In just a few short years GPS has gone from novelty to ubiquity, infiltrating our everyday lives in ways you may not even realize. If it's not in your car or on your phone, it'll be in your pocket soon enough. The Global Positioning System [GPS] era has arrived, and Trimble Navigation (NASDAQ:TRMB) is one of the leaders reaping this long-awaited harvest. Trimble was a pioneer in commercializing GPS, and over the past few years its leadership position has finally paid off in terms of big profits and a tremendous stock performance. The stock is up 40% since we wrote about it in January, and TRMB is up more than five-fold over the past four years.
TRMB 1-yr Performance Chart
GPS is a satellite-based system that relies on precise measurement of the time it takes for radio signals to travel between satellites and receivers. Atomic clocks can measure the travel time to the billionth of a second and, by triangulating the distance with at least three satellites, GPS products are able to determine their position to within a few feet in a typical consumer application such as car navigation. In commercial applications such as construction equipment the accuracy can be inside a centimeter.
GPS is increasingly recognized for applications such as in-vehicle navigation systems and handheld GPS units for hikers and campers. Parents can even equip their children with tiny receivers to track their whereabouts at any time. While Trimble has a good foothold in these consumer end-markets, much of its business comes from commercial, agricultural, communication, and industrial applications. The roads you drive, the food you eat, and the cellular network infrastructure all have a significant thread of GPS in their creation or operation.
Trimble is one of the pioneers in the fragmented GPS industry, and while it is considered a leader the company has hit a few rough spots along the way. New management implemented some strategic redirection and cost-cutting to get Trimble back on a profitable course in 1999 after losing money in two of the previous three years. The company outsourced production and sold its manufacturing assets, improving its balance sheet and turning fixed costs into variable ones. Trimble is focusing on areas like control and guidance of construction machinery, precision agriculture, and mobile fleet management as well as the components business.
Most of Trimble's $892 million in annual revenue comes from either custom solutions that integrate GPS technology with other systems [agriculture, construction, heavy equipment] or off-the-shelf GPS products such as vehicle navigation systems. But the company's patent portfolio may lead to significant licensing revenues as the GPS era unfolds.
GPS has been heralded for years as a technology that will revolutionize many consumer and industrial markets, but uptake was slow to occur until recently. Now a confluence of factors suggest the time is right for GPS to become pervasive. For starters, the size and cost of GPS products have fallen dramatically. Another sign that GPS is taking off is the variety of end markets where demand is quickly building. Applications for GPS include navigation systems for cars, boats and planes, fleet tracking, agriculture, and construction.
Another promising application of GPS technology is the precision timing for data networks. Precise synchronization of computers, servers and Internet applications is central to the deployment of networking technologies like packet switching. The company introduced its first product for this market in 2004--not the best time to jump into the networking field--but it is a potentially huge opportunity for the future. This market is intertwined with wireless infrastructure, and last year Trimble introduced a mini GPS timing module that is about the size of a postage stamp which uses precision timing and synchronization to control the flow of data on a network and maximize bandwidth use.
Sales slowed in 2002 due to the recession, but just slightly. Trimble bounced back impressively and the company has posted solid growth in recent years. Sales increased 11% in 2005 to $745 million and earnings increased 43% to $1.43/share. This year the company is expected to deliver 41% growth in EPS to $2.02, and analysts are forecasting a 5-year growth rate of 15% for earnings.
For investors, the appeal of the blossoming GPS market is hard to ignore. This is a highly profitable company with attractive long-term growth qualities as the GPS market comes of age and if Trimble can expand its leading market share. If it can live up to its potential and deliver a steady corporate performance, aggressive growth-oriented investors will continue to flock to stocks like Trimble.
Disclosure: Author has no position in TRMB