Garmin Ltd. Q3 2007 Earnings Call

Oct.31.07 | About: Garmin Ltd. (GRMN)

Garmin Ltd. (NASDAQ:GRMN)

Q3 2007 Earnings Call

October 31, 2007

Executives

Polly Schwerdt - Manager, IR

Dr. Min Kao - Chairman and CEO

Cliff Pemble - President and COO

Kevin Rauckman - CFO and Treasurer

Andrew Etkind - General Counsel.

Analysts

Jim Duffy - Thomas Weisel

Richard Edwards - Butler Group

Jeff Rath - Canaccord Adams

Yair Reiner - CIBC World Market

Andrew Vaughan - Millennium Partners

Ronald Epstein - Merrill Lynch

Jeff Evanson - Dougherty andCompany

Noelle Swatland - Lehman Brothers

Aaron Husock - Morgan Stanley

Ben Radinsky - Bear Stearns

Peter Friedland - Soleil Group

David Neiderman - Pacific Crest Securities

Marcel Gontos - Bloomberg

Scott Sutherland - Wedbush MorganSecurities

Brandon Dobell -William Blair & Company, L.L.C.

Jairam Nathan - Bancof AmericaSecurities

John Braatz - Kansas City Capital

Operator

Good afternoon, my name is Carmen, and I will be yourconference Operator today. At this time, I would like to welcome everyone tothe Garmin Q3 2007 earnings call. All lines have been placed on mute to preventany background noise. After the speakers’ remarks, there will be a question andanswer session. (Operator Instructions). I will now turn the call over to Ms.Polly Schwerdt. You may begin your conference ma’am.

Polly Schwerdt

Good morning, we would like to welcome you to Garmin Ltd. Q32007 earnings call. Please note that a copy of the press release concerningthis call is available at Garmin’s investor relation site on the Internet at www.garmin.com/stock. Additionally, thiscall is being broadcast live on the Internet. Please note that this webcastdoes include slides, which you can view during this call. An archive of thewebcast will be available until November 30, 2007. A telephone recording willbe available for two business days after this call, and a transcript of thecall will be available on the website within 48 hours, at www.garmin.com/stock, under the EventsCalendar tab.

This earnings call includes projections and otherforward-looking statements regarding Garmin Ltd. and its business. Anystatements regarding our future financial position, revenues, earnings, marketshares, product introductions, future demand for our products, and our plansand objectives, are forward-looking statements. The forward-looking events andcircumstances discussed in this earnings call may not occur, and actual resultscould differ materially, as a result of risks factors affecting Garmin.Information concerning these risks factors is contained in our Form 10-K forthe fiscal year ended December 30, 2006, filed with the Securities and ExchangeCommission.

Attending on behalf of Garmin Ltd. this morning are Dr. MinKao, Chairman and CEO; Cliff Pemble, President and COO; Kevin Rauckman, CFO andTreasurer; and Andrew Etkind, General Counsel. The presenters for thismorning’s call are Dr. Min Kao, Cliff Pemble, and Kevin Rauckman.

At this time I would like to turn the call over to Dr. Kao.

Dr. Min Kao

Thank you Polly. Good morning everyone. From this morning’spress release, you can see that we’ve recorded yet another record quarter.Total revenues and EPS again both exceeded our expectations. Revenue for thequarter increased 79%, to $729 million. EPS was up 57%, or 78% excluding theeffect of foreign currency. Unit volume was more than doubled, up 119%. Revenuegoals continue to show strength in all four business segments. Over 2.6 millionGarmin products was shipped during Q3, bringing our total to almost 25 millionunits shipped to date, continued evidence of the strength of the Garmin brand.We now expect to ship over 10 million units in 2007. Our worldwide employeesincreased to over 7,900. We added 1,100 manufacturing associates during thequarter, to (inaudible).

According to independent market research, Garmin hasmaintained a strong number one PND position, with approximately 50% of marketshare in North America, and a strong improvement in market share in Europe.

To keep pace with a continuous increase of demand for ourproducts, we continue to expand our facilities. In Taiwan, we have completed ourinitial build-out of our third manufacturing facility. Manufacturing facilitieshave the ability to produce 26 million units annually. We continue to expandR&D and other office space, and we’ll continue to build-out our thirdfacility as demand warrants.

In Europe, we expect theacquisitions of our Italian, Spanish and Danish distributors will provide uswith additional distribution support in those countries. And in the U.S., work continues on the expansion of ourwarehouse distribution facility at our Kansasheadquarters. We anticipate completion of this facility in the first quarter of2008.

In this morning’s press release, we announced theappointment of Cliff Pemble to anewly created Chief Operating Officer position. Since our inception in 1989, wehave set significant and consistent goals every year. We have (inaudible) ourcompany as a leader of navigation devices, with nearly 8,000 employees, and(inaudible) operations at an increasing number of locations.

We serve four markets, from which we have leveraged greatsynergies in technologies and operations. Our [c-series] has its own uniquecharacteristics that require strong leadership. Especially in ourAutomotive/Mobile segment, which has very significant growth opportunity, isextremely dynamic. So to support our continuous goals, and to ensure our futuresuccess, we need additional dedicated leaderships. Accordingly, we haveappointed Cliff to a newly created COO position. Cliff was one of Garmin’sfirst employees in 1989, and his presently VP of Engineering and a Boardmember. Cliff has brought his mental power of many business and productinitiatives since the inception of Garmin. In this new role, Cliff will alsoassume direct supervision of all Garmin’s North American subsidiaries. And Iwill continue to serve as CEO and Chairman; assigning additionalresponsibilities to Cliff will allow me to devote more of my time to businessdevelopment, strategic planning, and the development of our Asia-Pacificbusiness initiatives.

Kevin will provide comments on our Q3 results. And I wouldjust like to give a few words of our business outlook. As we look forward, weare optimistic about the 2007 holiday season. We feel that we have continuousinnovation, and our work integration strategy has positioned Garmin to take alladvantage of PND market opportunities in both Q4 and into 2008. We believe weare well equipped to respond to increased demand for parts. We have increasedour manufacturing facilities and our inventories in preparation for holidayseason. We anticipate enhanced product positioning, advertising, and theholiday season promotion activities will give strong growth through theremainder of 2007.

Quite obviously we are pleased with the margin levels wehave achieved so far in 2007. We anticipate pricing and margin compression willintensify during this holiday season. For our aviation segment, WAAS and theGMX 200 will continue to drive revenue goals. (inaudible) recently announcedmicro jet and other certifications also continuous for deliveries in 2008 andbeyond.

Similarly, we expect the new suite of marine products andcartography, as we have acquired T01 autopilot, to continue to drive our marinesegment goals, in both (inaudible).

For our outdoor/fitness segment, the Astro dog trackingproduct, and new Rino eTrex products, featuring high-sensitivity GPS, has beenvery well received, and we are likely to see good sales, given the holidays.Additionally, the new 450s provides a new, value priced fitness product for(inaudible)

So in summary we are pleased with our overall result and areexcited about these opportunities.

Just a few comments about our recent acquisition activities.We continue to examine potential acquisition opportunities to broaden Garmin’sproduct offerings and enhance our technology opportunities.

We feel that we have achieved impressive results andincreased market shares from the recent acquisitions of French and Germandistributors.

Furthermore, in addition to the previous unannouncedacquisition of our Spanish distributors, in early August we announced ourintent to acquire our Italian distributor, Synergy. Additionally on October 11th,we announced our intent to acquire our Danish distributors FairpointNavigation.

These acquisitions of distributors in many markets is a partof our strategy to improve rent, visibility and market share in Europe.

Early this morning we announced our intent to acquire TeleAtlas. This acquisition is consistent with our vision as a market leader inlocation and innovation based product and technology. This acquisition alsodemonstrated Garmin’s commitment to provide value for its shareholders.

Historically, Garmin believes that an independentcompetitive net to duoply serves our industry well, however in the absence ofthis independent and competitive net to duoply Garmin must exercise itsobligation to provide market leadership.

