It is a surprise that Garmin's (NASDAQ:GRMN) Q4 numbers beat all the estimation in a big margin. It proves that Garmin is an extremely well executing company. However, the street is still worried - reasonably - about the competitions from low cost manufacturers and mobile phone industry - both handset makers and mobile operators along with the inevitable margin erosion when GPS price comes down in a big way.
If you are bullish on GPS and location related services business, Navteq (NVT) - the map data company that supplies digital maps to every GPS maker as well as Google Maps, Yahoo Maps, Microsoft Maps (Local.live.com, Streets & Trips), MapQuest and Zillows - could be a much safer investment with better reward/risk ratio because, beyond all the advantages GRMN already has:
1. No, or very little, price erosion because NVT's digital maps' already low margin and relatively small portion in the price/cost structure of GPS devices - far less than one tenth f the total GPS costs.
2. NVT is a monopoly in its business and basically no competition to worry about like that GRMN, Tomtom, and SiRF (the chip maker) face, and the entry level is very high.
3. When in-dash GPS becomes more ubiquitous and low cost GPS devices - mobile phone, PDA, and many other portable devices inevitably crash the GPS industry, Navteq map sales volume and profit will be sky-rocketing, and best of all, every additional penny sale contributes almost 100% to its profit because there is no additional cost for its data and software.
Some people compare Garmin to Dell (NASDAQ:DELL) and Compaq, SiRF (SIFT) to Intel (NASDAQ:INTC), and Navigator Resources (NYSE:NAV) to Microsoft (NASDAQ:MSFT) - although with only one product. However, probably due to the lack of competition and shorting activities, NVT seems to become a lonely monopoly and boring investment. Even though NVT’s 2006Q4 beat all the numbers estimations in revenue, earning, and 2007 outlook, the stock was down a little after the earning report on Feb. 8, 2007.
In the GPS chip business segment, u-Blox – a Switzerland GPS chip and component producer now have a chip design with 1 million (!) correlators with -160 dBm sensitivity. They are also able to do dead reckoning using a turn-rate gyro and wheel odometers.
SiRF the current top chip GPS maker, facing the competition and locked in a patent related battle with Global Locate, just introduced a super-thin and price-conscious new chip SiRFstarIII GSD3ta - a multimode A-GPS chip in an extremely small-footprint that brings SiRFstarIII GPS performance to price-conscious and space-constrained mobile devices such as cell phones.
Then, in a bold move to accelerate the adoption of location services, the world's two largest handset makers Nokia (NYSE:NOK) and Motorola (MOT) have each introduced their own navigation services, a move that could pit them against mobile operators.
The handset makers - Nokia, Motorola, Sumsung and Sony-Erricson - are different animals from the mobile operators/service providers/carriers such as Cingular, Verizon (NYSE:VZ) and Vodafone (NASDAQ:VOD). With GPS embedded, the handset makers do not need a mobile operator to provide their own navigation and location services.
All these factors will speed up competitions that Garmin and Tomtom already face, but bode particularly well for the digital map data business monopoly Navteq (NVT), making it a potentially safer investment than Garmin, Tomtom, and even SiRF, with much lower risks/reward ratio.
NVT 1-yr chart
Disclosure: Author is long NVT.