UPDATE 4-Garmin profit misses estimates, shares tumble

* Q1 adj EPS $0.38 vs est $0.42

* Q1 rev misses estimates

* Says to meet 2010 profit, sales outlook

* Shares fall as much as 15 percent (Adds conference call details)

BANGALORE, May 5 (Reuters) - Garmin Ltd's (GRMN.O) quarterly profit came in well below Wall Street estimates, knocking its shares down as much as 15 percent as investors flagged a sharper-than-expected downward spiral in the portable navigation device market.

Garmin's results underscore the fact that PNDs, once one of the fastest-selling consumer electronics must-haves, are losing their battle with navigation-enabled smartphones, and retailers are struggling to push them off shelves.

In a statement, Chief Financial Officer Kevin Rauckman said top-line results for the first quarter reflect excess inventory at retailers in the PND category.

Revenue from Garmin's largest segment, automotive/mobile, fell 15 percent to $221 million.

"Portable navigation devices appear to be on their secular decline," Wedbush Securities analyst Scott Sutherland said. "The PND market is being squeezed by smartphone navigation and in-dash navigation."

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

"The weak PND results will be seen as a vindication of the bear base on Garmin and as the latest sign that the category is slipping into irrelevance," said Oppenheimer analyst Yair Reiner in a note to clients. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a graphic on Garmin's results, click on

link.reuters.com/paf72k ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Both Garmin and Dutch rival TomTom (TOM2.AS) have come under pressure since Google (GOOG.O) and Nokia (NOK1V.HE) started offering free turn-by-turn navigation on smartphones. [ID:nLDE60K06I]

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 (AAPL.O), Research in Motion (RIM.TO)(RIMM.O) and Motorola MOT.N.

But Garmin's results mark a departure from those of TomTom, which has responded by shifting its business mix toward high-margin, value-added services, making its PND for cars a smaller portion of total revenue. TomTom posted strong first-quarter results. [ID:nLDE63M23Q]

INVENTORY OVERHANG

Excess inventory at retailers affected Garmin because of its greater exposure to the North American market.

Sales in North America fell 8 percent, indicating it might be losing share in its biggest market.

"We were aware of the inventory issue, but widely misapprehended its magnitude," said Oppenheimer analyst Yair Reiner in a note to clients.

First-quarter net income fell to $37.3 million, or 19 cents a share, from $48.5 million, or 24 cents a share, a year earlier. Excluding items, earnings were 38 cents a share.

Net sales fell 1 percent to $431.1 million.

Analysts expected earnings of 42 cents a share, excluding exceptional items, on revenue of $483.5 million, according to Thomson Reuters I/B/E/S.

Gross margins increased to 54 percent from 45 percent a year ago.

Gross margins at its automotive/mobile segment were 43 percent. Operating margins at the segment were 8 percent.

GROWTH BEYOND PNDS

The big question for Garmin is whether the company has enough drivers for its business beyond the mainstay PNDs.

Expectations are so low for its mobile phone venture, for which it has partnered with Taiwanese PC maker Asustek (2357.TW), that analysts don't see it disturbing the market share dynamics in the smartphone market.

Last month, the company joined hands with Deutsche Telekom (DTEGn.DE) unit T-Mobile USA to roll out a phone based on Google's Android operating system.

Garmin is looking to boost its marine business by targeting Raymarine RAY.L with a cash offer for the British marine navigation supplier that is valued at about $19 million.

Garmin is continuing to evaluate various acquisition opportunities in addition to Raymarine, CFO Rauckman said on a conference call with analysts.

The company said it expects to meet its previously given full-year earnings and revenue outlook.

But analysts cast doubt on the outlook reiteration.

"I think the company's going to have to do some work to explain how they're reiterating full-year guidance," MKM Partners analyst Pablo Perez-Fernandez said.

Garmin shares, which have risen about 18 percent in the past three months, were down 9 percent, or $3.26 to $34.22 in trading on Nasdaq. They touched a low of $31.99 earlier. (Reporting by S. John Tilak in Bangalore; Editing by Saumyadeb Chakrabarty)