Garmin believes that it is best equipped to provide thisleadership by a part Tele Atlas

We also believe this acquisition in the best interest ofTele Atlas and Garmin’s state holders. Leveraging Garmin’s strong financialposition and long history of innovations with Tele Atlas maps, we believeGarmin’s reaching for the future which includes the combined Garmin Tele Atlasentity will benefit market participants and customers and Tele Atlas customers.

Together with this cost, the acquisition details more fullynear the end of this conference call we will also take questions you may haveduring the Q & A session of this call.

At this time I would like to turn the call over to CliffPemble to provide our product and advertising update.

Cliff Pemble

Thank you Min. I’ll be presenting a brief update on our Q3product releases and other major initiatives undergoing in the quarter. Turningfirst in the automotive segment, during third quarter we released the nuvi 260which features text to speech capability. nuvi 260 rounds our value consciousnuvi 200 product line by offering a configuration for nearly every customer andbudget. The nuvi 200 line is becoming one of our more popular product lineswithin the lineup that we have

In addition, we released the nuvi 700 series which is atotally new family of products rounding out the upper end of our productlineup. The nuvi 700 series includes all of the features of our high-end PNDproducts but it’s wrapped in a new form factor which is thinner and includes abuilt in antenna eliminating the slip up antenna design of the previousgeneration products. We’ve also added some new features like a where am Ilocation search and a where’s my car search that allows a customer toe easilyfind their parked vehicle.

With the release of these new PNDs our Q4 product line iscomplete and we believe we have excellent shelf space and sufficient product tomeet the demands of the holiday season.

Turning next to the outdoor and fitness segment, we releasedupdated versions of eTrex product family, the goal of these news products wasto incorporate a state of the art high sensitivity GPS receiver for better ofoperation in areas of dense foliage other shading conditions.

As you would expect, we offer several configurations inorder to best match a product withcustomer needs starting with the basic eTrex H, through the higher end eTrexVista JCX which feature a memory extension slot.

Also during Q3 we released our new Astro dog trackingsystem. In addition to tracking up to ten dogs on a moving map, its uniqueproduct also includes advanced features such as on point detection and abilityto record the location and number of birds encountered or taking on a hunt. TheAstro has been enthusiastically embraced by the outdoor market, and we lookforward to extending our roll in this exciting new application for GPS.

And finally, we initiated shipments of our new Forerunner 50speed and distance watch. This product features accurate measurement of sped,distance and heart rate in an economical package and is the first product tooffer wireless connectivity so that the user can automatically download workoutinformation to our Garmin connect fitness site when in proximity of a homecomputer.

Turning next to aviation. Several exciting announcementswere made at the recent NBAA trade show. First, Cessna announced that the g1000will be offered on 2008 model caravan aircraft. The response from Cessna’scustomers was positive, and according to public information provided by Cessnaan additional 50 orders were take for the Caravan during the NBAA and AOPAshows.

As we mentioned last time, Cessna has selected Garmin as theavionic supplier for the new Skycatcher life support aircraft. Cessna recentlyannounced that orders for this new aircraft exceed 850 units, which is furthervalidation of this exciting aircraft category.

Also during the NBAA show, Socata announced that the G1000will soon be available on the TBM850 and Piper announced that it selected theG1000 for its new single engine BLJ. Finally, we announced the G1000 retrofitprogram for the King Air 200 and B200 aircraft.

The King Air 200 announcement compliments our existingprogram for C90, as an update on this program we’ve completed the certificationflight tests and anticipate shipping the system to installers during the fourthquarter.

We continue to maintain delivery support of Cessna MustangVLJ and are supporting the development of several other VLJ programs.

The EmbryAir Phenom program is progressing well, as is theDiamond D jet and Honda jet. In fact some of you may have noticed Honda’scorporate image advertisement which aired this weekend and features images ofthe Honda jet.

Finally we’ve launched our fourth quarter advertisingcampaign. This year we’ll be very active in promoting our product ontelevision, radio, print, and at the point of sale. Some of you may havenoticed our TV campaign which started this week. We’re looking forward tomaking a favorable impression on customers leading up to the holiday shoppingseason, and the stores are ready to receive them with many appealing offersthat will be available on Black Friday.

That concludes my update. Kevin will continue his financialupdate and will provide detailed comments on our proposed offer to acquire TeleAtlas.

Kevin Rauckman

Thank Cliff. I’ll be presenting third quarter and year todate financial results as is normal, including business segment details andfinally conclude with our updated full year 2007 outlook.

Fur first on the Q3 income statement. Our revenue during theperiod that we recognized was $720 million, net income of $194 million andearnings per share of $0.88 per share. That represents 79% top line growth and57% earnings per share growth and when we strip out the fourth currency thatactually represents 78% earnings per share without FX, for the unfavorable oneten EPS impact was due to the FX loss of 3.6 million during the period.

As we’ve announced throughout the year, the gross margin of46.9% was better than expected due to strong PND volume in the US and Europe,PND price erosion offset by some material cost reductions and operatingefficiencies in our factories.

We now have a 24.9% operating margin which is down from29.7% last year but much better than expected. Our gross margins were 190 basepoints unfavorable, advertising 40 basis points favorable from Q3 06, our otherSGNA was 70 basis points unfavorable and our RND 190 basis points favorable.

We id shift 2.7 million units during the quarter, on thestrength of our automobile segment, and our average selling price during Q3 was$271 per unit, 7% below the secondquarter of ‘07.

Non-GAAP measures that were reported include net incomeexcluding the effect of foreign currencies and during Q3 this impact looking atrevenue by segment we experienced triple digit revenue growth across theautomobile segment, while the unit growth in that segment grew 203%.

Revenue within the aviation segment continued its stronggrowth with 27% growth rate over the third quarter of 2006.

Our marine segment extended its Q2 growth into Q3 with a 17%revenue increase during the quarter.

Our outdoor segment also continued its recovery as thegrowth within that segment was 20%.

Overall our revenues grew 79% during the third quarter,which was in line with our earlier expectations.

Sales of products introduced within the last twelve monthscontributed to 41% of our Q3 revenue. Overall our total revenues have grown 69%during the year to date 2007 period, and on a year to date basis all foursegments have experience double-digit revenue growth with automobile revenuesup over 100% and our aviation segment up 30% over year to date 2006.

During the third quarter, North American revenue was up 71%while our European business increased 89% (inaudible) quarter. Our Asian salesalso grew 109% during the period.

Our Q3 North American unit sales increased 121% on thestrength of product PND sales, our Europe unitsales kept pave during the quarter and also grew 126%. Year to date NorthAmerican revenue is up 76% while our European business has increased 58%. OurAsian sales also grew 60% on a year to day basis.

North American unit sales increased year to date 114% on thestrength of PND product sales and our European unit sales also grew over 85%.This was the explosive PND market; our automotive global statement nowrepresents 72% of our total business.

Within the automobile segments, the North American wasgreater than European growth; however both continents experienced 100% unitgrowth quarter over quarter.

As mentioned earlier, total North American market growth wassimilar to Europe during the quarter and NorthAmerican represents now 62% of our total business.

Looking at product mix when we evaluated the PND units inour automobile segments, in Q3 we had nearly two-thirds of our revenue comingfrom what we classified as the lower priced products and nearly one third fromthe mid range and high end products.

Looking next to margin by segment, (inaudible) aviationgross margin and operating margin remained relatively stable at 66% and 36%respectively.

Q3 outdoor fitness gross margin and operating margindecreased to 52 and 33% respectively.

In our third quarter, marine gross margins decreased to 53%while the operating margin in the segment decreased to 33% due to lover volumeduring the quarter.

Third quarter automobile gross margin came in at 43% beatingour expectations, the primary reason for the strength of the gross margin inthis segment is because price compression was not as severe as earlierexpected. We also experienced benefit from favorable product mix as PND unitssold in the IS were greater than in Europe.

