STAND-ALONE NAVIGATION SYSTEMS JEOPARISED BY NEWS

˝In the latest blow to the business, Google announced a free navigation service for mobile phones on Wednesday that will offer turn-by-turn directions, live traffic updates and the ability to recognize voice commands. The service will initially be available on only one phone, the new Motorola Droid, but will be expanded to more phones soon. ˝

Is the time of stand-alone navigation system business passing by?

Not so long ago Garmin, the leading company in this branch of industry, was in expansion, with 131% annually growth of sale in 2007 (Revenue $870.4million)

In very short time period (just two years), industry profit was hit by couple of different threats. First wave was the price war, caused by new enterer on this market segment, second threat was GPS application adopted for mobile devices usage and thirdly nobody did not stay immune on credit crunch crisis. This market segment felt indirect effects of crisis, because their B2B clients’ automotive, aviation and marine segments were directly hit by crisis. All these factors caused Garmin revenue to drop for 10% comparing to 2007 (2008 Revenue was $781.3million).

After first quarter in 2009, Research Company In-Stat. predicts that in 2009 Garmins` grow in sale will be just 19% comparing to previous year.[1]

Now just two quarters after, one announcement made the future of stand-alone navigation systems more volatile.

It seams that companies that are doing stand-alone navigation systems business will measure the time, before and after Google announcement. Until 27.10.2009 it seamed that existing situation at the market is not so bright but there is a future for this kind of equipment and services, but after 28.10.2009 since Google announced a free navigation service for mobile phones, the question is, is there any future for stand-alone navigation products?

The power and effects of this announcement could be seen on stock exchanges, where the prices of the shares of leading companies as Garmin and TomTom had started rapidly to decrease on stock exchanges worldwide.

Open price for Garmin ltd. share on 28.10.2009 was $36.02, and after the news, close price was $31.59 on Nasdaq, or 14% drop in price. TomTom shares felt even stronger turbulence, drop of 21% on the Amsterdam Stock Exchange. Since than, the price of shares in this market segments is in constant slight decreasing, what brings a conclusion that Google announcement seriously jeopardized stand-alone navigation company business. This phenomenon raises a large set of question in the terms of power of “Google voice” and sustainability of this market segment.

Nevertheless, even this announcement caused big turbulence with negative effect in price of shares of navigation system suppliers, as Garmin and TomTom, it’s very interesting that it did not caused any positive change in price of Google shares.

There is a question, if the announcement of Google could make such a big turbulence on stock exchanges, what will really happen when Google launch this innovation?

No mater what is the answer on previous question, it is more than obvious that it is the last minute Garmin and similar companies to take an action and re-act on new market trends if they want to stay in a game.

The only advantage from this situation is that now they are aware of threat, and now they know who are playing with. The fact that all new technologies need time for implementation makes space for stand-alone navigation companies to react. Companies that are doing business in this market segment need to do very fast strategic re-thinking how to adopt on new market trend in GPS technology and save existing position on market.

After all, it seams that reaction on stock exchange was overact, considering that everything is based on Google announcement only. However, negative effects on share price, caused by announcement, will need some time and a lot of efforts to recover and turn back the trust of shareholders.