TEAM B “Synergy” (Scott, Irene, April, Simplicious)
Garmin Capstone Project Update 10/15
Contents
Garmin Company Description ......................................................................................................................... 1
Technological Innovations ............................................................................................................................... 2
Marketing strategy .......................................................................................................................................... 3
Cited Sources: .............................................................................................................................................. 5
Other Sources: ............................................................................................................................................. 5
SWOT ANALYSIS............................................................................................................................................... 5
WEAKNESSES ............................................................................................................................................... 6
OPPORTUNITIES........................................................................................................................................... 6
THREATS ...................................................................................................................................................... 6
Sources: ....................................................................................................................................................... 6
PEST Analysis ................................................................................................................................................... 8
POLITICAL:.................................................................................................................................................... 9
ECONOMIC: .............................................................................................................................................. 9
SOCIAL: ................................................................................................................................................... 10
TECHNOLOGICAL: ................................................................................................................................ 10
Sources: ................................................................................................................................................... 11
Financial Ratio Analysis Garmin Ltd (GRMN)................................................................................................. 11
Balance Sheet ............................................................................................................................................ 13
CCash Flow................................................................................................................................................. 15
Critical Success Factors .................................................................................................................................. 17
Garmin Company Description
Creating navigation and communication devices that enrich their customer’s lives is what
Garmin is all about. One year after a brain storming session around a card table with a small
group of engineers, Garmin launched its first product in 1990. The GPS 100, a panel-mounted
receiver intended for the marine market, debuted at the 1990 International Marine Technology
Exposition in Chicago. The unit, which cost $2,500, was an immediate hit and Garmin left the
exposition with an order backlog of 5,000 units.
Garmin’s next product was a handheld GPS receiver used by military personnel serving during
the first Gulf War in 1991. The company expanded industry application of these devices for the
fitness and sports industries next. One of their most popular product lines are the eTrek series
of handheld GPS devices. The original eTrek offered a lightweight, waterproof, palm-sized 12-
channel GPS receiver. It was enthusiastically received by backpackers, hikers, and others who
made their way into remote areas. The battery life of the eTrek was an impressive 22 hours on
two AA-size batteries. The eTrek product line continues today and the technology offered within
these units has continued to evolve over time providing advanced functionality such as an
altimeter, digital compass, detailed road maps and more.
Garmin’s focus on continual innovation, along with a desire to meet their loyal customer’s
expectations, has fueled an ever-growing list of products. Today, application of Garmin’s
products span a wide range of industries to include automotive, aviation, marine, fitness,
outdoor recreation, and wireless. One of Garmin’s strategies is to offer alternatives for their
customers utilizing different price points to their products. This provides a broader base of
enthusiasts an opportunity to take advantage of the GPS technology Garmin has to offer
regardless of their budget.
The company designs, manufactures, markets, and sells its own products. This is viewed by
Garmin as a significant competitive advantage because they live and breathe their solutions.
Research and development is paramount to Garmin’s long-term success. Within ten years, the
company went from a handful of employees in 1989 to 7,000 in 2007. The company is of the
mindset that their employees must not only design, market and sell the product but also use it in
all of its applications. This enables Garmin to remain focused on the continual improvement of
their products. At the end of the day, their products must be easy to use, intuitive and to simple
to navigate in order to meet their objective – to remove as much of the stress related to travel as
possible.
Garmin sells over 100 products that can be found in all shapes and sizes, such as OEM
installations on motorcycles and sonar fish-finders on boats. Garmin is also leveraging their
software and selling the product for laptop computers. Most recently, Garmin announced they
are launching a new smart-phone, the “Nuvi” phone. They plan to partner with an exclusive
wireless telephone company when they become available for purchase.
Sources:
Garmin Company: About Us (2009).
Retrieved September 25, 2009, from Garmin Website:
**http://www8.garmin.com/aboutGarmin**
Garmin Culture: Stories from the Inside (2009).
Retrieved September 25, 2009, from Garmin Website:
http://www8.garmin.com/careers/culture.html?activeBranchId=careers
Wikipedia - The Free Encyclopedia: Garmin (Sept 18, 2009).
Retrieved September 25, 2009, from Wikipedia Website:
http://en.wikipedia.org/wiki/Garmin
Wichita Business Journal: Report: Garmin smartphone will cost $500 (Sept 22, 2009).
Retrieved September 25, 2009, from Wichita Business Journal Website:
http://wichita.bizjournals.com/wichita/stories/2009/09/21/daily23.html
Wall Street Journal: Garmin Tried to Find Ways Around Smartphone Threat (Sept 22,
2009).
By Ben Charney; Retrieved September 25, 2009, from Wichita Business Journal Website:
http://online.wsj.com/article/BT-CO-20090921-703769.html
Technological Innovations
Garmin’s customers seek them out as the market leader for innovation, quality, reliability and support.
This gives Garmin a strong, enthusiastic following in each of their market segments.