Operating margin of 28% within this automobile was higherthan expected.

Due to expected price competition of PND products during theholiday season, we continue to expect this automobile will experience declininggrowth in operating margin during the fourth quarter of 2007.

Moving next to our operating expenses, R&D increased $4million quarter over quarter in dollar terms was down 190 basis points to 5.6%of sales. We now employ nearly 1300 engineers and engineering associatesworldwide. Our ad spending increased by 15 million over the year ago quarterbut on a percentage of sales advertising was down 40 basis points at 5.3% ofsales. We expect ad spending to increase sequentially by nearly 25 millionduring the fourth quarter as we are just on the front end of our forth quarterTV ad campaign.

Other FTNA increased 70 basis points to 6.6% of sales from5.9% a year ago. We continue to expect that our operating expenses willrepresent approximately 17% to 18% of sales for the full year, but only 16% to17% for fourth quarter and sales peak during theholidays.

Moving next to the balance sheet.After distributing nearly $165 million in cash dividends to our shareholders,we ended the quarter with a cash and marketable security balance of just overone billion dollars. Our accounts receivable remain relatively flat as 525million due to linear shipments during the quarter and accounted forapproximately 62 days of sales. We've already collected on over 250 million ofreceivables during fourth quarter. Our inventory dollars were up nearly 200million from the second quarter and our data of inventory metric increased. Atthe end of Q3 we now hold 99 days of inventory which is up from 67 days in thesecond quarter, and those dollars are made up of the following categories: 152million in raw materials, which represents 29 days, 67 million in web, whichrepresents 13 days, and 300 million in finished goods, which represents 57days, and we ended the period with $18 million in inventory reserves.

The increase in our raw materialsand in our finished goods was planned as we prepare for a significantly highersales raise during the holiday season, and consistent with past history wewould expect our inventory to decrease in dollars as we exit 2007. As we'vestated in the past, and we've continued to experience, our retail tailinventory continues to be lean, and as most of our products remain stronger inthe Q3.

Looking at our cash flowstatement, cash flow from operations was 134 billion during the Q3, we didspend $17 million with CapEx strength Q3 and the precash flow that we announcedduring Q3 was $117 million. Cash flow from investing was at 48 million, sourceof cash, Q3, was made up of the 17 million CapEx spend, $15 million onacquisitions of business and intangibles, and in net redemptive marketablesecurities of 81 million. Cash flow from financing was 146 million use of cashduring the period which is made up of 163 million dividends paid, cashdividends paid, and 17 million proceeds from options exercise. Overall weearned an average of 4.7% on all cash and marketable securities during 3rdquarter.

Finally on the financial sectionof the presentation, we remain optimistic about the future success for businessand therefore are increasing our earlier annual outlook for 2007. We now expecttotal revenue for the year to exceed 2.9 billion in sales, with 63% growth. Ourearlier guidance was 2.8 billion. We now expect earnings per share to grow atleast 45% up to $3.40 per share, our earlier guidance of $3.15. Operatingmarkets have committed 28% for the year, and this represents a 100 basis pointimprovement from our earlier guidance, and we expect higher volumes during Q4.CapEx for the full year remains constant, at 150 million, our expected tax rateremains unchanged, at approximately 13%, and looking at the segment growthrate, our auto and mobile segment is now expected to grow at least 9% duringthe year 2007. All other business segments sales expectations remain unchangedfrom earlier guidance.

Finally I would like to conclude thepresentation today by walking you through some of the highlights of theannounced acquisition of Tele Atlas this morning. (inaudible) Garmin announcesits intention to make a cash offer to acquire 100% of the outstanding shares ofTele Atlas for 24.50 per share, Euro. The total equity value of the transactionis approximately 2.3 billion Euros, or 3.3 billion U.S. dollars. We believethis offer provides increased value to Tele Atlas shareholders as it representsa 15% premium to the current top offer of 21.25 Euro per share. We have beenadvised on this transaction by Credit Suisse and Rekordy Bank and have securedfinancing commitments in place in addition to our over one billion of our owncash on hand.

Looking at Garmin's vision for thedigital maps for the future, this is one of the primary reasons for ourannouncement this morning, Garmin's vision for the digital map for futureincludes expanded coverage and improved map quality, and we believe that thecombination of our two companies will best enable us to be successful in thisarea. We also believe that the expansion of map utility will be realizedthrough improved points of interest, local search, pedestrian friendly content,and future of 3D mapping. Foreman of the track is a large install base ofusers, over 25 million, and we intend to capitalize on this growing community,increase real time content, using Tele Atlas maps, some kind of garmentconnective devices, as part of a larger mobile device network. Some of thebenefits of this offer are both seen from the end user and from the Tele Atlascustomer perspective. And these benefits include more realistic representationof surroundings, improved mobile search capabilities, including Poi’s andInternet enabled local search. Intuitive operation within every segment of thenavigation market, including in-dash, portable, mobile phones, and theenterprise. Other benefits include real time content, including traffic andhistorical flow data, an increase in the number of future applications,including new market opportunities, continued connected device innovation, andfinally a very important benefit, uniform and fair access with Tele Atlascontent to all customers.

Finally what we believe thatGarmin is the ideal combination with Tele Atlas because of our entrepreneurialculture led to our growing into global leader in navigation technology. Garminhas financial strength and organizational structure to build position as theydiversify navigation and communication company. As mentioned earlier, we'reexcited about our vision for maps of the future and our ability to execute onthat vision. We've acquired many companies within the last few years and havethe ability to provide Tele Atlas with the resources and support necessary tobuild on their past success. From a vertical integration strategy andoperational skills by proven business model to effectively manage a globalorganization.

Finally it's our intent to retainall management and personnel at Tele Atlas in order to support the expansion oftheir content offerings. That concludes our formal presentation at this time.As is customary we'd like to open up the phone lines to those of you who are inqueue for Q & A, so we'd welcome any questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions).

Your first question comes from theline of Ronald Epstein with Merrill Lynch.

Ronald Epstein - Merrill Lynch

Hey, good morning guys. Just aquestion on the potential acquisition. Kevin, are you expecting a counter bid?

Kevin Rauckman

If we expect a counter bid, Ithink we feel like the offer we made this morning at 24.50 Euros per share is astrong offer, it's an offer we feel that Tele Atlas will strongly consider. WEreally can't speculate on what may happen in the future. But again, given the15 % premium over the existing offer that was out there we feel like it was acompelling offer.

Ronald Epstein - Merrill Lynch

Ok. And then I guess, for Cliff,kind of a question I always kind of come back to, is, when we think about thedevelopment of the avionics business, what time frame can we expect somethingin a larger business jet, something like a CJ One Plus, or CJ Two Plus classairplane?

Cliff Pemble

I think that kind of businesstakes a while to develop, although we are making gradual steps in order to beable to do so. Our work on the Phenom program involves creating some of theelements that are required for the larger business jet, so we think it willtake quite a few years really to fully develop the capability.

Ronald Epstein - Merrill Lynch

Ok great, thank you.

Operator

Our next question comes from the lineof Jeff Evanson, at Dougherty and Company.

Jeff Evanson - Dougherty and Company

Good morning everybody. Thanks fortaking my questions. Men, could you talk a little about how you might attackthe Asian market, more broadly. Clearly a big opportunity and growing veryquickly for you.

Dr. Min Kao

As you said the Asian market isone of the major emerging markets, and we expect that over the next 3-5 yearscountries like China, India, and (inaudible) will have a significant growthopportunities. We have recently reorganized and expanded our marketing sharesin our division in our Taiwanbase, and also we are expanding our R & D (missing audio)

We started in Taiwan to step out (and for the Asia market, )so we're finding that we’re working hard in both marketing,sales and R & D to get ready to participate in these emerging markets.

