February 14, 2009 / 1:01 AM / 12 years ago

One year on, Garmin phone still beyond the horizon

BANGALORE (Reuters) - Several questions hang over Garmin’s dream of making a splash in the smartphone market, even a year after the biggest U.S. maker of navigation devices first announced plans to sell a mobile phone.

The company has inspired little confidence that it can overcome challenges such as forging handset-carrier partnerships, falling prices of smartphones and increasing competition.

The phone’s launch has been delayed twice, and analysts say the company is unlikely to send ripples across the smartphone industry even when the device, called nuvifone, finally hits store shelves.

Faced with stumbling blocks even before it has entered the fiercely competitive smartphone space dominated by Nokia, Garmin has decided to co-brand its device with Taiwan’s low-cost PC maker Asustek.

Analysts have mixed views on the deal between the two firms. Some argue that little-known Asustek could dilute Garmin’s brand, while others say the Taiwanese firm may provide much-needed cost benefits.

“It remains to be seen whether Garmin-Asus can execute at a high enough level to make the promise of this device,” Oppenheimer & Co analyst Yair Reiner said.

Even if Garmin manages to lure customers with the power of its brand, analysts doubt whether its phone will have anything new to offer.

About half the smartphones in the market already have GPS capabilities, while very little is known about what is novel in Garmin’s phone.

The company could have something “better at the core of that device — maybe to allow wonderful GPS navigation,” Gartner smartphone analyst Roberta Cozza said.

“But I’m not sure if this will matter to the consumer.”

NO BIG 2009 LAUNCH?

Garmin will showcase two phones at next week’s GSMA Mobile World Congress in Barcelona, where handset makers like Nokia and Samsung Electronics are also expected to feature phones with advanced navigation capabilities.

One of Garmin’s phones that will be featured at the industry gathering is the G60, which runs on a Linux-based operating system. The second phone, called M20, uses Microsoft’s Windows Mobile software. Analysts say another phone could come with Google’s Android platform.

But Garmin has not yet made announcements about any handset-carrier relationships, which analysts see as crucial for the company to achieve any meaningful success.

Garmin could tie up with AT&T Inc in the United States and Spain’s Telefonica in Europe, Scott Sutherland of Wedbush Morgan Securities said.

Uncertainty surrounding the company’s plans of finding a carrier partner points to further delays in the launch of the phone, originally expected to enter the market in the third quarter of 2008.

Deutsche Bank analyst Jonathan Goldberg does not see a significant 2009 launch, a view that is based on his recent talks with the company.

And when the phone finally makes it to the market, analysts see little chance of Garmin replicating the success of its personal navigation devices (PNDs) in the smartphone space.

“If they have 40 pct of the PND market today, they are never going to get 40 pct of the smartphone market,” Goldberg said.

Growth in the once-burgeoning PND market has been slowing and navigation device makers Garmin and TomTom AS have struggled with falling demand, prices and margins.

So Garmin has been trying to diversify its portfolio, and mobile phones, in which GPS capabilities are increasingly being incorporated, was a natural next frontier.

But the company will have a tough task competing with the likes of Research In Motion and Apple, which have carved a niche for themselves with the Blackberry and the iPhone, respectively.

Garmin has said it expects to sell 1 million units in the first 12 months of its launch, but analysts are doubtful if the company can achieve that target.

“I expect them, in the first year of availability, to probably do 250,000 units. That would be about $100 million (in sales). So I expect them to do about a fourth of what they think they can do,” Pacific Crest Securities analyst James Faucette said.

By comparison, about 190 million smartphones are expected to be sold in 2009, according to Gartner estimates.

“If I have to make a judgment from what I see today, I see challenges for (Garmin’s) device to take off in a big way,” Gartner’s Cozza said.

Editing by Pratish Narayanan

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