Garmin Looks Great, But …

Last month-end when Navteq (NYSE:NVT) reported a blistering Q2 results and subsequently started moving northward, the other notable GPS stock that too began rising was Garmin (NASDAQ: GRMN).

At first this rise seemed to be a bullish sentiment working in favor of GPS stocks across the board, but it soon became clear that GRMN too has a strong growth story to tell.

Its Q2/07 revenue stood at $742.47 million (+72% Y-o-Y) that translated to a net income of $214.38 million, the latter being nearly 42% that of the whole year 2006.

The GRMN management expects 2007 revenue to exceed $2.8 billion (+58%) surpassing earlier estimate of $2.5 billion. EPS too is expected to grow by at least 34% up to $3.15 a share exceeding earlier estimate of $2.70 per share.

What continues to drive GRMN’s fortune?

Garmin’s PND (Personal Navigation Device) products are making record sale in both US and European markets because of which the Q2/07 gross margin rose to 50.5%, which was way above what was thought it would be.

Based on sales trend, GRMN hopes that the PND segment will grow at least 80% for the whole year, up from earlier expectation of 50% that now looks distinctly modest.

As an example of GRMN’s PND products, the latest is the sleek, simple-to-use fitted-in-car nüvi 260 that automatically calls out street names as the driver negotiates the traffic thus eliminating the need to shift the gaze away from the road ahead.

nüvi 260 also has a built-in picture viewer, calculator, currency converter, unit converter and world clock – all rolled into one. Smells like a convergence device?

The new line of navigators are also compatible with GRMN’s line of rich content like the Garmin Travel Guide™ and Garmin SaversGuide®.

Strong PND sales notwithstanding, GRMN’s overall automotive sales, and the sales in the aviation and marine segment too maintained consistent growth through the last quarter, though not as high as the PND products.

It is therefore no surprise that the GRMN stock started scaling peaks as soon as the Q2 results were announced. It recorded a 52-week high of $105.75 on Aug 8.

GRMN exceeded many analysts’ prediction, and in one case the results proved just how off track some analysts were regarding its performance.

Considering that managements generally make conservative forecasts, perhaps it will not be wrong to assume that GRMN, the only GPS stock in the NASDAQ-100 Index with a market cap of ~$20 billion, has great days ahead.

There is one catch in this company’s future, however. That is a looming question mark over how the company navigates the convergence device trend, and manages to defend its PND position as Smartphones start to absorb PND functionality more and more. Anticipating this trend, Garmin has started making certain moved already. One such is releasing a $200 BlueTooth accessory that turns a smartphone into a GPS receiver. The question, however, is whether the Smartphone vendors need Garmin in the middle, as the era of hyper-integration marches forward, fully capable of absorbing a GPS chip into the folds of the rest.