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TomTom Reports Lower Profits

Amsterdam, The Netherlands — TomTom said its third-quarter profit fell 41 percent over the year earlier, citing the unsteady world economy, and it cut its forecasts for portable GPS global shipments for the year to 12 million to 13 million units, down from 14 million to 15 million units.

The company also announced that it was entering the mobile phone navigation market in “off board” navigation delivered by cellular phone carriers. It expects to license Tele Atlas map information to carriers by the second half of next year. In “off board” navigation, the maps reside on a server rather than in a device or on a DVD.

On a financial conference call today, CEO Harold Goddijn said, TomTom is “intensifying our development efforts in the mobile space,” and it already offers “on-board” navigation software (that resides in the actual phone) through the HTC Pro smartphone in certain markets.

 But while mobile phone GPS is expected to overtake PNDs in the next couple of years, Goddijn noted, “there’s a lot of uncertainty about business models” in this area. So in the course of 2009, we’ll get more clarity on what the real potential of this market is going to be.”

For the quarter ending Sept. 30, TomTom reported net profits fell to the equivalent of $72.3 million, down from $123.3 million for the year ago period. Revenue remained essentially flat at $534 million while gross margins improved to 56 percent, up from 49 percent for the period a year ago.

The average selling price of a PND in North America, however, declined 26 percent from a year ago and is expected to continue to fall in the promotional fourth quarter where more than 50 percent of the PND market occurs, said Goddijn. The company plans aggressive U.S. promotions for Christmas and expects to increase its North American market share from the current 21 percent in both units and dollars.

TomTom also lowered its forecast for total industry PND shipments in North America to 18 million this year, down from the 20 million it predicted in July due to the “macro” economy.

During the third quarter, TomTom’s North American PND sales grew by close to 100 percent to approximately 3.1 million units and grew in European sales by more than 15 percent compared to the year ago period to 4.2 million units.

Tele Atlas, purchased by TomTom in June, saw stable sales of approximately $91 million compared with the year-ago period on a pro forma basis.

Garmin is also scheduled to report its third-quarter results on Wednesday.