Jeff Evanson - Dougherty and Company

How important is it for you to ownyour own mapping and turn-by-turn data base in attacking the Asian markets andhow do you feel Tele Atlas's positioning compares with others in the market?

Dr. Min Kao

I think that as far as mapping isconcerned (prior to all the that the Asiamarket, we almost a priority in most other countries. In Japan you know there's no, it’s clear, you know,it is unlike North America, and Europe. Inthose markets we could not have the), but in Asiawe don't see that, so it's still meant to be seen how that the mapping(inaudible) will evolve.

Jeff Evanson - Dougherty and Company

Ok. Thank you. I'm curious. If, asyou thought about how you'd pay for this acquisition, and potentially if theprice went higher, when and under what circumstances would you start to thinkabout your offer possibly including equity?

Kevin Rauckman

Yea, I think, Jeff, you probablyare not going to be surprised we're not going to comment on that. I think thatthe key point here is that we feel like we have the financial strength andflexibility to acquire Tele Atlas, and that's what we're announcing thismorning.

Jeff Evanson - Dougherty and Company

Ok, my last question is, I was abit intrigued to see that you expect minimal costs for winding down yourrelationship with Navtec. Could you communicate, talk a little bit about thetiming and process and costs related to that?

Kevin Rauckman

From a technical and operationalpoint of view, we've been very vast over the years in using maps from varioussuppliers though it's not a difficult thing to be able to switch. The timing Ithink is yet to be determined although we would anticipate over the next 12 -24 months that we would start to transition some products in some markets,depending on the situation.

Jeff Evanson - Dougherty and Company

But I thought you possibly hadsome legal costs related to your contracts there that might be an issue.

Kevin Rauckman

I don't think we can really comeout with details of that particular relationship other than depending on oursuccess with the intent to offer; we’ll go through the process.

Jeff Evanson - Dougherty and Company

Ok, thank you very much.

Kevin Rauckman

Thank you.

Operator

Your next question comes fromNoelle Swatland with Lehman Brothers

Noelle Swatland - Lehman Brothers

Hi guys, congratulations on a goodquarter.

Two questions, my first questionrelates to the announcement of the TADL. I'm just wondering, do you feelTomTom’s seems to illustrate or suggest that their strategy is key now tohaving an integrated mapping unit under one umbrella. How do you feel aboutthat yourselves and are there other options, are you pretty committed to makingsure that you now have an integrated option also and I'll follow up with thePND question after that.

Kevin Rauckman

I think as we mentioned before, 90days ago, the industry was quite different than it is today with the twoindependent suppliers. So given that there's going to be change taking place wefeel like it's the right time for us to exercise leadership and that in termsof obviously vertically integrating but also being able to find the match withthe future and lead the way in terms of device innovation which we think willbe good for the entire industry.

Noelle Swatland - Lehman Brothers

Ok, great. And are you guys makingany comments at all in terms of anticipated solution?

Kevin Rauckman

Other than, it would really bediluted for the first couple of years and we'd be equated by the year three.

Noelle Swatland - Lehman Brothers

Ok, and then, just, Kevin aquestion on PND margins this quarter. I think following some of the strengthsthat TomTom had seen in their third quarter, can you just talk through some ofthe differences? My sense is that the numbers that you saw this quarterand how compared to the last quarter, I know you had mentioned a greater mix ofroll-in products as well but from my understanding you had, you know, a newpricing strategy in Europe and obviously the US is very strong and that’s amuch higher business for you as well.

Kevin Rauckman

You recognize, you are asking me to compare Q2 to Q3 or…

Noelle Swatland,Lehman Brothers

Yes, yes

Kevin Rauckman

Okay, from Q2 to Q3 I think we definitely saw overall ISPscome down we saw prices come down but not as much as maybe earlier suspectedand I think the product mixes I mentioned selling more at the low-end was thekey driver in bringing PND margins down to the -- the 46% down to the 43%level.

Noelle Swatland,Lehman Brothers

Ok, great. thanks guys.

UnidentifiedRepresentative

Thank you

Operator

Your next questions comes from the line of Jonathan Goldbergof Deutsche Bank

Jonathan Goldberg -Deutsche Bank

Hi, thanks for taking my call. Just real quickly, going back to the TeleAtlas question, on the accretion dilution, are you assuming or how muchsynergies do you have built into that? What kind of synergies can we expect?

Kevin Rauckman

We are not really quantifying; but just say overall becauseof our comments on retaining the management personnel we are not assuming amajor synergy most of the [dilutative] impact is related to the amortization ofdebt and intangible amortization… First couple of years

Jonathan Goldberg -Deutsche Bank

Ok, and then on that note, are you comfortable with some ofthe cultural issues that would rise up in the integration process? It seemslike Tele Atlas was pretty close to TomTom historically, are you confident thatyou can keep the key personnel at a combined company?

Kevin Rauckman

I think we have also worked with Tele Atlas over the years,in fact, we worked with the initially in some of our early PND products, and wethink that the team is very much culturally aligned with us as anentrepreneurial organization, very aggressive. You know our goal on this is to be able to engage as a customer with Tele Atlas and retain all of thecustomers with Tele Atlas going forward

Jonathan Goldberg -Deutsche Bank

Okay, and then a question on products. It seems like you got into about 30% percentsequential growth; and maybe even a little bit less than that for the autosegment… and historically you have seen higher levels than that. Is there something going on? Is there maybesome reason for your being conservative? Or is there potential for an upside?

Unidentified CompanyRepresentative

No reason other than our normal conservative nature. But I think that sequential growth on theauto/mobile segment essentially represents closer to 40% plus growth from Q3 toQ4.

Jonathan Goldberg -Deutsche Bank

Okay… Great thank you.

Kevin Rauckman

Nice to hear

Operator

The next question comes from the line of Yair Reiner of CIBCworld markets

Yair Reiner - CIBC WorldMarkets

Good morning guys and congrats also for the greatresults. First again on Tele Atlas, itlooks like you guys were deliberating this move for quite some time. To what extent can you share with us, youknow, some of the thinking that you had aboutmoving ahead? And then why you maybe looked passed other options; such as,maybe building rather than buying a map?

Kevin Rauckman

I think the first comment I will make, and maybe Cliff wouldwant to jump in. But our consideration of the option to leave off for a… makeand offer to acquire is really rather recent; given the significant changesthat have taken place in the industry over the last 90 days. But given those current moves towardsconsolidation in the sector we just really believe that right now is the righttime to combine with a mapping supplier. Probably categorize it that way.

Yair Reiner - CIBCWorld Markets

Okay, why that rather than take the however long it took tobuild your own map. Is it really aquestion of, kind of, lost time?

Cliff Pemble

I think it is an exceedingly difficult task to build themaps from scratch I think it is what we call technically possible, there iscertainly new technology that can be brought to bear in doing so… But it is a proposition that has high riskfrom an execution point of view and a very long time schedule and it is alsonot inexpensive.

Yair Reiner - CIBCWorld Markets

Okay good. In termsof your characterization of the product mix. When you talk about one third being low end. Do you include the wide version of the 200 orthe pan-European version of the 200? Would that also go into that low-end bucket? Of that two thirds?

Cliff Pemble

Yeah, yes. C-series. The remaining c-seriesthe Newbie 200 and the Newbie 200Y; all of those that you mentioned yes, thoseare low-end models.

Yair Reiner - CIBCWorld Markets

Yes, and if we look deeply into that bucket how has the traction been for the, let ussay, high end of that lower end and howhas that mix trend developing into the fourth quarter?

Kevin Rauckman

I think it has continued to be pretty strong but as we gothrough a pretty competitive holiday season we are expecting prices to be. And I think the overall environment will be quite aggressive in terms ofprice. So that that is why, given ourguidance, we are expecting margins to continue to decline.

Yair Reiner - CIBCWorld Markets

One more question and I’ll get back into the queue. On the outdoor and fitness, nice growth thereespecially considering the season, to what extent to you think that is areflection of, kind of the, the new product enhancements and to what extent isthat the increased awareness and demand for GPS in general.

