Garmin falls from its pedestal
Posted
Apr 30 2008, 01:20 PM
by
Kim Peterson
Garmin's days as a high-flying stock are over. Shares are down 11% today, hitting a two-year low after the company reported weak first-quarter profit and sales numbers. The quarter wasn't bad -- profit rose nearly 6% and sales were up 35% -- but analysts were simply expecting more. Garmin shares have dropped 66% in the last six months.
Garmin put on a happy face with the earnings, noting that "the global economic slowdown has impacted companies across the board." Executives also said that the first quarter is usually the slowest in terms of sales. But CFO Kevin Rauckman acknowledged that economic conditions are bringing some risk to future growth. Garmin has said it expects $4.5 billion in revenue this year, which one analyst said now "looks like quite a reach at this stage."
The company's biggest problem right now is margins. The average price for a Garmin device dropped 35% in the last year and is on track to fall another 25% this year in a brutal price war with rivals. That's great news for consumers, but will have a disastrous impact on Garmin's future growth.
Garmin isn't alone here. One of its main competitors, TomTom, saw its first-quarter earnings fall 83%, mainly because of price cuts on products and a slowdown in orders from retailers.
Garmin is trying to compete by introducing some cool new products, including GPS devices that also show movie times and gas prices. Some of them will also receive television signals. The company's GPS-enabled cell phone, called "nuvifone," is set to come out before the holidays.
The company is smart to seek out higher-margin devices. But the competition will be fierce, with more cell phones incorporating navigation features and with TomTom continuing an aggressive push into North America. Garmin has a tough road ahead.
