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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 and Company

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 Morgan Securities

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

Jairam Nathan - Banc of America Securities

John Braatz - Kansas City Capital

Operator

Good afternoon, my name is Carmen, and I will be your conference Operator today. At this time, I would like to welcome everyone to the Garmin Q3 2007 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer 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. Q3 2007 earnings call. Please note that a copy of the press release concerning this call is available at Garmin’s investor relation site on the Internet at www.garmin.com/stock. Additionally, this call is being broadcast live on the Internet. Please note that this webcast does include slides, which you can view during this call. An archive of the webcast will be available until November 30, 2007. A telephone recording will be available for two business days after this call, and a transcript of the call will be available on the website within 48 hours, at www.garmin.com/stock, under the Events Calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenues, earnings, market shares, product introductions, future demand for our products, and our plans and objectives, are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially, as a result of risks factors affecting Garmin. Information concerning these risks factors is contained in our Form 10-K for the fiscal year ended December 30, 2006, filed with the Securities and Exchange Commission.

Attending on behalf of Garmin Ltd. this morning are Dr. Min Kao, Chairman and CEO; Cliff Pemble, President and COO; Kevin Rauckman, CFO and Treasurer; and Andrew Etkind, General Counsel. The presenters for this morning’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’s press release, you can see that we’ve recorded yet another record quarter. Total revenues and EPS again both exceeded our expectations. Revenue for the quarter increased 79%, to $729 million. EPS was up 57%, or 78% excluding the effect of foreign currency. Unit volume was more than doubled, up 119%. Revenue goals continue to show strength in all four business segments. Over 2.6 million Garmin products was shipped during Q3, bringing our total to almost 25 million units 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 employees increased to over 7,900. We added 1,100 manufacturing associates during the quarter, to (inaudible).

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

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

In Europe, we expect the acquisitions of our Italian, Spanish and Danish distributors will provide us with additional distribution support in those countries. And in the U.S., work continues on the expansion of our warehouse distribution facility at our Kansas headquarters. We anticipate completion of this facility in the first quarter of 2008.

In this morning’s press release, we announced the appointment of Cliff Pemble to a newly created Chief Operating Officer position. Since our inception in 1989, we have set significant and consistent goals every year. We have (inaudible) our company 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 great synergies in technologies and operations. Our [c-series] has its own unique characteristics that require strong leadership. Especially in our Automotive/Mobile segment, which has very significant growth opportunity, is extremely dynamic. So to support our continuous goals, and to ensure our future success, we need additional dedicated leaderships. Accordingly, we have appointed Cliff to a newly created COO position. Cliff was one of Garmin’s first employees in 1989, and his presently VP of Engineering and a Board member. Cliff has brought his mental power of many business and product initiatives since the inception of Garmin. In this new role, Cliff will also assume direct supervision of all Garmin’s North American subsidiaries. And I will continue to serve as CEO and Chairman; assigning additional responsibilities to Cliff will allow me to devote more of my time to business development, strategic planning, and the development of our Asia-Pacific business initiatives.

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

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

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

For our outdoor/fitness segment, the Astro dog tracking product, and new Rino eTrex products, featuring high-sensitivity GPS, has been very 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 are excited about these opportunities.

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

We feel that we have achieved impressive results and increased market shares from the recent acquisitions of French and German distributors.

Furthermore, in addition to the previous unannounced acquisition of our Spanish distributors, in early August we announced our intent to acquire our Italian distributor, Synergy. Additionally on October 11th, we announced our intent to acquire our Danish distributors Fairpoint Navigation.

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

Early this morning we announced our intent to acquire Tele Atlas. This acquisition is consistent with our vision as a market leader in location and innovation based product and technology. This acquisition also demonstrated Garmin’s commitment to provide value for its shareholders.

Historically, Garmin believes that an independent competitive net to duoply serves our industry well, however in the absence of this independent and competitive net to duoply Garmin must exercise its obligation to provide market leadership.

