Garmin

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Strategy/Information Systems project to analyze Garmin

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Garmin

  1. 1. TEAM 1 Jeremy Blanchard Cesar Calvo Medina Dong Sun Chang Evan Dasilva Jiten Goyal Shannon Rohan
  2. 2. How Does it Work? GPS Receiver Determines Altitude Latitude Longitude Speed Direction
  3. 3. What is a Navigation Device? Receiver Hardware Maps&Software
  4. 4. Index 1 Industry Analysis 2 Company Overview 3 Recommendations 4 Conclusion
  5. 5. GPS Navigation Industry Content Components Devices End Users GPS Chips: Qualcomm Maps & Maritime & Aviation SiRF, Navteq Geospatial Global Locate GPS Chipsets & TeleAtlas Outdoor & Sport Data Modemn& others: Components Devices Sierra, Enfora, Trimble, Novatel Points of AAA Consumer Portable Navigation & Gas Stations interest & Devices Business other Data Retailers TeleNav, Goo Wireless Auto In-Dash gle, Networks Platform Mobile Location Navigation in & Carriers, Satellite GeoEye Based Motion, Yaho Applications GM OnStar Intermap Aerial & Services Mobile phones o Digital Globe Imageries Application & Services Source: JP Morgan
  6. 6. Intellectual Property in the GPS Industry Provided free by the Satellite government information Chip and other Protected by patents components Maps, software Protected by copyrights and content
  7. 7. Devices Industry Analysis 2.New Entrants 5.Bargaining 3.Bargaining 1.Current Power of Power of Competition Suppliers Customers 4.Substitute Products Source: Michael Porter. Competitive Strategy (New York:Free Press, 1980)pp22-23
  8. 8. 2 Rivalry 5 1 3 4 Column1 MARKET GROWTH MARKET SHARE 23% 21 49% 16% 12 5 4 4% Others 2005 2006 2007 2008E 8% CAGR 2005-2008E 80% Top 3 Concentration: 88% Source: JP Morgan, Global GPS devices shipments Source: JP Morgan, million Units of GPS sold in US
  9. 9. 2 External Pressures 5 1 3 4 Phone Manufacturers/ Wireless In-Dash Car NEW ENTRANTS carriers/ Manufacturers Google, MS Live maps SUBSTITUTES Paper Maps, Compass, Self Orientation
  10. 10. 2 Bargaining Power 5 1 3 4 Suppliers Customers Components End User Applications & Services Business Content
  11. 11. GPS Devices Industry Analysis 2.New Entrants 5.Bargaining 3.Bargaining 1.Current Power of Power of Competition Suppliers Customers 4.Substitute Products Source: Michael Porter. Competitive Strategy (New York:Free Press, 1980)pp22-23
  12. 12. Device Industry Performance 2007 ROE ROA ROS 14.4 14.4 29.3 5.9 12.6 4.7 Economy Industry Economy Industry Economy Industry The industry was performing well in 2007…
  13. 13. Industry Performance 2008 ROA ROS ROE 5.9 15.7 12.5 35.3 4.7 12.6 Economy Industry Economy Industry Economy Industry 5.9 4.7 12.6 -15.3 -3.2 -68.5 Economy Industry Economy Industry Economy Industry However, TomTom’s results in 2008 affected the overall Excluding TomTom the industry is still in good shape… industry performance
  14. 14. Navigation Devices Market Segment Main Players Segment Market Size Outdoor/Fitness $ 0.4Bn Marine $ 0.2 Bn Aviation $ 0.9 Bn PND $7.1Bn In-Dash $16.1 Bn Smartphones $ 124.6 Bn
  15. 15. Industry Trends Hardware commoditization -> steep margin erosion PND Lower penetration due to high price and long design cycle In-dash Driver of GPS penetration Smartphone Play a key role in navigation evolution LBS
  16. 16. Market Positioning LowCost Differentiator Broad Narrow
  17. 17. Index 1 Industry Analysis 2 Company Overview 3 Recommendations 4 Conclusion
  18. 18. Garmin, a World Leader in GPS Devices Founded in 1989, Garmin Ltd is a leading, worldwide provider of navigation, communications and information devices. Main Figures Income Breakdown Auto/ MARKET CAP $ 4.4 Bn Mobile 62% EMPLOYEES 8,919 Marine 7% REVENUE $3,494 M NET INCOME $733 M Outdoor /Fitness Aviation 18% 13%
  19. 19. Vertical Integration Supply Chain Manufacturing R&D Assembly Distribution Highly vertically integrated, from manufacturing to distribution
  20. 20. Alliances Partnerships , Contracts & Joint Ventures More Integration Long Term Strategic Joint Contracts Alliances Ventures
  21. 21. Company Product Lines Automotive / Mobile Fitness / Outdoor 31 products 45 products Marine Aviation 56 products 34 products Source: Annual Report
  22. 22. Performance Evolution by Segment Automotive / Mobile Fitness / Outdoor 3,000 45% 500 60% 400 2,000 300 40% 55% 200 1,000 100 0 35% 0 50% 2005 2006 2007 2008 2005 2006 2007 2008 Marine Aviation 250 60% 400 70% 200 300 55% 150 200 65% 100 50% 100 50 0 45% 0 60% 2005 2006 2007 2008 2005 2006 2007 2008 Margin Income (M$)
  23. 23. Company Product Lines Market Share High Low High Market Growth Low
  24. 24. Company Product Lines Market Share High Low High Market Growth Low
  25. 25. Performance Evaluation 2008 ROA ROS +9.3 +8.5 25.0 21.0 +9.8 +7.8 5.9 4.7 Economy Industry* Firm Economy Industry* Firm TOTAL TOTAL Garmin is performing well above the industry average *ExcludingTomTom
  26. 26. SWOT Analysis • Brand recognition •Excessive vertical • Wide range of products and integration services •Nuvifone • Market leader •74% of revenue from • Robust R&D efforts PNDs • Several cash cow segments •Price erosion in PND • Navigation becoming a •NAVTEQ and TeleAtlas necessary feature – service (map suppliers) acquired and application by rivals • Huge growth expected for • Mobile convergence LBS