Garmin pioneered the standalone portable navigation device market. GPS technology moved onto cell
phones a few years ago and is a fast-growing feature on the devices. Some 77 million GPS-equipped
smart phones will ship worldwide in 2009, up 35% from last year. (Garmin, 2008)
The market for stand-alone GPS devices is fast-growing and increasingly competitive as multi-capability
devices, such as smartphones, are gaining market share.
The United States Department of Defense controls the satellite system that enables GPS technology, and
Garmin licenses maps from NAVTEQ, which is owned by Nokia NOK. (Becky, 2009) Garmin delivers
value by combining these technologies to a user-friendly consumer package. Garmin relies on a
combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements,
to establish and protect its rights. Garmin hold rights to a number of patents and registered trademarks
and regularly file applications. Garmin maintains a strong commitment to R&D.
One of the key strategic initiatives of the company for its future growth is continuous innovation,
development, and introduction of new products. Garmin benefits greatly from the consistently expanding
aviation, marine and fitness segments. Product development for these segments accounts for nearly 30%
of Garmin's sales and approximately 45% of its operational earnings. (Kiley, 2009)
Marketing strategy
Garmin leverages its GPS expertise to deliver navigation devices for anything that moves. As the
navigation component of its devices becomes more commoditized, Garmin is branching out into services
and new devices such as the nüvifone to sustain its market share. Garmin also distinguishes itself from
competitors through rapid research-and-development (R&D) cycles that deliver product refreshes quickly.
Garmin's primary marketing strategy is to "provide a quality product at an affordable price." The
overarching mission of this strategy is: “to enrich the lives of customers, suppliers, distributors, associates
and stockholders by designing, manufacturing and selling navigation and communication products that
provide superior quality, safety and operational features, lower cost of manufacturing and ownership, and
sufficient profits to support desired company growth.” (Garmin, 2007)
Product
Garmin designs, manufactures, markets and sells over 100 products worldwide for consumer, business
and military applications. As customer demands have evolved - Garmin has launched new products.
Their communication and navigation products serve the aviation, marine, outdoor, fitness, automotive,
mobile and OEM markets.
Most recently, Garmin announced the release of the nüvifone product line. With the nüvifone, Garmin will
be competing with mobile phone manufacturers. The company’s value proposition is to integrate
navigation into the mobile phone, making it a prominent feature rather than an after-thought. There is a
concern among analysts that the nüvifone could cannibalize Garmin’s existing product lines.
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Garmin's focus on R&D ensures the latest features are brought to market quickly through product
refreshes.
Garmin is betting on the nüvifone to help it stay relevant as GPS functionality becomes pervasive
on cell phones. With no history of success in phones, Garmin faces significant execution risk in a
competitive industry.
Adoption of GPS service by wireless carriers could cannibalize sales of Garmin's personal
navigation devices.
Price
Overall, pricing for GPS products dropped by 15% year-over-year in February 2007 compared to the
same period last year. The average price of GPS products as of 2007 was $433. With the onset of lower
priced products introduced by Mio and via Michelin, we expect to see increased pricing competition
between manufacturers. This will lead to further downward trending in pricing for GPS products, as more
manufacturers realize the benefits of targeting mainstream consumers at low-end price points.
Of the most popular GPS products, seven out of the top ten are produced by Garmin. TomTom and Mio,
both known for offering several affordable GPS products for the mainstream consumer, also made it on
the top ten lists. Being the main manufacturer on this list, Garmin’s GPS products had an average price of
$467. Non-Garmin GPS products on the list had an average price of $307, priced 34% lower than Garmin
GPS products. (Pricegrabber, 2008)
Garmin ranks highest in a list of average price ranges for all GPS products by manufacturer:
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$500 average price range - Garmin
$400 average price range - TomTom, Magellan, and Lowrance
$200 average price range - Mio and ViaMichelin
Garmin pricing strategy matches the overall impression of the GPS market which is still considered a
niche market. Although Garmin reaches the high-end consumer, offering GPS products in the average
price range of $500, 70% of the most popular GPS products listed are Garmin products.
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With increased competition, Garmin is lowering prices -- adversely affecting their market share.
Though priced competitively, weak consumer spending has slowed Garmin's sales growth
recently.
Average sale prices for Garmin's navigation devices continue to fall as competition increases.
Garmin recently benefited from lower input costs
(Pricegrabber, 2008)
Place
Garmin products are available in a variety of retail channels on three continents: North America, Europe
and Asia. As consumer demand for GPS technology increases, especially in the automotive market,
Garmin has opportunities to meet the needs of consumers in more key markets with new and refreshed
innovative products.
In addition to a more traditional distribution system, Garmin also has relationships with the original
equipment manufacturers. The consumer product distributors of the company include automotive OEMs
such as Chrysler/Mopar, Toyota, Harley-Davidson, BMW Motorrad, and Honda Motorcycle.
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Garmin has developed a strong distribution network that includes over 3,000 independent
dealers, including many of the largest electronics retailers around the globe.
Garmin's consumer products are marketed through local distributors who resell to dealers.
Garmin's distribution reach is diminished as retailers such as Circuit City close stores.
