The latest "must-have" personal electronic gadget is the Personal Navigation Device (PND). Combining global positioning system (GPS) navigation capabilities with preloaded maps featuring millions of points of interest (gas stations, restaurants, local attractions), these little devices are expected to be big sellers this holiday season. Leading the PND wave are Motley Fool Stock Advisor pick Garmin (NASDAQ:GRMN) and European upstart TomTom, both of whom released their third-quarter earnings last week. Despite expectations for a massive earnings blowout, results from both companies were only extremely good. Consequently, Garmin was down nearly 12% in the day following its report, and TomTom, trading in Europe, was off over 18%.

Competition is good for companies, so long as they don't self-immolate in a rush to beat down their competitors. In this respect, TomTom looks like Garmin's biggest challenge to date. Other competitors such as LowranceElectronics (NASDAQ:LEIX) are too small to mount an effective threat, and other GPS specialists such as Trimble Navigation (NASDAQ:TRMB) are sticking to applications outside of the PND sphere.

Comparing the products
I believe Garmin is at least temporarily playing catch-up here. On the PND front, TomTom's GO products got the jump on the market, before Garmin responded with their c-Series and now i-Series of product lines. Both sets of products offer 3D graphical navigation and turn-by-turn voice instruction, but the TomTom units also built in hands-free calling via a Bluetooth® connection to your similarly equipped mobile phone. While Garmin's iQue M5 PDA (personal digital assistant) offering has Bluetooth® capability, their PND offerings don't -- yet.

In addition, Garmin's "Mobile" offering, allowing smartphone users to turn their phones into in-car navigators, was just launched this past September. TomTom's comparable offering launched nearly a year earlier. It shouldn't be surprising that TomTom appears so adept at mobile wireless offerings; their background lies in software and application development for smartphones and PDAs.

It's one thing to take a lead, but it's another thing to hold it, and that's where I think Garmin has the advantage.

Keep the pipeline moving
As I wrote in my last article on Garmin, the pace of GPS development is getting faster and faster, increasing pressure on R&D and manufacturing. This works in Garmin's favor; the company designs and manufactures its goods in-house, which lowers its costs while increasing its ability to redesign existing products or launch new ones. Its steady stream of new products indicates that Garmin isn't afraid of cannibalizing its own product lines to keep pace with development.

Supporting this, look at how new products have influenced Garmin's sales year to date:

Q1 '05

Q2 '05

Q3 '05

Sales ($million)




Units Sold (thousands)




% of Sales from Products
released in past 12 months




Anyone else see an accelerating trend? As consumer appetites continue to seek the "latest and greatest," and R&D and manufacturing remain key, how do our players stack up? The answer overwhelmingly favors Garmin; they outstrip TomTom by a factor of seven in new spending.

2004 TTM*

R&D as %
of Rev.
2004 TTM

Q3 '05

% of
Q3 '05











* Dollar figures in millions.
** TomTom results translated from Euros using exchange rates of 0.7357 EUR/USD and 0.8294 EUR/USD, as at 31-Dec-04 and 30-Sep-05 respectively

True, Garmin's product offering is much wider than TomTom's, but since the PND market promises to be the bread-and-butter space for GPS participants in the future, they'll likely be directing a disproportionate amount of their R&D spending toward that segment.

The other point to consider is that Garmin controls nearly every step in the design, engineering and manufacture of its products, while TomTom outsources most of these functions. Outsourcing may help TomTom cut costs, but Garmin's in-house processes and overall nimbleness still keep it ahead. Garmin's consumer division enjoys fatter margins, at 31% to TomTom's 28.2%.

Getting the word out
It's great to develop new and exciting products -- but only if folks are aware of them. This is especially true for a product line like PND's, which are now just entering the average consumer's price range. As a company largely made up of engineers, Garmin has been a little light on the marketing side in the past. (I say that as an engineer myself; we have a predilection for doing cool work and assuming customers will come to us.)

Both companies have promised high-priced multimedia advertising blitzes for the holiday season, but TomTom has been rather aggressive on the marketing front all along. They've recently partnered with Time Warner's (NYSE:TWX) AOL-owned Mapquest unit to launch a Mapquest-branded PND, and have popped up on NFL broadcasts in recent weeks. Take a look at recent efforts of both companies:

Advtg. Spending 2004 TTM*

Advtg. as % of revenue 2004 TTM

Spending Q3 '05

% of revenue Q3 '05











* Dollar figures in millions.
** Estimated based on historical spending levels (Garmin doesn't break this number out quarterly).
** TomTom results translated from Euros using exchange rates of 0.7357 EUR/USD and 0.8294 EUR/USD, as at 31-Dec-04 and 30-Sep-05 respectively.

What are the companies aiming for with these efforts and promised greater expenditures? To me, it looks like aggressive attempts on the part of each company to better penetrate the other's core market: TomTom into North America, and Garmin into Europe. So how have they fared?

Garmin Geographic
Sales (in millions)

2004 TTM
(Q3 '04)

2005 TTM
(Q3 '05)

% of 2005





N. America




Asia / Rest of World







Geographic Sales

2004 TTM
(Q3 '04)

2005 TTM
(Q3 '05)

% of 2005





N. America

€ 5.6

€ 19.0


Asia / Rest of World


€ 3.9





The historical results, at least, favor Garmin. Admittedly, Garmin's numbers include their Aviation division, as well as other consumer product lines outside of PNDs, but their European presence far outstrips the TomTom's North American presence. That gives Garmin an excellent base for driving further PND sales.

The Foolish bottom line
Aggressive holiday sales campaigns are planned. Inventory channels are stocked in preparation for the holiday buying season. In the short term, the fight looks to be a doozy. Yet I think Garmin holds the long-term advantage, particularly if their marketing efforts bear fruit. With their in-house design and engineering specialty, they can keep up a relentless pace in an accelerating product-cycle environment, forcing TomTom to match or fall back. Still, TomTom is focused, well-capitalized, competitor with significant know-how in the mobile arena. It should be an interesting battle.

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Jim Gillies owns shares of Garmin and is long $45 Jan07 Garmin calls and short $35 Jan06 Garmin puts. He'd love a Garmin i5, if any readers are feeling generous! Lowrance Electronics has appeared as a Motley Fool Hidden Gems Tiny Gem. Send Jim feedback!