TEAM B “Synergy” ” (Scott, Irene, April, Simplicious) Garmin Capstone Project Update 10/ 15 15 19 – word count 3818 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:.............................................................7 PEST Analysis......................................................... 9 POLITICAL:...........................................................9 ECONOMIC:............................................................9 SOCIAL:.............................................................10 TECHNOLOGICAL:......................................................11 Sources:............................................................11 Financial Ratio Analysis Garmin Ltd (GRMN)...........................11 Balance Sheet.......................................................13 CCash Flow..........................................................15 Critical Success Factors............................................. 17
Transcript
TEAM B “Synergy”” (Scott, Irene, April, Simplicious)
Garmin Capstone Project Update 10/151519 – word count 3818
ContentsGarmin Company Description........................................................................................................................1
Other Sources:...........................................................................................................................................5
PEST Analysis..................................................................................................................................................9
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.1
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 is 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.2
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. 3 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, thetTh company went from a handful of employees in 1989 to 7,000 in 2007. The company is of the mindset thattheir 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 making them easy to use, intuitive and to simple to navigate in order to meet theirtheirto the end of one objective 4 – 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 navigation software and selling sells the product for use on laptop computers. Most recently, Garmin announced they are launching athe launch of their new smart-phone, the nüvifone, “Nuvi” phone. Theyplan to partner with an exclusive wireless telephone companycompany when they become becomeavailable for purchase that is intended to compete with smartphones on the market. 5
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Sources:1 Garmin Company: About Us (2009).Retrieved September 25, 2009, from Garmin Website:**http://www8.garmin.com/aboutGarmin**2 Garmin Culture: Stories from the Inside (2009).Retrieved September 25, 2009, from Garmin Website:http://www8.garmin.com/careers/culture.html?activeBranchId=careers3 Wikipedia - The Free Encyclopedia: Garmin (Sept 18, 2009).Retrieved September 25, 2009, from Wikipedia Website: http://en.wikipedia.org/wiki/Garmin4 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.html5 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. The market for stand-alone GPS devices is fast- growing and increasingly competitive as multi-capability devices, such as smartphones, are gaining market share. 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
April Eubanks, 10/15/09,
deleted the this graph b/c it doesn’t really speak to Garmin’s innovation.
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.
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. Most recently, Garmin announced the release of the nüvifone product line. With the nüvifone, Garmin will be and competing with mobile phone manufacturers. The company’s value proposition is to integrateintegrate navigationThe navigation into is integrated into the nüvifone mobile phone, making asit a prominent feature rather than an after-thought. There is a concern among analysts that the nüvifone could cannibalize Garmin’s existing product lines.
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. This stride comes with 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.
According to Pricegrabber.com O-- of the top ten 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. In 2008, Being the main manufacturer on this list, Garmin’s GPS products had an asold for an average ofverage price of $467. Non NonOverall, the non-Garmin GPS products on the list had an average price of $307, priced 34% lower than Garmin GPS products. (Pricegrabber, 2008)
Garmin ranks ranked highest in a list of average price ranges for all GPS products by manufacturer: $500 average price range - Garmin $400 average price range - TomTom, Magellan, and Lowrance $200 average price range - Mio and ViaMichelin
Garmin
Garmin employs a niche product pricing strategy because the standalone GPS market is still considered a niche market. Though Garmin’s pricing is geared toward the higher-income consumer, 70% of the most popular GPS products listed are Garmin products.pricing strategystrategy matches the overall impression of the GPS market which is still considered a niche market. Although Garmi. Although Garmin reaches the high-end consumer, offering GPS products in the average price range of $500,, 70% of the most popular GPS productslisted are Garmin products.
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 -- adversely
affecting their market share. Garmin recently benefited from lower input costs affecting their ability to remain competitively priced. (Pricegrabber, 2008)
PlacePlacePlace
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 many original equipment manufacturers. The consumer product distributors of the company include automotive OEMs giants such as Chrysler/Mopar, Toyota, Harley-Davidson, BMW Motorrad, and Honda Motorcycle.