Promotion
Garmin utilizes an in-house advertising agency that handles all of the company's promotional and
communication needs. Included in this department are artists, writers, designers, media buyers, event
coordinators, video producers and public relations specialists.
Throughout 2008, Garmin’s strategy included a relationship as the exclusive navigation supplier to
Kenwood’s new 2008 lineup of in-dash automotive electronics. With this agreement, Garmin aligned with
Kenwood on print, radio and online advertising in addition to a dedicated internet site and point-ofpurchase materials to inform customers. (Garmin, 2007)
Late 2008, Garmin announced a decision to shift its focus to the specialty retailer channel. The decision is
attributed to the company's goal to win back independent bike dealers. Previously, Garmin's cyclingspecific products could be found in three different channels with the same pricing. According to Stan
Brajer, director of fitness sales and marketing for Garmin, they wanted to focus on the specialty market.
(Norman, 2009)
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The company's focus on marketing its brand and products focuses on increased consumer
awareness of the Garmin name.
Efforts include typical media placements (periodical ad space, billboard, radio)
Cited Sources:
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Becky H. GPS brownout unlikely. Colorado Springs Business Journal (CO). n.d.;Available from:
Regional Business News, Ipswich, MA. Accessed September 25, 2009.
Bertolucci J. Let a GPS Be Your Trail Guide. Kiplinger's Personal Finance. August
2009;63(8):p70.
Event Brief of Q2 2009 Garmin Ltd. Earnings Conference Call - Final. Fair Disclosure Wire
(Quarterly Earnings Reports).
Garmin Signals The Worst Is Past. Wall Street Journal - Eastern Edition, August 6, 2009:pB5.
Kiley D. THE RIGHT DIRECTION. BusinessWeek. September 28, 2009;(4148):p75.
Mott G. Golf & GPS Technology. Cigar Aficionado. September 2009;17(6):pp81-85. Available
from: Business Source Premier, Ipswich, MA. Accessed October 1, 2009.
Norman J. Garmin Changes Strategy to Focus on Specialty Bike Channel. Bicycle Retailer &
Industry News. April 15, 2009;18(6):p10.
Other Sources:
http://electronics.pricegrabber.com/gps
http://finance.yahoo.com/q?s=GRMN
http://www.garmin.com
http://www10.giscafe.com/nbc/articles/view_article.php?articleid=493609
http://www.gpslodge.com
http://www.mobilewhack.com/garmin-and-tomtom-sold-over-10-million-pnds-in-2007/
http://www.tomtom.com
SWOT ANALYSIS
STRENGTHS
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Core competency of Garmin is its ability to leverage GPS technologies and in-house
manufacturing to create trendy but useful products with the ability to target high growth
markets.
Provides efficient after sales services with superior customer support in areas like
repairs, technical support and warranties services.
They manufacture their products in-house, thus reducing mishaps and poor quality
products from having their products manufactured by a third party for bringing new
products to the market.
The company owns its manufacturing facilities which are located in Taiwan and also
receives tax incentives from the Taiwanese government, but are slated to end in 2011.
The existence of cheaper labor also allows the company to keep its operating costs low.
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Garmin produces quality products which are ISO certified and further approved for use in
aviation by the FAA.
The company is lead by a well rounded and robust team of individuals that are well
versed in their specific field of expertise to champion the company’s values and
commitment to superior products.
WEAKNESSES
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GPS devices (inherent product weakness) are accurate to within 15 meters and certain
atmospheric and weather factors may affect the accuracy of GPS receivers.
GPS satellite systems are monitored and controlled by the U.S Department of Defense.
As such the company is not in complete control of the systems it relies on for its
products. This may limit potential buyers of their products especially foreign
governments that do not want to have another government collect sensitive data about
their countries.
The company is plagued a low sales cycle during the first half of the year compared to
the latter half of the year where there is a greater demand for their products. This is
related to a kind of seasonality where during spring, Summer and fall the company
experiences the highest demand for their products primarily because these are the
seasons where a lot more people decide to go on trips, holidays and do marine activity,
a time when GPS devices are needed/used the most.
OPPORTUNITIES
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Garmin has embarked on a brand awareness drive to increase its visibility in the world, especially
in Europe by sponsoring the English Premier League football club Middlesbrough, as well as a
cycling team Garmin-Slipstream to promote their products.
The GPS trend has caught on with many people and varying age groups. As such, there are
many applications for the technology which Garmin can continue to be the first mover or create
more uses and services for the technology.
The need for all in one devices and the shift by most electronic and manufacturing companies
gearing toward consolidated products and applications like in mobile phones with GPS devices
and complementary services.
With the progress made by google.com with its Google-Maps, street level pictures embedded into
the maps could be something that Garmin could capitalize/invest on.
THREATS
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There has been a whopping increase of new entrants in the user of personal navigation
devices which have been consolidated into mobile devices like the iphone and
Blackberry.
GPS satellites run the risk of becoming inoperable due to a decaying gravity of the
satellites as with time they will end up being pulled to the earth by the earth’s gravity.
