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Expect Garmin Handheld GPS units to get cheaper…maybe

Zacks Investment Research has announced they have downgraded Garmin Ltd to Underperform, citing continued deterioration of the PND (portable navigation device) market.

Garmin generated around 64% of its third quarter revenue from the auto/mobile segment, the bulk of which comes from PNDs. Segment revenues dropped to around $442 million in the last quarter from around $627 million in the September quarter of 2008.

The main reason for the weakness is cannibalization by smartphones, as consumers are naturally attracted by the prospect of carrying a single device that would integrate the navigation and communication functions.

I like the term ‘cannibalization’ here. It seems to fit nicely to what smartphones are doing to GPSr’s. If you use your imagination you can see frothing, rabid smartphones chasing screaming and injured etrex’s into the sea.

Smartphones are having a big impact on geocaching. I found and started geocaching thanks to my Blackberry and it seems an increasing number of people are doing the same. Even those who are introduced by others are finding they have GPS functionality on their phones that allow them to pick up the hobby straight away without having to fork out for a GPS handheld.

Recent market research shows that the next phase of growth in navigation devices will be driven by cell phones. Cannibalization was always expected and Garmin too expected it. It therefore launched its own version of a smartphone, which was referred to as the nuviphone.

But this is where Garmin made its biggest mistake. The smartphone market is crowded with the likes of Apple (AAPL – Analyst Report),Nokia (NOK – Analyst Report) and Research In Motion (RIMMAnalyst Report) among others. It is therefore extremely competitive and the going was rough for a small company like Garmin.

Too late, Garmin withdrew its phone and instead decided to go along in the footsteps of archrival TomTom. In line with this strategy, the company is now making apps for the smartphone market.

I wonder if development of a geocaching navigation app is in the plan from Garmin? It would be a logical follow on from producing your own listing service in Opencaching.com.

PNDs are also reaching a saturation point in the developed markets of North America and Europe. Garmin has now decided to pursue growth in the emerging markets of Asia and South America, where the chances of success with a premium-priced product will be limited.

If Garmin decides to take market share in these regions, it will have to lower prices, which will have the inevitable negative impact on margins. This is the main reason we are taking down our estimates for the fourth quarter.

So this is the potential good news for geocachers and GPS enthusiasts. If Zack’s are right and Garmin focus more attention on Asia and South America, and in conjunction lower their unit prices in these areas, we could see those lower prices transferred to their more traditional markets or we will be able to pick them up through Asia and South America at lower cost.

…while in the past, Garmin’s superior quality products enabled it to maintain market share despite its premium pricing, it is expected that this time round the market will respond differently.

The change in consumer sentiment is coming from weaker consumer purchasing power as a result of the recession, as well as the availability of navigation on smartphones. iSuppli expects all smartphones to incorporate GPS by 2011, indicating that the negative pressure will continue.

So the situation will only get worse for Garmin in the future. Whether this outlook will also have a major impact on the other leading GPSr brands will be interesting to see.

2 comments

  1. Wellner

    There already is an Iphone app for opencaching named cache me.
    I don’t know if it is an official app though.

  2. Michael

    While market share is obviously changing as evidenced by revenues I still see a continued market. I’ve owned a number of GPS devices over the years but I LIKE dedicated devices. In the car I have no use for a phone GPS, its too small and annoying to use for navigation. I’d much rather have a big ass screen stuck to the window or on a flex mount that I can see clearly as well as just having it powered on while I’m driving, tracking and showing me surrounding roads and businesses.

    As for a handheld, well I use one for hiking, camping, boating and the like, and more importantly I’m not concerned about it getting banged around or rained on 🙂

    The phone is fine if I’m bumming around town on foot or a passenger in a car looking something up on the fly,(if I’m on my bicycle or motorcycle I prefer a dedicated GPS too!) but the rest of the time I prefer a dedicated machine.

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