台灣國際航電 (GRMN) 2007 Q1 法說會逐字稿

Good morning.

My name is Laportea, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Garmin Limited first quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS)

Ms.

Schwerdt, you may begin your conference.

Good morning.

We would like to welcome you to Garmin Limited's first quarter 2007 earnings call.

Please note that a copy of the press release concerning this earnings call is available at Garmin's Investor Relations site on the internet at www.Garmin.com/Stock.

Additionally, this call is being broadcast live on the Internet.

Please note that this webcast does include slides which you can view during this call.

An archive of the webcast will be available until June 5th.

A telephone recording will be available for two business days after this call, and a transcript of the call will be available on the website within 48 hours, at www.garmin.com/Stock, under the Events calendar tab.

This earnings call includes projections and other forward-looking statements regarding Garmin Limited and its business.

Any statements regarding our future financial positions, revenues, earnings, market shares, product introductions, future demand for our products, and our plans and objectives are forward-looking statements.

The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin.

Information concerning these risk factors is contained in our Form 10-K for the fiscal year ended December 30th, 2006, filed with the Securities and Exchange Commission.

Attending on behalf of Garmin Limited this morning are Dr.

Min Kao, Chairman and Chief Executive Officer, Kevin Rauckman, Chief Financial Officer and Treasurer, and Cliff Pemble, Vice President of Engineering, and Andrew Etkind, General Counsel.

The presenters for this morning's call are Dr.

Min Kao, Kevin Rauckman, and Cliff Pemble.

At this time, I would like to turn the call over to Dr.

Kao.

Good morning.

From this morning's press release you can see that we recorded yet another record quarter.

Total revenues and EPS again both exceeded our expectations.

Revenue for the quarter increased 53% to 492 million.

EPS was up 60%, or 37% excluding the effect of falling currency.

And the unit volume was up 67%.

Revenue growth exceeded our expectation in both Automotive and Aviation segments.

Over 1.5 million government products was shipped in the quarter.

Raising our total to over 20 million units shipped to date.

Which is continued evidence of the strength of the Garmin brand.

Our worldwide employees increased to over 5,200 during the quarter.

We added nearly 400 associates, including 70 in engineering, 175 in manufacturing, 130 in marketing, including many product trailers, and customer support associates to handle the increased call volume.

We continue to experience strong demand for our product.

To keep pace with this demand, we continue to expand our facilities.

In Taiwan, our current manufacturing capacity is approximately 8 million units.

Over the next few months we will build out our second facility to its full capacity bringing in our total to approximately 12 million units annually.

In addition, we are exploring the possible purchase of a third facility in Taiwan, to meet our growing PND demand, and the need for additional office space, as we continue to expand our R&D group, and our other support departments in Taiwan.

In Europe, we have completed the renovation and have moved into the new facility in South Hampton, U.K.

We look forward to using this larger facility to expand our opportunities in Europe and Africa.

In the U.S., plans are all in place to expand the warehouse distribution facility at our Kansas headquarters to support increased volume.

We are pleased that our companies and our products continue to receive much, not only recognition that we continue to expand our patent portfolio.

At the end of the first quarter we had 301 U.S.

and 24 foreign patents issued, and 194 U.S.

and 13 foreign patent applications.

We continue to make targeted acquisitions to broaden product offerings and enhance our technology opportunities.

In the last few months we invested a total of approximately $100 million in the acquisition of four companies.

In addition to the three acquisitions that we reported during our last earnings call, we recently acquired Nautamatic Marine Systems.

We are excited about this acquisition as we believe this is innovative patented marine autopilot technologies will further expand in our vast Garmin marine product portfolio.

Some highlights of our achievements for each business segment.

Revenue for the automotive segment increased 110%, due to combined strong sales of the newly industry product lines.

Gross margins remained solid at 43%, and operating margin improved to 25%.

Newly release products have been well received and have generated strong (inaudible).

Our current independent market research Garmin has maintained a #1 PND position in North America and the #2 position in Europe.

We believe our expanded (inaudible) has enhanced our brand awareness in both the U.S.

and in Europe.

Rental car and auto deal promotional sales continue to increase customer exposure to Garmin's products.

Recent ads by AVIS featuring Garmin products has generated awareness of our successful partnership with AVIS.

So the outlook for the PND market continues to be very strong.

Revenue growth in this segment will likely exceed our expectation of 50%.

For the Aviation segment, revenue was up 26%, ahead of our projected 20%, mainly due to WAAS upgrades.

WAAS enabled visual feed products in the new GMX 200.

Both an operation margins also both improved year over year.

We are pleased to have delivered our first G900 [integrate] kit, for the experimental kit plane markets.

[Hyper] Aircraft also recently announced their plan to offer our G1000 in to their cockpit, in [GeoStar Toga] aircraft, extending our longstanding and mutually beneficial relationship.

We remain optimistic about the long-term prospects of our Aviation business, and continue to believe this segment is positioned for revenue growth of 20% in 2007.

