Garmin (GRMN) - History Counts in This Part of The World

Garmin History Counts in this Part of the World
But in capitalist reality, as distinguished from its textbook picture, it is not (price) competition which counts but the competition from the new commodity, the new technology, the source of supply, the new type of organization ... competition which ... strikes not at the margins ... of the existing firms but at their foundations and their very lives. Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 1942.
Source: Quoted from Only the Paranoid Survive (1996), Andy Grove
Disclaimer
This presentation and the information contained within it does not constitute investment advice, nor is it a recommendation or solicitation of an offer to buy or sell any financial security. This presentation has been distributed solely for informational purposes, and actual results may differ materially from statements, forecasts and estimates contained herein. Information contained within this presentation have been obtained from publicly available sources which are believed to be reliable. No information has been verified and we assume no liability if such information is incorrect. The opinions contained within this presentation are subject to change at anytime. This presentation should not be relied upon to make any investment decision. Professional advice from a registered financial advisor should be sought in making any financial investment decision.
Background and Fundamentals

Garmin (GRMN) is a leading, worldwide provider of navigation, communication and information devices and applications, most of which are enabled by Global Positioning System (GPS) technology. GRMN designs, develops, manufactures and markets a diverse range of hand-held, portable and fixed-mount GPS-enabled products and other navigation, communications and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation segments.
Source: Garmin.com
Bull Case Value investors are enjoying a 4.5% dividend, a high free cash flow yield, a historical pattern of share buy backs and a high percentage of GRMNs market cap in net cash GRMN have a strong capital structure with zero long-term debt The exit of competitors from their market GRMNs high insider ownership stabilising the stock price
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Bull Case GRMNs non PND business will be able to generate meaningful profits and cash to offset the declining PND business A strong balance sheet with a healthy cash position GRMN have a history of organic growth and measured bolt-on acquisitions A strong pipeline of new products and categories
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GRMNs Market Valuation

Stock Price 52 w/k Range Shares Out. Market Cap Dividend Yield
$49.7 $31-$53
194.97m $9.73bn 3.62%
EPS 2008 2009 2010 2011
$3.48 $3.50 $3.45 $2.67
Multiple 5.51x 8.77x 10.5x 14.91x
Revenues 2010 $2,759 Revenues 2011 $2,690
Automotive / Mobile
Competitors
A Lot Has Changed Since 2007 Automotive/Mobile - Revenue for the segment is declining by 15-20% year-overyear GRMN have had significant difficulty in broadening its revenue base materially ROE is depleting year-on-year, and the dividend payout ratio is increasing to retain the shareholder base GRMNs high dividend payout ratio is not sustainable over the long-term
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Diminished Market Opportunity Market Low Ball Opportunity Pricing On average, 80% of drivers, drive fewer than 40 miles per day; this means substitution to (1) mobile devices is very meaningful Tablets also now function as PNDs and are facing a more aggressive form of Moore's Law on a steeper line; the decline is accelerated; volume related cost improvements will bring (2) these down, further steepening the line GRMN is at a strategic inflection point
1. BTS National Household Travel Survey 2. Deutsche Bank research notes
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Diminished Market Opportunity (Contd)
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Diminished Market Opportunity (Contd) Market Opportunity

The continued growth of social, mobile and local will damage GRMN's subscriber base and weaken the visibility of long-term demand GRMN cannot compete with the Apple ecosystem and its multi-functional product offerings GRMNs product offerings will have a narrow (1) scope and focus in a multi-functional world GRMNs standardised solutions will not be appealing to most consumers reducing (1) monetisation opportunities
1. Deutsche Bank research notes
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Smartphone market penetration could easily exceed dedicated PND penetration today because of the price differential. (1) Overall, the PND market is smaller and more penetrated Structural problems in the Auto PND market cannot be avoided GRMNs dividends will dilute its strong balance sheet if they cannot continue to be paid out from actual earnings (GRMNs latest Q3 2012 results indicated a 63% dividend payout ratio with declining earnings on a QOQ and YOY basis)
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TomTom have focused on software and services which have a better long-term trajectory whereas GRMN have stayed focused on hardware where margins are being depleted over time
GRMN have no exposure to higher margin areas like licensing maps and traffic information like competitors TomTom and Navteq
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GRMN Have No Material Proprietary Advantage

GRMNs patents are trivial and obvious. Licensing revenues are weak and immaterial whereas map and traffic licensing costs are GRMNs third biggest product expense. (1) Trivial Patent Portfolio As of January 23, 2011, GRMNs worldwide IP portfolio includes over 600 patents and 400 trademark registrations. Garmin was selected as a constituent of the 2011/2012 Ocean Tomo 300 Patent Index which recognizes companies with high intellectual property value.
1. GRMN CFO Kevin Rauckman, JP Morgan Technology, Media & Telecom Conference - May 16, 2012 2. GRMN 10K 2011
(2)
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PND Retail Inventory De-Stocking Since 2009

Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer: The first quarter of 2009 represented Garmins most challenging quarter since becoming a public company in December 2000. Macroeconomic factors have contributed to a significant slowdown in consumer discretionary spending which has been further exacerbated by ongoing channel inventory reductions by our retail partners in the PND industry.
Source: GRMN 10-Q for Q1 2009
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Retail Inventory De-Stocking

PNDs are being de-stocked in the channel, and this (1) is logical as the market is getting smaller Retailers are carrying less inventory on a year-overyear basis (1) (1) PND prices are deteriorating at an alarming rate Retailers are minimising PND exposure, as this (1) category is being replaced by tablets Retail shelf space for PNDs is rapidly decreasing as revenue accrued per square foot becomes marginal, and foot space is optimised to challenge the online migration of sales
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Optimising Retail Space

As physical businesses look to economise retail space, like Halfords (Halfords are one of GRMN's biggest customers in the UK) with 130 leases expiring within the next 5 years, the company are very optimistic it can leverage its options to renegotiate downwards on rents and foot space. This will involve more efficient space allocation based on footfall traffic and conversion models, average sales per square foot etc. (1) Halfords and Dixons (another leading UK GRMN distributor) are struggling with their physical presence; they are both pivoting towards, and penetrating online further diminishing segment margins; Dixons are also closing 100 physical retail stores. (2) GRMNs products are discretionary purchases, and are more likely to be threatened when retailers downsize their foot space. Best Buys migration to online = lower margins, BBY are also cutting 50 US big box stores and opening 100 small mobile (3) locations in the US in fiscal 2013, which will cut $800 million in costs by fiscal 2015 Putting this altogether for GRMN, these industry shifts are a function of continued low consumer confidence, which is causing a migration to value offerings, online purchases, zero cost apps and extended PND purchasing cycles.
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http://www.zdnet.com/dixons-retail-to-axe-more-than-100-stores-3040155432/ 1. Halfords Preliminary Results - Financial Year 2012, 31 May 2012 2. http://www.zdnet.com/dixons-retail-to-axe-more-than-100-stores-3040155432/ 3. http://www.businessweek.com/ap/2012-03/D9TQ6RA00.htm
Excess Retail Foot Space and Channel Inventory

Automotive/mobile segment revenue declined 14.9% from the year-ago quarter, as the average selling price improvement was more than offset by volume declines associated with excess channel inventory levels and timing of orders from one of our major retail partners.
Source: GRMN 10-Q for Q1 2010
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Low Ball Pricing

The trend is for consumers to buy at the valueend of GRMN's PND range as consistent with (1) their main competitor TomTom This is having a negative impact on the blended ASP Smartphone Apps are also open to wider competition and GRMN does not enjoy the same pricing power as it does with hardware PNDs; this has resulted in further pricing (2) pressure and cannibalisation of PND sales
1. TomTom Q2 2011 Conference Call 2. Deutsche Bank research notes
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Discounting Pricing Model

The automotive/mobile segment is by nature a lower margin business and the Company has begun to see the impacts expected on gross margin due to falling prices and a product mix shift toward lower (1) end PNDs.
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GRMNs management believes that the trend to lower gross margins for Auto / Mobile will continue due to ongoing price declines and further product mix shifting towards lower margin products.
1. GRMN 10Q for Q2 2008
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Discounting Pricing Model (Contd)

GRMN are using more aggressive in-store promotions as consumers remain very price-sensitive GRMN President and COO, Cliff Pemble, We see that customers are becoming increasingly sensitive to price and we believe the economic factors are at least partly responsible for this. (1) This has resulted in lower gross margins when adopting this low-cost model GRMN have been obsessed with discounting and short-term promotions to retain and win new business further eroding margins.
1. GRMN Q1 2008 Conference Call
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PND Market Penetration

The market opportunity for PNDs is smaller PNDs are expensive in a low-cost consumer environment PND market penetration has matured across most developed markets iPhones and iPads are depleting PND sales materially for both GRMN and TomTom There are little or no barriers to entry and exit The proliferation of Android across mobile devices with zero cost PND offerings, have damaged GRMNs PND renewal purchase cycle, and existing sales of PNDs, maps and traffic updates
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Overseas PND Market Penetration

China is monopolised by local companies, GRMN, (1) Mio and TomTom have negligible market share Overseas growth markets also have a high price elasticity of PND demand implying low price points Cheap PND products are penetrating the supply channels in EM regions where volumes are relatively (1) small and locally dominated The market volume for dedicated PNDs are decreasing worldwide and prices will have to drop to satisfy the price elasticity of demand
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Significant PND Pricing Pressure

GRMN needs to match the low-cost model of competitors as product differentiation is marginal in the Auto / PND market The sector will become a legacy category Market saturation and penetration will dampen GRMNs future earnings performance in Auto / PND (1) GRMNs reported ASP stabilisation in PND was short-term and has materially decreased when aligned to lower overall PND revenue
1. GRMN 10-Q for Q1 2009
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Significant PND Pricing Pressure (Contd) GRMN are facing growing competition risk as the PND market pivots to discount retailing GRMNs high exposure to the US market, which has already saturated and has matured has led to demand deceleration, and deep and obvious price competition in the US. The deteriorating earnings environment, and inevitable margin compression have compounded pricing pressure for GRMN.
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Significant PND Pricing Pressure (Contd)

