Garmin Shares Fall on Lower Outlook

Personal navigation device maker Garmin gave revenue forecasts at the low end of market expectations, sending its shares and those of rival TomTom plunging.

The company is battling competition from TomTom, lower average selling prices and decreased spending power of the U.S. consumer.

In an interview with Reuters, Chief Financial Officer Kevin Rauckman said first-quarter revenue is expected to drop between 40 percent and 50 percent from the previous quarter, when sales were boosted by holiday spending.

A 40 percent to 50 percent revenue fall would imply first-quarter revenue of $615 million to $738 million.

In February, Garmin had said its fourth-quarter revenue doubled to $1.23 billion from a year ago, but warned that margins in 2008 would be squeezed especially in its vehicle and mobile business.

Analysts were expecting first-quarter revenue of $731.2 million, according to Reuters Estimates.

Shares of the company fell 11 percent in trading before the bell to $50.11. TomTom's shares were down 5.6 percent at 25.25 euros, while those of mapmaker Tele Atlas were down 2.3 percent to 24.07 euros, both in Amsterdam.

Garmin is locked in an intense battle to capture market share in the PND market and is looking to expand its presence in Europe, a stronghold of Dutch company TomTom.

According to data from market research firm Strategy Analytics, the market share of portable navigation devices, such as those made by market leaders TomTom and Garmin, is expected to shrink, but a growing overall market means unit sales will continue to rise.

Rauckman said Garmin aims to raise its market share in Europe to 25 percent in 2008 from about 20 percent in 2007.

"We would like to retain our strong U.S. share, which is about 50 percent. We would like to continue to grow European share," he said.

Betting on Nuvifone

Rauckman also said he expects "nuvifone," Garmin's much-awaited mobile phone with navigational technology at its core, to add to earnings from the third quarter.

"It (nuvifone) will be a profitable product from Day 1," he said.

Garmin had unveiled its touchscreen nuvifone earlier this year and said it would launch it in the third quarter, with an aim to get a foothold in the burgeoning smartphone market.

About 123 million smartphones were sold in 2007 globally, according to estimates from Gartner.

Rauckman added that he does not expect nuvifone, for which it is in talks with GSM carriers, to command more than 10 percent of revenue share in third and fourth quarter.

Depending on how the market responds to nuvifone, Garmin will steer its business in the future, Rauckman said.

He also added that the company will price its phone and PND segments differently to avoid any cannibalization in the next 12 months.

"We are going to segment the market by having a lower-priced PND and a little bit higher-priced nuvifone," Rauckman said Garmin's shares closed at $56.41 Wednesday on Nasdaq.