$28.43
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Garmin Ltd. (GRMN)
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A provider of navigation, communications and information devices, which are enabled by GPS technology. The Compny designs, develops, manufactures and markets a diverse family of hand-held, portable and fixed-mount GPS-enabled products.
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I am worried for Garmin that its core technology -- GPS devices -- is being disrupted through assimilation of GPS features in many other non-Garmin devices (Apple iPhone just one example). While in many ways Garmin still does it better, the nature of disruptive innovation is that others satisfy the desires of the marketplace at much cheaper price points, and even if the product is not as good, it's "good enough."Garmin's answer, the Nuviphone, is defensive, and I am pessimistic that it will succeed. Meantime, I think the market for Garmin's core business, pure GPS devices in many SKUs and formats, is an incredible cash cow but one that is extremely mature at this point, with little meaningful growth left.There are many things to love about Garmin, not the least of which is its smart, seasoned management. And hey, for those who feel they know Garmin better than I do (and there are many who do), and think it's a good stock to beat the market and that I'm a fool (small "f") for picking Underperform, I encourage them to stick to their guns! I'm wrong all the time.
While there is a slight chance that Garmin's sales could completely fall off the cliff BASED on opinions you expressed AND because now everyone in America has an iPhone that costs extra $30 per month hence CANNOT AFFORD a $144 GPS from Garmin, I just cannot imagine how you think Garmin can really underperform selling at under 5 times earnings with around $500 sitting on the balance sheet representing more than 10% of their marketcap, and atleast done better per the Income statement released as of Sep-27, and finally dominating the top 10 best seller list (at Amazon) of Portable Vehicle GPS by appearing in spots 2-10. Yes # 1 selling was Tom Tom selling for $99, as none of the Garmin's are so cheap, so go figure.Isn't this like saying, since all cell-phones have cameras, now Canon or Sony won't sell as many cameras, or since many cell-phones have music player, and almost everone own personal iPods, no one needs a car stereo? GPS's are like Car Stereo, a must have item, only not everyone has either realized or not many are still happy to have a device with wires dangling inside their car. I see all future cars will have inbuilt GPS in them (I hope Garmin). I also feel Nuviphone is a crappy idea, and perhaps the delay in release indicates management's own skepticism of the products success.
Good post with good points. I of course are on the other end of the fence and I will rebut some of your points."While there is a slight chance that Garmin's sales could completely fall off the cliff BASED on opinions you expressed AND because now everyone in America has an iPhone that costs extra $30 per month hence CANNOT AFFORD a $144 GPS from Garmin" It is not the point of not affording a $144 GPS from Garmin, it is the point that I have it on my phone and why do I need to have another. Also, the phone is good too because I can use it on foot and in the car. Having a GPS to me and many other early adopters of smart phones is a bit redundant. "I just cannot imagine how you think Garmin can really underperform selling at under 5 times earnings with around $500 sitting on the balance sheet representing more than 10% of their marketcap, and atleast done better per the Income statement released as of Sep-27, and finally dominating the top 10 best seller list (at Amazon) of Portable Vehicle GPS by appearing in spots 2-10." CROX was also selling stuff like gangbusters and had similar numbers. Not saying that Garmin is the next CROX, but when you have one product it can end just as well. I think GRMN right now is an excellent company, but would you purchase a company at 5xPE when in less than 5 years it can be nearly obsolete?"Isn't this like saying, since all cell-phones have cameras, now Canon or Sony won't sell as many cameras, or since many cell-phones have music player, and almost everone own personal iPods, no one needs a car stereo? GPS's are like Car Stereo, a must have item, only not everyone has either realized or not many are still happy to have a device with wires dangling inside their car."I think it is a lot like saying that, and those products are on the way out too. My phone shoots 5 megapixel shots, and they look good. However not as good as a good camera camera. Also cameras have optical zoom, xenon flash etc... But now that phones are producing 5MP shots with carl zeiss lens etc, it does raise the issue that perhaps for most amateur photographers that is good enough. Time will tell on that one. The iPod? Well people have old vestiges of them, but there is really no need to have them now that flash memory is getting so large. The only reason they have survived is because they had superior capacity, and phones were primitive. That has since changed, and I think MP3 players will be gone in the next 5 years. You are correct that nuviphone is a bad idea. It is the right idea, but there is no way they will execute it properly. You are also correct that navi units offer superior screens than phones. However I think the convenience factor, and the fact that a vast majority of the population is traveling to destinations known to them most of the time will cause it to fall to the slightly less appealing phone option. Honestly if I were a delivery driver, or someone as such I would probably buy a dedicated navigation unit, but for the road trips I take, my phone is fine for me. It is like all season tires, sure winter tires are far superior to them, and if I lived in maine I would buy winter tires, but when it snows a few times a year in NY, I think that the all seasons are good enough.There is always a market for people that want a dedicated and better solution for things, but the all in one approach is also appealing, and will rob significant market share away. I don't think grmn will ever go under, I just think they will not be able to sustain their earnings in the near future.
