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Garmin's No Genius

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So Garmin (Nasdaq: GRMN  ) unveiled its new nuvifone, and new partner AT&T (NYSE: T  ) , to widespread acclaim yesterday. Kudos and hurrah! But, please, pardon my ignorance -- I just don't get it.

Garmin may be the king of GPS, but for years, smartphone makers have been nibbling away at its market share through their incorporation of GPS technology into their talk-boxes. As GPS tech became ubiquitous, we saw Garmin's margins tumble. The spread of GPS into the cell phone creates a powerful, disruptive force that threatens Garmin's core business.

Decisions, decisions
Clearly, something had to be done. And in January 2008, Garmin promised to do "something" -- the nuvifone G60. (Of course, it then proceeded to spend 20 months futzing around before finally announcing the nuvifone's arrival this week.) And now that Garmin has finally set a release date, it then turns around and locks the phone into an exclusive deal with AT&T. Why?

I mean, if Garmin had chosen to go with Verizon (NYSE: VZ  ) or Sprint (NYSE: S  ) , that might have made sense. Give 'em a unique product to promote. A new weapon to fight the AT&T/iPhone behemoth.

But AT&T? It lives and dies on the iPhone's success. To AT&T, nuvifone may be a shiny new toy, but it's hardly going to get the same kind of support that AT&T throws Apple's (Nasdaq: AAPL  ) way. And believe you me, with the nuvifone retailing for $299 after a $100 rebate, Garmin's going to need a lot of support if it's to steal sales from the iPhone (which can cost as little as $99 with the same two-year contract). How does that make sense?

Three's a crowd, and four's even worse
Faced with the same "convergence" problem dogging Garmin, rival TomTom chose to develop an "app" for Apple's iPhone. They get $100 a pop for the software, with no hardware expense to drag margins down.

That seems like a pretty sweet deal to me. And even Garmin recognizes the economic advantages of "going virtual." It sells similar apps for smartphones by Research In Motion (Nasdaq: RIMM  ) and Palm (Nasdaq: PALM  ) , and even for T-Mobile's Dash phone. What I cannot fathom is why Garmin's giving Apple the cold shoulder -- and why it would compound the error by trying to horn in on the Apple-TomTom-AT&T threesome.

Foolish takeaway
Call me a pessimist, but I simply see no way this can end well for Garmin. It bungled the nuvifone from the get-go, and now it's made things worse by choosing AT&T as its dance partner. Suffice it to say that my faith in Garmin's genius has been well and truly shaken.

Disagree? Feel free. If you see method in Garmin's madness, scroll down to the comments section below and tell me why I'm wrong.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. Apple is a Motley Fool Stock Advisor selection. Sprint Nextel is a Motley Fool Inside Value recommendation. Garmin is a Motley Fool Global Gains pick. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (15)

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 30, 2009, at 6:07 PM, MaBellIsDead wrote:

    If the nuvifone G60 is one which downloads map segments as needed and ultimately demands a subscription fee to keep the GPS operating, I wish them doom.

    Was this respectful enough?

  • Report this Comment On October 01, 2009, at 2:03 PM, GpsFool2 wrote:

    I plan on buying a nuviphone.

    The TomTom iPhone app has been widely panned (see you tube).

    InfoThatHelp - I am not sure what you said in your first post but I like the way you said it. Do you blog?

  • Report this Comment On October 04, 2009, at 2:38 PM, WalterHWhite wrote:

    Is there an elephant in the room we're not talking about? What about Nokia's 2007 purchase of Navteq. Navteq provides the maps used by Garmin. The other map provider - Tele Atlas is owned by Tom Tom. Seems like Nokia can put the squeeze on Garmin at any time. Only time will tell where Nokia plans to go with this and their choice could have a huge impact on Garmin.

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