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Last updated: June 28, 2011 5:49 pm

Smartphone apps continue to hit TomTom

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TomTom, the Dutch auto navigation company, warned on Tuesday that revenues would fall €200m ($285.5m) short this year as customers shift to using smartphones for mapping journeys, sending its shares down 27 per cent.

TomTom had already warned on revenues in April, but said that sales were falling even faster than anticipated, due to slow consumer spending.

“Consumers’ wallets are smaller and there are only a few winners for share of that wallet. There is only space for perhaps an iPad,” said TomTom. Where consumers were buying TomTom devices, they were increasingly opting for the entry-level rather than premium devices it said.

“After a weak first quarter, we were hoping for a recovery in the second, which is an important quarter with retailers preparing for the holiday season. But it did not happen,” TomTom said.

TomTom has also been hit by aggressive pricing from Garmin, its main competitor.

The company said it expected revenues of €1.25bn for the year, nearly €200m ($285.5m) short of analysts’ consensus. Earnings per share are expected to fall to €0.25-€0.30 nearly halving earlier guidance of €0.47.

TomTom said sales of its personal navigation devices (PNDs) would fall 30 per cent for the year in North America, while in Europe they are expected to drop 10 per cent.

To offset for declining consumer device sales, TomTom is trying to bolster its other business units, which provide built-in traffic navigation to carmakers, selling its road and traffic data and selling mobile application versions of its mapping service. Although TomTom has secured one such deal with Renault, the French automaker, it could take about 18 months to generate revenue. Prices for its mobile apps, meanwhile are about €50 to €60 compared with a €100 wholesale price for its PNDs.

A growing reliance on selling data led to another blow in April, when TomTom had to apologise to customers for selling data on traffic behaviour to Dutch police.

TomTom said it expected second-quarter revenue to come in at €300m-€310m, down from €362m in the second quarter last year.

“It’s very disappointing. It’s a de facto surrender in the retail channel on the [PND] category as a whole,” said Wim Gille of RBS.

Mr Gille said he still felt the stock might be undervalued as the company’s operations, even disregarding its PND business, should more than justify its current valuation.

But in a research note, Martin den Drijver of SNS Securities said customers’ tendency to opt for entry-level PNDs might spill over into the connectivity area as well, suggesting fewer will be willing to pay for the Live service than the company had hoped.

Shares in TomTom, which have declined from a high of more than €50 at the end of 2007, closed down 27 per cent at €3.58 on the Amsterdam exchange.

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