SiRF and Garmin
- From: bartonmj@xxxxxxxxx
- Date: Sat, 29 Oct 2005 00:24:54 -0400
Mixed messages and possibly a misconception of the future has hit all
sides of the GPS industry.
As reported earlier, both SiRF (SIRF), a GPS chipmaker, and Garmin
(GRMN), a leading manufacturer of GPS devices, beat their earnings
consensuses for calendar Q3 and guided above their consensuses for
calendar Q4.
However, both stocks have since taken a beating.
I suspect the drop at GRMN has been due to the fact that operating costs
have increased and will continue to do so in calendar Q4 as the company
rolls out an aggressive advertising campaign to create brand awareness.
However, even considering these increased costs, GRMN still forecasts
that the company will post a sequential increase in top both profit and
revenue expectations as published by the covering analysts.
Garmin's marketing campaign is a good strategic move, but this vision is
based on opinion that GPS will soon grow to become a very popular as a
consumer product that appeals to a considerably wider market than it
already does today.
While SIRF and GRMN are both forecasting strong calendar Q4 performance,
TomTom (Tom2.AS), a major GPS company based in Amsterdam, isn't so
optimistic.
TomTom shattered the Q3 consensus by reporting sales of 250M euros, a
sequential increase of 118%, versus a consensus of 175M euros, but
guided for a sequential decline to 240M euros, which clearly
disappointed investors.
TomTom's CEO stated in the company's press release this morning that
one-third of the sales in calendar Q3 were to stock the supply channels
for the holiday buying season.
He stated that the channel was now up to appropriate inventory levels as
compared to being at bare bones at the beginning of calendar Q3.
However, since he is forecasting a sequential decline in sales, even
though it is significantly above TomTom's revenue level in Q4 2004, the
market appears to have taken this message to mean the channels absorbed
too much inventory and are now over inventory rather than at the level
TomTom classifies as "the normal level required by retailers."
Since TomTom is a very significant SIRF customer, this fear that the
inventory channel is now overstocked has bled over to SIRF. Investors
are clearly scared that SIRF won't deliver its common upside to Q4
guidance; some might even be concerned about SIRF hitting guidance.
While there are always risks, it's times like these when the market
moves sharply in one direction that contrarians have an opportunity to
profit.
Of course, with these opportunities for outsized profits, investors must
also expect risks. The thesis behind this being an opportunity worth
considering is that GPS will rapidly grow in popularity, or at least
more so that what seems to be expected.
---
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