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Hope For TiVo; Garmin’s Flawed Strategy

Posted on Monday, Mar 15th 2010

Last quarter, we saw how Garmin (NASDAQ:GRMN) and TiVo (NASDAQ:TIVO) declined in the face of increasing competition in their core businesses. While the integration of navigation applications in smartphones is eating into Garmin’s personal navigation devices (PND) business, TiVo is losing subscribers with the advent of broadband and competing services such as Hulu, Netflix, and iTunes. But its recent performance provides a glimmer of hope.

Though Garmin is losing out on the smartphone front, it reported a 1% increase in fourth quarter revenue to $1.05 billion driven by a 24% increase in outdoor and fitness sales. Its marine segment increased 2% and its automotive/mobile segment improved even as the company posted declines. Q3 coverage is available here.

Garmin’s PNDs have a strong market outside of smartphones, and the company is trying to enhance its position with improved offerings for motorcycle enthusiasts, mariners, and golfers. It recently launched a new add-on for its GPS that converts the system into a computer that provides real-time information on a car’s fuel efficiency and performance. After disappointing sales of its line of Nuvifones, Garmin is planning to launch two more smartphones in the first half of 2010, which I don’t think is a smart move. Garmin cannot compete with the likes of Apple, RIM, Palm, and Nokia in this intensely competitive market. Bad strategy.

For fiscal 2009, revenue was down 16% to $2.95 billion. Net income was $704 million or $3.5 per share versus $733 million or $3.48 per share in 2008. Gross margin improved to 49% from 44.5% in 2008 and ended the year with $1.9 billion in cash. For 2010, the company expects revenue of $2.9 billion to $3.1 billion and EPS of $2.75 to $3.15. The stock is currently trading around $36 with market cap of about $7 billion. It hit a 52-week high of $38.78 on October 12.

Chart for Garmin Ltd. (GRMN)

TiVo, on the other hand, saw its shares soar after it won another major legal victory against Dish Network last week. Apart from $300 million in damages, TiVo also stands to gain a strong negotiating position in its lawsuits with AT&T and Verizon. Till date, TiVo has won $400 million in sanctions, and licensing is turning out to be a lucrative opportunity to cash in on.

TiVo has licensing deals with Comcast, Cox, and DirecTV and has entered into partnerships with Blockbuster, Netflix,, Best Buy, Virgin Media, RCN, and Walt Disney. It recently signed an audience research deal with Google that will integrate viewing data from TiVo into its measurement of audiences for ads sold through the Google TV Ads platform.

On the product front, TiVo recently launched the new TiVo Premiere that will more closely integrate TV shows and Internet content. It has also joined forces with HP to develop a Windows Home Server with which a user can transfer recorded TiVo content to watch on a computer and vice versa, from the server to TiVo.

But TiVo continues to report subscriber losses – it lost 730,000 subscribers in 2009 versus a loss of 611,000 in 2008. TiVo last week reported fiscal 2010 revenue of $237.6 million, down from $249.6 million last year. Net loss was $24 million compared to net income of $103.6 million last year. For the fourth quarter, revenue was up 15.7% to $68.45 million and net loss was $10.2 million versus loss of $3.6 million last year. Q3 coverage is available here.

For Q1, TiVo expects a loss of $19 million to $20 million and a decline in revenue. The stock is currently trading around $16.67 with market cap of about $2 billion. It hit a 52-week high of $17.98 on March 5 after the court ruling on Dish Network.

Chart for TiVo Inc. (TIVO)

It looks as though Garmin is wasting money and will get into more trouble later it continues to pour money down the drain with its smartphone strategy. TiVo, however, could have an exciting second life as an IP licensing company à la Tessera, Interdigital, Qualcomm, and Dolby, all companies that we cover.

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