GRMN: risk and reward, in qualitative terms

In the interests of disclosure, at the time of writing, I own shares of Garmin, but have no position (long or short) in any other company mentioned.

I agree that GPS enabled cell phones will not necessarily push Garmin out of business, but don't you think that they will considerably shrink the market of GPS only devices?

Take for example the new GPS enabled IPhone - 1 million units sold in 3 days. Do you honestly believe that any significant percentage of these people will also buy a GPS only device?

Maybe the stock is priced correctly for the products that Garmin have to offer at this time.

BTW, I also own some Garmin shares and would like nothing more than to see share price climb, rather than have to sell for a loss.

Hi Ben, what a great post - loved it.
I think you analyzed the fears correctly. you mentioned Nokia in breeze but they are my biggest worry - they have paid 9 billion cash money for Navtech and they will use it. Nokia is a better device maker than Garmin and has better business relations with auto manufactures. I expect Nokia will have an easier time than Garmin negotiating a deal for new BMW cars, not only because they are a bigger and better known company but because they have relationships with cell operators as well. It's clear to me that with the move to buy Navtech people will buy a new BMW with built in navigation and cell phone by Nokia.. just stick your SIM card in the dashboard.. there is no room for Garmin in this game.
Garmin will have to re-invent itself and I'm not sure I want to tag along for that ride.
I think the fact that the CEO owns a big chunk is bad for investors as he may bleed the company dry through dividends and I dent invest money in Garmin just to get it back.
I think it's fair to say that there could be some near term upside.. best of luck with it.

Thanks for your comments. A few additional thoughts:

The handheld GPS market is not something I worry much about. I think possibly 80% of the the people who bought iPhones this week were not potential customers for handheld GPS units in the first place. Those who are might well own two (or more) devices: in the field or on the water, the functionality of even a $100 Gecko is superior to that of the iPhone. But handheld PND's have always been a comparatively small market, confined mostly to outdoors folks.

Clearly, where most potential consumers want GPS is in their cars (of the top 25 consumer electronics on Amazon, five are Garmin auto GPS units, and four are Apple iPods). Basically, I want to know two things about Apple as a Garmin competitor. First, of those people who bought iPhones this week, how many were potential purchasers of automotive GPS units? How many will not purchase an automotive GPS because their new iPhone has GPS capability? We can speculate, but I think we'll only find out over the next few quarters.

I don't see factory-installed standalone GPS units in cars as a Garmin-killer. People want different things from their GPS units, and, especially in the luxury market, will want to be able to choose features and upgrade their GPS and their map data more frequently than their vehicle. Garmin has been good about introducing new products to induce people to trade up to a device with more bells and whistles. This is the area where they have the most to lose in terms of market share in the near future, and where head-to-head competition with Nokia will hurt them the most. We'll have to see to what degree GPS becomes universal in vehicles and to what extent Garmin's and Nokia's product lines end up overlapping. There might well be room for both players in this space; alternatively, it might be more profitable for Nokia to stick to GPS phones and sell Navteq's map data to Garmin than to get into a price war.

In the longer term, it's easy to envision a situation where music players, phones, and navigational devices all interface wirelessly with the appropriate dashboard displays, speakers, etc. Why not integrate all of the above in one device, like the iPhone? First there's the Swiss Army knife principle: it might have a screwdriver that's good enough for most tasks, but when you REALLY need a screwdriver, you go get one from the toolbox. The iPhone is pretty nifty, but as a GPS unit it's not as good as a three year old basic Garmin. The other major difficulty with device convergence is managing simultaneous tasks: navigating WHILE talking on the phone WHILE playing music on the car's speakers WHILE drinking coffee. It's not an unsurmountable problem, but it's not trivial either.

To me, a valuation at twelve times trailing earnings suggests that the market expects earnings to be flat or lower for the foreseeable future (there's an oxymoron for you). There are two ways this can happen: either Garmin is about to lose market share even as the markets for automotive, marine, and aviation GPS are all expanding, or margins are about to be slashed to the point where increased volume can't keep up, probably through competition with major players like Nokia (who, presumably, would be realizing similarly low margins, even as the market expands). That seems to me unduly pessimistic.

Time will tell. In any case, best of luck with your investing!

I agree that a P/E of 12 is ridiculous.
I think where we differ is that I don't give Garmin too much credit for innovation and I could be wrong, you seem to have knowledge far more extensive in this field.

Without innovation Garmin is just a $3.5 GPS chip connected to a screen.. I think Ben is a bit optimistic that Nokia will be ok with licensing Navtech technology to Garmin for very long. They spent 7 billion dollars on it - they are going to use it for more than licensing fees. That said, expecting profits to drop with that P/E is ridiculous.

first of all - the market must have been reading ben's opinion - Garmin is (finally!!) going up.

i think Nokia's biggest play for Navtech will be combining the geographic information with local business data. this is in-line with their npocket acquisition driving digital advertising. put together your phone will be able to tell you where AND HOW to go get a coffee or tennis shoes + get ad generated revenue as they do so.

Automotive GPS will probably still be a Nokia play, but i don't think it is the main play.

I agree with you Walter, but think that's what makes GRMN a dangerous move..
I'm a huge believer in geo-advertising but think that industry will be born into the auto industry.. it makes perfect sense to me that I will be driving down the highway and say "Get stationary" to the voice recognition that will pop on screen directions to the nearest "Office Depot". For personal use with the cell phone I think there will be public resistance for some time longer.
If anything this means Garmin will loose share in that lucrative market.. not something that will push the stock price back up..