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Technology Stocks : NVT - Source of GPS Software, Data, and Maps
NVT 17.55+1.2%9:35 AM EDT

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From: tech10110/12/2007 9:50:40 PM
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GPS Leader Garmin May Be Headed In Cell Phone Direction

Friday October 12, 7:00 pm ET

Patrick Seitz, Investor's Business Daily

In a list of the great tech rivalries, it might be time to add Nokia vs. Garmin.

No. 1 cell phone maker Nokia (NYSE:NOK - News) raised eyebrows this month when it announced a big acquisition that encroaches on Garmin's navigation device business. But Garmin (NasdaqGS:GRMN - News), the leader in navigation, or GPS, devices, might respond in kind. It's said to be mulling a move into the cell phone business.

"Garmin knows it could build one hell of a fantastic wireless handset," said Jeff Evanson, an analyst with Dougherty & Co.

Based on talks he has had with Garmin employees, Evanson says he believes the company will come out with a GPS-enabled mobile phone next year.

Several other analysts also see that possibility, though it's uncertain just how deeply Garmin might dive into the cutthroat mobile phone business.

"There's a case to be made (at Garmin) for an evolution toward a smart phone," said Richard Valera, an analyst with Needham & Co.

Garmin already is adding more wireless capabilities to its auto and portable navigation devices so they can receive real-time traffic, gas price, weather and other data.

But Valera says Garmin isn't likely to make a frontal assault on the mainstream cell phone market. Instead, he sees it going after a niche market for people who want a handset with a heavy navigation focus.

This wouldn't be a first for Garmin. It introduced NavTalk, the world's first GPS-equipped cell phone, in 1999. The product was sold mostly in Europe, but was discontinued a few years later.

Garmin spokeswoman Jessica Myers says the company hasn't announced any plans to make a new cell phone.

"We announce 70 products a year so there are a lot of concepts and ideas that we look at, however that's not in the immediate plans," she said. "I can't say we're never ever going to do it. I mean, we've already done it."

A Confident Company

Garmin already is active in the mobile phone space, making GPS applications for other companies' cell phones, she points out.

But the cell phone industry and Garmin have changed a lot since 1999's NavTalk, Evanson says.

"Garmin now believes there's no one in the world that they can't go head-to-head with in developing consumer electronics," Evanson said. "That confidence in their engineering and design capability is an important mental shift at the company that's happened in the last couple of years. Now, all consumer electronics categories are in play."

Yair Reiner, an analyst with CIBC World Markets, also believes Garmin might well come out with a cell phone. "But the handset business isn't an easy one to get into," he said. "Even Apple is finding that out."

Speculation on Garmin's re-entry into the mobile phone business comes at an uneasy time for the Olathe, Kan.-based company.

Nokia announced Oct. 1 a deal to buy digital mapmaker Navteq (NYSE:NVT - News). Garmin gets almost all of its digital maps from Navteq. Meanwhile, rival GPS device maker TomTom is buying the other major digital mapmaker, Tele Atlas. Navteq and Tele Atlas have a duopoly in the digital map business.

While Nokia and TomTom insist they'll run the digital map firms as independent units, the deals would put Garmin in the position of having to get maps from its rivals.

Garmin has worked closely with Navteq. It's shared sensitive information such as product road maps and production volumes with its map supplier, Reiner says.

Garmin could see its profits squeezed as prices for digital maps stabilize or perhaps rise, American Technology Research analyst Rob Sanderson said in a research note. Map prices have declined at double-digit rates for the past few years, but if these two acquisitions go through, map prices are likely to hold steady or rise, he says.

Garmin gets about 70% of its sales from auto and portable navigation devices. The portable devices attach to windshields or dashboards and display digital maps and points of interest. They give directions to drivers using data from GPS, or global positioning system, satellites.

Market penetration is still low for such devices in the U.S. But with aggressive price cuts, more consumers are expected to pick up the handy tools.

A typical portable navigation device, or PND, could sell for 50% less this holiday season than a year ago, Evanson says, putting many products in the $200-$300 range.

Targets Many Markets

Garmin should have a good holiday season so long as sales volume makes up for lower prices, says Jonathan Braatz, an analyst with Kansas City Capital Associates.

Garmin differs from rivals, including TomTom and Cobra Electronics (NasdaqGM:COBR - News), in that it has a diversified business centered on navigation products. Besides its devices for cars, Garmin makes navigation products for the aviation, marine, outdoor and fitness markets. Those products range from high-end airplane avionics gear to armband gadgets for long-distance runners.

This year, Garmin expects overall sales to exceed $2.8 billion, up 58% over last year. It sees earnings per share of more than $3.15, a 34% jump.

Garmin focuses on delivering high-quality wares that are easy to use and offer a lot of utility for consumers, says Garmin Chief Financial Officer Kevin Rauckman.

The company, he says, expects to spend more than $150 million this year on R&D. Garmin has almost 300 patents issued and another 200 pending applications.

For the last few years, Garmin also has worked to raise its brand profile through advertising. It expects to spend about $175 million on ads this year, Rauckman says.

Garmin has made six acquisitions in the last two years and has three pending. It has bought exclusive distributors in France and Germany and has deals pending to buy distributors in Spain, Italy and Denmark.

Garmin is the No. 1 GPS products maker in the U.S., but trails Amsterdam-based TomTom in Europe. Garmin hopes buying its major European distributors will help it to better compete against TomTom.

Besides buying distributors, Garmin has purchased several small tech companies. They include Nautamatic Marine Systems, a maker of boat autopilot systems, and Digital Cyclone, a provider of real-time weather data to mobile devices. It also bought Dynastream, a maker of personal monitoring technology, such as heart-rate monitors for sports and fitness products.
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