End of life promotional efforts also contributed to the lower gross margins in automotive/mobile. We expect gross margins for the automotive/mobile segment and the overall company to improve throughout the year. (1) The reality is retail and online channels are clogged up with old PND inventory that GRMN can only shift with significant discounting, rebates and cashback schemes.
1. GRMN CFO Kevin Rauckman - Q1 2011 Press Release
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PND is a Low Margin Business

TomTom were originally not participating in the high volume, low-margin business in the US e.g. Walmart, Best Buy GRMN and TomTom now have to permanently keep PND prices discounted to gain any traction The installed base for standalone GPS devices is not growing so a low margin profile is the only method of accruing additional demand as PND product differentiation is weak. New products lack discernible improvements so the customer experience remains muted. GRMN estimated the total global PND market size was 30m in 2011 and would decline by 10% to 27m in 2012 (1) Berg Insight estimated the total global PND market size was 33m in 2011and worldwide shipments of PNDs are forecasted to gradually decline to 23 million units in 2016. The number of mobile subscribers using a turn-by-turn navigation app or service on their handset doubled in 2011, to reach 130m worldwide. This number is forecast to grow at a compound annual growth rate (CAGR) of 21.9%, to reach 340m users in 2016. (2)
1. GRMN CFO, Kevin Rauckman Pacific Crest Global Technology Leadership Forum, August 11-14, 2012 2. Berg Insight
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GRMNs Net Income is Declining Materially

$1,000 $900 $800 $700 $600 Net Income (m) $500 $400 $300 $200 $100 $0 2007 2008 2009 Fiscal Year
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-40% Decline in 5 years
2010
2011
GRMNs Net Revenue and EPS Comparison

Net Revenue -13%
$4,000 $3,000 $2,000 $1,000 $0 2007 2008 2009 2010 2011 $5 $4 $3 $2 $1 $0 2007 2008 2009 2010 2011
EPS -30%
The foundations of GRMN are materially impaired. GPS was a standalone feature. Integration into everyday mobile devices aggregates GPS as an add-on at a marginal cost to manufacturers. Nonetheless, standalone devices will always outperform, initially, like a dedicated MP3 player, but like other dedicated form factors in history, technology replaces them (by enhancing their features and enabling improvements), and depletes the businesses producing them, unless they can fundamentally pivot their corporate direction.
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PND Weakness
GRMN traditionally explained PND weakness as a function of tepid consumer demand The reality is consumers are just not interested in standalone PND devices from GRMN, TomTom or Magellan The Auto OEM business has good opportunities, but competition is deep and margins are weak The average purchase cycle for OEMs in-dash are 18-24 months so there is a significant lag in accruing the actual revenue from initial contract wins The long lead times between purchasing decisions also leaves GRMN vulnerable to competitors and competing technologies
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GRMNs ASP in the PND Market

Revenue declined at a rate of 13% in the quarter, but was ahead of our expectations as ASPs remained stable. ASP stability has been driven by an improved product mix offset by declines in pricing for comparable products on a year-overyear basis. However, we remain focused on our goals of market leadership and profitability in the PND market and expect to see improvement in both as the year progresses with ASPs stabilizing and the market consolidating.
Source: GRMN Q3 10Q 2011 earnings call
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Lower ASPs
Lower overall PND demand cannot occur without an accompanying lower ASP The retail footprint exposure will become weaker and shelf space will be reduced for the PND category as more technology sales migrate online e.g. Halfords re-negotiating foot space for 100+ stores , Best Buy mega stores closure etc. This all together implies lower ASPs for GRMN and other PND competitors
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Pricing Pressure Pricing pressure was also a key factor in RIMMs and Nokias decline The GRMN brand, despite positive weighting cannot compete against Apple or Google GRMN products have been shipped but have not been sold to consumers; sell through rates have been weak and this is reflected in the wide-scale discounting across GRMNs product range.
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PND Value Offerings

TomTom have shifted to the lower-end value range because it understands standalone PNDs are a rapidly declining market GRMN are being forced to mirror a similar pricing strategy to harvest the remaining business in the industry GRMNs automotive PND product pipeline is focused on refinements rather than anything meaningful, so price increases or even stable ASPs going forwards cannot be justified TomTom have more traction in Auto OEM in-dash, and the software and services market so can leverage pricing power more flexibly in the PND / Mobile market. This is a market in which TomTom sees itself having a more diminished role longterm.
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Diminished Earnings Outlook

Both GRMN and TomTom have reduced PND prices substantially and yet still cannot gain material (1) increases in demand If they cant compete with a low-price model, this is the clearest sign that the category is more or less (1) finished from an earnings perspective Retailers are continuing to de-stock channels and are carrying less inventory This is in a difficult environment of lower consumer sales and where retailers are holding old stock with weak sell-through rates.
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Penetration of GPS Capability in Cell Phones http://www.isuppli.com/
Source: iSuppli.com
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Mobile Competition
iPhone and Android devices, using the benefit of Moore's Law are lowering costs which are being shared with consumers (1) The consumerisation of IT will reduce consumer apathy to wider smartphone adoption and usage (1) Increasing battery life of mobile devices will enhance these effects The extended battery life of mobile devices is already providing material advantages to consumers in the Auto/ Mobile sector PND pricing is already very competitive as Android powered tablets offer PND functionality and significantly more at a similar price
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Market Saturation Has Peaked

New Auto/Mobile features are being bundled in PNDs as the market begins peak saturation Traffic connectivity and updates will be dominated by Apple and Google Maps, as they have the largest installed base, and, therefore will acquire more data from different sources GRMN will inevitably, therefore, lose significant traction iPads, smartphones and other tablets are competing in this same space, as dedicated PND demand has reached a plateau, the appeal of standalone PND devices becomes largely redundant.
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Mapping Competition is Intensifying

Apple are licensing TomTom mapping Map licensing and rights are still going to be key, 90-95% of the market is controlled by Navteq and TomTom (1) The quality of superior mapping will largely depend on the integration with points of interest and customer reviews; traffic and map updates. The open source crowd-sourcing Apple feature will relegate GRMNs multiple offerings GRMN have no place in this market Smartphones are becoming obsolete after a year, and GRMN's categories that are materially exposed to mobile substitution, cannot keep up pace with mobile competition and enhancements.
1. TomTom Conference call for Q1 2011
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Rapid Adoption of Google Android

The outlook for GRMNs automotive category is weak as more connected cars are onboarded (1) Tablets are emerging from $99 on the market Harman, the leading Auto OEM Infotainment provider have already acquired an Android based software company, and have openly stated its direction to integrate its offerings around Apps. Harmans acquisition of Interchain Solution rapidly expands its Android-based Infotainment and Telematics offerings (2)
1. Deutsche Bank research notes 2. http://investor.harman.com/releasedetail.cfm?ReleaseID=698596
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Rapid Adoption of Google Android (Contd)

The installed base for Android is 300 million phones with reasonable call and data plans It is reasonable given current growth rates to forecast that Android will be embedded in 50% of all phones in three years You also do not need a fully fledged PND to display map directions In practice, anyone with an Android powered device can easily use Google Maps for navigation
Source: Deutsche Bank research notes
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Growing the Installed Mobile User Base

We also dont quite know yet how the major players in mobile are going to monetise their platforms i.e. advertising, subscriptions etc. We do know this is going to happen somehow but it is sill unclear as to how this is going to exactly work e.g. a razor-blade model, hardware at cost, services at a premium i.e. Amazon Kindle model etc. Building the mobile user base is seen as key to success here, and with mobile devices available at every price point, this will deplete GRMNs sales across the price spectrum
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Margin Deterioration
This has resulted in providers cutting their margins almost completely as the case with the Amazon Kindle to gain significant user traction This is materially negative for GRMN, as they will face heavy price competition particularly at the value end of their offerings where mobile substitution is already very high Additionally, GRMN is a hardware company, and competitors are already selling hardware at cost that can replace / substitute for demand across GRMNs categories
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Tablet Competition Tablets are now at mass market prices which (1) is damaging standalone PND appeal The mass adoption of the Android platform is penetrating consumer markets at a very alarming rate for GRMN The free Google traffic offering also leaves GRMN no point of differentiation Apple/Google connected device vs. standalone GRMN PND device?
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Tablet Competition (Contd)

Kindle Fire has captured 22% of tablet sales in the US, Amazon have stated. (1) The Amazon Kindle Fire (hardware sold at cost model) will accelerate the standalone PND market decline This will come at the expense of more established players like GRMN and TomTom GRMN have no traction in the new tablet sector Tablets also have full supply including the iPad at every price point The Mini iPad and Google Nexus 7 will also enrich some of these functions and increases the portability of tablets, and the propensity to replace single-purpose PND devices.
1. http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1730182&highlight
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Impact of Moores Law on Pricing

Moore's Law is driving the cost down of mobile handsets and tablets (1) These savings are being shared with consumers in the form of lower prices and (1) more powerful hardware It will take deep levels of organisational change for GRMN to remain competitive GRMNs premium PND introductions are facing difficultly in gaining traction, as consumers relegate standalone PND offerings
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Premium Features Offered as Standard to Mitigate PND Volume Declines Live map and traffic updates are now onboarded on PNDs as standard rather than a premium feature This signals the overall disinterest in the category by consumers as GRMN and TomTom need to offer premium features as (1) standard
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Premium Features Offered as Standard to Mitigate PND Volume Declines (Contd)
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Live Traffic and Map Updates Recurring revenue streams from traffic live services and map subscriptions are already challenged as the overall PND market size decreases, and competition from Apple Maps crowd-source traffic updates emerges Free App offerings are also compounding the decline in GRMNs subscription based services TomToms LIVE Services yearly renewal rate of (1) 25% indicates subscription weakness
1. TomTom 10K 2011
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GRMNs PND Revenue Deferral Policy