There is a risk of market saturation of GPS devices because of their long life cycles and
usability, hence reducing non-recurring sales/revenues coming to the company.
Sources:
http://online.wsj.com/article/BT-CO-20090921-703769.html
http://www.techradar.com/news/portable-devices/satnav/us-says-gps-satellite-coverage-may-failsoon-599431
http://www.gpsbusinessnews.com/Garmin-to-sponsor-well-known-UK-football-clubMiddlesbrough_a278.html
http://www.kiplinger.com/columns/picks/archive/2007/pick0417.htm
http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=grmn
http://www8.garmin.com/aboutGarmin/invRelations/execBios.html?activeBranchId=investor
COMPETITIVE ANALYSIS:
Part 1:
PORTER’S FIVE FORCES:
(Measurement scale: Very Weak, Weak, Medium, Strong and Very Strong)
DEGREE OF RIVALRY/COMPETITION – Very Strong
Garmin’s main competition comes mainly from Tom-Tom with 25% market share while
Garmin holds 50% (Newsweek.com) of the Persona Navigation Device market (PND)
including GPS consumer products for automotive navigation. They also have stiff
competition from their aviation centered products from L-3 Avionics Systems and Rockwell
Collins. And lastly a new up and comer rivalry with Garmin are the mobile devices industry
that have incorporated low cost GPS navigation services into mobile phones and PDA’s
using 3G,EDGE and wireless internet technology as a base to download interactive maps.
For example the iPhone and Blackberry are the strongest competition as regards to their
personal GPS navigation line as GPS devices have proliferated the market. Garmin has
swiftly replied to this threat by releasing their own Nüvi mobile phone with downloaded
maps. To outperform its competitors, Garmin has to provide good quality products, bundle
services and add features that lend themselves to consumer satisfaction.
THREAT OF SUBSTITUTES - Weak
Garmin is at the fore front of providing directional information. The only substitute to the
GPS navigation system offered by Garmin are maps that are periodically updated, printed
and sold in local book and corner stores. The second is the use of online map and locations
services like (Google maps) maps.google.com and mapQuest.com where you can route a
journey and print it and follow the provided directions to your final destination. The reason as
to why the threat of substitutes is weak is because the GPS based technology has been
bundled with features like route mappings, frequently updated maps, voice turn by turn
command and location based services like; gas stations, weather information, traffic and
entertainment information. These bundled services give Garmin an edge over possible
substitute products and give consumers added value because of the convenience of added
services that they have at their finger tips.
SUPPLIERS POWER- Strong for data supplier and Weak for manufacturing
Garmin has a single supplier Navteq for its data to digital mapping services. There is only
one other possible supplier (Tele Atlas NV) for the same services but were out bided by rival
TomTom for their services. Thus, making Navteq a powerful supplier as bundled services
are what create the added value to Garmin products. The same is true in regards to a strong
supplier power when it comes to SiRF Technology Holdings, Inc. who as of 2005 provides
an architecture on which Garmin devices are built. (SiRF Architecture.)
On the other hand when it comes to suppliers for product components, Garmin has a select
number of suppliers that individually provide sub components to their factories. These
individual and separate suppliers with whom Garmin has arrangements for component
supplies do not have much power.
BUYER POWER - Medium
By the end of 2008, Best Buy accounted for 10% of Garmin’s total sales as per the 2008
Annual report. In the U.S consumer product sales channeled through Garmin’s network of
dealers and distributors. The following is a list of major consumers of Garmin products as
attained from company 2008 Annual Report;
• Best Buy—one of the largest U.S. and Canadian electronics retailers;
• Amazon.com—internet retailer;
• Costco—an international chain of membership warehouses that carry quality, brand name
merchandise;
• Halford’s—a large European retailer specializing in car parts and accessories;
• Petra—a large distributor who sells to such dealers as Costco and Amazon.com;
• Target— one of the nation’s largest general merchandise retailers;
• Wal-Mart—the world’s largest mass retailer; and
• Wynit—a large distributor who sells to such dealers as Radio Shack and Amazon.com.
And lastly, Garmin depends mainly on their automotive/mobile segment for 70% (2008
Annual report) of their revenues but because of the maturing nature of this segment of their
business, there is less growth.
BARRIERS TO ENTRY - Medium
First-mover companies like Garmin and its competitors like, “Cobra, Lowrance, Thales,
Navman, Raymarine, Mitac, TomTom, Honeywell, Dell, Hewlett-Packard, and PalmOne”,
have invested heavily in GPS technology based infrastructure and have intellectual property
rights protecting their businesses. Therefore it is it hard for a new entrant to enter the GPS
navigation market. This leaves new entrant the option of creating add-on services which can
be either sold to the GPS market competitors or as a way to stake a claim in this lucrative
industry.
It is however important to also note that there is vigorous price competition among the
competitors as gone are the days when TomTom and Garmin used to charge $500 dollar
based GPS navigation units. Today they have gone down to as much as $150 a unit and
that does not include the cheaper bundled GPS models bundled with mobile cellular devices
that have recently hit the market in the last 1 ½ years.
