Google (GOOG) has made quite a splash today with the announcement that the new Motorola (MOT) Droid will incorporate free turn by turn navigation capabilities. The real-time mapping application will be available on Android 2.0 phones, with the first of which being the Droid which will be released Nov. 6th on the Verizon (VZ) network.
This free mapping and navigation service creates some serious competition to personal navigation device makers such as Garmin (GRMN) and TomTom. Both PND makers started the day lower after TomTom reported revenue dropped 15% in the quarter and average selling price dropped to EUR99 (EUR10 lower than expectations). Furthermore, the Dutch company declined from issuing holiday sales guidance because it was difficult to predict in this environment.
In general, competition is a wonderful thing for consumers, but not necessarily for investors. Surely, Garmin would prefer to have a weaker opponent than Google with its deep pockets and army of programmers. Not to mention Google has the biggest advantage of all: their product costs nothing for those that buy the phone.
The fact that PND’s face increasing competition is not a surprise with the rise of GPS and Internet enabled smart phones, but up until now no company has offered such a robust navigation platform for free. There are rumors that Google will try to bring the platform to Apple’s (AAPL) iPhone and other smart phones in the near future through an app for non-Android based phones. With the rapid adoption and expanding market share of smart phones, that would be a huge blow to both Garmin and TomTom.
The timing of this announcement is especially troubling for Garmin as they are still rolling out their own smart phone, the Nuviphone. The phone is available on the rival AT&T (T) network and has received pushback because the navigation feature only works with a $20 per month data package. Android 2.0 phones will have a leg up on the Nuviphone from the start. There must be growing concern among Garmin investors that the Nuviphone appears to have missed its window after numerous delays of the release date since the product was announced in January of 2008.
This threat to Garmin’s revenue in combination with the disappointing results from TomTom has sent the stock down more than 17 percent on Wednesday afternoon. At Ockham, we have a Fairly Valued on both Garmin and Google at their respective current price levels. However, we think it is clear which company is headed in the right direction. Garmin is stuck in back pedal mode trying to protect its market share from growing competition. Whereas Google is growing market share in many different concentrations, and the mobile phone operating system is just one of its newer frontiers.