Kevin Rauckman

I think certainly there can be some combination of the bothof those things, although we saw strength across the entire breadth of theoutdoor fitness line. Of course theAstro provided new revenue which we didn’t have before, our fitness line isgrowing nicely, and the outdoor line benefited from the release of new highsensitivity receivers which was received well by the market.

Yair Reiner - CIBCWorld Markets

Thank you I’ll get back in the queue.

UnidentifiedRepresentative

Thank you

Operator

Your next question comes from the line of Jeff Rath ofCanaccord Adams.

Jeff Rath - CanaccordAdams

…Mid-quarter. I waswondering, Kevin, if you could give us a little color as it relates to, sortof, pricing differentials that you see in Europe versus North America? And this is particularly in the auto/mobile segment; whatare they and with the mix shift how is that pricing differential changing andmaybe you even can give us some colorgoing forward? Thanks.

Kevin Rauckman

I think there are several points here. I think that first of all European markethistorically… first of all, fragmented, as we have talked about many times, cutcountry by country. But in general wehave seen about a 15% differential between price historically. We have recently, because of what we havedone in the USmarket on price, we have seen that gap shrinking and it is much, much,lower. The differential between US and Europe in fact if you just look at both continents growing towards mass-market levels that’slikely to continue. So there is the gap is, I am not saying that it is zero butit is much smaller than it used to be. Going forward I think that it will be about, I think the pricingdifferential will be very little difference between the two continents.

Operator

I’m sorry, your next question comes from Aaron Husock ofMorgan Stanley.

Aaron Husock - MorganStanley

Great. Thanks for taking my questions. Just a couple quick ones. I guess, following along with the lastquestions. I once had higher margins on your US P and D business. Probably because of that price gap, are youseeing margin convergence as well in the USversus Europe? And then on the next, that two-thirds unit volume being the low-end inQ3; where do you think that goes in Q4?And I have got one more after.

Unidentified CompanyRepresentative

Okay the first one is perhaps, about the US and Europe[petes], I think margins have come down in both continents and I think goingforward we would see again just like the pricing compression for the pricing differential I think we willsee less difference on the margin as well. And then the second question was the mix from two thirds roughly in Q3,we could be as high as 3/4ths or 75% low end in the fourth quarter. It’s difficult to predict exactly it isdepending on sell through but we wentfrom 50% low end Q2 to two-thirds in Q3 and I think that is going to continueto grow at the low-end just due to price.

Aaron Husock - MorganStanley

Okay great. And thenjust lastly on component costs; as you realize the full impact of the higherNAND flash cost and LCD costs in Q4, do you think your total cost of goods soldper unit in PND could actually go up sequentially in Q4?

Min Kao

We… I know we don’t expect that all [unintelligible] youknow we have pay [unintelligible] to up in sufficient flash memory and everyother components. All along we don’t seethat the net increase of our productcosts.

Aaron Husock - MorganStanley

Great, thank you.

Min Kao

Thank you.

Operator

You next question comes from Ben Radinsky of Bear Stearns.

Ben Radinsky - BearStearns

Hi, good morning. Thefirst on the Tele Atlas acquisition. NavTech when you discussed your license opportunities with them for thefuture, did you find them to be a willing partner. Or was this something that was done in avacuum, the negotiation, excluding any potential acquisition of Tele Atlas.

Kevin Rauckman

I think, we have been saying all along that we have longerterm contracts with NavTech and that’s quite true. We have not had lot of discussion of whatthings look like beyond the expiration of those contracts .

Ben Radinsky - BearStearns

Okay, how do you feel about capacity in the pipe for ‘08

Kevin Rauckman

As far as our ability to meet demand?

Ben Radinsky - BearStearns

Yup

Kevin Rauckman

Dan just given our investments recently this past year, a$100 million of CapEx in the Taiwanfactory we feel like we are poised to meet the growing demands of the PNDmarket into 2008.

Ben Radinsky - BearStearns

So you do not expect and major capital expenditures over thenext six quarters?

Kevin Rauckman

Well I think major in terms of a facility purchase no,but we will continue to expandproduction lines as demand and unit capacities are increasing.

Ben Radinsky - BearStearns

Okay and then the last one from me. If you were to just take your full yearguidance for the outdoor business it implies 15% year over year growth in Q4which is down from 25% in Q3can you talk about why you have that slowdown inyour growth; especially considering the breadth of product offering that younow have in outdoor, I would expect it to be seasonally strong with the holidayseason.

Kevin Rauckman

I think we see roughly a $7million increase on actual sales,but yeah you are right from a growth rate it is only 15%. I think we have been kind of up and down allyear on outdoor fitness… we are remaining to be conservative as we go intothe holiday season we will see how thoseunits continue to sell through.

Ben Radinsky - BearStearns

Okay, thanks.

Kevin Rauckman

Thank you

Operator

You next question comes from the line of Peter Friedlandwith Soleil Group

Peter Friedland -Soleil Group

Hey guys, so very good first on the Tele Atlas deal, so Iguess, what is plan ‘B’ at this point if, for whatever reason, you get outbid?

Kevin Rauckman

I think we are pretty committed to making it work. I thinkgiven announcement this morning of thenews that we have tried to emphasize that our strategy is… and we the thinkthat it is a very strong strategic fit. Plan B? I don’t know that we can comment on speculations before otherpossible outcomes. Again we are pretty committed to acquiring, and we feel likeour offering is pretty strong.

Peter Friedland -Soleil Group

Then as far as some of the acquisitions you made in Europe of the distributors what are you seeing as far asimpacts, on either your sales or your margins?

Kevin Rauckman

I think the two that have closed this year were France andGermany and they have, we have, seen market share gains in both of thosecountries and it appears that the strategy of acquiring and having a more [portable] front to the retail channel hasbeen successful although we are still not happy with where we stand on marketshare… we have seen increases. The othertwo that are pending, actually three that are pending we have not been able tobenefit yet. That is Spain, Italyand Denmark,so those are in due diligencestage.

Peter Friedland -Soleil Group

Then on ASP, so what the best way to think about where youare seeing in this market as far as ASP declines and then ‘apples to apples’price declines on your products.

Kevin Rauckman

Are you talking about, just the fourth quarter?

Peter Friedland -Soleil Group

Fourth quarter and then going into ‘08, if you can comment.

Kevin Rauckman

I can’t comment helpfully on ‘08, but if you look at thefull year, just on the PND, which is probably what you are referring to mostlysince we don’t have nearly as much price decline on the other segments. We are looking at an overall ASP decline forthe full year around 30%. Go forward, asI think we have mentioned, the prices will continue to go down, however,probably not at the same level in 2008 as we saw in 2007 on a percentagebasis. Just because of how far they havecome down in just one year, this year, just in percentage basis

Peter Friedland -Soleil Group

Great thank you.

Operator

Your next question comes from David Neiderman with PacificCrest Securities

David Neiderman -Pacific Crest Securities

Good morning thanks for taking the call. So just a quick question on the TA (TeleAccess) deal so as you look at making the deal work have you modeled outscenarios where TomTom licenses from NasTech? And if all that business doeswalk away, at one point does the deal not work for you any more?

Kevin Rauckman

I can’t give a significant amount of detail, but we havemodeled that, various possible outcomes, one of which is the one you suggested . Still feel like under nearly any outcome this is a good deal for us.

David Neiderman -Pacific Crest Securities

Okay great. And lookingat the margin declines this quarter in marine and outdoor mobile can you maybeprovide a little color, is it just mix, and do you expect a rebound in Q4? Oris it beyond that?

Kevin Rauckman

I think it’s a mix in volume, particularly in the marine business.We have a significant Q2 season, and then we see a small fall off in Q3.Because of the reduced volume in [Berain], we nearly always see a drop off inoperating margin in that period. So, I have to admit this is more product mix,and that aviation was fairly stable as I mentioned.

