Garmin Reports Fourth Quarter Results with Increased Global Market Share and Significant Inventory Reduction

Business highlights:

  • Achieved full year revenue growth in all four segments on the strength of new products and continued market share gains.
  • Sold 6.4 million units in the fourth quarter of 2008, up 15% from the same quarter in 2007; 16.9 million units sold in the fiscal year, an increase of 38% from 2007.
  • Achieved significant inventory reduction of $274 million demonstrating the agility of our supply chain and scalability of our business.
  • Introduced nüMaps™ Lifetime and ecoRoute™ for our PND customers allowing for lifetime quarterly map updates for a single fee and a fuel conservation software update for free.
  • Introduced the GPSMAP® 695 and 696, portable aviation navigation devices, incorporating new capabilities such as airways, electronic charts and expanded weather on a screen that is three times larger than its predecessor.
  • Introduced new marine products including the GHP™ 10 Autopilot and the next generation of BlueChart® g2 technology allowing us to further solidify our technology leadership in this segment.
  • Completed the acquisition of our Swedish distributor bringing the total to ten European distributors acquired. These acquisitions have helped us achieve market share gains and operating efficiencies in Europe.
  • Repurchased 2.4 million common shares in the fourth quarter.

Executive overview from Dr. Min Kao, Chairman and Chief Executive Officer:

“A significant highlight for 2008 is our gross margin performance of 44.5% which is down just 150 basis points from 2007. We also achieved a strong operating margin of 24.7% which exceeded our earlier expectations. Throughout 2008, we maintained our strong cash position with free cash flow generation of $743 million which was enhanced by the significant reduction in inventory during the quarter. This cash flow allowed us to fund our stock repurchase plan, pay a $0.75 per share dividend, and remain a debt-free company.

We continued to experience a challenging economic environment in the fourth quarter with worsening trends throughout the period. However, we were able to demonstrate the power and agility of our vertical integration business model by responding quickly to the changes and scaling our production outputs to match demand. This allowed us to maintain healthy margins in the quarter, as well as significantly reduce inventory levels. The inventory reduction of $274 million was a great achievement for our organization given the extremely volatile environment that we are currently experiencing. This was accomplished in part by eliminating overtime labor and contract workers within our Taiwan factories, proving we can scale manufacturing as needed.

While the PND market has slowed, we continued to experience unit growth in both the North American and Asia-Pacific regions in the fourth quarter and were pleased with our market share gains around the globe. According to an independent market research report, our global PND market share stood at approximately 35% at the end of the third quarter and according to internal estimates our market share increased further in the fourth quarter.

Revenue in our outdoor/fitness segment continued to grow though not on the same trajectory as the first three quarters of the year. We have been delighted by the consumer response to the new products across this segment and look forward to building on that momentum in 2009. In addition, we are excited about our entry into the golf market with the Approach™ G5 which offers a touch screen handheld with preloaded course maps.

Our aviation segment did show weakness due to deteriorating economic conditions as revenues fell in the quarter. The strong launch of our portable GPSMAP 600 series products was a bright spot and helped offset the significant slowdown in our retrofit business. Many of our OEM partners are cutting their production schedules leading to a shrinking market in 2009. During this time, we will continue to focus our efforts on further cockpit certifications and other long-term growth strategies.

Our marine segment revenue was up 1% on a year-over-year basis which is a tribute to the strength of our product portfolio and our market share gains during a year in which the marine industry suffered significantly. While we expect 2009 to be a very difficult year for the marine industry, we are pleased with the progress that we have made toward offering a full network of marine products and the OEM opportunities associated with our growing product portfolio. We will continue to commit research and development resources to be the leader in the marine electronics market.”

Financial overview from Kevin Rauckman, Chief Financial Officer:

“Given the economic situation facing consumers in the fourth quarter, we were pleased with our overall results; especially our ability to maintain margins, reduce inventories and grow market share,” said Kevin Rauckman, chief financial officer of Garmin Ltd. “Even with these positives, our revenue fell 14% during the quarter. Excluding the impact of foreign currency exchange, EPS for the quarter fell $0.38, from $1.31 to $0.93. Full year revenues grew 10% with each of our four segments posting growth. EPS for 2008, excluding the impact of foreign currency exchange and including a $0.27 gain from the sale of Tele Atlas N.V. shares, was $3.69 compared to $3.80 in 2007. Revenue during the quarter was negatively impacted by $38 million due to continued weakness of the Euro and other foreign currencies.

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