Garmin Smartens Up

Better late than never, Garmin (Nasdaq: GRMN  ) -- but better still, never at all.

On Monday, the news began to filter out that Garmin is getting ready to call it quits on its failed attempt to challenge Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) for the hearts and wallets of smartphone shoppers. According to tech reporter Digitimes, Garmin is winding down its partnership with Asustek in January. Asustek had built the "Garminfone" GPS-unit-cum-cell-phone for marketing to Deutsche Telekom subsidiary T-Mobile, but plans to return to making Asus-branded cellphones in the future. As for Garmin ... well, it's either got to find itself a new phone-making partner, or abandon this experiment as a failure.

I choose door No. 2
Fools, you know I love Garmin. I watched in wonder as the company played rival TomTom like a fiddle a few years ago, maneuvering its Euro-rival into making an ill-considered, overpriced acquisition of mapmaker Tele Atlas, while Garmin chose a more malleable licensing deal from Nokia (NYSE: NOK  ) . And yet, I've never been a fan of Garmin's decision to build a smartphone of its own.

Last month, Garmin CFO Kevin Rauckman basically admitted that Garmin may exit the cell phone business. Sales are not meeting expectations, and the company's flagship cell phone model in particular, the "Nuvifone" that Garmin began marketing through AT&T (NYSE: T  ) last year, had left the company "disappointed" with the results. Reading the writing on the wall, Rauckman foretold that "if we end up ultimately not successful," the "pragmatic" thing to do will be to call it quits.

Better sooner than later
And the quicker, the better. An unanticipated side-effect (that probably should have been anticipated) of competing with other smartphone makers is that potential licensees of Garmin GPS software such as Sony Ericsson and LG are now playing hard to get. Unhappy at the prospects of subsidizing a handset rival, they're opting to go with Garmin rivals such as Google (Nasdaq: GOOG  ) and its Android system, or even TomTom.

But this only makes Garmin's decision easier. On the one hand, anemic sales provide proof-positive that Garmin cannot compete with the big boys in the smartphone wars. On the other hand, a tactical retreat from hawking hardware may open up new possibilities for Garmin to seek out high-margin licensing revenue by placing its GPS software in the handsets of other manufacturers.

When a result is as clearly win-win as this one, there's only one smart decision for Garmin to make. Better late than never.

Fool contributor Rich Smith owns shares of Google. The Motley Fool has a disclosure policy.

Google and Nokia are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers choice. Apple is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Apple and Google.

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  • Report this Comment On October 27, 2010, at 10:45 AM, Aeoran wrote:

    While I think that the concluding sentence is a bit of a stretch, InfoThatHelp has said something interesting here worth a bit of thought. Perhaps an aspect of reality augmentation.

  • Report this Comment On October 27, 2010, at 12:13 PM, dexter1225 wrote:

    @Aeoran - although I agree that there is something interesting in InfoThatHelp's post (for once), I'm finding it hard to understand his motives....

    InfoThatHelp - do you have a Garmin unit or Steve Jobs tattooed on your bu++...?

    @the article - If I were made of money (or just made more of it), I'd be more than willing to jump at one of those Garmin units they push toward bicyclists: the opportunity to measure altitude, distance, speed, etc... on one unit while being able to export info sounds excellent! That being said, not sure I would have ever bought their phone...

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