Portable navigation mkt in focus: Garmin

BANGALORE, INDIA: When Garmin reports its results on Wednesday, investors will focus on the health of the broader portable navigation device market, which has been hit by the increasing popularity of smartphones that offer navigation services, often for free.

No. 1 U.S. portable navigation device maker Garmin and Dutch rival TomTom have come under pressure since Google and Nokia started offering free turn-by-turn navigation on smartphones earlier this year.

Once a duopoly controlled by Garmin and TomTom, the PND market has witnessed the entry of several newer players offering products for cheaper prices.

The result has been falling average selling prices and margins, which were further exacerbated by the weakness in the economy.

In the first quarter, the company is expected to post earnings growth of 68 percent on revenue growth of 11 percent, helped in part by weakness in the previous year.

Analysts are expecting the company to earn 41 cents a share, according to Thomson Reuters I/B/E/S.

Starmine's SmartEstimate, which places more weight on recent forecasts by top-rated analysts, predicts Garmin will post earnings per share about 6 percent above the Street's average projection.

But analysts believe the PND market is maturing and average selling price is starting to stabilize.

"Garmin's first-quarter results will show that the PND market is starting to slow down and on a revenue basis is starting to flatten out as ASP declines start offsetting unit growth,"Wedbush Securities analyst Scott Sutherland said.

"The biggest concern is that PNDs have been squeezed between in-dash and smartphone navigation," Sutherland added. "That's going to be an issue with the stock."

In-dash navigation systems are pre-installed in cars and, in contrast to PNDs, they cannot be easily moved from one vehicle to another. They often come built in to an automobile.

And to counter the smartphone threat, Garmin itself entered the intensely competitive market with its navigation-based nuvifone, trying to take on the likes of Nokia, Apple, Research in Motion and Motorola.

Garmin shares are trading at $38.98, a far cry from its all-time high of $125.68 in 2007. The stock has a market capitalization of $7.44 billion.

Even owners of Garmin stock understand that the PND market is in secular decline, Oppenheimer analyst Yair Reiner said. Most people believe that over the next few years, more will tend to use their mobile phones for navigation than a standalone PND device, he said.

"The real question is, how quickly does the PND market go away? And how profitable will it be as it matures and declines?

There's a lot of room for debate there."

TomTom has been selling content and services to the very same mobile phone providers that are eating into its traditional market for satnav devices.

Investors will be looking to guage Garmin's prospects with its mobile phone venture, Pacific Crest Securities analyst James Faucette said.

The company has partnered with Taiwanese PC maker Asustek for its phone offerings. However, expectations are low and Garmin is not expected to disturb smartphone market share dynamics.

"Despite gaining more interest with its Android-based devices, Garmin has had little success with its handset business so far," Canalys analyst Caroline Chow said.

"Garmin must establish global partnerships and get its handsets ranged by different operators as quickly as possible."

Garmin could generate $150 million in revenue from its mobile phones in 2010, Sutherland estimates. The company reported revenue of $2.95 billion in 2009 and $3.49 billion in 2008.

Garmin shares, which have gained 27 percent since the start of the year, were trading down 5 percent at $37.09 in Nasdaq trading Tuesday.

They are usually volatile on the day of earnings with close to 13 percent of its outstanding shares in short positions.

The stock is trading at 14 times forward earnings. TomTom trades at a multiple of 9.4, according to StarMine data.