GRMN have explained, like TomTom, that because the price differential is now muted between live traffic services vs. standard, only a smaller amount (1) of revenue now needs to be deferred into the future The net effect of this will be to recognise the revenue earlier at the point of sale for live services upfront, therefore, increasing current earnings We still believe the material price differential to non live services PND offerings should require GRMN to continue to defer future revenues
1. Garmin Q4 2011 Conference Call
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GRMNs PND Revenue Deferral Policy (Contd) We believe that while being acceptable under current US GAAP provisions this inconsistency with historic revenue recognition practices is unhelpful and misleading This will also give the impression that PND sales are not declining as fast as in reality and will serve to temporarily mitigate or distort market reality
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GRMNs Business Quality

Structural issues warrant a significant market discount in GRMN's market capitalisation GRMNs overall business model of high price point hardware is decaying The democratisation of IT in the form of mobile devices, harmonised on a single intuitive platform, has impaired GRMNs customer experience Altogether, these industry and consumer shifts have had material effects on GRMN GRMNs impaired business model is not primarily a function of its own negligence in the markets they serve; its a powerful combination of competitive forces correlated with an acute obsession with the customer experience
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GRMN's Auto / PND Mitigating Strategies

Acquire immediate competitors e.g. Navigon Subsidise and discount products e.g. Walmart deep discounts, Best Buy budget offers, numerous rebates and cashback schemes penetrating the retail channels and distribution networks Rapidly introduce new products and categories with upgraded features e.g. PNDs with bigger screens, rudimentary voice activation, Bluetooth, multi-orientation displays etc.
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The In-Dash Car Market Market Opportunity

GRMN sees the OEM in-dash car market as providing a meaningful replacement of revenues that will inevitably be lost in the Auto PND market Then in the Automotive area, we see the OEM as a opportunity to leverage our strength in some of these other markets, for example, being able to design highly integrated systems into the dash of aircraft does extend to designing how the integrated systems, into cars and trucks. So we are focusing on OEM, Automotive as a means to offset the declines in the PND area.
Source: Cliff Pemble, President and COO - Garmin Q2 2010 Conference Call
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The In-Dash Car Market (Contd) Market Opportunity GRMN sees their current OEM market weakness as a function of their lack of traction as a Tier 1 supplier for complete infotainment systems. As Auto OEM develops and we can get into more and more Tier 1s with our navigation and infotainment solutions, we can effectively replace a lot of lost revenue that we have seen over the last three to four (1) years.
1. GRMN CFO Kevin Rauckman, JP Morgan Technology, Media & Telecom Conference - May 16, 2012
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The Reality of the In-Dash Car Market The market reality is consumers dont want GRMNs infotainment offering, either as a Tier 1 offering or as an optional feature Consumers want a soft integration with their existing technology and seamless interoperability functionality Like the nuvifone, consumers across the spectrum do not differentiate mobile or indash devices based solely on navigation.
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The Reality of the In-Dash Car Market (Contd) Market Opportunity

A retrofit and accessories industry has been developing for the auto in-dash market, in the interim, until Apple and Google driven devices are fully integrated Even without factory installed Apple or Google offerings, GRMN have no traction in the in-dash market on an overall net basis GRMN's capital allocation to the sector will be wasted Consumers are not going to accept a GRMN entertainment system vs. iOS or Android
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Apple Patents Steering Wheel Remote Control
Source: http://www.patentlyapple.com
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Apple Patents Steering Wheel Remote Control (Contd)
Source: http://www.patentlyapple.com
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In-Dash Market Hardware vs. Software

GRMN realises this reality and will attempt to pivot its perception in the OEM market as a software provider rather than its traditional hardware base. GRMNs efforts will be exhausted due to the phenomenal growth of Android and iOS, and their eventual integration into the in-dash. Harman, the leader in the in-dash infotainment industry, have already stated that software is the key in the in-dash market: So we were ... one of the pioneers in integrated infotainment systems ... However, we saw that there was a big shift occurring in terms of the technological content of next-generation solutions and this was in about 2001, 2002, when we invested in a fully object-oriented software solution ... The reason why we had to do that was because the rest of the industry was moving towards software-based solutions, where the hardware platform was not what was driving most of the value. And we needed to do a transition from a predominately hardware-oriented company to a software company. And today, and I would say not today but over the last (1) five years, that's what we are in infotainment, we are a software company.
1. Baird 2012 Growth Stock Conference, Chicago, IL
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The Reality of the In-Dash Car Market (Contd) Permanent automotive dashboard solutions from auto dealers will never feature GRMNs Tier 1 offering to the extent that they will be able to capture meaningful market share Margins as an optional Tier 1 provider are significantly lower at $200 per install (1) vs. $300-$400 as a Tier 1 provider
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The Reality of the In-Dash Car Market (Contd) This is a higher margin business that will experience tepid growth in the short-term for GRMN and deteriorate rapidly over the longer-term Sequentially gross margins will decrease whereas operating costs will increase as GRMN seeks to drive new business GRMN have already reported that in the Auto OEM business, margins are lower than any other category, even PND.
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The Reality of the In-Dash Car Market (Contd)

New mobile phones are adopting bigger screens, higher quality screens, high sensitivity GPS connectivity, acoustic speakers and removable memory Micro SD cards all together enhancing in-dash capability and mobility Mobile technologies are moving too quickly for GRMN to meaningfully adjust e.g. nuvifone was a complete failure in the smartphone sector costing shareholders $100m There is significant mobile substitution as consumers increasingly embrace smartphones for their navigation needs (1) A fully integrated in-built dashboard system will replace the PND with multimedia, video, sound and downloadable applications e.g. Ford Sync, GM OnStar
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In-Dash Market Leadership

This is going to be about software that GRMN does not have or the ability to develop GRMN have no history or skills base in gaining widespread consumer adoption of software Its not just about satellite navigation, its about integrating a connected entertainment system, utilising local knowledge and inter-operability across consumer devices. Therefore, GRMN's offerings will be relegated like the nuvifone in the smartphone market
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In-Dash Market Leadership (Contd)

Auto OEM will be dominated by Google and Apple. You can already use Car-mode on the Samsung Galaxy, and, therefore, this is a market about software This is reminiscent of the PC hardware model vs. software and services, legacy hardware providers will diminish unless they pivot e.g. IBM, HP etc. GRMN is a hardware company whereas the in-dash market is about software; Harman, as the leader in the infotainment market, already recognise that components are the commodities in the in-dash market. (1)
1. Baird 2012 Growth Stock Conference, Chicago, IL
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New Generation Platforms

Its software functionality and purpose that is important here. Said differently, GRMN will merely be an assembler of hardware in the Auto OEM in-dash market. GRMN doesnt even own the mapping, this is licensed from Navteq. Technology adoption cycles are conventionally quick. Open source software, like Android, will completely inhibit GRMN; this will be deja vu for GRMN and akin to the nuvifone failure
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3G Data Download Issues You can now preload routes and cache it to reduce 3G reliance e.g. Google Maps Increased memory in mobile devices will make the need to rely on 3G data redundant as full maps can be downloaded SD cards with 16GB and 32GB are now being offered as standard in mobile devices
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PND Addressable Market Declining

Increased competition has resulted in price reductions, fewer customer orders, reduced margins and loss of market volume for GRMN. The PND sector has a lower addressable market going forwards TomTom is undergoing a cost restructuring programme to reposition itself, GRMN will have to undergo a similar strategy to re-focus its business This will be short-term cost negative for GRMN but will accrue value over time
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PND Addressable Market Declining (Contd)

Restructuring of GRMNs production facilities will be inevitable as GRMNs Taiwan factories have been constructed for high volume GRMNs growth products are lower volume with higher margins so less foot space will be required. The PND replacement cycle is being stretched GRMNs PND volumes have declined materially and the associated ASPs Average selling price declines continue to be attributable to the competitive environment in which our automotive/mobile products compete. (1)
1. GRMN 10K 2010
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GRMNs Auto / PND Market Decline

GRMNs market size assumptions about the YOY PND decline may need to accelerate downwards, as the potential for further exponential decay is a meaningful threat The intense discounting in the tablet market further compounds PND pricing pressure and will accelerate the standalone PND market size decline GRMN are already forced to compete in the value end of PND devices and will need to reduce Opex in line with falling revenues Gross margins are being effected by these negative headwinds as GRMNs ASP for PNDs are $130 with a 10% operating margin (1)
1. GRMN CFO Kevin Rauckman, Morgan Stanley Technology, Media & Telecom Conference February 27, 2012
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GRMNs Auto / PND Market Decline (Contd) GRMN have not adequately addressed these headwinds in the PND market. In fact, they have attempted to mitigate these multiple impairments by creating applications on mobile devices themselves, to ensure they still have some traction in the entry level markets across their product range. The fact that GRMN created Apps on mobile devices signals that substitution is real and meaningful
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GRMNs Auto / PND Market Decline (Contd) Otherwise, why create an App with lower ASPs and margins and cannibalise your own sales?
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Apple Maps
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Apple Mapping Issues

As we have seen with previous Apple issues e.g. signal faults, the turnaround and resolution of these issues are quick and meaningful.
Customers around the world are upgrading to iOS 6 with over 200 new features including Apple Maps, our first map service. We are excited to offer this service with innovative new features like Flyover, turn by turn navigation, and Siri integration. We launched this new map service knowing it is a major initiative and that we are just getting started with it. Maps is a cloudbased solution and the more people use it, the better it will get. We appreciate all of the customer feedback and are working hard to make the customer experience even better. (1)
1. Trudy Miller, Spokesperson for Apple
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Apple Mapping Issues (Contd)

Apple will spend more attention and focus on the mapping issue, this will become a key priority. Apple understands that local data is key with the integration of Yelp Googles buyout offer for Yelp signals the strength of local data Inter-operability is key, connectivity between devices will be the entry benchmark Apple Maps is essentially a beta version so it was going to have known issues, and longer term these issues fade, as the service adapts to customer feedback (Google Maps beta had numerous issues initially) Overall this is going to be even more troublesome for GRMN as Apple reinforces and doubles its efforts Apple Maps are also likely to affect GRMNs traffic subscription business, although it is difficult to gauge this impact right now
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Entrance of Apple into Mapping

