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

Growth in Location Based Services

Many people are now familiar with in-car Navigation Systems and online mapping services such as MapQuest, Yahoo Maps, and Google Maps. While there is growth in these areas, these applications would only be scratching the surface. According to research firm IDC, the Location Based Service (LBS) market will grow to a $3.1 Billion market by 2010.

Aside from the previously mentioned applications, there is a market for handheld GPS (Global Positioning System) devices, cell phones, and other advanced devices such as Research in Motion's (RIMM) BlackBerry, Apple (AAPL) iPhones, and Personal Digital Assistants which have a GPS chip inside. You can have applications that allow parents to track their children in case anything bad happens to them, applications that track your friends and family, emergency 911 tracking (imagine the lives saved!), applications that track fleets, and applications that allow users to get directions on their cell phone or assistance in finding the nearest gas station or restaurant. There are many applications and companies which have not been created yet!

In the Location Based Service world, there are several categories of companies:

Location Based Service Device Makers

These Location Based Service Devices mainly use the GPS system except for LoJack (LOJN), which uses wireless technology instead.

1. Garmin (GRMN) -- Garmin is the main player in the GPS device market having a market cap of 17.44B and a forward PE of 24.59.
   
2. TomTom (TOM2.A2) -- TomTom is the European competitor of Garmin.
   
3. Trimble Navigation (TRMB) -- Trimble Navigation is a $4 Billion company that provides GPS solutions to commercial and government users and currently has a forward PE of 23.83.
   
4. LoJack (LOJN) -- LoJack provides services to track and recover mobile assets such as automobiles and cargo. This $450 Million dollar company has a forward PE of 17.92.
   

GPS Chip Makers

1. Sirf Technology Holdings (SIRF) -- Sirf Techology Holdings is the dominant player in the GPS Chip market. SIRF has a market cap of $1.3 Billion and a forward PE of 18.56.
   
2. Broadcom (BRCM) -- Broadcom is now a player in the GPS chip market because it recently bought privately held Global Locate, a maker of GPS chips, for around $146 Million.
   

Digital Maps

Two companies, Tele-Atlas and Navteq (NVT), were a digital map duopoly. However, Tele-Atlas, a European Digital Map Company, was recently bought out by Global Positioning Device Maker Tom-Tom (TOM2.AS) for $2.6 Billion. Tele-Atlas's main competitor, Digital Mapmaker Navteq (NVT) rose 18% on July 23 on an analyst upgrade by UBS and wide speculation by analysts and many in Wall Street that Navteq could be acquired by Garmin (GRMN), Google (GOOG) or Microsoft (MSFT). So, at the moment, there are still only two dominant companies in the Digital Map area:

1. Navteq (NVT) -- Navteq is the main player, with a $5.6 Billion market cap, and a forward PE of 34.75.
   
2. TomTom (TOM2.AS) -- TomTom, through it's acquisition of Tele-Atlas, is now a player in the Digital Map market.
   

GPS Integrated Products

Garmin (GRMN) and TomTom (TOM2.AS) are not the only two consumer GPS device companies. We are in the middle of the trend where cell phones, and other portable devices will have GPS integration. Players in this area could be the handset makers, such as Apple (AAPL) and Research in Motion (RIMM).

GPS Service and Application Providers

Telecom Service Providers such as Sprint (S) or AT&T (T) could benefit by offering location based services and charging for added features. Traffic.com, a Navteq company, provides real time traffic data, usually for a fee.

Companies such as Google (GOOG) also stand to benefit from Location Based services. Two years ago, Google confirmed that it wanted to try to setup free wi-fi in San Francisco. Writer Om Malik reports that says that "the initial use of location-based services might be limited to more-focused and targeted advertising." A Google official said that the bid "was in line with Google’s thinking on delivering answers anytime anywhere to anyone, and looking beyond a desktop PC."

Other Players

Previously, there was a company MapInfo (formerly MAPS) that provided Location Based Service software. However, it was bought out by Pitney Bowes (PBI) for approximately $400 Million.

On February, 2007, Trimble Navigation (TRMB) bought out Fleet Tracking company AtRoad for around $500 Million.

All these acquisitions (MapInfo, Tele-Atlas, AtRoad, Global Locate) are part of the consolidation trend in the Location Based Services sector.


Future of Location Based Services

With the great growth and potential of Location Based Services, combined with all the consolidation in the industry, I see a very bright future for many companies in this sector. The companies in this sector are heading in the right direction.


Side Note: Geo-Caching, the Scavenger Hunt Hobby using GPS

The Main Geo-Caching Site.
WallStrip Video on GRMN and Geocaching.