Garmin forecast a grim year ahead as it grapples with the relentless decline of its once popular personal navigation devices and looks for ways to make them more appealing to customers, who are favoring free navigation apps on their smartphones and tablets.
Shares of the No.1 U.S. navigation device maker fell as much as 5 percent to $30.10 on Wednesday morning, after the company forecast full-year profit below estimates. Arch rival TomTom's shares were trading slightly down at 3.0430 euros on the Amsterdam Stock Exchange.
Garmin and TomTom have been struggling to fend off competition from Google Inc and Nokia, which offer free navigation on mobile devices.
Last month, TomTom posted a second-quarter net loss, after booking a big impairment charge to reflect the dismal sales outlook for its personal navigation devices.
To offset the slump in demand, Garmin has been bundling its personal navigation devices (PNDs) with high-margin live traffic and mapping services.
However, this move is coming at a cost as the company is not able to recognize the revenue from the added services up front, denting its margins.
This means that there is a piece of revenue and profit that basically Garmin has already won and got the cash for, but can't show on their profit & loss account until all that service has been rendered, Oppenheimer analyst Yair Reiner said.
Garmin began facing this issue two quarters ago when it first started shipping large quantities of PNDs with embedded lifetime traffic and it is going to hurt them going forward, Reiner said.
Switzerland-based Garmin forecast adjusted earnings of $2.00-$2.15 a share, on revenue of $2.5-$2.6 billion for the full year.
Analysts, on average, were expecting the GPS device maker to report earnings of $2.48 per share, before items, on revenue of $2.52 billion, according to Thomson Reuters I/B/E/S.
The real disappointment was with the bottom line and the main driver for that weakness was unusually weak profitability for the PND segment, Reiner said.
In the latest quarter, Garmin's core segment that makes PNDs for cars and mobile devices saw revenue fall 19 percent to $363 million, while its fitness segment that makes navigation equipment for runners, cyclers and golfers saw revenue rise 25 percent to $78 million.
(Reporting by Supantha Mukherjee in Bangalore; Editing by Viraj Nair)