Revenue for the Marine segment was down 13% due to timing of new product introductions.

Growth and operation margins also declined as we discounted older products ahead of new product releases.

But the good news is that channel inventories were very clean at the end of the quarter, and retailers are now starting to stock and sell our new products.

Additional products scheduled for release in the current quarter has also generated strong bookings.

Also the timing of the new product releases result in low revenue first quarter, our 2007 new product lines have positioned this segment for strong growth in the second and third quarter of the year.

As such we continue to expect the Marine segment to grow 20% in 2007.

The revenue for the Automotive fitness segment declined 7% due to a challenging comparison, because in Q1 last year we had significant, many new fitness products and also a special promotional deal.

Both in operation margins for this segment also declined, as we began discounting some of our older product as we typically do ahead of new product releases scheduled for later in the year.

We believe Garmin remains the leader in GPS enabled devices for both the running and cycling markets, and significant opportunities for growth remain.

We expect new product that will be introduced during the back half of the year will drive growth for 2007.

There are a few operational highlights, (inaudible) Q1, and this is for the PND market continue to be very strong.

So retail inventories were clean at the end of the quarter.

In respect to the greater than anticipated PND demand, we are currently expediting component deliveries, and our expanded manufacturing capacity.

We continue to expand our marketing and sales infrastructure to support our continuing growth.

These activities include targeted acquisitions to marketing and sales staff, and integration of our newly acquired French subsidiaries to support our retail expansion in this country.

And we are pleased to be able to offset PND price declines by materials cost reductions.

For it's efficient, and the product mix, resulted in of the mobile segment, automotive segment in the first quarter.

As we look forward, we are optimistic about the remainder of 2007.

Our drive for continuous innovation has allowed us to be well positioned to take advantage of the continued strong growth occurring in the PND markets.

Currently we released many offerings for this segment of the market at various price points.

And we anticipate the Spring season promotion activities and advertising will drive continued growth in the second quarter.

For all of our end markets, we feel that our new suite of Marine products is poised to drive strong growth in the second and third quarters.

These new products have generated a lot of interest and strong bookings.

For the Aviation segment, we are continuing to see solid growth opportunities.

Our new GMX200 will continue to drive regional revenue growth.

The recently announced Piper Saratoga is now certified, and shipments of that aircraft has already begun this month.

This certification combined with [10 AO 90] recertification, and [TIF 80] in the second half of the year will generate additional OEM revenue.

Work on various [Mango] jet and other certifications also continues for deliveries in 2008 and beyond.

For our outdoor/fitness segment we anticipate growth in the second half of 2007, driven by the Astro dog tracking device, and the many new outdoor and fitness products that have yet to be announced.

So in summary, we are pleased with our order results, and are excited about our future opportunities.

At this time, I would like to turn the call over to Cliff Pemble to provide our product updates.

Thank you Min.

As it has been our custom in the past, I will be reviewing product highlights from the first quarter starting with our automotive segment.

The nvi 200, 250 and 270 were introduced in March at the CBIT Electronics Show in Hanover, Germany, and these new products targeted the value oriented customer unwilling to compromise on style and function.

The nvi 200 family features a bright color TST display and a touch screen with an internal antenna packaged in an ultra-thin case.

These exciting new products also include basic travel features, and are compatible with our range of rich content including travel guides, and our unique SaversGuide.

The nvi 200 family is offered in three version.

The 200 with regional coverage for Europe, or the lower 48 states for the United States, the nvi 250 with full North American or European coverage, and the nvi 270 which offers Europe plus North American coverage for world travelers.

I am pleased to say that we have begun differing the nvi 200 to our major retail partners, and so far it's been enthusiastically received by both North American and European markets.

We are working hard to fill strong backorders for this product and family.

During Q1 we began deliveries of the nvi 680 and the StreetPilot c580, which are the first PNDs to feature dynamic content provided by Microsoft Direct [band].

In addition to offering realtime traffic alerts these PNDs offer other dynamic content, such as current fuel prices, weather and road conditions, and movie listings.

These products are bundled with a one year subscription to the content services of MSN Direct.

The nvi 680 and StreetPilot c580 come with all the features customers have come to expect from our PNDs, such as Bluetooth hands free functionality, and in addition the nvi 680 includes an integrated FM radiator for listening to MP3 music, and turn by turn instructions through the car's audio system.

These new products round out the upper end of our product lineup, and have been well received by customers.

In addition to the nvi 270, which I mentioned earlier, we added expanded map coverage options to our nvi 300 and 600 product family.

The nvi 370 and 670 offer preloaded coverage of Europe and the U.S.

In addition they are bundled with traffic receivers that are compatible with traffic services in both Europe and the United States.

These products are true world travelers thanks to this their extreme portability, travel related features, and worldwide traffic broadcast capabilities.

Turning next to the Aviation segment, we are pleased to report much better than expected growth in this segment, due to the introduction of WAAS enabled GNS 430 and 530 products, as well as the GMX200 msv.

