Strategy/Information Systems project to analyze Garmin

1. TEAM 1
Jeremy Blanchard
Cesar Calvo Medina
Dong Sun Chang
Evan Dasilva
Jiten Goyal
Shannon Rohan

2. How Does it Work?
GPS Receiver
Determines
Altitude
Latitude
Longitude
Speed
Direction

3. What is a Navigation Device?
Receiver Hardware Maps&Software

4. Index
1 Industry Analysis
2 Company Overview
3 Recommendations
4 Conclusion

5. GPS Navigation Industry
Content Components Devices End Users
GPS Chips: Qualcomm
Maps & Maritime & Aviation
SiRF,
Navteq
Geospatial Global Locate
GPS Chipsets &
TeleAtlas
Outdoor & Sport
Data Modemn& others:
Components Devices
Sierra, Enfora, Trimble, Novatel
Points of
AAA Consumer
Portable Navigation &
Gas Stations
interest & Devices Business
other Data
Retailers TeleNav, Goo
Wireless Auto In-Dash
gle, Networks
Platform Mobile
Location Navigation
in
& Carriers,
Satellite
GeoEye
Based
Motion, Yaho
Applications GM OnStar
Intermap
Aerial & Services Mobile phones
o
Digital Globe
Imageries
Application & Services
Source: JP Morgan

6. Intellectual Property in the GPS Industry
Provided free by the
Satellite
government
information
Chip and other
Protected by patents
components
Maps, software
Protected by copyrights
and content

7. Devices Industry Analysis
2.New
Entrants
5.Bargaining 3.Bargaining
1.Current
Power of Power of
Competition
Suppliers Customers
4.Substitute
Products
Source: Michael Porter. Competitive Strategy (New York:Free Press, 1980)pp22-23

8. 2
Rivalry 5 1 3
4
Column1
MARKET GROWTH MARKET SHARE
23%
21 49%
16%
12
5
4 4%
Others
2005 2006 2007 2008E
8%
CAGR 2005-2008E 80% Top 3 Concentration: 88%
Source: JP Morgan, Global GPS devices shipments
Source: JP Morgan, million Units of GPS sold in US

9. 2
External Pressures 5 1 3
4
Phone
Manufacturers/
Wireless
In-Dash Car
NEW ENTRANTS carriers/
Manufacturers
Google, MS Live
maps
SUBSTITUTES Paper Maps, Compass, Self Orientation

10. 2
Bargaining Power 5 1 3
4
Suppliers Customers
Components
End User
Applications &
Services
Business
Content

11. GPS Devices Industry Analysis
2.New
Entrants
5.Bargaining 3.Bargaining
1.Current
Power of Power of
Competition
Suppliers Customers
4.Substitute
Products
Source: Michael Porter. Competitive Strategy (New York:Free Press, 1980)pp22-23

12. Device Industry Performance 2007
ROE
ROA ROS
14.4 14.4
29.3
5.9 12.6 4.7
Economy Industry Economy Industry Economy Industry
The industry was performing well in 2007…

13. Industry Performance 2008
ROA ROS
ROE
5.9
15.7 12.5
35.3 4.7
12.6
Economy Industry Economy Industry
Economy Industry
5.9 4.7
12.6
-15.3
-3.2 -68.5
Economy Industry Economy Industry Economy Industry
However, TomTom’s results in 2008 affected the overall
Excluding TomTom the industry is still in good shape…
industry performance

14. Navigation Devices Market Segment
Main Players
Segment Market Size
Outdoor/Fitness $ 0.4Bn
Marine $ 0.2 Bn
Aviation $ 0.9 Bn
PND $7.1Bn
In-Dash $16.1 Bn
Smartphones $ 124.6 Bn

15. Industry Trends
Hardware commoditization -> steep margin erosion
PND
Lower penetration due to high price and long design cycle
In-dash
Driver of GPS penetration
Smartphone
Play a key role in navigation evolution
LBS

