Another Global Positioning Company Gets Bought out: NGPS

The consolidation in the Global Positioning market continues.

Recent buyouts include:

1. Pitney Bowes (PBI) buys GPS Software Maker MapInfo (formerly: MAPS)
   
2. GPS Company Trimble Navigation (TRMB) buys @Road.
   
3. Semiconductor Chip company Broadcom (BRCM) buys privately held GPS chip company Global Locate
   
4. GPS Equipment company Tom-Tom (TOM2.AS) buys privately held Digital Map company Tele-Atlas
   
5. Wireless handset maker Nokia (NOK) buys Digital Map company Navteq (NVT)
   

And the most recent company:

Novatel Inc. (NGPS), the Canadian high precision global navigation satellite system company (GNSS), is bought out by Swedish comgolomerate Hexagon for $390 Million.

Now, there are only three pure plays on Global Positioning publicly traded in the US:

1. Garmin (GRMN): GPS Equipment
   
2. Sirf Technologies (SIRF): Makes Global Positioning Semiconductors
   
3. Trimble Navigation (TRMB): GPS Equipment
   

There should be high demand for these remaining companies as Location Based Services will continue to be a large growth area over many years.

Time to Take Profits in Garmin (GRMN) and Overweight Sirf Technologies (SIRF)?

The time to take some profits and underweight GPS device maker Garmin (GRMN) and overweight Global Positioning Chip maker Sirf Technologies (SIRF) might be now.

When cell phone maker Nokia (NOK) recently announced that they were buying Digital Map maker Navteq (NVT) for $8.1 Billion, Garmin's stock price went down around 10%.

Garmin had a close relationship with Navteq, and is a big customer of Navteq. Since the Digital Map space was a duopoly (Navteq (NVT), and privately held Tele-Atlas which was bought by European GPS Device Maker Tom-Tom (TOM2.AS)), Garmin (GRMN) might be squeezed out.

At the moment, Garmin (GRMN) is still reasonably priced with a forward PE of 27, five year analyst growth estimate of 20%, for a reasonable Price Earnings to Growth Ratio of 1.35 (a PEG over 2.0 is overvalued). In addition the automotive GPS market is growing very rapidly, and Garmin is ready to take advantage of this with around a 50% market share. There is also very low navigation device penetration of around 10%, so a lot of the growth is still ahead for Garmin (GRMN).

Garmin (GRMN) does seem to belong in a growth portfolio. But at the same time, the Nokia and Navteq deal signals a change in how the industry is positioning itself for the future.

Why would Nokia be interested in buying Navteq, a Digital map Maker? Global Positioning Services and Applications are a big growth area, and Nokia is aiming to position itself aggressively. GPS applications on cell phones and other mobile converged devices and anything that moves are the next big thing.

One big beneficiary of this is GPS chip device maker Sirf Technologies (SIRF). The company is the dominant GPS chip company and holds a 90% market share, though some say competition can reduce the market share to 70%. Still, a 70% market share in a very large growth business is still a very good market share.

For several months, SIRF's stock price had not been performing well, and has lagged other stocks in the location based service area such as Garmin (GRMN) and Navteq (NVT). Aside from earnings misses, they previously mentioned that there was a slow ramp-up with one wireless customer. Later news seemed to reverse this, as Motorola, the #2 cell phone maker, announced it was going to be using Sirf's GPS chips.

With many growth stocks with forward PE ratios above 30, Sirf Technologies (SIRF) has a PE of only 19, a five year analyst growth estimate of 26.6%, for a very cheap PEG ratio of 0.71 (PEG under 1.0 is very cheap).

There is also great consolidation in the industry (Tom-Tom Buys Tele-Atlas, Broadcom (BRCM) buys Global Locate, Nokia (NOK) buys Navteq (NVT), Trimble (TRMB) buys AtRoad, Pitney Bowes buys Mapinfo (MAPS)), and the demand for pure plays on Location Based Services will be at a premium. With a market cap of less than $1 Billion, who knows if Sirf Technologies (SIRF) will eventually be bought out.

Also, those mutual funds holding Navteq (NVT) and already owning Nokia (NOK), might have to take profits in Navteq and reallocate their capital elsewhere, so they don't overweight Nokia (NOK) too much. Are the mutual fund managers thinking of reallocating the profits in Sirf Technologies (SIRF) as well?