There are100m business listings in iOS6 maps; this shows that competition between Apple vs. Google is going to be healthy for consumers and awful for GRMN; plainly speaking, GRMN wont even be competition in the long term. GRMN are, therefore, looking to de-emphasise the Auto / Mobile category since much of their free cash flow and earnings have been derived from that segment, whereas now competition is obviously the most intense here, vis--vis Apple and Google. The Auto / Mobile category continues to contribute materially to GRMNs operating income with 36% YTD 2012 whereas the next largest GRMN segment, Outdoor, contributed 24% YTD 2012. (1)
1. GRMN Q2 10Q 2012
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Entrance of Apple into Mapping (Contd)

The iPhone refresh cycles will continue to have a material impact on GRMN's businesses in the future The unpredictability of new iPhone features and new Apple products can materially impair a number of GRMN's categories StreetPilot (from the Navigon purchase) is also now facing more intense competition with the iOS6 refresh and Apple Maps Siri is also part of the natural evolution from physical input, to touchscreen, to voice control in mobile devices and everyday life. This increases the natural affinity between technology and the customer experience. If Siri continues to build momentum by functionality and being obsessed with the customer experience (Siri is already integrated into Apple Maps), this can be painfully damaging for GRMNs Auto / Mobile segment Siri and destinations are going to be integral to one another; Siri integration into the OEM in-dash is going to happen, it is a matter of time.
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GRMN's Products Are Expensive GRMNs products are fully stocked in the supply
channels and are widely available online However, many physical retailers are carrying low levels of GRMN inventory (outside of PND), reaffirming its niche status GRMNs significant discounting on relatively new product lines is a worrying sign indicating increasing pricing pressure This is now impacting GRMNs operating profit margins on growth categories and causing downward pricing pressure
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New Products Specifically Targeted at the Value-End

GRMN realises with the exponential growth of the App market with its low cost base, and multitude of features, the GRMN form factor devices need to pivot to more affordable price points To somewhat mitigate this, GRMN are introducing entry-level devices across its categories to induce demand at the value end of the price spectrum e.g. Forerunner 10, nuvi 2200 and 2300 PND models etc.
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GRMN are Becoming Irrelevant The App ecosystem will touch all GRMN categories GRMNs entry level products are the low (1) hanging fruit right now GRMN lack the support infrastructure to capture meaningful market share against Android and iOS The creative talent and developers are focused on Apps and not a closed GRMN hardware-centric system
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nuvifone Failure GRMN introduced the nuvifone A10, A50 and M10 as location-centric mobile handset models. (1) In October 2010 Garmin and ASUS announced that they would not introduce any new co-branded handset models going (1) forward The nuvifone failed because consumers are not going to buy PND mobiles; navigation is not a differentiator
1. Garmin.com
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Evolution of Mapping Technologies Paper Maps PDA Maps PNDs In-dash On-boarded Connected Devices
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Smartphone Link A Reactionary Response (Contd)
GRMN launched Smartphone Link in January 2012. Smartphone Link is an Android application which provides live services to PNDs via Bluetooth. The application lets GRMN PND users add live services, such as traffic information, traffic camera images, weather and fuel prices to their navigation device via a smartphone's mobile data plan. Premium content and live services are available through subscriptions.
Source: Garmin.com
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Smartphone Link A Reactionary Response (Contd)

This shows mobile inter-operability is a meaningful issue for navigation Apps, PNDs and GRMN GRMNs tinkering with Auto / Mobile is patchy and of low quality in a key segment where in fiscal years 2011, 2010, and 2009, Auto / Mobile represented approximately 48%, 54%, and 63% of GRMNs total consolidated revenues. (1) The eventual loss of revenue in the Auto / Mobile sector is going to significantly impair and decay GRMNs core business model
1. GRMN 10K 2011
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Reminder
History demonstrates that the technology innovation cycle has rapidly disrupted the established industry structure across multiple domains.
Form Factor Alarm Clock Calculators Replacement(s) Mobiles Mobiles e.g. Companies Impacted Sony, Phillips Casio, Texas Instruments Kodak, Fuji, Sony, Olympus NY Times, Washington Post Olympus, Sanyo Nintendo, Sony
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Cameras Mobiles Daily Newspapers Mobiles, Tablets and Magazines Digital Dictaphones Mobiles Handheld Gaming Mobiles, Tablets
Reminder (Contd)
Form Factor Mp3 CD Player Mp3 Players Personal Planners PDAs Portable DVD Players Portable USB Storage Radios Replacement (s) iPods, Mobiles, Tablets iPods, Mobiles, Tablets Mobiles, Tablets Mobiles, Tablets Mobiles, Tablets Mobiles, Tablets, Cloud Mobiles, Tablets e.g. Companies Impacted Sony, Phillips Sony, Microsoft, Creative Staples, OfficeMax Acer N Series, Dell Axim, HP iPAQ, NEC MobilePro, Palm, Psion, Sony Clie Toshiba, Panasonic, Sony SanDisk, Creative, Yahoo Mail, Hotmail Phillips, Sony
90
The Transition from Technology-Driven to Customer-Driven Products
91
Moving from High Technology to Consumer Commodity
Sources pp. 92-93: Norman, D. (1998). The invisible computer: why good products can fail, the personal computer is so complex, and information appliances are the solution. Cambridge, MA: MIT Press. Treloar, A. (1999). Products And Processes: How Innovation and Product Life-Cycles Can Help Predict the Future of the Electronic 92 Scholarly Journal
New Earnings Call Language The Auto PND business is being recategorised as non-traditional by GRMN management to de-emphasise its impact, and to give the impression of its immateriality to GRMN's core business All segments other than Auto/PND are now being grouped as 'traditional' on earnings calls
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New Earnings Call Language (Contd) Q1 2010 - Use of 'Traditional' on call = 0 Q2 2010 - Use of 'Traditional' on call = 0 Q3 2010 - Use of 'Traditional' on call = 0 Q4 2010 - Use of 'Traditional' on call = 3 Q1 2011 - Use of 'Traditional' on call = 1 Q2 2011 - Use of 'Traditional' on call = 2 Q3 2011 - Use of 'Traditional' on call = 4
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New Earnings Call Language (Contd) Q4 2011 - Use of 'Traditional' on call = 5 Q1 2012 - Use of 'Traditional' on call = 3 Q2 2012 - Use of 'Traditional' on call = 3
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Why is this Important? Because we know this is not accurate.

On Fitness, from this segment having zero contribution five years ago, to almost a little over $300m in revenue in this segment. Many people aren't even aware that Garmin started about 20 years ago focusing primarily in two segments, marine and aviation. These remain still very profitable parts of our business and a (1) key part of our technology.
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Why is this Important? (Contd)

We therefore believe to label all categories other than Auto / Mobile as 'traditional' is disingenuous and does not reflect market reality, either now or historically.
Question
Which brings me to a very interesting thing which is on the conference calls you talk of your core business as aviation, marine, outdoor and fitness and not the PND, auto OEM, which is traditional, right; which I kind of think is a bit counter-intuitive for some of us, but, this for you is returning to the roots of the company?
Answer I think we never really moved away, we were just addressing the market opportunities as they came up, I mean the PND business 10 years ago, there was no PND business. So it went from zero to, for us, to almost a $2bn dollar business in revenue. And then we've been addressing these other vertical markets as they've came up. Fitness wasn't even around 5 years ago, now its a $375 million dollar business. (1)
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Why is this Important? (Contd)
How can Fitness be more traditional than Auto / PND if its only been around for 5 years?
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Fitness
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The Fitness Market GRMN's fitness segment is a strong growth sector earning materially greater operating income on year-over-year basis GRMN's strong dominance in this new emerging sector affords it the ability to charge premium prices accruing greater gross margins and profitability Strong product refinements and innovation anchors and augments its market leadership position
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GRMN's Fitness Market Growth Kevin Rauckman GRMNs CFO: On fitness, in the last few years we have come out of basically nowhere, from this segment having zero contribution five years ago, to almost a little over $300m in revenue in this segment. (1)
1. NASDAQ OMX 28th Investor Program London, June 26, 2012
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Operating Income Increasing Materially

$500 $450 $400 $350 (m) $300 $250 $200 $150 $100 $50 $0 2009 2010 Fiscal Year
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Operating Income Revenue
2011
Competition Expected in Fitness

Single purpose devices will become niche like every other category that smartphones have penetrated The majority of consumers will seek multi-connected devices against GRMNs standalone, high price point offerings New designs and upgrades will only increase market share incrementally for GRMN as they are already the leader in the fitness category The overall fitness market is growing, however, although new and existing competitors are doubling their efforts to acquire meaningful market share This will inevitably impact GRMN as the current market leader
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GRMN's Premium Offering GRMN's premium fitness product is the (1) 910XT multisport GPS-enabled watch This provides swimming metrics and tracks distance, speed/pace, elevation and heart rate for running and cycling. (1) The features of this product are not unique and are also bundled in products by a number of other competitors e.g. Timex, Polar
1. Garmin.com
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Branded Competition Timex Ironman The Timex Ironman watch is multi functional This is an attractive feature in a cost conscious environment It can also function as a cycle computer with an additional bike mount The Timex Ironman can also track swimming laps, distance, pace, stroke count and other related metrics etc. The Timex Ironman is also fully waterproof to 50 metres
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GRMN's Value Offerings

GRMN also introduced the upgraded FR70 low budget fitness watch. GRMN expanded its line of products for cyclists in 2011 with the introduction of the Edge entry-level 200 cycling computer. GRMN also announced GRMN Fit, its first fitness App for the iPhone and Android phones that uses the phones GPS to let users track metrics, such as, speed, distance travelled, elevation and calories burned. In 2012, GRMN also announced the Forerunner 110 fitness watch targeting the value-end of the market
Source: Garmin.com
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Fitness Margins Fitness margins improved due to product mix which was heavily weighted toward new highend models in the second quarter of 2012 compared to 2011 when we were significantly discounting products at the end of their life cycle.
Source: GRMN Q2 2012 Press release
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Advent of the Fitness App Market

