AMSTERDAM (Reuters) - Investors in TomTom (TOM2.AS) are bracing for word on restructuring, costs cuts and the future of the cash-draining consumer unit when the satellite navigation company reports a likely further weak quarter on Monday.
TomTom made its name with personal navigation devices (PNDs) for car and truck drivers but has faced severe price pressure since Google (GOOG.O) and Nokia NOK1V.HE began offering free navigation on cell phones early last year.
Demand has also been hit over the last three quarters as shoppers in Europe and North America opt for “cooler” gadgets such as smartphones and tablet computers.
TomTom’s automotive navigation business, which accounts for a fifth of group revenue, is the fastest growing division and offers investors some hope for growth.
But the consumer PND unit, bleeding sales and profits, concerns analysts most [ID:nL3E7J537O] and some believe it should be sold off.
Shares in TomTom, a onetime stockmarket darling which also sells live traffic services for its Internet-connected devices and smartphone apps and mapping data, have tumbled from a high in 2007 of 56.326 euros to a September 23, 2011 low of 2.4 euros.
The company issued a profit warning in June due in part to more customers opting for its no-frills products and not subscribing to live content and services.
It also warned of rising inventories — a sign that Christmas sales may be less than robust.
With its second-quarter earnings in July it took a 512 million euro impairment charge on the goodwill value of its digital mapping unit, which it bought for 2.9 billion euros in 2008.
Investors do not expect another profit warning but are anxious for evidence of a pick-up in live-service subscriptions and worried about any worsening of TomTom’s forecast for a 20 percent contraction in the global PND market this year in the face of economic uncertainty and weak consumer markets.
TomTom Chief Executive Harold Goddijn told reporters earlier this year PNDs needed to recreate the “cool factor” they had lost to tablets and smartphones.
Goddijn did not spell out how PNDs could be made more interesting but it was an acknowledgement from the top that smartphones and free software had moved firmly into PND territory.
A new restructuring strategy, which analysts estimate will include 20 million to 40 million euros in cost cuts to restore profitability, is expected to be outlined on Monday, and could give the shares a boost in early trade.
But some analysts, including Maurits Heldring from ABN Amro, say TomTom should be more radical by hiving off the core PND business, use the proceeds to pay down debt or invest in faster growth activities and refocus on its automotive, services and business-to-business operations.
“A company in crisis is often advised to go back to its core business, in this case we would advise the opposite, sell the core business, sell the PNDs!” said Heldring.
TomTom is expected to report a 38 percent year-on-year fall in third-quarter net profit to 12 million euros on sales which are expected to fall 19.2 percent to 303 million euros, according to a Reuters-commissioned poll of analysts.
TomTom competes in the PND market with Garmin (GRMN.O) and in the commercial digital map market with Google and Navteq, which is owned by Nokia Oyj NOK1V.HE.
Editing by David Cowell