Garmin Dominates GPS Market – But Stock Still Takes a Big Hit

When you’re in need of directions, there’s no better device than a GPS.

But when it comes to mapping out winners and losers in the GPS devices marketplace, we turn to the guidance of our 15,000-member ChangeWave research network. And what they’ve told us is that Garmin (GRMN) – the top GPS manufacturer in the world – has achieved near total domination of the U.S. marketplace.

During February we conducted two ChangeWave surveys on global positioning systems – one on consumer GPS trends (n = 3,773) and the other on corporate purchasing trends (n = 2,013). Here’s what we found:

Consumer GPS Trends

Our February 18-25 survey of consumers who own a GPS navigation device, shows Garmin with a 56% market share – an increase of 4 percentage points since the previous survey in January 2008. Garmin’s percentage towers over its closest rival Magellan, which captured only 12%.

Looking at the next 90 days, Garmin (54%; up 5-pts) remains first on the map in terms of planned consumer purchases of GPS navigation devices.

Corporate GPS Trends

In our February 11-15 corporate buying survey, Garmin is also the dominant leader with a hefty 58% share of the corporate GPS market. That’s a full 11-pts higher than the previous corporate buying survey in November 2007.

Magellan also gained some corporate ground since the previous survey (12%; up 4-pts), even as TomTom’s numbers have fallen to 9%, down 3-pts since November.

Going forward it’s more of the same, as Garmin is dominating planned corporate GPS purchases for the 2nd Quarter with a 56% market share That’s a huge 10-pt jump since November.

Best Quarter in History? Now Wait a Minute.

Garmin’s February 20th quarterly earnings call has confirmed our ChangeWave survey findings, with the company stating flat out that it was the “best quarter in our history.”

Garmin reported earnings per share of $1.39, on sales of more than $1.2 billion – a 99% increase from a year earlier, with profits up an impressive 70%. Analysts had projected earnings of just $1.12 per share. To top it off, the company stated that its outlook for the rest of 2008 remained strong.

So with all that good news, you might wonder why Garmin’s share price took a big 20% hit in the weeks immediately following their quarterly earnings announcement. Or why Garmin’s stock price is now down nearly 60% from its 52-week high.

According to Wall Street analysts, the combination of significantly lower profit margins for Garmin (down more than 15%) and a retrenchment in U.S. consumer spending has undermined Garmin’s stock price. In addition, Garmin's average unit selling price dropped precipitously last quarter, and their CFO recently predicted it will drop another 20% in 2008.

Another factor is the continued slowdown in U.S. consumer spending. Our February survey found an astonishing two-in-five U.S. respondents (39%) saying they’ll spend less over the next 90 days than they did a year ago – 5-pts worse than our January 2008 survey.

The decline in spending is occurring across all income levels. But most ominously – not only for Garmin but for the entire GPS devices industry – the survey showed consumer electronics spending in the midst of a major slowdown.

To put this in perspective, it’s the weakest outlook for electronics spending ever recorded in a ChangeWave survey.

Given such a slowdown, it’s understandable why Garmin and so many other high flying electronics stocks have had an extremely rough go of it over the past few months. But despite shrinking profit margins and an extremely tough consumer spending environment, our latest ChangeWave surveys show Garmin is gobbling up share in the high growth GPS market.

The verdict is out on whether Garmin can return to its previously lofty heights – but it’s a company investors should be watching closely.

Paul Carton co-wrote this article.

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This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 15,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on the ChangeWave Alliance, or if you are interested in joining, please click here.

Comments

[Dutch Trader]

I think navigation device maker TomTom (NYSE/EURONEXT AMSTERDAM) is a better play than Garmin. The company is in the process of acquiring Tele Atlas (a digital mapping and navigation solutions company). The takeover has been delayed because of regulations of the EU. The EU has extended its review period for the TT/TA deal until the 21st of May. The EU has not completed talks with the companies about the possible effects of, and necessary remedies for, the deal.

I think the deal will be approved that TomTom can acquire
Tele Atlas for EUR 30 per share, cash. The acquisition is an integral part of TomTom’s long-term strategy and
a rejection by the EU would be a setback for both firms.
The share price has been under serious pressure during recent months for a number of reasons: 1) Fears that an
economic slowdown in the EU and US will lead to lower demand for luxury goods such ad navigation devices, 2)
Fears that the Tele Atlas deal will be rejected, 3) Contrarily, fears that if the deal is approved TomTom will have
trouble financing the deal.

Despite that you can still be positive on the company for a number of reasons: 1) TomTom is market leader on the fast growing market portable nagivation devices with a strong brand name and a strong innovation pipeline, 2) Unlike other PND makers, TomTom is strongly developing services that will support its devices and will lead to recurring revenues in
the future, 3) The 4Q07 results were much better than expected, both in terms of margin development and in sales;
a positive sign in the current difficult economic reality, 4) The Tele Atlas deal will add value to TomTom. Aside from
the strong organic growth by both organizations, there will be significant cost reductions and other synergies emerging
from this union.

Though the announcement of an extended review period will probably renew speculation that the deal may be in
jeopardy, there is no material reason to doubt that the deal will indeed be successful. The Tele Atlas deal is crucial
for the long-term vision of TomTom.