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Special to CNBC.com
Apple may dominate the smart phone market, but Motorola and Verizon have made some big waves in the industry lately.
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Source: Motorola With free navigation being offered on cell phones, navigation companies face a long-term challenge. |
In its opening weekend, the Droid — Motorola's [MOT
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] new smart phone running on Verizon's [VZ
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] cellular network — has sold nearly 100,000 units, says Broadpoint AmTech analyst Mark McKechnie. And demand seems to be holding fairly steady.
Apple [AAPL
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] investors aren't too worried about the fate of the iPhone. The 3GS, after all, sold 1 million units in its first weekend in June. GPS makers' stocks, however, haven't been so lucky.
Garmin [GRMN
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] shares were trading in the $38-$39 range until Oct. 28, when the Droid was formally announced. The cell phone includes a free GPS service from Google [GOOG
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] called "Google Maps Navigation." Within days, the stock closed at under $27. TomTom shares were similarly affected.
It's not the Droid per se that has investors nervous — it's the operating system running the phone. Google's Android OS is customizable, cheap and has become a playground for the Internet giant to experiment with new features. The free GPS is the most notable of those to date.
"People are trying to weigh the threat posed by this — not just one device on one network, but the potential of [free GPS] being pervasive over time," says Jeff Rath, global head of technology research for Canaccord Adams.
Garmin's stock has rebounded over the past few days, as investors recall the company has beaten expectations for the past two quarters and decided the perceived threat is less important than actual cash flow.
In the long term, though, there could be legitimate cause for concern. Before the Droid's free GPS hit the market, there were two map providers for GPS devices — Navteq (owned by Nokia [NOK
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]) and Tele Atlas (owned by Tom Tom). Any GPS on the market leased maps from one of these two companies — and had to pay a hefty license fee to do so.
Google bypassed the providers, using its own maps instead — and that's a move that caught the GPS industry off guard.
"It's a huge change to the industry — going from a duopoly to the introduction of a disruptive third party," says Rath. "On a cost basis, not only is there a competitive threat, but now Google has a cost advantage as well … How is Garmin going to compete?"
The free GPS service will likely eventually spread beyond Droid — especially as Android gains a foothold in the smart phone (and possibly tablet) market.
Google has also reportedly expressed interest in making the app available on the iPhone — which would be a significant competitor to existing GPS apps, including one from TomTom that sells for $100.
Some of the recovery in GPS stocks could also be tied to investors finally getting hands-on time with the $200 Droid.
Many tech enthusiasts and tech sites are swooning over the phone — Gizmodo wrote, "It's this simple: If you don't buy an iPhone, buy a Droid." Some more typical consumers, though, feel it needs more refinement before it becomes a true "must have." Subtle things, like the lack of a springy "snap" when the keyboard is opened and the layout of the Android OS, have drawn some criticism.
Those flaws are easily corrected in future versions, though — and that's when analysts say the threat to GPS makers will become particularly pronounced.
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Data is a real-time snapshot *Data is delayed at least 15 minutes