News of Garmin's Demise is Highly Overrated

Garmin recently announced its FY2010 results, and even though they generated well over half a billion dollars in operating income, Wall Street made it sound like they were on death’s door. With the automotive market moving away from standalone GPS navigation devices to smartphones like the iPhone and Android, the pundits on the Street don’t see much of a future for Garmin. One “expert” who should know better went so far as to say, “Garmin is toast.”

This kind of myopic oversimplification from so-called “experts” is one reason we still haven’t recovered from the recent financial industry meltdown. Garmin’s future doesn’t depend exclusively on the automotive market. Sure, it’s a big part of their current revenues, but it’s not the lion’s share of their profits. According to their annual report, the Outdoor/Fitness market accounted for $237 million of income before taxes while the Automotive/Mobile market accounted for only $205 million. Add another $134 million from the Marine and Aviation markets and you’ll conclude that even if the automotive market went entirely away, Garmin would still survive. And everyone agrees there is little threat to the growth and profitability of the non-automotive markets.

Let me caution you that this doesn’t mean I recommend you buy Garmin stock. The vagaries of the stock market are not something I can predict. I’m more interested in assessing the future of Garmin as a company. And here, I agree with one pronouncement from the pundits. Garmin needs to reinvent itself. The question is how?

Garmin already tried one approach—introducing their own version of a smartphone. Unfortunately they went about it all wrong. Rather than capitalizing on the unique capabilities they could bring to the smartphone market, they tried to introduce a “me too” product far too late in the game to be successful. The world didn’t need one more smartphone like all the others, no matter how well known the Garmin brand. The pundits cheered when Garmin finally pulled the plug, for good reason. No need to sink another dollar down a hopeless rat hole.

So what should Garmin have done? For one thing, they should have read Marketing Warfare, a book written 25 years ago that predicts exactly the debacle they encountered. (This book should still be required reading for every marketing department on the planet.) Instead of making a frontal attack on an entrenched competitor—Apple—they should have taken advantage of their unique strengths to do an end run around them. In fact, they could still do so.

What are these unique strengths? I know of at least two, drawn from their expertise in the Outdoor market. The first is waterproofness. Every GPS in Garmin’s outdoor line is waterproof to an industry standard called IPX7. This means they can withstand immersion in up to a meter of water for 30 minutes. Smartphones not only aren’t waterproof, you’ll void their warranty if you get them wet.

Garmin’s second strength is the quality of its GPS receivers—you can find your position anywhere in the world with a Garmin receiver. A typical smartphone won’t reliably find its position unless it is in contact with a cell phone network.

So what would be the target markets for a waterproof smartphone that can reliably find its position anywhere in the world? Not just hikers and backpackers. Think police and fire departments, search-and-rescue teams, telephone and power companies, harbor pilots, and any business that sends personnel outside in inclement weather—construction companies, pool services, ambulance services, and a multitude of others. It’s a market poorly served by existing smartphones, and one that could be a significant opportunity for a targeted solution. Sure it’s not the next billion-dollar-a-year business, but that just means Apple won’t be going after it anytime soon. Garmin could have it to themselves, and it would certainly be much more profitable than their previous foray into this market. And if they were smart, they could leverage this success into broader markets later on. Don’t forget that Hewlett-Packard was once a bit player in personal computers, selling almost all of their products into a small niche called test and measurement. Now look where they are. Garmin could follow a similar path.

Will they do it? Probably not. Being a niche player is a tough pill to swallow for someone used to being out front. But whether or not they choose this particular path for future growth, they need to pick one that builds on their unique competitive advantages and not just blindly follow the leader.

Disclaimer: I have no formal relationship with Garmin, although they were nice enough to loan me GPS receivers while I was writing Outdoor Navigation with GPS. All receivers they loaned me were returned promptly when I was finished using them.