The telecommunications industry under which Garmin operates is heavily regulated by the
FCC, the same is true for the company’s operations in Europe where they also have to
abide by European regulations and have to get certified for each product they bring to
market. Thus, any loss in certification or delay in attaining these credentials may lead to loss
of market share. This too is a barrier to entering the industry.
Sources:
http://www.newsweek.com/id/68909
http://www.electronista.com/articles/08/01/30/garmin.nuviphone/
http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=grmn
http://www.abiresearch.com/press/1115GPS+Devices+and+Systems+Will+Generate+Revenues+of+%24240+Billion+by+2013
http://online.wsj.com/article/SB120027487946287479.html
http://www8.garmin.com/pressroom/corporate/083005.html
http://www8.garmin.com/aboutGarmin/invRelations/reports/10-K_2008.pdf
PEST Analysis
POLITICAL:
Garmin GPS devices, or any GPS device for that matter, are rendered useless without a
satellite system to support it. Global Navigation Satellite Systems (GNSS) is the standard
generic term for satellite navigation systems that provide autonomous geo-spatial positioning
with global coverage. 1
The United States currently has the only fully operational GNSS in the world, which is known as
the NAVSTAR Global Positioning System (GPS). The European Union is currently working on
the Galileo project, which would add a second fully operational system in 2013. Russia’s
GLONASS and China’s Beidou are similar GNSS efforts, but are not expected to be fully
deployed prior to 2013.2 Russia does have some satellites deployed and operational; however,
they are currently with restrictions.
The European Union has taken on the Galileo project because they feel it is necessary to have
an independent system upon which it can rely even in times of war or political disagreement. As
it presently stands, the United States and/or Russia could disable their access to GPS by
applying encryption. The United States has been very leery of the European Union’s initiative
out of fear that it would impede its military upper-hand. Through political channels, the US was
successful in having the EU leverage a different frequency for the Galileo positioning system.
By doing so, the jamming of this GNSS system would not affect the US system and they would
retain an advantage.3
What precipitated the desire to build Galileo was that the US satellites possessed something
called Selective Availability (SA) that allowed the US to intentionally render locations on the
GPS inaccurate. The EU felt that civil infrastructure using the GPS was vulnerable and,
therefore, an independent system was needed. By 2000, Bill Clinton had disabled SA and
indicated there was never any intent to use it. Satellites being launched no longer have SA
capability. 4
ECONOMIC:
While economic pressures have severely impacted consumer discretionary spending,
shipments of GPS-enabled cell phones will increase 6.4% from 2008. Shipment of GPS
handsets is expected to drop 4 – 5% in 2009. Based on a study performed by ABI Research
Services, the interest in GPS-enabled phones continues to rise. It is expected that 9 out of
every 10 smartphones will contain GPS capability by 2014, as compared to one in three in
2008. 5
The current economic crisis will likely last through the end of 2010, with some signs of recovery
throughout 2010. During this time, consumer discretionary spending will likely deteriorate
further. Recent news, published by Bloomberg on September 30, 2009, indicates the world’s
largest economy (US) shrank at a .7% annual rate from April through June, the best
performance in more than a year. 6
Europe’s economy contracted more than estimated in the second quarter as consumer
spending, investment and exports were weaker than earlier reported. 7
In late 2009, China announced an enormous fiscal stimulus package. Since then the Shanghai
Composite Index has rallied some 90 percent. While this could be perceived as an indication of
China’s economic turn-around, questions remain over their ability to sustain over the longerterm as the stimulus goes away.8
Given the current state of the economy and its volatility, businesses around the world are
concerned about the impact inflationary pressures could have on their businesses. Selling into
International markets results in exposure to movements in currency exchange rates. Additional
exposure exists with marketable securities that, as interest rates change, gains and losses
associated with those securities have an impact. Of course the cost of credit is another
significant concern, especially for those companies that rely heavily upon it to manage their
cash.
The following table provides a snapshot of the state of several major economies, as of
September 30, 2009:
Country
Interest
Growth
Inflation
Jobless
Exchange
Rate
Rate
Rate
Rate
Rate
U.S.
.25%
-3.8%
-1.5%
9.8%
77.0450
EU
1.00%
4.8%
-.20%
9.6%
1.4732
China
5.31%
7.9%
-1.2%
4.3%
6.8255
Source: http://www.tradingeconomics.com
SOCIAL:
According to the TelecomTimes Bureau, mobile navigation devices are seeing a gradual uptake
in 2009. By 2015, it is expected the number of subscribers will reach as many as 160
million. This represents a 33.7% compound annual growth rate. Trends show that the US
and Japan subscribers are opting for the mobile devices in large numbers, whereas the EU
is seeing a more gradual replacement of personal navigation devices. 9
Consumers are interested in carrying around one device, as opposed to multiple devices (e.g.,
one phone and one GPS device). This expectation from consumers will apply pressure
upon manufacturers to find new ways to differentiate or possibly form an alliance with a
phone manufacturer to join forces. In a survey done by three major cell phone
manufacturers, they found GPS was the feature their customers “most want to see” in their
next phone.