  27. 27. Index 1 Industry Analysis 2 Company Overview 3 Recommendations 4 Conclusion
  28. 28. Sustainability Threat Imitation Substitution Value Created Value Captured Slack Hold Up
  29. 29. Strategy Against Imitation Establish exclusive relationships with OEMs Aviation Marine Outdoor Explore new GPS applications Create new business segments
  30. 30. GPS New Applications: Welfare Technology Senior citizens, patients with chronic diseases, citizens with handicaps have been left behind in technology development Nearly 20 percent of the US population will be 65 or older by 2030 Home Healthcare GPS Tracking Monitoring
  31. 31. GPS Tracking Integrated as a passive passenger Voice Activated Guide Implanted devices
  32. 32. Home Healthcare Monitoring • Integrated healthcare • GPS applications in next generation medical devices • Preventing acute emergency conditions Home health monitoring is expected to grow from $3bn in 2009 to $7.7bn dollars by 2012
  33. 33. NPV Valuation: Medical Devices Expected Cash Flows (Mn) Long Term Growth 5% 80 WACC 69 40 13 15% 2009 2010 2011 2012 2013 (100) NPV $450M
  34. 34. Sustainability Threat Imitation Substitution Value Created Value Captured Slack Hold Up
  35. 35. Backward Integration Why? Supplier Hold Up Asset Specificity Application & Platform Development How? Acquisition Over $1.5 Billion in Working Capital
  36. 36. Backward Integration Acquisition Options Michelin Failed Venture into PND Industry Divest of Non-Core Business Intermap Purchase Range of $300-$500 Million Provide Development Capital
  37. 37. NPV Valuation: Map Company Acquisition Expected Cash Flows (Mn) Long Term Growth 2% 52 48 44 37 WACC 2009 2010 2011 2012 2013 15% (300) NPV $31M
  38. 38. Sustainability Threat Imitation Substitution Value Created Value Captured Slack Hold Up
  39. 39. Cost Control Manufacturer Applications & Platforms Outsourcing Outsource production of commoditized PNDs Keep proprietary & value added manufacturing in-house
  40. 40. Sustainability Threat Imitation Substitution Value Created Value Captured Slack Hold Up
  41. 41. Automotive Partnerships The Plan Partnerships with luxury brands -Garmin brand recognition Initial production in-house -Long term: outsource production Urgent Priority -Long auto development cycle
  42. 42. Automotive Partnerships Why ? $16.1 billion market By 2012, 19% of new vehicles projected to have in-dash navigation Barrier to Adoption Average cost: 6% of MSRP
  43. 43. Automotive Partnerships Current Players General automotive suppliers New Trends -Toyota (select -MINI (mount) vehicles) -PSA- Peugeot Citroën -Renault Clio -Jeep Grand Cherokee -Fujitsu Ten Eclipse
  44. 44. NPV Valuation: In-dash Market Expected Cash Flows (Mn) Long Term Growth 2% 27 26 20 11 WACC 2009 2010 2011 2012 2013 15% (100) NPV $63M
  45. 45. The Mobile Convergence… 2007 iPhone
  46. 46. … is not a new Idea 1981 Swiss Army Knife
  47. 47. Smartphones = Disruptive Technology Enabling Factors Location Based Services Open Application platforms Smartphone Evolution Performance PNDs 4G technology Delaying Factors Smartphones Economic environment PNDs new services Current Pricing Schemes Time ?
  48. 48. Garmin Reaction: The Nuvifone A new concept of mobile phone centered around Location Based Services Good Decisions Bad Decision Identify smartphone as the Closed Source Platform market for disruption Establish a separate business unit Keep the organization independent
  49. 49. Open Platform for Innovation Garmin Users Software Developers • Provide SDK • Users submit • Developers submit • Host Apps innovative ideas to applications similar to Garmin • Issue Prizes iTunes • Users vote on • Developers select • Super-users to submitted ideas projects from the • Best idea awarded a enforce rules proposed ideas Prize Objective: Lead the development of LBS
  50. 50. Location Base Value Chain Chip Makers Chip Makers Platform Developers Handset Mobile Carriers
  51. 51. GPS as a Platform for Two Sided Markets GPS Points of Interest GPS Users Device
  52. 52. Creating Same Side Network Effects PND PND Users Same side network effect critical to increase growth
  53. 53. Garmin Developed Apps User POI Reviews User Traffic Updates User Map Updates Gas here is only $2.69. Accident on 93 South. At a This road is a standstill. one way.
  54. 54. Garmin Caravan Great -accept Ok waypoint- -accept Hey guys, waypoint- let’s stop at Joe’s Tavern . -Insert waypoint-
  55. 55. Garmin Destinations Got a flat tire. 200 euro for the tow and fix. I can’t wait to blog about my trip. on
  56. 56. rd 3 Party Developers
  57. 57. NPV Valuation: Garmin Platform Expected Cash Flows (Mn) Long Term Growth 5% 67 WACC 6 24 1 15% 2009 2010 2011 2012 2013 (100) NPV $309M
  58. 58. Conclusion • Enter (In-Dash) Garmin devices in • Explore (Medical Ubiquity all the Market Devices) Segments • Defend (Aviation, Marine, & Outdoor) • Acquire Map Company Garmin as a • Open Platform for Services platform for two Innovation sided markets • Generate User Content (Web 2.0)
  59. 59. Location Based World
  60. 60. Q&A

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