1

EXECUTIVE SUMMARY

Being a market leader is one, getting its product to lead the company to be

a market leader is one of a kind, Garmin has proved this in its path to success,

starting initially as an army based operation, is now have come across many

milestones to achieve what it is now, finding itself a place in every segment

possible, and making its presence a mere commodity helping people to move

around in their day to day life, with its product category reaching every aspect of

the people, reading peoples mind and getting to what they need is its success

factor.

Garmin is an innovative and vibrant industry, keeping its focus with the

current trends, the study is about the product where the Garmin product is a

prominent leader, the Car navigation system, where Garmin has to keep up with

the rest of the competition, Keeping up with the trend Garmin has entered a

whole new era of navigation, the PDA, called iQue 3600, and high performance

GPS navigation for mobile handsets or smartphones, getting into the PDA will

bring in more new users to get the GPS in hand and provide existing users with

an exiting option of a handheld GPS device. Garmin has teamed up with Google

to create a fantastic new feature that allows you to send locations from Google

Maps to a Garmin GPS(Garmin blog search results,2008).

Even with the slow down in economy the financial standing of the

company stands out ahead of the competition, and its future seems positive with

its fresh approach towards marketing and with its advanced supply chain

management system.
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Starting September 18th 2008 we have started this analysis of getting to

know about the company’s internal, external and financial standing, in this report

we have included our analysis, recommendations, the future objectives of the

company and where it stands in terms of market share and product delivery.
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INTRODUCTION

What started in the early 80’s as a military project to support troops in

remote places to find their way around has evolved into a people friendly device

which helps to make the everyday commute around to do shopping, groceries or

a cross-country with a help of a voice activated electronic mapping device which

guides the user to travel around without the hassle of making use of physical

maps to find their way around. Global positioning system today is present in

every modes of transport prevailing and has revolutionized the way people travel

around the globe, the process has become simple yet sophisticated, fashionable

and almost become a commodity in today’s fast paced electronic savvy world.

Garmin, one of the leading solutions provider in the global positioning

systems market and a prominent leader in the US market with a market share of

55%(seeking alpha,2008) started as a military project back in the 80’s for

operation dessert storm, since then it has come a long way to capture the

consumer market.

By having the major market share and branded as one of the best

equipment for in car navigation (Garmin Company search results,2008). Garmin

also has its footsteps marked in practically every other segments possible

namely marine navigation, Airline industry , Biking, hunting, nature trail , it has a

product for every market and its purely consumer and future focused.

Garmin’s future objective is to focus on the European and the Asian

Markets where there is a numerous potential and a huge growth in terms of

revenue, with its global presence already in Europe where it stands next to Tom
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Tom Garmin is making every move to make its presence felt globally. Powered

by Oracle Garmin sets its future goal as to fast response and quick solutions to

the consumer “Garmin is a technological innovator; We’re always applying the

latest Oracle system upgrades, bug fixes, and features. Oracle Priority Service

gives us the extra attention and fast response we need to keep our critical

systems humming.” (Vandiver,2007)

The report includes the objectives of the company, its current strategies

and future tactics, recommendations from the analysis of their internal and

external reports, financial analysis and the conclusion.

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INDUSTRY REVIEW

The GPS technology started in the 1940s as a ground-based radio

navigation system created by the U.S. military with a range of 1,500 miles

(National Post, 2008). It used to be that GPS technology was solely exploited by

military services. It was not until 1963 when a study on using satellites for

navigation was launched. Ten years later, the world’s first satellite imagery

program was launched.

In 1983, U.S. president Reagan offered to make GPS available to civilian

aircraft. The first GPS device was developed by a California-cased company to

enable offshore drilling platforms to map seabeds and know where to drill in the

mid-1980s. Today the same technology can be found almost in any industry:

automobiles, sailboats, recreational vehicles, outdoor and even cell phones

(Seeking Alpha, 2008).

Primarily GPS technology relies on satellites that transmit signals to GPS

receivers who then transform data onto consumer GPS devices (Garmin, 2008).

As an industry that aims to provide convenience to consumers by tell them where

they are, it is evolving itself to be integrated with anything that moves.

According to Morningstar (2008), the market for personal navigation

devices (PNDs) is expected to triple over the next five years. Much of this

business will be allocated to Garmin Ltd., as it continues to hold a strong leader’s

position in this market. “The firm controls roughly 50% of the PND market in the

U.S. and has a growing presence in Europe as well, with a worldwide network of

3,000 dealers in more than 100 countries” (Seeking Alpha, 2008, p7). While the
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markets in North America and Europe are close to completely developed, the

GPS industry is just taking off in many markets in Asia as well as South America.

Current competitors in the industry include Garmin, TomTom, Magellan,

Navigon, and Mio. While a few of those companies compete directly with each

other, others try to market itself to narrower market niche to secure its position in

the industry. In addition, giant electronic devices makers like Sony, Panasonic,

and HP are entering the market seeing its potential to grow. Looking ahead, this

rapidly growing industry is headed to new markets in Asia. Domestic sales for

navigation devices grew over 100% in the first quarter of 2008. “Software for

wireless devices, like Palm's Treo, and other smart phones could be another

bright spot, as many vendors are reporting surging demand for GPS-equipped

mobile phones” (Seeking Alpha, 2008).

Outlook for Global Positioning System industry is bright and expected to

remain competitive. As we progress into 21st century, the growing demand for

advanced handheld devices will grow dramatically allowing new and existing

companies to develop new products in new markets to earn greater profits.

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COMPANIES

Garmin. Gary Burrell and Dr. Min Kao founded the company with a

handful of employees in 1989. Garmin incorporated in 2000, and it is a global

provider of navigation, communications, and information devices, which are

enabled by global positioning system technology. The company designs,

develops, manufactures, and markets a family of hand-held, portable and fixed-

mount GPS-enabled products for the automotive/mobile, outdoor/fitness, marine,

and general aviation markets. Garmin’s mission is to create navigation and

communication devices that can enrich customers’ lives.

TomTom. Harold Goddijn, Peter-Frans Pauwels, and Pieter Geelen

founded the company in 1991. TomTom incorporated in 2005 listed on the

Amsterdam Stock Exchange. Products of the company include portable

navigation devices and software for use on PDAs and smartphones. TomTom

has experienced years of rapid organic growth supported by small acquisitions

until the big acquisition of Tele Atlas in 2008, and the company now supplies

digital maps that enable routing guidance. The company’s mission is to provide

the best navigation experience and to make it accessible to everyone. TomTom

solutions are designed to be easy-to-use, innovative, safe, and good value, while

offering a seamless integration of services, real-time, and static content and

technology.

Magellan. The company is a privately held company, and it is

headquartered in Santa Clara, California with European headquarters in

Carquefou, France. Magellan introduced the first hand-held GPS receiver in 1989
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and has sold millions of GPS navigators since then. The company specializes in

easy-to-use, affordable GPS and satellite communication products for

automotive, aviation, marine, outdoor recreation and wireless communications

markets worldwide. Magellan’s mission is to remain innovative and to remain at

the forefront of the GPS technology.

Navigon. The company is a privately held company, and it is based in

Hamburg, Germany. Navigon has helped revolutionize how consumers get from

place to place with software products for practically any navigation-ready

hardware. The company’s business units include two sectors: a mobility group

that develops and produces navigation software for mobile use; an automotive

group creates visionary automotive-grade navigation solutions for OEMs

worldwide. The company’s mission is to constantly optimizing the quality and

safeguarding the future of the products that they can guarantee the efficiency

and competitive edge for the customers.

Mio. The company was founded in 2002 in Taiwan, and it bases its

operations in Asia, Australia, and Europe. Mio’s product range includes personal

navigation devices, personal digital assistants, and smartphones. The company

employs over 2,000 individual worldwide including over 1,200 research and

development staff, all dedicated to the mission of the company: bringing the

latest technologies for the mobile digital lifestyle. MiTac International Corp owns

Mio Technology, and its business model is exemplified by the value, velocity, and

visibility concept.
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EXTERNAL ENVIRONMENT ANALYSIS

General Environment

External analysis of industry is one of the most important steps for any

company to find out threats and opportunities in the industry in which it is going

to do business. In technology industry where there is new development every

now and then, company has to monitor the external environment and adapt to

the changes in order to stay on par with the competitor and to be the market

leader. External analysis will help the company to overcome threats and exploit

opportunities in coming future. For example, Garmin is market leader in Personal

Navigation Device by manufacturing easy to operate navigation system for

Automotive/Mobile sector. By studying the following factors like demographic,

economic, political/legal, socio cultural, technological and global, the company

can better plan its strategy and emerge as a market leader.

Demographic Segment

Table 1: Population Data

Population 303,824,640 (July 2008 est.)

Population Growth

Rate 0.883% (2008 est.)

Age Structure 0-14 years: 20.1%,

15-64 years: 67.1%,
65 years and over: 12.7% (2008 est.)

Sex Ratio 0.97 male(s)/female (2008 est.)

Ethnic Groups White 79.96%, black 12.85%, Asian 4.43%,

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Amerindian

and Alaska native 0.97%, native Hawaiian

and other

Pacific islander 0.18%, two or more races

1.61%

(July 2007 estimate)

Source: The World Factbook (2008)

The GPS is in every facet of our life from driving navigation to outdoor

uses, to job sites and in the mountains (Lowry, 2006). Increase in number of

people traveling from one place to another is can be highly correlated to use of

GPS system. GPS is available in wide range of variety for different segment like

automotive/ mobile product, aviation, marine, and Outdoor/ Fitness Product.

Each segment has its own target customer depending on the product for age

group from 16 years and above.

Due to migration of people from different parts of the country to US,

increased areas that are ethnically mixed (Search Engine, 2008). The concept of

ethnic group does not imply in this Industry as it sells its product in different parts

of the world, therefore anybody and everybody can buy GPS. GPS market is

expected to be triple over next 5 years (Slaugther, 2007). Price range of GPS

products in Personal Navigation Device category for cars starts from $75 to

$1700, thus targeting to different group of customers.

In year 2006 -2007 income inequalities decreased as measured by share

of aggregate household by quintile and the Gini index. The income received by
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the household in top fifth of their income distribution declined, while the share for

the third and fourth quintiles increased (U.S. Census Bureau, 2008).

Economic Segment

GDP $13.84 trillion (2007 est.)

GDP Growth 2.2% (2007 est.)

Inflation 2.9% (2007 est.)

Unemployment 4.6% (2007 est.)

Source: The World Factbook (2008)

The U.S has largest and most technologically powerful economy in the

world, with the per capita GDP of $46,000 (World Factbook, 2008). The rate of

inflation in U.S is going up since last year due to the rising oil prices and credit

crunch, yet the economy continue to grow through year- end 2007. Especially

rising oil prices will have a significant impact on this industry as that is directly

related to driving of vehicles, which is the market for use of GPS system. U.S.

business firms enjoy greater flexibility in making decision regarding expanding

capital plant, to lay off surplus workers, and to develop new products than their

counterparts in Western Europe and Japan. The GPD rate of U.S is relatively

low as compared to other countries like Asia and Europe. The stagnation of

family income in the lower economic groups and sizable trade and budget deficit

are some of the long-term problems for U.S.

The U S business firms are subjected to high trade barrier when entering

competitors markets as compared to the foreign firms that enter US market

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(World Factbook, 2008). Market shares of leading PND vendors in the United

States in the second quarter of 2008 are Garmin's share was 47.3%, followed by

TomTom who captured 24.6% of the market, then Magellan at 11.0%, Mio at

4.5% and Navigon at 3.6% (Palo Alto and Reading, 2008).

Political/ Legal Segment

The federal state government in US does not interfere in the matter of

private firms thus giving them power of decision-making. The Telecommunication

industry is highly regulated and the regulatory environment is subject to change.

In accordance to Federal Communication Commission (FCC) rules and

regulation, wireless transceiver and cellular handset products are required to be

certified by the FCC and comparable authorizes in foreign countries where they

are sold (Garmin Ltd, 2007 a). The firm has to deal with number of foreign laws in

foreign countries.

The firm also has to obtain license to operate in foreign countries. The

European Union has enacted the Use of certain Hazardous Substances in the

Electronic Equipment Directive and the Waste Electronic and Equipment

Directive.

In 1991, the United States GPS Industry Council (USGIC) was

established, is the leading organization worldwide representing the interests of

the satellite navigation industry. The USGIC is collaborative model of industry,

government, and users working together to make GPS and satellite navigation a
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global technology success, and a key component in the global information

technology infrastructure (United States GPS Industry Council, 2004).

The US president Bush signed the New Positioning, Navigation and

Timing Policy in year 2004. The new policy updates the foundation laid by the

1996 Presidential Decision Directive (PDD) on GPS. It maintains an

unambiguous U.S. commitment to the essential principles of open access, free of

direct user fees, for civilian users worldwide (United States GPS Industry

Council, 2004).

Sociocultural Segment

The technology industry is growing at faster pace due to innovation in

different aspects of life, and especially due to the growing demand for high-end

electronic products. The 20 largest cities and urbanized areas of the United

States, 41 percent of the local population, on average, lives in the city, and 59

percent lives in the surrounding suburbs, towns, and associated rural areas for

higher standard of living (Search Engine, 2008).

The technology industry requires a highly skilled work force. Te present

trend of US Scientific and Technology workforce is to hire employees from

foreign countries for high tech position. The U.S. 2006 Scientific & Engineering

workforce includes 54.8% men and 45.2% women that are projected to be

changing other way round in future. Looking at this same population, an analysis

of race/ethnicity finds that 77.0% of this workforce was white, 10.0% Asian, 5.6%
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black, 5.3% Hispanic (any race), with American Indian/Alaska Native, Native

Hawaiian, and multiple race each at 1% or less. (Stine & Mattews, 2008)

Technological Segment

With the rapid advancement of technological development in today’s

world, we can find GPS becoming more of an integrated technology in everyday

life so that our dependence and even our health and safety are depending on it

(Haghighat. K, 2008). We will find it more and more intertwine with our lives as

more uses are developed for it (Lowry, 2008).

The latest advancement in wireless technology has made GPS available

on cell phones, thus making life very simple for people around the globe. There

has been tremendous technological advancement in GPS industry with product

innovation like child tracking system, where parents can put tabs on their children

in form of watch that has GPS function that will help to track their children (GPS

magazine, 2008). Even most organ-transportation containers are equipped with

an embedded GPS tracking device, enabling hospitals to track these organs in

transit. On May 21st U.S. Food and Drug Administration (FDA) approved GPS for

the Body® by Calypso System allowing continuous live monitoring of target

prostate tissue during radiation treatments by the means if a Beacon®

electromagnetic Transponder which is permanently implanted in the prostate

gland prior to external radiation therapy (Haghighat. K, 2008). The sophisticated

GPS tracking and navigation equipment that are found in flight deck of aircraft
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are now found almost anywhere in automobile, Sailboats, recreational vehicle

and even in cell phone.

