By Savio D'Souza
BANGALORE (Reuters) - No. 1 U.S. navigation device maker Garmin (GRMN.O) posted a surprise rise in quarterly profit, but investors seemed skeptical about the company's long-term prospects with Google's recent march into the navigation space.
Shares of the company dropped as much as 10 percent to $28.21 in morning trading on Nasdaq. In pre-market trade they were up almost 10 percent.
"The beat, as impressive as it is, will likely do little to ease investor concerns about the sustainability of the PND (personal navigation device) business in a world of free Google mobile navigation. Against that backdrop, some holders may use any strength this morning as a pathway to a clean exit," analyst Yair Reiner of Oppenheimer & Co said.
Garmin's shares are usually volatile on the day it reports earnings, and the short interest on its stock is at about 9 percent of total float. In comparison, blue-chip technology stocks such as Google and Apple have a short interest position of below 2 percent.
Garmin's PND market has been hit by a slump in demand followed by a fall in selling prices -- as highlighted by Dutch rival TomTom (TOM2.AS) -- and the advent of smartphones with built-in navigation capabilities.
Last week, Google (GOOG.O) vaulted into the navigation market with plans to launch free software offering turn-by-turn directions for smartphones, exacerbating concerns of the long-term survival prospects of PNDs.
Phones such as Research In Motion's (RIM.TO) BlackBerry, Apple's (AAPL.O) iPhone and offerings from Palm (PALM.O) and Nokia (NOK1V.HE) are seen as able substitutes for PNDs.
STRONG Q3 RESULTS
Garmin, which posted a rise in net income after four quarters, said it sold 3.9 million units in the quarter as pricing, cost and volumes improved.
The automotive/mobile segment continued to show growth on a unit basis in both the North America, Asia and Europe, Chief Executive Min Kao said in a statement.
Third-quarter net income was $215.1 million, or $1.07 a share, compared with $171.2 million, or 82 cents a share, a year ago.
Excluding the impact of a fluctuating dollar, profit rose to $1.02 a share from 87 cents a share. Analysts on average were expecting earnings of 69 cents a share, according to Thomson Reuters I/B/E/S.
"Contrary to the impression people had last week after TomTom's results, pricing pressure has not increased and prices have been benign enough to allow Garmin to deliver the highest PND margins it has had in many years," Reiner said.
Garmin's results come a week after TomTom posted healthy results but warned of falling selling prices and low visibility into the key holiday season.
Garmin's margins were 52.4 percent, compared with 44.3 percent a year ago. PND margins improved to 48 percent from 38 percent, helped by a moderation in the fall of average selling prices, currency fluctuations and cost cuts.
Despite the long-term threats from smartphones and the entry of Google, trends were actually improving, said Reiner, who has a "perform" rating on Garmin's stock.
(Reporting by Savio D'Souza in Bangalore; Editing by Vinu Pilakkott and Saumyadeb Chakrabarty)
