Looking finally at the auto/mobile segment, we posted revenue growth of 8% as we continued to gain market share in the declining PND category and the net impact of deferred revenue was approximately $46 million less than in the prior year. The PND market has remained resilient in the face of much competition but we still anticipate year over year industry-wide unit declines of 10-15%. We will continue to focus on what has worked so well for us in this market – share gains and profitability. ”
Financial Overview from Kevin Rauckman, Chief Financial Officer:
“Strong revenue and operating income growth continued, driven by revenue growth and margin expansion in our auto/mobile, outdoor and fitness segments,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “We are pleased with our first half execution but also recognize that the macroeconomic situation creates some level of uncertainty so we will continue to be diligent in managing our resources to optimize long-term opportunities and performance.
Gross margin for the overall business was 59% in the second quarter improving from 48% in the prior year with all segments posting gross margin improvement. The largest contributor was the automotive/mobile segment, where gross margin improved to 51%, driven by a one-time royalty fee benefit of $21 million, a reduced impact from net deferred revenue and costs of $40 million and improved product mix. We also had strong margin expansion in fitness and marine. Fitness margins improved due to product mix which was heavily weighted toward new high-end models in the second quarter of 2012 compared to 2011 when we were significantly discounting products at the end of their life cycle.
Operating margin for the overall business improved to 28% when compared with 20% in the year-ago quarter with the gross margin improvement partially offset by an increase in operating expenses as a percentage of sales. Total operating expenses increased $27 million year-over-year and by 200 basis points as a percent of sales. Research and development expense increased by $10 million, as we continue to invest for future growth with specific emphasis on auto, marine and aviation OEM opportunities. Advertising expense increased by $4 million as we focused spending on growth segments. Other selling, general and administrative costs increased by $13 million on a year-over-year basis due to a legal settlement in the current quarter and the effect of acquisitions made in the second half of 2011.