Setting a New Course

For Garmin and its rivals, the latest challenge stems from its supply chain. While Garmin makes most of its wares itself—even designing its own boxes and ads, which are currently in heavy preholiday rotation during NFL games—it relies on two outside companies, Tele Atlas and Navteq, for maps (just as its competitors do). In July, TomTom announced plans to acquire Tele Atlas. Last month, Nokia made a deal to buy Navteq. With competitors owning these key suppliers, Garmin could be at risk; it'd be as if Burger King suddenly had to buy its hamburgers from McDonald's. In a late-October interview with NEWSWEEK, Garmin waved off these concerns, saying it had long-term contracts in place with map suppliers. But just days later, Garmin launched a hostile $3.3 billion bid for Tele Atlas in hopes of upending the TomTom deal. Garmin's stock fell sharply on the news, and as NEWSWEEK went to press, analysts were speculating whether TomTom would counteroffer, driving the price higher.

While that byplay matters to insiders, consumers will be far more interested in the ways in which GPS technology could someday affect their lives as profoundly as technologies like cell phones and social networking. Industry executives already speculate that as more drivers embrace automated navigation, accident rates may decline, since fewer of us will be peeking at maps or craning for street signs. (This assumes the devices aren't themselves a distraction.) While Garmin remains focused on navigation, smaller start-ups are offering applications that let users broadcast their location to friends and family, to allow for impromptu meet-ups. For helicopter parents, there are obvious child-tracking uses. There are also inevitable side effects as we offload what was once a basic human skill to a computer. For starters, our ability to give directions may fade just as quickly as our ability to memorize phone numbers has eroded since programmable cell phones took over.

And there will surely be applications of this technology that we can only dream about today. Consider one idea NEWSWEEK tossed out during an interview: since skiers are always pulling over to consult trail maps, wouldn't a ski GPS device be a no-brainer? Upon hearing that idea, Garmin fitness chief Tracy Olivier glanced nervously at the PR guy—leaving the distinct impression that designs for something like that are already on the drawing board.

In the meantime, Garmin will keep upgrading its lineup to blunt the damage done by falling prices—and keep fending off skeptics. "Analysts have been on the fence about us for years, and they've missed out on the entire seven-year run in which we've averaged 40 percent stock-price appreciation every year," says Rauckman. But so long as customers like Terry White function as walking advertisements, Garmin's business should continue to grow. White, a technical sales manager at Adobe in Detroit, is on his fourth PND, and he's given Garmins as gifts to friends. "When they start to be priced below $200, everyone will have one," White says. As shoppers stand poised at the preholiday starting line, Garmin can only hope the route to that point is simple and direct.

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