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A critical holiday quarter for


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was made no better by a bankruptcy filing from electronics retailer

Circuit City

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Circuit City filed for

Chapter 11 bankruptcy protection

on Monday, roughly a week after it said it would close 20% of its stores.

As a result, fewer Garmin personal navigation devices will be sold by Circuit City, as there will be 155 fewer stores after the electronics retailer's downsizing. It's also likely that the Circuit City stores that remain will carry fewer products as a result of the bankruptcy, which will undoubtedly hurt consumer electronics makers like Garmin.

Garmin is among Circuit City's largest unsecured creditors, coming in seventh after


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, among others. In the bankruptcy filing, Circuit City said the amount of Garmin's claim is $15.4 million. According to a report by the

Associated Press

, Circuit City anticipates it would have money to distribute to unsecured creditors, which get paid last.

"It's not a huge amount for Garmin," says Jonathan Goldberg, analyst with Deutsche Bank who maintains a sell rating on Garmin shares. "It's not going to threaten Garmin's liquidity or anything like that. It's another incremental bad thing for them, but it's not disastrous."

Garmin is one of several creditors that tightened its credit terms with Circuit City, which is one of the reasons the retailer needed to reorganize under Chapter 11. Under the rules of Chapter 11 bankruptcy protection, Garmin must continue doing business with Circuit City, although it doesn't have to extend credit. Yair Reiner, an analyst with Oppenheimer, says he believes Garmin has been dealing with Circuit City on a cash basis "for several weeks now."

Reiner adds that if the entire balance that Circuit City owes Garmin were to go unpaid, it would equate to a maximum loss to Garmin of about 6 cents a share. "The actual loss is likely to be smaller, however, since Circuit City will likely pay its creditors something and since Garmin has set aside reserves against non-collectable receivables," he says.

Even though the total damage could amount to only pennies per share, Reiner says it's apparent that the situation could have clearly been worse had Garmin not tightened its credit terms with Circuit City before the holidays.

Given the shorter life cycles of personal navigation devices, Garmin is now managing its inventory more carefully. During the company's third-quarter conference call late last month, Garmin CFO Kevin Rauckman said the company plans to reduce inventory by $150 million at the end of the year.

"It is still our goal to have adequate inventory to support customer needs, but we intend to carry the right level and mix of inventory to minimize risk of obsolescence," Rauckman said. "At the end of

the third quarter retail inventory has become more lean as retailers look to reduce their inventory exposure and delay cash expenditures."

Deutsche Bank's Goldberg wonders if Circuit City could be price aggressive in order to drive inventory levels down. "There's too much inventory in the channel," he says. "Competitors are pricing items very aggressively."

Garmin has already been hurt by worsening macroeconomic conditions and increased competition. Last month, the Cayman Islands-based company cut its full-year profit forecast, while its

revenue target

was reduced to $3.6 billion, from the previous forecast of $3.9 billion.

Those issues, combined with the long-delayed introduction of the company's Nuvifone handset device, have continued to pressure Garmin shares, which have fallen nearly 80% this year. Garmin shares were recently off 24 cents, or 1.2%, to $20.54

Reiner does offer some good new for Garmin, though. He says the company and its auditors will estimate how much of the $15.4 million might still be recoverable, and then take a charge for the remaining portion.

"The charge will be cushioned, however, by the company's reserves for doubtful receivables, which stood at $10.2 million at the end of 2007, but which may need to expand in the current environment," Reiner says.

He adds that the absorption of some of the shuttered Circuit City stores by a healthier channel partner, such as

Best Buy

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, "could be marginally positive" over the long term.

"Circuit City is one of many channels for Garmin," says Deutsche Bank's Goldberg. "People that are going to buy navigation devices will just go to Best Buy. However, there's not a lot of demand, which is the big concern. It's unclear is people really want to buy navigation this Christmas."