TT growth continues, average price drops

In the first three months of this year, TomTom sold 1.3 million PND's. This number alone is a good indication of a market that is still growing. This is good news, of course, for TomTom but, and there's always a "but": because the average price of PND's is also dropping, TomTom needs to make more effort to preserve their margins.

Compared with the first quarter of 2006, the number of TomTom PND's sold rose by 75%. This resulted in a turnover of almost € 296 million for the first quarter of 2007. The turnover only increased by 16% however, and, as has already been said, the reason for this is the increasingly larger discrepancy between the number of units sold and the price for which the units sell. In the first quarter of 2006, the average selling price per PND was € 305, now this has dropped to € 204. So, in one year, the amount which TomTom receives per PND sold has dropped by a third, and because of the fierce competition, the end of this reduction is nowhere is sight.

Margins

Despite the falling prices, TomTom still manages to keep their margins at the same level. The gross margin rose from 5% in 2006 to as much as 40% now. The operational margin (after deduction of costs) showed a small decline from 19.6 % in the first three months of 2006 to 19.1 % in the same period in 2007. The profit made by TomTom in January, February and March of this year is a total of € 44 million.

Compared to the best quarter of 2006, these first quarterly results of 2007 show a decline. But TomTom claims this is normal, since the last three months of the year are always the best months for PND manufacturers. The turnover of the first quarter of 2007 dropped by 38%, the number of sold PND's dropped by 31% and the average selling price was 11% lower compared to Q4 2006.

The first quarterly results of this year are the basis for TomTom's expectations for the entire year. The company expects to announce a total turnover of between € 1.6 billion and € 1.8 billion by the end of this year. The gross margin should reach about 40% of the turnover, and the operational margin 20%.

Market share

TomTom's market share is still increasing, both in Europe and in the United States. Both markets are still witnessing an increasing growth in the sales of navigational systems. In the last three months, the market share for TomTom in Europe rose from 50% to 52%. In the United States, the market share climb was even bigger: 5% higher, totalling 25% currently. On the North American continent, TomTom is now targeting Canada as their next growth area.

The most successful unit is currently the ONE. It's currently the best selling PND in the world. For TomTom, the past three months had a few highlights: one of those was the registration of the one millionth user of the HOME desktop application. Also the subscriptions of the fleet-management application WORK increased a lot. Currently, more than 18,000 people are using this application. TomTom also announced a few new products: the GO 715, the RIDER 2 and the ONE XL were presented to the public.

Future

For the near future, TomTom is aiming at improving the user friendliness of their devices. One important factor in achieving this, is the implementation of predictable and 'real-time' traffic information. For a while now, TomTom has been working with Vodafone on the so-called 'Next Generation Travel Time Information', a solution which distils traffic info from the location of mobile phones on the roads. The development of this solution is on schedule, and should be released in the second half of this year.