* Q3 adj EPS $0.70 vs est $0.75
* Q3 rev falls 11 pct, misses estimates
* Sees continued PND market contraction in Q4
* Cuts 2010 outlook
* Shares down as much as 10 pct (Adds details, conference call comments)
By Supantha Mukherjee and S. John Tilak BANGALORE, Nov 3 (Reuters) - Garmin Ltd (GRMN.O), whose portable navigation devices (PND) have been losing ground to smartphones, forecast continued weakness as alternative product lines were slow to ramp up.
The PND market would continue to contract in the fourth quarter, driven by market saturation as well as substitute products, Chief Operating Officer Clifton Pemble said on a conference call with analysts.
"One has to dig pretty deep to find the silver linings in this print," Oppenheimer analyst Yair Reiner said in an email.
Garmin's latest results underscore how PNDs have been falling out of favor with consumers and the challenges it faces in trying to quickly come up with a sizeable revenue stream that can cushion the decline in its main business.
The company has been focusing on its outdoor and fitness, marine, and aviation sectors to make up for the drop in PND sales.
Shares of the No. 1 U.S. PND maker were trading down 5 percent at $31.42 on more than five times their 50-day average volume on Wednesday afternoon on Nasdaq. The stock has gained 17 percent in the past three months.
[For a graphic of Garmin results, please click - r.reuters.com/veq63q ]
The company expects discounting by rivals to also hurt market share in the holiday season, Pemble said.
For the third quarter, PND revenue fell to $441.9 million from $545.7 million last year, and margins were hurt by a 15 percent fall in average selling prices (ASP).
The company expects the pressure on ASPs to continue.
Switzerland-based Garmin and Dutch rival TomTom (TOM2.AS) have been selling fewer units since their high point in 2008, when PNDs were one of the hottest segments in consumer electronics.
"It looks like the sky has finally started falling on Garmin's PND business," Oppenheimer's Reiner said.
"Consumers are losing interest in these devices and it appears that retailers are too."
Lower sales also pushed up Garmin's inventory, which was up to 140 days from 81 days a year ago, the company said.
"(Inventory) could create some issues for the company. That is something to watch," Wedbush Securities analyst Scott Sutherland said.
Hurt by smartphones on one side and in-dash navigation devices on the other, these companies have been under further pressure since Google (GOOG.O) and Nokia (NOK1V.HE) started offering free turn-by-turn navigation on smartphones.
For the full year, the company forecast pro forma earnings of $2.70-$2.90 a share, on revenue of $2.65-$2.75 billion, down from August projections for earnings of $2.75-$3.15 on revenue of $2.8-$3.0 billion.
Analysts were looking for earnings of $2.98 a share, excluding items, on revenue of $2.88 billion, according to Thomson Reuters I/B/E/S.
Garmin's forecast contrast that of TomTom, which has maintained its full-year outlook, even in the face of dwindling profits. [ID:nLDE69J06O]
NOT A WORTHY HEIR?
Revenue at the outdoor and fitness unit grew 9 percent and the aviation segment rose 4 percent, but failed to impress investors.
"Outdoor and fitness, marine, and aviation, all fell short of expectations, a fact that will likely dishearten shareholders much more than the long-foretold decline of the PND business," analyst Reiner said.
The outdoor and fitness, aviation and marine segments contributed 60 percent of operating income in the quarter.
"Unfortunately, it was not enough to offset the level of decline in our auto/mobile segment," Chief Financial Officer Kevin Rauckman said.
And, the situation is unlikely to change as the company expects fourth-quarter revenue growth at outdoor and fitness segment -- its second biggest unit after PND -- to be below the levels seen in the first half of this year.
However, Garmin said it expects to see "solid" revenue growth from the segment in 2011.
Garmin said July-September net income rose to $279.6 million, or $1.43 a share from $215.1 million, or $1.07 a share, a year earlier.
Pro forma earnings were 70 cents a share.
Revenue fell 11 percent to $692 million.
Analysts expected earnings of 75 cents a share, excluding exceptional items, on revenue of $730.3 million. (Reporting by Supantha Mukherjee and S. John Tilak in Bangalore; Editing by Roshni Menon)