Global Segment

Technological development has led to Globalization. There has been a

potential opportunity to expand in developing countries like Asia and China, due

to change in global market, where the demand for high-end technology is

increasing with the increase in standard of living. Majority of GPS systems are

anticipated to be shipped in Asia Pacific by 2010 (Press Release, 2008).

Global companies have started outsourcing in India for development of GPS

components, embedded software and other telematics- related systems and

design (Kolodziei. K & Indoor LBS.com, 2006)

In the report, the global market for mobile location technologies is

anticipated to grow at a CAGR of 17% from 2007 to 2010 (24-7 Press Release,

2008).
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Porter’s Analysis

Garmin operates in the markets of navigation, communications and information products.

Competitive Forces Magnitude of Force Conclusion

Intensity of Rivalry Relatively strong May influence profit

potential
Supplier Power Strong May adversely affect profit

potential
Buyer Power Moderate May increase profit

potential
Threat of Substitutes Moderately weak May increase profit

potential o
Threat of New Entrants Moderate May influence profit

potential
Overall conclusions Most forces range from moderate to strong signaling

that the industry is highly competitive. This may have

adverse affect on profit potential.

Competitive Rivals

The research suggests that Global Positioning Systems industry is highly

competitive industry, thus it is growing industry as demand for personal

navigation devices keeps spiking up. The principal competitive factors that

influence the market today are design, functionality, quality and reliability,

customer service, brand, price, time-to-market and availability (Garmin, 10K,

2007). Top industry competitors that specialize in personal navigation system

devices and hold strong US positions include Garmin Ltd., TomTom NV,

Magellan Navigation, Inc., Mio Technology Ltd., and Navico (Hoovers, 2008).
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GPS industry in the United States has been expanding rapidly not only in United

States but globally too.

European TomTom headquartered in Amsterdam, Netherlands has been

GPS leader in European markets and continues to hold strong presence in US

aggressively competing with Garmin Ltd (Hoovers, 2008). As the competition

becomes more saturated in US and global markets, more and more players are

striving to compete on global arena. As a result, we see more acquisitions and

mergers taking place now than ever. In 2006, Simrad Yachting acquired

Lowrance Electronics for about $215 million in cash and formed company called

Navico. Today Navico specializes in marine devices and competes with Garmin’s

marine equipment division.

Moreover, current trends of having GPS in every phone have transformed

industry for past three years. New competitors such as Motorola, Blackberry,

Apple and recently Google started offering built-in GPS systems in their phone

devices. As response Garmin created new Nuvifone that is expected to hit the

market in third quarter of 2008 (Garmin, 2008).

Meanwhile TomTom was not resting either, and after Steve Jobs

introduced the 3G iPhone, “the company announced it has already created an

application that essentially transforms the iPhone into a TomTom GPS—

complete with the look and feel of TomTom's maps and directions” (Matlin,

2008).

TomTom’s software applications are available for purchase and

compatible with virtually every phone device on the market. Users have a choice
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of purchasing a Nokia phone with built-in GPS or installing it themselves with

TomTom’s variety of software applications. “Portable GPS devices have quickly

gone from high-end curiosities to mass-market devices. In-car location trackers

were the hot Christmas gift of 2007, and research firms estimated late last year

that revenue would hit $50 billion in 2008 and $100 billion in five years. So far,

the main benefactor has been Garmin, a GPS manufacturer that by most

estimates commands more than 50 percent of the industry's American market

share. The company posted record revenues in 2007” (Matlin, 2008).

In addition, car navigation systems have always been a treat for sports

cars, but recently this market is expanding as car manufactures such as Nissan,

Toyota, Infiniti and others are installing built-in GPS systems to answer

consumers growing demand for navigation devices.

The research indicates that GPS industry is not only popular in Europe

and North America, but it is gaining popularity in Asian markets. “China's GPS

phone market grew rapidly in 2007, and GPS phones, along with music and

camera phones, are one of the brightest spots in the mobile phone market

overall. A number of the major handset manufacturers have entered the GPS

phone market, although cautiously and with a limited number of high-end models.

The GPS phone market is still small and has low penetration, but its high growth

rate is a clear signal of its development, as is the fact that it is starting to have an

impact on the growth of the personal navigation device (PND) market (Market

Watch, 2008).
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Suppliers Power

GPS companies are highly dependant on its suppliers, as many

companies purchase components for its products from a number of suppliers

around the world, but materials they turn to sole suppliers. Therefore, the failure

of these suppliers to deliver materials in required quantities and in a timely

manner could adversely affect GPS business (Garmin 10K, 2007). If the

forecasted demand grows beyond expectations, many GPS companies would

have to increase production rapidly. That would mean the suppliers would have

to provide additional volumes of components. However, if those suppliers are not

capable of increasing their production rapidly enough to meet unexpected

demand, GPS companies may experience unfavorable market reaction if the

demand is not met.

On the other hand, rapid spike in production may increase manufacturing

cost and other expenses, by thus lowering company’s profit margins. As a result,

customer satisfaction may suffer and adversely affect companies’ ability to

compete in this market (Garmin 10K, 2007). Some of the components that GPS

industry relies on include semiconductors and electroluminescent panels, liquid

crystal displays, memory chips, batteries and microprocessors. In the past the

industry experienced shortage of liquid crystal displays and some other

components (Garmin 10K, 2007). As a result, the cost for such supplies

increased, and GPS manufactures that were unable to find alternative sources or

substitutes have experienced tightening of their profit margins. Some adapted to

higher costs by raising prices on finished products; however, such actions drove
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many existing customers into competitors’ hands.

Other important types of supplies for GPS industry include digital map

data used in automotive and mobile products. GPS manufactures may license

digital map supplies from several sources; however, there are only limited

numbers of mapping data for each geographical region (Garmin 10K, 2007). The

two well-known and largest providers are NAVTEQ Corp. and Tele Atlas N.V.

NAVTEQ has signed a Merger Agreement with Nokia, and TomTom is in the

process of acquiring Tele Atlas. Such actions may favorably affect Nokia’s and

TomTom’s future growth, as these two companies will have reliable suppliers for

digital mapping. They will be able to maintain their costs and compete for

affectively. On the other hand, such action may adversely affect Garmin, as it

may become difficult to maintain current costs for licensing digital maps in the

future.

Buyers Power

The research indicates that buyer power is moderate and may increase

profit potential. GPS is rapidly growing and changing industry that transforms

with advancing technology almost on daily basis. As competition increases,

global market leaders continue to drive prices down making it more affordable for

average consumers to have a GPS. As with many electronics, the market is

experiencing economies of scales, but we do not believe buyers have exclusive

power to influence profit potential.

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With prices for navigation GPS ranging from $150 to $800, consumers

now have a choice. In addition, many automakers are installing built-in GPS

devices as add-on service feature to satisfy growing demand of navigation users.

Automotive GPS units can range from $2,000 to $5,000 if it was purchased

separately. Therefore, many automakers are increasing their profit potential by

tapping into GPS industry. However, due to increasing demand for these

devices, lack of such as a built-in feature in today’s phones or cars may

adversely affect profit potential.

Many GPS manufactures rely on independent dealers and distributors to

sell their products such as Best Buy, Circuit City, CompUSA, RadioShack,

Amazon.com, Office Depot, Target, Wal-Mart, and many other consumer goods

stores. In addition, GPS manufactures sell their products and navigation

applications to mobile services stores such as T-mobile, Sprint, Verizon, and

AT&T. Disruption of these channels may influence GPS manufactures’

businesses.

Moreover, many distributors offer products from various competitors. If

competitors are able to negotiate better terms and prices, the distributors may

reduce or refuse to carry products of other competitors. Therefore, the future of

the business could be jeopardized for those unable to retain successful

relationship with the distributors.

Threat of Substitutes
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Presently GPS navigation systems are hot products that do not have

effective substitutes that may potentially influences this industry. However, there

are always traditional paper maps and atlases that will remain in demand, as the

price for GPS devices stays high and unreachable for many. Another possible

substitute could be Internet-based maps such as Mapquest, Google Maps and

Yahoo Maps. These products will always remain in demand, as consumers do

not have to pay for them.

Threat of New Entrants

Traditional GPS devices have been operating from satellites; however,

with advancing technology and tougher competition, global GPS players are now

competing with companies like Google and Apple that have introduced built-in

GPS systems in their new phones. 3G iPhone features GPS device that can work

from Internet, cellular towers or satellite allowing consumers to use GPS

applications wherever they are. Advancing technology opened new markets for

many well-established leaders in communication devices to enter ever-expanding

market of GPS systems more freely. Barriers to entry exist due to high-tech

nature of GPS industry; however, global companies such as Sony and Panasonic

these barriers are minimal because these companies have resources, knowledge

and channels to produce, market, and distribute GPS devices. Currently Best

Buys carries about five models of navigation systems of Sony and Panasonic.

In addition, Internet allowed small players such as Dash Navigation to

penetrate GPS market in 2006. Dash Navigation introduced automotive GPS

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units that connect through a cellular data network as well as update software

automatically through WiFI connectivity (htt://www.crunchbase.com/company

/dash). Dash Navigation is a perfect example that the threat of new entrants in

GPS industry is real and may reduce profit potential for existing market players if

overlooked in time.

Competitive Environment

Future Objectives

Garmin, one of the leading solutions provider in the global positioning

systems market, started as a military project back in the 80’s for operation

dessert storm, since then it has come a long way to capture the consumer

market, The Global Positioning System (GPS) is a satellite-based navigation

system made up of a network of 24 satellites placed into orbit by the U.S.

Department of Defense.

GPS was originally intended for military applications, but in the 1980s, the

government made the system available for civilian use. GPS works in any

weather conditions, anywhere in the world, 24 hours a day. There are no

subscription fees or setup charges to use GPS. Having the major market share

branded as one of the best equipment for in car navigation (Garmin Company

search results, 2008). Garmin also has its mark in practically every other

segments possible namely marine navigation, air, biking, hunting, nature trail , it

has a product for every market and its purely consumer and future focused.
 24

Garmin’s future objective is to focus on the European and the Asian

Markets where there is a numerous potential and a huge growth in terms of

revenue. With its global presence already in Europe where it stands next to

TomTom, Garmin is making every move to make its presence felt globally.

Powered by Oracle Garmin sets its future goal as to fast response and quick

solutions to the consumer. “Garmin is a technological innovator. We are always

applying the latest Oracle system upgrades, bug fixes, and features. Oracle

Priority Service gives us the extra attention and fast response we need to keep

our critical systems humming.” (Vandiver, 2007)

Industries Where Garmin focuses and Competes

 Telecommunications Equipment

o Satellite & Broadcast Network Equipment

o Wireless Telecommunications Equipment

 Wireless Telephone Handsets

 Computer Hardware

o Handheld Computers & Accessories

Major Competitors with Garmin

Model Price range Variety

Magellan $ 200 14
TomTom $ 500 24
Mio $ 280 5
The emphasis of these companies although not as wide ranged as

Garmin, they compete with Garmin in the PND (portable navigation device) and

handset category, where almost 80% of the market is focused into, the aim is to
 25

capture the car market and make their product capture the minds of the

consumer who are looking into both features and affordability packaged to give

the best of everything. As GPS navigation is getting more essential than a luxury

today these industries are the key players in keeping the competition intense as

more and more innovation and affordable pricing is the key factor to capture the

market.

Current Strategy

Keeping up with the trend Garmin has now entered a whole new era of

navigation, the PDA, called iQue 3600, and high performance GPS navigation

for mobile handsets or smartphones, getting into the PDA will bring in more new

users to get the GPS in hand and provide existing users with an exiting option of

a handheld GPS device. Garmin has teamed up with Google to create a fantastic

new feature that allows you to send locations from Google Maps to a Garmin

GPS (Garmin blog search results, 2008). With its PND and handheld devices

Garmins strategies extent into the future to improvise and innovate to give the

consumers the best in the industry

Products are designed with the customer in mind, with easy-to-use

menus, logical options and intuitive features, such as automotive products which

helps drivers reach their destination effortlessly while getting the most out of the

journey Marine units which supplement detailed charts with essential data

Aviation technology which provides everything pilots need at a glance Fitness

devices which make every step of the workout more efficient. Outdoor recreation
 26

options for hikers, campers and geocachers Wireless applications which bring

the power of GPS to a smart phone In rental cars or retail stores with information

packed into a compact, portable unit.(Garmin company results,2008) Garmins

current strategy is to embrace the lifestyles. From aviation to marine, automotive

to fitness, wireless solutions to outdoor recreation, Garmin employees are in the

air, on the water, in the woods, behind the wheel and on the run, always thinking

of ways to adapt and improve. (Garmin Company search results, 2008).

TomTom, one of the close competitors of Garmin in the PND (portable

navigation device) category, brings up innovation into its product rather than a

replica and additional features. The latest in range TomTom GO x40 LIVE

delivers dynamic navigation and route guidance that continuously adapts to

changing road conditions and always gives drivers the fastest route to a

destination. TomTom also provides solutions for bike navigation and PDA’s

While Garmin is the Market share leader in US, TomTom takes the lead in

Europe, its headquarters, The TomTom XL Traffic Europe 22 received a

Recommended Award from Trusted Reviews, and the device received an overall

score of 8/10, with 9/10 for performance (Bray, 2008).

The close competitor for both TomTom and Garmin is Magellan,

headquartered in US, manufactures GPS and survey equipments GIS

(geographic information systems) and it recently embedded Windows platform for

its maps, which can be used in PDAs Magellan has been in the industry for a

while, also known as an industry innovator it provides the Hertz car rental

company with a hertz Never lost device, it also provides solutions for cross
 27

country runners, cyclists etc, its current strategy is to ensure low development

cost for its global positioning devices (Pedersen,2008)

Assumptions

Garmins Assumption on the lifestyle of the consumers is a clear success,

its entry into literally every segment gave the consumers the choice to choose

from its product category, with the information technology taking over the

traditional mail systems, Garmin has made use of the emerging market and

made use of this new vibrant tech savvy consumer market.