In 2008, Stan Brajer, director of fitness sales and marketing for Garmin, announced that they wanted to focus more on specialty markets as part of their goal to win back independent bicycle dealers. (Norman, 2009)
GarminGarmin’s has developed a strong distribution network withincludes that includes over 3,000+ independent dealers, including many ofand 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 diminishes d 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 In 2008, Garmin’s strategy also includedincludedthey became 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-of-purchase 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 cycling-specific 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)
The company's focus on marketing its brand and products focusesis on increased consumer awareness of the Garmin name. Efforts include typical media placements (periodical ad space, billboard, radio)
Cited Sources:
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/gpshttp://finance.yahoo.com/q?s=GRMNhttp://www.garmin.comhttp://www10.giscafe.com/nbc/articles/view_article.php?articleid=493609http://www.gpslodge.comhttp://www.mobilewhack.com/garmin-and-tomtom-sold-over-10-million-pnds-in-2007/http://www.tomtom.com
SWOT ANALYSISSTRENGTHSSTRENGTHS
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 targettargetfor high growth markets.
Provides efficient after sales services with and superior customer support in areas like repairs, technical support and warranties services.
They manufacturemanufactureManufacturing their products in-house, thus reducingreducingreduces mishaps and poor ensures 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 cheapercCheaper labor also allows the company to keep its operating costs low.
Garmin produces quality products whichwhichproducts that are ISO certified and further approved for use in aviation by the FAA.
The company is leadA robust team of subject matter experts in their respective fields champion The company is leadcorporate growth and commitment to quality. 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
GPS devices (inherent product weakness) are accurate to within 15 meters and certain atmospheric and weather factors may affect thetheir accuracy of GPS receivers.
GPS satellitesatellites 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, potentially limiting potentialsales to certain clients (i.e. 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 aEndures a low sales cycle during the first half of the year year compared to theversus the latter half of the year where there is a greater demand for their products. This is related to a as consumers plan annual 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 and do marine activity, a time when GPS devices are needed/used the most.
OPPORTUNITIES
Garmin has embarked on aaA brand awareness drive to increase its visibility in the world, especially in Europe by they sponsoring sponsored the English Premier League football club at Middlesbrough , as well as aasand a “Garmin-Slipstream” cycling team Garmin-Slipstream to promote their products.
The GPS trendThe use of GPS technology withintrend has caught on with many people and varying age groups. is rising and . As such, there are many increased opportunities to provide cutting-edge applications for of 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 provides continued opportunity.
Garmin could capitalize/invest With in the progress technology made bybyof applications such as google.com with its Google-Maps such as , street- level pictures embedded into the maps could be something thatthatimages and specialty routing options Garmin could capitalize/invest on.
THREATS
S There has been a whopping increaseiIncrease of new entrants in the user of offering personal
navigation devices which have been consolidated into mobile devices like the iphone iPhone and Blackberry.
GPS satellites run the risk ofofmay becoming become inoperable due to a decaying gravity; over of the satellites as with timetimetime, they will end up beingbeingbe pulled to the earth by the earth’s gravityearth’sinto Earth’s atmospheregravity.
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.
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 primary competitor is 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 centeredaviation-centered products from L-3 Avionics Systems and Rockwell Collins. And lastly a new up and comer. Another source of rivalry with Garmin areis the mobile devices industry that have has 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 exampleexample theThe 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 ownthe Nüvi nüvimobile 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 frontfrontforefront 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 (i.e.like; gas stations, weather information, traffic and entertainment information.). These bundled services give Garmin an edge over possible substitute products and give consumers added valueaddegreater d valuebenefit 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 whenIn respect to it comes to suppliers for product components, Garmin has a select number of suppliers that individually provide sub components to their factories. TheseThe individual and separate suppliers with whom Garmin has arrangements for component supplies do not have much little 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 majormMajor consumers ofretailers carryingof Garmin products as attained from company(Garmin, 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. (Garmin, 2008 Annual report)
BARRIERS TO ENTRY - Medium
First-mover companies like Garmin and its competitors like, (i.e. “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. making it difficult for new entrants. This leaves new entrant nNew entrants stake claim by creating the option of creating add-on services whichwhichservices can be either soldsoldsold either to the GPS market competitors or as a way to stake a claim in this lucrative industry.
