The personal navigation device (PND), which was among the highest-growth products in consumer electronics last year, may now be threatened by falling selling prices and possibly the economic downturn.
While PNDs are still charting close to 100 percent gains, average selling prices declined by 35 percent to 40 percent in the first quarter. Garmin reported last week that the category may be seeing an impact from the economy and may continue to do so through the second quarter. Garmin also told financial analysts that average PND selling prices will continue to decline by 25 percent during 2008.
The trend has caused concern about a product that saw well over 300 percent growth last year, but which may prove vulnerable to shifts in the economy and to newer technology, such as cellphones with GPS capability.
The NPD Group's industry analysis director Ross Rubin explained, "The issue is if prices continue to drop very dramatically, it might lead to a revenue shortfall as the top tier drops entry-level prices. And the category is vulnerable [to recession] as it's a discretionary product. It's not the kind of tool people use every day. On the other hand, we're still very much in an early stage of penetration. More consumers will likely enter the market."
TomTom said the U.S. PND penetration rate is now at 10 percent of vehicles. Jupiter Research estimates penetration at 13 percent and said another 13 percent of consumers intend to buy a dedicated GPS device this year.
But the key question is whether the market can carve out a viable high-end niche to stem the tide of falling selling prices, or will the PND become a $99 commodity in the not-so-distant future?
Jupiter Research VP/research director Michael Gartenberg said, "There's definitely a market for high-end features."
Crutchfield merchandise director Tom Bancroft agreed. "We're seeing more dollars in the high end than lower-end pieces. The Garmin 580, 680 and 780 with MSN Direct sell well."
But the first quarter was a challenge. Crutchfield's sales were up only slightly in dollars compared with the same period last year. TomTom's profits fell 83 percent in the first quarter, and Garmin's net earnings were up less than 1 percent over the period last year.
In addition, Garmin said low-end PNDs (at $300 and below) accounted for 80 percent of its unit sales in the first quarter and 70 percent of its dollar volume, down by 50 percent during the same period last year.
"Q1 was a rough one for an industry that has been outperforming expectations," said Mio senior director sales/marketing Kiyoshi Hamai, adding, "Having said that, unit sales to consumers were still up some 70 to 90 percent year-over-year. Much of that was driven by the ASPs dropping 35 to 40 percent. In addition I think the consumers were 'hung over'" from booming holiday sales.
To drive higher end sales, suppliers are beginning to lower the cost of real time traffic fees and are starting to roll out user-generated traffic PNDs that not only give turn-by-turn directions, but that monitor user road speeds and broadcast that data back to users as more reliable and comprehensive traffic reports. Suppliers are also offering live local Yahoo! or Google searches so that a consumer can search for "widgets" and receive a listing of all the local stores carrying widgets, while they are on the road.
"We're really looking to connectivity as the next step," said Mio marketing director Eric Larsen, but he's aware of the market challenges. "If I have 5 minutes I can explain why live search is good, but it's hard to put that out in an ad campaign."
Magellan claims its user research shows there's a "broad interest in connected PNDs," according to Magellan VP/GM Christain Bubenheim.
ABI Research said connected devices will account for only 3 percent of the North American PND market in 2008, but will grow to 7 percent in 2009 and 15 percent in 2010. By 2013, they will account for almost half the market.
An early indicator of high-end demand may be Dash Navigation, which launched the first Internet connected PND about five weeks ago and was pleased with initial sales. Dash Express offers the user-generated traffic reports described above. TomTom said it plans to bring such a service to the U.S.