Garmin nuvi, which is the car segment of the Garmins GPS brought out

the nuvi 800 series which can be controlled using speech recognition, includes

MSN Direct for real-time traffic, gas prices, weather, and more, can navigate to

geo-coded photos, supports multi-destination routing, and a whole lot more

(gpsmagazine,2008)

This is closely followed by TomTom with its GO 930 Traffic IQ Routes™

technology Advanced Lane Guidance, TomTom Map Share™ technology Maps

of Europe, US and Canada Enhanced Positioning Technology, Voice address

input Hands free calling, QuickGPSfix, FM transmitter, Bluetooth remote control,

RDS-TMC Traffic Receiver included. Garmin with its entry into the PDA market

provides both organizational and GPS feature to its consumer, with a fully

functional GPS that functions as an Organizer otherwise, Garmin has teamed up

with Google to create a fantastic new feature that allows you to send locations

from Google Maps to a Garmin GPS. TomTom, which has a leg in this segment,
 28

also gives a close competition, but not very close as it provides software for

Handheld PDAs, where it needs to be installed and used as a GPS device.

With Mio and Magellan following close by with almost the same kind of

technology, but yet to capture the market as what to Garmin and TomTom

shares. Altogether Garmin gives the consumers the confidence that it

manufactures only the best products with innovation to satisfy the every

demands of the market and keeps the lead among the other competitors.

Capabilities

Garmin(GRMN) is now the dominant player in the US market

(DigiTimes,2008), NPD is indicating that Garmin's market share has solidified in

the second quarter at 55% of the US market, opening up a 37% share gap

versus the #2 in the Market TomTom. NPD Reported Shares Second Quarter

2007:

Garmin - 55%
TomTom - 18%
Magellan - 13%
Navigon - 4%
Mio - 3%
TomTom [which trades in Amsterdam under the ticker TOM2, and] whose

name in Europe is practically synonymous with GPS receivers. TomTom controls

more than half the market in Europe, and Garmin struggles with share of about

10% over there, Sony (SNE) that tries to get into the market but produces

products which resembles Garmin. TomTom or Magellan there is nothing much

to differentiate it from the key players which sells its product for $549 (seeking
 29

alpha, 2006), according to Forbes Garmin is one among 130 in the global high

performers 2008, its market value 745 and sales ranking at 1874 globally.

The Ability to perform better than the competitors Garmin Uses distinctive

and difficult to replicate Business attributes, which it achieves through its

leadership, human resources, innovation and on time execution strategy.

GRMN-market

share

(Seeking alpha, 2008)

Responses

Consumers today have a wide range of choices when it comes to how fast

they can reach their destination, they are able to differentiate and choose from

the wide variety of options they are offered, with Garmin and TomTom coming up

with innovative solutions like real time traffic into their GPS consumers can now

choose the best route available and which roads to avoid during peak hours,

making the life and commute easier in the day to day life.

Garmin and Google has joined hands and now Garmin users can send

Google maps into their Garmin device, more user friendly is the feature where at

the press of a button a live agent will guide driver to the nearest restaurant or a
 30

gas station by feeding the device from a remote place with the information. With

the future in mind and competition around the corner Garmin has been and

moving forward to be a pioneer in the segment,

Garmin is now entering into the Smartphone segment called the Garmin

Nuvifone an all-in-one, sleek and slim, touchscreen device that combines a

premium phone, mobile web-browser, and cutting-edge personal navigator

(Garmin Company search results,2008) , with the competition closely following

Garmin has to keep up with more innovation and in order to capture the

global market, it needs get into the basics of understanding the cultural aspects

before designing a device especially in Asia.

(GPS magazine, 2007)

Dominant Economic Features

Market Size and Growth Rate

 31

As a new industry with rapid growth, the market for GPS is expanding

continuously. In the United States, 2.4 million personal navigation devices were

sold in the year 2006, and 10 million devices were sold in 2007. The number is

estimated to be as many as 20 million in 2008 (Lipowski, J. 2008). The GPS

market spreads beyond the population of car owners as technology advances the

device can locate a specific spot precisely. We believe the major contribution to

the tremendously growth of the GPS market is the convenience it brings to the

consumers. GPS started as a tool for the military is now available for everyone

and it is improving the quality of life for people around the world.

Number of Rivals and Scope of Competition

Garmin currently dominate the GPS consumer market with a 45% share of

worldwide revenue and a 37% share of units sold. However, its longtime rival,

TomTom is maintaining a strong 25% share of both revenue and units sold

(Charny, B. 2008). Strong players from other industries, like Sony, Apple, Nokia,

HP, and Panasonic are tapping into the pool to compete for a share in the

growing market.

Focusing on the competition between Garmin and TomTom, we found that

the two companies’ product lines being very competitive with many products

offering similar features and selling at similar prices. Each company has its basic

model starting at less than $150 with minimal functions and a user-friendly

system.
 32

On the other hand, analysts are expecting the new and strong players to

challenge both Garmin and TomTom in many different ways as they can install a

GPS system into their existing cell phones and digital media players.

Number of Buyers

Besides the general consumers of current car owners, GPS is connecting

with car manufacturers to have their systems built into the new cars. As an add-

on to the Hybrid Prius, Toyota is charging almost $2,000 to the car’s sticker price

for its mapping and guidance system (Carey, D. 2007). The industry is attracting

new buyers including hikers and dog-owners as new products include exercise

wristwatches and dog collars. GPS does not only work on land, because it also

has a strong market in the marine/boating industry as well as the private

miniature planes industry.

Product Innovation and Degree of Product Differentiation

The latest innovation in the GPS consumer product industry is to integrate

a full GPS system with a cell phone. Many companies have tried installing a

limited GPS function into their phones. However, problems occurred to the

phones when large maps need to be downloaded and the unacceptable length of

time it takes to find a destination. While many cell phone manufacturers are

trying to add GPS into their phones, Garmin is adding a phone to its system

(Flaherty, N. 2008). Garmin’s Nuviphone currently hits the market in the third

quarter of 2008, therefore, its performance is yet to be known.

 33

Information from Consumer Reports tell us that GPS devices currently on

the market are more or less the same, with a touch-screen operating system, a

satellite correspondence, and some other add-on features depending on the

models. Companies are constantly trying to offer unique services to differentiate

itself from the pack. For an example, TomTom offers a daily fuel price update for

its price-conscious customers to know where is the closest location that offers

the lowest price on fuel.

Supply/Demand Condition

Being a product that provides such great convenience to the customers,

GPS is growing into a necessity for many people. Current owners have

expressed their dependence on the products as well as the benefits they receive

from having the products. GPS owners no longer have to stop and ask people for

direction, make u-turns, and being unaware of where they are. While the yet-to-

be-convinced crowd thinks the price for the basic model being a little over $100 is

a little high, it will eventually come down with the strong competition between the

sellers in the markets.

Pace of Technological Change

As a technology that started off in the military, GPS is now more common

than ever as we no longer have to open a book of map to figure out where we

are and flip through pages of the book to figure out where we want to go.

Integration with other technologies, like blackberries and cell phones, have made
 34

GPS mainstream. With the advancement of the technology, a system that used

to cost over a thousand dollars would give you a proximate location within a

hundred feet now costs you a couple hundred dollars and give you a proximate

location within twenty feet.

One benefit to GPS is that the interest in the technology is linked to

greater environmental awareness. It is because several large companies, such

as UPS and Sears, now have their drivers use GPS units to plan routes that are

more efficient and cut down on their fuel consumption (Penny, L. 2008).

Vertical Integration

While most companies in the industry manufacture and distribute as

wholesalers for its products, Garmin actually has its own store in Chicago selling

its own products. As far as integrating vertically with the retailers, we do not think

any company in the industry is ready to take on retail giants like Wal-Mart, Best

Buy, and Circuit City alike.

On the other hand, satellite suppliers are authorized by the government,

and the number of satellites sent into the orbit is restricted. The only two satellite

makers in the U.S. are Boeing and Lookheed Martin (Aviation Week, 2007). They

first have to fight over the right to send a satellite into the orbit, and then get an

approval from the federal government, upon completion of building the satellite,

the U.S. Air Force then boost the satellite into the orbit. While integrating a

satellite maker will enhance any company in the GPS industry competitiveness, it
 35

is simply unrealistic for any GPS manufacturer to consider owning a satellite

maker.

Economies of Scale

As the industry leader, Garmin is enjoying the economies of scale more

than any other players in the market are. We recall seeing the company’s

advertisement on television the month before last Christmas. Once a company

perfected the shape and size of the hardware of the product, it may enjoy the

benefits of economies of scale, as it simply has to change the system installed in

the chip that goes into the device whenever a new product is to be introduced to

the market. Furthermore, with more products owned by customers, the market

leaders’ technical support center as well as customer service center can benefit

from the number of customers it serves.

Driving Forces

Emerging New Technology

As the number one mobile phone maker, Nokia took a step forward in

2007 becoming self-contained personal navigation devices integrating GPS

technology and location-based services into its handsets (Malykhina, E. 2006).

From the TomTom website, we learned that you might now press a button on its

latest model for roadside services. In addition, there is a service that alerts

travelers for traffic congestions that are ahead offered by both TomTom and

Garmin. Another new technology from TomTom is TomTom Buddies, it

 36

integrates an instant messaging system with the GPS device for consumers to

connect with friends on the road to see who is in the nearby area for a face-to-

face get together. Information from the Garmin website tells us that games can

now be played on the new GPS models they have so that when the GPS is not

used to navigation, it can be used as a hand-held videogame player.

Global Competition

The market leader, Garmin is based in Kansas, while its rival, TomTom

was founded in Europe. With very different operating environment as well as

corporate culture, the two companies compete in the same industry with each

earning a fair share of the market. Recently, information technology giants like

Apple (based in the U.S.), Nokia (founded in Finland), and Sony (headquartered

in Japan) are entering the market hoping to take up market share. It has been

beneficial for mainly consumers as prices dropped and features on the devices

increased. All competitors in the market are trying to figure what customer needs

and wants and trying to match it with the product and service they provide.

Hence, customers are benefiting from the lower price and higher quality of the

product, so in turn it benefits the industry as the technology advances.

Market Saturation

While the GPS industry is still in the growing stage with rapid growth in

sales, the market will one day be saturated. If every car owner has a GPS in their

car, the demand for GPS will decrease substantially. Although there are new
 37

market segments like individual tracking to be explored, the demand will not

come close to the demand for automotive GPS. That is why we are seeing all the

companies in the market being aggressive these days to secure a spot in the

industry while it is still growing.

Government Policy Changes

The U.S. government currently limits the total number of satellites allowed

in the orbit to 33 (Aviation Week, 2007). It could eventually lift up to allow

additional satellites to orbit the earth to serve GPS companies, who heavily

depend on satellite signals for their services. Although we would never know

when it would happen, we are positive that it will. The GPS technology was

controlled by the U.S. military until 1993. It was not until 1993 that President

Clinton signed a bill that would allow one of the satellites to send a signal in a

civilian version for the general population to use (National Post, 2008).

Integration with other Industries

Opportunities for companies in the industry to integrate with other

companies are many. Garmin has recently worked out a deal with Blackberry to

allow its customers to have unlimited access to Garmin Mobile’s turn-by-turn

voice prompted direction for a one-time fee of $99.99 (The Boston Globe, 2008).

Back in 2006, Garmin acquired Dynastream Innovations Inc. for $36 million to

advance its health and fitness product (Commweb, 2006). Garmin has since

launched a series of product targeting athletic individuals. In 2007, Garmin was

 38

selected by Piper Aircraft to develop an avionic suite for the new single-engine

PiperJet. Garmin would provide a cockpit with two primary flight displays that will

interface with Garmin Altitude and Heading Reference System and a

multifunction display that will include engine performance and situational data

such as location, terrain, traffic, weather, and airport information (The Weekly of

Business Aviation, 2007).

Key Success Factors

Advanced Technology

Considering how precise a GPS can locate you, how small it has shrunk

to, and how user-friendly it is, there is no doubt into the recipe of success for the

industry. The GPS for car can detect as precise as every 10 feet the car is

moved (Stine, 2008). GPS is now small enough to be a watch-sized. Integrating

the touch-screen technology, it has made is so user-friendly that baby-boomers

are having no trouble getting used to having one and using one in their cars.

Wide Selection of Models

It does not matter if you are budget-minded or simply want to have the

most sophisticated one out there. There is a GPS model that fits into your budget

and need. The cheapest model currently costs a little over a hundred dollars with

the basic feature that gets you from point A to point B (BestBuy). There are also

expensive ones that cost you over a thousand dollars bringing you multiple

comprehensive features that could help you with anything you can think possible.
 39

Meeting Customers’ Needs Precisely

One of the basic features in most of the GPS models in locating points of

interest. By pressing a few buttons, GPS owners can locate the closest

restaurant, hotel, airport, hospital, movie theatre, gas station, and police station.

If stranded, a GPS can quickly provide you with your exact location with the

latitude, longitude, and altitude.

Strong Network of Distributors

GPS is sold through all major consumer electronics retailers, like Best Buy

and Circuit City. In addition, customers can easily find GPS in Wal-Mart, Target,

Sears, and even stationary stores like Staples (Garmin, 2008). With such wide

range of distributors, customers will have no trouble locating one close-by to

experience it hands-on and to purchase one.

Well Known Brand Names

While Garmin and TomTom are secured as the market leaders and the

most well known brand names in the GPS industry, as discussed earlier, other

consumer electronic giants with strong brand names like Sony, HP, and

Panasonic are entering the market (Lowry, 2008). The familiarity is great for the

consumers, as they are brand that they can trust no matter it is the existing

strong leaders or the well-known newcomers.

 40

Patent Protection

The computer programming that goes into the GPS as well as the digital

map that each company used is copyrighted, and they are protected under as

intelligence property. Therefore, it makes it difficult for new company to enter into

the industry with no background in software engineering and mapping

technology.
 41

INTERNAL ENVIRONMENT ANALYSIS

Resources

Tangible Resources

Tangible resources are firms’ physical assets that help to establish the

firms’ capabilities and competencies. The company’s main asset is its cash.

Garmin’s existing cash balance and cash from operation will be sufficient to meet

its future capital expenditure, working capital, and other cash requirements at

least through the end of fiscal year 2010 (Garmin Ltd., 2007 a).

