Tom Tom warns of falling margins

TomTom, the world’s biggest car navigation device maker, said on Thursday that sales growth and cost control would protect margins in 2007, as it unveiled plans to expand the content offered via its digital dashboard maps.

However, it forecast a 2007 operating margin of “around 20 per cent”, below the 25 per cent level achieved last year and which analysts interpreted as reflecting competitive pressure.

Harold Goddijn, chief executive, said the margin target was “realistic” rather than “conservative”and that he expected “another year of strong growth”.

While it sold 4.7m navigation units last year, penetration rates among motorists in core European and US markets remains relatively low, he said. The market is however growing rapidly, as product innovation and falling prices drive sales. Hence rising volumes – which also allow better terms to be negotiated with component manufacturers - would continue to protect margins.

It sold 1.9m devices in the final quarter, but at an average sales price of €230, lower than expected by analysts. It was 19 per cent below that of the third-quarter and 32 per cent down year-on-year from €337 in the final quarter of 2005.

TomTom said it expected an increase from 10m to 18m in the number of portable navigation devices sold in the US and Europe in 2007, compared to 2006. It expects to sell between 7m and 8m of those units for revenues of €1.6bn to €1.8bn.

It aimed to maintain 50 per European market share and build on its number two position in the US, where it has 20 per cent of the market behind Garmin, its US rival.

The Dutch company posted 2006 sales of €1.36bn, an increase of 89 per cent from 2005, and net profit of €222m, 55 per cent higher.

The company said that content innovation would be equally vital in maintaining market position. It has struck a deal with Vodafone, the mobile phone company, to provide Dutch drivers with detailed traffic information, in a service available in the second-half of 2007. That will allow faster and more efficient journeys, TomTom said, adding that it plans to offer the function in other countries too.

“At the moment car navigation is about not getting lost, but in the future drivers will use it to find the quickest route, for example, and those sorts of developments will greatly increase [product] penetration,” said Mr Godijn, adding that motorists would pay for the traffic information feature but it would not require a device upgrade.

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