The Road to Riches
Garmin's GPS systems get drivers, pilots-and investors-where they want to go
As rosy as the horizon is in aviation, it is Garmin's push into auto navigation devices that most excites investors. Many more people drive cars than fly planes, and Garmin's technology can get them where they want to go. Still, as recently as three years ago, it wasn't clear where this market was headed. Customers seemed to like the idea of driving with the help of a computerized mapping system, and carmakers had already begun building them into their vehicles. But when the technology started evolving faster than cars could be assembled, Garmin sprang into action.
Enter the StreetPilot and Nuvi, Garmin's two auto navigation systems. Both are small, hand-size units that plug into a car's lighter port and snap onto the dashboard. The Nuvi 660, which was released in the fall, features colorized, touch-screen maps of every road in North America, offering turn-by-turn directions, an MP3 player, wireless mobile phone access, and a traffic receiver that allows drivers to steer away from congested areas. The newest model, the Nuvi 680, introduced this month, even offers local information on weather and gas prices. Garmin's auto-nav sales are climbing at a rate of more than 140 percent annually. The devices are bringing in more than half of the company's revenue. "The market for them has just exploded," says Rich Valera, an analyst at Needham & Co. With good reason: While it takes carmakers around a year and a half to produce a new vehicle, Garmin's in-house operation produced the new line of Nuvis in a matter of months. This allows the devices to have not only more up-to-date technology but lower price tags, too: The Nuvi 660 sells for $899, while a factory-installed navigation system adds over $1,500 to the cost of a vehicle.
Retailers certainly seem to be enjoying the fruit of Garmin's labors. More than 90 percent of REI's sales of navigation equipment for cars are Garmin products. The same goes for fitness and outdoor recreation. "They're way better than anyone else we work with in that GPS world," says Mike McCarty, REI's product manager for navigation and communication. "If you're at all familiar with sitting in front of a computer, you can master these things in about five minutes."
Sony steps in. There are still obstacles ahead for the reigning king of GPS. Garmin's huge margins and big sales numbers have attracted powerful competitors. TomTom, a Dutch company that rules the navigation device market in Europe, has made a substantial push into the United States in the past few years. It now ships as many GPS products worldwide as Garmin-and, in the third quarter, reported higher revenue, too. Well over a dozen other companies, including Sony, have also started selling GPS devices of their own. Competition is having its usual effect on prices: Garmin's StreetPilot c330, which cost $599 at this time last year, is now on sale at Wal-Mart for $329.
Garmin execs don't seem worried. Margins will eventually come down, they say, but they will more than make up for it on volume. Only 2.5 million navigation units for cars were sold in the United States last year, but by 2008 outside experts expect that number to reach 9 million. In Europe, where 9.5 million devices were sold last year, Garmin is on track to capture 20 percent of the market. "People assume that once a big-name player comes in, because of the power of their name, they would immediately take market share," says Pemble. "But we've worked hard to promote Garmin's products and our brand, and, as a result, we're perceived as a leader in this space."
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