TomTom Q2 results: revenue and margins up, market share down

TomTom One XL
TomTom One XL
TomTom yesterday announced its Q2 financial results: revenue for the second quarter was €380 million, an increase of 29% sequentially (Q1 2007: €296 million) and 37% year on year (Q2 2006: €277 million).

The revenue from PND sales represented 93% of total revenue in the quarter (Q1 2007: 92%; Q2 2006: 93%) and increased by €81 million or 30% compared to the first quarter to €352 million (Q2 2006: €257 million). “This was due to seasonality and the introduction of new products, of which the ONE XL was the main driver” said TomTom.

Europe represented 82% of total revenue for the quarter (Q1 2007: 86%; Q2 2006: 89%), revenues from North America were 15% of total revenue (Q1 2007: 12%; Q2 2006: 10%) and revenues from the rest of the world were 3% of total revenue (Q1 2007: 2%; Q2 2006: 1%).

TomTom’s market share in Europe slightly decreased at 50%, against 52% in Q1. In North America the company reported a market share of “approximately 20%” said TomTom’s CEO, Harold Goddijn; compared to 25% in the first quarter of this year. This drop in the US is mainly due to the narrow product range available on the shelves, especially compared to the extended range displayed by Garmin. But TomTom aims at a 30% US market share by the end of the year said Harold Goddijn.

In the second quarter 1.8 million PND units were shipped which represented a 36% increase sequentially (Q1 2007: 1.3 million) and 118% year on year (Q2 2006: 0.8 million).
The average selling price of PNDs for the quarter was €195, a decrease of 4% compared to the previous quarter and a decrease of 37% year on year (Q2 2006: €310). “The decrease in ASP was driven by a shift in the product mix from our premium line towards our mid range products following the introduction of the ONE XL” said TomTom.

The gross margin for the quarter was 44.6% an increase of 4.6 percentage points sequentially (Q1 2007: 40.0%) and an increase of 1.9 percentage points compared to the second quarter of 2006 (Q2 2006: 42.5%). The sequential increase of gross margin was mainly caused by the higher product margin of the products sold in the second quarter. “This was the result of the introduction of new, high margin products together with cost reductions across our continuing products” said TomTom. TomTom expects to deliver a gross margin of at least 40% and an operating margin of at least 20% of revenue for the full year.

R&D and marketing
The research and development (R&D) expenses for the quarter increased sequentially by 26% to €13.5 million (Q1 2007: €10.7 million), and year on year by 46% (Q2 2006: €9.2 million). This increase is explained by the growth of TomTom’s R&D department that added 250 new employees over the past year including the 90 engineers from Siemens VDO. R&D expenses represented 3.6% of revenue compared to 3.6% in the previous quarter and 3.3% in the second quarter of last year.

Marketing expenses were seasonally high at €33.3 million (Q1 2007: €20.8 million), an increase of 60% to support the launch of new products. Marketing costs showed an increase of 29% year on year (Q2 2006: €25.8 million). They represented 8.8% of revenue, up from 7.0% in the previous quarter and down from 9.3% in the second quarter of last year.

A continued fast growing PND market
According to Harold Goddijn: “The PND market will grow at a faster rate in 2007 than previously assumed. We now expect that the European PND market will grow to between 14 and 15 million units in 2007 (2006: 8.5 million), while the American PND market is expected to grow to between 6 and 7 million units (2006: 2.5 million). We now expect that our volumes of PNDs will nearly double to between 8 million and 9 million units worldwide.“ TomTom reiterates its full year revenue guidance of between €1.6 billion and €1.8 billion.

Tuesday, July 24th 2007

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