Satellite-navigation product maker Garmin posted a 25% earnings increase in the third quarter, blowing out Wall Street’s revenue and earnings estimates. Investors greeted the news by selling off, sending the stock down 15% in Wednesday trade. What gives?
OK, revenue was off by 10% on the quarter, and the earnings gains came from improving productivity and managing expenses – i.e., cost cuts. But the Street was looking for EPS of 69 cents and revenue of $704 million, and Garmin delivered $1.07 and $781 million.
The Web search giant unveiled in a blog post last week Google Maps Navigation as part of its Android mobile operating system – free turn-by-turn directions based on up-to-date information from Google Maps. With Verizon Wireless about to debut the Droid mobile phone, which uses Android, Garmin investors are worried a new generation of smartphones will eat up Garmin’s core automotive/mobile business, which was responsible for two-thirds of the company’s third quarter revenue.
It’s a real concern, as reflected by Garmin’s 30% stock price drop since that blog post. If, in Android, Google has finally found a way to monetize its businesses beyond core Web search, then Garmin and TomTom could be in for big problems.
Garmin isn’t taking Android lying down – it unleashed the nuvifone G60 in the U.S. last month on AT&T, after nearly two years of delays. Early takeup, though, isn’t promising – the editor’s review at tech site CNET.com gave it only two stars (nine users have given it an average four-star rating, though as The Wall Street Journal recently reported, that doesn’t necessarily mean much).
If the worst happens, here’s hoping Garmin can survive as a niche provider of recreational sat-nav equipment. The company’s Forerunner GPS devices, worn on the wrist, are standard training tools for marathoners and triathletes everywhere. The new 310XT provides a long-awaited breakthrough – it can be worn in the water, meaning a triathlete can put it on before the race starts, and not waste precious transition time putting it on during the race.
And hey, there’s hope – Garmin’s outdoor/fitness segment revenue rose 11% in the third quarter to $132 million.