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.