More than 40 percent of all smart-phone owners use their mobile devices to get turn-by-turn
directions, according to Compete, a web analytics firm. For iPhone users, that number is
more than double. As these phones enhance their GPS capabilities, it may likely squeeze
personal navigation device makers. In the article, they interviewed a 22-year old marketer
from New Jersey. He said “the simplicity of having one device and not needing to pull the
Garmin out of my glove compartment is enough,” he said. “I want to get into my car and do
as few things as possible. 10
One popular trend that has emerged is the sport of geocaching. Essentially, this is a high-tech
treasure hunt played across 100 countries in the world, including Antarctica. The game
works by people identifying hidden containers on a map and then searching to find the
container using their GPS-enabled device. Presently, there are over nine hundred thousand
geocaches all around the world and the sport is growing rapidly. Geocaching came to be
after the United States removed Selective Availability in 2000 and improved accuracy of
GPS positioning data. 11
TECHNOLOGICAL:
Although China is a large potential market for GPS manufacturers to sell their devices, there
were questions as to the state of their infrastructure back in 2007. In an article found in the
EETimes Asia, there was a lack of an industrial standard and supervision for GPS operations in
China. The perception was some operators were taking advantage of this situation and
cheating their users. The article recommended GPS operators establish contact with the
transportation administration department in China to address this concern and the desire for
policy support. 12 Since that time, China has made significant strides to address the
infrastructure short-comings. China and the European Union have joined forces to work toward
Information and Communications Technologies (ICT) standards. 13
More recently, there has been a somewhat concerning development brought to light by the US
Air Force. They are seeking comments from receiver manufacturers regarding an SVN-49
signal anomaly that is causing signal distortions. This involves the GPS IIR-20(M) spacecraft
launched in early 2009, but not yet operational. Due to the number of manufacturers, it is
impossible for the Air Force to work through this matter on their own. This brings to light the
vulnerability of Garmin’s product, as it is completely dependent upon properly functioning
satellites. Should anomalies like this impact its users, in all likelihood confidence in their brand
would be significantly affected without the average consumer being aware of the root of the
problem. 14
Sources:
1 http://en.wikipedia.org/wiki/Global_Navigation_Satellite_System
2. http://en.wikipedia.org/wiki/Global_Navigation_Satellite_System
3 http://en.wikipedia.org/wiki/Galileo_positioning_system
4 http://en.wikipedia.org/wiki/Galileo_positioning_system
5http://www.gpsworld.com/consumer-oem/news/gps-enabled-handsets-expected-bypasseconomic-downturn-3109
6. US Economy Shrank 0.7%
Published: 9/30/2009 9:46:54 AM By: TradingEconomics.com, Bloomberg
7. European Economy Contracts More Than Estimated
Published: 10/7/2009 9:45:19 AM By: TradingEconomics.com, Bloomberg
8. The Chinese Economy May Be Heading Into an Iceberg
Published: 7/30/2009 6:50:10 PM By: Anna Fedec, contact@tradingeconomics.com
9. http://www.telecomtiger.com/fullstory.aspx?passfrom=vasstory&storyid=7371
10. . http://ezinearticles.com/?The-Present-and-Future-of-GPS-Devices&id=1858530A
11. http://www.geocaching.com/
12. http://www.eetasia.com/ART_8800480860_499488_NT_8bbe4c58.HTM
13. http://www.ed.ac.uk/about/edinburgh-global/research/china-eu
14. http://www.gpsworld.com/gnss-system/receiver-design/news/air-force-polls-receivermakers-solutions-satellite-problems-8487
Financial Ratio Analysis Garmin Ltd (GRMN)
Garmin had fantastic growth year in FY07 in which it grew revenues 79%. In FY08 however
Garmin has grown revenue to $3.5B at a conservative 9% rate. FY08 was a challenging year
for Garmin which saw its profits rise slightly by 6% behind the 9% revenue growth but this was
misleading because its net income fell significantly as a percentage of revenue by 3% due
mainly to an increase in R&D, SG&A and COGS. Net Income fell to $732 million from $855
million in FY07.
Garmin has outperformed the S&P500 on profit margin but is only slightly trailing the industry by
1%. Total Profit margin for FY08 was 22% but decreased 5% from FY07. Return on Assets
has declined 1% and Return on Equity also declined 3% to 33% from 36%. Clearly the high
expectations and slowing economy have had an impact on Garmin’s capability to maintain this
level of performance.
Garmin has apparently not become more efficient as a result of its growth as evident by its
declining operating income and a decrease in inventory turnover capability (takes longer).
Inventory as a percentage of revenue has grown significantly which may either be a temporary
condition due to the slowing economy and missed forecasts or a lesser efficient model. The
Quick Ratio or “acid test” of Garmin’s financial health shows that Garmin has 3.8 times assets in
short-term investments (cash flow, A/R and short-term investments) versus liability. Cost of
Sales rose to 55% as a percentage of revenue which is up 2% from FY07. Likewise R&D rose
.9% to 5.9% as a percentage of revenue and SG&A rose 1% to 13% as a percentage of
revenue.