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

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

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

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

Cliff Pemble

Thank you Min. I’ll be presenting a brief update on our Q3 product releases and other major initiatives undergoing in the quarter. Turning first in the automotive segment, during third quarter we released the nuvi 260 which features text to speech capability. nuvi 260 rounds our value conscious nuvi 200 product line by offering a configuration for nearly every customer and budget. The nuvi 200 line is becoming one of our more popular product lines within the lineup that we have

In addition, we released the nuvi 700 series which is a totally new family of products rounding out the upper end of our product lineup. The nuvi 700 series includes all of the features of our high-end PND products but it’s wrapped in a new form factor which is thinner and includes a built in antenna eliminating the slip up antenna design of the previous generation products. We’ve also added some new features like a where am I location search and a where’s my car search that allows a customer toe easily find their parked vehicle.

With the release of these new PNDs our Q4 product line is complete and we believe we have excellent shelf space and sufficient product to meet the demands of the holiday season.

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

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

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

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

Turning next to aviation. Several exciting announcements were made at the recent NBAA trade show. First, Cessna announced that the g1000 will be offered on 2008 model caravan aircraft. The response from Cessna’s customers was positive, and according to public information provided by Cessna an additional 50 orders were take for the Caravan during the NBAA and AOPA shows.

As we mentioned last time, Cessna has selected Garmin as the avionic supplier for the new Skycatcher life support aircraft. Cessna recently announced that orders for this new aircraft exceed 850 units, which is further validation of this exciting aircraft category.

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

The King Air 200 announcement compliments our existing program for C90, as an update on this program we’ve completed the certification flight tests and anticipate shipping the system to installers during the fourth quarter.

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

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

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

That concludes my update. Kevin will continue his financial update and will provide detailed comments on our proposed offer to acquire Tele Atlas.

Kevin Rauckman

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

Fur first on the Q3 income statement. Our revenue during the period that we recognized was $720 million, net income of $194 million and earnings per share of $0.88 per share. That represents 79% top line growth and 57% earnings per share growth and when we strip out the fourth currency that actually represents 78% earnings per share without FX, for the unfavorable one ten 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 of 46.9% was better than expected due to strong PND volume in the US and Europe, PND price erosion offset by some material cost reductions and operating efficiencies in our factories.

We now have a 24.9% operating margin which is down from 29.7% last year but much better than expected. Our gross margins were 190 base points unfavorable, advertising 40 basis points favorable from Q3 06, our other SGNA was 70 basis points unfavorable and our RND 190 basis points favorable.

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

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

Revenue within the aviation segment continued its strong growth 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 the growth 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 months contributed 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 four segments have experience double-digit revenue growth with automobile revenues up 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 sales also grew 109% during the period.

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

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

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

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

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

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

Q3 outdoor fitness gross margin and operating margin decreased 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 volume during the quarter.

Third quarter automobile gross margin came in at 43% beating our expectations, the primary reason for the strength of the gross margin in this segment is because price compression was not as severe as earlier expected. We also experienced benefit from favorable product mix as PND units sold in the IS were greater than in Europe.

Operating margin of 28% within this automobile was higher than expected.

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

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

Other FTNA increased 70 basis points to 6.6% of sales from 5.9% a year ago. We continue to expect that our operating expenses will represent approximately 17% to 18% of sales for the full year, but only 16% to 17% for fourth quarter and sales peak during the holidays.

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 over one billion dollars. Our accounts receivable remain relatively flat as 525 million due to linear shipments during the quarter and accounted for approximately 62 days of sales. We've already collected on over 250 million of receivables during fourth quarter. Our inventory dollars were up nearly 200 million from the second quarter and our data of inventory metric increased. At the end of Q3 we now hold 99 days of inventory which is up from 67 days in the second quarter, and those dollars are made up of the following categories: 152 million in raw materials, which represents 29 days, 67 million in web, which represents 13 days, and 300 million in finished goods, which represents 57 days, and we ended the period with $18 million in inventory reserves.

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

Looking at our cash flow statement, cash flow from operations was 134 billion during the Q3, we did spend $17 million with CapEx strength Q3 and the precash flow that we announced during Q3 was $117 million. Cash flow from investing was at 48 million, source of cash, Q3, was made up of the 17 million CapEx spend, $15 million on acquisitions of business and intangibles, and in net redemptive marketable securities of 81 million. Cash flow from financing was 146 million use of cash during the period which is made up of 163 million dividends paid, cash dividends paid, and 17 million proceeds from options exercise. Overall we earned an average of 4.7% on all cash and marketable securities during 3rd quarter.