So yes, Garmin (GRMN) may still belong in a Growth portfolio, but maybe now is the time to take some profits and start overweighting companies such as Sirf (SIRF) Technologies.

GPS Enabled Cell Phones: Find Friends/Businesses on Map, Emergency 911, and opportunity for SIRF, GOOG and others

GPS Chips inside Cell Phones: New Applications and How to Profit.


1. Find Friends on Map

Want to find friends and family on the map? It's easy.

There is a well funded startup called Loopt which does just that. Using selected cell phones with GPS (Global Positioning System) capability, mostly from Boost Mobile, Sprint, and Nextel, Loopt can let you find friends and family on a map (with their approval), for a subscription fee.

This Mobile Networking Application is just the beginning of location based services which take advantage of GPS chips inside a cell phone. This service allows users to be able to interact with other users based on geographical location.

2. Let Emergency 911 Responders Find People

Another important mobile application of the GPS chip in a cell phone is Emergency 911 service. With GPS chips inside cell phones, now, Emergency 911 Responders can easily find the location of the person who needs help. This will save many lives!

Aside from companies who setup the E911 system, companies which provide GPS chips to cell phones, such as Sirf Technology (SIRF), who makes the GPS chips, will benefit, as well as companies such as Navteq (NVT) who provide digital maps, which are especially useful to GPS location based service applications.

3. Connect Business to Mobile Users

Another important application of GPS chips on cell phones involves connecting users to businesses and advertisers. With the original Navigation Device (non-cell phone) from companies such as Garmin (GRMN) or Tom-Tom (TOM2.AS), one could use the device to search for a local business such as a restaurant, hotel, or gas station, even if that business is a few miles away from a major freeway. Businesses that have their information embedded in these Navigation Devices will see increased business and revenue. Any company that profits from having businesses pay to be included in the Navigation Device Search function also would benefit.

Now if this Portable Navigation Device would be extended to GPS enabled cell phones, this market would explode. Now, if a GPS enabled cell phone could somehow connect to a central information center to help connect mobile users to particular business, that would allow companies who provide local business information to mobile users to profit.

A company such as Google (GOOG) would profit. They already have Google Local Search, Google Maps, Internet Search, and mapping services. If a mobile user could interact with Google, Google would read the mobile cell phones GPS location, and connect the mobile user with businesses near that area.

Profit from GPS Chips on a Cell Phone

The GPS Chip on a Cell Phone is still in its infancy. Sirf Technologies (SIRF), previously cited some problems as a wireless customer was slow to ramp up to their GPS chip in a cell phone. Sirf (SIRF) has recently bounced back as Motorola, the #2 cell phone maker, will be using Sirf's GPS chips in their cell phones.

Sirf currently has a 90% share in the GPS chip market for Personal Navigation Devices. However, Bank of America analyst Sumit Dhanda says that Sirf's market share could go down to 70% share thanks to competition from STMicroelectronics (STM), Taiwan's MediaTek, and Broadcom (BRCM), which recently bought private company Global Locate for less than $200 Million.

Analysts have also said that GPS customers such as Garmin (GRMN) are looking for "dual-source key inputs."

While there is pressure on Sirf's market share, Sirf is still the dominant leader, and will continue to produce the best chips.

Current Valuation is still very reasonable. Sirf (SIRF) has a forward PE of 16.37, five year estimated growth of 26.62%, for a very cheap Price Earnings to Growth (PEG) ratio of 0.61, which is very cheap (PEG less than 1 is very cheap).

Compare this with Broadcom (BRCM) which has a forward PE of 25.36, 5 year growth rate of 22.37%, for a PEG of 1.13.

The company has virtually no debt, is cash rich ($4 cash per share for a $20 stock), and belongs to a very rapidly growing segment.

Sirf (SIRF) has shown recent momentum, and still remains a long term buy as its performance has lagged other Location Based Service companies such as Garmin (GRMN) and Navteq (NVT).

Location Based Service Companies

Stocks Above 50 Day Moving Average after Drop Today (August 15, 2007)

The Stock market has been experiencing a correction, and the S&P 500 Index ($SPX) only has 7.6% of its stocks above the 50 day moving average. This is very low!