Figure 1- Cash Flow Statement

Cash Flow ( in Millions)

2007 2006 2005

Cash from Operating Activities 682.09 361.86 247.01

Cash from Investing Activities -175.7 -226.4 -91.18

Cash from Financing Activities -136.1 -132.7 -70.94

Cash Balance 370.37 2.97 84.44
(msnmoney, 2007)

Garmin has invested a good deal of its financial resources in the purchase

of plants, equipments, and properties in Unites States as well as other locations

in the world. Strategic acquisition has been helping Garmin to grow. The

company has also reported growth in the second quarter revenues due to high

demand for its products in automotive/mobile and outdoor/fitness segment

despite the challenging macro economic conditions (Yahoo Finance, 2008).

Garmin’s competitive edge comes from its vertically integrated business

system (Aaron, 2008). They design, develop, manufacture, and market their own
 42

products, giving them a competitive advantage. Garmin’s products are created by

its engineering and development staff. The manufacturing engineers work closely

with Garmin’s design engineers to ensure manufacturing cost control for its

products. Its sales are of customer nature i.e. it has relatively short cycle

between order and shipment (Garmin Ltd., 2007 a). Expert guidance from a

Priority Service Manager helps to streamline communications, and preferred

access to technical resources to keep system running efficiently (Tech Republic,

2007).

Garmin Inc. is an International company, it is head quartered in Olathe,

Kansas City with facilities in different parts of the world like Europe and Asia.

Garmin has its retail store in Chicago on Michigan Avenue, where the entire line

of Garmin products is available under one roof (Garmin Ltd., 2008 b). The

company has its manufacturing capabilities in Shijr, Jhingli and Linkou, Taiwan

facilities, its Olathe, Kansas facility, and its Salem, Oregon facility (Garmin Ltd.,

2007a).

Garmin understands the success and ability to compete in fast pace

technology industry depends on its proprietary technology to some extent. The

company relies on a combination of patents, copyrights, trademarks and trade

secret laws. They rely on license of intellectual property for use in business. For

example, they obtain licenses for digital cartography technology for use in their

products from various sources (Garmin Ltd., 2007a). Garmin replies on Oracle

technology backed by Oracle Priority Services to sustain its growth and to help it

to resolve issues faster (Tech Republic, 2007).

 43

Intangible Resources

Not all the intangible resources appear on a company’s balance sheet.

Intangible resources like human resources, innovation resources and reputation

resources. Human resource includes knowledge, trust, and managerial

capabilities. Innovation resources include scientific capabilities and capacity to

innovate. Reputation resources include the firm’s brand name and reputation with

customers, suppliers, and employees.

Garmin’s highly qualified team of board members and its engineers are

the backbone for its success. Garmin has proved its managerial capabilities by

generating positive income each year. Employees play an important role in the

continued growth and success of the organization. It has full- time employee

strength of 8,434 associates worldwide, of whom, 2,443 are in the Unites States

(Yahoo Finance, 2008).

Garmin is a technological innovator and a market leader in GPS device

due to new innovations as a result of its highly skilled employees. "One of the

things that have kept us ahead of our competition is innovation," CFO Kevin

Rauckman said. "We push technology to be the market leader" (Worth.T, 2007).

Innovation is one of the main resources for Garmin that helps it to

compete in a rapidly changing industry. Innovation has led Garmin to make user-

friendly products with range of applications and price points.

Garmin is a pioneer in the field of GPS technology and a world leader in

PND (Personal Navigation Device). In 2007, Garmin achieved the world number
 44

one spot for mobile navigation device (Garmin Ltd., 2007 a). Garmin enjoys the

success due to the relation with its employees. Garmin’s aim is to provide quality

products that are durable and reliable at affordable price to its customers.

GSmart, the mobile phone brand owned by Gigabytes Communication Inc. will

be offering a special feature with built – in GPS and highly amazed Garmin map

data. GSmart PDAs are leveraging on Garmin’s excellent reputation in map data

and friendliness to offer reliable map data and navigation features (Troaca,

2008).

Capabilities

Garmin’s top priority has been to provide its customers with latest

advancements in GPS devices and at an affordable price. This has been

possible due to the expert engineering and development staff worldwide. Garmin

is a global provider of navigation, communication and information devices, which

are enabled with Global Positioning System technology offering with wide range

of products in all the four segments: automotive/mobile, outdoor/fitness, marine

and general aviation market.

Garmin is always looking for the best and the brightest minds to join its

team. The company’s internship and co-op program has been designed to give

its interns valuable and real world experience thus giving them a rewarding

career in the future. Due to their excellent compensation and benefit package,

Garmin manages to attract new employees and retain their current ones. Its

compensation package offers insurance benefits, retirement, employee stock

 45

purchase plan option, paid vacation, education reimbursement and extra perks

like purchasing Garmin products on discount, etc. (Garmin Ltd., 2008 d).

Garmin has been on the forefront in development of new products in GPS

technology. It has an excellent research and development team that helps to

bring new products to the market every year. Garmin introduced many new

products in 2007 and generated $3.18 billion in revenue. It has shipped more

than 31 million units, with more than 12.3 million units sold 2007 alone (Garmin

Ltd., 2007 a).

Garmin has a range of its innovative products in the pipeline to be

released in year 2008 in all the segments. Garmin’s Nuvifone™ is the first touch

screen device to integrate a mobile phone, premium web browser, and personal

navigator. The device is set to be released in the third quarter of 2008.

Forerunner 405, an ultra compact wrist model and a completely new “Colorado”

series of handheld GPS units were released in the first half of 2008. The

introduction of new line of marine products will strengthen Garmin’s position as a

top-quality marine electronics manufacturer. It has also brought to the market

New Edge® 705, the first bike computer that displays color map, heart rate,

cadence, gradient, GPS positioning, and optional power data. In the aviation

segment, more than 100 citation Mustang Bizjets were delivered with built-in

Garmin integrated avionic system.

Garmin’s physical expansion includes acquisition of several European

distributors to strengthen its international presence and capabilities in European

market. Garmin’s Taiwan subsidiary purchased a factory in Linkou that will

 46

increase its manufacturing capacity by 30%. Its physical expansion also includes

a new warehouse in Olathe, Kansas at Garmin International headquarters which

is more than double the total square footage at its present location (Garmin Ltd.,

2007 a).

Core Competencies

Garmin is a leading worldwide provider of navigation, communication, and

information devices. The core competencies of Garmin are its manufacturing

capability, innovation in technological advancements, distribution strategy, and

wide range of products.

Manufacturing capability of Garmin is one of its core competencies that

has helped it to rapidly prototype design concepts, products, and processes in

order to achieve lower cost, higher efficiency, and better value for customers.

Garmin’s choice to operate its own manufacturing facilities has helped it to

minimize problem such as component shortage and long component lead-time

that are common in the electronics industry. Its manufacturing plants at Shijr,

Jhongli, Linkou, Olathe, and Salem have contributed to the company’s core

competencies (Garmin Ltd., 2007 a).

Garmin’s Innovation in technology development is another core

competency. The market in which Garmin operates is highly competitive. High

emphasis on research and development has made it possible for Garmin to bring

its innovation to market for its customers. Garmin believes the industrial design of

its products has played an important role in their success (Garmin Ltd., 2007 a).
 47

Garmin’s distribution strategy is intended to increase their global

penetration and presence that maintains high quality standards to ensure end-

user satisfaction. Garmin has a large distribution network, including Best Buy,

BDI/Laguna, Cabala’s, Wal-Mart, Circuit City, etc. to name few (Garmin Ltd.,

2007 a).

One of the other core competencies of Garmin is its wide range of product

line in each segment thus giving its customer an option to choose from. It has 42

models in Automotive/ mobile segment, 57 models in outdoor/Fitness segment,

60 models in marine segment and 19 models in aviation segment (Garmin Ltd.,

2007 a).

Distinctive Competencies / Four Criteria Test

Figure- 2 Four Criteria Test for Sustainable Competitive Advantage

Resources or Valuable Rare Costly to Non- Competitive Performance

Capability Imitate substitutable Consequences Implications

Distribution Competitive Average return
Yes Yes No No
( logistics) parity
Brand Image Temporary Average to

Yes Yes Yes No Competitive above

advantage average return

Production Competitive Average return

(skills/ Yes No Yes No parity

capacity)
Innovation Temporary Average to

Reputation Yes Yes No Yes competitive above average

advantage return
Knowledge Sustainable Above-average
Yes Yes Yes Yes
Competitive
 48

advantage return

For Garmin, distribution and marketing are done regionally via the three

aforementioned business centers. Garmin’s distribution channel is one of its

valuable and rare capabilities. “It is rare to find an industry leader with 55%

market share selling at a 24% discount to the low end of its historical average

Price-to-Sales range” (Seeking Alpha, 2008 a). This is possible through a

distribution network of roughly 3,000 independent dealers and distributors

globally to 100 countries as compared to its competitors. Garmin’s products are

also sold via distributors who have the ability for “at –airport installation” (Aaron,

2008). Garmin has a competitive parity in its distribution capability as it is not

costly to imitate and is substitutable

Garmin has outperformed its competitors by producing positive results in

its financial records (Garmin 10K, 2007). They are a strong competitor in

scientific and technology industry. Therefore, it has temporary competitive

advantage giving it average to above average return. Garmin is a world market

leader in PND sales, thus contributing to its brand image in world. Garmin’s

brand image is one of its strongest assets being valuable, rare and costly to

imitate. Garmin is number one in its market share in US after TomTom (Garmin,

2006). But Garmin has be very careful to in maintaining its number one spot as

there is intense competition in this industry, therefore it is not non substitutable.

Garmin’s production capability is valuable resource, being considered to

have a competitive parity. In order to be a market leader, Garmin has to be on

the forefront with technology advancement. Garmin’s in house manufacturing

 49

gives it an added strength over its competitors and minimizes any problems

faced at production level. Garmin’s design, manufacturing and distribution, and

serving processes in US, Taiwan, and UK facilities are certified to ISO 9001-2000

(Garmin Ltd., 2007 a). Garmin has been expanding its manufacturing plant in

different countries giving it cost benefit which is costly to imitate for its

competitors but it is not rare and non substitutable as its competitors like

TomTom are also expanding their manufacturing facilities in order to capture

higher market share through increase in sales.

Garmin has a temporary competitive advantage due to its strong

emphasis on research and development. The company has developed a unique

style that takes a systematic approach to R&D. Garmin’s latest offering – the

GPS MAP696- is a rare combination of powerful new capabilities and ease of

use (Hirschman, 2008). This helps them close the innovation gap with its

competitors. The company has been focusing on investing more in Research &

Development, as new and innovative product development is back bone of

Garmin.

Recent innovation of Garmin is Nuvifone, a smart phone with all latest

features like Online services, camera, email, MP3, pre loaded map of North

America, Eastern and Western Europe, etc. “Its lead in PND technology is

already well established and management will continue to be on the cutting edge

of GPS technology and further integration into cell phones” (Seeking Alpha, 2008

a). Garmin’s innovation reputation is a valuable, rare and non- substitutable. But
 50

it is not non substitutable as its competitors will come up with a similar product in

near future.

Garmin has sustainable competitive advantage giving it an above average

return. The company’s strength in knowledge capability is seen through its

process of sharing knowledge with different departments of the company. For

example, Garmin’s manufacturing staff works in connection with design

engineers. Garmin’s workforce comprises of highly skilled engineering

contributing to new product development and making a Garmin market leader in

navigation, communication and information technology provider (garmin.com).

Garmin’s knowledge capability is most valuable, rare, costly to imitate and non-

substitutable.

Value Chain

Inbound Logistics

The net responsibilities of a company is to produce enough to meet the

market needs and supply them to the consumers at the right time through the

right channel in a cost effective way and carrying out the after sales services to

the consumers once the product has been sold. In order to meet these every

company has to have a clear supply chain management system, which improves

the company’s operational efficiency.

The first in the value chain management is the inbound logistics, where its

core responsibilities are to handle the Transportation, Material handling, Storage,

Communicating, Testing, and information systems. Garmin does this in its well-
 51

formulated system, Garmin recently Selected Kewill Shipping and Compliance

Management Solution to Streamline Global Shipping Operations; Kewill Flagship

Export Enterprise Solution Integrates with Oracle ERP, this move is to streamline

its global shipping and compliance operations for both its UK and United States

warehouse facilities. The company fulfills individual orders from its web site as

well as batch fulfillment orders, "less than truckload" orders for its retailer and

dealer partners, and high volume small packages (Freeman,2006).

Supply chain management at Garmin operates on a two-bin kan ban

system, which is when a bin is empty, it goes back to the stock room to get filled.

The kan ban system is used from stage to stage based on sales rates and

delivery scheduled rates in the factory to optimize inventory and process while

keeping their inventory as low as possible.

The company also enters into contracts with suppliers to give them their

MRP schedule and have inventory bonded for up to 30 days, it then issues

purchase orders to release against that inventory, and suppliers get weekly

updates of Garmin’s schedules. That way, the suppliers can also optimize their

inventory while Garmin is not sure not to run out, and the suppliers can see what

Garmin is planning to purchase.

This method becomes a win-win situation for all involved. With Garmin’s

12-month production schedule available to suppliers, they can in turn optimize

their own production. “Because it has contracts with the suppliers, they can buy

their material in bulk, optimize the factory production schedules, and lower their

costs. (Pokorny, 2008)

 52

An analysis of the relationship between sales growth vs. prior year and the

inventory on hand to support future anticipated sales growth (Elias, 2008).

 Solid growth story with strong quarterly sales growth vs. prior year

amounts, with the last reported quarter as the highest growth of 99.1%

vs. py (blue line)

 Reduction in Inventory on Hand (aka Days of Supply) to the lowest

levels in GRMN's history to 66.3 days (red line)

Operations Management

The core responsibilities in the Operations Department of Garmin is to

handle the process, materials, machine tools, material handling, packaging,

maintenance, testing, building and designing. Garmin has offices in the United

States, Europe and Asia.

 53

The company carries out various stages of product development, from

initial concept to shelf-ready unit. The business structure is based on performing

all design, manufacturing, warehouse and marketing processes in-house. Garmin

calls this process vertical integration, which allows it to maintain a high level of

quality and respond more quickly to the ever-changing marketplace.

The Institute of Transport Management recently awarded Garmin with the

prestigious honor of “Innovation in Fleet Management 2007.” Garmin was chosen

as the manufacturer most able to meet the challenges of the efficient movement

of people and goods vehicles through its comprehensive product offering in

Automotive and Fleet Management innovation, as well as customer service

excellence.

To improve business operations, Garmin is leveraging the IronPoint

Mobility Series advanced Quality of Service features and next-generation Virtual

Cell architecture. This set up provides highly scalable wireless capacity and

seamless roaming to Garmin mobile users across the network, all while

maintaining the highest level of data privacy and access control.

