Garmin Ltd. (NASDAQ: GRMN) is feeling some of the secular trends that many have feared.  All those free and bundled GPS and personal navigation services on smartphones are taking away from its model.  The company reported earnings of $0.70 EPS as revenue fell by 11% to $692 million.  Thomson Reuters had consensus estimates of $0.75 EPS and revenues of $730.3 million.

To add insult to injury, Garmin lowered guidance.  For 2010 it sees $2.70 to $2.90 EPS and revenues of $2.65 to $2.75 billion versus Thomson Reuters estimates of $2.98 EPS and revenues of $2.88 billion.  Gross margin was put at 49% to 50%.

As you guessed it would, that smartphone they offered for navigation was a flop.  It continued to see significant losses in the mobile handset division.

The contraction is coming from its automotive sector, which fell by a whopping 19%.  Its other segments are growing as outdoor/fitness rose 9%, aviation rose 4% and marine rose 1%.  Asia grew by 54% but North America fell 18%.  Total units shipped fell 1% to 3.8 million units.  Gross margin fell 2 full points to 50% in the latest quarter, while operating margin in the third quarter was 24%.

There are some mixed numbers here, but the core business is likely to face continued challenges as many of the same services that the car-based Garmin offers are now free or can be bundled cheaply on many smartphones.

The real verdict comes from the stock reaction.  Shares are down over 8% in reaction at $30.24 this morning versus a 52-week trading range of $26.11 to $40.47.

JON C. OGG

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