May 10, 2006

Insight on Garmin's Business Outlook

So if you missed it, Garmin's earnings are up a ton this year over last for the first quarter - see our article; "Garmin Profit up 86% - Announce Stock Split" Garmin is the maker of such popular mobile GPS models as the C340, the new C500 series with Bluetooth integration, the huge StreetPilot 7200 with a 7 inch screen, the popular eTrex handheld models and the category owning Forerunner series. We'll take a look at what makes Garmin do so well, and if they will keep it up.

Their growth in profits is remarkable, but after a little digging you can get a picture that Garmin is poised for success in the marketplace, and they are investing to make it happen. You can't give all the credit to Garmin, as the entire category is exploding both here in the US where they own a giant size of the market and in Europe where they are chasing TomTom (who has had strong earnings themselves). In September of last year, we wrote an article that highlighted Garmin's R&D investment ahead of their rapid introduction of GPS units that were introduced almost every other week last summer. Well, Garmin is now telling us that over 50% of their sales are through models introduced in the last 12 months. That's not surprising considering the pace of new product introductions.

A year ago, Garmin's mobile GPS units for the auto were about 20% of their sales, and in the most recent quarter the sales of mobile GPS units are now over 45% of sales, growing to over $100 million. Their C-Series StreetPilot is being talked about as a key reason for the sales growth in this category. The C-Series StreetPilot has hit that sweet spot of great features and affordability for most people in the marketplace.

Will the pace of new introductions keep up?
In a word, "Yes". Why? Well, to start Garmin said so in recent press releases, but it all goes back to the R&D spending. Garmin recently added dozens of R&D positions and bought new manufacturing lines in Taiwan to expand their manufacturing capacity. It's not just the engineering numbers that are going up, the dollars behind the R&D are going up too. Their R&D spending lies somewhere around $80 million this year, nearly double what it was in calendar year 2003. Not bad.

It will be tough to keep up with Garmin as they continue to innovate in this rapidly developing market. With major introductions coming on an annual basis to the important product lines will make it hard to keep up unless you are also investing in the business at the same break neck pace, or moving into the segment boldly with a wad of cash from another cash cow position in an adjacent category.