It is however important toimportant 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 Garmin has 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 bybyare subject to European regulations and have to get and certified certification 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/68909http://www.electronista.com/articles/08/01/30/garmin.nuviphone/http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=grmnhttp://www.abiresearch.com/press/1115-GPS+Devices+and+Systems+Will+Generate+Revenues+of+%24240+Billion+by+2013http://online.wsj.com/article/SB120027487946287479.htmlhttp://www8.garmin.com/pressroom/corporate/083005.htmlhttp://www8.garmin.com/aboutGarmin/invRelations/reports/10-K_2008.pdf
PEST Analysis
POLITICAL:Garmin GPS devices, or any GPS devicedevices 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 Currently, the United States currently has the only fully operationaloperationaloperational 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 expected to launch in 2013. Russia’s GLONASS and China’s Beidou are working on their own projects, but won’t deploy until after 2013similar GNSSsimilar GNSS Galileo efforts, but are not expected to be fully deployed prior to 2013.2 At this time, Russia does have somehas some satellites deployed and operational; however, they are currently with restrictions.
The European Union (EU) has taken on thebegan the Galileo project projectdeveloped GNSS because they feelltfeel it is necessary to have an independent system upon which it canthey can rely on even in times of war or political disagreement. As it presently standsstandsPresently, the United States and/or Russia could disable their accessaccessEU’s toaccess to GPS by applyingapplyingthrough encryption on their satellites The US was successful in its request that the EU leverage a different frequency for Galileo GPS. By doing so, the jamming of this GNSS system would not affect the US system and they would retain an advantage.3 . The United States has been very leeryleery of the European Union’sUnion initiative out of fear that it would impedeimpede its military positiony upper-handhand. Through political channels, the ultimately convinced the European Union to use a US was successfulin having the EU leverage a different frequency for the Galileo positioning systemsystem. By doing so, the the US could still jam its jamming of this GNSS GPS system would not affect the US system and they would retain an advantage.3
Until 2000, the U.S. could use a capability on the satellites called Selective Availability (SA), which essentially allowed them to render locations retrieved as completely inaccurate. 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 In 2000, Bill Clinton had disabled SA and indicated there was never any intent to use it. Satellites and committed that future satellites wouldn’t have SA capabilitybeingbeing launched no longer have SA capability. .4
ECONOMIC:While economic pressures have severely impactedimpactedaffected 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 99nine out of every 10 smartphones will contain GPS capability by 2014, as compared to one in three in 2008. 5 Shipment of GPS handsets, though, is expected to drop 4 to– 5% in 2009. 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 was, 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, q Despite this fact, questions remain over their ability to sustain over the longer-term as the stimulus goes away.8
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 longer-term 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 tThe 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 theThe state of several major economies, as of September 30, 2009:
China 5.31% 7.9% -1.2% 4.3% 6.8255 Source: http://www.tradingeconomics.com
SOCIAL:
According to the TelecomTimesTelecom Times Bureau reports , mobile Mobile navigation devices are seeing a gradual uptake in 2009. ByBthat by 2015, it isisthe expected the number of GPS subscribers will reach as many as reach 160 million -- . This represents a 33.7% compound annual growth rate. Trends show that the USU.S. 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). More . 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 forcesmanufacturerforces. 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. 10 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 may continue tolikely squeezepressurelikely squeeze personal navigation device makers. In the article, they interviewed a 22-year old marketer from New Jersey. He One person interviewed recently, summed up the general sentiment when he said, “the
who . He saidsaid, “theThe 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 worldworld 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, makers, 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.comingsshortcomings. China and the European Union have joined forces to work toward Information and Communicationsand Communications Technologies (ICT) standards. 1 1 313
More recently, there has been a somewhat concerning development brought to light by theOf additional concern, the US Air Force. They are seeking is 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 thethehighlights a vulnerability of Garmin’s product, as it is completely dependent upon properly functioning satellites. Should These anomalies like thisthiscould impact its users, and brand in all likelihood confidence in their brandGarminbrand would be significantly affected without the average consumer being aware of the root of the problem. 1 2 414
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 alsoalsoEquity declined 3% to 33% from 36%. ClearlyClearlyClearly, 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 resultresultbecause 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 whichrevenue, which is up 2% from FY07. Likewise LikewiseLikewise, 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 whichGarmin, 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 howeverhoweverhowever, 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 whichwhichdebt, 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.
