Consumer Electronics December 8, 2009, 10:40PM EST

Garmin, TomTom Slash Prices Amid Google Threat

The makers of personal navigation devices cut prices to the bone on Black Friday as more consumers opt for free navigation applications on smartphones

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The Google (GOOG) threat hit home on Black Friday for TomTom and Garmin. The two foremost makers of personal navigation devices slashed prices more aggressively than ever on the first shopping day of the 2009 holiday season, according to figures released Dec. 8 by market researcher iSuppli.

In U.S. retail stores, TomTom (TOM2:NA) cut the price of its One 125-iSE to as low as $59 on Nov. 27. The device, available only at Wal-Mart (WMT), typically sells for $79, indicating a discount of about 25%, says iSuppli analyst Danny Kim. Garmin's (GRMN) cheapest model the day after Thanksgiving was priced at just below $70 at retailer Hhgregg (HGG). Kim says Garmin's Black Friday discounts averaged 40% to 42%. Its entry-level Nüvi 205 usually sells for $99.

Steep Black Friday discounts have become an annual ritual in the market for personal navigation devices, or PNDs, which use Global Positioning System technology to provide mapping and other navigation data to users. But the price cuts were more pronounced than ever this year, reflecting accelerating competition from the Google-backed Android operating system and other software makers that are churning out low-priced or free navigation applications for smartphones. "These devices are quickly becoming a commodity," Kim says.

On Oct. 28, Google announced plans to bring free turn-by-turn directions to the Google Maps application on smartphones running its Android operating system. The following day, Garmin stock dropped $6, or more than 16%, to 30.85. TomTom stock suffered more, dropping by nearly €3, or 29%, to 7.27 on the Euronext exchange. Neither stock has recovered. On Dec. 8, TomTom closed at 6.755, while Garmin closed at 30.03, down 17¢.

Analyst Appraisals

Garmin gets about 66% of its sales from PNDs. It will struggle to compete in a market where consumers can get navigation software for next to nothing, says Ilya Grozovsky, an analyst at Morgan Joseph, a boutique investment bank in New York, who has had a sell rating on Garmin since initiating coverage in March. "Smartphones are going to change the dynamic of this entire industry," Grozovsky says. "Sure, there are people out there who don't have smartphones and who won't use them for navigation, but over the long term I think the writing is on the wall."

The market's once-breakneck growth is slowing down. Plummeting prices aside, consumers may buy only 14.4 million PNDs in the U.S. this year, from 15.2 million in 2008, according to Kim at iSuppli. Around the world, unit sales may total 114 million in 2009, compared with 128 million last year, iSuppli estimates.

Some see Google and the smartphone as less of an immediate threat. Oppenheimer (OPY) analyst Yair Renner wrote in a Dec. 2 research note that while Google's navigation application will "impact the PND business over time," it's far from perfect. The headwind for Garmin and TomTom will be gradual and not noticeable, he wrote, until mid-2010. In the meantime, he writes, sales are in line with expectations. He rates Garmin stock a market perform.

To be sure, smartphone applications aren't always as reliable or user-friendly as the technology available on a dedicated device. Some users dislike having to interrupt navigation features to take a phone call or use other smartphone features.