What are these stocks holding up?

I used Yahoo Finance and selected the larger capitalization stocks above the 50 day moving average and above a $4 Billion market capitalization:

1. Procter and Gamble (PG)
   
2. Cisco (CSCO)
   
3. Pepsi (PEP)
   
4. Ebay (EBAY)
   
5. Alcan (AL)
   
6. Las Vegas Sands (LVS)
   
7. Kimberly Clark (KMB)
   
8. Southern Co (SO)
   
9. FPL Group (FPL)
   
10. Celgene (CELG)
    
11. Kellogg (K)
    
12. Garmin (GRMN)
    
13. Broadcom (BRCM)
    
14. Macronix Intl (MXIC)
    
15. Hilton Hotels (HLT)
    
16. LG Philips (LPL)
    
17. Biogen Idec (BIIB)
    
18. Paychex (PAYX)
    
19. Wrigley (WWY)
    
20. Juniper Networks (JNPR)
    
21. Wynn Resorts (WYNN)
    
22. Lyondell Chemical (LYO)
    
23. Nidec (NJ)
    
24. Leucadia (LUK)
    
25. Intuitive Surgical (ISRG)
    
26. Intercontinental Hotel (IHG)
    
27. Hudson City Bancorp (HCBK)
    
28. American Real Estate (ACP)
    
29. Amylin Pharma (AMLN)
    
30. Waters Corp (WAT)
    
31. Tim Hortons (THI)
    
32. Dade Behring (DADE)
    
33. Whole Foods Market (WFMI)
    
34. Barr Pharma (BRL)
    
35. Iron Mountain (IRM)
    
36. Navteq (NVT)
    
37. Dow Jones (DJ)
    
38. Vertex Pharma (VRTX)
    
39. Covance (CVD)
    
40. Trimble Navigation (TRMB)
    
41. Intersil Corp (ISIL)
    
42. LDK Solar (LDK)
    
43. Weight Watchers (WTW)
    
44. Stericycle (SRCL)
    
45. Hansen Natural (HANS)
    
46. China South Air (ZNH)
    
47. Checkfree Corp (CKFR)
    
48. Chaparral Steel (CHAP)
    

I'm not surprised seeing consumer staples companies such as Procter and Gamble (PG) and Kellogg (K). I'm not surprised seeing healthcare stocks such as Celgene (CELG).

As many commentators have pointed out, technology can be good. Ebay (EBAY) is on the list, and Location Based Service stocks such as Garmin (GRMN), Navteq (NVT), and Trimble (TRMB) are good. I'm surprised that Broadcom (BRCM) is on the list.

I also noticed several resorts such as WYNN and Las Vegas Sands (LVS), most likely because of Macau presence and eased Macau rules, and that even in slowdowns, people can still gamble.

Hotels such as Hilton Hotels (HLT) and Intercontinental Hotel (IHG) are also on the list.

I'm surprised by Hudson City Bancorp (HCBK), a Financial. How is this surviving?

I'm also surprised by American Real Estate (ACP). How is this surviving in this market?

Next Generation Apple iPhone will have GPS chips

According to AppleTech TV news, the next generation of Apple iPhone may have GPS chips.

This makes sense as Location Based Services are going to increasingly integrated into anything that moves from cars, to cell phones, to cameras.

SIRF, the Leading maker of GPS Chips looks to benefit from this trend and it is very cheap here. Using information from Yahoo Finance:

Price: 22.98
Forward PE: 17.28 (yesterday, it was 16.39)
5 Year Estimated Growth: 30%
PE/G: .57

A PEG ratio of .57 (less than 1 is dirt cheap) for great growth is a bargain. GPS chips will be everywhere, and SIRF is a leader in this area. Global Locate, a private company, is a competitor, but I see SIRF remaining dominant in this area.

When you compare other companies in the location based service area by looking at their forward PE:
Garmin (GRMN): 19.98
Navteq (NVT): 27.60

SIRF looks cheap here for its growth.

Lenny Dykstra of TheStreet.com also had some good things to write about SIRF.

For the long term, SIRF looks like a buy here, but be aware of the volatility and keep your eye out for any real competitors which I do not see right now.