Garmin: Market Erroneously Pricing In Nuvifone Failure

by: Tim Weidman June 29, 2008 | about stocks: GRMN    

Tim Weidman

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Garmin (GRMN) plans to leap into the mobile phone market during the third quarter of 2008 with the expected release of the Nuvifone. This device is one of a kind because it offers a smartphone combined with turn by turn navigation. I strongly believe this phone will be a huge holiday hit come Christmas time. 

While Garmin has remained silent on the price of this phone, they have offered some specifics regarding this product.

  • Full GSM HSDPA Mobile Phone
  • Turn by Turn Voice Prompted Navigation with Preloaded Maps
  • Full Internet Web Surfing
  • Built in Video Camera
  • 100% Touch Screen - 3.5 inch
  • Google Local Search
  • MP3 and MPEG4/AAC video player
  • Garmin Online Services - Real Time Traffic, Weather, Fuel Prices
  • Nuvi-like Navigation on the road or Pedestrian Mode
  • “Where am I?” feature lets users touch the screen at any time to display the exact latitude and longitude coordinates, the nearest address and intersection, and the closest hospitals, police stations and gas stations.

The Nuvifone also helps drivers find their car in an unfamiliar spot or crowded parking lot by automatically marking the position in which it was last removed from the vehicle mount.

I think the coolest feature of the Nuvifone is the ablity to be talking to someone on the phone while driving and still get turn by turn directions all in one device.  As soon as the user is finshied driving, he or she can then undock the phone from the vehicle mount and never miss talking moment!

Don't overlook the Google (GOOG) local search feature either.  This is a first of its kind. Nuvifone users can search for locations like “movie theaters” and Google will sort the results based on the user’s current location and relevance. Information provided by Google includes a web-based rating so that users can select the most appropriate destination and route directly to it.

While Garmin's stock price has taken a huge hit this year, trading just below $45 today, I think investors are actually pricing in a failure of the Nuvifone.  If this product can just take a small piece of the smart phone market, I think it will be a huge benefit for shares of this company for years to come.

Disclosure:  Author is Long GRMN

Related Articles

This article has 12 comments:

  •  
    Jun 29 10:26 AM
    I never posted this headline.....it should be " The Garmin Nuvifone is Coming! "

    Garmin investors who are already in the stock have no control over the price.....if anything, it should read " The Market is erroneously pricing in a Nuvifone failure.

    Reply | Link to Comment
  •  
    Jun 29 10:29 AM
    Thanks, Tim. We've changed the headline to the one suggested above.

    Regards,

    Shira Jacobson
    Seeking Alpha Editorial Team
    Reply | Link to Comment
  •  
    Jun 29 11:06 AM
    Tim, Full disclosure : I am long GRMN. Painfully so.

    Nothing you have said about the GRMN phone seems to be radically new. Every feature you have mentioned is available on the AT&T Slider. Including Google Maps. I have a Taiwan ETEN cell phone and I have used Google Maps on it for over a year WITH GPS. Gas Stations, restaurants and all.
    Reply | Link to Comment
  •  
    Jun 29 11:59 AM
    This is phone is going to be sick. Navigational software on phones usually sucks. But, it should be easy for Garmin to work the other way and make "phone" features. Can't wait for it... I wonder what network it will be on I want to get this for my parents:

    GarminNuvifones.com
    Reply | Link to Comment
  •  
    Jun 29 10:46 PM
    The problem with Garmin is that the average person does not need some silly program giving them directions. These things go out of favor after they have been on the market for a while. Other examples include satelite radio and crocs; this is a luxury- while many people are having a hard time filling up their tanks why would they shell out more dough for directions?
    Reply | Link to Comment
  •  
    Jun 30 01:38 AM
    Tim, to end up with a balance sheet and margins as GRMN has, the management must be topnotch.

    But with momentum players controlling so much of what happens in each sector and stock, who today cares.

    I had a good profit in GRMN and let it slip away. I can't say why the stock has dropped from over 50 to the low forties, but that type of drop is surely telegraphing us something negative.

    I'm out for the time being, but with such a good balance sheet I'm going to keep my eye on GRMN for future investing.
    Reply | Link to Comment
  •  
    Jun 30 09:43 AM
    Agreed, their balance sheet is one of the many reasons why I have put money to work in this company. The PEG is .73....seems undervalued to me, Company is buying back more stock, 617 Million in the bank, Trading at 10 times forward earnings, Dividend.