The large size of Garmin’s operations requires mobile barcode scanners

with wireless connectivity as a critical part of the inventory management

infrastructure. To ensure secure data communications, all mobile scanners

use Wi-Fi  Protected Access 2 (WPA2) with 802.1x authentication. (Susan, 2007)

Outbound Logistics

Garmin here has to handle the real time transaction of Fleet to its end

consumers, Garmin has improved its Fleet Management Interface (FMI) system
 54

to include highly requested features such as canned responses and messages,

driver ID, and driver status protocol, according to the Web site,

www.TMCnet.com.

Integrated with major mobile resource management companies, Garmin's

FMI service enables fleet tracking, messaging, dispatch, and navigation directly

on Garmin's portable navigation devices.

Garmin chose SDL Translation Management System and SDL MultiTerm

to enable the centralization and efficient management of all multilingual assets

across the corporation. In addition, Garmin has selected SDL services for

translation delivery.

SDL Translation Management System unifies the translation supply chain,

providing the collaboration, control, integration and process flow required to

prepare content for a global audience. It integrates with enterprise data, content

and applications, wherever they are located, and manages the complex

translation and localization processes.

SDL MultiTerm provides a central repository for approved internal

corporate terms. This system decreases the possibility for incorrect terms to be

published within corporate communications, ensuring the delivery of accurate

and consistent messaging and branding.

Further, the system integrates directly with the SDL Translation

Management System to ensure consistent terminology is being applied to cross

multiple different languages, from within one centralized enterprise solution

(Business wire, 2007).

 55

Marketing and Sales

Garmin in terms of marketing and sales has a tailored set of information

with complete product catalogs, with pricing, image, inventory, and availability to

the consumers through its websites, which provides online sales of its product.

The Website requires the consumer to register online, once the consumer

is registered, Garmin provides a set of username and password which the

consumer chooses, which he/she can use to log in to choose the items and order

the products. Garmin in order to give the customer the feedback of its products

has its own blog page, where consumers can look into the reviews and the latest

Buzz of Garmin products.

Garmin advertised on major TV networks last Christmas promoting its

brand as the one to get for people who are looking for a GPS device. The

commercial had a Christmas carol with parts of its lyrics substituted with the

brand name.

Garmin also provides the location of dealers where the consumers can

contact to get the products, this makes the process easier for the consumer

where they can buy the product from a dealer who may be near their location.

This is achieved when the consumers enquire about Garmins products and

request a quote, this again will be provided to the local dealer nearest to the

consumers request and the consumer will be contacted through the number

provided by them to Garmin.

 56

Sales chart of Garmin (yahoo finance, 2007)

After Sales Service

Increasing the focus on, and improving the delivery of after-sales service

is seen as major reason why leading businesses are achieving growth and profit

improvement in an environment where competitors are experiencing little or no

growth, with unpredictable revenues and shrinking margins. Garmin plays a

crucial role in this segment as it takes it seriously, it has its customer support set

up America, Europe and Asia to provide after sales support for its customers.
 57

Garmin has recognized and responded to the benefits of considering the

strategic role of their after-sales service and understood the need to think of a

lifetime relationship in terms of both product and customer, and with it achieve

significant revenue and profit growth.

Delivering high levels of customer satisfaction through a well-managed

service operation can increase loyalty, and thereby sales, by as much as eight

times - greatly enhancing the value of the business. Successful manufactures

increasingly focus on their customers’ total lifecycle by investing in their service

management business to maximize the value captured throughout the product

lifecycle. This means that the product sale is only a small part of the overall value

during the complete product lifecycle and is only the start of the customer

relationship.

Financial Analysis

Business Highlights

17Th Consecutive Year of Business Growth

• Revenue of $3.89, up 79%

• EPS of $3.89, up 66%

• Total units sold growth of 127%

• Triple digit growth in Automotive, and healthy double digit growth in all
other business segments

• Over 12M Units Shipped in FY2007

Worldwide Employees increased to over 8,400

• Added over 1,900 manufacturing associates

 58

• Added over 400 engineers

• Added over 200 product support specialists

Global Market Leader

• Over 50% market share in North America

• Over 20% in Europe

Taiwan

• Garmin continues to build out third facility to meet the growing PND
demand. Production capacity of all combined manufacturing facilities is
now at an approximated annual rate of 18M unites.

Europe

• Acquisitions of distributors in France, Spain and Italy were completed in

2007. In the first half of 2008 Garmin also completed the acquisitions of
distributors in Denmark and Belgium.
•
United States

• Expansion of the warehouse distribution facility at Kansas headquarters

was completed in April. Garmin also has begun planning a further
expansion of headquarters and research & development facilities in
Olathe.

Profitability Ratios

Ratio: TTM 2007 2006 2005 2004 2003 Industry

Gross margin 45.1% 46.0% 49.7% 52.1% 53.9% 57.7% 24.47%

Operating profit 26.7% 28.5% 31.3% 32.9% 35.5% 39.6% 4.48%

margin
Net profit margin 25.6% 26.8% 28.9% 30.3% 26.9% 31.2% 2.78%
Return on total 32.4% 32.9% 31.5% 25.1% 20.8% 22.9% 2.82%

assets
Return on equity 42.7% 43.7% 37.8% 29.7% 24.4% 26.4% 8.02%

Garmin’s profitability margins exceed industry margins well beyond the

median. While industry gross margin is only at 24.27%, Garmin, as the

 59

predominant leader of GPS industry was able to keep this margin at 45.4% up to

recent quarter.

It has decreased over the past 5 years sliding from 57.7% to 45.1% but

the company explains this by higher Cost of Goods Sold as industry becomes

more competitive, as well as overall macroeconomic conditions. Trend will

continue to be downward in the upcoming years; however, Garmin is determined

to keep gross margin at the optimal level.

Operating profit margin also decreased in the past 5 years sliding from

39.6% to 26.7%. However, the decline is evenly dispersed from year to year

which signals that the company is managing its operating expenses well, and

that the decline is more likely attributed to macroeconomic conditions that have

been influencing GPS industry. Marketing and labor expenses were one of the

expenses that increased evenly as Garmin grew rapidly over the last few years.

While industry average is 4.48%, Garmin maintained its operating margin at

26.7% up to recent quarter.

High Net profit margin of 25.69% compared to the industry average of

2.78% is impressive. It reassures shareholders of Garmin’s leadership position in

GPS market and signals that Gamin management is capable of managing its

expenses efficiently.

Even though Net Profit Margin has decreased over the past 5 years sliding

from 31.18% to 25.69%, the declining trend is steady which is not as worrisome

as if the company’s net profit margin was climbing up and down from year to

year. In that case, management ability to run operations would be questioned.

 60

However, steady downward trend in the industry that is fairly new and where

competition continues to increase, the company is doing a great job on managing

operations efficiently.

Return on total assets is 32.44% up to date compared to industry average

of 2.82%. The trend is upward which clearly shows that Garmin’s management is

committed to the company’s growth. Return on equity is 42.73% in the recent

quarter which slightly down from last years 43.75%. However, the trend is

upward until 2007 and is well above the industry average of 8.02%. Five years

ago, Garmin’s return on equity was 25.42%, today this return increased by

almost 20%. On average the return increased 3% from year to year since 2003.

Overall Garmin’s profitability position is stronger compared to those in the

industry. Most of the margins are doubled or even tripled of the industry average.

However, it is worth noticing that for many margins five-year trend is downward.

Consequently, it may signal that the company is moving into new face of maturity

stage as GPS industry is becoming more saturated with increased competition.

Liquidity Ratios

Ratios: TTM 2007 2006 2005 2004 2003 Industry

Current ratio 3.14 2.91 3.46 4.1 3.61 5.17 1.48
Quick ratio 1.99 2.12 2.41 2.75 2.41 3.93 1.14
Working capital 1,444.1 1,530.9 831.4 605.7 460.7 434.5 -
Working capital 41% 43.5% 46% 59% 60% 76% -

To date current ratio is 3.14, which is slightly up from last year’s 2.91 but

down from 2006’s 3.46. While industry average is 1.48, Garmin’s current ratio is

almost triple of that number. However, it is worth noticing that the trend is
 61

downward in the past 5 years, which may signal that the company has been

increasing its current liabilities. According to Garmin’s 2007 Annual Report

current liabilities increased 137% compared to current assets increase of 100%.

Currently quick ratio is 1.99 which is slight decrease compared to year

2007 of 2.12. However, it is still above the industry average of 1.14. Overall, the

trend is downward which signals that the company has become more

dependants on inventory over the past 5 years.

According to 2007 Annual report, Garmin has increased its inventory at

the end of 2007 due to projections of higher growth rate in 2008. However,

economic downturn pushed Garmin to hold to this inventory and as a result,

inventory level has doubled since 2006.

Overall, Garmin’s ability to pay its current liabilities with current assets is

well above one. Significantly, the company is capable of paying its liabilities up to

two times without relying on sales of inventories.

Working capital is 1,444.1 million which slightly down from year 2007 of

1,530.9. The trend appears to be upward for the last 5 years signaling that

Garmin has increased its internal funds to cover its current liabilities on a timely

basis without a need to borrow or raise additional capital. Taking into

consideration that Garmin has been expanding rapidly in past 5 years, keeping

optimal working capital levels has been the company’s priority. Even though the

dollar amount has been increasing, working capital as a percentage of sales has

been steadily decreasing sliding down from 76% in 2003 to 41% in 2008.
 62

Leverage Ratios

Ratios: TTM 2007 2006 2005 2004 2003 Industry

Debt-to-assets 0 0 0 0 0 0 0.12
Debt-to-equity 0 0 0 0 0 00 41.06
Long-term debt-to-equity 0 0 0 0 0 0 23.67
Times-interest-earned NA 4,383.3 13,525.8 7,045.2 7,122.8 425.1 13.4
Garmin capital model is virtually simple. The company relies on internal

funds and resources to finance its business operations and does not have any

outstanding debt. Therefore, above leverage ratios do not apply to Garmin. Many

may argue that this type of business model of having no debt is devastating to

shareholders because the company does not create additional value through

usage of other people’s money. On the other hand, this business model is what

made Garmin a leader in this industry.

Moreover, in times of economic downturn like now this company is

capable of running its operations without worrying about paying off debt.

According to the results of 3rd quarter of 2008, Garmin was able to not only make

profit but also increase its growth compared to the same quarter of 2007.

TomTom, on the other hand, reported a loss of 40% of its revenue compared to

the same quarter of 2007. Despite all, Garmin’s lean business model proved to

work in company’s favor and continues to attract investors.

Activity Ratios

Ratios: TTM 2007 2006 2005 2004 2003 Industry

Days of inventory 89.4 82.5 96.4 131.4 130.8 116.2 64.5
Inventory turnover 4.1 4.4 3.8 2.8 2.8 3.1 5.93
Days of sales 61.5 77.8 59.1 49.9 46.2 44.9 46.1

outstanding
Asset turnover 1.3 1.2 1.1 0.8 0.8 0.7 0.94
Receivables turnover 5.9 4.7 6.2 7.3 7.9 8.1 6.36
 63

Payables Period 38.5 50.7 39.7 55.7 55.2 61.8 51.4

Fixed Asset turnover 8.8 10.2 8.3 5.9 5.5 6.4 7.4
Cash conversion cycle 112.4 109.6 115.7 125.6 121.7 99.3 104.7

Inventories

$400,000

$350,000

$300,000

$250,000

$200,000 Raw m aterials

Work-in-progres s
$$

$150,000
Finis hed goods
$100,000 Inventory res erves
$50,000

$0
1 2 3 4
($50,000)

($100,000)
Year

Days of inventory trend is upward till year 2005 where it stops at 131.4

days, however, it sharply drops down to 96.4 days in 2006 signaling that the

company may have change in inventory control policies. Increased inventory

turnover from 2005 (2.8) to 2006 (3.8) proves this point. From 2006 until 2007,

Garmin’s inventory turnover trend is upward, however in 2008 it is slightly down

to 4.1 from 4.4.

According to 2007 Annual report, the inventory increased from

$27.1million in year 2006 to $50.5million in year 2007. The inventory is increased

by 86% in year 2007. The reason for increase in inventory is backed up by their

growth strategy. According to their 10-k report, Garmin operates with a customer-

oriented approach and seek to maintain sufficient inventory to meet customer

demand.
 64

The company expects to meet their demand quickly by minimizing lead

times and maintaining sufficient inventory levels. In addition, Garmin prefers to

maintain sufficient finished goods and raw materials to meet anticipated

demands and to get benefit from rising prices or shortages of semiconductor

products (Annual report 10K). As a result, in year 2007, finished goods are at

$34.9 million, an increase of more than 100% from year 2006. In addition, raw

materials increased significantly to $13.0 million in year 2007 from $85,040 in

2006. Garmin expects raw materials and finished goods to keep rising as the

sales keep growing.

The inventory reserves also increased over the years. In 2007, it stopped

at $31,186 million, $19,768 million in 2006 and $14,756 million in 2005. Normally,

the inventory reserve is the cash that is put aside for the purpose of paying

anticipated failure costs associated with inventory. Usually this number is a

percentage of earnings; therefore, increase is obvious as the company focuses

on the growth strategy. As indicated in the chart below Garmin’s inventory level

has been increasing from year to year consistently at 15%.

 65

In the recent quarter, the company stated that it plans to cut the inventory levels

600

500

400

300

200

100

0
Inventories

by 150 million by the end of 2008. This will help free up warehouses in order to

bring new products to the market and increase inventory turnover.

Many current activity ratios are below industry average and worsen for last

2 years. For instance, Days of Inventory is 89.4 up to date compared to industry

average of 64.5. Inventory turnover is 4.1, which is way below the industry

average of 5.93.

Days of Sales Outstanding are 61.5 compared to 46.1 of the industry.

Receivables turnover is 5.9 while industry average is slightly up at 6.36. In

addition, it is worth noticing that receivables turnover was 8.1 in 2003 compared

to today’s 5.9.

Overall, Garmin is managing its inventory and collection of cash fairly

poorly compared to the industry and previous years. This may be considered as

the company’s weakness and requires improvement.

Fixed asset turnover is above industry average at 8.8 and the trend

appears to be upward which signals company’s improved efficiency in utilizing its

 66

fixed assets. Payable period has decreased since 2003 of 61.8 days to 38.5 days

in the recent quarter. It is also above industry average of 51.4 days. Higher Days

of inventory, days of sales outstanding, and low receivables turnover resulted in

higher cash conversation cycle of 112.4 days in 2008 compared to previous year

of 109.6 days.

