Garmin Takes Huge Risk With Smartphone

SAN FRANCISCO -- Garmin(GRMN Quote) just can't seem to catch a break.

The maker of personal navigational devices is gearing up to launch the Nuvifone, a slim touch-screen GPS-enabled phone that it hopes will expand its reach into a newer market.

But the company is likely to face a margin squeeze right out of the gate as it tries to price the device to better compete with smartphone makers like Apple(AAPL Quote), Research In Motion(RIMM Quote) and Nokia(NOK Quote).

Garmin's greatest threat will be from Apple, which just raised the stakes by pricing its upcoming, faster 3G iPhone -- which also has GPS capability -- at $199.

Garmin hasn't disclosed its pricing plans for the Nuvifone, which is scheduled to debut either late in the third quarter or early in the fourth quarter of the year.

Garmin spokesperson Jessica Myers declined to comment whether the Nuvifone is already in production but said, "We are still moving ahead with the Nuvifone as we had planned and are displaying the products at tradeshows in the U.S. and Asia."

First Look At Garmin's Nuvifone

Analysts had been expecting a cost of $399, with a $100 subsidy to the company from service providers, but that's now likely to change. To compete effectively, Garmin will have to retail the Nuvifone at $199 in the U.S. -- a price that could affect its margins "mightily," says Oppenheimer analyst Yair Reiner. Oppenheimer doesn't have an investment banking relationship with Garmin but makes a market in Garmin, Apple and RIM shares.