mpapileI want to make a couple of points. GRMN is currently priced such that even if it does not sustain current earnings, it will still manage to beat the crap out of S&P500. The problem I see with you or David is, you guys seem to be hi-tech, always on the cutting edge, with flashy smart phones being able to shoot 5 MP pics. See, I still have my old Sony Ericsson, it still takes pictures, but not anywhere close to my old Canon Elph. What you are missing is, atleast 70% of the people will never own or want to own a smartphone, because, most people only need a phone, not email/internet etc on their phone. Also, smaller size is sweeter for cell-phone. I thought of getting an iPhone. I was also getting a discount on the data plan, but I decided, I don't need to carry anything larger than what I need to, cause my phone will be housed in my pant pocket.You are right, GRMN is no CROX. CROX was a fad. Maybe it will comeback. But it could be replaced by something else. It gets old with time. GPS on the other hand will be around. Maybe dedicated GPS could become obsolete if you had your way, but I just cannot see that happening. Tell me something like there is a new GPS chip that can be implanted in your head, so you will never get lost, and that I will say can make a dedicated GPS obsolete. I do see your main point I think. If you already own a Smartphone, then you probably are fine without a GPS. Point taken. However, I can afford a smartphone but I don't own one. If my work required me to carry one, it would be a blackberry, and they would generally only take minimum plan that allows email. I am not sure if GPS would even be enabled. Even if it was, I still require a GPS as I prefer to keep my rides smoother, especially if I am in unknown territory, and I find myself there more often than not. And no, I don't drive a UPS truck or anything of that sort for a living.
You are correct that often times people project their own understanding of things onto the whole macro picture. Take Research in Motion for instance... A lot of Wall Streeters have them and they think they are the greatest things ever, and for them they are. So they bid the stock up to like 100x PE and I shorted it. Because your average person does not really need a blackberry, and in the rest of the world they are using Nokias (whom I like by the way). So it is easy to look at your own situation and think the whole world ought to be that way, and that is probably why people were buying Krispy Kreme Doughnuts at $60 a share (Where I got rocked on my short and had to cut out with a huge loss only to be proven right years later). It was because they love their donuts. But I try to avoid doing things like that, and I am not so sure my thoughts on garmin are like the previous examples and here is why... Like you say with cell phones, yes I am substantially ahead of the curve on that one and have always been. A while back before anyone really had GPS in their vehicles, I installed a 7 inch touchscreen and put a mini computer powered by 12v into my car. I was really far ahead there, but I realized that gps was great and that soon everyone would want one. Non technical people were asking me to do the same for their cars. Perhaps then it was me being a geek, but it came to pass. No I did not think everyone would be like me then, but I figured as always with tech, if there is something that a normal person can walk up and say wow, eventually it will be in the hands of even the biggest technophobe. It is true that people that are not always buying the latest things are very satisfied with GRMN as evidenced by the latest top pitch. That is fine, and they do make excellent products. And I agree that for 90% of the population, they are not going to have GPS and a data plan on their phone. That is fine too. But I have to say technology always gets cheaper, and something used by geeks nearly always gets adopted by the public in the future, and I don't see how GRMN will counteract smartphones and grow marketshare. I think it is inevitable that GPS will be on every phone in the future just like color screens, cameras etc have advanced into standard equipment. I would never buy a phone again without gps, and btw I have an unlocked nokia so I do not pay some stupid fee to have the carrier let me use it. I do have a data plan though that does cost money, but I do not have to have that because I can download the whole USA on my 4gb micro sd card. So I do agree with you that the vast majority of users are not going to have this stuff on the phone, and that the stand alone units have larger screens and are more suited to navigation, but only time will tell if people will adopt GPS on phones en-masse. One thing I have learned though is never let price and adoption determine your future views on tech because if something is good and people want it, it will become very cheap and very adopted in the future. Maybe this is not so now for GPS, but until Garmin comes up with some sort of other product I would be worried about their ability to maintain profits. At 5x PE this is priced as a non growth company, but profit can drop rather dramatically with scenarios like this and I am not certain how Garmin will grow from here.
