"The problem with Garmin -- as well run and promising as it is -- is that at the end of the day they are a hardware company and over time hardware margins start to decrease," says Biondo. "They can make up in volume but when margins start to decrease you see a compression in growth of earnings." Rival TomTom's third-quarter results, which were reported Oct. 24, could offer some clues to Garmin's third-quarter margin numbers. TomTom's average selling price for its products declined, but its gross margins improved sequentially from the second to third quarter, from 45% to 49%. Peter Barry, an analyst with Bear Stearns, says Garmin might report similar results. "We attribute Garmin's better-than-expected gross margin to lower chip and map costs and believe it will benefit from these industry-wide cost dynamics," Barry told clients in a research note. Bear Stearns makes a market in Garmin shares. Garmin also faces increased competition in a rapidly changing industry. In July, TomTom offered to buy main mapping supplier Tele Atlas for $2.5 billion, while cell phone maker Nokia ( NOK) offered $8.1 billion in October for mapping firm Navteq. The Nokia deal is expected to close in the first quarter of 2008, while it's unclear when TomTom's TeleAtlas deal will close. So far, Garmin has responded to these large deals with a string of distributor acquisitions in Europe. Mike Ippoliti, research director in telematics & automotive for independent firm ABI Research, says the moves will strengthen operations but are unlikely to help the company battle the larger market shifts.