Now that the frost has long been on the pumpkin, and another turkey day come and gone, the four-week rush to the registers has really begun. Unbelievably, it's Christmas already--and now more than ever it's make or break time for the world of consumer electronics.
And on every single list of electronic gift ideas that I have seen this year, navigation devices are at or near the top. That means not only big things for the directionally challenged, but also bottom line blessings for GPS stocks themselves.
And so far the season is off to a great start, despite the anticipated pullback in consumer spending this holiday. Sweaters and gloves may be taking a beating, but electronics have been strong as stores like Best Buy and Circuit City have seen upticks over traffic from 2006 and 2005.
"Black Friday was a home run," wrote Bank of America analyst David Strasser last week, refering specifically to the consumer electronics sector.
The bigger surprise, according to Strasser and other analysts, was the brisk sales of equipment using global positioning system (GPS) technology. "GPS sold out almost everywhere at all price points, from what we observed and heard," Strasser wrote.
That's entirely in line with earlier forecasts that estimated North American sales would reach 6.5 million units is 2007, following last year's total of 2.8 million units. And even that's nothing compared to European sales, which are expected to top 16 million units this year.
That, however, is just the begininng. According to industry forecasts, sales of these devices will grow in 2011 to 22 million units in North America and 31 million units in Europe.
The Growing Market for GPS Stocks
But as big as the market for personal navigation devices (PNDs) has become, GPS technology can be found in across a whole range of products beyond the handhelds and automotive devices on those "must-have" gift lists.
As a result, the GPS market is much bigger, particularly when it comes to the chipsets that actually run the devices. And it's a market that is posied for explosive growth.
According to a recent report by market research firm Research and Markets, GPS chipset shipments will grow from 110 million last year to 725 million in 2011. In terms of revenue, that will mean growth from $520 million in 2006 to more than $1.3 billion in 2011.
That growth, according to the research, will be driven by the integration of GPS chipsets into mobile devices to meet the growing demand for location-based services. Aside from personal navigation devices, it will include sales gains in mobile handsets, mobile PCs, and a variety of portable consumer electronics devices, including handheld games, portable media players, and digital cameras.
The biggest spike will come in chipset sales to the makers of mobile phones. That's due in part to the US government's legislation for 911 calls that will soon make it possible for operators to pinpoint the location of mobile phone callers with GPS enabled phones.
As a result, global shipments of mobile handsets equipped with GPS capability are expected to more than quadruple from 2006 to 2011, according to iSuppli Corp.
GPS-equipped mobile handset shipments will increase to 444 million units by 2011, rising from 109.6 million units in 2006. And by 2011, 29.6 percent of all mobile phones shipped will have GPS capability, up from 11.1 percent in 2006.
"Besides cameras, multimedia capabilities and connectivity solutions, mobile-handset OEMs increasingly are investigating the integration of GPS functionality in mobile devices as a value-added product differentiator," said Tina Teng, analyst for wireless communications at iSuppli.
5 GPS Investments in the Future
It's that type of growth that has made the GPS portion of the technology sector one of the hottest investments in the future. And on the growing list of companies that are working to cash in on this trend, these five are among the leaders:
Garmin Ltd (NASDAQ:GRMN): Based in the Grand Caymans, Garmin has practically become the brand name for the entire PND market in the U.S. In fact, based on an analysis of search results from "online consumer communities" (e.g. blogs, forums, and so forth) across the Web from July 2006 to August 2007, BrandIntel's GPS Navigation Systems Report found that Garmin made up 42 percent of the 7,000 consumer mentions. TomTom, meanwhile--its closest competitor--was a distant second with 15 percent. As a result, analysts expect that Garmin's sales of PNDs will double this year, growing to 14 million units. On top of that, sales of devices used in vehicles more than doubled to $519 million last quarter, while aviation sales grew 27 percent to $74 million. Revenue in the outdoor and fitness segment grew too, climbing 24 percent to $88 million in the quarter, while marine segment sales increased 17 percent to $48 million.
Nokia Corporation (ADR) (NYSE:NOK): With its play to purchase digital map-maker Navteq for $8.1 billion dollars, the world's number-one mobile phone maker is hoping to make further inroads across the entire GPS chain from handsets to PNDs. The company's ultimate endgame, though, may be in its ability to leverage its GPS functionality into big gains in the location-based services area, which is part of the big push in smart phones and the mobile web.
Trimble Navigation LTD (NASDAQ:TRMB): Outside of the consumer electronics area, Trimble practically owns the industrial uses of GPS technology. Its primary focus is in the engineering and construction portion of the business, where it provides precise positioning using GPS technology. The company is also strong in the agricultural segment, where its devices help to steer fleets of tractors with unbelievable precision. Additionally, the company's recent acquisition of @Road has helped to boost its mobile solutions division, where revenues grew by 139% last quarter.
SiRF Technologies Holdings Inc. (NASDAQ:SIRF): When it comes to the chip segment of the business, this San Jose, California-based company absolutely dominates. Its chips are currently in nearly every device, regardless of the manufacturer. SiRF currently boasts a 75% market share, which can only grow as more of its industry-leading chips find there way in to mobile phones. Shares of the company surged 28% last month on strong third-quarter earnings and higher guidance.
Broadcom Corporation (NASDAQ:BRCM):With its $226 million purchase of Global Locate, this well-known chip maker made its move into GPS territory with hopes of not only grabbing market share from SiRF but of capitalizing on the growth in the mobile phone market. That acquisition made it "the only semiconductor supplier in the world with top-tier customers in Bluetooth, Wi-Fi, FM radio, and GPS," said Broadcom's senior vice president Robert Rango.
So while a GPS device may not be at the top of your Christmas wish list this year, an investment in one of these leading companies may be exactly what your portfolio is looking for.
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