Profits dive at TomTom as sat nav giant loses its way
Wednesday 29 June 2011
TomTom issued a profits warning yesterday, wiping more than a quarter off its value as the Dutch navigation device maker struggles to compete with the rise of smartphones.
The group warned of ongoing weakness in consumer electronics markets, with the US personal navigation device (PND) market set to contract 30 per cent over the year, and the European market by 10 per cent. It now expects full-year revenues of €1.2bn (£1.1bn), with earnings per share between 25 and 30 euro cents.
The new revenues prediction is nearly €200m below analysts' expectations, and the statement sent TomTom's stock crashing by 27 per cent in Amsterdam, to value the company at €794m.
TomTom also said it is expecting second-quarter revenues between €300m and €310m at its results on 22 July. Revenues in the same quarter of 2010 were €362m.
Yesterday's profit warning is not the first sign of the company's troubles as consumers are increasingly using navigation software integrated into smartphones, rather than buying a separate device. Both Nokia smartphones and devices running Google's Android software, for example, offer free turn-by-turn navigation.
In February, TomTom reported a 29 per cent slump in fourth-quarter profits to €52m, on revenues down 3 per cent at €516m.
As the consumer market dwindles, the company is focusing on deals with car makers to build its technology into vehicle dashboards – a strategy TomTom said yesterday is "developing as expected". It is also building its business with commercial customers such as shipping companies, as well as its "Live" service, which offers subscribers real-time traffic information.
Not only is the overall market declining, but consumers are showing a preference for lower-end rather than premium devices, and retailers are running down their stocks. TomTom is also facing increasingly vicious price pressure from its main rival, the US group Garmin.
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