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

Finally I would like to conclude the presentation today by walking you through some of the highlights of the announced acquisition of Tele Atlas this morning. (inaudible) Garmin announces its intention to make a cash offer to acquire 100% of the outstanding shares of Tele Atlas for 24.50 per share, Euro. The total equity value of the transaction is approximately 2.3 billion Euros, or 3.3 billion U.S. dollars. We believe this offer provides increased value to Tele Atlas shareholders as it represents a 15% premium to the current top offer of 21.25 Euro per share. We have been advised on this transaction by Credit Suisse and Rekordy Bank and have secured financing commitments in place in addition to our over one billion of our own cash on hand.

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

Finally what we believe that Garmin is the ideal combination with Tele Atlas because of our entrepreneurial culture led to our growing into global leader in navigation technology. Garmin has financial strength and organizational structure to build position as they diversify navigation and communication company. As mentioned earlier, we're excited about our vision for maps of the future and our ability to execute on that vision. We've acquired many companies within the last few years and have the ability to provide Tele Atlas with the resources and support necessary to build on their past success. From a vertical integration strategy and operational skills by proven business model to effectively manage a global organization.

Finally it's our intent to retain all management and personnel at Tele Atlas in order to support the expansion of their 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 in queue for Q & A, so we'd welcome any questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions).

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

Ronald Epstein - Merrill Lynch

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

Kevin Rauckman

If we expect a counter bid, I think we feel like the offer we made this morning at 24.50 Euros per share is a strong offer, it's an offer we feel that Tele Atlas will strongly consider. WE really can't speculate on what may happen in the future. But again, given the 15 % premium over the existing offer that was out there we feel like it was a compelling 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 the development of the avionics business, what time frame can we expect something in a larger business jet, something like a CJ One Plus, or CJ Two Plus class airplane?

Cliff Pemble

I think that kind of business takes a while to develop, although we are making gradual steps in order to be able to do so. Our work on the Phenom program involves creating some of the elements that are required for the larger business jet, so we think it will take 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 line of Jeff Evanson, at Dougherty and Company.

Jeff Evanson - Dougherty and Company

Good morning everybody. Thanks for taking my questions. Men, could you talk a little about how you might attack the Asian market, more broadly. Clearly a big opportunity and growing very quickly for you.

Dr. Min Kao

As you said the Asian market is one of the major emerging markets, and we expect that over the next 3-5 years countries like China, India, and (inaudible) will have a significant growth opportunities. We have recently reorganized and expanded our marketing shares in our division in our Taiwan base, 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 own your own mapping and turn-by-turn data base in attacking the Asian markets and how do you feel Tele Atlas's positioning compares with others in the market?

Dr. Min Kao

I think that as far as mapping is concerned (prior to all the that the Asia market, 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. In those markets we could not have the), but in Asia we 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, as you thought about how you'd pay for this acquisition, and potentially if the price went higher, when and under what circumstances would you start to think about your offer possibly including equity?

Kevin Rauckman

Yea, I think, Jeff, you probably are not going to be surprised we're not going to comment on that. I think that the key point here is that we feel like we have the financial strength and flexibility to acquire Tele Atlas, and that's what we're announcing this morning.

Jeff Evanson - Dougherty and Company

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

Kevin Rauckman

From a technical and operational point of view, we've been very vast over the years in using maps from various suppliers though it's not a difficult thing to be able to switch. The timing I think 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 had some legal costs related to your contracts there that might be an issue.

Kevin Rauckman

I don't think we can really come out with details of that particular relationship other than depending on our success 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 from Noelle Swatland with Lehman Brothers

Noelle Swatland - Lehman Brothers

Hi guys, congratulations on a good quarter.

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

Kevin Rauckman

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

Noelle Swatland - Lehman Brothers

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

Kevin Rauckman

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

Noelle Swatland - Lehman Brothers

Ok, and then, just, Kevin a question on PND margins this quarter. I think following some of the strengths that TomTom had seen in their third quarter, can you just talk through some of the differences? My sense is that the numbers that you saw this quarter and how compared to the last quarter, I know you had mentioned a greater mix of roll-in products as well but from my understanding you had, you know, a new pricing strategy in Europe and obviously the US is very strong and that’s a much 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 ISPs come down we saw prices come down but not as much as maybe earlier suspected and I think the product mixes I mentioned selling more at the low-end was the key driver in bringing PND margins down to the -- the 46% down to the 43% level.

