REFILE-UPDATE 2-Asustek to end cellphone cooperation with Garmin

Mon Oct 25, 2010 11:24am EDT

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(Refiles to add analyst's name in last para)

* Asustek to give more details on Tuesday

* Garmin likely to close smartphone business: analyst

* Garmin shares up 1 percent (Adds analyst commentary, shares)

By Argin Chang

TAIPEI, Oct 25 (Reuters) - Taiwan's Asustek Computer Inc (2357.TW) said on Monday it would end its mobile phone cooperation agreement with Garmin (GRMN.O), clearing the path for the navigation device maker to exit the smartphone business.

Asustek, which sells laptops and mobile phones carrying its own name, is set to give more details on Tuesday, a company official said.

"The smartphone market is seeing huge growth, but the Garmin-Asus alliance has, to date, delivered disappointing volumes," said Canalys analyst Tim Shepherd.

Garmin will now likely seek to close its own smartphone business as it has indicated it is ready to do, Shepherd said.

In September, Garmin, the No. 1 U.S. maker of personal navigation devices (PNDs), told Reuters it 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. [ID:nLDE6881WD]

A spokesman for Garmin did not immediately respond to a request for comment.

For Garmin, the smartphone exit could improve its earnings and ease the investments it's been making in order to try to impact the competitive smartphone market.

"It makes sense and it wouldn't be surprising should it prove true," Oppenheimer analyst Yair Reiner said.

Garmin could now be at liberty to pursue the business of selling navigation apps for the iPhone and Android devices, Reiner said.

Its Dutch rival, TomTom (TOM2.AS), offers an application for the Apple (AAPL.O) iPhone.

Garmin smartphone sales totalled $27 million in the June quarter.

Shares of Garmin were up 1 percent at $32.20 in early Monday trade on Nasdaq. They have lost 15 percent of their value in the last six months, trailing a 2 percent drop in the broader S&P index .SPX in the same period.

The challenge for Asus would be to create a smartphone business on its own or with a new partner.

Without the value-added differentiation opportunity in the form of a high-quality navigation offering its alliance with Garmin provided, Asus faces the challenge of offering something unique in the crowded smartphone market, Shepherd of Canalys said.

(Reporting by Argin Chang; Additional reporting by Tarmo Virki in Helsinki and S. John Tilak in Bangalore; Editing by Louise Heavens)

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