Key Players in the GPS Market
Here are the players, their business and where they sit in the GPS cycle...
I've recently posted a number of buzzes regarding the Global Positioning System names – Garmin (GRMN), Navteq (NVT), and Sirf Tech. (SIRF) specifically. There are three primary reasons I like this group:
1) We are dealing with an absolutely gigantic and unpenetrated end market: your basic car GPS, the portable GPS, marine GPS, recreational devices (for running, biking, etc.), avionics navigation; sight survey, engineering and construction; mobile location services for wireless devices; mobile logistic solutions for transportation; etc., etc.
2) The bulk of the services enabled by GPS systems are absolutely necessary for other companies to continue adding to productivity and gross margins; and the services that are not necessary, are still so useful that people are willing to pay up for them.
3) There are a limited number of companies addressing this industry.
Here are the players, their business and where they sit in the GPS cycle:
Sirf Tech (SIRF): It is the semiconductor supplier for most of the gadgets, regardless of the manufacturer. It is in the midst of a painful product transition. Its "legacy" chips are still getting snapped up by the makers of handheld GPS devices, which, as you can see from GRMN's results, are selling quite well. But price declines and the OEM-automotive market are hurting margins; its nextgen higher-margin class of chips is awaiting the rollout of Location Based Services (LBS) by wireless carriers, which is not going to happen for at least six months; I am also somewhat skeptical of how fast the uptake for LBS will be at first, though eventually I think it will become quite a market. SIRF's other immediate problem is that TomTom is having all kinds of production issues and its orders have been lagging. The stock is historically cheap here, and despite all these problems SIRF is still showing very good growth. I am not an outright buyer yet, but I am selling puts.
Navteq (NVT): Maker of the maps that go into the GPS devices. It is heavily leveraged to the OEM auto market and it's hurting the company big time, as the few car buyers out there are passing on $2,000 installed systems. It desperately needs lower price points for OEM products to get volume ramping again; meanwhile its R&D expenses don't scale well when sales slow. It is in a really tough spot and its problems could last for a while. Not interested until the 'teens.
Garmin (GRMN): Here is the flip-flop. I was wrong in packaging SIRF, NVT and GRMN together. Consistent with what both SIRF and NVT have said, GRMN's handheld business is smoking, and it does not have the drag of the auto-OEM problems. Its toys are cool and people want them. Meanwhile the competition (TomTom and Magellan for the most part) is floundering. I've not gone over the quarter or the call yet, and there may be some yellow flags there (the stock gapped up almost $10 on the open, but is now barely up), but just based on guidance, at $90 the stock does make for an attractive/high risk go-go trading vehicle. The obvious soft underbelly is the consumer and price competition: if the consumer tanks, GRMN will feel it big time; if its competitors play scorched earth with prices, everyone loses. The potential ace in the hole? Its aggressive effort to penetrate the general aviation/avionics market. For now I am trading the stock – and its pricey options – from the long side.
Trimble Navigation (TRMB): The only dog in the industrial use of GPS devices. Its focus right now is in the engineering and construction area through its partnership with Caterpillar (CAT); but the home run, IMHO, is hidden in its mobile logistics solution group; it's a small but very fast growing division addressing a huge market starved for innovation. Have not yet looked at the financials, so I have no feel for the stock.
@Road (ARDI): the provider of data for mobile logistic solutions. If you think homerun, that is what I thought as well, at least at first. It is a tiny, barely profitable company making inroads with some large customers, but it is so small that one has to wonder about its staying power. At lower prices I could stomach it as an open ended option play.
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