies such as Apple, RIMM, and Palm, have stolen market share in the GPS market as well because they possess the capabilities to give users directions. Google has also introduced free navigation systems for mobile phones.[10] The cell phone service providers have given users the ability to download applications on to their phones that provide directions. This hurts Garmin's future prospects because as smartphones become more and more popular because consumers will have no reason to buy a GPS device in addition to their smartphones. Sales of Garmin's own smartphone (Nuvi) product category contributed only $27 million in revenue during the quarter. Those products have been on the market for a very short period time. The problem is that there are very few of those phones being sought after in a world of BlackBerry, Droid, and iPhones.[11]

Competition

Garmin faces heavy competition with a maturing market and declining prices on GPS devices. Garmin faces direct competition from TomTom, Magellian, and Mio. In addition to direct competition, big consumer electronics companies like Sony (SNE) and LG Electronics have begun to introduce GPS units of their own. Garmin has retaliated with an increase in R&D spending.

Garmin is ranked number 5 in the Consumer Goods sector (after competitors such as Whirlpool, Prestige Brand Holdings, Power One, and Wabash National), as measured by relative performance, a comparison between a share and its peers.[12]

PND is also threatened by cellular phones, several of which now have GPS capability. Garmin has a GPS mobile phone named Nüvifone. However, established competition like Nokia (NOK) and Apple (AAPL) led to lukewarm reviews and customer response for the Nüvifone. A brief description of the company’s main competitors is listed below:

  • 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.
  • Magellan sells navigation products for driving, hiking, camping and boating. The company was bought by a private group of investors.
  • 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.
  • Brands such as Sony (SNE) , Phillips and Uniden has managed to enter the PND market, but none of them have gained any significant market share.

References

  1. 1.0 1.1 GRMN 10-K 2010
  2. Daily Finance, "Garmin Company Description", 3/5/10
  3. Investor's Business Daily, "Garmin Makes Tele Atlas Bid, Beats Views", 11/1/07
  4. GRMN 2010 10-K pg. 63  
  5. Investors Business Daily - Digital Map Maker Plots A Course To Your Car And Your Cell Phone (8/16/07)
  6. NAVTEQ Q4 2005 Conference Call
  7. Newsweek - Can Garmin Maintain GPS Lead? (11/19/07)
  8. 2007 U.S. Black Friday
  9. Circuit City Poll - 71% Say GPS Can Save Time, Lower Fuel Costs
  10. WSJ, "Garmin Shares Fall As Outlook Signals Mature Market", 2/24/10
  11. http://247wallst.com/2010/08/04/garmin-beats-secular-pressure-remains-grmn-goog-nok-aapl-tnav/
  12. Chip Brian of SmarTrend (20 Sept, 2010). Prestige Brands Holdings has the Best Relative Performance in the Consumer Goods Sector. Retrieved on 13 Oct, 2010.
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