How Garmin Survived the Age of Smartphones

Smart business moves kept the GPS manufacturer relevant

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I wrote last week about smartphones and the number they’ve been doing on the digital camera industry. But compact cameras are just one of the gadgets those iPhones and Galaxies have pushed off store shelves. If anything, GPS manufacturers have had it even worse.

One company that’s managed to beat the odds by surviving the smartphone invasion and starting on a slow but steady path to recovery is Garmin (GRMN). Since hitting historic lows in 2009, the company has embarked on a strategy of innovating, exploiting niche markets and strategic acquisitions.

As a result, GRMN has climbed 171% since the dark days of 2009. That’s still nowhere near its pre-iPhone and Google (GOOG) Maps highs, but much better performance than competitors like TomTom (TMOAF), which continue to languish in the basement.

Back in 2007, Garmin reported all-time record revenue of $3.18 billion, up 79% from the previous year. It also sold 12 million GPS units that year. The company was optimistic the good times would continue, and in its 2008 fiscal outlook anticipated sales of $4.5 billion.

2008 revenue ended up being $3.49 billion, a full $1 billion off Garmin’s projection. The smartphone effect had begun, and revenues would  continue shrinking in 2009-10. The company was still the worldwide leader in personal GPS sales, but being the big fish in an increasingly shrinking pond is small comfort to investors. Just ask Nokia (NOK) — who was the world leader in cell phone sales for over a decade — how much that crown means now.

By 2009, as consumers were snapping up smartphones in droves and Google Maps was proving that anyone equipped with their free app could now navigate pretty much anywhere, the prospects of selling a standalone GPS unit for $250 looked grim and was only getting grimmer. Garmin stock was at $15, a drop of nearly 88%.

TomTom, another leading GPS manufacturer saw its shares drop 96% in the two years after the iPhone release, and they’ve remained basically flat at that level ever since. Navigon, a German GPS company that had the poor timing to launch its North American presence in 2007 had closed down on these shores by 2009 and was eventually snapped up by Garmin in 2011.

Unlike its competitors, Garmin has managed to rebound. In 2012, it posted revenue of $2.72 billion, ending the year with $2.9 billion in cash and securities. That was enough for the company to pay investors a cash dividend ($1.80 per share) and institute a $300 million share buyback program. In its latest quarterly earnings report, Garmin showed continued growth in most divisions (although sales of automotive and personal GPS units continue to fade), and margins even improved — gross margins stood at 54.3% in Q2 2013.

So what did the company do differently than other GPS players?


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/garmin-a-smartphone-survivor/.

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