The Road to Riches
Garmin's GPS systems get drivers, pilots-and investors-where they want to go
OLATHE, KAN.—Rob Brown smiles as he looks up at the Garmin warehouse, stacked to the ceiling with boxes. This, after all, is success. Two miles of conveyor belts wind through row after row of neatly packaged global positioning system equipment. All 150,000 square feet of this sprawling facility seems to be stocked to the rafters. Walking into a new wing of the building, Brown, Garmin's distribution manager, weaves through a small city of crates and cardboard: "When I got here two years ago, this was empty," he says. "I thought we had plenty of room. Not anymore."
Not anymore, indeed. It is expansion time at Garmin Ltd., the largest GPS device maker in the world-and one of the quietest tech success stories of the past few years. Headquartered in this windswept suburb outside Kansas City, the company produces navigation devices for every conceivable market: GPS units for cars, high-tech instrumentation for light airplanes, weather-tracking devices for boaters, and even superlight gadgets that joggers and cyclists can use to chart their speed and distance. Though it's not yet a household name, Garmin sold around 5 million units last year, capturing more than 60 percent of the U.S. market for personal navigation equipment. In December, the company was on pace to do $1.68 billion in sales, 64 percent more than in 2005.
The best may be yet to come for Garmin, though, analysts say. Making a major push into holiday marketing for the first time (its TV ads have appeared on football broadcasts for the past several months), the company is boldly taking on all challengers, from Sony to Nike to Honeywell. In November, Garmin opened its first retail store, on Chicago's Michigan Avenue. And as navigation gear continues to evolve into a mainstream consumer product-U.S. sales of plug-and-play devices for cars alone are expected to quadruple in the next three years-outside experts are increasingly bullish on the company's prospects. Like the iPod and BlackBerry before them, Garmin's gadgets seem poised to tap into the main vein of the American consumer electronics market.
Garmin's execs, though, are determined to hit the big time the old-fashioned way. In a consumer electronics industry that has widely embraced outsourcing and downsizing, Garmin has done the opposite, keeping a tight rein on every step of its product cycle: It does its own design and manufacturing and its own inventory, distribution, and customer service. Apart from avionics, all its manufacturing is done in its factories in Taiwan, but the rest of its business is centered here. "We get challenged all the time on whether it's cost effective," says Kevin Rauckman, the company's chief financial officer. "I think the results speak for themselves." Since shipping its first product, Garmin has enjoyed 16 consecutive years of revenue growth.
So how is it that this obscure midwestern tech company manages to have its cake and eat it, too? Analysts rave about Garmin's airtight finances (nearly $900 million in cash and securities, with no long-term debt), its sturdy business model (operating margins are over 30 percent), and its single-minded engineering focus. But the real source of Garmin's success lies elsewhere. "We make products people want," says Cliff Pemble, Garmin's vice president of engineering. "If you just make widgets that become stale and commoditized and don't do anything new, eventually you can't afford to do all that we have done."
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