Noelle Swatland, Lehman Brothers

Ok, great. thanks guys.

Unidentified Representative

Thank you

Operator

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

Jonathan Goldberg - Deutsche Bank

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

Kevin Rauckman

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

Jonathan Goldberg - Deutsche Bank

Ok, and then on that note, are you comfortable with some of the cultural issues that would rise up in the integration process? It seems like Tele Atlas was pretty close to TomTom historically, are you confident that you 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 we think that the team is very much culturally aligned with us as an entrepreneurial 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 the customers with Tele Atlas going forward

Jonathan Goldberg - Deutsche Bank

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

Unidentified Company Representative

No reason other than our normal conservative nature. But I think that sequential growth on the auto/mobile segment essentially represents closer to 40% plus growth from Q3 to Q4.

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 CIBC world markets

Yair Reiner - CIBC World Markets

Good morning guys and congrats also for the great results. First again on Tele Atlas, it looks like you guys were deliberating this move for quite some time. To what extent can you share with us, you know, some of the thinking that you had about moving 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 would want to jump in. But our consideration of the option to leave off for a… make and offer to acquire is really rather recent; given the significant changes that have taken place in the industry over the last 90 days. But given those current moves towards consolidation in the sector we just really believe that right now is the right time to combine with a mapping supplier. Probably categorize it that way.

Yair Reiner - CIBC World Markets

Okay, why that rather than take the however long it took to build your own map. Is it really a question of, kind of, lost time?

Cliff Pemble

I think it is an exceedingly difficult task to build the maps from scratch I think it is what we call technically possible, there is certainly new technology that can be brought to bear in doing so… But it is a proposition that has high risk from an execution point of view and a very long time schedule and it is also not inexpensive.

Yair Reiner - CIBC World Markets

Okay good. In terms of your characterization of the product mix. When you talk about one third being low end. Do you include the wide version of the 200 or the 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-series the Newbie 200 and the Newbie 200Y; all of those that you mentioned yes, those are low-end models.

Yair Reiner - CIBC World Markets

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

Kevin Rauckman

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

Yair Reiner - CIBC World Markets

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

Kevin Rauckman

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

Yair Reiner - CIBC World Markets

Thank you I’ll get back in the queue.

Unidentified Representative

Thank you

Operator

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

Jeff Rath - Canaccord Adams

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

Kevin Rauckman

I think there are several points here. I think that first of all European market historically… first of all, fragmented, as we have talked about many times, cut country by country. But in general we have seen about a 15% differential between price historically. We have recently, because of what we have done in the US market 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’s likely to continue. So there is the gap is, I am not saying that it is zero but it is much smaller than it used to be. Going forward I think that it will be about, I think the pricing differential will be very little difference between the two continents.

Operator

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

Aaron Husock - Morgan Stanley

Great. Thanks for taking my questions. Just a couple quick ones. I guess, following along with the last questions. I once had higher margins on your US P and D business. Probably because of that price gap, are you seeing margin convergence as well in the US versus Europe? And then on the next, that two-thirds unit volume being the low-end in Q3; where do you think that goes in Q4? And I have got one more after.

Unidentified Company Representative

Okay the first one is perhaps, about the US and Europe [petes], I think margins have come down in both continents and I think going forward we would see again just like the pricing compression for the pricing differential I think we will see 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 is depending on sell through but we went from 50% low end Q2 to two-thirds in Q3 and I think that is going to continue to grow at the low-end just due to price.

Aaron Husock - Morgan Stanley

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

Min Kao

We… I know we don’t expect that all [unintelligible] you know we have pay [unintelligible] to up in sufficient flash memory and every other components. All along we don’t see that the net increase of our product costs.

Aaron Husock - Morgan Stanley

Great, thank you.

Min Kao

Thank you.

Operator

You next question comes from Ben Radinsky of Bear Stearns.

Ben Radinsky - Bear Stearns

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

Kevin Rauckman

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

Ben Radinsky - Bear Stearns

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

Kevin Rauckman

As far as our ability to meet demand?

