INTERVIEW-Garmin mulls future of smartphone unit
* CFO says smartphone move missing expectations so far
* Says PND market volumes to fall 5 pct/yr over couple yrs
* CFO sees market share gains similar to Q2 continuing
* Sees very slow fall in avg PND sales price in 2011
* 'Very difficult' to increase PND mkt in N.Amer, Europe
By John Tilak and Harro ten Wolde
BANGALORE/AMSTERDAM, Sept 9 (Reuters) - Garmin Ltd (GRMN.O) will decide over the next couple of quarters the future of its struggling smartphone unit, and is ready to exit the business if it does not achieve success, a company executive said.
Garmin Chief Financial Officer Kevin Rauckman said nuvifone handsets had missed the company's expectations so far. Garmin smartphone sales totalled $27 million in the second quarter.
"We're pragmatic," Rauckman said. "If we end up ultimately not successful with units ... we'll have to sit back and evaluate that and consider making the best decision for our business."
"We'll have to make decisions within the next couple of quarters -- whether we continue to invest or whether we pull back," Rauckman said in an interview with Reuters.
Analysts expect Garmin, which makes its phones in partnership with Taiwan's Asustek (2357.TW), would have to sell about a million smartphones a year to make a business out of the cut-throat smartphone market.
More stories on the navigation industry [ID:nLDE6861JW]
Garmin vs TomTom link.reuters.com/nyq33n
PND market link.reuters.com/ryn95m
The PND or personal navigation device industry, once a star of the consumer electronics space, has been hit by competition from navigation-enabled smartphones and in-dash navigation devices.
Garmin's business model and that of its main competitor TomTom have come under pressure since Google Inc (GOOG.O) and Nokia (NOK1V.HE) started offering free turn-by-turn navigation, starting in late 2009.
Rauckman estimated smartphone competition is deflating annual PND sales of 35 million to 40 million units by 5 million to 10 million.
While Garmin decided to fight fire with fire and launched navigation-focused smartphones, TomTom has responded by starting to shift its business mix toward higher-margin, value-added services, making PND a smaller portion of total revenue.
Shares of Garmin and TomTom have been tumbling as well.
Garmin shares have declined 21 percent in the last six months, trailing a 3 percent drop in the broader S&P 500 .SPX index. At $28.02 Thursday, they are trading at about a fifth of their all-time peak of $125.68 they hit in 2007.
Since Google's announcement to offer free turn-by-turn navigation on smartphones in October last year, TomTom (TOM2.AS) shares have lost 57 percent. The stock is at 4.63 euros, a far cry from the 56 euros the shares traded at end-2007.
After hitting a peak in 2008, global PND shipments declined in 2009 and are expected to continue the downward spiral. Garmin does not expect demand for PNDs to return to the peak levels of 2008, and market sales volumes will decline 5 percent a year over the next couple of years, Rauckman said.
Unit growth in the North American and European markets will be "very difficult" over the next couple of years, he said.
The growth is expected to come from Latin America and Asia-Pacific, both much smaller markets, he added.
Rauckman said he expects Garmin to continue winning larger share of the market -- at a pace similar to the second quarter, when it gained 4 percentage points in Europe and North America
-- in coming quarters, at expense of smaller players. -- in coming quarters, at expense of smaller players.
Also, TomTom won a larger share of the market in the second quarter at the expense of smaller players and expects these gains to continue. [ID:nLDE68214T]
Fewer players have meant less pressure on prices, and with current average selling prices at about $135 for Garmin, Rauckman expects prices to go down very slowly next year.
"We're approaching the bottom or the flattening out of the price curve on PNDs."
(Reporting by John Tilak, Harro ten Wolde and Tarmo Virki; Editing by Will Waterman and Matthew Lewis)
((firstname.lastname@example.org, +358-9-680 50 235, Reuters messaging: email@example.com))
(C) Reuters 2010. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.
- Target stores' customers hit by major credit card attack
- UPDATE 3-Saab wins Brazil jet deal after NSA spying sours Boeing bid
- As Modi storms into India's election, a quiet alternative emerges
- Facebook, Zuckerberg, banks must face IPO lawsuit: judge
- U.S. prosecutor defends treatment of Indian diplomat |