By Purwa Naveen Raman
BANGALORE (Reuters) - Garmin Ltd posted weak second-quarter results and slashed its outlook for 2008, hurt by slower growth in the personal navigation device (PND) market, and delayed the launch of its smartphone, sending its shares down more than 22 percent.
The biggest U.S. maker of navigation devices said the PND market, which it dominates with Dutch rival TomTom, has not been growing as fast as it had expected and said consumers were being more cost-conscious than ever.
The outlook cut comes during a tough year for Garmin, as macroeconomic woes, intense competition and several new entrants have weighed on its prices and margins. The stock has lost 70 percent of its value since last October.
"Most of the Street was expecting a less brutal cut for the full year, and part of the fact is that Garmin has taken the nuvifone (its planned smartphone) out of its earnings model," Oppenheimer & Co analyst Yair Reiner said by phone.
Garmin continues to expect PND prices to drop about 25 percent during 2008, partially offset by cost reductions of about 20 percent in raw materials, the company said on a conference call.
For 2008, Garmin sees earnings of $4.13 a share, before items, on revenue of $3.9 billion. It previously expected profit to exceed $4.40 a share on revenue of more than $4.5 billion.
The nuvifone delay accounted for about $100 million of the revenue cut, a company executive said in a conference call.
"I think really what we're talking about here is maybe as much as $100 million of the $600 million that we dropped," a company executive said on a conference call.Analysts were expecting earnings of $4.03, before items, on revenue of $4.13 billion, according to Reuters Estimates.
PND margins are expected to fall further during the second half of 2008, dropping to the mid-30 percent range later this year from 39 percent in the second quarter.
"But when you turn to 2009, the other three segments outside auto/mobile will start growing faster, and those businesses have better gross margins," Reiner said. He has a "perform" rating on the stock.
Standard & Poor's Equity Research reduced its price target on Garmin by $21 to $54. However, it maintained its "strong buy" rating on the stock.
NUVIFONE DELAYED AGAIN
Garmin has further delayed the launch of its smartphone, called the nuvifone, to the first half of 2009, saying meeting some of the carrier-specific requirements will take longer than anticipated.
The company has not yet disclosed pricing and carrier details for the nuvifone, which will compete against Research In Motion's BlackBerry Pearl 8110, Nokia's N95 and N82 multimedia phones and Apple's iPhone.
There has been market chatter that Garmin was talking to AT&T , Reiner said, adding that the only other potential candidate for Garmin in the United States would have been T-Mobile
In the conference call, the company said it expects to make carrier announcements in 2009.The company has now pushed back the launch twice in the last three months. Its initial plan was to launch the nuvifone in the third quarter.
"I have a feeling that if Garmin loses confidence in its ability to sell at least a million phones in 2009, it may decide to exit the (wireless) market," Reiner said.
WEAK SECOND QUARTER
The company posted a quarterly profit of $256.1 million, or $1.19 a share, compared with $214.4 million, or 98 cents a share, a year ago.
Excluding items, it earned 92 cents a share, missing analysts' average estimate of $1.01 a share, according to Reuters data.
Sales growth slowed to 23 percent from a scorching pace of 72 percent a year earlier, as more companies offer products at lower prices.
Sales were $911.7 million, short of analysts' projection of $955.6 million.
Garmin recorded a favorable foreign currency translation of $21.6 million during the latest quarter, as opposed to a loss of $6.1 million a year ago.
Overall gross margins in the second quarter were 45.8 percent, down from 50.5 percent a year earlier.Garmin stock was down $9.08 at $35.98 in afternoon trade, making it one of the top 10 percentage losers on Nasdaq. Earlier it touched $35.10, its lowest level since March 2006.
TomTom shares closed down more than 2 percent at 15.00 euros on the Amsterdam exchange.
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