16. Market Positioning
LowCost Differentiator
Broad
Narrow

17. Index
1 Industry Analysis
2 Company Overview
3 Recommendations
4 Conclusion

18. Garmin, a World Leader in GPS Devices
Founded in 1989, Garmin Ltd is a leading,
worldwide provider of navigation,
communications and information devices.
Main Figures Income Breakdown
Auto/
MARKET CAP $ 4.4 Bn Mobile
62%
EMPLOYEES 8,919
Marine
7%
REVENUE $3,494 M
NET INCOME $733 M Outdoor
/Fitness
Aviation
18%
13%

19. Vertical Integration
Supply Chain
Manufacturing R&D Assembly Distribution
Highly vertically integrated, from manufacturing to distribution

20. Alliances
Partnerships , Contracts & Joint Ventures
More Integration
Long Term Strategic Joint
Contracts Alliances Ventures

21. Company Product Lines
Automotive / Mobile Fitness / Outdoor
31 products 45 products
Marine Aviation
56 products 34 products
Source: Annual Report

22. Performance Evolution by Segment
Automotive / Mobile Fitness / Outdoor
3,000 45% 500 60%
400
2,000 300
40% 55%
200
1,000
100
0 35% 0 50%
2005 2006 2007 2008 2005 2006 2007 2008
Marine Aviation
250 60% 400 70%
200 300
55%
150
200 65%
100 50%
100
50
0 45% 0 60%
2005 2006 2007 2008 2005 2006 2007 2008
Margin Income (M$)

23. Company Product Lines
Market Share
High Low
High
Market Growth
Low

24. Company Product Lines
Market Share
High Low
High
Market Growth
Low

25. Performance Evaluation 2008
ROA ROS
+9.3
+8.5
25.0 21.0
+9.8
+7.8
5.9 4.7
Economy Industry* Firm Economy Industry* Firm
TOTAL TOTAL
Garmin is performing well above the industry average
*ExcludingTomTom

26. SWOT Analysis
• Brand recognition •Excessive vertical
• Wide range of products and integration
services •Nuvifone
• Market leader •74% of revenue from
• Robust R&D efforts PNDs
• Several cash cow segments •Price erosion in PND
• Navigation becoming a •NAVTEQ and TeleAtlas
necessary feature – service (map suppliers) acquired
and application by rivals
• Huge growth expected for • Mobile convergence
LBS

27. Index
1 Industry Analysis
2 Company Overview
3 Recommendations
4 Conclusion

28. Sustainability Threat
Imitation Substitution
Value
Created
Value
Captured
Slack
Hold Up

29. Strategy Against Imitation
Establish exclusive relationships with OEMs
Aviation
Marine
Outdoor
Explore new GPS applications
Create new business segments

30. GPS New Applications: Welfare Technology
Senior citizens, patients with chronic diseases, citizens with
handicaps have been left behind in technology development
Nearly 20 percent of the US population will be 65 or
older by 2030
Home Healthcare
GPS Tracking
Monitoring

31. GPS Tracking
Integrated as a passive
passenger
Voice Activated Guide
Implanted devices

32. Home Healthcare Monitoring
• Integrated healthcare
• GPS applications in next
generation medical devices
• Preventing acute
emergency conditions
Home health monitoring is expected to grow from
$3bn in 2009 to $7.7bn dollars by 2012

33. NPV Valuation: Medical Devices
Expected Cash Flows (Mn) Long Term Growth
5%
80
WACC
69
40
13
15%
2009 2010 2011 2012 2013
(100)
NPV
$450M

34. Sustainability Threat
Imitation Substitution
Value
Created
Value
Captured
Slack
Hold Up

35. Backward Integration
Why?
Supplier Hold Up
Asset Specificity
Application & Platform Development
How?
Acquisition
Over $1.5 Billion in Working Capital

36. Backward Integration
Acquisition Options
Michelin
Failed Venture into PND Industry
Divest of Non-Core Business
Intermap
Purchase Range of $300-$500 Million
Provide Development Capital

