Update on GRMN and Long Term Outlook

The selling is abating on Garmin's stock, but no tutes are stepping into buy with enthusiasm yet, so the shake out will definitely take us into Friday's jobs report, at a minimum. The shorts have the field and have no reason to cover. Until someone steps up, it is shooting fish in a barrel for shorts. I have a another round of "stink bid" buys in at $95.00.

However, I continue to firmly believe that the longer term implication for Garmin as a result of the Nokia/Navteq merger is minimal as an event. As a trend, which investors have known about for years, a technology move is afoot to converge devices. While in many markets, dedicated use devices can coexist with converged devices (e.g. music players and digital cameras), in some cases (e.g. PDAs) they do not survive as a standalone device category.

So where does that leave Garmin? During their conference call, Nokia and Navteq went out of their way to emphasize the continued independence of Navteq stating that “Nokia will operate on the same terms as all Navteq customers.” This was one of the main concerns from the TomTom-Tele Atlas deal which Nokia has wisely attempted to address upfront. With Garmin representing 20% of Nokia's business, and with a re-newed anti-trust interest in Europe, it is my belief that the short term outlook is business as usual. Therefore, with quarterly earnings and upward guidance a possibility going into Christmas, Garmin should be hitting new highs again shortly. While the chart took severe damage, with a stock this liquid and well covered, it won't take months for GRMN to get back it's mojo.

In addition, there will probably not be a significant impact on the installed vehicle navigation business due to the long product cycles in the vehicle market. However, with the competition from other Personal Navigation Devices, and increasingly handsets, this could present increased challenges longer term. While this acquisition means increased competition and reduced supply of a key component, it is also a major vote of confidence in a nascent market (all news is good news as companies expand the market).

So what about the long term? Eventually, handset- and vehicle-based applications and services will likely inter-operate as demonstrated by the prior evolution of other mobile services such as Bluetooth, iPod interfaces and integrated services (e,g. Ford’s Sync platform) thereby posing a threat to Garmin. The Personal Navigation Device industry, however, is healthy with strong growth in sales and cash flow, providing the means to transform the business and capture additional revenue beyond pure device sales which are likely to continue commoditizing.

Adding connectivity is a good first step, but not enough without relevant, fresh, geospatially organized content. The entire technology sector is moving towards a location-based context. Location will continue to be a key component in search, navigation, photos, videos, etc. This should present major opportunities for Garmin.

The real story is that the Nokia/Navteq merger puts Nokia, Microsoft, and Google on another collision path as Google’s MyMaps and Google Earth/Sketchup initiatives and MicroSoft's Virtual Earth are these firms attempts at becoming the platform of choice for geospatial web content generation and distribution. It also brings Apple, RIMM and other handset makers into play as these firms look for best-of breed partners to continue handset device application conversion. Garmin can and probably will be a major player there.

The map data is important to a lot more players besides Garmin. It will have to continue to be made available. I trust Garmin to respond. They see the integration happening and they themselves may be an acquisition target.