David Neiderman -Pacific Crest Securities

Great, thank you.

Operator

Our next question comes from the line of [Marcel Gontos],Bloomberg.

Marcel Gontos -Bloomberg

Good morning. My question is the following. Could youexplain what the strategic rational is? What do you really need to own your mapsupplier? And are you going to buy main component supplies as well?

Kevin Rauckman

I think maps are obviously the key ingredient that makethese devises work. And it’s a unique asset that takes a lot of effort tocreate. And given the changes in the industry, obviously we feel a need at thispoint to emphasize our obligation to lead and provide a vision as well.

Cliff Pemble

As far as purchases of other suppliers, we can’t reallycomment on future activities. It’s unlikely we would go and acquire other majorsuppliers at this point though.

Marcel Gontos - Bloomberg

And can you say something about the finance commitments? Whois the bank providing the commitments at this point, and what is the exec’sborrowing need?

Kevin Rauckman

We never made that public other than to say it’s acombination of our own cash, we mentioned the $1 billion that we have in ourown books. And then a combination of term loans, financed through both creditsweeps and Wachovia. So we feel like we have very strong secured financingcommitments in place and ready to move forward on the deal.

Operator

Our next question comes from the lines of Scott Sutherland,with Morgan Securities

Scott Sutherland - WedbushMorgan Securities

Great, thank you, good morning. First, on the turnout ofthis deal. Do you think that this was inevitable over the long term that thedevice manufacturers and the maps would get together, or if it had stayed standalone, would you have ever made this move?

Kevin Rauckman

Well, again, as we mentioned before, we feel up to about 90days ago, the industry was managing under independent suppliers and deviceproviders. Clearly there is a consolidation under way, we want to provide ourleadership to that. But, we feel like it is a strategic asset that is importantto the growth of the category, and the entire industry.

Scott Sutherland - WedbushMorgan Securities

Okay. A follow up to [Brefe’s] question, you said that thisyear you are looking at a 30% decrease in PND or the [automo OFPs]. Is that dueto product mix, and if so, what does it look like for like products orequivalent products. Are you seeing much pricing pressure on the same products?

Kevin Rauckman

Well, same products, as you’re aware, Scott, this market ischanging rapidly, and products are being phased out of transition very quickly.So if you look at a life-to-life product, the price compression or erosion iseven higher than that. So we’re having a combination of both natural priceerosion and product mix moving from high and mid range, down into low end,especially during the holiday season.

Scott Sutherland - WedbushMorgan Securities

Okay, great, thank you.

Kevin Rauckman

Your next question comes from Brandon Dobell from WilliamBlair.

Brandon Dobell- William Blair & Company, L.L.C.

Thanks. From a strategic perspective, how would theacquisition change your strategic direction or your philosophy around the indash market and also the wireless market relative to your [Driver and Mobil]offering?

Kevin Rauckman

I think that that is one of our strategic rationales forthis acquisition, is that it does allow us to participate more broadly in theautomotive OEM space as well as in the wireless space, as both device providersas well as content providers.

Brandon Dobell- William Blair & Company, L.L.C.

We take that to mean that it was in the wireless space inparticular that would make you more likely to become, wouldn’t call a handsetthe right word, but something like that? Is there a way to become an in dashsupplier that you think now is easier because of the transaction?

Kevin Rauckman

I don’t know that it becomes any easier just because of thecontent piece, because it really requires the whole package. But we recognizeit as a way to participate more broadly in those industries.

Brandon Dobell- William Blair & Company, L.L.C.

Can you give your current thoughts on the component cost,the near term outlook, and if there is anything in the horizon that mightchange your view as to, let’s call it the next 12 months projectory, as a keycomponent for you?

Kevin Rauckman

I think anyone who sits here and tries to predict 12 monthson a component market is pretty crazy, but in Min’s comment earlier, we feellike we’ve been through a period of time, particularly on the flash, wherewe’ve paid (inaudible) increased cost. From what we hear in the industry, it’slikely we can some additional material cost reductions on that particularcomponent. But we’re not prepared at this point to say if it’s 5, 10% or 20%. Ithink we should see lower cost on the bill of material in general, but that’sabout all we can say at this point.

Brandon Dobell- William Blair & Company, L.L.C.

Another quick one for you Kevin, in terms of Q3 or Q4, canyou help us quantify the impact from the distributor acquisition, eitheroperating profits or revenue would be great. Thank you.

Kevin Rauckman

Unfortunately, we don’t break it down below the segmentlevel. We’ll just say that the contribution of France and Germany, the two thathave closed, have helped us from incremental sales, but if you look at ourSTNA, our advertising, those two lines on the P&L has also added cost tothe total company as well. So I can’t give you any further detail other thanthat.

Brandon Dobell- William Blair & Company, L.L.C.

Thanks.

Operator

Our next question comes from the line of Jairam Nathan, Bancof America Securities.

Jairam Nathan - Banc of AmericaSecurities

Hi, thanks, can you talk to us about the competitiveenvironment, especially with the wireless devices having navigation. Are youmore worried about more competition coming within the PND space or outside thePND space.

Kevin Rauckman

I think the current situation in the market definitely,major players have been able to make a name and build a product category.Today, I think that inevitably, there is going to be some shifts in the marketas in dash becomes more affordable, and as handsets become location enabled, andable to run on navigation applications. So we’re well prepared, I think, on allthose fronts by offering devices that can address the OEM market as well as thewireless market. And of course, in light of Tele Atlas, it also allows us toparticipate as a content provider to [Ovarius].

Jairam Nathan - Banc of America Securities

On the European market, given the kind of material, are youseeing any replacement demand on the devices, on the PND’s?

Kevin Rauckman

I think we are still seeing a vast majority of the unitsbeing sold as far as we can tell, as new first time users. As the penetrationrate in the PND category is still quite small. But without a doubt we see thatas we brought prices down, we’ve seen some repeat buyers and replacements andwe expect that replacement cycle to increase as the market matures.

Jairam Nathan - Banc of America Securities

Okay, also if I look at last city price the last city mixhas been extremely good this year. And how are you kind of thinking about that,going forward in ‘08, doesn’t that set you probably not see price declines?

Kevin Rauckman

I’m sorry, what was the question?

Jairam Nathan - Banc of America Securities

We have seen very good price elasticity on the PND side. Howdo you kind of, how do you see that going through in ’08, especiallyconsidering that you wouldn’t see those at 30% price declines?

Kevin Rauckman

I think, without a doubt, it appears that price decline on apercentage base will be lower than the 30% we’ve seen this year, and if you’veseen the price elasticity, the US market, for example going from roughly 3million units last year to maybe 9 or 10 this year. We see continued growth,not at a 3x rate, but still at a rapid rate in 2008. That price has continuedto come down, probably closer to the 20% level.

Jairam Nathan - Banc of America Securities

Are you saying - 20% is the price decline you are talkingabout?

Kevin Rauckman

Year-over-year, yes.

Jairam Nathan - Banc of America Securities

Okay, thank you.

Operator

Your next question, line of John Braatz, Kansas City Capital

John Braatz- Kansas CityCapital

Kevin, in the past, you’ve always said that you used thebest maps available, and obviously you’ve been using MapTech maps, and with thepotential acquisition of Tele Atlas, you’ll be migrating towards their maps.I’m not really familiar with Tele Atlas maps, vis-à-vis MapTech, but can youtalk a little bit about sort of the competitive difference in the maps? And, asa consumer, will I see a difference in the mapping that I see on a Garmindevice in the future with a Tele Atlas map, versus a MapTech map?

Kevin Rauckman

I’ll let Cliff answer that, because he’s probably moreappropriate.

CliffPemble

I think, historically, John, Tele Atlas was regarded as astrong leader in Europe, and MapTech wasregarded as the leader here in the North American area. I think in the recentyear or two, that the difference has been narrowed a lot, so that the mapsoffered by the two suppliers are largely similar, or comparable, to each other.So, going forward, I wouldn’t expect you to notice differences in devices thatoffer one map versus the other. Although, looking toward our vision of thefuture, I would expect that we would be able to differentiate the maps thatprovide more value.