Ben Radinsky - Bear Stearns

Yup

Kevin Rauckman

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

Ben Radinsky - Bear Stearns

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

Kevin Rauckman

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

Ben Radinsky - Bear Stearns

Okay and then the last one from me. If you were to just take your full year guidance for the outdoor business it implies 15% year over year growth in Q4 which is down from 25% in Q3can you talk about why you have that slowdown in your growth; especially considering the breadth of product offering that you now have in outdoor, I would expect it to be seasonally strong with the holiday season.

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 all year on outdoor fitness… we are remaining to be conservative as we go into the holiday season we will see how those units continue to sell through.

Ben Radinsky - Bear Stearns

Okay, thanks.

Kevin Rauckman

Thank you

Operator

You next question comes from the line of Peter Friedland with Soleil Group

Peter Friedland - Soleil Group

Hey guys, so very good first on the Tele Atlas deal, so I guess, 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 think given announcement this morning of the news that we have tried to emphasize that our strategy is… and we the think that it is a very strong strategic fit. Plan B? I don’t know that we can comment on speculations before other possible outcomes. Again we are pretty committed to acquiring, and we feel like our 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 as impacts, on either your sales or your margins?

Kevin Rauckman

I think the two that have closed this year were France and Germany and they have, we have, seen market share gains in both of those countries and it appears that the strategy of acquiring and having a more [portable] front to the retail channel has been successful although we are still not happy with where we stand on market share… we have seen increases. The other two that are pending, actually three that are pending we have not been able to benefit yet. That is Spain, Italy and Denmark, so those are in due diligence stage.

Peter Friedland - Soleil Group

Then on ASP, so what the best way to think about where you are 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 the full year, just on the PND, which is probably what you are referring to mostly since we don’t have nearly as much price decline on the other segments. We are looking at an overall ASP decline for the full year around 30%. Go forward, as I 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 percentage basis. Just because of how far they have come 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 Pacific Crest Securities

David Neiderman - Pacific Crest Securities

Good morning thanks for taking the call. So just a quick question on the TA (Tele Access) deal so as you look at making the deal work have you modeled out scenarios where TomTom licenses from NasTech? And if all that business does walk 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 have modeled 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 looking at the margin declines this quarter in marine and outdoor mobile can you maybe provide a little color, is it just mix, and do you expect a rebound in Q4? Or is 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 in operating 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 you explain what the strategic rational is? What do you really need to own your map supplier? And are you going to buy main component supplies as well?

Kevin Rauckman

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

Cliff Pemble

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

Marcel Gontos - Bloomberg

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

Kevin Rauckman

We never made that public other than to say it’s a combination of our own cash, we mentioned the $1 billion that we have in our own books. And then a combination of term loans, financed through both credit sweeps and Wachovia. So we feel like we have very strong secured financing commitments 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 - Wedbush Morgan Securities

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

Kevin Rauckman

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

Scott Sutherland - Wedbush Morgan Securities

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

Kevin Rauckman

Well, same products, as you’re aware, Scott, this market is changing 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 is even higher than that. So we’re having a combination of both natural price erosion and product mix moving from high and mid range, down into low end, especially during the holiday season.

Scott Sutherland - Wedbush Morgan Securities

Okay, great, thank you.

Kevin Rauckman

Your next question comes from Brandon Dobell from William Blair.

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

Thanks. From a strategic perspective, how would the acquisition change your strategic direction or your philosophy around the in dash 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 for this acquisition, is that it does allow us to participate more broadly in the automotive OEM space as well as in the wireless space, as both device providers as well as content providers.

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

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

Kevin Rauckman

I don’t know that it becomes any easier just because of the content piece, because it really requires the whole package. But we recognize it 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 might change your view as to, let’s call it the next 12 months projectory, as a key component for you?

Kevin Rauckman

I think anyone who sits here and tries to predict 12 months on a component market is pretty crazy, but in Min’s comment earlier, we feel like we’ve been through a period of time, particularly on the flash, where we’ve paid (inaudible) increased cost. From what we hear in the industry, it’s likely we can some additional material cost reductions on that particular component. But we’re not prepared at this point to say if it’s 5, 10% or 20%. I think we should see lower cost on the bill of material in general, but that’s about 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, can you help us quantify the impact from the distributor acquisition, either operating profits or revenue would be great. Thank you.

Kevin Rauckman

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

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

Thanks.

