Garmin profit strong but shares fall on price warning

By Purwa Naveen Raman

BANGALORE (Reuters) - U.S. navigation device maker Garmin Ltd (GRMN.O) posted a 70 percent rise in quarterly profit on Wednesday but warned that intense competition could cut prices by about 20 percent in 2008, sending its shares tumbling.

Margins in the coming year will be squeezed especially hard in the company's vehicle and mobile business, Chief Operating Officer Cliff Pemble said, referring to the segment that accounts for more than 70 percent of Garmin's revenue.

"We do anticipate that 2008 will present increased challenges from competitors as well as a declining ASP (average selling prices) and margins," Pemble said in a conference call.

Garmin shares, which were up more than five percent after the results were released, reversed direction after the comments and were down 10 percent at $62.51 in afternoon trading.

Shares of TomTom NV (TOM2.AS), which has been increasing its market share in the United States at Garmin's expense, closed down more than 2 percent at 37.90 euros in Amsterdam.

Garmin, which plans to launch a mobile phone in 2008, said it expects 2008 earnings to exceed $4.40 per share on revenue of more than $4.5 billion.

Analysts, on average, expect earnings of $4.41 per share, excluding special items, on revenue of $4.23 billion, according to Reuters Estimates.

The warning on selling prices took the shine off Garmin's fourth-quarter results.

Helped by strong holiday sales, net profit rose to $307.3 million, or $1.39 a share, from $180.3 million, or 82 cents a share, a year earlier, while revenue almost doubled to $1.23 billion.

Excluding special items, earnings were $1.31 a share.

Analysts on average had expected the company to earn $1.11 a share, before items, on revenue of $1.03 billion.

The company sold more than 5.5 million navigational devices during the quarter -- almost matching the number of units sold in all of 2006.

"The guidance is solid...but it appears that margins are lower than what we had previously modeled," Needham & Co analyst Richard Valera said before the conference call.

Garmin also said its board authorized the buyback of 5 million shares, representing about 2.25 percent of shares outstanding.

Garmin's shares have dropped about 35 percent since its third-quarter results in October, mainly due to stiff competition from TomTom and a sluggish U.S. economy.