    We'll start to see in the next few quarters If i was right
    Reply | Link to Comment
  •  
    Jul 03 10:33 PM
    20% of Garmin's bus is glass panel nav systems for the world's most advanced, sophisticated planes, jet & prop, and it's reported to be boom time for new planes going forward. It's the state of the art leader in this field and it makes all its other products for cars, boats, motorcycles, dog collars, bikes, runners, outdoorsman, joggers and the like child's play by comparison. It's even got a new thing called Synthetic Vision Technology which displays a 3D terrain graphic for IFR flight---star war's stuff. The iPhone is great...but how much does the monthly svc plan cost? Similiarly, it's not the cost of the computer that gets you, it's the monthly high speed access charge! The nuvi phone can compete if its svc charge is a lot less than the iPhone. A lot of people don't need all that jazz that the iPhone provides and will find the delivery of GPS nav to everyday affairs a huge time saver and headache reducer. These stock analysts can follow the stock but not the story. They can't see the forest for the trees. All their questions are about exchange rates, inventory build up, etc. They need to get out of the office and onto the street and learn about how people live. As my grandma used to say, "A word to the wise is sufficient."
    Reply | Link to Comment
  •  
    Jul 08 01:18 PM
    Tim... You raise a good argument for investing in Garmin based on nuvifone sales but I'm not as optimistic about cell phone revenue contribution as I am in continued automotive penetration and having aero+boating GPS becoming a larger percentage of revenue. These latter markets are less competitive and are sufficiently large to continue Garmins as a growth stock. My concern is that the cell phone market is too competitive and may consume a disproportionate amount of R&D resources from the other bread and butter product lines--not to mention its the competitiveness. Selling a car phone as an automotive GPS package for the low end consumer with WIFI or Wimax as the primary broadband low cost conduit for toll and network access would be huge as well as game changing. Those locations that don't have WIFI access could then use a specialized pay as you go cell network until within WIFI range. Essencially free cell phone access.

    But competing with the likes of Nokia, Apple, RIMM, Samsung, Motorola and Google is highly risky in the cut throat cell phone market.
    Reply | Link to Comment
  •  
    Jul 22 05:50 PM
    Hey....looks like the Market is finally starting to agree with me....Tom Tom had a decent report..nothing earth shattering so they went up on it.

    July 31st should be the day we hear alot more about the Nuvifone..stay tuned
    Reply | Link to Comment
  •  
    Jul 22 11:02 PM
    There seems to be quite a bit of mis-informatiion about GRMN within these posts. The net sales numbers for Garmin in 07 are listed on Form 10-k
    (2007 Annual Report) p70

    Automotive/Mobile 73.69%
    Outdoor/Fitness 10.70%
    Aviation 9.30%
    Marine 6.40%

    While I agree with a couple of points made here regarding the Nuvi-Phone I will try and lay to rest a couple other misconceptions:

    1) The cost of Nav on the phone plan is not in Garmin's hands, that will be determined by the carriers who decide to pick up the Nuvi-Phone line within their product offering. This is simply a feature of the phone which does not use the "network time" of the carrier's network, ie; it is occupying space within the spectrum of bandwith and therefore costs the cellular company nothing to offer.

    2) Cell Phone technology, just like GPS technology is very complicated and new entrants to this business will have hurdles to overcome with many Cellular Platforms, ie; tdma & cdma technologies.

    I feel GRMN is making the right move in venturing into new areas. As the margins in the gps industry continue to shrink and competition increases, they will need to stay on the edge of innovation and move into markets not yet explored with a more broad product mix. As I pointed out above, the automotive/mobile segment make up 3/4 of their Net Sales. This is not good news if the margins continue to shrink at present rates if they cannot find other sources
    of profit within other segments of the business.

    Garmin does however have good leadership and I have all confidence that they will find a solution to the shrinking margins. With all this said, I feel they are a great value play at their current level 0f 48.75. Industry P/E ratio is 16, Garmin is trading at 11 times earnings. If you value them as average within the tech sector and assign a P/E of 16, this puts them at 63.75/share.

    Tom Tom announced earning yesterday and their sales were up 70% year over year for the quarter. In news today, Garmin illuded to the fact that sales within the U.S. gps market were up 130% YOY. If that is the case we should see Garmin beat the street estimates of 1.00/share this quarter and I would predict you would see it more along 1.03/share given the decrease in margins.

    I only recently purchased Garmin, but I feel like I stole it at 42.75. In my opinion, the stock is well undervalued. I guess we'll find out on July 30 when this quarter's earnings are announced.
    Reply | Link to Comment
  •  
    Jul 25 09:32 PM
    You have no idea what you are talking about.
    Reply | Link to Comment
More Comments on GRMN ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Tim Weidman

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Cell Phones
Mobile Internet
Digital Cameras & Printing
Digital Home