How Is Garmin Still in Business?

Garmin (NASDAQ: GRMN  ) is a puzzling stock. The company's business centers around selling dedicated GPS devices. Given the widespread adoption of smartphones and tablets (complete with built-in GPS functionality), it's hard to see how there's still a market for Garmin's products.

Yet, although the company isn't thriving, it's far from dead. Shares are actually up more than 25% in the last two years. So what's going on?

Automotive demand
Garmin's navigation systems aren't the only devices the company sells, but they do represent a big chunk of Garmin's business. In fiscal year 2012, the company's automotive/mobile segment generated 55% of net sales and more than one-third of its operating income.

Garmin sells its Nuvi direct to consumers, but also has deals with major automotive manufacturers like Chrysler and Mercedes-Benz. As demand for autos has rebounded in the U.S., it has likely supported Garmin's automotive business.

Last year, U.S. auto sales rose 13%, and that growth has continued through 2013. In July, auto sales accelerated to levels not seen since 2007. But as the average car on the road is still roughly 11 years old, strong automotive demand could continue for some time.

Apple's automotive ambitions
Even if you have GPS on your phone, you might still want a system in your car. But what if your phone could take over your car's console? That's precisely what Apple (NASDAQ: AAPL  ) plans to do.

iOS 7, the next update to the Cupertino, Calif. tech-giant's mobile operating system, includes a feature called iOS in the Car" Starting next year, models from more than a dozen different brands will allow for deep iOS integration.

Should you happen to own an iPhone and one of these cars, you'll be able to beam a stripped-down version of your phone to your car's touch screen, and from there, access Apple Maps, Apple's own navigation system.

Obviously, this isn't going to wipe out Garmin's automotive business overnight. But Garmin investors have to see this a significant threat in the long run. Apple has called iOS in the Car a "key focus."

That makes sense. If you happen to own one of these cars, you might be tempted to get an iPhone. If you already own one, you'll be more likely to keep coming back to Apple for more. As some consumers plan to keep their new cars for a full decade, iOS in the Car could create long-term Apple customers and enhance Apple's halo effect.

Garmin's other segments
But there's a lot more to Garmin's business than personal and in-car GPS systems. The company also sells products targeted at outdoorsmen (highly precise personal units for hikers and hunters), as well as GPS systems for boats, planes, and runners.

This last category -- the segment Garmin defines as fitness -- accounted for 12% of the company's revenue in 2012 and about one-sixth of its operating income. Garmin sells a lineup of watches targeted at athletes. They have different features, but for the most part, they let users monitor their heart rate and track their pace.

But here. too, other companies appear poised to move into Garmin's territory.

Nike's digital platform
Nike's (NYSE: NKE  ) FuelBand and Nike+ devices aren't as nice as Garmin's Forerunners. The later offers functionality that Nike's devices lack, like the ability to monitor one's heart rate. But they are competitors to some extent. More importantly, Nike appears to be in the wearable game for the long haul.

The company has an entire division -- Nike Digital Sport -- dedicated to wearable devices. Earlier this year, Nike rolled out a developer API with the goal of creating an app ecosystem for Nike's budding tech platform. Nike has also created a start-up accelerator aimed at "leveraging the Nike+ platform," and in May, Nike announced that it would invest in 10 start-up companies.

The next version of Nike's FuelBand is rumored to include, among other things, support for these third-party apps as well as a heart-rate monitor. If that's the case, Nike's digital ambitions could prove to be an existential threat for Garmin's fitness division. 

In addition to the threat posed by Nike, there has been much speculation regarding an Apple smart watch, which could be yet more competition for Garmin's Forerunners.

Investing in Garmin
While one might've expected Garmin to have fallen by the wayside, strong automotive demand and growth in its other product categories have pushed shares higher over the last two years.

Still, longer-term, Garmin appears to be facing major challenges from Apple and Nike. Apple's iOS in the Car could take a bite out of Garmin's automotive/mobile division, while Nike's budding digital platform could wreck havoc on Garmin's fitness products.

Cumulatively, those two divisions represent almost 60% of Garmin's revenue and about half of its operating income. Garmin investors, then, should keep a close eye on these developments. They might not represent a threat to Garmin right now, but the company appears to be facing major long-term challenges.

