GPS device maker Garmin (Nasdaq:GRMN) is just as lost as ever.
In November, the company was part of a bidding war with rival TomTom as both sought to acquire Tele Atlas, a provider of digital mapmaking data. Garmin has since abandoned its pursuit of Tele Atlas and decided to go it alone. TomTom gets the prize, and I think this leaves Garmin in a lousy position. The stock could drop significantly before it finds a bottom.
When You Control Information...
TomTom will now have control of all Tele Atlas's data assuming the deal goes through. The reason that both parties wanted Tele Atlas was in part to ensure that Nokia (NYSE:NOK) wouldn't obtain a stranglehold on the market given its pending purchase of Navteq (NYSE:NVT), another major player in digital mapmaking. If both acquisitions go though, Garmin could be in real trouble. It has a deal to get its data from Navteq until 2015, beyond that is a question mark. Nokia and TomTom could team up to cut off Garmin's supply of digital maps.
There are some other things that concern me as well. If you've been to Best Buy (NYSE:BBY), Circuit City (NYSE:CC) or any other major discount retailers during the holiday, you'll note they all sell GPS devices and at sickeningly low prices compared to last year. These gadgets are becoming commoditized, and I think this might hurt earnings both in the current quarter and going forward.
Market share is also a concern. On December 19, Reuters reported that NPD market researchers determined that Garmin's domestic market share in terms of units sold in November dropped to 29.3% from 47% in October. That's a huge drop. Meanwhile, TomTom accounted for 30.6% of the market. It's important to note that these numbers are fluid; they vary month-to-month based upon promotional activities, new product releases, etc. However, I don't like the trend. I think this news came at a lousy time given that it just lost out on its bid for TeleAtlas.
Another concern is that although the stock is more than 20% off its 52-week high insiders seem to be bailing. Now, there are lots of reasons why insiders might sell their stock, to buy a new home, for tax reasons or to send their kids to school, etc., but why are they selling now, especially with the shares under $100? In short, if they truly felt comfortable with their company's position in the industry, wouldn't they be buying? This could perhaps be a bad omen. (For both sides of the insider selling debate, see Insider Selling Isn't Always A Bad Sign.)
Garmin is not expected to make any further moves for Tele Atlas. Some think that this is a good move because at least the company won't end up paying an obscene amount of money for a relatively small company, but I think it's a negative. It gives TomTom and Nokia a major say on the sale of map making data, and I think this could eventually come back to bite Garmin.
Other problems surround Garmin, including a drop market share, the increasing commoditization of the GPS device, and insider selling. There could be even more downside for the company heading into the new year. I think it makes sense to steer clear of the stock.
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