Question When you look at the fitness segment, can you talk about how you view competition from smartphones, seen a lot of applications there at CES, maybe where you can drive growth, is it new categories or is still some global expansion opportunities, or other areas that you drive growth here in the fitness segment? Cliff Pemble, GRMN President and COO: We definitely see what is going on with the smartphones in fitness, I think particularly Bikes is a popular area to use a phone, we offer applications on the phones as well, and we are beginning to get a sense of what that market is. I would say that we feel that those applications tend to complement the devices and people that maybe get introduced to fitness through applications, are interested in using a dedicated device if they continue to be serious going forwards. So we have not really seen that, that has been a major impact.
Source: GRMN earnings call - Q4 2011, February 22, 2012
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Apps Are the Future
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How is the App Market Evolving? Smartphones are capturing the beginner markets with zero cost Apps GRMN's low-end products are under the most threat of being replaced by mobile devices since the price points and entry features make them more vulnerable as (1) being treated as add ons. Apps are also replacing features where functionality does not exist in current GRMN or competitor devices
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GRMN's Entry Level Fitness Watches
111
Rapid Expansion of the App Market Apps target a wide spectrum of users Apps are also designed to be appropriate for beginners, specialised GRMN products may also require training e.g. geocaching GRMN have to introduce value-end products because they are niche, reducing ASPs This is an attempt to widen GRMN's addressable base and stem the impact of App growth
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Mass Worldwide App Market Growth Apps gain awards, spread by word-of-mouth Apps attract better marketing efforts and (1) better social traction and sharing Renewals and upgrades are easier and lowerpriced This will deteriorate GRMN's categories and reduce pricing and consequently earnings power in the fitness segment
(1)
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Next Generation Competition

The response to the App ecosystem will benchmark how agile and responsive GRMN are to meaningful competition It is almost impossible to increase ASPs and capture increasing market share for GRMN $0 App offerings will significantly affect shipment volumes just as with PNDs A large installed base will not protect the category without improvements in quality and the customer experience
114
Next Generation Competition (Contd) GRMNs mid-range product portfolio can (1) already be replaced by smartphones This is a material development and these will gradually replace/reduce the substantial addressable base for GRMNs fitness category GRMNs non-connected devices will be relegated There will be a network effect with lower (1) usage and migration to smartphone Apps
115
GRMN's Mobile Fitness App GRMN recently launched a fitness application, GRMN Fit, for iPhone and Android users that lets users track metrics such as speed, pace, distance, time and (1) calories. Garmin Fit also maps and automatically uploads workouts to GRMN Connect. This shows the migration to the iPhone and Android is real and meaningful
1. http://www.garmin.com
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Growing Demands for Data and Analysis

Data transmission and sharing is a lot easier over mobiles than watches; smartphones can sync real-time rather than a manual upload with a dedicated GRMN device; the trend is for inter-op not single dedicated devices Devices are now cohesive; multi-sporters demand one device that can transition quickly without compromising on features; the waterproof feature is a known issue though for mobile devices. This can be mitigated with appropriate covers that are affordable, widely available and tested. Data will not become an issue as it is now; multi product maps will be completely downloadable and 4G mobile technologies will enhance on-demand data.
117
Fitness Device Competition
118
Mobile Fitness App Competition

RunKeeper Adidas miCoach SmartRunner Endomondo
Nike+ Running
MapMyRun
Runmeter
CardioTrainer
runtastic
Couch-to-5K
Strava Run
My Tracks
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Fitness Competition
Nike+ is also more appealing to consumers who are more design conscious and stylish. GRMN have imitated this part of the Nike+ strategy with new designs to the Forerunner products Nike+ is easily updateable, GRMN updates do not have the same convenience GRMNs fitness strategy is centred on encouraging buyers to adopt newer models; Nike+ are focused on gaining user traction whereas GRMN are purely concerned with accruing revenue by frequent new product introductions (which is also having the unintended consequence of clogging the supply channels with old GRMN fitness inventory). New competitors like Fitbit are also fragmenting the fitness market and providing new alternatives instead of GRMNs fitness products
120
GRMNs Flagship Connect

GRMN Connect has logged 2.5 billion miles of activity GRMN have 2.5 million users
(2) (1)
Nike+ have already registered 694 million miles of (3) activity Nike+ have 5 million users
(4)
This shows Nike+ is penetrating the market, especially at the entry level despite GRMN having better attachment rates. The Nike+ community will grow and be more engaging, with Facebook and Twitter integration
1. 2. 3. 4. http://connect.garmin.com/ http://gbr.garmin.com/summertraining/en/garmin-connect.html http://nikeplus.nike.com/plus/ NIKE 10-Q for Q1 2012
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Branded Fitness Competitors
122
MOTOACTV All-in-One Fitness Trainer
123
MOTOACTV All-in-One Fitness Trainer (Contd)
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Branded Fitness Competitors (Contd)
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Nike+ On the iPod nano

Nike+ right out-of-the-box iPod nano
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Nike+ is a Growing Concern for GRMN

Nike+ Fuelband is widely penetrating the entry level fitness market, as well as, Fitbit, at the lower price points TomTom co-op with Nike is real, meaningful competition This is the entry price where the mass market is GRMNs Forerunner 110 at the same price point does not have the same level of features or functionality Nike+ competition is getting stronger, they have a strong advertising backdrop and a strong complementary product catalogue, which reinforces the Nike+ offering Nike+ have a wide global reach. This lends the company significant credibility, which will translate into strong material growth and market share gains.
133
NIKE Q4 2012 - Conference call

Whats new in Running is the rise of digital technology and services. Runners are technology-oriented athletes who recognize genuine innovation. Digital speaks to them because it helps them train, compete and measure their performance. Digital services can motivate them and connect them to other runners. Today running is a social activity and digital is helping drive participation rates through the roof all over the world. Most of our new performance innovation starts in the Running category before it expands into other categories and brands. So when we create NIKE+ and Free. . . Lunar or FlyKnit - like we did this year were really launching a long-term platform for growth. Then we expand on the platform using the brand to develop apps . . . events and services that add value and opportunity. And we bring it to life in destination retail where consumers can get the full NIKE Running experience. Thats the future of connecting with athletes and consumers.
Source: NIKE Q4 10Q 2012 - Conference call
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GRMN's Software Deficiencies

New platforms and software technologies are being adopted which are simplifying and enhancing the overall customer experience GRMN are now also focused on a simplification of its product lines GRMNs current software updates are limited to bug correction and minor refinements Basically, GRMN devices are hardware-centric and software sophistication is generally marginal Once GRMN hardware has been shipped, great software ideas are rarely added to the existing product lines, whereas Apps are software-driven and are constantly being updated with new features and improvements enriching the customer experience
135
Cross-Utility of Devices = Cannibalisation

GRMN Forerunner and competitor fitness watches can also be used for cycling There is obviously a cannibalisation problem here Additionally, with weatherproof cases for cycling and smartphone protectors, iPhones and Android devices have gained significant traction in cycling You can secure and mount a smartphone to a Bike for under $20 from Amazon (1)
1. http://www.amazon.com/iOttie-One-Touch-INCREDIBLE-BlackBerry-Revolution/dp/B007FHCR20/ref=pd_cp_cps_2
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Fitness Competition
The key fitness metrics of distance, time and calories burned are already available in simple bicycle computers without the need for a GRMN dedicated form factor device. Additional accessories can also display heart rate and cadence and these features are readily available at affordable price points. GRMN cant develop an ecosystem to compete with either Android or iOS. GRMN have reported lower gross margins in fitness due to a shift in product mix, and margin compression will still be a problem for GRMN despite a growing fitness market This is actually more likely due to discounting which therefore attracts low-end purchases or end of cycle products.
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GRMN's Obsession with Discounting Fitness margins improved due to product mix which was heavily weighted toward new high-end models in the second quarter of 2012 compared to 2011 when we were significantly discounting products at the end of their life cycle.
Source: GRMN Q2 2012 Press release
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GRMN's Obsession with Discounting (Contd)

GRMN have been obsessed with discounting and short-term promotions to retain and win new business further eroding operating margins. This extends from the Auto/PND segment to fitness where offline retail and online channels are clogged with old inventory This is a worrying sign for GRMN as a market leader in the fitness category that it needs to rely on deep discounts as a permanent strategy As fitness products are discretionary purchases, consumers are anticipating GRMNs discounts and are delaying purchases
139
GRMN's Cashback Websites
Source: http://www.garminfitnessredemption.com
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GRMN's Cashback Websites (Contd) This particular cashback offer extended across Australia and New Zealand 476 stores in Australia 118 stores in New Zealand
141
Partial List of Distributors
142
The Cycling Market The cycling market is very penetrable and GRMN does not command the same level of leadership in this market, as is it does with fitness watches Substitution to mobile devices is real and meaningful as well as cross-substitution of multi-sport devices and other brands.
143
GRMN vs. The Consumer GRMN is a believer in single purpose devices; only niche consumers desire high price point, standalone specific technology Most consumers desire easy-to-use, connected, multi-functional devices whereas GRMN advocate distinct, non-connected form factor devices Competition will drive lower price points; GRMN offerings at lower price points offer redundant features and technologies
144
GRMNs Discounting to Clear Old Inventory
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Google Maps Enters the Cycling Market

Google have recently introduced cycling maps We knew this was in development as reports (1) surfaced about Google mapping cycling routes Google understands that pursuing novelty and testing the periphery have the possibility to yield substantive results
1. http://googleblog.blogspot.co.uk/2010/03/biking-directions-added-to-google-maps.html
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Google Cycling Maps
Source: http://www.transport.act.gov.au/bike_directions.htm
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MapQuest Cycling Maps
Source: http://www.cyclelicio.us/2011/mapquest-bike-directions/
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GRMNs Flagship Bicycle Accessory