John Braatz- Kansas CityCapital

Listen, Cliff, would you envision moving, I assume youwould, but moving all of your mapping from MapTech to Tele Atlas, or are theremarkets or geographical areas where MapTech might just have a little bit ofadvantage?

Cliff Pemble

Yeah, again, looking at the primary markets of North Americaand Europe, long term we would move all ourmaps there. I think other markets, as Min pointed out, are kind of fragmentedin terms of how they are served, and we would anticipate using Tele Atlas mapswhere they are available, but sometimes they are not.

John Braatz- Kansas CityCapital

Okay. You do have contractual relationships with MapTech.Would you, assuming this acquisition was completed, would you break these contractsprematurely, or would you let them expire naturally?

Cliff Pemble

We can’t really comment on that, as we mentioned before, ourintention would be to start moving certain products in certain markets over thenext 12 to 24 months.

John Braatz- Kansas CityCapital

Okay, thank you very much.

Operator

Your next question comes from the line of [Tsing Tao] withAllcare Capitals

Tsing Tao - Allcare Capitals

Hi guys, congratulations. You spoke a little bit about themargin compression in Q4, and you spoke about what the operating margin affectis. Can you talk a little bit just in terms of gross margin, what you’rethinking?

Kevin Rauckman

I think that if you extrapolate the numbers down to a 28%operating margin, we’re looking, we went from 50% in Q2 to roughly 47% in Q3,and we’re down into the low forties looking into the fourth quarter, throughoutthe fourth quarter. That’s basically implying a mid-thirties gross margin onthe [Otis Mobile] figure.

Tsing Tao - Allcare Capitals

Okay, thank you.

Operator

Our next question comes from the line of Justin [Peyole]with Credit Suisse

Justin Peyole - Credit Suisse

Hi, you mentioned earlier the transition to Tele Atlasproducts in the next 12 to 24 months, and that it would be minimum. Legal costsfor that? Is that assuming that there’s a provision in the contract that willallow you to exit?

Cliff Pemble

Well, again, we have multiple contracts with MapTech, andI’m not prepared to speculate in detail on how those work, but we anticipate anability to transition certain products in certain markets over the next 12-24months.

Justin Peyole - Credit Suisse

Okay, and what really drew you to Tele Atlas over making acounter bid for MapTech?

Kevin Rauckman

I think, we looked at several strategic alternatives, and weevaluated several outcomes, and we just felt like Tele Atlas, given the centralprice we would be able to offer, the multiples that were available from afinancial perspective, but probably even more so from a strategic perspective,[made a protective garment].

JustinPeyole - Credit Suisse

Okay, thank you.

Operator

Our next question is from the line of [Bruce Fickle] withNeedham & Company

Bruce Fickle - Needham& Company

24.50 offer, didn’t make a lot of sense to me, so, you know,the stock was trading 24. So I just want to understand whether that was because24.50 was your best and final offer, or why choose a bid where the market wastrading at independent of the need for then. Or whatever guidance you can giveme?

Kevin Rauckman

Well I think first of all, the market wasn’t trading at 24,it was trading down at 15 to 23 in recent days, and secondly, the prior offerdown on the table was 21.25, and we felt like a 15% premium over that number isa very strong offer and a very strong signal to the market that we’reinterested in acquiring the asset.

Bruce Fickle - Needham& Company

And I don’t know if it was really addressed, and you don’thave to necessarily address it, but I thought you had the ability to resolveyour mapping needs by not acquiring it, so I don’t know if you felt somethinghad changed, or if in fact, TomTom outbid you, are you ambivalent at some pointto whether you can just address your needs that way, or do you feel like, givenyour product your product selection, you really need to own the mapping productitself?

Cliff Pemble

Again, we’re looking at this from a real strong sense ofstrategy, and going forward, and how do we want to participate and lead in themarket, and we feel like this makes sense in order to play at a broader level,and be able to provide leadership to the industry.

Bruce Fickle - Needham& Company

What is one thing it gives you, so being able to have thedata will give you what then? What’s the difference from where you were?

Cliff Pemble

Well, it gives us the ability to provide a vision for thecontent that will differentiate devices using that content, it will drivedevice innovation, and overall, it will be beneficial for the industry.

Bruce Fickle - Needham& Company

Okay. I appreciate it.

Operator

Your next question is a follow up from Yair Reiner with CIBCWorld Market.

Yair Reiner - CIBCWorld Market

Yeah, thanks guys, just one follow up on the PND grossmargins. You probably noticed last week that TomTom reported results, and ingeneral your growth margins have moved more or less in line with TomTom’s, butthis quarter they’re almost 600 basis points higher. It seems to me that maybeone reason is maybe some more aggressive pricing on your part in Europe, maybeyou know they’ve moved to lower priced flash; any thoughts on why thedifferential, and how that should actually work in the future?

Kevin Rauckman

Yeah, I think there’s a couple issues there, a coupleanswers. Number one, it is a product mix issue in terms of our selling more tolow-end, and I think TomTom introduced some new products that would becategorized as not low-end, that they were able to benefit from. I think, ifyou look at just a comparison on the geographic mix of products, they wouldlikely have benefited more from the Euro strength, versus the U.S., and wejust recently started to invoice some of our European dealers and distributorswith Euros, not at the same level as our competitors. So I think those are thetwo main differences probably.

Yair Reiner - CIBCWorld Market

Thank you.

Operator

Your next question comes from the line of Jim Duffy withThomas Weisel.

Christian - ThomasWeisel

Hi, this is actually Christian in for Jim. I had a questionon European market share. I’m wondering if you can give us some guidance, ifyou’re on track to hit that 20% target for year-end?

Kevin Rauckman

Well, it appears, just from the independent market researchthat’s been published, that we’re selling at least at 20% market share in Europe right now.

Christian - ThomasWeisel

Okay, that’s great. And then, in terms of, I guess if I canask this the awkward way, what inning are you guys in, in terms of theintegration of your distributors that your repurchased, and where do you seethe most traction so far?

Kevin Rauckman

As I mentioned on an earlier question, I think we’ve seentraction for both the French and the German distributors, and feel like we’remuch further along probably in France,because we acquired in January of this year, and we’re just in month four nowof owning our German distributor, but we’ve made pretty rapid progress withboth.

Christian - ThomasWeisel

All right, thanks a lot.

Operator

Your next question comes from the line of [Andrew Vaughnwith Millennium Partners.]

Andrew Vaughan -Millennium Partners

Hi, given that when Nokia made the merger announcement tobuy Nastech, that they said that they were committed to maintaining commercialrelationships with all the existing customers, what is it about that, that wouldn’tbe palatable going forward? Is it just the development pipeline issue of havingto share that with a competitor, or what is it about that that wouldn’t bepalatable?

Cliff Pemble

I think there’s been a lot written about the variousscenarios and where sensitivities may lie, so I don’t know that we need tocomment any further on those. Again, we’re looking at this strategically nowfrom the desire to serve more broadly in the industry.

Andrew Vaughan -Millennium Partners

Okay, and then I guess just a quick follow up, was there anypossibility of trying to break either deal through the anti-trust reviewprocesses, to try and point out some of the competitive issues that might arisefrom the vertical?

Kevin Rauckman

I think we contributed, or we cooperated with the anti-trustauthorities that were evaluating those other deals, and probably don’t want tocomment on the strength of whether those were going to be successful or not.

Andrew Vaughan -Millennium Partners

Okay, and I guess finally, if you are successful in buyingTele Atlas, are there any commitments that you would make as far as maintainingopen standards, or working with any of the existing customers?

