Tuesday, June 20, 2006

Philips to make navigation devices, hurts TomTom

Reuters.com reports that Philips Electronics (PHG) said "it would begin making mobile personal navigation systems to tap into their growing popularity, hurting shares of route-finding market leader TomTom."

According to the article, Philips will introduce "a new line of three products from September and October in Germany, France and the Benelux countries starting at 400 euros ($500)."

Marc Kennis at Bank Van Lanschot said, "This will contribute to the commoditisation of these products. You can already get entry-level devices from reputable brands for as little as 199 euros. Profit margins are due to come down."

Philips said that "the devices would weigh 160 grams and be 2 centimetres thick. It will obtain map data for the systems from its former subsidiary, Navteq." The company is not the "first mainstream consumer electronics company to have discovered the market for standalone navigation devices.Sony entered the European market earlier this year after specialised niche players such as TomTom and Garmin (GRMN) created a booming industry."

The article states that "both Garmin and Sony have said they want to grab 20 percent of the European navigation devices market. The overall market in Europe and the United States is expected to roughly double to well over 9 million units this year."

Analysts expected "Philips not to repeat the mistakes of the past, such as in the late 1990s when it tried to conquer the mobile phone market only to largely abandon it a few years later after mounting losses."

Kennis opined "That won't happen under (current Chief Executive Gerard) Kleisterlee. A lot can be outsourced to Asian manufacturers now. It's a strategic product for the car. Navigation devices may become an access point for services in the car."

Is this a niche market? It won't become mainstream until prices drop more in my opinion, such as in the sub $100 range. Cell phone navigation services might undercut the leading device players as well, but pricing is too hefty at the moment too. At $9.95 a month plus voice and data plans, there are better ways to spend your money for something most people will use a few times a month...