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TiVo, Garmin Losing Their Luster

Posted on Wednesday, Jun 23rd 2010

TiVo (NASDAQ:TIVO) reported its fifth straight quarterly loss and received a disappointing ruling in its patent infringement case against EchoStar and Dish. This is a big setback for TiVo, which also has lawsuits against AT&T and Verizon. Garmin (NASDAQ:GRMN) is also losing out to the trend of integrating navigation applications in smartphones. Let’s take a closer look.

After a disappointing launch of nüvifone, Garmin, with annual revenue of $2.95 billion, is still pursuing its smartphone strategy by releaunching it with a new name, Garminfone. It will be available on T-Mobile, has a 3.5-inch capacitive touch screen, and will run on the Android OS. In the overcrowded and intensely competitive smartphone market, I don’t expect to see Garmin making any waves.

For the first quarter, Garmin reported revenue of $431 million, down 1% driven by a 15% decrease in automotive/mobile segment revenue. However, revenue from outdoor/fitness increased 28%, marine increased 9%, and aviation increased 12%. Net income was $37.3 million or $0.19 per share versus $48.5 million or $0.24 per share last year. Gross margin improved to 54% from 45% last year. The company bought back 1.4 million shares and ended the quarter with $1.3 billion in cash. It also announced its 2010 annual cash dividend of $1.50 per share representing a one-time increase from $0.75 per share. Q4 coverage is available here.

In April, Garmin announced the acquisition of Raymarine for £12.5 million ($19 million). Raymarine is a UK-based company that makes GPS navigation systems for leisure boats and recently reported net debt of £94.9 million ($139.79 million).

For 2010, the company expects revenue of $2.9 billion to $3.1 billion and EPS of $2.75 to $3.15. The stock is currently trading around $32 with market cap of about $6.3 billion. It hit a 52-week high of $40.47 on March 25.

Chart forGarmin Ltd. (GRMN)

Roger Cheng of the Wall Street Journal reports that the U.S. Patent and Trademark Office (USPTO), after a re-examination, recently ruled that TiVo’s patent claims over its “time-warp” digital video recorder technology were invalid. In March, a federal appeals court ruled that EchoStar and Dish infringed on TiVo’s patent and asked them to pay $300 million in damages. This new ruling could still result in these two companies paying damages to TiVo because there is a separate review of the patent infringement case that has leaned heavily in TiVo’s favor. However, it might affect TiVo’s negotiating position in its lawsuits with AT&T and Verizon.

All of these legal battles are eating into TiVo’s profitability. TiVo recently reported a first-quarter loss of $14.2 million or $0.13 per share versus loss of $3.9 million or $0.04 per share last year. Revenue was up $61.4 million, up 11.4% y-o-y but down 10.2% q-o-q.

Revenue has been on the decline in recent quarters because TiVo has had to stop recognizing customers who paid a one-time fee for lifetime service after a certain period. TiVo-owned subscription additions for the fiscal first quarter totaled 33,000, down from 37,000 last year. Total TiVo-owned subscriptions were 1.4 million.

TiVo expects a second-quarter loss of $17 million to $19 million. The stock is trading around $7.67 with market cap of about $886 million. It hit a 52-week high of $18.93 on April 26 and a 52-week low of $7.10 on June 9.

Chart forTiVo Inc. (TIVO)

As Steve Jobs puts it, “No one wants to buy a box – ask TiVo, ask Roku, ask us . . . ask Google in a few months . . . the only way that’s going to change is if you tear up the [box], give it a new [user interface], and get it in front of consumers in a way they’re going to want it.”

Innovation is the key, and both Garmin and TiVo need to reinvent themselves.

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