Operator

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

Jairam Nathan - Banc of America Securities

Hi, thanks, can you talk to us about the competitive environment, especially with the wireless devices having navigation. Are you more worried about more competition coming within the PND space or outside the PND 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 market as in dash becomes more affordable, and as handsets become location enabled, and able to run on navigation applications. So we’re well prepared, I think, on all those fronts by offering devices that can address the OEM market as well as the wireless market. And of course, in light of Tele Atlas, it also allows us to participate as a content provider to [Ovarius].

Jairam Nathan - Banc of America Securities

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

Kevin Rauckman

I think we are still seeing a vast majority of the units being sold as far as we can tell, as new first time users. As the penetration rate in the PND category is still quite small. But without a doubt we see that as we brought prices down, we’ve seen some repeat buyers and replacements and we 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 mix has 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. How do you kind of, how do you see that going through in ’08, especially considering that you wouldn’t see those at 30% price declines?

Kevin Rauckman

I think, without a doubt, it appears that price decline on a percentage base will be lower than the 30% we’ve seen this year, and if you’ve seen the price elasticity, the US market, for example going from roughly 3 million 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 continued to come down, probably closer to the 20% level.

Jairam Nathan - Banc of America Securities

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

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 City Capital

Kevin, in the past, you’ve always said that you used the best maps available, and obviously you’ve been using MapTech maps, and with the potential 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 you talk a little bit about sort of the competitive difference in the maps? And, as a consumer, will I see a difference in the mapping that I see on a Garmin device in the future with a Tele Atlas map, versus a MapTech map?

Kevin Rauckman

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

Cliff Pemble

I think, historically, John, Tele Atlas was regarded as a strong leader in Europe, and MapTech was regarded as the leader here in the North American area. I think in the recent year or two, that the difference has been narrowed a lot, so that the maps offered 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 that offer one map versus the other. Although, looking toward our vision of the future, I would expect that we would be able to differentiate the maps that provide more value.

John Braatz - Kansas City Capital

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

Cliff Pemble

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

John Braatz - Kansas City Capital

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

Cliff Pemble

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

John Braatz - Kansas City Capital

Okay, thank you very much.

Operator

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

Tsing Tao - Allcare Capitals

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

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, throughout the fourth quarter. That’s basically implying a mid-thirties gross margin on the [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 Atlas products in the next 12 to 24 months, and that it would be minimum. Legal costs for that? Is that assuming that there’s a provision in the contract that will allow you to exit?

Cliff Pemble

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

Justin Peyole - Credit Suisse

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

Kevin Rauckman

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

Justin Peyole - Credit Suisse

Okay, thank you.

Operator

Our next question is from the line of [Bruce Fickle] with Needham & 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 because 24.50 was your best and final offer, or why choose a bid where the market was trading at independent of the need for then. Or whatever guidance you can give me?

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 offer down on the table was 21.25, and we felt like a 15% premium over that number is a very strong offer and a very strong signal to the market that we’re interested in acquiring the asset.

Bruce Fickle - Needham & Company

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

Cliff Pemble

Again, we’re looking at this from a real strong sense of strategy, and going forward, and how do we want to participate and lead in the market, 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 the data 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 the content that will differentiate devices using that content, it will drive device 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 CIBC World Market.

Yair Reiner - CIBC World Market

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

Kevin Rauckman

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

Yair Reiner - CIBC World Market

Thank you.

Operator

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

Christian - Thomas Weisel

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

Kevin Rauckman

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

Christian - Thomas Weisel

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

Kevin Rauckman

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

Christian - Thomas Weisel

All right, thanks a lot.

Operator

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

Andrew Vaughan - Millennium Partners

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

Cliff Pemble

I think there’s been a lot written about the various scenarios and where sensitivities may lie, so I don’t know that we need to comment any further on those. Again, we’re looking at this strategically now from 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 any possibility of trying to break either deal through the anti-trust review processes, to try and point out some of the competitive issues that might arise from the vertical?

Kevin Rauckman

I think we contributed, or we cooperated with the anti-trust authorities that were evaluating those other deals, and probably don’t want to comment 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 buying Tele Atlas, are there any commitments that you would make as far as maintaining open standards, or working with any of the existing customers?

