Economy to put brakes on PND market this holiday

BANGALORE (Reuters) - Navigation devices are likely to fall out of favor with consumers this holiday season as worsening economic conditions make the once hugely popular gadgets more discretionary than ever.

As the holiday season kicks off this weekend -- popularly known as the Black Friday weekend -- cautious consumers might pick a single device that serves both as a phone as well as a navigation device.

The larger portable navigation devices makers, Garmin Ltd and Dutch rival TomTom, are expected to tide over the crisis, but smaller players with weaker economies of scale would have to pull back or even go out of business.

Only a year ago, it was a very different story. The PND market was one of the fastest growing areas within consumer electronics and the devices occupied top spots on holiday wish lists of consumers.

But now the industry is facing a slowdown in growth for the first time in its short history.

"You've got the credit crunch, you've got a squeeze on consumers and you've also got a market that's moving from a high growth phase to a maturing market," Strategy Analytics analyst Joanne Blight said.

"And you've got smartphones coming in and taking in some of the market away," she added.

Nokia and other handset makers have been aggressively adding GPS capabilities even to their low-end models.

While there is no doubt the market will take a blow, analysts are unclear as to how deep the wounds would be.

"We're really entering terra incognita in terms of the consumer, what he or she is going to act like in a season where credit is tight and job security potentially is quivering and the value of one's precious asset -- one's home -- is in precipitous decline," Oppenheimer analyst Yair Reiner said. "These are all questions that all consumers -- not just consumers of GPS devices -- are having to weigh right now," he added.

According to a recent survey by the National Retail Federation, this Black Friday weekend could see 5 percent fewer shoppers than last year.

Canalys analyst Caroline Chow said the portable navigation device has always been perceived as a luxury product, not a necessity, regardless of price.

"It's not like people need one, but it would be a nice-to-have," Chow said.

This holiday season, consumers have a lower appetite for PNDs compared with devices like HDTVs, blu ray players and smartphones, which are expected to grow, said Mark Teitell of Oliver Wyman.

Wedbush Morgan Securities analyst Scott Sutherland expects Garmin's revenue to fall 4 percent in the fourth quarter due to a fall in prices even though he expects units to grow.

PRICE CUTS VERSUS GROWTH

Garmin Ltd and Dutch rival TomTom have been more cautious on cutting prices since summer, as an aggressive price war earlier this year had crimped their margins.

But they might be forced to do so now, as a reluctance to cut prices runs a risk of losing potential customers.

The basic models of TomTom and Garmin sell for below $100 at present, almost half of what they used to sell at last year.

While the companies do not have pressure from a strong third player in the market, the real threat comes from smarphones, increasinly armed with navigation capabilities.

The number of smartphones with global positioning system-capability overtook that of portable navigation devices in the Europe, Middle East and Africa region in the third quarter, figures from Canalys show.

Apart from Nokia's smartphones, Apple's iPhone 3G and Research in Motion's BlackBerry Bold come with GPS.

FUTURE BLEAK ANYWAY

This holiday season might signal the end of rapid growth that marked the industry.

There's only a small proportion of consumers who have very high demand for route guidance support, Blight said.

"I think all those people who did need route guidance have bought them (PNDs) already," Blight said, referring to the North American and European markets.

Garmin shares have lost more than 80 percent of their value since the beginning of this year; TomTom shares are down 92 percent.

"So the credit crunch won't be an excuse for PND market slowdown as it was happening anyway. The credit crunch will just severely compound the problem for PND vendors," Blight said.

(Editing by Jarshad Kakkrakandy)