April 26, 2010 / 3:15 PM / 7 years ago

Competition gives TomTom new route to revenue

AMSTERDAM, April 26 - Dutch navigation device maker TomTom is turning competitive pressure to its advantage, selling content and services to the very same mobile phone providers which are eating into its traditional market for satnav devices.

First-quarter net profit was 3 million euros compared with a net loss of 37 million last year and a mean estimate of a loss of 4 million in a Reuters poll of 10 analysts.

TomTom and its main competitor, Garmin, have come under pressure since Google and Nokia started offering free turn-by-turn navigation on smartphones earlier this year.

TomTom has responded by shifting its business mix toward high-margin, value-added services, making its PND for cars a smaller portion of total revenue.

During the first quarter, PNDs made up only about 50 percent of TomTom’s sales compared with 2009, when they contributed 70 percent.

Chief Executive Harold Goddijn said the decrease in PND revenue contributions was encouraging. “It is good to see our strategy is working,” he told reporters.

SNS Securities analyst Martijn den Drijver said the company’s plan was to try to generate as much cash a possible from its PND sales and invest it into products that would help it to survive the encroaching smartphone navigation systems.

TomTom shares were up 7.5 percent at 6.43 euros by 2:22 p.m. GMT (8:22 a.m. EDT), making it the top gainer in the main Amsterdam index, which was up 1 percent.

“Good results on all fronts, the share performance tells it all,” Den Drijver said, adding he rated the shares “buy” with a price target of 8 euros.

2010 FORECAST CONFIRMED

TomTom reiterated it expected this year’s revenue and earnings per share to be flat from 2009, when revenue was 1.48 billion euros and earnings per share 0.47 euros.

Analysts said that keeping the outlook the same meant the company expected the free navigation systems to have a limited effect on its PND sales this year.

TomTom sold 1.6 million PNDs at an average selling price (ASP) of 89 euros, an increase of 13 percent from the fourth quarter. That beat the most optimistic estimate of 88 euros in a Reuters poll.

“PND volumes were stable underlying,” RBS analyst Wim Gille said. “This implies channel inventories (for retailers) are healthy.”

But in a surprise move, TomTom said it would stop disclosing average selling prices and volumes for PNDs starting in the next quarter.

Chief Financial Officer Marina Wyatt told reporters the comparisons became less meaningful as the company started to generate more revenue from its bolt-on services.

SNS Securities’ Den Drijver disagreed.

“Very bad,” Den Drijver said. “Why would you not want to disclose this if you are performing well?”

David Cowell

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