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Garmin Presentation at JMP Securities Conference
Board: Garmin, Ltd.

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By TMFPlatoish
May 31, 2007

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Greetings,

I was fortunate enough to sit in on the Garmin presentation at the JMP Securities analyst conference in San Francisco earlier this week and wanted to share some thoughts. The briefing room was packed by the end of the session. Polly Schwerdt gave the presentation and for being the head of IR, this gal knows this company backward and forward including detailed insights into technology, competition, and markets. I know she is one of Big Jim's favorites.

As I know most of you know the company quite well, I won't go into all that in much detail, rather focus on some highlights I found interesting. She spent some time talking about the market in Europe. She described it as less orderly. Each country has its own personality. There is usually a local company that is the top supplier, with Garmin and TomTom being #2 and #3 in either order. The local providers don't usually have distribution outside of the specific country. The pricing is about 20% lower than in the US, and the market is 2-3 years advanced over what it is here.

I'm quite confident they will raise their 2007 guidance on the next conference call. Currently they have said revenue will be at least $2.5B this year producing earnings per share of at least $2.70. This represents revenue growth of 41% and earnings growth of 15% - the discrepancy being largely attributable to margin compression in the PND space. She said that guidance was based on a 100% increase in the US market this year. She believes they underestimated the rate of growth in the US and that the overall market will more than double in 2007. The European market growth is slowing to something like 60% which is inline with their projections. The auto/nav, marine, and fitness markets are all exceeding the previous 2007 growth projections.

They are still the dominant player in the Aviation space. They estimate they have 60% of the OEM business and 80-90% of the retrofit business. They are very comfortable in this segment and continue to rack up design wins for the new mini-Bizjets that are being designed. Major competitors in this space are Honeywell, Avidyne, and Rockwell Collins.

They continue to chip away at the built-in auto market, but manufacturers are still somewhat non-committal. The portable devices are carrying the day and the demand for built-in systems doesn't seem to be currently there.

They often get asked why they have so many models in their PND product line. It looks to me that market segmentation is the main reason. For example, they continue to ship boatloads of the older Street Pilot models. This particular device uses the Garmin chipset instead of the hi-sensitivity chipset from the likes or SIRF that shows up in the Nuvi and higher end products. The reason they do this is that the Street Pilots are blowing out the doors at places like WalMart at price points in the mid-$200 range. She reasoned that when the majority of use is in rural areas with great satellite visibility, the lower accuracy units work just fine.

She said that the Avis ad was getting them great exposure even though it was mainly paid for by Avis. Good product placement if you ask me. They will continue using Yao Ming as their primary spokesperson and new ads are being rolled out.

She also talked in more detail about the wireless solutions they are rolling out for cell phones and higher end PDAs. They have two main products here. The first she referred to as On Board. This is what she called a "Thick Client" and comes ready to use out of the box. It includes 3D maps and advanced features such as saved routes and tracks of currently traveled routes. It is available for over 260 converged, multi-function devices. She said it was a near PND-like user experience. Their will always be issues with screen size however and their view is that this will tend to be complementary to the normal PND application.

They also have what they call their Off Board product. She described it as a "Thin Client" which is the first Java application with a moving map and good text-to-speech voice guidance. It has access to real time content like traffic alerts and local fuel prices. The Sprint "Vision" program offers availability on 34 different Java-enabled handsets currently via a monthly subscription. Hey - DutchMark if you can explain what's going on here for me I could use the education.

Garmin is currently in rapid expansion mode. They are adding an additional manufacturing facility in Taiwan, expanding European operations in the UK (I think), and are expanding their US warehouse facilities because they are running out of room.

For the past quarter margins looked like this by segment:

                   Gross Margin       Operating Margin
                   ------------       ----------------
Aviation               65%                  37%
Outdoor/Fitness        55%                  35%
Auto/Mobile            43%                  25%
Marine                 49%                  26% 


Their greatest growth is in North America geographically and in the Auto/Mobile segment from a product line perspective. All I can see are further partnerships and new products and applications. They are enjoying the big flagship retail store they opened on the Magnificent Mile in Chicago. They are using this as a lab to test products and further understand what customers want. They say it actually benefits their retail partners as many will buy elsewhere after playing with the equipment in the Garmin store. You can actually go upstairs and sit in a simulated cockpit and interact with the high-end aviation products. I don't expect them to dive into retail anytime in the near future, although a store in the UK probably wouldn't be out of the question.

I got a chance to ask Polly a couple of other questions. Several times I've heard on the calls and at other presentations how they believe the PND business will evolve into a partnership business and they will team up with other content providers to enhance the features of their devices. She said this was certainly the case and pointed to some arrangement they had announced with MSN. Other applications will have to do with traffic information feeds and further mobile search content. She said they didn't want to talk much more before actual capabilities were announced. Fair enough. I also asked her afterwards about their progress in integrating Nuance's voice interface into their products. This had been mentioned on a previous Nuance conference call and press release. Although they don't have a product on the market yet, she said they were excited about the technology for several applications and felt the voice input interface provided significant advantages in several situations. That's all folks.

Regards,
Stan


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