Garmin’s Next Phase of Growth

We highlight Garmin Ltd. (GRMN - Analyst Report), Research In Motion Ltd. (RIMM - Analyst Report) and Apple, Inc. (AAPL - Analyst Report).

Recent market research shows that the next phase of growth in navigation devices will be driven by cell phones. Consumers are attracted by the prospect of carrying a single device that would integrate navigation and communication. The obvious choice is the cell phone, which already has a very high penetration rate, especially in developed economies.

As a matter of fact, GPS capability is expected to provide further impetus to growth in cell phones. Garmin Ltd. (GRMN - Analyst Report) already enjoys an important position in automotive navigation, and management intends to leverage this position in the cell phone market.

The first step in this direction is the launch of the company’s own smartphone. Although the cell phone market is relatively more competitive, management expressed enthusiasm about the growth prospects for its nuvifone.

Two nuvifone models will be launched in the first half of 2009

The company announced two nuviphone models. Both phones are feature-rich 3.5G devices incorporating a PND with on-board maps and premium points of interest; UMTS, HSPDA and Wi-Fi data connectivity; a premium mobile web browser; a local search portal that seamlessly integrates navigation functions; SMS; instant messaging and e-mailing; a camera with automatic location tagging and picture navigation; and multimedia functions such as a video recorder, MPEG 4 video player and MP3. Research In Motion's (RIMM - Analyst Report) Blackberry is the most popular platform for smartphones in North America. Apple’s (AAPL - Analyst Report) launch of the iPhone in Q3 of 2008 met with resounding success, lifting it to the second position.

Management stated that the phones had received favorable response from carriers across the U.S. and Europe, but did not comment on the position with any one of them. It has, however, announced its manufacturing partner ASUS. It is too early to tell to what extent and if at all the nuviphone could cannibalize on the existing PND business.

On the other hand, we tend to think that the nuvifone might enable Garmin to stem some of the PND revenue loss to GPS-enabled phones. We remain positive about the prospects of the nuviphone, and will take a wait-and-see approach toward the situation.

Sejuti Banerjea contributed to this post.