GRMN have delayed the release of their flagship Vector pedal-based power system citing manufacturing issues. The product is expected to retail for approximately $1,500. The product carries an exceptionally high cost and will therefore only appeal to the very serious and avid cyclist as the price point is very prohibitive to mainstream cyclists.
149
New Competitors Have Already Introduced Similar Pedal-Based Power Systems
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Cycling Networks in Major Cities

Many cities are developing and investing in their cycle networks and off the success of the London, Berlin and Barcelona schemes the effects could be uneven for GRMN. The enhancement of appropriate infrastructure would increase cycling traction among consumers, but progress is slow and limited The reality is, that in major cities where cycling schemes already exist, they are gaining traction and the rental bikes dont have accessory gadgets. With material traffic safety concerns, navigating safely to destinations is the most important factor. Gadgets can be a dangerous distraction, especially in built up city areas. Additionally, the vast majority of usage across cycle networks involves the average cyclist who adopts the rental bike or an ordinary bike with accessories no more than front and back lighting and a bell.
151
Operating Headwinds
GRMN is an aspirational product carrying a premium price Losses from the Application market are going to be material and stem GRMNs fitness market growth In order to mitigate App market losses, GRMN will need to segment their fitness offerings further, continuing to introduce new products and significantly discount entry level fitness products in an attempt to sway, potential, or existing fitness App users.
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Putting it Altogether Revenue growth in our fitness segment was 14% compared to the year-ago period as strong first quarter results related to the launch of new products were muted in the second quarter as we compared against strong performance in 2011 driven by promotional activity on discontinued products and the launch of new products.
Source: GRMN 10Q for Q2, 2012/
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Field Research
Street interviews @The London Cycle SuperHighway Multiple research points across the SuperHighway on multiple days at various times
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Field Research - Findings

The primary concern is safety and traffic awareness Not everyone is tech centric and a lot of cyclists want to detach themselves from technology overload There was a high penetration of rental Cycle Scheme bikes which do not have any electronics except for front and rear bicycle lights The No. 1 additional device is a smartphone for the MP3 player
155
Field Research - Findings (Contd)

Not everyone is cycling and running outdoors but they are also doing these activities in gyms Most treadmills and in-door cycles already have electronic tracking features with basic statistics installed so additional devices are redundant Basic electronic cycle computers that can track core data had significant traction where electronic devices were used on cycles e.g. Sigma Cycling Computers
156
Field Research - Findings (Contd) Some consumers did use fitness devices, not for cycling, but for running e.g. Forerunner, Polar iPhone bike mounts with screen protectors were incredibly popular where smartphone devices were used in cycling Most cyclists were travelling minimal distances so only carried money and their smartphones
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Most cyclists are not serious enough to consider GPS devices and cannot see the utility of them matching their needs iMapMyRide was common among cyclists who used their smartphones, which was reported to work fine and was functional GRMN Edge did trigger interest among the more serious, niche cyclist, however, this commitment did not translate into actual purchases RunKeeper was the most frequently used App for runners Nike+ had high brand awareness Concerns were raised about the potential battery life of smartphones when using cycling Apps for long distances There was a strong preference for the iPod Touch if cyclists and runners didn't want to purchase expensive smartphones but wanted to use Fitness Apps
158

Why buy hardware when it is going to be obsolete in a year? There was a strong preference for free Apps or 99p Apps with free updates. Users want multi-functional devices, they don't want to be carrying all sorts around especially when running or cycling There were a significant amount of runners using smartphone armbands in wet weather conditions; additionally, there was a very low penetration of GRMN or competitor products A high percentage of runners are jogging while carrying their iPhones and other smartphones We found this to be unusual given the cost of damage that may be incurred However, this indicated the extent to which users did not want to be detached from their iPhones and other smartphones when outside
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Field Research - Findings (Contd) The London Cycle Scheme bikes dont have any additional accessories, other than front and back lights Most cycling was either as a function to save money, simply as a route to A-B, as a means of exercise or as a leisure activity. The cross-usage of smartphones in cycling is gaining penetration. Bike lights are the most popular cycle attachment.
160

Cheaper varieties of cycle computers capturing the core metrics of speed, distance and calories have the most traction. The accessories market is an enabler and promoter of mobile technology The additional responsibility of storing and carrying portable devices was a concern, smartphones absolve cyclers of this responsibility. GRMN products were perceived to be for the elite market, therefore inferring niche status.
161
Marine
162
Marine Outlook
The marine segment accounted for 8% of GRMNs operating income YTD 2012 (1) High gas prices have inhibited growth Marine sector combo units from manufacturers, such as, Raymarine have cannibalised sales across the marine industry GRMN sees the marine outlook as weak for the last several years citing adverse macroeconomic conditions impacting sales GRMNs failed Raymarine transaction stalled marine growth, which GRMN cannot acquire organically
1. GRMN Q3 2012 Press release
163
Marine Outlook (Contd)

The GPSMAP 700 series, a mid-range chart plotter featuring a 7 widescreen touch screen display offering all of the key functionality that value oriented customers are looking for. (1) GRMN is introducing low price point portable devices in marine and all of its segments to widen its product mix, in order to mitigate the threat of low price point mobile tablet devices This will not occur without ASP declines Response to our new marine product offerings remains positive, and while the second quarters typically strong marine buying season was muted due to high fuel prices and poor weather, the third quarter showed some solid improvement over the same quarter in 2005. (2) GRMN have cited high fuel prices as an impediment to marine growth for almost the last 7 years
1. GRMN Press release, Q1 2010 2. GRMN Press release, Q3 2006
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GRMNs Permanent Discount Strategy Persistent discounting and rebates permeates all of GRMN's business segments
165
GRMNs Permanent Discount Strategy (Contd)
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GRMNs Extended Discounting Programme
170
Aviation
171
Aviation Headwinds
GRMN have struggled to grow aviation revenues because of the prohibitive cost structure, the high level of research and development, and costs associated with regulatory compliance The deep cost structure and fixed base impairs profitability in the aviation segment, and growth is tepid Higher barriers to entry than other GRMN segments offers some category protection. GRMNs annual average compounded growth rate in aviation since 2006 has been 4.11%
172
Aviation Operating Margins 2011 aviation revenue rose but GRMNs operating margins are falling This is the clearest sign that GRMN is persisting with discounting to boost revenues
173
iPad Aviation Portability iPad is becoming the Electronic flight bag of choice The iPad is now recognised as a legal replacement for paper charts for VFR and IFR Additionally, the iPad reduces weight, saves paper and lowers costs for airlines and Pilots. Portability in the Aviation market is viable as per GRMNs GPSMAP, the GRMN Pilot App and aera portable GPS aviation devices from GRMN.
174
iPads in Aviation
175
iPads in Aviation (Contd) With iPad we have a device thats almost custom-built for our application. One thats lightweight, runs on battery power for a long time, is easy to program, and give us the information we need at the moment we need it. Captain Joe Burns, Managing Director of Technology and Flight Test, United Airlines
Source: http://www.apple.com/ipad/business/profiles/united-airlines/
176
iPads in Aviation (Contd)

iPad use picking up in airline cockpits CNN American Airlines Pilots Drop Flight Bags For iPads Information Week Airbus offers iPad Electronic Flight Bag solution Airbus United Pilots Get iPad Flight Manuals NY Times United & Continental Replace Flight Manuals With iPads Mashable iPads Domination Spreads to Cockpit Wired.com iPads fuel flight of paperless planes USA Today American Air sees paperless cockpits with iPad MarketWatch Apple iPads in Cockpits May Mean End of Paper Charts Bloomberg
Sources: http://edition.cnn.com/2012/09/14/travel/ipads-in-airline-cockpits/index.html http://www.informationweek.com/government/mobile/american-airlines-pilots-drop-flight-bag/240007209 http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/airbus-offers-ipad-electronic-flight-bag-solution/ http://bits.blogs.nytimes.com/2011/08/23/united-airlines-to-give-all-pilots-ipad-flight-manuals/ http://mashable.com/2011/08/23/united-continental-pilots-ipad/ http://www.wired.com/gadgetlab/2011/08/ipad-dominates-skies/ http://travel.usatoday.com/flights/story/2011/03/-iPads-fuel-flight-of-paperless-planes-/45015854/1 http://articles.marketwatch.com/2011-06-16/news/30827655_1_ipad-american-air-cockpits http://www.bloomberg.com/news/2011-03-07/apple-ipads-in-cockpits-may-hasten-end-of-era-for-paper-navigation-charts.html
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Competition in Aviation Apps

Competition in Aviation Apps like WingX and ForeFlight are very well established ForeFlight releases updates every 28 days GRMN also has its own App, Pilot My-Cast iPhones and Androids are already being used as a backup or instead of paper maps The iPads large battery life is what makes it popular in aviation App developers are constantly updating Apps to fix known issues and bugs; the iPad syncs this automatically for seamless use enhancing the customer experience
178
Competition in Aviation Apps (Contd)

ForeFlight, the main aviation App, started as a chart viewer integrating features, such as, plates, weather, airports, hotels and flight plan filing The tablet accessories market is rapidly developing and enhancing and enabling the iPad as an Aviation technology The iPad has a simple intuitive operating system The iPad is reliable and has a high resolution, bright screen with good, stable mounting The battery life of 7-10 hours of an iPad in-flight makes the iPad dependable The iPad is also useful outside of aviation and is multifunctional enhancing purpose and the customer experience
179
Competition in Aviation Apps (Contd)

The iPad 2 costs $399 GRMN has its own aviation App which shows migration to mobile devices is a realistic proposition This is already having a negative impact on GRMNs portable aviation products, but GRMN understands that this is now a depleting market The Accessories market has been built out of iPad
180
Aviation App Development