If we compare Garmin’s liquidity to Tom-Tom NV a $2.3B competitor, we find that Tom-Tom
carries much more debt and risk with a Current Ratio of .35. This means that Tom-Tom carries
.35 cents in assets for every $1 in liability compared to Garmin which carries $4 of assets to $1
liability. If Garmin were able to increase its inventory turnover even further and maximize its use
of cash store it may be able to put more pressure on a struggling competitor like Tom-Tom with
either a leveraged buy-out or increasing pricing pressure.
One area the company has improved upon is in decreasing the average days of A/R by
reducing a total of 38 days by moving A/R from 121 days to 83 days. The potential use of this
cash was offset by the increase in COGS.
Garmin is a healthy albeit not a fast-moving, aggressive, more efficient company financially over
the last 2 years. The current equity return and profit margin is above the S&P 500 average
however Garmin has to deal with managing costs as a percentage of revenue. Garmin carries
almost no risk to solvency and its ability to cover its liabilities as the Current Ratio shows it has
more than 4.5 times assets to liabilities. Garmin carries no debt which can be construed by
many investors as a lack of innovation, efficient use of capital, vision and capacity for
expansion. Garmin’s growth trend has slowed significantly and it will need to become more
efficient and expand its revenue base either through a better use of cash or a reduction of
inventory for a better return on capital.
1
Income Statement Garmin Ltd (GRMN) in thousands U.S. Dollars
PERIOD ENDING
27-Dec-08
29-Dec-07
30-Dec-06
Total Revenue
3,494,077
3,180,319
1,774,000
Cost of Revenue
1,940,562
1,717,064
891,614
Gross Profit
1,553,515
1,463,255
882,386
206,109
159,406
113,314
Operating Expenses
Research Development
1
Selling General and Administrative
485,389
396,498
214,513
Non Recurring
-
-
-
Others
-
-
-
Total Operating Expenses
-
-
-
862,017
907,351
554,559
Operating Income or Loss
Income from Continuing Operations
Total Other Income/Expenses Net
52,956
71,129
40,036
Earnings Before Interest And Taxes
914,973
978,480
594,595
607
207
41
Income Before Tax
914,366
978,273
594,554
Income Tax Expense
181,518
123,262
80,431
-
-
-
732,848
855,011
514,123
Discontinued Operations
-
-
-
Extraordinary Items
-
-
-
Effect Of Accounting Changes
-
-
-
Other Items
-
-
-
732,848
855,011
514,123
-
-
-
$732,848
$855,011
$514,123
Interest Expense
Minority Interest
Net Income From Continuing Ops
Non-recurring Events
Net Income
Preferred Stock And Other Adjustments
Net Income Applicable To Common Shares
Balance Sheet Garmin Ltd (GRMN)
27-Dec-08
29-Dec-07
30-Dec-06
Cash And Cash Equivalents
696,335
707,689
337,321
Short Term Investments
12,886
37,551
73,033
Net Receivables
791,146
1,059,889
459,520
PERIOD ENDING
Assets
Current Assets
Inventory
425,312
505,467
271,008
Other Current Assets
58,746
22,179
28,202
1,984,425
2,332,775
1,169,084
Long Term Investments
262,009
386,954
407,843
Property Plant and Equipment
445,252
374,147
250,988
-
-
-
230,954
196,030
67,580
-
-
-
1,941
1,554
1,525
-
-
-
2,924,581
3,291,460
1,897,020
479,176
801,883
337,682
Short/Current Long Term Debt
-
-
-
Other Current Liabilities
-
-
-
479,176
801,883
337,682
Long Term Debt
-
-
248
Other Liabilities
215,481
127,028
-
4,070
11,935
1,191
Minority Interest
-
-
-
Negative Goodwill
-
-
-
698,727
940,846
339,121
Misc Stocks Options Warrants
-
-
-
Redeemable Preferred Stock
-
-
-
Preferred Stock
-
-
-
Common Stock
1,002
1,086
1,082
2,262,503
2,171,134
1,478,654
Treasury Stock
-
-
-
Capital Surplus
-
132,264
83,438
Total Current Assets
Goodwill
Intangible Assets
Accumulated Amortization
Other Assets
Deferred Long Term Asset Charges
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Total Current Liabilities
Deferred Long Term Liability Charges
Total Liabilities
Stockholders' Equity
Retained Earnings
Other Stockholder Equity
Total Stockholder Equity
(37,651)
2,225,854
46,130
2,350,614
(5,275)
1,557,899
Net Tangible Assets
$1,994,900
$2,154,584
CCash Flow Garmin Ltd (GRMN)
All numbers in thousands
PERIOD ENDING
27-Dec-08
29-Dec-07
30-Dec-06
Net Income
732,848
855,011
514,123
64,037
44,475
Operating Activities, Cash Flows Provided By or Used In
Depreciation
78,417
Adjustments To Net Income
111,702
(2,554)
(3,076)
Changes In Accounts Receivables
206,101
(477,108)
(230,111)
Changes In Liabilities
(330,294)
484,238
136,459
Changes In Inventories
83,035
(224,180)
(95,658)
Changes In Other Operating Activities
(19,645)
(17,356)
(4,357)
Total Cash Flow From Operating Activities
862,164
682,088
361,855
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures
(119,623)
(156,777)
(92,906)
Investments
130,744
112,775
(93,772)
Other Cashflows from Investing Activities
(67,470)
(131,693)
(39,707)
Total Cash Flows From Investing Activities
(56,349)
(175,695)
(226,385)
(162,531)
(107,923)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid
(150,251)
Sale Purchase of Stock
(659,943)
Net Borrowings
-
Other Cash Flows from Financing Activities
2,143
Total Cash Flows From Financing Activities
(808,051)
Effect Of Exchange Rate Changes
Change In Cash and Cash Equivalents
Growth Rates %
Company Industry S&P 500
Sales (Qtr vs year ago qtr)
-26.60
-12.60
-9.10
Net Income (YTD vs YTD)
-47.90
-10.50
-5.00
Net Income (Qtr vs year ago qtr)
-36.80
-38.60
-11.30
Sales (5-Year Annual Avg.)
