Phone
“In the summer period, weve seen quite a good development in demand,” TomTom Chief Executive Officer Harold Goddijn said in an interview at his Amsterdam office. “Were becoming more optimistic.” He declined to forecast revenue for the portable navigation devices, or PND, industry next year.
The 7.7 billion-euro ($11 billion) market may shrink in 2009 as more people use smart phones for map-related services and the economic slump erodes demand, according to Reading, U.K.-based research firm Canalys. While Yair Reiner, an Oppenheimer & Co. analyst in New York, says the industry is in “terminal decline,” the companies are adding new models and making built-in systems for new cars and mobile phones.
“We dont believe that PND is dead,” Kevin Rauckman, chief financial officer of Garmin, said in a telephone interview. “We think its going to continue to grow a couple more years through 2011 and possibly flatten out at that point as the GPS-enabled smart-phone market increases.”
The industry will “at least be flat on value, possibly up a little bit” in 2010, he said.
Revenue at TomTom will drop 16 percent to 1.4 billion euros this year and return to growth in 2010, according to estimates compiled by Bloomberg. Garmins sales will be little changed in 2010 and drop in 2011, according to analysts estimates. Both companies beat analysts estimates for second-quarter profit.
Growth Industry
“Despite the temporary recession-driven slump in demand, we continue to believe car navigation is a growth industry,” said Wim Gille, an Amsterdam-based analyst at Royal Bank of Scotland. He estimates TomTom will sell 12.1 million portable navigation devices next year, an increase of 17 percent.
TomTom has more than doubled this year in Amsterdam trading, after losing 90 percent in 2008. Garmin has gained 66 percent in 2009 in Nasdaq Stock Market trading.
Some analysts are skeptical that sales of TomTom and Garmins PNDs will grow, pointing to high levels of penetration in the market and the integration of such capabilities in handsets.
“Both TomTom and Garmin will have to face the fact that the largest generator of their revenues and operating profits has gone into terminal decline,” Oppenheimer analyst Reiner said in a phone interview on Aug. 4. He rates Garmin stock a “perform” and doesnt cover TomTom.
iTunes App Store
Garmin built its own mobile phone to compete with Nokia Oyj and Apple Inc. and aims to sell “millions” of units a year over time. Garmin teamed up with Asustek Computer Inc., maker of the Eee PC laptop, and invested tens of millions of dollars in the venture.
TomTom, which beat Garmin in the battle to buy mapmaker Tele Atlas NV in 2007, last week started selling a navigation application through Apples iTunes App Store. The software includes maps and IQ routes, which finds the quickest route at any given time of the day. TomTom is also exploring an application for Google Inc.s Android platform, Goddijn said.
TomTom doesnt plan to follow Garmin into the mobile-phone industry, Goddijn said. Garmin has no plans to sell software for the iPhone, said Ted Gartner, a company spokesman. TomTom has won contracts for its Tele Atlas maps including from Vodafone Group Plc, which will offer the maps including points of interest such as gas stations and restaurants to users worldwide.
TomTom is also expanding in products built into dashboards of new cars, where it may get “a few hundreds of millions of euros” in sales within two to three years, Goddijn said.
TomTom provides the products to Renault SA and is in talks with other carmakers. Garmin has a similar deal with Chrysler Group LLC for the Jeep Grand Cherokee.