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 04, 2013, at 12:23 AM, Peebsnjay wrote:

    I have a smartphone and a tablet, but I still use a GPS. It's much larger than a cell phone, so it's safer to use while driving than trying to squint to see a cell phone propped onto a dash (and which will probably keep falling off of it). My GPS talks to me so I don't need to always look at it. And my GPS gets a signal pretty much everywhere I go. I'd have to be in a heavily wooded area where a satellite couldn't reach me in order to not get the directions. With a cell phone, you're always subject to be out of a cell tower's range which means no directions anymore - WHOOPS! And since the GPS is dedicated to mapping, it's a bit more reliable that an app that may or may not be any good. Not all apps are created equal and who wants to be out on the road needing directions because they're lost only to discover that the app they chose stunk? I'll keep my GPS with its lifetime map updates, and I'll wave at the people with the cell phone mapping apps who are lost on the side of the road when I pass by them.

  • Report this Comment On September 04, 2013, at 12:56 AM, GuitarJim wrote:

    The author makes the common mistake of assuming that just because a smart phone is capable of doing something then it must be all you would ever want for that task.

    A smart phone can be used to watch television programs, but it makes a pretty poor substitute for a real TV set when you want to watch with others.

    A smart phone has apps that can do most common office productivity tasks, but would you want to use a smart phone to write a 30 page report?

    The fact is that a smart phone isn't as good at navigation as a dedicated GPS navigator. A smart phone needs a wireless data connection to load maps. A GPS navigator doesn't. A smart phone doesn't come with a dedicated dashboard mount and 12V car power adapter. A GPS navigator does. A GPS navigator's display was designed to be easily seen in bright light. A smart phone not so much.

    The bottom line is that a smart phone will serve in a pinch as a substitute for a lot of different devices, but it's also not ideally suited to permanently replace many of those devices.

  • Report this Comment On September 04, 2013, at 8:20 AM, patruns wrote:

    "A smart phone needs a wireless data connection to load maps."

    You might want to look into that further. There are several apps that store the maps on the phone. You can also load partial Google Maps if that is your primary navigation app.

    "A smart phone doesn't come with a dedicated dashboard mount and 12V car power adapter. A GPS navigator does."

    True, but you can buy the accessories.

    "A GPS navigator's display was designed to be easily seen in bright light. A smart phone not so much."

    That is debatable. My smartphone is not any better or worse in bright light than my GPS. However, my smartphone does change screen brightness based on available light. My GPS only knows night and day.

    The bottom line is a smartphone can be quite a capable navigation device depending on the phone and the app used.

  • Report this Comment On September 09, 2013, at 2:23 PM, L2RR2L wrote:

    The author does not understand GRMN or athletes. We will NOT carry a huge iPhone on our upper arms and look like complete idiots like amateurs do. I am not a Pro, but we do like to keep it "small" and "light." An iPhone is neither. The face of a Forerunner is bigger and easily viewable and I want to see real time results rather than after the fact. GRMN also has this new 910 model for triathletes that is watertight and can be seen while swimming. It is a category killer.

  • Report this Comment On September 10, 2013, at 1:58 PM, StemmePilot wrote:

    A recent article in Science News presented conclusive evidence that interfacing in any way with a smart phone (not just texting or talking) is a dangerous "multi-tasking" distraction to all drivers which is why I think IOS 7 popping up a wide variety of seductively distracting apps on the dash is a very poor idea and doomed to failure...perhaps even legislatively outlawed!

    I find that setting my destination into a dash-mounted and voice-enabled Garmin before leaving the curb is much less distracting than holding my iPhone in one hand, glancing down into my lap, or negotiating with Siri while I drive. No cell phone beats a dedicated GPS navigator, and Garmin clearly makes the best of the bunch!

  • Report this Comment On September 11, 2013, at 10:21 PM, Sejongcamus wrote:

    Legislatively outlawed? Comparing iPhone vs Standalone to iPhone vs a TV? I'm not buying it.

    Profile: I'm 31, a consumer tech entrepreneur, having hired top management from one of the big companies in the standalone GPS space (from marketing, no less). I'm married, no kids, drive a lot in NYC and MA as well as w rentals when I travel. I can barely tolerate standalone GPS devices and find them extremely frustrating. I've been using my phone to navigate since before the iPhone, back when VZ Navigator was new and handy on quasi-smartphones. I have dashboard GPS in a Prius and have tried many standalone devices when traveling or visiting older relatives.