Apps allow automatic downloads and synchronisation between iPhone and the iPad ecosystem Universal Apps across the iPad and iPhone enhance portability There is one price for both platforms, or iPad specific Apps that can also be purchased App updates are based on customer feedback, which is quick and responsive Updates in the App store are always free once the App has been purchased
181
GRMN's Pilot My-Cast App Pilot My-Cast is GRMNs flight planning, flight plan filing, and pre-flight weather application for mobile phones.
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GRMN's Pilot My-Cast App (Contd) In March 2011, GRMN announced a new version of the GRMN Pilot My-Cast application for Apple iOS-based devices that offers geo-referenced approach charts, secondary navigational capability and (1) optional integration with XM WX Weather. GRMN needed to introduce an iPad flight App to stay relevant in the aviation category The net effect is, it will compound GRMNs cannibalisation of sales in the category
1. http://www.garmin.com
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GRMNs Aviation Discounting and Rebates
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Development of Electronic Aviation

With the enhancement of mobile Apps, features, such as, synthetic vision, terrain and weather updates are becoming more prominent, as Apps become more processor intensive Airlines are already using GoodReader for electronic data organisation Web Apps are also gaining traction via HTML5 The FAA already have all Aviation data in PDF and other electronic formats
185
Aviation Growth has Stalled

This is a traditional segment for GRMN so growth will not accelerate anytime soon While gross profit remains high in the segment it is difficult to materially increase incremental revenue, the purchasing cycle and decision making process is longer, and consumer education is stronger in the aviation segment. The high amount of research and development in aviation will control / mitigate profit in the segment for GRMN
186
GRMNs Portable Aviation Devices GRMN also brought two new portable devices to market the aera 795 and 796. The flagship 796 takes the pilot one step closer to a paperless cockpit with a digital document viewer, scratch pad and preloaded IFR and VFR charts. (1)
Mobile tablet Apps including GRMN Pilot, WingX Pro and ForeFlight can already onboard these features and will deplete GRMNs sales in the portable aviation category.
1. GRMN 2011 Annual report
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Outdoor
188
Outdoor Operating Margins

Operating margin was 44% in 2011 Low-cost competitors are entering the market, this will be followed by smartphone substitution (2) like every other GRMN category Smartphones and tablets will also become functionally more effective with higher GPS sensitivity The mobile device accessories market will complement existing features and will become an enabler of new technology
1. GRMN 10K 2011 2. Deutsche Bank research notes
(1)
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Outdoor Market Expectations

GRMNs expectation is that smartphone (1) substitution will take time to play out History shows that with IT products this (1) transition occurs very rapidly GRMNs outdoor ASPs will have to be lowered to offset volumes losses The App ecosystem is widening quickly offering more functionality at a lower cost, increasing consumer penetration, deepening adoption and attachment rates.
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Google Maps Enters the Hiking Market

Google have recently introduced hiking maps We knew this was in development as reports surfaced about Google mapping hiking routes (1) Google understands that pursuing novelty and testing the periphery have the possibility to yield substantive results Googles hiking maps are vector based and are provided free of charge
1. http://www.wired.com/gadgetlab/2012/06/google-reveals-an-image-capturing-backpack-and-new-3d-maps/
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Outdoor Market Penetration GRMNs outdoor segment is for professional and/or avid users, therefore, implying that it is a niche category and not mass market The smartphone and tablet replacement cycle will be shorter for Outdoor than PND due to shorter development times and entry (1) to markets
192
Outdoor GPS and Mobile Substitution

There are 100m iPhones and iPod Touches out there Mobile technology delivers the basic needs and is essentially good enough as a Golf GPS and for geocaching Skycaddie has significant traction and is a leader in Golf GPS devices Golf laser range finders also have traction and yield more accurate results GRMN does not have an auto upload synchronisation feature like mobile devices Mobile Apps also support social networking with Twitter and Facebook integration
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Outdoor Mobile Devices

Mobiles can receive call alerts so customers are still connected Apps will integrate with a global community to update information and points of interests, reviews, video etc. The synchronisation of devices between iPad, PC, iPhones and Android will be a key differentiator News integration in mobile devices is currently supplementary but has the potential to gain more traction.
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The Outlook for the Outdoor Market

GRMN will be forced to lower ASPs as new competitors emerge High operating margins will not be sustainable (1) over the longer term Over 200,000 Apps are available in the Android (1) Marketplace Smartphones will replace these markets just as they did with Auto/Mobile GRMNs current margin levels are therefore unsustainable as new competition emerges
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GRMN's Outdoor Discounting Strategy
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GRMN's Outdoor Discounting Strategy (Contd)
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198
199
200
Potential GRMN Products Facing Mobile App Competition Nuvi Zumo Forerunner Edge Colorado Oregon eTrex Automotive Motorcycle Running Cycling Marine charts Hiking Outdoor
201
Potential GRMN Products Facing Mobile App Competition (Contd) Approach Fishfinders GPSMAP Outdoor Marine Aviation
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GRMN's Overall Strategy

GRMN believes being agile is about rapidly introducing new products to the marketplace; its actually about being obsessed about the customer experience. This involves being intimately responsive and harmonising interoperability across single and multiple platforms and hardware; and, additionally, simplifying activities in a cohesive way. Said differently, building an ecosystem you would find difficult to be without.
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Conclusion
Value investors are applying traditional DCF analysis based on historical earnings This masks the true reality of GRMNs forward earnings given the issues highlighted GRMN have nothing proprietary that is meaningfully differentiated The high dividend payout ratio creates a floor in GRMNs stock and the heavy insider ownership stabilises the stock price GRMNs fair value is significantly lower given the multiple impairments in its core business model.
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Conclusion (Contd)
The declining PND business cannot be offset by other categories in the near term (1) Average users will consolidate their needs in using smartphones and tablets Growth categories cannot sustain high operating margin levels indefinitely, as new competition emerges and existing competitors optimise their offerings Substitution of smartphones and tablets for PNDs will also extend to GRMNs growth categories threatening their user base, especially for the average and nimble user GRMNs growth categories are specialised and dont have mass market appeal; GRMNs average price points are also prohibitive
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Conclusion (Contd) The price differential of Apps vs. GRMN form factor is huge The decline in revenue from Auto / Mobile is declining much faster than the net growth in other growth segments This will result in major changes in GRMNs operating income and overall earnings With the 4G rollout this is going to further erode GRMN's ability to compete
206
Conclusion (Contd)
GRMNs premium, high price points products are just not accessible to a broader mainstream audience The London SuperHighway evidence demonstrates that GRMN still has poor traction despite being the market leader in fitness Free cash flow primarily accrues from PNDs which will rapidly decline in the future TomToms consumer business is also rapidly declining, compounded by increasing pricing pressure and depleted opportunities to meaningfully differentiate consumer products
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Conclusion (Contd)
We do not believe mobile devices or iPads will significantly impact the demand pricing for the more sophisticated, dedicated GRMN devices that are not easily substitutable These GRMN devices as a dedicated form factor are clearly more agile and customised, but not to the extent where they offer material advantages, therefore, substitution across the segments, overall, will still be high These markets are smaller though and aimed at professionals and avid users so the market size is already heavily penetrated by GRMN and other competitors.
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Conclusion (Contd) A large and increasing part of GRMNs new business and new product introductions are being geared towards the value end or entry level across their categories. This end of the market is highly penetrable by mobile devices and are under significant threat from mobile device substitution.
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Conclusion (Contd)
GRMNs new growth segments are growing rapidly but from a low base GRMNs market share in these categories will adjust, as growth stalls and these markets become more penetrated Earnings will fall and adjust accordingly to a more competitive landscape Great ideas cannot be added to existing GRMN products because hardware has already been shipped
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Conclusion (Contd) GRMN is fully levered to the consumer, they have little to no exposure to enterprise markets 4G smartphones will aggregate multiple functions and provide wide-scale utility with powerful hardware features complementing software Consumers will bundle products and therefore GRMN will face increasing pricing pressure across all of their categories
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Conclusion (Contd) GRMNs retail relationship channels will have (1) little advantage in mobile. As the App world matures, devices will become more inter-operable As tablet functionality increases and prices decrease, this will increase adoption rates amongst consumers and will replace dedicated devices
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Conclusion (Contd) Content is key in the revenue mix GRMNs overall hardware revenue will remain patchy and challenged Map data and software is the differentiator, not assembling hardware like GRMN (this is a long-term commodity business); Google and Apple will have the traction here.
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Conclusion (Contd)
GRMN is essentially a hardware company but it is trying to pivot to a software company App developers are more nimble and agile GRMNs balance sheet position is getting worse every year; whilst the profit and income statement can be managed to signal performance, it is much more complex to adjust balance sheet visibility except through genuine out-performance, revenue growth and earnings contributions.
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Conclusion (Contd)
HTML5 has the potential to further consolidate consumer needs and enable more connectivity The overall technology model has already shifted from hardware to software where GRMN is traditionally weak GRMN relies on hardware sales over software more than the industry average There is a high degree of price sensitivity in the App market Additionally, there are very low barriers to entry and exit in the App market
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Conclusion (Contd) GRMNs products are grossly over-priced, which is reflected in the high margin profile GRMN is quickly becoming the redundant high cost producer in a low cost world The multipurpose platform paradigm is real and will threaten GRMN's established core business model GRMN is at a strategic inflection point
216
Conclusion (Contd)
Computing and personal computing in specific is moving towards a 'multipurpose platform' paradigm. This means that people expect their devices to do many things, and do them well i.e. iPhones/Android. Would I rather spend money on a GPS navigator alone, or buy a device that can do almost anything, functions as a mobile gaming platform, and can make phone calls? It's pretty clear what the average consumer is going to choose. Smartphones, every time.
Source: Technology Review Blog
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Conclusion (Contd)
Local is the growth trend and GRMN have not invested in this area or developed platforms to enhance their offerings beyond obvious improvements GRMNs untarnished capital structure will deteriorate, as dividends are potentially paid from the balance sheet rather than actual earnings GRMNs dividend payout ratio of 60% is unsustainable and implies desperation to maintain a put level on GRMNs stock
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Conclusion (Contd) True earnings power is still being generated by the PND business (even in 2012), period. Increasing accrued consumer advertising revenue from Apps will define this area increasing App functionality and performance while lowering prices (race to $0 Apps) The App distribution channel is become more easier to enter and lucrative e.g. Apple paid (1) out $3 billion in App revenue in 2012
1. Apple CEO Tim Cook, 2012 Worldwide Developers Conference (WWDC)
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Conclusion (Contd) The double digit growth in fitness and outdoor will become challenged as high margins will compress Only specialist and avid users will require standalone dedicated devices GRMNs growth will become anaemic and this decline will have a meaningful impact on GRMNs stock price
220
Conclusion (Contd)
Areas of growth, such as, map licensing, GRMN have zero exposure to; there is also a big advertising incentive to get on mobile internet platforms rather than standalone, nonconnected devices like GRMNs.
GRMN is dependent on its distribution network for sales, smartphones have instant, accessible App stores. Sequential quarter-on-quarter declines in fitness margins implies there is an impending downward trajectory in gross margins
221
Conclusion (Contd) Higher marketing costs and / or discounting will be required to protect and shield the topline. The destocking in the retail channels for GRMNs products are real shifts and indicative of longer-term potential headwinds.
222
Conclusion (Contd)
In general, GRMNs management believe that continuous innovation and the introduction of new products are essential for future revenue growth. The problem here is quality not quantity. Consumers are more information and factually driven than ever, and will delay their purchasing cycles if they are seeing constant new models introduced without support for older products and without real, discernible improvements This is also clogging the inventory channels with old GRMN products permeating retail channels and online
223
Conclusion (Contd) The decision making process for consumer discretionary purchases is enriched by reviews, video and product demonstrations. Mobile is fiercely competitive and mobile advertising reduces costs, as publishers accrue their earnings not from the App itself, in terms of sales, but indirectly through usage Lower App costs generally = higher usage, GRMN does not have a mobile ad platform, nor could it sustain one.
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Conclusion (Contd)
It is generally easier for companies to manage operating margins which may blur future earnings capacity It is more difficult to generate top line revenue growth and to stop the permanent decline, and to appear to mitigate the smartphone damage to revenue and earnings When you cant drive revenue growth, you have to really manage the operating costs and gross margins GRMN have done this successfully. However, the acid test is to increase revenues without compromising on margins, and, consequently earnings.
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Conclusion (Contd)
GRMNs permanent discounting strategy across all of its categories is dragging in future demand by significant discounts and cash rebates GRMN cannot indefinitely pull forward consumer demand while still maintaining high operating margins GRMN can reduce prices because it has healthy margins but lower prices will dampen long-term future prospects, as consumers pivot to these new lower prices with built in expectations for the future. To mitigate this, GRMN focuses on strong innovation and new product introductions to capture the high end and higher gross margins, but this cycle cannot continue forever when you don't have a superior, high demand, unique product.
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Conclusion (Contd)
GRMN inventory and legacy products are clogging the retail and online channels Consumers are anticipating GRMNs new product introductions and this is signalled in their purchasing behaviour Purchases are being delayed and consumer purchasing cycles have been extended. This will also damage the retail relationship and inventory levels, as they carry old stock, and even with sales program incentives retailers don't want low stock turnover, and to potentially write off stock in a low margin environment.
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Conclusion (Contd)
The majority of GRMNs free cash flow is from PND Retailers will withdraw PND category exposure as profitability declines GRMNs Pilot My-Cast on iPhone and the iPad shows migration to smartphones and tablets is real and extensive, even in aviation There is no GRMN ecosystem as hardware solutions are closed systems; GRMNs innovations in software are non-existent Fitness and marine data can all be accessed from mobile devices strengthening the mobile offering
228
GRMNs Dividend Strategy

