UPDATE 4-Garmin Q2 profit tops Street, forecasts strong 2007

(Adds CFO comment on acquisition, updates share movement)

BANGALORE, Aug 1 (Reuters) -Navigational devices maker Garmin Ltd. GRMN.O reported quarterly earnings that topped market forecasts, as revenue from its automotive/mobile segment doubled, and forecast strong results for fiscal 2007.

Garmin also raised its annual dividend by 50 percent to 75 cents a share. Shares of Garmin were up almost 10 percent at $92.16 in late afternoon trade on the Nasdaq, while the broader market was weaker. Earlier, they had touched a new year high of $93.18.

A strong U.S. market for portable car navigation devices has paved the route for a surge in Garmin stock, which has leaped more than 50 percent since the beginning of the year before Wednesday's gains. Dutch rival TomTom's TOM2.AS stock had jumped about 45 percent since the beginning of the year.

Investors had been optimistic that Garmin might beat expectations, but it topped even the most bullish outlooks.

“(The company) reported even more upside than we had expected and easily surpassed our read on ‘whisper’ expectations,” Rob Sanderson, an analyst with American Technology Research, said in an e-mail to Reuters.

Second-quarter earnings were 98 cents a share, versus market expectations of 74 cents a share.

Revenue rose 72 percent to $742 million, boosted by a doubling in revenue from its automotive/mobile segment and a 59 percent rise in revenue from the marine business.

“I think we saw an across-the-board strength in revenue and much better gross margin performance,” William Benton, an analyst with William Blair & Co., said by phone.


For 2007, the George Town, Cayman Islands-based company expects earnings to exceed $3.15 per share and revenue to cross $2.8 billion, topping Wall Street expectations of $2.92 a share, excluding items, on revenue of $2.6 billion.

“The growth in the market is driven by the fact that the portable navigation device market or navigation in general is under-penetrated,” Benton said.

He added that now the United States, which until last year was a third of the size of the European market, has been ramping up aggressively as price points come down and newer products are introduced in the market.

"The category is still quite nascent and so obviously you are seeing growth for manufacturers like TomTom and Garmin and, of course, the mapmakers (Tele Atlas TA.AS and Navteq NVT.N) also get pulled along," he said.


In July, the world’s biggest maker of car navigation devices, TomTom, said it planned to buy its main map supplier, Tele Atlas, for $2.5 billion. News of the deal sent shares of Garmin’s main map supplier, Navteq, significantly higher.

“The more we think about it, the more likely it seems to us that Garmin should and will buy Navteq-and soon,” wrote CIBC World Markets analyst Yair Reiner in a research note dated July 30.

When asked if an acquisition of Navteq is possible, Garmin Chief Financial Officer Kevin Rauckman declined to comment.

JB Groh, an analyst with D.A. Davidson & Co., said by phone, “Garmin has a balance sheet that is unbelievable. They have a billion dollars in cash and no debt, so it would be very easy for them to digest virtually any size of the acquisition.”

William Blair’s Benton, however, said, “Garmin has a very good partnership with Navteq. They don’t need to own them, nor do I think they have an interest in owning them.”

But he also added that TomTom’s planned acquisition could increase Navteq’s pricing power over time and cause Garmin not to get the price breaks it has been used to recently.

Navteq was not immediately available for comment.

Shares of Navteq were trading up almost 17 percent at $63.11 in late afternoon trade on the New York Stock Exchange.