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.
Showing posts with label Digital Maps. Show all posts
Showing posts with label Digital Maps. Show all posts
Monday, October 1, 2007
Tuesday, July 24, 2007
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.
GPS Chip Makers
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:
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.
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.
- 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.
- TomTom (TOM2.A2) -- TomTom is the European competitor of Garmin.
- 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.
- 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
- 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.
- 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:
- Navteq (NVT) -- Navteq is the main player, with a $5.6 Billion market cap, and a forward PE of 34.75.
- 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.
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