37. NPV Valuation: Map Company Acquisition
Expected Cash Flows (Mn) Long Term Growth
2%
52
48
44
37
WACC
2009 2010 2011 2012 2013
15%
(300)
NPV
$31M

38. Sustainability Threat
Imitation Substitution
Value
Created
Value
Captured
Slack
Hold Up

39. Cost Control
Manufacturer Applications
&
Platforms
Outsourcing
Outsource production of commoditized PNDs
Keep proprietary & value added
manufacturing in-house

40. Sustainability Threat
Imitation Substitution
Value
Created
Value
Captured
Slack
Hold Up

41. Automotive Partnerships
The Plan
Partnerships with luxury brands
-Garmin brand recognition
Initial production in-house
-Long term: outsource production
Urgent Priority
-Long auto development cycle

42. Automotive Partnerships
Why ?
$16.1 billion market
By 2012, 19% of new vehicles
projected to have in-dash navigation
Barrier to Adoption
Average cost: 6% of
MSRP

43. Automotive Partnerships
Current Players
General automotive suppliers
New Trends
-Toyota (select
-MINI (mount)
vehicles)
-PSA- Peugeot Citroën
-Renault Clio
-Jeep Grand Cherokee
-Fujitsu Ten Eclipse

44. NPV Valuation: In-dash Market
Expected Cash Flows (Mn) Long Term Growth
2%
27
26
20
11
WACC
2009 2010 2011 2012 2013
15%
(100)
NPV
$63M

45. The Mobile Convergence…
2007 iPhone

46. … is not a new Idea
1981 Swiss Army Knife

47. Smartphones = Disruptive Technology
Enabling Factors
Location Based Services
Open Application platforms
Smartphone Evolution
Performance
PNDs
4G technology
Delaying Factors
Smartphones Economic environment
PNDs new services
Current Pricing Schemes
Time
?

48. Garmin Reaction: The Nuvifone
A new concept of mobile phone
centered around
Location Based Services
Good Decisions Bad Decision
Identify smartphone as the
Closed Source Platform
market for disruption
Establish a separate
business unit
Keep the organization
independent

49. Open Platform for Innovation
Garmin Users Software Developers
• Provide SDK
• Users submit
• Developers submit
• Host Apps
innovative ideas to
applications similar to
Garmin
• Issue Prizes iTunes
• Users vote on
• Developers select
• Super-users to
submitted ideas
projects from the
• Best idea awarded a enforce rules proposed ideas
Prize
Objective: Lead the development of LBS

50. Location Base Value Chain
Chip Makers Chip Makers
Platform Developers
Handset
Mobile Carriers

51. GPS as a Platform for Two Sided Markets
GPS
Points of Interest GPS Users
Device

52. Creating Same Side Network Effects
PND PND Users
Same side network effect critical to increase growth

53. Garmin Developed Apps
User POI Reviews
User Traffic Updates
User Map Updates
Gas here is
only $2.69. Accident on 93
South. At a This road is a
standstill. one way.

54. Garmin Caravan
Great
-accept
Ok
waypoint-
-accept
Hey guys,
waypoint-
let’s stop at
Joe’s Tavern .
-Insert waypoint-

55. Garmin Destinations
Got a flat tire.
200 euro for the
tow and fix.
I can’t wait to
blog about my
trip.
on

56. rd
3 Party Developers

57. NPV Valuation: Garmin Platform
Expected Cash Flows (Mn) Long Term Growth
5%
67
WACC
6 24
1
15%
2009 2010 2011 2012 2013
(100)
NPV
$309M

58. Conclusion
• Enter (In-Dash)
Garmin devices in • Explore (Medical
Ubiquity all the Market Devices)
Segments • Defend
(Aviation, Marine, &
Outdoor)
• Acquire Map Company
Garmin as a • Open Platform for
Services platform for two Innovation
sided markets • Generate User Content
(Web 2.0)

59. Location Based World

60. Q&A