TomTom vs. Garmin.

The highlight of today was the tanking of Garmin. GRMN lost some 21% in value. It now trades at $35 and change. A lot lower than $125 that it hit in Nov 2007, and financially, their numbers were better than ever! So, what is it that caused GRMN to be worth 21% less today than it was yesterday ? In a word, NuviPhone - their fancy gizmo phone with GPS built in. In my opinion, it is not a good idea - why? It is because most phones can do some form of GPS already - be it using a proper SIRF chip to receive GPS coordinates from satellites, or whether the phone just "triangulates" from the Cell towers it can "talk" to. The iPhone has GPS built-in [the software will get better in a hurry].

Let's compare GRMN and TMOAF [Q2 2008 only] vs Q2 2007.
a. Gross margins. Tom2 had gross margins of 46%. Garmin, 45%. Add TeleAtlas, and Tom2 actually had gross margins of 50%. As TeleAtlas' market penetration improves, Tom2's margins will improve. Garmin's gross margins were 50% in 2007 and Tom2's were 54% [pro-forma including TeleAtlas]. From now on, all numbers will include TeleAtlas.
b. Sales. GRMN had sales of 912M and Tom2's sales were 485M Euros = $776M. Garmin's PND sales were $751M [I included auto and personal/fitness and excluded marine/aviation].

Conclusions:
1. TomTom's profit margins on PND's [85% of sales] is far superior to Garmin's gross margins on PND's. Tom2's gross margins on PND's was 42%, and for GRMN, it is 23.3% [I calculated the 23.3% from GRMN's earnings report [175M/751M].
2. TomTom owns TeleAtlas which has 85% gross margins, a heady growth rate, and an agreement to sell maps to Google for at least 5 more years.
3. Garmin looks cheaper on a PE basis alone, but that is mostly due to the fact that Tom2 has to amortize their purchase of TeleAtlas.

Bottom-line: I prefer TomTom for the simple reason that they own TeleAtlas, and that gives them an economic moat that Garmin will never have.

Bapcha
References: TomTom, Garmin, Published earnings reports.