Bummer year for Garmin
Posted
Apr 01 2008, 03:18 PM
by
Kim Peterson
Rating:
This was supposed to be a big week for Garmin. The satellite navigation leader tried to make a splash at the CTIA wireless trade show in Las Vegas yesterday by announcing big deals with MapQuest and Google. Yet investors greeted the news with a collective frown: Shares are down 10% from last week and 40% from the beginning of the year.
It didn't help that on Friday a Stanford Group analyst began covering Garmin with a "sell" rating. The analyst said something that's been weighing on investors' minds for some time: Handsets and mobile phones with GPS capabilities are a growing threat. Yes, Garmin is developing its own GPS phone, the Nuvifone, but sales may underwhelm, the analyst said. Garmin shares fell nearly 5% after the report came out.
Garmin isn't alone here. The overall navigation device market is suffering. Shares of SiRF Technology, which makes chips for navigation devices, are starting to recover after the company cut its Q1 sales forecast last week and announced layoffs. There are fears that SiRF is losing market share to Broadcom, which isn't so specialized in the GPS market. SiRF shares are down 79% from the start of the year.
Shares of Navteq are also down. The digital mapmaker, whose information is used in GPS systems, has seen shares fall 11% from the first of the year to $67.08.
Back to Garmin. In some respects, there's much to recommend the stock. It's trading at just 12 times next year's earnings estimate. Its discount price is appealing. It had an impressive earnings report in February and was confident in its 2008 outlook.
But there are some concerns about profit margins. The average selling price of its units has been dropping and will continue to fall. Consumer electronics spending is poised to take a hit, and GPS sales could be hurt significantly in that case. And there's that nagging question about the threat of GPS-enabled cell phones.
Give Garmin credit for moving into new markets with the Nuvifone and other ventures. If it can successfully navigate the competitive road map ahead this year, the company should have a nice climb out of the investor doghouse.