In response to mpapile's excellent reply to huddaman's take,I think you underestimate convergence of technologies in your assessment of Garmin. Who says Garmin can't change? Acknowledged is the Nuviphone as a bad idea since it tends to fight with their established products and doesn't offer too much difference from competitors right now. However, it is the idea of possibility providing a working platform for other technologies to take advantage of that will lead the way for new uses. I'm not saying this is going to happen for Garmin, but it could. I know the promise of this seems remote but, just as an example, there is huge interest in ubiquitous mobile learning (i.e. experiencing a Civil War battle field or museum in unique ways, language learning, voice recognition, etc.). Using cell tower triangulation for robust gps dependent technologies sounds iffy to me (but don't take my word for it - call 911 from you cell phone and ask them if they know where you are - we've been paying for this system to be implemented and I don't believe it has ever worked).
I don't think the threat from smartphones is that great. The PND market is still in its infancy world-wide. When I imagine the future, it is hard for me to imagine a future where every car doesn't have GPS capability, irrespective of whether cellphones have it or not. It will simply be too easy not to include these in every car at some point. It simply doesn't make sense to me that smartphones can, in any efficient sense, obliterate that market. When I view that future, it suggests to me that Garmin needs to transition its business to OEM. A successful venture into that market will require successful branding; something I think Garmin has NOT done a great job of. The fact that that market is still in its infancy and given Garmin's stranglehold on the recreational use of of GPS. I think Garmin has plenty of growth left in it. Frankly, I'm a little surprised that Garmin's response to the threat to the PND market hasn't been along these lines already. Maybe the nuvifone will work, but I find it to be getting away from its core competencies and more likely to fail than succeed.
none0such-
You are correct that Garmin can indeed change, and I hope to see them do that. GPS technologies are currently just beginning, driving navigation is a very small part of it. The implications for location based advertising and information are huge and I can see handheld devices taking off on that. Currently high end phones have real GPS, not inaccurate cell tower triangulation. My phone is just as accurate as a Garmin. You are right that cell triangulation is bad, and not suitable for anything other than rough estimates of location. That was just used for when GPS was expensive or the person is not in sight of the sky. Now GPS chips are very cheap and soon will be on every phone.
Sure Garmin can change to the changing market, and cellphones will not be the only game in town. However we have yet to see where their moat is regarding this, and what they plan to do to counter the commodization of GPS. I think Garmin makes good products, but their market is soon to be turned upside down and there will be a lot of competitors. If Garmin can come up with novel ideas as you suggested, and they should, they have an excellent financial position to do so, but until there is evidence of that I am afraid for Garmin's future.
Personal Navigation is one small subset of location based devices as you rightly point out. The market will expand greatly. How is Garmin going to take advantage in a way that say Nokia, Apple, MSFT, Google is not going to?
DuncanDeac, You are 100% right about the fact that GRMN should move into OEM, but here is where they failed pretty bad. Nokia bought Navteq, and TeleAtlas was bought by rival Tom Tom who beat out Garmin on the bid for them. Delorme does their own mapping and makes their own units too. They also do not make any GPS chips, they are made by people like ST microelectronics etc. So as far as the OEM field, they are in trouble there. They do not own map data, and they do not own chipsets. So as an OEM why would I want GRMN? In fact GRMN is an OEM consumer making retail units with other people's tech. This is bad news for them in the future.
Interesting story on this today http://www.nytimes.com/2009/07/08/technology/08gps.html?_r=1