Can GPS Device Makers Find a Way Back from Irrelevance?
Sales of pure GPS hardware units -- as opposed to devices that run navigation apps in addition to other software and functionality -- have plummeted in the U.S., from a high of 18 million in 2009 to 7.5 million just three years later.
The main culprit is advances in technology. These days, a user of Apple (AAPL) iDevices, Nokia's (NOK) phones and tablets or basically anything that runs on Google's (GOOG) Android operating system has a built-in app or a wealth of navigation software to choose from. GPS apps are also usually far cheaper than a dedicated piece of hardware.
Not only that, but during the same time, GPS functionality made its way into the systems of automobiles, and once that segment was penetrated, there was no chance of a U-turn. These days, dashboard navigation -- typically bundled with apps to control other activities -- is a popular option in many car models.
In Need of a Compass
That's been a damaging trend for the companies in the GPS device business. One that leaps immediately to mind was once nearly synonymous with the technology: Garmin (GRMN).
Once upon a time, Garmin was an investor favorite, with its shares touching $123 apiece in September 2007. The good times didn't last. As the GPS market broadened and offerings became more plentiful and cheaper, Garmin got lost in the woods. In 2008, its stock bottomed out at less than $15 per share.
%VIRTUAL-article-sponsoredlinks%Since then, Garmin has made a bit of a comeback thanks to its continued involvement in specialty GPS segments. The company trades in the $50 range now. Most notably it's doing well in aviation, where it saw a 25 percent year-over-year gain in revenue this past Q4. It's also managed to capitalize on the trend for wearable fitness monitoring products, posting nice gains in that segment as well.
But neither is going to make Garmin a growth stock. In that quarter, aviation took in around $70 million and fitness a bit under $120 million, neither of which was a massive contributor to the firm's $760 million in total revenue.
Despite some share-price-boosting optimism lately -- not least because Citigroup (C) released a glowing analyst note on the company in March -- both top and bottom lines for the company in fiscal 2013 were down notably from 2009, Garmin's heyday.
Netherlands-based TomTom (TMOAF) -- loosely speaking, the Garmin of Europe -- has struggled for the same reasons. In the salad days of the last decade, its Nasdaq-traded stock nearly touched $30 per share; these days, it can be had for less than $7. Like Garmin, TomTom has struggled to broaden its product range with popular offerings -- a line of GPS-packed sports watches the company launched last year, for example, brings in only a fraction of the company's total revenue.
Speaking of revenue, the top lines from three of the company's four business units were down notably in fiscal 2013. Only its telematics division saw a significant year-over-year increase during the year, growing by 16 percent to 85 million euros ($118 million).
That's encouraging, but the division (essentially, TomTom's products for businesses) is the smallest out of the four, taking in less than 7 percent of total revenue in 2013.
In a sense, both Garmin and TomTom have fallen victim to a classic cycle in business. They stood atop a specialty market, and profited handsomely from their niche, but are now fighting to stay relevant now that their core offerings are essentially commodity goods.
These days, you can find GPS functionality built into your cellphone, tablet, and the dashboard of your car. Who needs a dedicated device anymore?
Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool owns shares of Apple, Citigroup and Google (A and C shares). Try any of our newsletter services free for 30 days.