Garmin's Worries Aren't Over
SAN FRANCISCO -- Relieved investors may be cheering navigation devices maker Garmin's (GRMN) decision to drop out of a bruising bidding war with rival TomTom over Dutch mapping supplier Tele Atlas.
But questions about the company's long-term strategy remain.
Garmin's attempt to stick to its current course sent the stock soaring more than 16% to $97.76 Friday; the stock was up another 50 cents in early trading Monday.However, the company's latest move does not answer larger concerns about how it plans to hedge the risk it's taking now that it is dependent on a competitor for mapping data and where it will get the capability for real-time traffic information or better Internet-enabled local search capability -- features that Garmin cited as reasons for its Tele Atlas bid. Not having Tele Atlas also could put Garmin in the position of having to build its own maps database and tools -- a process that it has conceded is expensive and risky. To its credit, Garmin has walked away from a potentially crushing standoff. The company's decision to withdraw has saved it big bucks and forced TomTom to pay $1.5 billion more than it had planned. It has also allowed investors to focus on Garmin's strong fundamentals and growth, without the distraction of a difficult merger hanging over the company.
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