Moreover, Garmin’s ability to convert resources in to cash is lower than

the industry average of 104.7 days. Overall, the trend for the past 5 years has

been upward signaling operational inefficiencies in the area of inventory and

collection of payment for products sold.

Valuation Ratios

Ratios: TTM 2007 2006 2005 2004 2003 Industry

Price/Earnings 5.88 20.2 18.9 18.7 23.1 25.4 15.88
Price/Book 2.05 9.15 7.12 6.2 7.04 7.79 1.06
Price/Sales 1.25 6.86 6.87 7.04 8.7 10.27 0.36
Price/Cash flow 4.82 31.3 33.7 29.2 31.7 33.9 3.99

According to Reuters, RBC Capital Markets downgraded Garmin Ltd. to

‘underperform’ from ‘sector perform’, referring to pricing pressure, lower volume

due to the weakening consumer demand and reduced confidence in Nuvifone

(Thomson Reuters, 2008). This caused the stock price to plunge immediately.

Price earnings ratio has dropped to 5.88 in 2008 as stock value sank from

$110 since January of 2008 to $21 up to date. However, it is worth noticing that

industry average is at 15.88 and above Garmin’s current ratio. The trend appears

to be downward since 2003 indicating company’s weakening position in front of

investors.
 67

Price/book ratio is at 2.05, which higher than the industry average of 1.06.

In turmoil of recent economic crisis it is quiet possible that the company’s stock is

undervalued at this point.

Price/sales ratio is 1.25 up to date, which is well above industry average of

0.36. However, the trend appears to be downward from 10.27 in 2003 to 6.86 in

2007.

Price/cash flow of 4.82, which above industry average of 3.99, indicates

that markets expectation of the firm’s future financial health are higher relative to

Garmin’s competitors.

Overall, the valuation ratios have changed significantly since 2007.

Garmin stock price, similar to other high-tech companies, have been affected by

economic downturn.

Therefore, it is important to look into companies operations rather than

market’s expectations. Recent quarter indicated that Garmin stands solid in

terms of earning. The growth rates have decreased, however, the company

continues to show strength in sales volume.

Stock Valuation
 68

Over a year ago, Garmin’s stock was trading at over $100 per share.

Today the stock is down and trades below $20. The lowest of 52-week is $18.80

and the highest was $112.68. To protect the stock price from falling even further

Garmin continues repurchasing and retiring its stock. In 2008 alone, the company

repurchased over 16 million shares and stated that it will continue to do so while

the stock price is low. However, despite severe economic conditions Garmin

continues to pay dividends: in 2007, the company declared $0.75 dividend and it

intends to pay dividends in 2008 as well but lower than of the previous year.

Growth Rates

Ratios: TTM 2007 2006 2005 2004 2003 Industry

Revenue growth 56.23% 79.3% 72.6% 34.8% 33.1% 23.2% 4.14%
Operating income -1.3% 63.4% 64.2% 24.7% 19.38% 24% 8.5%

growth
Net Income growth 5.85% 66.34% 65.27% 50.97% 15% 24.5% 27.3%
EPS growth 4.6% 62.5% 71.4% 55.5% 12.5% 15.2% 14.07%
 69

Garmin had impressive growth rates for the past 5 years, and despite

current crisis continues to wow investors today. Revenue growth is 56.23%

compared to industry average of only 4.14%. Growth trends appear to be upward

since year 2003 but spike down in 2008. Only negative growth is evident for

operating income, while revenue, net income and EPS are all at positive growth

rates. Garmin anticipates slow growth in upcoming year 2009, however it does

not foresee negative trend.

Vertical Analysis

Garmin Ltd. And Subsidiaries Consolidated Statements of Income

(In thousands, Except Per Share Information)

Dec. 29 2007 Dec. 30 2006 Dec. 31 2005
Net Sales 3,180,319 100% 1,774,000 100% 1,027,773 100%
Cost of good sold 1,717,064 53.99% 891,614 50.26% 492,703 47.94%
Gross profit 1,463,225 46.01% 882,386 49.74% 535,070 52.06%

Selling, general and

administrative expenses 396,498 12.47% 214,513 12.09% 122,021 11.87%

Research and development

expenses 159,406 5.01% 113,314 6.39% 74,879 7.29%

555,904 17.48% 327,827 18.48% 196,900 19.16%
Operating income 907,351 28.53% 554,559 31.26% 338,170 32.90%

Other income
Interest income 41,995 1.32% 35,897 2.02% 19,586 1.91%
Interest expense (207) (41) (48)
Foreign currency 22,964 0.72% 596 0.03% 15,265 1.49%
Other 6,170 0.19% 3,543 0.20% (373)
70,922 2.23% 39,995 2.25% 34,430 3.35%
Income before income

taxes 978,273 30.76% 594,554 33.51% 372,600 36.25%

Income tax provision

(benefits)
 70

Current 179,335 113,226 52,548 5.11%

Deferred (56,093) (32,795) 8,833 0.86%
123,262 12.6% 80,431 13.5% 61,381 16.5%
Net Income 855,011 26.88% 514,123 28.98% 311,219 30.28%

Basic net income per share $3.95 $2.38 $1.44

Diluted net income per share $3.89 $2.35 $1.43

Key points to highlight in vertical analysis are Cost of Goods, which has

increased since 2005 climbing from 47.94% to 53.99%. In addition, Selling,

General & Administrative expenses also increased since 2003 from 11.87% to

12.47%. However, the most significant above all is Research and Development

margin, which has decreased over past 3 years sliding down from 7.29% to

5.02%. This phenomenon may be a red flag for the company that is considered

leader and innovator in its industry. Furthermore, taking a glance at income tax

provision, increasing tax was directly caused by higher taxable income. However,

Garmin benefits from receiving tax breaks from incentives offered in Taiwan

related to high technology investment. The political agreement between

Taiwanese government and Garmin is simple; Garmin agrees to provide high-

tech jobs to Taiwanese citizens, and in return, Taiwan agrees to cut tax rate to

minimum. The effective tax rate was 12.6% in 2007. It is much lower than the

industry average of 39%.

Regional Sales
Dec. 29, 2007 Dec.30, 2006 Dec. 31, 2005
Regions Dollar % Dollar % Dollar %

North America 2,066,823 89% 1,093,581 65% 661,085 -

87,0 50,44

Asia 144,155 66% 48 73% 7 -

 71

593, 316,24

Europe 969,341 63% 371 88% 1 -

3,180,31 1,774, 1,027,77

Total 9 79% 000 73% 3 -

All dollar amounts are in thousands

The regional sales table shows that North American region had

tremendous growth of 89% in 2007 compared to 65% in 2006. Nevertheless,

European region exceeded expectations in 2006 topping at 88% growth. In 2007,

Garmin’s major competitor TomTom was able to regain its market share in Europe and

Garmin’s growth rate was only 63%. The company’s impressive growth rates over the

past 3 years confirm that Garmin is fulfilling its mission of being a leader in GPS

industry. Asian market has slowed down compared to 2006, generally due to the lack of

infrastructure for high-tech GPS industry. For instance, mapping data resources are scares

because many parts of Asian countries are still under heavy development and therefore

obtaining accurate mapping data information is difficult.

Sales Mix
Dec. 29, 2007 Dec. 30, 2006 Dec. 31, 2005
Segment Dollar % Dollar % Dollar %
Aviation 294,995 9.28% 232,906 13.13% 229,158 22.30%
Outdoor 339,741 10.68% 285,362 16.09% 236,936 23.05%
Marine 203,399 6.40% 166,639 9.39% 158,262 15.40%
Auto/Mobile 2,342,184 73.65% 1,089,093 61.39% 403,417 39.25%
Total 3,180,319 100% 1,774,000 100% 1,027,773 100%
Auto/Mobile segment makes up the largest share of Garmin’s sales, which

is 73.65%. Outdoor is second largest segment of Garmin’s sales mix, which is

10.68%. It is worth noticing that in 2005 Aviation and Outdoor segments were

above 20% and today both segments are around 10%. Marine segment has also

decreased over the past 3 years.

 72

The sales portfolio of the company consists of four segments, which are

Aviation, Outdoor, Marine, and Auto/Mobile. There is a significant increase either

in dollar or in percentage in Auto/Mobile segment – from 403 million, 39.25% in

2005 to $2.3 billion, and 73.65% in 2007. According to the strategic plan of

Garmin, the company is moving towards Auto/Mobile segment as their core

business.

To sum up this section, the operating performance of Garmin is

impressive taking into consideration uncertainty of demand for GPS devices and

every day changing environment of technological innovations. However,

decreases in the operating margins should not be underestimated, as it also

could be a sign of weakening market position. Overall, the performance is

catered to the company’s strategic movements and produce greater net earnings

comparing to previous years.

 73

STRATEGIC GROUP MAP 1

Consumer Report Price at Models offered at

Model Rating BestBuy BestBuy

Garmin Nuvi 260W 65 $ 300 40

Garmin Nuvi 260 54 $ 250 40
Magellan Roadmate 1200 48 $ 160 13
TomTom Go 930 80 $ 500 18
Garmin Nuvi 255W 74 $ 280 40
Garmin Nuvi 880 88 $ 800 40
Magellan Maestro 4250 58 $ 450 13
TomTom One 130 42 $ 170 18

Strategic Map 1
$1,000
$800
BestBuy
Price at

$600
$400
$200
$-
0 20 40 60 80 100 120
Rating at Consumer Reports

Garmin Nuvi 260W Garmin Nuvi 260 Magellan Roadmate 1200

TomTom Go 930 Garmin Nuvi 255W Garmin Nuvi 880
Magellan Maestro 4250 TomTom One 130

Some of the more popular GPS models were researched and compared

their prices, ratings from consumer reports, as well as how many models the

brand offer at BestBuy.com. It is clear in this map as well as the table above,

Garmin has the widest variety of models carried by Best Buy as well as the

model with the highest rating from consumer reports that also costs the most.
 74

In most cases, the more expensive the model is, the higher the rating it

receives from consumer reports. However, it is not true when the focus is on the

Garmin Nuvi 255W and the Magellan Maestro 4250. While the latter costs over a

hundred dollars more, it receives a consumer rating that is 20 points below the

former.

STRATEGIC GROUP MAP 2

Model Models at BestBuy Price Range US Market Share

Garmin 40 $ 747 56%
Magellan 13 $ 350 12%
TomTom 18 $ 500 9%
Trimble 0 $ ---- 3%
Navico 3 $ 100 3%

Strategy Map 2
$1,000

$800
Price Range Between

Garmin
$600
Models

TomTom
$400
Magellan
$200
Navico
$- Trimble
0 10 20 30 40 50
$(200)
Number of Models at Best Buy

The size of the bubble shows the market share the company has in the

US market (Sacco, A. 2008). While Trimble has a 3% market share, the company

does not offer consumer product for cars and individual that is available at

consumer electronic retail store. The price range is from the price of each
 75

company’s most expensive model and cheapest model available at Best Buy,

and the difference between the two prices is used as the range. The map clearly

shows that Garmin is the current market leader in the GPS industry with the most

products available to customer with the highest range.

 76

Weighted Competitive Strength Assessment

(Rating Scale: 1=Very Weak; 10=Very Strong)

Key Success Factor/ Garmin Ltd. TomTom Magellan Mio Technology

Strength Measure Importance Strength Strength Strength Strength
Weight Rating Score Rating Score Rating Score Rating Score
Product capabilities:
Brand recognition/reputation 0.25 10 2.50 9 2.25 8 2.00 7 1.75
Design/Quality & reliability 0.10 9 0.90 10 1.00 9 0.90 8 0.80
Pricing capabilities 0.05 8 0.40 7 0.35 6 0.30 7 0.35
Production & Operations

resources:
R&D capabilities 0.20 9 1.80 8 1.60 7 1.40 6 1.20
Manufacturing capabilities 0.15 9 1.35 5 0.75 4 0.60 4 0.60
Dealer network/distribution cap. 0.15 9 1.35 8 1.20 7 1.05 6 0.90
Human capital resources 0.10 9 0.90 10 1.00 7 0.70 6 0.60
Sum of importance weights 1.00
Weighted overall strength rating 63 9.20 57 8.15 48 6.95 44 6.20
 77

Weighted Competitive Strength Assessment measures how Garmin ranks

relative to competitors on each of the important industry factors, and if Garmin

have a competitive advantage or disadvantage against TomTom, Magellan and

Mio Technology. Despite the fact that all major competitors have strong presence

in European markets, this assessment is concentrated on US market.

Garmin, TomTom, Magellan and Mio Technologies operate in very

competitive environment that highly dependant on advanced technology and

continued innovations. Therefore, GPS industry shares general similarities with

technology industry, and overall driven by the same key success factors. They

are summarized under two categories: product capabilities, production and

operations resources. Brand recognition/reputation, R&D capabilities and relative

cost position are ranked among the most important key success factors. Industry

observer, Scott Manchuso of web site gpslodge.com, notes that “although brand-

name models may command a premium of $20 to $50, the devices from the top

three are easier to use and are often more accurate than cheaper units” (Frick,

89-92). Garmin, as the leader in GPS industry, captures over 55% of US market

share that gives the company a competitive edge in promoting its brand. Brand

recognition is assessed as the strongest point 10 that Garmin gained and it ranks

0.25 on importance scale along with R&D that ranks at 0.20.

Another strength that Garmin has in building strong brand is its

differentiation strategy. It captures virtually every segment of GPS industry:

automotive/mobile, outdoor/fitness, marine and aviation. Closest competitor

TomTom is ranked nine on brand recognition, partially because of weaker

 78

position in US market compared to European market, where TomTom dominates

over Garmin. According to GPSlodge.com TomTom’s US market share is about

25% versus 52% in European markets (GPS lodge, 2007). Mio Technology and

Magellan followed TomTom in brand recognition gaining 7 and 8 points

respectively. According to gpsworld.com, Magellan’s tremendous growth since

2006 drove the company’s share from 1.6% to 5.7% in 2007; thus “putting them

in a solid fourth place behind Mio Technology, TomTom, and Garmin” (GPS

world, 2007). Since 2007, the company has been aggressively competing with

Garmin’s automotive GPS devices and successfully gained recognition in US

market moving above Mio Technology.

