TT finds 2nd supplier of GPS chipsets

Up to now, TomTom have used SiRF-brand GPS chipsets exclusively in their GO, ONE and RIDER series machines. But SiRF, a U.S. company with a market share of about 90% of the GPS chipset market is to face some competition soon: from January 1st 2007, we've been told the TomTom ONE will feature a GPS chipset made by Global Locate.

Margin

It is said that Tomtom have made this choice so they can produce the ONE at a lower cost, which will have a beneficial effect on the final price of the ONE in the shops. Due to the fierce price battle between TomTom and Garmin, TomTom is currently forced to offer large discounts on their units to wholesalers, and because of this, their profit margin is badly affected.

TomTom's choice is not without risk, however. The GPS chipset is one of the most important components of a navigational system, and a reduction in the quality of this part would be disastrous. This makes the switch from SiRF to Global Locate for the TomTom ONE all the more surprising, because TomTom's smallest unit makes up a very substantial part of TomTom's total turnover in Europe and the US.

It seems that TomTom researched the market of GPS chipset suppliers very well before opting for Global Locate. Texas Instruments and Atmel were other candidates who entered into negotiations with TomTom before the final decision was made.

Consequences

If TomTom shifts to Global Locate, even if only partially, this will have big consequences for SiRF. TomTom is –just like Garmin- a very big customer and no company is happy to see business of this size go elsewhere. The damage for SiRF might be limited if only the ONE ends up being 'upgraded' though.

SiRF has changed its turnover expectation for 2007 to a lower figure already, down from $321 million to $304 million, an effective cut of $17 million, reflecting the loss in PND chipsets alone. However, SiRF does expect to achieve a larger turnover from their wireless segment. The value of SiRF's stock dropped by 3% when the news became public, but stockbrokers aren't too worried by the 'TomTom rumour' just yet.

Lawsuit

After TomTom's plans became public knowledge, SiRF responded by filing a lawsuit against their much smaller competitor Global Locate. They claim that Global Locate have violated four SiRF patents with their products. This has created a situation which is comparable to the relationship between Garmin and TomTom, where Garmin have accused TomTom of breach of their patents.

Global Locate

The company Global Locate, was founded in 1999 and manufactures GPS solutions aimed specifically at mobile, wireless devices like phones and PDA's. It is a privately-owned company and Siemens and Motorola are large investors. Global Locate chipsets make use of A-GPS (Assisted GPS). These chipsets differ from the chipsets by SiRF which TomTom currently uses, because they already contain the positioning data of the GPS satellites inside the chip, so there is no need to download this data first before the user can start using his device.
This results in a very fast GPS fix which is also more stable than the fix by a SiRF chipset. This also enables users to get a GPS fix inside the house. Apart from all that, the chipset also consumes less power, which should benefit the battery use.

Reaction

We asked TomTom for an official reaction, but because they never respond to market rumours, their response was a (much expected): 'no comment'.

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