TomTom starts restructuring, shares surge

AMSTERDAM, NETHERLANDS: TomTom, the Dutch navigation equipment and digital map maker is taking steps to be less dependent on its cash-bleeding consumer business and refocus on its automotive and services units to restore growth and profitability.

TomTom has struggled for months to overcome slumping demand for its flagship personal navigation devices (PNDs), as consumers opt for free or cheap navigation software as well as smartphones and tablet computers.

On Monday, the company launched a restructuring program initially targeting 50 million euros in cost cuts over 2012, including job cuts, and said that sales in all of its business unit outside PNDs grew in the quarter, sending shares skyward.

Once a stockmarket darling, TomTom shares have tumbled from a high in 2007 of 56.326 euros to a September 23, 2011 low of 2.4 euros.

"We have started a restructuring program, which will focus our organization on the areas where we see the greatest potential for growth, of which Automotive and Content & Services are clear examples," said chief executive Harold Goddijn.

He told Reuters on Monday that TomTom won't sell its troubled PND unit, but added that the firm needs to be "less dependent" on the consumer PND market and move into higher growth business and service markets.

TomTom expects the PND market to contract in North American by 25 to 30 per cent and in Europe by 10 per cent this year.

The CEO also declined to elaborate on the restructuring program outside of the targeted 50 million eurosin cuts, but said the firm would make more specific announcements later this quarter.

"The PND business is important and will remain an important part of our business and revenue, but the market size in absolute terms is shrinking and we need to adapt our costs, some of which are variable and some aren't," Goddijn said.

TomTom reported a 10 per cent fall in third-quarter sales at 336 million euros, dragged down by the consumer PND unit, which reported a 23 per cent fall in quarterly sales, but overall sales beat analysts expectations for 303 million euros.

TomTom said its live services take rate increased to 28 per cent from 21 per cent from the same period last year, and that its automotive, and licensing and business solutions units posted higher quarterly sales.

"TomTom reported a very solid quarter. The PND market did decline further, but not as much as expected," SNS Securities analyst Martijn den Drijver said.

TomTom also said that it cut its operating expenses for 2011, and now expects operating expenses to be around 540 million euros, excluding impairment and restructuring charges. It also said it saw full year capital expenditure to be about 80 million euros.

TomTom also said that it expected to report full-year results toward the upper end of its guidance for sales of between 1.225 billion euros and 1.275 billion euros and earnings per share (EPS) of between 0.25 and 0.30 euros, excluding one-off charges.

In July, TomTom booked a 512 million euro impairment charge, after a profit warning in June, where it lowered its full year expectations, to reflect the dismal outlook for consumer PNDs.

On Monday, TomTom reported a 50 per cent rise in third-quarter net profit to 29 million euros, up from 19 million euros from the same period last year, due in part to a currency gain mainly attributed to the depreciation of the euro against the U.S. dollar.

Best known for its PNDs used by car and truck drivers, TomTom also sells live traffic services for its Internet-connected devices and smartphone apps, mapping data as well as navigation units which are built into cars.

TomTom competes in the PND market with Garmin and in the commercial digital map market with Google and Nokia Oyj.