TomTom upbeat as sales rebound

TomTom, the Dutch maker of satnav devices and digital maps, reported a small but unexpected first-quarter profit on Monday as sales rebounded, thanks in part to the introduction of cheaper products.

Shares in TomTom rose 6.34 per cent to €6.37 after it reported a net profit of €3m compared with a loss of €37m a year earlier. Revenues rose to €268m from €213m a year ago.

The share price recovery follows sharp losses as recently as last week when Nokia, the mobile phone maker, said 10m people had downloaded free navigation software to their phones since January. TomTom is also under pressure from Google, which offers free navigation on phones running its Android operating system in the US, the UK and Ireland, with more countries expected to follow.

TomTom’s core business remains selling so-called personal navigation devices or PNDs that adhere to car windscreens. Although it also sells software for phones, including Apple’s iPhone, and is rapidly sealing deals with carmakers to provide built-in navigation, it insists the market for PNDs is not in decline.

However, following the introduction of cheaper entry-level products, TomTom has seen the average selling price of its PNDs plummet to €89 in the first quarter, compared with €99 a year ago, €204 two years ago and €305 three years ago.

The group said it would no longer publish average selling prices of its PNDs as of the second quarter. Instead, it is providing greater detail on how revenues are made, including a split into hardware on the one hand and contents and services on the other. The latter showed the group made 70 per cent of its revenues from hardware in the first quarter.

“There’s too much focus on ASPs,” Harold Goddijn, chief executive and co-founder, told the Financial Times. “We’re coming to a period where the ASP decline is easing and I’d like to move away from that driver.”

He noted the inclusion of services, such as TomTom’s detailed traffic service, in growing numbers of products which made the average selling price less relevant. Some 10-15 per cent of TomTom’s products now include services, he said, but this number would grow.

Commenting on the downloads of Nokia’s free navigation software, Mr Goddijn said it was too early to tell what effect this would have on his business. “To what extent those downloads turn into actual use is another [question] and what effect that has on the market for dedicated devices is also unclear,” he said. “It will take us a bit of time to figure out.”