March quarter results for Garmin Ltd. (GRMN) fell short of the consensus on both the top and bottom lines. All segments are expected to be up double digits in 2008. Pricing pressures continue to intensify, negating some of the growth in units.
Management is optimistic about material prices offsetting ASP pressures in 2008. We see increasing revenue and gradually decreasing profitability for the company. However, being a market leader, the company should fare better than most of the other smaller players. Consequently, we view the declining share price as an opportunity to accumulate shares, and we reiterate Buy.
The global GPS market is expected to grow at a double-digit rate over the next several years, and Garmin's market position, brand recognition, product breadth and quality indicate that it will continue to enjoy a leading market position. PNDs are expected to be the primary driver of growth in 2008, and the expected price erosion of 25% is expected to be offset by material price reductions, neutralizing the impact on margins.
The success of new products in the outdoor/fitness and marine segments is expected to continue in 2008. The company generates significant cash from operations, pays an attractive dividend, makes strategic acquisitions, and still holds $2.86 of net cash per share on its balance sheet. Garmin was squeezed out of the race to acquire a mapping technology company, but the extended agreement with Navteq and the announcement of the nuviphone seem to indicate the direction of the management's strategy.
Sejuti Banerjea contributed to the report.
Read the full analyst report on GRMN
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