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TomTom faces squeeze from rivals' free services

Fri, 02/18/2011 - 5:10am
Dutch navigation firm TomTom, squeezed by cheap or free navigation services from rivals Google and Nokia, said revenue and earnings per share would be flat in 2011, dealing a heavy blow to its share price.

The company made its name with its personal navigation devices (PND), but has faced price pressure ever since Google and Nokia said they would offer free navigation on cell phones early last year.

TomTom has forged partnerships with auto manufacturers so that its navigation devices are built into car and truck dashboards, in order to counter the decline in the market for personal navigation devices, where it expects a contraction in the overall market of between 10 and 15 percent this year.

TomTom's fourth-quarter net profit fell 29 percent to 52 million euros, just beating the average estimate of 48.4 million euros in a Reuters poll. It cited higher marketing costs in the fourth quarter as it ramped up for the Christmas sales season and launched new products.

But analysts said it was the firm's worse-than-expected outlook for 2011 that hammered the stock. TomTom shares, which tend to be volatile, slumped as much as 9 percent to a three-month low.

In an initial interview with Reuters, TomTom's chief executive, Harold Goddijn, said he saw 2011 and 2012 as transition years with flat revenue and earnings per share, and that he expected margin growth in 2013.

But Goddijn later told Reuters he had not intended to refer to 2012 as a transition year of flat growth, and that he had not, and would not, give guidance for 2012 at this point.

He reiterated that he expected to see margin growth in 2013.

Through expanding its range and offering live traffic and mapping services, TomTom is trying to reduce its reliance on PNDs while turning itself from a one-product firm to a content and services franchise.

TomTom, which provides digital maps used on mobiles and computers, said revenues would be flat in 2011, reflecting the decline of the personal navigation device market, but that its automotive unit was expected to expand existing partnerships, offer live services and announce new contracts this year.

Fourth-quarter group sales slipped 3 percent from a year ago to 516 million euros, due mainly to a 9 percent fall in revenues at TomTom's consumer unit, which provides most of the group's sales for standalone navigation devices and has been hit by lower volumes and prices.

But revenues at the automotive unit were up 52 percent from a year ago as it expanded existing tie-ups and signed new deals.

Last year TomTom announced an in-dash deal with Mazda Motor Corporation, Fuji Heavy Industries' Subaru brand in the United States and an extension of a deal with Renault SA. It also has deals with Fiat Group and Toyota Motor Corp.

TomTom bought digital map maker TeleAtlas in 2007 for 2.9 billion euros, in part to prevent rival Garmin Ltd from getting its hands on the digital maps and also to use the maps for new revenue streams by building a content and service business.

Since the acquisition, however, TomTom shares have tumbled from a high in 2007 of 56.326 euros to a low in August 2010 of 4.027 euros. They traded down 8.5 percent at 6.68 euros at 1225 GMT.

Google maps, and Navteq, which is owned by Nokia, are TomTom's commercial rivals in the digital map-making market.

Garmin reports fourth-quarter earnings on February 23.

(Reporting by Roberta B. Cowan; Editing by Sara Webb and Will Waterman)

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