* 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 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
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 -
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
"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
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
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
"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)