Readers often contact me with requests for my view on certain sectors, and with that in mind I want to discuss two names within the global positioning system (GPS) market:
One brief explanation about products in this sector: GPS receivers use satellite technology to identify the current location of a person or an object, as well as help navigate that person or object to other locations. GPS receivers are also often referred to as personal navigation devices (PNDs).
Garmin and SiRF may have caught your eye already. That's certainly understandable, which is why I wanted to weigh in on these names. One of the tasks I perform in managing TheStreet.com Breakout Stocks service (
for a free trial.) is to answer reader email and take a look at stocks that have caught subscribers' eye. (Much of this article was sent to subscribers of TheStreet.com Breakout Stocks yesterday, but the analysis of the stocks is very applicable to readers of
Garmin is the leading manufacturer of PNDs in the U.S., making models for automobiles, planes and boats. Garmin was previously a true momentum highflier, trading up to $125.68 last October before crashing to a recent quote of $54.47.
Likewise, SiRF -- a maker of chips for PNDs -- has been crushed in recent months, down more than 80% from its highs last November to a recent price of $4.97. Based on 2009 earnings expectations, both Garmin and SiRF seem very cheap at 11 times and 10 times earnings, respectively. However, I believe both names should be avoided, given my expectations for a significant slowdown in the PND market.
The biggest problem facing makers of PNDs is the boom in smartphones, which increasingly include GPS technology. Mobile phone-service providers such as
are offering phones from the likes of
Research In Motion
that feature increasingly sophisticated GPS functionality.
Interestingly enough, Garmin is actually releasing its own mobile phone later this year, which I view as more a defensive move given the ongoing smartphone assault. Plus, Garmin will have an awfully hard time standing out in a consumer phone market that is getting only tougher due to the slowing economy and
and Research In Motion's growing market share in the category.
In addition, the presence of GPS functionality in phones serves to aggressively commoditize the navigation function as it becomes just another feature consumers take for granted. As a result, we believe prices for standalone PNDs will have to come down substantially to keep consumers interested, which could take a hefty toll on profit margins and, consequently, earnings estimates of companies in this space.
For example, on March 25, SiRF lowered its first-quarter revenue expectations due to "softness in product demand from its customers especially in the PND, or Personal Navigation Devices, market." I believe this news is a clear sign that the previously red-hot market for PNDs is slowing down.
Readers should also note that consumer electronics giant
announces fourth-quarter earnings Wednesday, and I believe the company will report -- at the very least -- a slowdown in PND sales.
The world of consumer electronics can change rather quickly, and investors need to be aggressive in attempting to identify losing categories. Unfortunately, the GPS/PND category looks like a victim of the rapid evolution of the mobile phone, and thus, value traps like Garmin and SiRF should be avoided.
Michael Comeau manages TheStreet.com Breakout Stocks, and regularly writes about stocks that have a large growth potential, such as Akamai Technologies (AKAM) - Get Report, GFI Group (GFIG) and Perfect World (PWRD) for TheStreet.com
In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau is a research analyst at TheStreet.com. In this role he performs stock analysis for
, and is also a regular contributor to RealMoney.com. Prior to his arrival at TSC in June 2004, Comeau worked as a Consultant to Toyota Motor North America, performing in-depth research on automotive industry issues, primarily in the areas of alternative engine technologies, competitive analysis and macroeconomics. His primary market interests include consumer technology, specialty retail, and small-caps. Comeau received a bachelor's degree in Finance from Brooklyn College, and has completed Level 1 of the CFA program.. He appreciates your feedback;
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