February 18, 2010 / 7:13 AM / in 8 years

UPDATE 3-TomTom downplays mobile threat, Q4 net beats forecasts

* Q4 net profit 75 mln euros vs 44 mln expected

* Says expects 2010 sales at 1.5 bln euros flat eps

* Average selling price 79 euros vs expected 83.5 euros

* TomTom shares up 8 percent, above main index

(Adds analyst comment, background, updates shares)

By Harro ten Wolde

AMSTERDAM, Feb 18 (Reuters) - Navigation device maker TomTom TOM2.AS downplayed the threat of competition from free software on mobile phones as its fourth-quarter results beat forecasts, making it the top blue-chip gainer in Amsterdam on Thursday.

TomTom shares rose as much as 12 percent to 6.08 euros, which is a one-month high, but later pared their gains and were up 5.5 percent at 5.735 euros.

The shares have taken a beating since late October, losing half their value after Google GOOG.O and Nokia NOK1V.HE said they would be giving away turn-by-turn navigation on smartphones for free. [ID:nLS458927]

“The shares could reflect a turn (in sentiment) for TomTom’s long-term business model after all the news about Nokia and Google,” said Geoffrey Leloux, a trader at Keijser Capital.

However asset manager Maarten Geels at Eureffect, who owns TomTom shares on behalf of clients, said he doubted whether TomTom’s business model was safe.

“If you own a bakery shop and someone accross the street is giving it away for free, you will not be long in business,” he said.

TomTom shares, which outperformed a small decline in the Amsterdam blue chip index .AEX, were still 10 percent below levels just before Nokia said in January it would join Google in offering free navigation software. [ID:nLDE60K06I]

The Dutch company posted a 7 percent rise in fourth-quarter net profit, excluding exceptional items, of 75 million euros ($101.7 million), fuelled by a rise in sales of personal navigation device (PNDs), beating the 44 million average estimate in a Reuters poll of analysts.

Despite the strong quarter, the company posted double-digit profit and revenue declines for the full year.

TomTom’s 2009 revenue fell 15 percent and net profit was down 34 percent, excluding the impact of goodwill charges related to its massive 2.9 billion euro acquisition of digital map company Tele Atlas.

TomTom said it expected broadly flat revenue of around 1.5 billion euros and flat earnings per share in 2010.

Chief Executive Harold Goddijn, who co-founded TomTom in the early 1990s and led the drive to focus on navigation devices in 2001, insisted the Amsterdam-based company did not yet feel pressured by Google and Nokia.

“The industry we operate in is going through substantial change. Increasingly, digital maps are being deployed in the battle for mobile phone screens ... We see limited impact from this on our current revenue streams from PNDs, automotive and fleet management,” Goddijn said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Timeline on share value [ID:nLDE61H0EQ]

Graphic on net income 2005-10 here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Google’s free navigation software has been available since the fourth quarter. Nokia said on Monday 3 million consumers have downloaded the free navigation package, since its launch last month. [ID:nLDE61F03C]

The foray of the two giants into the sector has forced the satellite navigation industry to explore new ways of securing revenue streams. [ID:nLDE61G2AU]

Until the recession dampened customer spending on navigation software in 2008, TomTom had posted double-digit gains.

Goddijn said the company could return to double-digit growth in the next two years, depending on how the navigation market developed.

“In the mobile business, incomes are still uncertain, and in that sense we are at the start of a cycle,” Goddijn said, adding it would likely take years to regain clarity in the market.

The navigation market -- once a duopoly of Tomtom and Garmin GRMN.O -- has become increasingly crowded since Nokia and Google moved in on TomTom’s leading position.

Both TomTom and Garmin also face tough competition as the technology is adopted for such devices as Research In Motion’s RIM.TO BlackBerry, Apple’s AAPL.O iPhone, and similar offerings from Palm PALM.O and Taiwan’s HTC. 2498.TW

TomTom also said unit sales would remain flat, while average selling prices are expected to continue to decline.

“TomTom’s guidance, especially as the company specifically states that it does take into account the impact of smart phone navigation, is a sign of confidence,” SNS Securities analyst Martijn den Drijver said.

TomTom said it saw new opportunities for partnerships and business models, particularly in the mobile device space.

“This sounds promising,” Den Drijver said, adding that unit sales were much better than expected.

Average selling prices in the fourth quarter of 79 euros missed average analyst expectations of 83.5 euros, but margins held up as TomTom cut its marketing spending. ($1=.7377 Euro) (Editing by Jon Loades-Carter and Karen Foster)

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