UPDATE 1-Garmin shares sink on price fears, Google
* TomTom Q3 average selling price lower-than-expected
* Google enters turn-by-turn navigation market
* Garmin's shares fall 18 pct
BANGALORE, Oct 28 (Reuters) - Shares of U.S. navigation device maker Garmin Ltd (GRMN.O) sank 18 percent after its Dutch rival TomTom (TOM2.AS) warned of falling selling prices and Google (GOOG.O) made a high-profile entry into the market.
The falling prices and Google's entry into the turn-by-turn navigation market exacerbates concerns that the personal navigation devices (PNDs) market is in a terminal decline, even as smartphones make inroads into the territory.
"Google's announcement today introduces new challenges for both Garmin and TomTom and makes the threat from smartphones more real than it ever was before," analyst Yair Reiner of Oppenheimer & Co said told Reuters.
Also, Motorola Inc's (MOT.N) launch of its new Droid phone, the first to use navigation software from Google, dragged down Garmin stock.
Handset makers earlier had to pay mapmakers like Navteq and TeleAtalas to use their maps on their phones, while Google could offer to give free turn-by-turn driving directions in its maps as they own the maps, said Reiner, who has a "perform" rating on Garmin's stock.
The navigation market was once a duopoly between PND giants Garmin and TomTom, but now it includes the likes of phone makers such as Research In Motion (RIM.TO), Palm (PALM.O), Nokia (NOK1V.HE) and even Apple (AAPL.O). [ID:nBNG354003]
In response to the competition from the smartphones, Garmin, primarily a hardware maker, made its own smartphone -- the navigation-enabled nuvifone -- built in partnership with Taiwanese PC maker Asustek (2357.TW).
Shares of Garmin, which were falling in sympathy with TomTom's announcement of lower selling prices, extended their losses after Google unveiled plans to offer new versions of its smartphone software. [ID:nN27274525]
Garmin's shares were down about 16 percent at $31.65 in afternoon trade on Nasdaq, while TomTom's shares closed down about 21 percent on the Amsterdam Stock Exchange.
PRICE CUTS HURT TOMTOM
TomTom's shares fell to around two-month lows after it reported third-quarter average selling prices (ASPs) for its navigation devices were 9 percent lower than forecast. [ID:nLS458927]
A weak dollar likely hurt average selling prices for TomTom, which reports in euros, but likely created a 3 percent to 4 percent tailwind for Garmin, which reports in U.S. dollars, analyst Reiner said in a note to clients.
TomTom said sales volume in its third quarter rose 2.2 percent to 2.58 million PND units, but ASPs fell a wider-than-expected 27 percent, largely due to price cuts to attract buyers ahead of the holiday season.
TomTom numbers implied that Garmin's ASP and gross margins could also top expectations in the third quarter, helping its earnings per share to beat Wall Street estimates, Reiner said.
"Net-net, we see the Street's negative read-through into Garmin as an overreaction," said Reiner, adding that Garmin likely saw its ASP hold much better in the quarter.
Garmin is scheduled to report its third-quarter results next Wednesday. (Reporting by Savio D'Souza in Bangalore; Editing by Pradeep Kurup; Unnikrishnan Nair)
