While working on the road this week, I brought along my two-year-old GPS device to help navigate unfamiliar roads. Trouble is, the darn thing repeatedly gave me directions that landed me at dead-ends or blocked-off roads. Maybe it's because the software is out of date.
I decided to use my smartphone instead, and the step-by-step directions on my Android phone were impeccable. I suddenly realized I will never buy a standalone GPS device again. Google (Nasdaq: GOOG) and Apple (Nasdaq: AAPL)'s ability to constantly update their software makes the choice a no-brainer.

As a pure coincidence, I also just reviewed the recent data of insider buying and selling in the past few weeks. Which company showed up? Garmin (Nasdaq: GRMN), one of the leading providers of GPS devices. Donald Eller, who has served as a director since 2001, sold 88,000 shares in mid-August (worth a hefty $3.6 million).

Frankly, I can't blame him. Nor can I blame other company directors such as Gene Betts and Gary Burrell, who have also been active sellers in 2012. They likely see the writing on the wall for this company. And with shares now up nicely from the early-2009 lows (and not far from all-time highs), they're getting while the getting is good.

Good numbers -- for now

A recent look at second-quarter numbers gives the impression that Garmin's business is still reasonably healthy. Sales of $798 million and earnings per share of 98 cents were handily above forecasts (though aided by some one-time gains). Total sales were up 7% from a year earlier, which gives the impression of renewed vigor after this company saw sales drop 16% in 2009, another 9% in 2010 and rise only 2.5% in 2011. The auto/mobile segment, which accounts for more than half of sales, grew a solid 8%.

But analysts increasingly say that such a performance can't be repeated. Analysts at D.A. Davidson say the auto/mobile unit will likely post a small year-over-year drop in the third quarter, and a more significant 12% drop in the fourth quarter. They see sales of Garmin's auto/mobile GPS devices falling another 10% in 2013 to around $1.4 billion. That's down from $1.7 billion in 2010.

"Given the size of the PND (personal navigation device market) is nearly four times the size of Garmin's next largest segment (outdoor), we forecast the shrinkage of PND will be hard to make up with faster growth in other areas," note Davidson's analysts.

Garmin's supporters insist that the company can still remain relevant by building revenue in other categories such as fitness, which comprises hiking and orienteering users. So analysts at Goldman Sachs were surprised to find that second-quarter sales in this segment grew just 5% from a year ago, below their 15% forecast. "This will likely fuel a key driver of the bear thesis, namely that growth in fitness will slow due to rising low-end competition," they noted recently.

Yet it's the threat smartphones represent that few are talking about. Apple and Google continue to beef up their offerings: Apple, for example, will be including turn-by-turn navigation in its soon-to-be-released iOS 6 operating system for its line of iPhones and iPad mobile devices. Moreover, the number of smartphone users continues to rise, and every new user is one that conceivably no longer needs a standalone GPS.

Risks to Consider: Garmin's management has set a low bar in terms of guidance for the next few quarters, so it's unlikely the company will miss guidance in the third or fourth quarter.

Action to Take --> Despite the clear headwinds in place, shares still trade for almost 15 times projected 2013 profits. That's also the multiple sported by other high-tech hardware firms, such as Dell (Nasdaq: DELL), Hewlett-Packard (NYSE: HPQ) and Research in Motion (Nasdaq: RIMM) before their growth began to slow. Insiders are likely aware that the current forward multiple may not stand as sales growth flattens or turns negative, which explains why they are starting to jump ship.

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