Shares of global positioning system provider Garmin (NASDAQ:GRMN) had plunged on Monday after Apple (NASDAQ:AAPL) unveiled an in-house map service for its mobile devices with 3D graphics and turn-by-turn navigation. Apple added that it had plans to include voice-recognition software Siri into cars to allow drivers to get hands-free information, and on Tuesday, announced a partnership with Dutch navigation system maker TomTom NV.
Sales of Garmin had peaked in 2008 before smartphones with sophisticated inbuilt GPS programs and mapping apps became massively popular. Eventually over the years, it made apps of its own to keep up, and Garmin’s automotive and mobile division is now the company’s largest revenue contributor. However, this latest news from Apple is another big setback. But is Garmin getting beaten by a threat it seems to have ignored?
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Tech expert Arik Hesseldahl writes that he had asked Garmin chief executive Min Kao about the possibility of such a development years ago, but was assured there was nothing to worry about. According to Hesseldahl, Kao had said then that mobile phones were “the kind of commodity business we would like to avoid.”
“Phones were a low-margin commodity market, and phone manufacturers could never obtain the expertise in mapping and navigation that Garmin had worked so hard to create,” Hesseldahl paraphrases Kao’s sentiment from then.
“Garmin isn’t a nonparticipant in the smartphone ecosystem: It builds many iPhone and Android (NASDAQ:GOOG) apps for navigation, boating, aviation and outdoor sports,” Hesseldahl adds. “And, indeed, half of Garmin’s business is in those non-automotive areas. But it’s about to get killed in the half that everyone pays attention to: Automotive navigation. Some people will still choose to rely on a dedicated navigation system. But more often than not, they’ll buy one preinstalled in their car that doesn’t come from Garmin. And if, like me, they don’t own a car, they’ll use their phone to handle navigation when they rent one.”
Shares of Garmin fell 8.6 percent to $38.20 on Monday, hitting a 2012 low of $37.82 in the process. Today, shares of Garmin are trading higher 3.42% at $39.50 per share.