It's 11 p.m. -- do you know where your kids are? Heck, do you know where you are? I'm talking exact longitude and latitude.
If either of those questions has you stumped, Global Positioning Service (GPS) specialist and Motley Fool Stock Advisor recommendation Garmin (NASDAQ:GRMN) wants to help. Garmin, a leading manufacturer of general aviation and consumer GPS products, helps millions of people find their way on foot, by car, on water, and in the air. Fool contributor Rich Smith recently had the chance to discuss the company with CFO Kevin Rauckman. Here's what Garmin's No. 2 guy had to say about the competition, the balance sheet, and the future.
TMF: Kevin, for the benefit of those who don't know Garmin, can you give us a thumbnail sketch of the company?
Kevin Rauckman: Garmin is a pioneer in navigation, communication, and related technologies -- we've been building GPS receivers for as long as just about anyone. We got our start in 1989, when Gary Burrell and Min Kao co-founded the company. Our name is a combination of our founders' first names. Garmin began by building avionics, and we rapidly expanded into the marine, outdoor, fitness, and portable navigation device (PND) markets. This is a company that is proud of its heritage of innovation -- we have more than 250 patents issued and approximately 170 others that are pending. Because of the hard work of our engineers and other associates, we've experienced 15 years of consecutive growth, and in 2005, we posted revenue of just over a billion dollars -- up 35% over 2004. Our net income for last year was just over $311 million, a 51% increase.
TMF: According to your 10-K, you count Ford (NYSE:F), Toyota (NYSE:TM), and DaimlerChrysler (NYSE:DCX) among your customers. Are you working with any of the major OEM parts suppliers to integrate GPS into vehicles as they're manufactured, or are your products installed separately, after the car has been built?
Kevin Rauckman: Right now, our automotive relationships are all at the dealer-installed level. As we've stated before, we are communicating with various automakers, but we're not at liberty to disclose the details of those conversations.
TMF: In its recent 10-K filing, Garmin listed a host of competitors in various market segments. There were the obvious: Lowrance Electronics (now part of Simrad Yachting), Thales, Trimble (NASDAQ:TRMB), TomTom, and Brunswick (NYSE:BC). And there were the not-so-obvious: Motorola (NYSE:MOT), Sony (NYSE:SNE), Honeywell (NYSE:HON), Hewlett-Packard (NYSE:HPQ), and Dell (NASDAQ:DELL). Could you pick one of these companies and tell us what it's doing right in the GPS space -- and how you plan to counter it?
Kevin Rauckman: To be honest, all of the companies that you mentioned (as well as many you didn't) are doing a number of things right -- particularly in a fast-growing market like GPS. Some have been our competitors since the early days; others are relatively new to the industry. What we've learned is that in this rapidly accelerating business, we need to align our engineering, marketing, and operations teams with our four business segments (aviation, automotive/mobile, outdoor/fitness, and marine). We're spending more money on advertising to grow consumer awareness of our brand and our products, particularly during the "dads-and-grads" season this spring and summer. We've always kept an eye on our competition, but more importantly, we are continuing to invest in our own research and development that has always been the hallmark of Garmin.
TMF: We are seeing GPS technology incorporated more and more often into automobiles, starting at the high end, but beginning to move toward more mass-market vehicles. Can you give us the insider's perspective: How far off is the day when every car on the market will come with an optional "voice inside your head" telling you how to get where you're going?
Kevin Rauckman: We believe that we're at the beginning of the mass-market adoption of GPS navigation devices. Our revenues in the fourth quarter of 2005 were up 45% over the year previous, and much of that growth was powered by increased sales of automotive and PND units. So in reality, that "voice inside your head" is already growing louder and louder. We think that optional navigation systems will continue to be available, but we also think the demand for aftermarket navigation will grow even quicker, with people opting for a more inexpensive portable device that can do more than just take you from point A to point B in your vehicle.
TMF: Five years down the line, who do you think will remain standing as the major players in GPS? Will we see GPS devices from Apple (NASDAQ:AAPL), from some Chinese start-up, or even from Google (NASDAQ:GOOG)?
Click here to read the remainder of the Fool's interview with Garmin's Kevin Rauckman. (Non-subscribers can access the interview -- and a portfolio of market-beating investment ideas -- with a free 30-day trial to Stock Advisor.)
Rich Smith owns shares of Dell. Dell is a Stock Advisor and Inside Value recommendation. The Motley Fool isinvestors writing for investors.
