Moving to Higher Ground

Garmin Grows Revenue in New Places


It’s an uncomfortable time for gadget-makers in markets adjacent to mobility. New competitors offering free apps and entirely different business models can pop up overnight. As smartphones get better, bigger, faster and cheaper, there’s little security in brand loyalty.

Nintendo has been losing money for three years now. In the quarter ending 30 June, the company reported a loss of $93 million. Sales of the portable 3DS fell more than 40% year-on-year, bringing software sales down with it — it appears that as one audience grows up, the next is jumping directly into smartphones. The company remained focused despite years of speculation that it would enter the smartphone market through partnerships or with own-branded hardware. However, Nintendo is now looking to weave fitness into its portable products to make “taking care of one’s health fun”, as explained by Nintendo President Satoru Iwata. Nintendo’s Wii made playing console games active, so can the company do the same with mobility?

Garmin’s second-quarter results were quite a different story. The company represents another device maker squeezed by very capable smartphone apps, but reported a 5.5% increase in its profits and raised its earnings forecast for the full year. Its 2Q14 profits rose to $182 million from $173 million a year ago, and revenue increased by 12% to $778 million.

Garmin’s largest competitor quickly became Google (instead of personal navigation device companies like TomTom) as free map apps became good enough for most casual users. Garmin generates about 40% of its revenue from personal navigation devices, and predicts sales volumes of these will shrink by 20% over the coming year. However, having recognised this potential market decline it’s wisely looking to related areas to pick up the slack.

Garmin entered the wearables market with activity trackers such as the Vivofit band and specialized sports watches for runners and cyclists. Revenue from its fitness-related products was up almost 80% in the quarter, reaching $151 million. These sales now drive almost 30% of the company’s corporate profits, almost as much as its personal navigation division. It’s an impressive example of successful business development and very good timing. Wearables are a hot topic and Garmin was able to use its expertise to enter the growing market.

Garmin is just one of the many companies to feel the heat from smartphones. Some are able to move sideways into related business opportunities — we can point to Konica Minolta, for example, which left the camera business altogether to offer enterprise products including copiers and printers. Companies like Nintendo have to deal with declining sensor prices and increased mobile computing power, and Garmin’s success should be studied and copied. If possible.