Garmin Beats, Secular Pressure Remains (GRMN, GOOG, NOK, AAPL, TNAV)

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Garmin Ltd. (NASDAQ: GRMN) is still in this fight for perpetual relevance after earnings now that there is so much new competition that is free or close to free that competes against the Garmin navigation systems.  The good news is that shares are higher after it beat estimates on revenue growth in all segments and regions.  Adjusted earnings were $0.85 and revenues were up 9% to $728.8 million.  Thomson Reuters had estimates of $0.73 EPS and $676.83 million in revenues.  The problem lies in the guidance from the company for 2010 and the ongoing secular-trend issues of endless competition from Google Inc. (NASDAQ: GOOG), Nokia Corp. (NYSE: NOK), Apple Inc. (NASDAQ: AAPL) and that recent dog of an IPO called TeleNav, Inc. (NASDAQ: TNAV).

Garmin’s gross margin was 54% versus 53% a year ago.  Net income after items was down to $134.8 million from $161.9 million a year ago.  The PND segment showed a 2% growth in the last quarter, while its outdoor/fitness unit grew by 32% and the marine unit gained by 23%.

The 2010 guidance is being negatively affected by unfavorable currency effects and what the company called a slight decline at its personal navigation device segment.  Garmin sees revenues in a range of $2.8 to $3 billion, down from a prior projection earlier this year of $2.9 to $3.1 billion.  The new guidance is still within line of the Thomson Reuters estimate of $2.88 billion.  Earnings were put in a range of $2.75 to $3.15 EPS, which is compared to Thomson Reuters’ estimates of $2.91 EPS.

While 2011 guidance is not offered, analysts are expecting contraction here as estimates are $2.73 EPS and $2.82 billion in revenues.

Garmin faces continued pressure against competition, something which is only getting more and more of the case through time.  TomTom may not be as much of a threat as before, but Google Inc. (NASDAQ: GOOG) and Nokia Corp. (NYSE: NOK) offer free navigation on smartphones.  Apple Inc. (NASDAQ: AAPL) is also being used for its maps despite the mapping service not being in the same caliber.  TeleNav, Inc. (NASDAQ: TNAV) also offers personal navigation through phones, although its disclosures with recent earnings about its largest customer (Sprint) leave the feeling that the company is not exactly a Garmin-killer.

Sales of Garmin’s own smartphone (Nuvi) product category contributed only $27 million in revenue during the quarter. Those products have been on the market for a very short period time.  The problem is that there are very few of those phones being sought after in a world of BlackBerry, Droid, and iPhones.

Garmin is not a story of a company that cannot meet its estimates.  This is just an issue where the field is changing and cheaper and nearly free alternatives are becoming available that will act as a case of ongoing secular competition.

Garmin was already braced for a report less than what we got as shares were down about 20% over the last three months.  Shares opened up at $30.35 after a $29.35 close yesterday, but now shares are trading up 1.35% at $29.75 right after the open.  The 52-week range is $26.54 to $40.47.

JON C. OGG

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