| BANGALORE, Sept 14
BANGALORE, Sept 14 Portable navigation devices
are poised to take off this holiday shopping season as market
leaders Garmin and TomTom race each other to make deeper inroads
into the mass market by pushing out cheaper models.
The trend for entry-level gadgets will mean lower profit
margins for Garmin Ltd (GRMN.O) and TomTom (TOM2.AS), but the
companies are willing to make that sacrifice to lure consumers
and go one up in their intense battle for market share, analysts
"Portable navigation devices are becoming a 'must have'
device for a growing percentage of the population," JMP
Securities analyst Ingrid Ebeling said.
Prices in the portable navigation devices market, worth about
8.5 billion euros ($11.79 billion) this year, have been sliding
as Garmin and TomTom make more of their products for ordinary
The sleek gadgets show users where they are through preloaded
maps on touch screens and also offer related information and
features like a MP3 player and Bluetooth capability depending on
Garmin's global average selling price has fallen to 320 euros
($443.9) in the year to date, from 458 euros ($635.4) in 2005,
according to Canalys analyst Caroline Chow. TomTom's average
selling price fell to 270 euros ($374.6) from 452 euros ($627.1)
over the same period, Chow said.
Nasdaq-listed Garmin overtook its Dutch rival by a whisker in
the second quarter to become the world's largest maker of
navigation devices. In the quarter, Garmin had a 24.9 percent
share of the burgeoning market and TomTom 24.3 percent, according
to a report by market research firm Canalys.
But TomTom's planned acquisition of its main map supplier,
Tele Atlas TA.AS, could turn up the heat on Garmin, analysts
said. Once closed, the deal could give the only other major map
supplier, Navteq Corp NVT.N, significant pricing power over
EMBRACE THE MASSES
Both TomTom and Garmin are launching an array of products
that will sit on shelves of retailers ranging from Best Buy Co
Inc (BBY.N) to Halfords Group Plc (HFD.L) for the end-year
holiday shopping spree.
Some analysts say portable navigation devices could tip into
the mainstream market this holiday season.
CIBC World Markets analyst Yair Reiner said the longer-term
challenge for device makers is to protect their profitability.
"The question is, when do we get to some steady state for
this market? Two or three years from now, will gross margins
level out at 10-15 percent range or will they be close to 30
percent?" he said.
For the first half of 2007, Garmin's gross margin was 49.4
percent and TomTom's was 42.5 percent.
"Judging from our sales and revenue, it's obvious that
navigation has transitioned from a niche product to one with mass
market appeal," Garmin spokesman Ted Gartner said.
The company will sell a pink nuvi-branded device aimed at
women in Europe during the fourth quarter and Gartner said its
nuvi 200 series -- another entry-level product -- is being
marketed as a contemporary and fun-to-use device for young
Garmin's C300 series, used in cars for navigation, has been
its best-selling line this year, said Dougherty & Co analyst Jeff
"You're starting to get below the price of an iPod and this
provides a lot of value," Evanson said. He expects an upgrade of
Garmin's C300 series later this month.
Garmin, which snagged an ad spot during the popular Super
Bowl event earlier this year, sells devices priced from $300 to
TomTom launched the third edition of its entry-level TomTom
One device in late August with a lower price point than its
TomTom investor relations officer Richard Piekaar said TomTom
One is its best-selling device globally. He said the company
develops every device on a 40 percent gross margin basis.
A strong U.S. market for portable navigation devices has
paved the route for Garmin shares to surge more than 92 percent
since the start of the year. TomTom shares have leaped nearly 60
percent in the same period.
"Investor sentiment is so positive because Garmin is one of
the best growth stories out there," JMP's Ebeling said.
JMP has forecast 30 percent year-over-year growth for Garmin
in 2008, an "incredible" level for a company with about $3
billion in sales, she said.
Canalys' Chow said she expects the U.S. portable navigation
market to reach about 20 million units by 2010, from only about
2.9 million units in 2006.