Garmin Takes Huge Risk With Smartphone

"Getting to the viable price of $199 could involve considerable pain," Reiner adds. At a $200 subsidy from the carrier, Garmin is likely looking at a product margin in the mid-teens, estimates Reiner.

Compare that to Reiner's estimate of mid-to-low 30% gross margin for Apple's iPhone. Another analyst, Carl Howe, director of enterprise software research at Yankee Group, says the 3G iPhone could be Apple's most profitable product yet, with margins of around 50%.

Garmin's Nuvifone launch also comes at a time when the battle in the smartphone market is more heated than ever. RIM is set to launch the BlackBerry Bold, a 3G smartphone with a full keyboard, even as it is also reportedly working on a touch-screen model.

In addition, Sprint Nextel(S Quote) is gearing up to bring Samsung's Instinct, -- a 3G touch-screen phone -- to its users. And Apple's new 3G iPhone is scheduled to launch on July 11.

The broader economy alone -- crimping consumers' appetite for tech toys -- makes this a difficult time for Garmin to be getting into the business. But throwing in the intensifying smartphone competition and pricing pressure could revive investor fears that have surrounded the company's personal navigation devices, where growth has slowed and prices continue to fall steadily.

Shares of Garmin have lost nearly half their value since the beginning of the year. On Tuesday, shares fell more than 5% to close at $43.48.

In 2006, the stock climbed nearly 73%. But a botched attempt to acquire mapping supplier TeleAtlas, increased competition in the market and resultant fears of sustained pricing pressure took their toll on the valuation. Garmin rival TomTom eventually acquired TeleAtlas for $4.3 billion and closed the transaction earlier this month.