Cash has remained very strong and you can see we're expecting about $675m in free cash flow this year. We have expanded our dividend, we feel like the dividend policy is a key part of the strength of our stock over the last 18 months or so. We want to continue to pay out a strong portion of our annual cash flow, currently this shows a yield of about 4.1%, actually this was before our recent drop in the stock price, right now the dividend yield is approaching 5%, so what we'd like to be between 4-5% of the dividend yield as we go forward in time ... just looking at 2012, the expected dividend is approximately 50% payout ratio on free cash flow, we have seen that move around anywhere from 40% - 75%, but we're expecting about a 50% payout on the use of our cash ... our primary use of cash will be dividends and then also looking for new businesses to acquire.
Source: GRMN CFO Kevin Rauckman, NASDAQ OMX 28th Investor Program London, June 26, 2012
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GRMNs Dividend Strategy (Contd) High dividend payout ratios are typical of high yield companies GRMN positions itself as a growth company so the position is somewhat confusing If, as GRMN management have stated, operating leverage and income from PND, is marginal and depleting, and that 71% of earnings now accrues from growth sectors, such a high dividend payout ratio should not (1) be required.
1. NASDAQ OMX 28th Investor Program London, June 26, 2012
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GRMNs Dividend Strategy (Contd)

There is going to be potentially an increase in the redemption of marketable securities as GRMN cannot pay its dividend on earnings alone; the dividend payout ratio is already running between 40% - 75%. This will decay GRMNs current balance sheet strength. We can see in the growth years earnings also increased, but now we see for the last 3 years GRMNs earnings are being depleted. The dividend offsets this somewhat, but great businesses should be able to pay dividends and grow company earnings.
231
GRMNs Insider Ownership

The dividend payout ratio anchors GRMN's stock price, and the high internal ownership stabilises it. GRMN insiders own almost approximately 44% of all outstanding common shares, which (1) stabilises the stock price. 2012 represented the first time, Min Kao, GRMN Chairman and CEO, has sold shares since 2007 Other Directors do not own much of the company on a relative basis
1. GRMN 10K 2011
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GRMNs Insider Ownership (Contd)

The Kao and two family trusts of which he is a trustee have set up pre-arranged trading plans to (1) sell some of their GRMN shares This is the first time Min Kao has sold GRMN stock in more than 5 years The last recorded sales for Min Kao were on 23 October 2007 It is rarely a good sign when the founder and CEO of a company begins selling the stock, especially since Min Kao is already receiving a significant 4.5% dividend yield on his current share ownership
1. http://www.businesswire.com/news/home/20120830005193/en/Garmin-CEO-Family-Trusts-Adopt-Rule-10b5-1
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GRMNs Insider Ownership (Contd) The high insider ownership of GRMN shares under normal circumstances would infer that management will do all that it can to increase shareholder value materially. In circumstances where GRMNs core businesses are decaying this can have the opposite effect with unintended consequences e.g. RIMM
234
GRMNs Insider Ownership (Contd)

Management may employ strategies to maintain their own financial net worth since it is largely invested in the stock, and as material selling is not an option, as that would damage market confidence, GRMN may employ ill conceived strategies with the view of maintaining and enhancing shareholder value, which actually further compounds and erodes it e.g. nuvifone failure costing $100m for shareholders.
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GRMNs Insider Ownership (Contd) Directors dont own any new shares in the company? There have not been any purchases of GRMN shares by company Directors since 2009, except where derivatives or stock appreciation rights have been due, which are at significantly lower levels than otherwise open market purchases would be.
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Some key warning signs that hint that the change you are dealing with make a Strategic Inflection Point is when it is clear to you that all of a sudden the company or the entity that you worry about has shifted. You have dealt with one particular company or establishment as a competitor all your life and all of a sudden you don't care about them, you care about what somebody else thinks. --- Andy Grove
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Garmin (GRMN) - History Counts in This Part of The World

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Garmin (GRMN) - History Counts in This Part of The World

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Garmin History Counts in this Part of the World

Background and Fundamentals

GRMNs Market Valuation

194.97m $9.73bn 3.62%

EPS 2008 2009 2010 2011

$3.48 $3.50 $3.45 $2.67

Multiple 5.51x 8.77x 10.5x 14.91x

Revenues 2010 $2,759 Revenues 2011 $2,690

Diminished Market Opportunity (Contd)

Diminished Market Opportunity (Contd) Market Opportunity

Diminished Market Opportunity (Contd)

Diminished Market Opportunity (Contd)

GRMN Have No Material Proprietary Advantage

PND Retail Inventory De-Stocking Since 2009

Retail Inventory De-Stocking

Optimising Retail Space

Excess Retail Foot Space and Channel Inventory

Source: GRMN 10-Q for Q1 2010

Low Ball Pricing

Discounting Pricing Model

Discounting Pricing Model (Contd)

Discounting Pricing Model (Contd)

Discounting Pricing Model (Contd)

PND Market Penetration

Overseas PND Market Penetration

Significant PND Pricing Pressure

Significant PND Pricing Pressure (Contd)

PND is a Low Margin Business

GRMNs Net Income is Declining Materially

-40% Decline in 5 years

GRMNs Net Revenue and EPS Comparison

GRMNs ASP in the PND Market

PND Value Offerings

Diminished Earnings Outlook

Penetration of GPS Capability in Cell Phones http://www.isuppli.com/

Market Saturation Has Peaked

Mapping Competition is Intensifying

Rapid Adoption of Google Android

Rapid Adoption of Google Android (Contd)

Growing the Installed Mobile User Base

Tablet Competition (Contd)

Impact of Moores Law on Pricing

1. Deutsche Bank research notes

Premium Features Offered as Standard to Mitigate PND Volume Declines (Contd)

GRMNs PND Revenue Deferral Policy

GRMNs Business Quality

GRMN's Auto / PND Mitigating Strategies

The In-Dash Car Market Market Opportunity

The Reality of the In-Dash Car Market (Contd) Market Opportunity

Apple Patents Steering Wheel Remote Control

Apple Patents Steering Wheel Remote Control (Contd)

In-Dash Market Hardware vs. Software

The Reality of the In-Dash Car Market (Contd)

In-Dash Market Leadership

In-Dash Market Leadership (Contd)

New Generation Platforms

PND Addressable Market Declining

PND Addressable Market Declining (Contd)

GRMNs Auto / PND Market Decline

Apple Mapping Issues

1. Trudy Miller, Spokesperson for Apple

Apple Mapping Issues (Contd)

Entrance of Apple into Mapping