Garmin (GRMN +0.48%) stock has had a rough 2022 already, and shares caught additional pressure recently thanks to news out of Apple (AAPL +2.91%). The consumer tech giant already competes against some of Garmin's popular smartwatch devices, but that competition is hitting a new level.
Apple announced a new addition to its smartwatch lineup that's aimed at sports enthusiasts and includes many of the navigation features that have been a staple of Garmin products, like its tactix adventure watch.
Is Garmin doomed to lose market share now that Apple is targeting this niche? Let's take a closer look.
Carving out a niche
Garmin has already been bumping up against Apple and other competitors in the wearables space, and it has done well despite these challenges. Sure, sales are down in 2022 -- especially in Garmin's fitness and cycling products -- after surging last year. But the company has a wide range of popular devices ranging from affordable fitness trackers to high-end scuba diving watches.
Sales in its fitness segment jumped 16% in fiscal 2021. And the outdoor division, home to Garmin's more adventure-focused smartwatches, was up 14%. That success is a good indication that the company won't be crushed by Apple's entrance into the high-end portion of the adventure watch market.
Wider portfolio
Garmin also has a deep portfolio that would allow it to continue growing even if Apple dominates in this new rivalry. It sells boating and aviation GPS platforms, and its auto navigation segment is also making a run toward $1 billion in annual sales.
NYSE: GRMN
Key Data Points
The adventure watch unit is one of five major revenue streams for the device maker, which grew its overall business in each of the last five fiscal years despite temporary slumps in areas like fitness trackers. It's likely that Garmin will continue to benefit from this diversity through any new Apple competition.
Looking ahead
The more immediate concern for investors is how Garmin will weather the next few quarters that are likely to bring falling sales and declining profit margins. There was ample evidence of these trends in the last earnings report. Revenue fell 6% in the quarter that ended in late June as operating profit margin fell to 24% of sales from 28% a year ago .
Executives at the time lowered their full-year outlook to target $5 billion in sales compared to the $5.5 billion they had predicted a few months earlier. Garmin could reduce that forecast again in its next update if consumers continue to push spending away from categories that had been popular in earlier phases of the pandemic.
Still, the overall sales footprint is likely to rise for a seventh straight year in 2022 despite the extra competition from Apple. That track record is a clear sign that Garmin has endurable competitive advantages across several GPS device categories.
Instead of looking at the Apple move as a negative for the stock, shareholders should see it as confirmation that the adventure watch category has a large global appeal. Both companies can succeed in that kind of environment, and the rivalry should benefit consumers and the wider tech industry, too.
