TomTom shares fall after warning

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Shares in TomTom, the Dutch mobile navigation device maker, lost almost 8 per cent of their value on Monday after the company on Friday warned that a supply problem in the second quarter would hit hold back earnings.

The statement, made after the market closed on Friday, said that the problem, which affected a component for TomTom’s new GO range, meant that revenue for the quarter would be around €275m, against consensus forecasts of around €320m.

The supply shortage of this component was now resolved, the company added.

TomTom shares fell to €29 in morning trade, from Friday’s close of €31.47. After listing in May last year, the stock rose from €17.5 to a peak of more than €40. But the hype surrounding the sector, coupled with falling prices as competition has intensified, has concerned analysts.

TomTom’s warning comes just over two months after the company, at its first quarter results in April, upped its full-year earnings guidance, earning it a 12 per cent share price bump.

At the time, TomTom increased its full-year revenue estimate to between €1.1bn and €1.3bn, on the back of the favourable market reception for its new products and a first-quarter performance in which sales volumes rose six-fold, outstripping analyst expectations.

In Friday’s statement, the company said that its 2006 guidance remained unchanged, with volume sales of personal navigation devices expected to be between 3.6m and 3.9m units.

The gross margin in the second quarter would be at least 40 per cent, the company said.

Gary Rollo, analyst at Morgan Stanley, said: “The revenue miss is large. It will remind investors of the risk associated with a fast moving consumer electronics company with a concentrated portfolio.”

Matthew Yates, at Merrill Lynch, reiterated his ‘sell’ recommendation on the stock:. “Our long-term call is based on the belief that TomTom lacks competitive advantages to protect its high level of profitability which will be challenged by the entrance of new competitors and lack of product differentiation,” Mr Yates said.

TomTom is due to release its final second quarter results on July 25.

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