    Like me, I don't know a single person under 50 who uses a standalone GPS device, or even their dashboard nav system if they have one. They all use their phones. Here's why:

    (1) Ease of Use - Effortlessness begets Engagement: In the under 35 crowd, which tends to drive consumer adoption and trends, standalone GPS in the car is clunky, awkward, and seems almost entirely redundant. There's the bigger screen, yes, which is a legitimate benefit, but it's ridiculously outweighed by everything else that's drastically less usable: Entering an address that's on your calendar or in your contacts already, searching the map, checking for movies at a theater and then getting its directions into the standalone GPS -- all near effortless on a smartphone but awkward on a GPS (a couple taps vs about 15-20 taps on a much less responsive interface to boot). Yes, Garmin's smartphone app tries to help with at least the data entry for their newer devices, transferring info you put in on your phone, but their app is almost a study in criminally awful usability and reliability. It doesn't make things much better.

    Good Voice Input: For those who get the hang of Siri or Android's audio controls, it goes a step further. Half of the time I drive somewhere, I just tell my phone to "Drive me home" or "Drive me to John Dickinson's house". It really is that easy.

    Travel: When I travel, hooking up my phone in rentals is extremely easy, and a lot simpler than disconnecting and carrying my standalone GPS with me, fishing it out of my bag when I get to the car at the airport, etc. The phone's already in my pocket, has all my information, and a couple taps will queue up directions.

    (2) Navigating Around Traffic Unequalled: In traffic-prone cities (read: most cities), apps like Waze and Google Maps are actually fantastic at routing you around traffic and are life-changing, especially in NYC, Boston, DC, Atlanta, and the Bay Area. Some of the standalone devices have limited, comparably poor traffic features if any (yes, some are technically impressive, but in practice the data's just not as good as Waze or Google).

    (3) Keeps Updated: It's also comparatively awkward to keep your in-car nav system or standalone GPS updated, which leads to navigation problems.

    (4) Phone Already Connected to Car, Really Useful for Non-GPS Reasons: Perhaps the biggest elephant in the room that's being missed here is that in this same age group, most people already hook their phone up to their car for other reasons: (a) to keep it charged, (b) to listen to their entire music collection AND Spotify/Pandora AND any radio station you want with crystal clarity through the car speakers, and (c) in some cases, to receive calls through the car audio system.

    I think I should at least touch on two more things mentioned by commenters -

    (5) Losing Signal Not An Issue: I know that might sound crazy. I often like to drive off with my wife to the countryside to get away. We've been to many rural spots, and almost never have we lost signal or been unable to navigate. In Canada, yes, but in the US, even in Puerto Rico, last time we lost signal and it caused the GPS to stop working was about 5 years ago when driving to a camp in NH. This is almost all with AT&T as our provider.

    Also folks should understand that the phone doesn't need a cell tower to get its position anymore since about 2009, and the reason why dropped signal is usually not a problem is because the phone can still tell where you are and caches the upcoming maps so it can still direct you unless you lose signal continuously for eg, 20 or 30 minutes, which is why this works. I agree it's obviously not as theoretically reliable as having maps stored on board, but in practice it's almost a total non-issue.

    (6) Stands for the Phones are Common: Someone mentioned propping the phone up as an issue that will help bolster Garmin; it's not a great argument for their cause. Because of music, Internet radio, as well as GPS, many people tend to have those little $10 stands that hold up your phone in the car, really common now at gas stations, grocery stores, pharmacies, and any electronics place.

    So, the benefits are enormous, which explains the human behavior that follows of people using their phones to navigate. The in-car system Apple's making is nice, but I don't think that'll really impact much until 3-5 years from now when those cars that support it get to the after market and start to become more mainstream.

    This isn't an emotional thing or a "fanboy" thing for either Android or Apple or anything else. For purely practical reasons, I'm sincerely afraid for anyone who's still invested in Garmin, expecting growth. When companies start to decline, they do what Garmin's been doing -- talk up their other businesses no matter how small and unpromising, and start bolstering the stock price through buy-backs and dividends until their coffers run out. Blackberry and Nokia both did that for a while too. It's telling to read articles and analysis from 3 years ago on each, with people continuously hoping against hope that they'd have a future while mass human behavior was changing with a hurricane's ferocity all around them for very human reasons.

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