See Appendix for financial statements and charts.
Critical Success Factors
1. Leverage use of cash and control expensesGarmin 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 LineThe 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 nüvifone with direct distribution with AT&T Inc according to the Wall Street Journal. According to the Wall Street Journal, “the nüvifone 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.”
APPENDIX
1Income 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
Operating Expenses
Research Development 206,109 159,406 113,314
Selling General and Administrative 485,389 396,498 214,513
Non Recurring - - -
Others - - -
Total Operating Expenses - - -
Operating Income or Loss 862,017 907,351 554,559
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
Interest Expense 607 207 41
Income Before Tax 914,366 978,273 594,554
Income Tax Expense 181,518 123,262 80,431
Minority Interest - - -
Net Income From Continuing Ops 732,848 855,011 514,123
Non-recurring Events
Discontinued Operations - - -
Extraordinary Items - - -
Effect Of Accounting Changes - - -
Other Items - - -
Net Income 732,848 855,011 514,123
Preferred Stock And Other Adjustments - - -
Net Income Applicable To Common Shares $732,848 $855,011 $514,123
1
Balance Sheet Garmin Ltd (GRMN)
PERIOD ENDING
27-Dec-08 29-Dec-07 30-Dec-06
Assets
Current Assets
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
Inventory 425,312 505,467 271,008
Other Current Assets 58,746 22,179 28,202
Total Current Assets 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
Goodwill - - -
Intangible Assets 230,954 196,030 67,580
Accumulated Amortization - - -
Other Assets 1,941 1,554 1,525
Deferred Long Term Asset Charges - - -
Total Assets 2,924,581 3,291,460 1,897,020
Liabilities
Current Liabilities
Accounts Payable 479,176 801,883 337,682
Short/Current Long Term Debt - - -
Other Current Liabilities - - -
Total Current Liabilities 479,176 801,883 337,682
Long Term Debt - - 248
Other Liabilities 215,481 127,028 -
Deferred Long Term Liability Charges 4,070 11,935 1,191
Minority Interest - - -
Negative Goodwill - - -
Total Liabilities 698,727 940,846 339,121
Stockholders' Equity
Stockholders' Equity
Misc Stocks Options Warrants - - -
Redeemable Preferred Stock - - -
Preferred Stock - - -
Common Stock 1,002 1,086 1,082
Retained Earnings 2,262,503 2,171,134 1,478,654
Treasury Stock - - -
Capital Surplus - 132,264 83,438
Other Stockholder Equity (37,651) 46,130 (5,275)
Total Stockholder Equity 2,225,854 2,350,614 1,557,899
Net Tangible Assets $1,994,900 $2,154,584 $1,490,319
CCash Flow Garmin Ltd (GRMN)
All numbers in thousands
CCash Flow Garmin Ltd (GRMN)
PERIOD ENDING 27-Dec-08 29-Dec-07 30-Dec-06
Net Income 732,848 855,011 514,123
Operating Activities, Cash Flows Provided By or Used In
Depreciation 78,417 64,037 44,475
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)
Financing Activities, Cash Flows Provided By or Used In
Dividends Paid (150,251) (162,531) (107,923)
Sale Purchase of Stock (659,943) 9,228 (34,376)
Net Borrowings - (248) (11)
Other Cash Flows from Financing Activities 2,143 17,434 9,660
Total Cash Flows From Financing Activities (808,051) (136,117) (132,650)
Effect Of Exchange Rate Changes (9,118) 92 149
Change In Cash and Cash Equivalents ($11,354) $370,368 $2,969
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
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
SOURCES
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.”
SourcesMSN 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.Corporate Overview 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 & Marketing Strategy Cited Sources: 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,