Cliff Pemble

I think we’ve stated really clearly in our materials and all of our communications today that it’s our intent to operate Tele Atlas as an independent subsidiary, where Garmin engages as a customer, and where Tele Atlas is the voice of all customers of Tele Atlas data. So we anticipate that the 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 Butler Group.

Richard Edwards - Butler Group

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

Cliff Pemble

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

Operator

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

Maha Vatra - J.P. Morgan

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

Kevin Rauckman

Well, I think we’ve made introductory connections with the Tele Atlas management team this morning, and under Dutch law we’re required to have meetings with them within the first seven days, and it’s our intention that 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 the press that you have been buying Garmin shares, you have been buying Tele Atlas shares; is there anything you can tell us about the equity stake that you currently have in Tele Atlas?

Kevin Rauckman

Yes, we have acquired and built a stake, we’ll also be disclosing 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 has it 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 of Canaccord Adams.

Jeff Rath - Canaccord Adams

Thanks guys, you’re being generous with your time here. Just a market share question, if you will. As this market, as you’re attempting to establish better market share in the U.S., I wonder if you could give us some color 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 to retain at least a 50% market share consistently throughout the year, as we go into again, the high volume Q4, we would expect to be able to hold that type of position, and it’s during a period when the U.S market is growing 3X year over year, so that would be a significant accomplishment if we were able to achieve that going into 2008. I think it’s too premature for us to comment on what our market share will be as we enter or exit 2008.

Jeff Rath - Canaccord Adams

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 you for taking so much time on the call. You kind of stated that given the way the world has changed in the last several weeks it’s kind of forced our hand a little bit and I also noted the importance as far as mapping, so maybe a quick comment on the state of the world, if there’s any other players of how this can possibly change. You’ve kind of painted it as a two picture game and then kind of 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 of view and how we can provide leadership to the market. I think clearly we’ve evaluated lots of different scenarios and options and I’m not really able to comment on all of those, but we feel confident to be a leader going forward in this market.

Tony Reiner

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

Kevin Rauckman

I don’t think we see any compelling solution at this point that’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, do you kind of feel you’re backed into a corner a little bit, or kind of our hand is forced?

Kevin Rauckman

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

Operator

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

Jay Dupree - Dupree Capital

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 much higher price right now than what you bid and so the market suggests you’re going to have to pay more and there’s going to be a bidding war. I’m confused how you can call this leadership when you’re basically the third one in on buying a mapping company after the table has already been set. Could you please explain how this exemplifies leadership?

Kevin Rauckman

Well again we made comments earlier that the duopoly that was 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, coverage quality, features, all of those things, so we feel like now is the right time to jump into that and provide that leadership

Jay Dupree - Dupree Capital

But well how is this not exemplifying leadership when arguable Comtom exemplifies better leadership y making the bid for Tele Atlas many months ago at a much lower price, when you could have done that, and you could have bought MapTech, which is your main map supplier, and you have no relationships with Tele Atlas. I’m just completely confused as an investor why this is in the best interest of Garmin’s shareholders right, why it’s part of your overall business strategy and model; particularly after buying I don’t know how many distributors in Europe. I’m just at a loss to understand how this is a smart move on your pat. Could you just please get rid of the canned lines that you’re using about leadership and just what made you have to do this now, clearly you’re showing some kind of fear out there about the change in the space, is it because there’s a movement to navigation devices using cell phones for navigating devices, is it something about the mapping software that’s making you do this, where you recognize that your 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 very confusing.

Kevin Rauckman

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

Jay Dupree - Dupree Capital

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

Kevin Rauckman

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

Jay Dupree - Dupree Capital

And can I just ask you quick question on pricing for Q4? I understand there’s going to be some aggressive pricing from some of your competitors. 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 of inventory so I’m expecting you’re anticipating some aggressive action.

Kevin Rauckman

We’re built up inventory as is typical of this time of the season and we’ve already made some pricing announcements and we’ll have depending on the different products. As we go through the fourth quarter we’ll have some additional price reductions as we enter the black Friday, but as far as to whether we’re going to have a $99 product we can’t really announce that if we haven’t already made an announcement on specific products so this is to say 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 and thank you everyone for your participation and do feel free to give us a call if you additional questions and we’ll look forward to updating you again with the fourth quarter.

Operator

This concludes today’s Q3 conference call. You may now disconnect.

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Source: Garmin Ltd. Q3 2007 Earnings Call
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