One popular trend that has emerged is the sport of geocaching. Essentially, this is a high-tech treasure hunt played across 100 countries in the world, including Antarctica. The game works by people identifying hidden containers on a map and then searching to find the container using their GPS-enabled device. Presently, there are over nine hundred thousand geocaches all around the worldworld and the sport is growing rapidly. Geocaching came to be after the United States removed Selective Availability in 2000 and improved accuracy of GPS positioning data.. 11
TECHNOLOGICAL:
Although China is a large potential market for GPS manufacturers to sell their devices, makers, there were questions as to the state of their infrastructure back in 2007. In an article found in the EETimes Asia, there was a lack of an industrial standard and supervision for GPS operations in China. The perception was some operators were taking advantage of this situation and cheating their users. The article recommended GPS operators establish contact with the transportation administration department in China to address this concern and the desire for policy support. 12 Since that time, China has made significant strides to address the infrastructure short-comings.comingsshortcomings. China and the European Union have joined forces to work toward Information and Communicationsand Communications Technologies (ICT) standards. 11313
More recently, there has been a somewhat concerning development brought to light by theOf additional concern, the US Air Force. They are seeking is seeking comments from receiver manufacturers regarding an SVN-49 signal anomaly that is causing signal distortions. This involves the GPS IIR-20(M) spacecraft launched in early 2009, but not yet operational. Due to the number of manufacturers, it is impossible for the Air Force to work through this matter on their own. This brings to light thethehighlights a vulnerability of Garmin’s product, as it is completely dependent upon properly functioning satellites. Should These anomalies like thisthiscould impact its users, and brand in all likelihood confidence in their brandGarminbrand would be significantly affected without the average consumer being aware of the root of the problem. 12414
Sources:
1 http://en.wikipedia.org/wiki/Global_Navigation_Satellite_System
2. http://en.wikipedia.org/wiki/Global_Navigation_Satellite_System
3 http://en.wikipedia.org/wiki/Galileo_positioning_system
4 http://en.wikipedia.org/wiki/Galileo_positioning_system
5http://www.gpsworld.com/consumer-oem/news/gps-enabled-handsets-expected-bypass-economic-downturn-3109
6. US Economy Shrank 0.7%
Published: 9/30/2009 9:46:54 AM By: TradingEconomics.com, Bloomberg
7. European Economy Contracts More Than Estimated
Published: 10/7/2009 9:45:19 AM By: TradingEconomics.com, Bloomberg
8. The Chinese Economy May Be Heading Into an Iceberg
Published: 7/30/2009 6:50:10 PM By: Anna Fedec, contact@tradingeconomics.com
9. http://www.telecomtiger.com/fullstory.aspx?passfrom=vasstory&storyid=7371
10. . http://ezinearticles.com/?The-Present-and-Future-of-GPS-Devices&id=1858530A
11. http://www.geocaching.com/
12. http://www.eetasia.com/ART_8800480860_499488_NT_8bbe4c58.HTM
1313. http://www.ed.ac.uk/about/edinburgh-global/research/china-eu
2414. http://www.gpsworld.com/gnss-system/receiver-design/news/air-force-polls-receiver-makers-solutions-satellite-problems-8487
Financial Ratio Analysis Garmin Ltd (GRMN)
Garmin had fantastic growth year in FY07 in which it grew revenues 79%. In FY08 however Garmin has grown revenue to $3.5B at a conservative 9% rate. FY08 was a challenging year for Garmin which saw its profits rise slightly by 6% behind the 9% revenue growth but this was misleading because its net income fell significantly as a percentage of revenue by 3% due mainly to an increase in R&D, SG&A and COGS. Net Income fell to $732 million from $855 million in FY07.
Garmin has outperformed the S&P500 on profit margin but is only slightly trailing the industry by 1%. Total Profit margin for FY08 was 22% but decreased 5% from FY07. Return on Assets has declined 1% and Return on Equity alsoalsoEquity declined 3% to 33% from 36%. ClearlyClearlyClearly, the high expectations and slowing economy have had an impact on Garmin’s capability to maintain this level of performance.
Garmin has apparently not become more efficient as a resultresultbecause of its growth as evident by its declining operating income and a decrease in inventory turnover capability (takes longer). Inventory as a percentage of revenue has grown significantly which may either be a temporary condition due to the slowing economy and missed forecasts or a lesser efficient model. The Quick Ratio or “acid test” of Garmin’s financial health shows that Garmin has 3.8 times assets in short-term investments (cash flow, A/R and short-term investments) versus liability. Cost of Sales rose to 55% as a percentage of revenue whichrevenue, which is up 2% from FY07. Likewise LikewiseLikewise, R&D rose .9% to 5.9% as a percentage of revenue and SG&A rose 1% to 13% as a percentage of revenue.
If we compare Garmin’s liquidity to Tom-Tom NV a $2.3B competitor, we find that Tom-Tom carries much more debt and risk with a Current Ratio of .35. This means that Tom-Tom carries .35 cents in assets for every $1 in liability compared to Garmin whichGarmin, which carries $4 of assets to $1 liability. If Garmin were able to increase its inventory turnover even further and maximize its use of cash store it may be able to put more pressure on a struggling competitor like Tom-Tom with either a leveraged buy-out or increasing pricing pressure.
One area the company has improved upon is in decreasing the average days of A/R by reducing a total of 38 days by moving A/R from 121 days to 83 days. The potential use of this cash was offset by the increase in COGS.
Garmin is a healthy albeit not a fast-moving, aggressive, more efficient company financially over the last 2 years. The current equity return and profit margin is above the S&P 500 average howeverhoweverhowever, Garmin has to deal with managing costs as a percentage of revenue. Garmin carries almost no risk to solvency and its ability to cover its liabilities as the Current Ratio shows it has more than 4.5 times assets to liabilities. Garmin carries no debt whichwhichdebt, can be construed by many investors as a lack of innovation, efficient use of capital, vision and capacity for expansion. Garmin’s growth trend has slowed significantly and it will need to become more efficient and expand its revenue base either through a better use of cash or a reduction of inventory for a better return on capital.
See Appendix for financial statements and charts.
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