TomTom profit warning: is the PND market doomed?



BusinessWeek.com published yesterday an article “TomTom and Garmin Lose Their Way” explaining that “Makers of personal navigation devices are facing tough times from keen competition—namely cell phones—and a weakening economy”. Obviously –after the TomTom profit warning announced Tuesday - it is clear there are challenges ahead for TomTom and Garmin, but does it mean the PND industry is doomed?

Weakening demand: where?
First, it seems that the weakening U.S. economy has not impacted yet the PND sales, at least for the first two months of the year. NPD group statistics show a year on year market growth of 225 % in January and 280% in February. Additionally, yesterday’s financial results from Circuit City, one of the leading retailers of consumer electronics products in the United States, shows that “comparable store sales of navigation products increased by strong double digits” in the fourth quarter ending February 28th. In Europe, even the most mature markets such as Germany and the United Kingdom have continued to show 40% growth in the first quarter - according to TomTom – which is a good sign that the saturation point has not yet been reached, leaving room for growth especially in less penetrated market, Southern and Central-Eastern Europe.

sales at MediaMarkt in Germany
sales at MediaMarkt in Germany
Second, the seasonality of the PND market is important and is probably growing overtime: the fourth quarter is getting bigger and the first quarter is getting smaller. There have also been important inventories issues in Europe during the first quarter this year. Retailers have over-stocked products in the fourth quarter, leading to huge discounts – especially in Germany – in the first quarter and limited sell-in for the leading brands. As a matter of fact the European PND market is just recovering from a Christmas hangover; therefore, judging the whole year - and the whole market - with the first quarter sales offers a pretty pessimistic view.

Mobile phone threat?

Third, the threat of mobile phones to the PND market is overblown by some analysts and mainstream media. It makes good headlines but does give a poor understanding of the market dynamics and consumer’s choice. As ABI Research analyst Dominique Bonte said to GPS Business News in a recent interview, “the success of the PND market is due to its simplicity”: buy it, put it in your car and don’t bother to read the user manual! The mobile phone navigation market has not reached this level of easiness both in the sale process and usability. In many cases there is a monthly subscription, the fear to spend too much in data connection, the complex software installation, the lack of touch screen or full keyboard, the screen size, etc.

Thursday, April 10th 2008


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