43.56
23.69
13.14
9,228
(248)
17,434
(136,117)
(34,376)
(11)
9,660
(132,650)
(9,118)
92
149
($11,354)
$370,368
$2,969
$1,490,319
Net Income (5-Year Annual Avg.)
32.62
18.72
12.74
Dividends (5-Year Annual Avg.)
24.57
3.18
11.70
Profit Margins %
Company Industry S&P 500
Gross Margin
45.1
46.8
38.1
Pre-Tax Margin
22.3
0.9
10.4
Net Profit Margin
17.8
5.1
7.1
5Yr Gross Margin (5-Year Avg.)
47.3
46.6
37.8
5Yr PreTax Margin (5-Year Avg.)
30.4
11.2
16.5
5Yr Net Profit Margin (5-Year Avg.)
25.6
8.5
11.5
Financial Condition Company Industry S&P 500
Debt/Equity Ratio
0.00
0.40
1.39
Current Ratio
4.5
3.3
1.5
Quick Ratio
3.8
2.5
1.2
Interest Coverage
21.4
61.6
23.4
Leverage Ratio
1.3
1.9
5.2
Book Value/Share
12.28
20.33
21.10
Investment Returns %
Company Industry
S&P 500
Return On Equity
22.6
9.7
15.7
Return On Assets
17.2
5.1
5.9
Return On Capital
20.9
6.4
8.2
Return On Equity (5-Year Avg.)
35.0
14.8
19.1
Return On Assets (5-Year Avg.)
27.4
7.8
7.9
Return On Capital (5-Year Avg.)
33.8
10.0
10.6
Management Efficiency
Company Industry
S&P 500
Income/Employee
60,469
19,667
56,806
Revenue/Employee
339,059
280,441
846,884
Receivable Turnover
5.0
5.7
13.1
Inventory Turnover
3.4
4.1
9.4
Asset Turnover
1.0
0.7
0.8
Critical Success Factors
1. Leverage use of cash and control expenses
Garmin has the strength afforded a company with significant assets and no long-term debt.
Garmin could put price pressure on smaller competitors by becoming even more efficient with
its own expenses and use of inventory and build up a stronger cash position in order to reduce
prices or use the cash for purchase into a marketplace through its competitors or incentives to
partners.
2. Diversify Product Line
The popularity of Smart phones and online mapping software is a risk to Garmin’s business
model as there will be less desire to purchase stand-alone navigation devices. Garmin must
either diversify its product line by selling IP or find a new way to partner with auto and boat
manufacturers. Of course Garmin could compete in the phone space as well either through
partnership, purchase or innovation. The risk is the margins of these businesses are typically
much less and have greater competition.
Garmin has sufficient cash to purchase its way into IP or the phone market either through
partnership with a phone manufacturer or buyout of smaller competitors that have valuable IP
such as TOM-TOM.
On Sep 9th, Garmin launched its Nuvifone with direct distribution with AT&T Inc according to the
Wall Street Journal. According to the Wall Street Journal, “the Nuviphone is Garmin’s entry into
the cellular phone market and is considered key to the company’s future. Cell phone carriers
have increasingly been chipping away at Garmin’s market, adding navigational features to the
phones.” “In February, Garmin said it was teaming up with Taiwan-based Asustek Computer
Inc. to develop and produce a cobranded line of feature-rich mobile phones.”
Sources
MSN Money. (2009, 10 6). Retrieved from http://www.msn.com:
http://moneycentral.msn.com/detail/stock_quote?Symbol=GRMN%2C
Press, A. (2009, September 9). http://online.wsj.com/article/SB12542356078994945. Retrieved
from The Wall Street Journal Online.