TomTom profits head the wrong way

Profits at TomTom tumbled almost a third at the end of last year as it began to feel the growing challenge of smartphones in the satnav market.

The Dutch group revealed yesterday that net profits were €52m (£44m) in the fourth quarter, 29 per cent lower than a year earlier.

In its results statement, the group added that revenues in 2011 were likely to be flat, sending the shares down more than 9 per cent in Amsterdam.

Harold Goddijn, the chief executive of TomTom, said: "The consumer markets we operate in are challenged. The category has lost a bit of its initial excitement, it is more common, there are more alternatives."

The fourth-quarter declines had been expected, he said.

The size of the personal navigation device market had shrunk, but TomTom had grown its share from 46 per cent in Europe to 49 per cent. Mr Goddijn said he was "pleased with the performance" for the year, as revenues rose 3 per cent to €1.5bn. He expected the consumer business to contract further this year as the market for standalone devices continued to decrease.

Revenues fell 3 per cent in the fourth quarter to €516m, although the company slashed its debt from €442m at the end of 2009 to €294m a year later. It faces increased challenges from the rise of smartphones, a device, Mr Goddijn said, "TomTom has to live with".

Devices running Google's Android software have free access to turn-by-turn navigation, as do Nokia customers. The Finnish group last week tied up with Microsoft, whose chief executive, Steve Ballmer, highlighted the mapping features as key for the forthcoming smartphones which the two companies plan to develop.

Ronan de Renesse, a senior analyst at Screen Digest, said: "Smartphones and apps have brought good navigation to consumers at low cost or free; there is definitely some cannibalisation of TomTom's business.

"For years smartphones didn't have quite the right components to do navigation properly, now the technology is there," he said, before adding: "Maybe TomTom should start making phones." Mr Goddijn said he did not plan to develop a smartphone.

Smartphones are not all bad for TomTom as its iPhone application has proved popular, and it is working on other location-based applications.

At the end of the year it signed a partnership deal with HTC. Other avenues for expansion included a deal with Nike over a GPS fitness watch. Mr Goddijn said: "We are further broadening the income stream."

Another growth area for the business is cars. It announced an extension of its partnerships with Fiat, Toyota and Subaru, which helped to drive revenues up 50 per cent. However they remain about a 10th of total revenues. Mr Goddijn said the business would grow through new deals with car makers and expanding existing agreements.