SAN FRANCISCO -- In the past year, a leading maker of navigational gear has headed decidedly south.

Last year, GPS-based navigation systems maker


(GRMN) - Get Report

was flying high. The company's products consistently ranked at the top of electronics retail best-seller lists, it was highly profitable, and Wall Street took notice. Garmin's stock ended 2007 nearly 74% higher, while the

Nasdaq Composite Index

rose 9.5%.

But the company is facing a skeptical audience as it gets ready to report its second-quarter results Wednesday. Investors and analysts wonder whether it is able to differentiate itself in a highly competitive market and keep healthy margins in face of increased pricing pressure as customers clamor for cheaper devices.

No longer Wall Street's favorite, Garmin's stock is down nearly 50% since the beginning of the year, while the Nasdaq has fallen about 11%.Shares of Garmin closed down 88 cents, or 1.9%, to $45.96 Monday.

While analysts widely expect Garmin to beat estimates for the second quarter as demand for navigation devices remains strong, the company's margins and comments on pricing will be under the spotlight.

Last week, Garmin's biggest rival


reported better-than- expected results. Sales rose 19% to 453.4 million euros ($713.6 million), and it had established a market share of 45% to 50% in Europe in the quarter and more than 20% in North America.

TomTom's strong results bode well for Garmin, as investors have been worried about the impact of the weakening economy in the U.S. and Europe on the sales of electronic devices.

In the second quarter, analysts expect Garmin to report earnings of $1 a share, flat from a year ago and revenue of $956.4 million, up from $742.4 million a year ago.

For the third quarter, consensus estimates from

Thomson Reuters

peg EPS at 94 cents a share and revenue at $942.14 million vs. EPS of 89 cents a share and revenue of $728.7 million, the year before.

Garmin may get better-than-expected margins and number of devices sold, though the average selling price for the devices is likely to come down, stoking investors' fears that the company's long-term profitability is under pressure, analysts say.

Analysts also widely expect Garmin to trim its guidance for the year, though it is still likely to be above analysts' consensus, they say. Analysts are expecting earnings of $4 a share on revenue of $4.12 billion for fiscal 2008.

As competition heats up, personal navigation devices are increasingly seen as a commodity. Consumers not only have a number of choices between different PND devices for their cars, they also can choose to buy a subscription-based navigation system available on their phones.

For instance,


(VZ) - Get Report

offers VZ Navigator, powered by Orange County, Calif.-based private company Networks in Motion, that offers turn-by-turn directions to subscribers.

The launch of


(AAPL) - Get Report

iPhone has also taken the shine off Garmin. The iPhone's location awareness capabilities allow for consumers to use the device as a navigator system.

"There is a widely-held belief that high PND (personal navigation device) margins and high market share will collapse," says Rob Sanderson, an analyst with the independent research firm American Technology Research, in a note. "Wireless handsets are also seen as an eventual PND-killer."

Garmin is holding strong in terms of market share. The company had a 55% share of the market in North America in the second quarter, compared with its rival TomTom's 18%, according to NPD, said a

recent report




But the overall average selling price of the devices dropped to 33% to $236 in the quarter, while Garmin's average selling price for a device was down 38% to $250, said NPD.

That's exactly what growth-focused investors worried about increasing competition in the market are wary of. Garmin's Wednesday's results are likely to do little to quell those fears.

As Garmin heads into the holiday season, analysts and portfolio managers believe the company is likely to face increased pricing pressure as competitors try to offer cheaper products.

Garmin is likely to see prices for its devices fall 25% to 30% this year and at least 20% next year, estimated Jonathan Goldberg, analyst with Deutsche Bank earlier this month.

Investors will also closely be watching for comments about the company's plans to launch a smartphone called Nuvifone, which will be built around GPS-navigation.

Earlier this year, Garmin said it hopes to launch Nuvifone during the third quarter, and the company could offer a launch date Wednesday.

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