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Car navigation sector heats up

Car navigation sector heats up - Yahoo! News

By Niclas Mika Wed Jun 22, 1:06 PM ET

AMSTERDAM (Reuters) - Concerns that car navigation firm TomTom may be squeezed by cheap Asian competitors and by bigger players such as Microsoft and
Nokia are pressuring shares in the Dutch firm, analysts said.

Shares in TomTom, whose 469 million euro ($571.5 million) initial public offering on May 27 was Amsterdam's biggest in five years, have closed below their 17.50 euro issue price in six of the last nine trading days.

They stood at 17.20 euros at 1500 GMT on Wednesday, 10 percent below a high of 19.10 euros on May 30, while Amsterdam's main AEX index rose 4 percent over the same period.

"TomTom had an enormous cash cow in the form of the TomTom Go in 2004, which will probably last until 2006, but then you will see cheaper imitations coming out of Korea and Taiwan," asset manager Gert Jan Geels at broker Eureffect said.

The firm has captured a leading market share with the portable TomTom Go device that can easily be mounted on the dashboard and moved from car to car. Sales of the device accounted for about 70 percent of first-quarter revenues.

Even before the IPO, some analysts had warned of risks from competition, but the issue was forced on the table when UBS initiated the stock with a 12 euro price target earlier this month.

"UBS really made people think," Geels said.

TomTom Chief Financial Officer Marina Wyatt told Reuters that with only 6 percent of 200 million cars on Europe's streets equipped with navigation systems, there was enough space for competitors.

"I acknowledge that there will be more competition, but I also think there needs to be more competition to really drive the category," she said.

MARGINS

Analysts say they wonder whether TomTom can hold its operating margin, which stood at 22.6 percent last year.

"If you're a bit of a smart software engineer, you can do the same," Stroeve analyst Philip Scholte said. "I wouldn't be surprised if margins go down very fast in the coming two years."

Wyatt said TomTom would itself drive down prices to attract more customers while cutting costs to keep margins strong.

TomTom has forecast its revenues to double this year at stable operating margins.

There are no consensus estimates available for TomTom yet, but analysts' estimates imply a forward price-earnings ratio in the range of 21 to 26. U.S. competitor Garmin trades at 18 times estimated 2005 earnings, according to Reuters data.

Scholte said that, apart from cheaper Asian competition, established companies might also be a threat to TomTom.

He pointed to Nokia's announcement this week of a navigation pack consisting of a Nokia 6630 phone, a wireless GPS module and software from TomTom competitor Wayfinder Systems.

"I think it is a major competitive threat to TomTom if mobile phone makers start integrating navigation software onto a phone," Scholte said.

"Then I think TomTom may be in big trouble, especially if it's Nokia. They have a market share of 32 to 33 percent of the global mobile phone market."

Wyatt said companies like Nokia or Microsoft fight on many fronts. "We're focused, we've been doing this for a long time, and we understand the market." ($1=.8206 Euro)

June 22, 2005 at 09:44 PM in Web lifestyle | Permalink | TrackBack (47) | Top of page | Blog Home