Cliff Pemble

I think we’ve stated really clearly in our materials and allof our communications today that it’s our intent to operate Tele Atlas as anindependent subsidiary, where Garmin engages as a customer, and where TeleAtlas is the voice of all customers of Tele Atlas data. So we anticipate thatthe data will be freely acceptable to any player without any prejudice.

Andrew Vaughan -Millennium Partners

Thank you very much.

Operator

Your next question comes from Richard Edwards of ButlerGroup.

Richard Edwards -Butler Group

Hello, I just want to pick up on that last point you madeabout the non-discriminatory terms to all Tele Atlas customers. I mean, infact, TomTom have said exactly the same thing, Nokia have said exactly the samething about Nastech, if and when, there and that. So what is it about whatthey’ve promised that you think sounds hollow, and would therefore potentiallythreaten you going forward; and then is it fair to conclude then that you wouldbe significantly strategically kind of hampered or impaired if you don’t turnTele Atlas?

Cliff Pemble

Well, you know, everyone involved in these transactions sofar is committed to those open access, which they’ve all made publicstatements, and we have as well. I think again, what we’re focusing on, iswhat’s the rationale of strategy going forward, and again, our mindset isreally to be able to provide leadership to the market, and provide maps thatdifferentiate.

Operator

Your next question comes from the line of [Maha Vatra] withJ.P. Morgan

Maha Vatra - J.P.Morgan

Yes hello, my question is, you had made a comment on thetiming of the deal. You had said that you will make the offer as soon aspractically possible, and before December 4, which is when the tendered offerexpires from TomTom. Any further clarity you can give us on the timing?

Kevin Rauckman

Well, I think we’ve made introductory connections with theTele Atlas management team this morning, and under Dutch law we’re required tohave meetings with them within the first seven days, and it’s our intentionthat we would come up with a formal offer on or around November 22, I believe,so that’s about three weeks from today.

Maha Vatra - J.P.Morgan

All right, just one more question. It was reported in thepress that you have been buying Garmin shares, you have been buying Tele Atlasshares; is there anything you can tell us about the equity stake that youcurrently have in Tele Atlas?

Kevin Rauckman

Yes, we have acquired and built a stake, we’ll also bedisclosing what that amount is, but we will have reached at least a 5%threshold, and we can’t comment any more about what specific our position is,but that disclosure is in process right now.

Maha Vatra - J.P.Morgan

Has that stake building been after your announcement, or hasit been done in the days preceding.

Kevin Rauckman

Prior to announcement.

Maha Vatra - J.P.Morgan

Okay, thank you very much.

Operator

Your next question is a follow up from Jeff Rath ofCanaccord Adams.

Jeff Rath - CanaccordAdams

Thanks guys, you’re being generous with your time here. Justa market share question, if you will. As this market, as you’re attempting toestablish better market share in the U.S., I wonder if you could give us somecolor on your expectations for market share in the U.S. for Q4 and the outlook,if you will, at all, in your tradeoff market share for margins, say in 2008.

Kevin Rauckman

Well, I think just going into Q4, we’ve seen, been able toretain at least a 50% market share consistently throughout the year, as we gointo again, the high volume Q4, we would expect to be able to hold that type ofposition, and it’s during a period when the U.S market is growing 3X year overyear, so that would be a significant accomplishment if we were able to achievethat going into 2008. I think it’s too premature for us to comment on what ourmarket share will be as we enter or exit 2008.

Jeff Rath - CanaccordAdams

Thank you very much.

Operator

Your next question comes from [Tony Reneir] with [inaudible]

Tony Reiner

Thanks guys, firstly congrats on the quarter and thank youfor taking so much time on the call. You kind of stated that given the way theworld has changed in the last several weeks it’s kind of forced our hand alittle bit and I also noted the importance as far as mapping, so maybe a quickcomment on the state of the world, if there’s any other players of how this canpossibly change. You’ve kind of painted it as a two picture game and then kindof forced our hand, so any other options?

Guess this doesn’t work?

Cliff Pemble

We’re looking at this from a long-term strategy point ofview and how we can provide leadership to the market. I think clearly we’veevaluated lots of different scenarios and options and I’m not really able tocomment on all of those, but we feel confident to be a leader going forward inthis market.

Tony Reiner

And so are there other people out there, and there’s beencertainly names bantered the last several weeks who might come up for the nextpotential player in mapping technology or mapping locations?

Kevin Rauckman

I don’t think we see any compelling solution at this pointthat’s a strong alternative other than the ones who are already there.

Tony Reiner

So then my apologies if this comes out as it may sound, doyou kind of feel you’re backed into a corner a little bit, or kind of our handis forced?

Kevin Rauckman

Well clearly we’ve said that the industry has gone through alot of transformation in the last 90 days, so our move today reflects some ofthe rapid changes that are going on, but again our clear focus in going forwardis to lead the industry and provide a vision that will drive innovations.

Operator

(Operator instructions). Your next question comes from [JayDupree with Dupree Capital].

Jay Dupree - DupreeCapital

Thanks for taking the call. I have a couple of questions on,other than the timing of the merger, clearly Tele Atlas is trading at a muchhigher price right now than what you bid and so the market suggests you’regoing to have to pay more and there’s going to be a bidding war. I’m confusedhow you can call this leadership when you’re basically the third one in onbuying a mapping company after the table has already been set. Could you pleaseexplain how this exemplifies leadership?

Kevin Rauckman

Well again we made comments earlier that the duopoly thatwas in existence before is one that’s worked reasonably well for the market,but we do recognize opportunities to do better in terms of content, coveragequality, features, all of those things, so we feel like now is the right timeto jump into that and provide that leadership

Jay Dupree - DupreeCapital

But well how is this not exemplifying leadership whenarguable Comtom exemplifies better leadership y making the bid for Tele Atlasmany months ago at a much lower price, when you could have done that, and youcould have bought MapTech, which is your main map supplier, and you have norelationships with Tele Atlas. I’m just completely confused as an investor whythis is in the best interest of Garmin’s shareholders right, why it’s part ofyour overall business strategy and model; particularly after buying I don’tknow how many distributors in Europe. I’m justat a loss to understand how this is a smart move on your pat. Could you justplease get rid of the canned lines that you’re using about leadership and justwhat made you have to do this now, clearly you’re showing some kind of fear outthere about the change in the space, is it because there’s a movement tonavigation devices using cell phones for navigating devices, is it somethingabout the mapping software that’s making you do this, where you recognize thatyour overall business model and manufacturing PNDs is just not the future.Could you please just elucidate us a little bit, explain this, it’s just veryconfusing.

Kevin Rauckman

I think you can call it fear or you can call it preparingfor the future and for us we’re viewing it as a transition into the future.

Jay Dupree - DupreeCapital

And that’s the best you can give me? It’s kind of like a daylate and dollar short here, although it’s going to end up being a dollar moreif you continue to, if this turns into a bidding war.

Kevin Rauckman

We think we’ve offered an attractive offer to Tele Atlasshareholders, which recognized the value of the content and we think our offerspeaks for itself.

Jay Dupree - DupreeCapital

And can I just ask you quick question on pricing for Q4? Iunderstand there’s going to be some aggressive pricing from some of yourcompetitors. Are you planning to meet them head on, for example, if Meyou has a$99 PND are you going to meet them head on? I mean you have built up a lot ofinventory so I’m expecting you’re anticipating some aggressive action.

Kevin Rauckman

We’re built up inventory as is typical of this time of theseason and we’ve already made some pricing announcements and we’ll havedepending on the different products. As we go through the fourth quarter we’llhave some additional price reductions as we enter the black Friday, but as faras to whether we’re going to have a $99 product we can’t really announce thatif we haven’t already made an announcement on specific products so this is tosay prices are coming down in general.

Operator

You have no further questions at this time.

Polly Schwerdt

I think we’d like to go ahead and close the call then andthank you everyone for your participation and do feel free to give us a call ifyou additional questions and we’ll look forward to updating you again with thefourth quarter.

Operator

This concludes today’s Q3 conference call. You may nowdisconnect.

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