While Garmin is perceived as market leader, Magellan is recognized as an

industry innovator. The company is the creator of the award-winning Magellan®

RoadMateTM series portable car navigation systems, the Magellan eXploristTM

outdoor handheld navigation devices, the Hertz NeverLostTM car navigation

system and ProMarkTM, the best-selling single frequency GPS survey product

line on the market (Magellan, 2007). Finally, CNET Reviews identified best 5

GPS Systems ranking Garmin Nuvi 880 at the top followed HP iPaq rx5900

Travel Companion, Magellan Maestro 4250, Mio C520 Navigation Receiver, and

TomTom GO 930 GPS (Cha, 2008).

R&D capabilities assessed as 0.20 on importance scale, thus ranking it as

second important key success factors of GPS industry. This is explained by

technological nature of this industry and strong consumer demand for new

innovative products. Garmin puts emphasis on R&D, as well keeps close

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partnership between engineering and manufacturing teams. Below is a table of

Garmin’s expenditures on research and development over the last three fiscal

years:

($'s in thousands) December 29, 2007 December 30, 2006 December 31, 2005

Research and development $159,406 $113,314 $74,879

Percent of net sales 5.0% 6.4% 7.3%

(Source: Garmin’s Annual report 2007)

Comparatively, TomTom is also dedicated to R&D but ranks below

Garmin because the company partially outsources R&D to reduce costs.

(in €thousands) 2007 % of rev 2006 % of rev

R&D 60,194 3.5% 36,244 2.7%

(Source: TomTom’s Annual Report 2007)

Magellan and Mio Technology specialize in automotive and outdoor GPS

devices, therefore their R&D is highly concentrated on core business. In the

recent years, the R&D departments have been expending rapidly as two

companies are trying to gain larger market shares and compete with Garmin and

TomTom. Magellan in particular is known as industry innovator and therefore

should not be underestimated by Garmin or TomTom.

Manufacturing capabilities rank third on the scale of importance and carry

weight of 0.15. It is important to notice that large part manufacturing capabilities

is associated with company’s ability to reduce costs. Overall, GPS industry is

fairly new industry that has not achieved its optimal cost reduction in

manufacturing processes; thus, there is plenty of room for further cost reduction.

As market leader, Garmin has pioneered low-cost manufacturing process and

 80

was able to gain significant operating margins above 30% (Ewers, 59-62). With

the focus on single-minded engineering Garmin operates its own manufacturing

facilities, which helps to minimize problems, thus reduce costs (Garmin’s Annual

Report, 2007). TomTom, on the other hand, is able to reduce its costs through

outsourcing majority of its manufacturing facilities to Asian countries, as well as

its workforce. Mio Technology is known for its low-cost model, however has not

been able to achieve significant operating margin results as Garmin or TomTom.

Overall, Garmin gains weighted 9.20 points; TomTom follows with 8.15

points; Magellan gains 6.95 points and Mio Technology scores 6.20 points.

Garmin, as the industry leader continues to show strength in most important

areas including brand recognition, R&D capabilities, manufacturing capabilities

and dealer/distribution network. It also leads the way in other significant area of

GPS industry such as pricing capabilities. However, Garmin falls behind

TomTom in the areas of design and human resources capital. It is also important

to notice that TomTom does not stand far behind and only underscores by 1

point in many significant areas. Magellan, who is still behind TomTom, is gaining

strength in brand recognition, design/quality and reliability, R&D and dealer

network capabilities. Mio Technologies, low cost producer of automotive GPS

devices, is relatively weaker in many areas, but holds its ground in brand

recognition, R&D and pricing capabilities.

In conclusion, Garmin’s strongest competition is in the face of TomTom

with Magellan gaining its competitive edge behind. When comparing these four

leaders in GPS manufacturing, it is also important to keep in mind the scope of

 81

their businesses. While Garmin competes in every sector of GPS industry,

TomTom and others specialize mainly in automotive and outdoor sectors.

Therefore, Garmin has far more capabilities to outperform its competitors. To

strengthen its leading position further, Garmin should focus on its weakest points

against TomTom: design of products and human capital resources. In Europe,

TomTom is recognized as one of the top employers. At TomTom, the work for

every employee is built around core competencies such as Open Spirit, Passion

for Results and Innovative Thinking. In 2007 Annual Report, the company

outlined four page-detailed plans on how it values its employees. In addition, it

implemented Health Policy that clearly defines all roles and responsibilities in

terms of health.

The goals of the policies are to minimize absenteeism and maximize

employee well being. The company appointed Health Officers in every region to

promote a pro-active healthy environment amongst managers and employees

alike (TomTom’s Annual report, 2007). In comparison, Garmin is so concentrated

on saving money and reducing costs that even top earner Chairman and CEO

Dr. Min H. Kao made $250,000 last year with bonus of $203 only (Ewers, 59-62).

Garmin’s 2007 Annual Report indicated that the company has good standing

relationship with its employees; however, there is a room for improvement.

 82

VERTICAL & HORIZONTAL ANALYSIS

Balance Sheet        
(Vertical Analysis)   2007 2006 2005
Assets        
Current Assets        
Cash and Cash   21.5 17.78 24.54
Short Term Investments   1.14 3.85 2.35
Net Receivable   32.2 24.22 14.73
Inventory   15.36 14.29 14.67
Other Current Assets   0.67 1.49 2.52
Total Current Assets   70.87 61.63 58.81
Long term Investment   11.76 21.5 25.3
Property Plant and Equipment   11.37 13.23 13.15
Intangible Assets   5.96 3.56 2.63
Other Assets   0.05 0.08 0.1
Total Assets   100 100 100
         
Liabilities        
Current Liabilities        
Accounts Payable   24.36 17.8 14.35
Total Current Liabilities   24.36 17.8 14.35
Long Term Debt     0.01  
Other Liabilities   3.86    
Deferred Long Term Liability Charges   0.36 0.69 0.69
Total Liabilities   28.58 17.88 15.05
         
Stockholder’s Equity        
Common stock   0.03 0.06 0.07
Retained Earnings   65.96 77.95 78.72
Capital Surplus   4.02 4.4 7.06
Other Stockholder Equity   1.4 -0.28 -0.91
Total Stockholder Equity   71.42 82.12 84.95
Total Liabilities & Stockholder Equity   100 100 100
 83

Income Statement      
( Horizontal Analysis) 2005 2006 2007
       
Total Revenue 100 172.61 309.44
Cost of Revenue 100 180.96 348.5
Gross Profit 100 164.91 273.47
       
Operating Expenses 100    
Research Expenses 100 151.33 212.88
Selling General And Administrative 100 175.80 324.94
       
       
Operating Income or Less 100 163.99 268.31
       
Income from Continuing Operations 100    
Total Other Income/Expenses Net 100 116.12 206.30
Earnings Before Interest And Taxes 100 159.56 262.57
Interest Expense 100 85.42 431.25
Income Before Tax 100 159.57 262.55
Income Tax Expense 100 131.04 200.81
Net Income 100 165.20 274.73
 84

SWOT ANALYSIS

Strengths

 Vertically integrated business system

 Innovative engineering

 Competitive compensation package

 Operating its own manufacturing facilities

 Strong brand image

 Broad distribution

Weakness

 Narrow Market Niche

 Excessive Inventory

 Heavily depends on distributors for its sales

Opportunities

 New market segment to be explored

 Mobile phone makers are adding GPS features

 Mobile phone device

 Collaborating with other consumer goods

Threats

 Weak economy

 Global competition

 Saturated US automotive market

 Consumer electronic giants entering the market

 85

KEY RESULT AREAS

Vertically Integrated Business System – as mentioned in the earlier

section, Garmin’s vertically integrated business system allows the company

never run out of stock as it engineers, manufactures, and delivers its own

products. The company can react, invent, and produce the product faster with the

streamlined and well-communicated production line.

Innovative Engineering – as long as the company’s engineers remain

innovative, it will stay as the market leader in the industry that is heavily relied on

technology. Although the general public is currently satisfied with the functions

featured in their GPS, Garmin is coming up with services and add-on features

that could further increase their consumers’ convenience.

Strong Brand Image – locally in the US, Garmin is the most well known

brand in the GPS industry leading its competitors in market share. The company

is the only one of the very few GPS companies that has TV commercials and its

branding strategy from heavily promoting its brand and product last Christmas

has been working out well for the company.

Broad Distribution – Garmin’s strong network of distributors made its

products available in all major consumer electronics retail stores as well as big

name department store. The company’s wide selection of products with a wide

range of prices and features allow it to wholesale its products to both high-end

retail stores and small convenience stores.

Excessive Inventory – Towards the end of 2007, the economy was looking

bright and the growth of the GPS industry was strong, Garmin decided to build an
 86

additional warehouse to place its excessive inventories due to a hike in

production. However, the decline in the economy in 2008 hurts the company as

its sales are significantly lower than forecasted and its current assets are tied up

in its inventories.

New Market Segment to be Explored – although the GPS industry might

seem narrow, there are segments for Garmin to explore. After conquering the car

owners, there are pet owners, parents, and athletes that are potential targets for

the company. It is important for the company to realize that its GPS technology

applies to anything that moves, therefore, there are always new markets to

explore.

Collaborating with Other Consumer Goods – nowadays, mobile phone

makers are adding GPS features into their phones. Garmin could work out deals

with the phone makers to install their refined mapping system into the phones.

Furthermore, the company’s another opportunity would be to expand further its

phone making technology that has a full Garmin GPS system to capture a new

market. In addition, the company may look into collaborating its system with other

consumer electronic goods and valuable personal items that people carry around

with them all the time, like wristwatches and digital cameras.

Global Competition – Garmin’s major rival, TomTom is doing well in many

markets in Europe and its market share in the US is second to Garmin. Another

rival, Mio, already has its dominating presence in Australia as well as a few

developed Asian markets. Therefore, the global competition from TomTom and

Mio and their strategic moves are big threats to Garmin.

 87

OBJECTIVES

1. Slow down with acquisition as market is slow

2. Continue to remain innovative by spending more on R&D to

increase revenue

3. Enhance brand image and customer loyalty by manufacturing

quality products that are reliable and durable

4. To broaden its distribution channel in existing markets by

collaborating with consumer software Development Company

5. Reduction of excess inventory due to slow market condition

6. Explore new market segments.

7. Expanding globally in emerging markets like Asia and Australia

 88

STRATEGIES

Slow growth. Garmin Ltd. should slow down with acquisition and focus

more on its core business activities because there is downturn in global

economy. A through due diligence process is must when acquiring new business.

The completion of Swedish acquisition is subject to negotiation, legal and

financial due diligence (Garmin Ltd., 2008 e). Garmin should shrink down its

Mergers & Acquisition department to cut down cost. It should also divest

businesses that are not profitable.

Investing in R&D. Innovation is backbone of Garmin. To stay ahead in

competition and be financially strong it will have to invest more in R&D. Garmin is

diversifying work force by employing 400 engineering personnel to their staff as

result of continuous emphasis on product innovation.

The company also increased its Research and Development cost by 44.0

million as compared to its year ago period as mentioned in its Q3 2008 report.

Garmin’s new innovation Nuvifone smart phone with inbuilt GPS system enabling

user to access the all features of cell phone like browsing internet, personal

messaging, data connectivity, and personal navigation. Garmin will be launching

Nuvifone in first half of 2009 (Park, 2008). Garmin is constantly trying to come up

with different products in various segments it is operating in, rather than just

upgrading new services in existing products.

Customer Loyalty and Brand Recognition. Garmin’s goal is to become a

market leader. Its slogan “Follow the Leader” says it all. The company will be

investing more in marketing campaign by sponsoring sports events. In 2008,

 89

Garmin has been and is going to sponsor number of events and teams. Garmin

sponsored Middlesbrough Football Club (Privat, 2008) and also one of the

entrants in Round Britain Powerboat Race 2008 (Garmin Ltd., 2008 f). This

activities helped Garmin create a strong brand image in European market.

Garmin also achieved the title of “Upcoming Brand of the Year” in the Navigation

System category in Germany By IDG Brand Awareness.

Its brand awareness grew from initial 38.3% all the way to 65%

(Threeview, 2008). It is also started offering Rebate on its selected products as

part of its promotion strategy, in effort to increase customer loyalty.

Broad Distribution strategy. Increase its distribution network in existing

markets. This can be made possible by way of acquisition of foreign companies

that are situated locally. Garmin acquired several European distributors in 2007

to strengthen its presence and capabilities in European market (Garmin Ltd.,

2007 a). In 2008, Garmin also acquired its distributors in Portugal that is

expected to strengthen its presence in Portugal (Garmin Ltd., 2008 d). This will

strengthen its global position and also help it to face competition.

Inventory management Strategy. Garmin has been facing issues with

excess inventory as result of high expectation for third quarter. The forecast for

third quarter was not precise due to change in market condition that resulted into

slow macroeconomic growth and decline in consumer buying power. The

company should be pro active to react with rapidly changing market. Garmin is

taking steps to reduce inventory level by $150 million by the end of the year

(Raman, 2008). Controlling the stock of inventory will help Garmin to improve its
 90

financial results and invest the money in more productive resources to increase

shareholders value.

Entering new market segment.

Garmin needs to explore new market segment, as it is market leader in almost all

four segments it operates in. Garmin Ltd. has already entered rental car market

by providing its StreetPilot c330 to National Car Rental and Alamo Rent A Car

(ThomasNet, 2007). In 2008,

Garmin strengthened its partnership with BMW AG by offering two new

premium navigation devices to enhance the already successful line of BMW

Portable Navigation System (Market Watch, 2008). Garmin is preparing to enter

cell phone market in 2009 with its new innovation Nuvifone, a smart phone within

built GPS system, online services, MP3 , in built camera, etc. and many more

exciting features (Park, 2008).

Global Strategy. Garmin strategy is to expand globally in emerging

markets like Asia and Australia. Garmin has already expanded globally in Europe

and Asia. Garmin Asia and Australia have a strong growth potential that will

increase the overall profit margin of Garmin. There is an increasing popularity for

GPS device in countries like India and China thus making it potential target.

Garmin strategy should be to collaborate with customer goods and software

development companies.

Garmin selected SDL Technology and Services to deliver Translation

Management strategy that will enable the efficient flow of information in multiple

languages across its global market (Business Wire, 2007). Garmin has great
 91

prospects to grow in India and China where competition is not that strong yet.

Garmin can also benefit from lowering its operating cost in terms of labor and

material due to cheap labor condition in these countries. Thus, company will

enjoy high profitability in long term.

 92

DECISION CRITERIA

Garmin is world leader in Navigation, communication and information

technology. One of the key success factors for Garmin is new product

development. The company has been focusing on its innovation strategy by

investing aggressively in Research & Development. Garmin’s highly skilled work

force and technological capabilities will lead to innovative product development.

