The global market for satellite navigation hardware continued its scorching pace in 2007, resulting in big profits for the major hardware manufacturers, and analysts predict sales will grow more than $20 billion by early next decade.
ABI Research, a market research firm in Oyster Bay, N.Y., estimates last year's market for satellite navigation hardware was $33 billion, a $6 billion increase from 2006. The company attributed the growth to falling prices for all types of hardware and dramatic volume increases in the sales of Portable Navigation Devices (PND) and satellite navigation-equipped mobile phones in Europe and North America.
The company forecasts the satellite navigation market growing to $54 billion worldwide by 2011.
The two largest manufacturers of PNDs, Kansas-based Garmin International and Netherlands-based TomTom NV, each shipped a record number of units during the third quarter 2007 — 2.7 million and 2.2 million, respectively. The two companies manufactured nearly half of the PNDs sold last year.
Garmin anticipates 2007 revenue of more than $2.9 billion and reported a profit of $547.7 million through the first three quarters, up 39 percent from the same period in 2006. TomTom anticipates 2007 revenue of 1.7 billion euros to 1.8 billion euros ($2.6 billion to $2.7 billion as of Oct. 24) and reported a profit of 211 million euros through the first three quarters, up 32.7 percent from the same period in 2006.
Magellan GPS of Santa Clara, Calif., the world's third largest maker of satellite navigation devices, does not release financial data, but marketing director Robert Snow said sales last year far exceeded the company's expectations.
"Our consumer satellite navigation products saw the biggest growth in North America, but Magellan also made substantial inroads in Europe," Snow said.
Dominique Bonte, a telematics and navigation analyst at ABI Research, said 2007 saw consumers moving away from factory-installed satellite navigation systems in cars and toward PNDs and satellite navigation-equipped mobile phones. ABI Research estimates the global market for PNDs jumped from 12 million units in 2006 to 24 million units last year, and Bonte said that figure could be as high as 27 million units following a late-year surge. Sales of mobile phones equipped with satellite navigation more than doubled in 2007 to 5.1 million units.
Bonte said the surging popularity of consumer navigation gear can be attributed in large part to falling prices. PND prices fell from $450 to $300 on average over the last year, while mobile phones with satellite navigation capability dropped from $100 to $85. Factory-installed car navigation systems dropped on average from $2,000 to $1,800, and integrated after-market car navigation systems dropped from $1,200 to $1,100.
"We are seeing a price decline of 30 percent a year globally," Bonte said. "This simply cannot continue. I expect this to slow down because it's unsustainable. Much of this is manufacturers dumping their low-end models."
High-end PNDs with features like digital music players, speech recognition capability and traffic receivers remain in the $400 to $500 range, and these hold their value better, he said.
By 2011, ABI Research projects global sales of more than 100 million PNDs, 62 million satellite navigation-equipped phones, 14 million manufacturer-installed car systems and 4 million after-market car systems.
A major question mark, according to Bonte, is whether satellite navigation-equipped phones eventually will erode the market for PNDs, much as smart phones did for personal digital assistants. Such an outcome is far from inevitable, he said, noting that the market for portable music players remains strong despite the widespread incorporation of this technology into mobile phones.
"ABI Research is convinced PNDs will continue to be the most popular device, because they are optimized for in-car navigation with big screens, speech recognition, touch screens and built-in FM transmitters," Bonte said. "I expect people will have more than one navigation device. They will have one in their cars, and at the same time, they will have handsets for pedestrian mode."
Jason Kim, a senior analyst at the U.S. Commerce Department's Office of Space Commercialization, thinks the global satellite navigation hardware market is far from saturated and will continue its strong growth.
"I think prices haven't dropped that much," Kim said. "Capabilities have increased at each price point, but the most desirable units are still at the $300 or $400 level and have been for a long time. Capabilities will continue to increase, but it won't be until we're near the $50 level before people will really be crazy about it."
Today, the U.S. GPS constellation is the only fully functional global satellite navigation system. As emerging systems such as Russia's Glonass, Europe's Galileo and China's Compass become fully operational, even more people will become satellite navigation users, he said.
"As more and more systems come on line, it's just going to become more appealing," Kim said. "I think the end user doesn't care where it comes from or who owns it, but there is already a lot of marketing being done to increase adoption of [countries'] own national systems. And economies of scale will allow chips to be built for even less than they are now."
The possibilities for satellite navigation, much like the Internet, are limited only by the human imagination, Kim said. For example, he said, future business models could even incorporate an advertising component.
"The sweet spot is not yet a reality: your mobile phone tells you you're near a McDonald's and sends you a coupon for it. That has been talked about as what's next for 10 years, but nobody's done it yet."
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