UPDATE 4-Garmin Q1 profit misses market expectations

(Adds details from conference call, analyst comments)

By Purwa Naveen Raman

BANGALORE, April 30 (Reuters) - Navigation device maker Garmin Ltd (GRMN.O) posted first-quarter results that missed market estimates as demand for its products slowed and said it expects prices to fall further in 2008, sending its shares down as much as 13 percent.

Garmin and Dutch rival TomTom (TOM2.AS) dominate the personal navigation devices market, which is growing at a slower pace due to a slowdown in consumer spending and increasing competition, leading to price cuts and declining margins.

Shares of Garmin, which is known for its popular nuvi range of navigation devices, were down nearly 11 percent at $41.24 in afternoon trade on Nasdaq. They had touched a 52-week low of $39.75 earlier in the day.

"Lower-than-expected quarterly revenue is definitely concerning and would cast a doubt on them achieving their revenue guidance target of 2008," Needham and Co. analyst Richard Valera said by phone.

The company, however, backed its prior revenue and earnings outlook for the year.

First-quarter profit rose to $147.8 million, or 67 cents a share, from about $139.9 million, or 64 cents a share, a year ago. Revenue rose 35 percent to $663.8 million, down from a scorching growth of 79 percent last year as the personal navigation device market is getting saturated with more companies offering products at lower prices.

Analysts expected the company to earn 74 cents a share, before items, on revenue of $705.1 million, according to Reuters Estimates.

In a conference call, the company said it expects average selling prices to further decline by about 25 percent in 2008, down 5 percentage points from its previous outlook of a 20 percent drop.

"While some are predicting that prices will stabilize as inventories are cleared and as the market further consolidates we are anticipating further declines of approximately 25 percent during 2008," said Chief Operating Officer Clifton Pemble in the call.

The company said effective tax rate has increased to 19 percent, mainly due to a change in tax law in Taiwan, where most of the company's manufacturing operations are located.

"The change in tax rate would take a pretty significant bite as earnings move forward," Oppenheimer & Co analyst Yair Reiner said by phone.

Garmin's shares are off more than 60 percent from a high of $125.68 in October.

Shares of Dutch rival TomTom (TOM2.AS), which reported a steep drop in quarterly operating profit last week, closed down nearly 4 percent to 22.40 euros on the Amsterdam exchange.

NUVIFONE DELAYED

Garmin has postponed the launch of its much-awaited nuvifone, a smartphone with navigational technology at its core, to the fourth quarter, it said in the conference call.

It has not yet disclosed pricing details of its smartphone, which will compete against Research In Motion's (RIM.TO) (RIMM.O) BlackBerry Pearl 8110 and Nokia's (NOK1V.HE) N95 and N82 multimedia phones.

The company, which was earlier supposed to launch the product in the third quarter, is still in talks with wireless carriers for its primary markets, it said.

PROMISING MARGINS?

Although operating margins declined for the quarter, they were better than what the company had previously guided.

Operating margin at the automotive and mobile segment, which accounts for about 70 percent of the company's total revenue, fell about 1.3 percentage points in the quarter.

However, the company's gross margin increased from the prior quarter and held steady at 48.2 percent, compared to 48.3 percent, a year ago.

"Operating margins are much better than expected. They had guided operating margins to be down 600 basis points year-over-year," Wedbush Morgan Securities analyst Scott Sutherland said by phone.

Both TomTom and Garmin have enjoyed high profit margins in the past, but the companies are struggling to maintain such levels this year even as unit sales keep growing.

About 26 million to 27 million PND units are expected to be sold in 2008, compared with about 20 million units sold last year, according to Thilo Koslowski, an analyst with market research firm Gartner. ( Editing by Amitha Rajan, Anil D'Silva)