Garmin is coming with new product line for Holiday season in 2008.

Currently Garmin’s PND market share in North America is 55% and

approximately 20% in Europe. Although, Garmin is market leader in U.S., its

focus has been towards increasing its market share in Europe by way of

acquisition. Garmin’s strategy of global expansion does not stop in Europe; it is

also planning to invest in emerging markets like Asia and Australia. Especially in

some parts of Asia example India, there has been growing consumer demand for

new technology products. This will allow Garmin to expand globally and explore

new markets where competition is not very intense.

Garmin has been sponsoring number of sports event in an attempt to raise

brand awareness in Europe and North America. Garmin UK sponsors English

Premium League football club Middlebrough as well as the Milram Pro Tour

team, and Garmin Italian office signed as an official sponsors of this year’s Giro

d’Italia. Garmin is also sponsoring professional cycling team for Tour de France

(Rogers, 2008).

By sponsoring these event s Garmin can promote its product and create

very strong brand image. Garmin also has partnership with automotive
 93

manufacturers like Ford, Mazda, Nissan, Honda, BMW and MINI. European OEM

partnerships were made with LAND Rover, Volvo, Honda, Suzuki, Ford Europe

and Europe car (Garmin Ltd., 2007 a). Garmin’s entry in automotive market

served its strategy to enter new markets segment. To remain competitive in this

industry Garmin has market aggressively to maintain its brand image as world

leader.
 94

BALANCED SCORECARD

Objectives Measures Initiatives

Financial: 1.) Inventory turnover ratio 1.0) Reduce inventory level by

1.) Reduce Inventory 2.)Accounts receivable turnover $150 million by end of 2008

2.) Improve credit policy ratio 2.1) Decide on whom to extend

credit

2.2) Improve the terms of payment

Customer Service: 1.1) Compile customer 1.1) Online customer survey

1.) Improve Customer complaints 1.2) Hire trained associates at

satisfaction 1.2) Research returning contact center

2.)Diversify product line customers 2.1) Developing products for both

2.1) Monitoring target market low and high income customers

2.2) Comparing to competitors 2.2) Developing smaller and

product line cheaper version of PND

Internal Processes: 1.1) Measuring the industry 1.) Developing innovative

1.) Entering new market growth rate products

markets segment 1.2) Demographic changes 2.) Acquiring its distributors in

2.) Enhance distribution 2.0) Comparing with competitors Europe and Asia

channel distribution channel

Growth and Learning: 1.1) Employee turnover rate 1.1) Offering better compensation

1.) Recruiting and retaining 1.2) Comparing Garmin benefit package

existing employee package with competitors in 1.2) Hiring young graduates

2.) Create healthy work industry 2.1) Participation of employees in

environment by motivating 2.0) Conducting performance decision making

work force review 2.2) Solving employee complaint by

providing counseling
CONCLUSION
 95

In today’s fast paced world and the race towards having the best product

in hand. Garmin has proved itself that it can provide the consumers with a quality

device, but the race to be in the competition has not relieved Garmin of anything,

Being a market leader is not a privilege it has in hand but it’s a place it has fought

for.

Putting aside the rest of the competition, staying in the race means

constant reinventing of its own way of operation in the field of sales, value chain

management, product development and marketing force. With the current

recession in the economy and steep fall in literally every market segment,

Garmin is not far behind in falling into the trap. With the spending power of the

people falling significantly below the average, cost cutting is a major concern in

the segment.

With the consumers choosing to stay indoors to cut the family’s spending

and more and more people turning to cheaper modes of transport like choosing a

train to their everyday commute and taking a cycle to do their groceries. Garmin

has to get into their R&D department and invest money in them rather than

acquiring companies and expansion of its segment.

Getting to realize that the world is going through one of the worst

economic crunch ever and all major companies falling into bankruptcy, Garmin

has to make sure it is following its footsteps carefully and making decisions one

at a time to make sure it has made a right decision. In the cutthroat market

economy anything is possible, what has been the global leader in financing is

now in the brinks of diminishing or already in history. Garmin has all the elements
 96

to still be the market leader, all it needs to do is to play a safe game and never

underestimate the current situation, as it has to remember its competitors are

following its footsteps very closely and they may throw Garmin of its current

market if it steps back even for a while.

 97

RECOMMENDATIONS

To expand globally Garmin should capture emerging markets like Asia

and Australia before it is taken over by competitors. Especially Asian countries

like India and China have great potential for the industry and the company to

increase its market share and brand awareness.

Garmin can also start manufacturing in India and China by negotiating

with the government due to cheap labor available there. This will also benefit in

reducing its operational cost and give Garmin advantage to bargain with Taiwan

Government on legal terms.

In order to compete globally Garmin should diversify its product line

according consumer demand, example having smaller version of PND that will be

available in local pharmacy or grocery stores. Garmin should invest more on

advertising and marketing by showing commercials on T.V and internet for

example like the one Cisco System does.

This will increase brand awareness and strengthen its presence in North

America and Europe. Garmin needs to increase its market share in Europe, this

can be done by expanding its distribution channel and sponsors more events to

promote its products. It should also use celebrates and athletes to promote its

products.

Garmin should build up strong ties with car manufacturers in Europe and

North America in order to create its brand image and capture market share.

Garmin should also collaborate with car manufacturers in developing countries

like India and China.

 98

To remain the market leader in this industry Garmin has to strengthen its

relation with satellite mapping providers. The future growth and success of

Garmin, to be an industry leader will rely on its innovative product development

and capturing opportunities in U.S. as well as global market.

 99

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 106

APPENDIX A: TEAM MEMBERS’ ASSIGNMENT

APPENDIX B: GARMIN’S BALANCE SHEET

In Millions of U.S. Dollars
2007 2006 2005 2004 2003
(except for per share
2007-12-29 2006-12-30 2005-12-31 2004-12-25 2003-12-27
items)
Cash -- -- -- -- --
Cash & Equivalents 707.7 337.3 334.4 249.9 274.3
Short Term Investments 37.6 73.0 32.0 64.4 53.1
Cash and Short Term
745.2 410.4 366.4 314.3 327.5
Investments
Accounts Receivable -
952.5 403.5 171.0 110.1 82.7
Trade, Net
Notes Receivable - Short
-- -- -- -- --
Term
Receivables - Other -- -- -- -- --
Total Receivables, Net 952.5 403.5 171.0 110.1 82.7
Total Inventory 505.5 271.0 199.8 155.0 96.8
Prepaid Expenses 22.2 28.2 34.3 19.1 6.1
Other Current Assets, Total 107.4 56.0 29.6 38.5 26.8
Total Current Assets 2,332.8 1,169.1 801.2 637.0 539.9
Property/Plant/Equipment,
483.0 339.5 246.5 223.0 146.1
Total - Gross
Accumulated Depreciation,
(108.8) (88.5) (67.3) (51.4) (41.3)
Total
Property/Plant/Equipment,
374.1 251.0 179.2 171.6 104.8
Total - Net
Goodwill, Net -- -- -- -- --
Intangibles, Net 196.0 67.6 35.9 49.5 42.3
Long Term Investments 387.0 407.8 344.7 257.8 168.3
Note Receivable - Long
-- -- -- -- --
Term
Other Long Term Assets,
1.6 1.5 1.4 1.5 1.6
Total
Other Assets, Total -- -- -- -- --
Total Assets 3,291.5 1,897.0 1,362.2 1,117.4 856.9
Accounts Payable 341.1 88.4 76.5 53.7 40.7
Payable/Accrued -- -- -- -- --
Accrued Expenses 383.9 154.6 55.8 51.7 24.8
Notes Payable/Short Term
0.0 0.0 0.0 0.0 0.0
Debt
Current Port. of LT -- -- -- -- 0.0
 107

Debt/Capital Leases
Other Current liabilities,
76.9 94.7 63.2 70.9 38.9
Total
Total Current Liabilities 801.9 337.7 195.5 176.3 104.4
Long Term Debt 0.0 0.2 0.0 -- 0.0
Capital Lease Obligations -- -- -- -- --
Total Long Term Debt 0.0 0.2 0.0 0.0 0.0
Total Debt 0.0 0.2 0.0 0.0 0.0
Deferred Income Tax 11.9 1.2 9.5 5.3 2.8
Minority Interest -- -- -- -- --
Other Liabilities, Total 127.0 0.0 -- -- --
Total Liabilities 940.8 339.1 205.0 181.5 107.3
Redeemable Preferred
-- -- -- -- --
Stock, Total
Preferred Stock - Non
-- -- -- -- --
Redeemable, Net
Common Stock, Total 1.1 1.1 1.1 1.1 1.1
Additional Paid-In Capital 132.3 83.4 96.2 108.9 104.0
Retained Earnings
2,171.1 1,478.7 1,072.5 815.2 663.6
(Accumulated Deficit)
Treasury Stock - Common -- -- -- -- --
ESOP Debt Guarantee -- -- -- -- --
Unrealized Gain (Loss) -- -- -- -- --
Other Equity, Total 46.1 (5.3) (12.5) 10.6 (19.0)
Total Equity 2,350.6 1,557.9 1,157.3 935.9 749.7
Total Liabilities &
3,291.5 1,897.0 1,362.2 1,117.4 856.9
Shareholders' Equity
Shares Outs - Common
216.98 216.10 216.13 216.65 216.33
Stock Primary Issue
Shares Outstanding -
-- -- -- -- --
Common Issue 2
Shares Outstanding -
-- -- -- -- --
Common Issue 3
Shares Outstanding -
-- -- -- -- --
Common Issue 4
Total Common Shares
216.98 216.10 216.13 216.65 216.33
Outstanding
Total Preferred Shares
-- -- -- -- --
Outstanding
 108

APPENDIX C: GARMIN’S INCOME STATEMENT

2007 2006 2005 2004

In Millions of U.S. Dollars 2007-12-29 2006-12-30 2005-12-31 2004-12-25
(except for per share Period Lengt Period Lengt Period Lengt Period Lengt
items) h h h h
52 Weeks 52 Weeks 53 Weeks 52 Weeks
Revenue 3,180.3 1,774.0 1,027.8 762.5
Other Revenue, Total -- -- -- --
Total Revenue 3,180.3 1,774.0 1,027.8 762.5
Cost of Revenue, Total 1,717.1 891.6 492.7 351.3
Gross Profit 1,463.3 882.4 535.1 411.2
Selling/General/Admin.
396.5 214.5 122.0 79.0
Expenses, Total
Research &
159.4 113.3 74.9 61.6
Development
Depreciation/Amortizatio
-- -- -- --
n
Interest Expense, Net -
-- -- -- --
Operating
Interest/Investment
-- -- -- --
Income - Operating
Interest
Expense(Income) - Net -- -- -- --
Operating
Unusual Expense
-- -- -- --
(Income)
Other Operating
-- -- -- --
Expenses, Total
Total Operating Expense 2,273.0 1,219.4 689.6 491.9
Operating Income 907.4 554.6 338.2 270.7
Interest Expense, Net
(0.2) (0.0) (0.0) (0.0)
Non-Operating
Interest/Invest Income -
65.0 36.5 34.9 (15.4)
Non-Operating
Interest Income(Exp),
64.8 36.5 34.8 (15.4)
Net Non-Operating
Gain (Loss) on Sale of
-- -- -- --
Assets
Other, Net 6.2 3.5 (0.4) (0.0)
Net Income Before
978.3 594.6 372.6 255.2
Taxes
Provision for Income
123.3 80.4 61.4 49.5
Taxes
Net Income After Taxes 855.0 514.1 311.2 205.7
Minority Interest -- -- -- --
 109

Equity In Affiliates -- -- -- --
U.S. GAAP Adjustment -- -- -- --
Net Income Before Extra.
855.0 514.1 311.2 205.7
Items
Accounting Change -- -- -- --
Discontinued Operations -- -- -- --
Extraordinary Item -- -- -- --
Tax on Extraordinary
-- -- -- --
Items
Net Income 855.0 514.1 311.2 205.7
Preferred Dividends -- -- -- --
General Partners'
-- -- -- --
Distributions
Miscellaneous Earnings
-- -- -- --
Adjustment
Pro Forma Adjustment -- -- -- --
Interest Adjustment -
-- -- -- --
Primary EPS
Income Available to Com
855.0 514.1 311.2 205.7
Excl ExtraOrd
Income Available to Com
855.0 514.1 311.2 205.7
Incl ExtraOrd
Basic Weighted Average
216.52 216.34 216.29 216.32
Shares
Basic EPS Excluding
3.949 2.376 1.439 0.951
Extraordinary Items
Basic EPS Including
3.949 2.376 1.439 0.951
Extraordinary Items
Dilution Adjustment 0.0 0.0 0.0 0.0
Diluted Weighted
219.88 218.85 218.24 218.06
Average Shares
Diluted EPS Excluding
3.889 2.349 1.426 0.943
ExtraOrd Items
Diluted EPS Including
3.889 2.349 1.426 0.943
ExtraOrd Items
DPS - Common Stock
0.750 0.500 0.250 0.250
Primary Issue
Gross Dividends -
162.5 107.9 54.0 54.1
Common Stock
Total Special Items -- -- -- --
Normalized Income
978.3 594.6 372.6 255.2
Before Taxes
Effect of Special Items
-- -- -- --
on Income Taxes
 110

Inc Tax Ex Impact of Sp

123.3 80.4 61.4 49.5
Items
Normalized Income After
855.0 514.1 311.2 205.7
Taxes
Normalized Inc. Avail to
855.0 514.1 311.2 205.7
Com.
Basic Normalized EPS 3.949 2.376 1.439 0.951
Diluted Normalized EPS 3.889 2.349 1.426 0.943
 111

APPENDIX D: POWERPOINT PRESENTATION

Ruchi Patel
•ChunYip Wan
•Kaarthy Madhan
•Evgenia Yaroslavleva

◊From Military to Commercial

◊Took off in the 21st Century

◊In the Market: Garmin, TomTom,

Magellan
 112

PORTERS ANALYSIS
COMPETITIVE FORCES MAGNITUDE OF CONCLUSION
FORCE
INTENSITY OF RIVALRY RELATIVELY STRONG MAY INFLUENCE
PROFIT POTENTIAL

SUPPLIER POWER STRONG MAY ADVERSELY

AFFECT PROFIT
POTENTIAL
THREAT OF MODERATELY WEAK MAY INCREASE PROFIT
SUBSTITUTES POTENTIAL

Strategic Map
 113

Strategic Map

Value Chain Management

Inbound logistics

Operations management

Outbound logistics

Marketing and sales

After sales service