Garmin's Big Troubles Just Get Bigger

Although that forecast has held up thus far, RBC Capital Markets analyst Mark Sue estimates that full-year earnings could be hit by 6 cents a share for every percentage point greater than the expected 25% decline in the average selling price of PNDs for the remainder of the year.

Perhaps more concerning for Garmin is that the global slowdown that will undoubtedly crimp consumer spending on electronic devices, especially as the important holiday quarter begins. In the past few years, Garmin has shipped more devices in the fourth quarter than in any other quarter during the year. Indeed, the company shipped more devices in the fourth quarter of 2007 than it did in all of 2006.

"We have increased concerns about the holiday season and we expect increased competition for Garmin from both other PNDs manufacturers as well as other consumer electronics," RBC's Sue says in a research note.

Sue predicts that Garmin's product mix will shift toward the low end as PND prices dip below the $100 level this holiday season. "[It] remains to be seen whether consumers will reach for the additional features included in the mid- and high-end products," he adds.

In addition to those economic-related troubles, Garmin faces intense competition from rival TomTom and other PND makers, as well as handset makers now featuring GPS technology in their phones.

Sue says that while pricing deterioration has not accelerated, rival TomTom has intentions of raising its market share in North America to 30% from its current level at 20%. That means Garmin is in for an aggressive fourth quarter from TomTom.