Many people may not know that Garmin (GRMN), the maker of personal navigational devices, has also tried its luck with smartphones — and has struggled to make a mark. Now, the company admits that sales of Nuvifone, the navigation-enabled smartphone, have been dismal, and it is examining options that may include shuttering the business altogether.
Garmin had once hoped Nuvifone would vault it into the league of iPhone and Android, but cut-throat competition and Google’s (GOOG) announcement in October 2009 that it would offer free voice-based turn-by-turn navigation on smartphones threw water on Garmin’s calculations. Meanwhile, as navigation-enabled smartphones and in-dash devices started to make their way into the ever-changing navigation segment, demand for PNDs (personal navigation devices) began to dwindle, hurting sales and shaving off profits. The trend continues. Garmin says it is not upbeat about the North American or European markets, but remains bullish about its prospects in the Asia-Pacific and Latin American markets.
Garmin, which competes with U.K.-based TomTom in the PND space, has seen much of its competition leave the market due to falling prices and shrinking profits. Although this has helped Garmin and TomTom maintain a price base — selling prices average $135 currently for Garmin — it remains to be seen what measures Garmin has in store to fend off competition from Apple’s (AAPL) iPhones or Android-based smartphones. The company sold smartphones worth $27 million in the second quarter.
Garmin says growing sales of smartphones are lowering PND sales by an estimated 5 million to 10 million annually and cutting into its profits. The Kansas-based Garmin is of the view that sales volumes will drop 5% annually over the next couple of years. At one point, the company had estimated that it would sell smartphones worth $100 million to $200 million in 2010 but it has since trimmed that expectation to below $100 million.
Sensing the growing popularity of Google’s Android, Garmin tried selling the Garminfone with Android 1.6 but had little success since other smartphone makers had already integrated their devices with higher versions of the software. Garminfone, for which T-Mobile is the exclusive carrier, has not had much success either.
Garmin’s operations pan across four segments, viz. Automotive/Mobile, Outdoor/Fitness, Marine and Aviation, with automotive accounting for the highest portion of the company’s revenue.
We currently have a Zacks #3 Rank (short-term Hold recommendation) on Garmin shares.
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