Garmin Tek Stock and the Next Generation of GPS About to Blast Off

By: Tony_Sagami

On May 14, the space shuttle Atlantis blasted off for its 32nd and last mission. The Atlantis has flown to the Mir space station seven times and the International Space Station 11 times.

The Atlantis shuttle has ventured into space and returned with troves of scientific information and I still get goose bumps when I watch a shuttle launch. It is with a twinge of sadness to know that the Endeavour is scheduled to fly the last mission of the space shuttle program in November.

The space shuttles may grab most of the space headlines, but they are hardly the only things being shot into space.

It didn’t get a lot of media attention, but the United States Air Force launched the first of an advanced new fleet of navigation satellites last week.

New GPS satellites are about to be launched into orbit.

This new generation of satellites, built by Boeing, will enhance the current GPS fleet by adding 12 more GPS satellites to replace the current ones that are nearing the end of their service life, as well as dramatically enhance the capabilities of GPS systems. GPS networks will now offer ultra-precise navigation and near-instantaneous information.

“These next-generation satellites provide improved accuracy through advanced atomic clocks; a more jam-resistant military signal and a longer design life than earlier GPS satellites; and a new civil signal that benefits aviation safety and search-and-rescue efforts,” said Craig Cooning of Boeing Space and Intelligence Systems, which built the new satellite.

The GPS satellite network was originally developed for the U.S. military, but has since found use for a wide range of commercial applications.

“GPS 2F will increase the signal power, precision and capacity of the system, and form the core of the GPS constellation for years to come. It has twice the signal accuracy of previous navigation satellites,” said Air Force spokesman Commander Colonel David Madden.

The current network of satellites orbits the globe 14 times a day, but has gaps in coverage as the signal is passed from satellite to satellite. After the launch of the 12 new generation satellites, the signal will be continuous and very close to instantaneous.

One Asian company is positioned to prosper from this improved GPS coverage. I’m talking about Garmin (Nasdaq:GRMN).

Garmin isn’t a household name, but it is global leader in portable and fixed-mount GPS-enabled products geared for the aviation, automotive, boating, and outdoor recreational markets. It’s even got GPS systems for cyclists, runners, and dogs.

Dogs? You bet. Hunting is really big in Montana and I have one friend who has spent more than $10,000 on training classes for his dogs. The last thing he wants is for one of his prized boys to run off into the woods never to be found again. His solution is the Garmin Astro GPS device that can tell him where his dog is by simply following a little animated dog icon on the small handheld screen.

Garmin is incorporated in the Cayman Islands, but its main manufacturing and research center is in Taiwan, which is why it hit my Asian radar screen.

Garmin is a global leader in GPS-enable products.

When it comes to GPS systems, Garmin absolutely dominates the U.S. market with a 60% market share and a 20% market share in Europe.

That’s like money in the bank because the application, market, and profits from GPS-enabled systems are going to explode. GPS technology has been used for military and aviation uses for years, but the potential in the gigantic consumer market has yet to be tapped.

According to Morningstar, the total market for personal navigation devices is forecast to triple in the next five years, but even that optimistic forecast may be too low.

Garmin has a stranglehold on the automotive navigation segment, which accounts for more than half of its annual sales.

Garmin’s success is simple: Its navigation systems do much, much more than just give directions. Garmin fills its products with cool features like up-to-date traffic flow and incident information, MP3 players, language translators, currency converters, travel guides, digital photo organizers, gas price data, weather forecasts, and movie showtimes for area theaters.

Ford and Chrysler offer Garmin personal navigation devices in their cars, as well as almost the entire rental car market: Avis, Enterprise Rent-A-Car, Dollar-Thrifty, National, and Alamo.

Plus, Garmin has built powerful distribution relationships for its portable GPS with established companies like Target, Best Buy, and Wal-Mart plus original equipment manufacturers (OEMs) such as Ford, BMW, Honda Motorcycles, Cessna, Piper, and Premier Marine.

The application for GPS technology is still in its infancy and has only recently become available in cell phones. I expect the new USAF satellites to accelerate that marriage between cell phones and GPS service and the cell phone market could become even bigger than the automobile market for Garmin.

Garmin pays a $1.50 annual dividend, which works out to more than a 4% yield, sells for less than 10 times earnings, has ZERO debt, and $1.3 billion ($6.58 per share) of cash.

Should you rush and buy Garmin today? You need to do your own homework, but the new generation of GPS satellites is going to help make Garmin products better, more valuable, and ultimately generate bigger profits.

Best wishes,

Tony

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