During Q1 we provided WAAS upgrades to over 2,000 Garmin 430 and 530 customers, and our backlog of upgrades remains strong.

At the same time we experienced strong demand for new WAAS enabled 430 and 530 products.

Demand for the new GMX200 [msv] was also strong throughout the quarter helping us exceed our growth targets for the Aviation segment.

In the OEM market, we recently announced that Piper aircraft has added the G1000 as an option on it's Saratoga and 6X aircraft models.

We have enjoyed a close working relationship with Piper over the years, and we look forward to expanding on that relationship with the G1000.

During Q1 we also delivered the first G 900 X glass cockpit system for experimental aircraft.

Experimental aircraft owners are known for their passion in selecting, building and owning these aircraft.

The G900x fits nicely in the upper end of this market segment.

I am pleased to report that Cessna has recently resumed deliveries of G1000 equipped Mustang jets, and we expect deliveries to continue smoothly throughout 2007.

Finally work continues to certify the G1000 on other aircraft models and platforms.

We will provide updates throughout the year with significant developments.

Turning next to the Marine segment, we began deliveries of the GPSMAP 400 and 500 series of chartplotters in the latter part of Q1.

These products include an all-new simplified use interface making them more useful and appealing to a broad range of customers.

They also include our new satellite enhanced base map and are compatible with our G2 vision cartography.

Additionally the GPSMAP 400 and 500 they are offered in version with preloaded maps for the United States, Britain, or Australia.

Despite the slow start in our Q1 Marine business, we remain optimistic about the growth potential for this market based on the strong demand for the 2007 marine product lineup.

Also during Q1 we began deliveries of our new GMR18 radar system.

This entry level radar is compact in size, yet strong in features and performance.

At 4 kilowatts it is the most powerful 18 inch radar system on the market, and is offered at a value price of just under US$1000.

Demand for the GMR 18 is strong, and we are ramping up deliveries to meet this demand.

The GMR 18 rounds out an entire family of radar solutions from Garmin.

We now offer a broad range from low price point of the GMR 18 to the high performance of the GMR 406, which is our 6-foot open array radar.

I would like to close with a word about our new GPSMAP 4000 and 5000 series plotters, these new products complete our 2007 Marine product line, offering larger, higher resolution displays.

The 4000 series offers a traditional keypad driven user interface, and the 5000 series incorporates a ruggedized touch panel, that can serve in a variety of applications from work boats to luxury cruisers.

All of these products leverage our new G2 vision cartography, and are plug and play compatible with all of Garmin Marine network components, such as our radars, XM weather data receivers, and our high-resolution digital sounders.

We are finalizing the development of 4000 and 5000 and anticipate that mass production will begin later this month.

At this time I would like to turn the call over to Kevin, who will provide an overview of our financial results.

Thanks Cliff, it is good to talk to everyone again this morning.

As you can see from the press release and Min's earlier remarks, we are pleased to be able to review with you the financial results of the first quarter, which are record for both revenue and earnings per share, so I am going to walk through the income statement as I typically do, review in a little bit more detail sales and margin results, look at the balance sheet cash flow, and then finally conclude with a few comments on our expectations for the full year 2007.

So looking at the first quarter income statement you can see the revenue was 492 million, net income came in at 140 million, which generated an EPS of $0.64 per share.

That is a 53% top line growth, and a 60% earnings per share growth for the quarter.

We did recognize a favorable $0.05 earnings per share impact, due to $13 million foreign currency gain during the first quarter of '07.

Gross margins of 48.3% were better than expected, due to the stronger PND volume in the U.S.

and in Europe.

PND price erosion was offset by material cost reductions, volume efficiencies and product mix.

Our results on the operating margin line were 28.1%, which was down from 31.1% last year, but better than expected.

Breaking that down we saw out of the 300 basis points down, we saw gross margin represented a 220 basis point unfavorable, advertising was 30 bips unfavorable, our other SG&A was 140 basis points unfavorable, and our R&D was 90 basis points favorable to the operating margin.

We also shipped over 1.5 million units during the quarter, on the strength of our auto/mobile segment, and the average selling price during Q1 was $317 per unit, which was actually 4% above the fourth quarter of '06 of $306.

Net income excluding FX, we believe the non-GAAP measures that we reported this morning include net income, exclude the effects of foreign currency, so excluding the effect of foreign currency, this impact was $0.05 per share unfavorable during the first quarter.

Looking next at revenue per segment, we experienced triple-digit revenue growth, across the auto/mobile segment, while the unit growth in that segment grew 167%.

Revenue within the Aviation segment grew 26% exceeding our expected growth rate for the full year.

Our Marine and Outdoor/fitness segments were down 15 and 5% respectively during the quarter as expected, however due to the new marine product that Cliff just outlined, we expect our Marine segment to accelerate during the second and third quarters of this year and also expect our Outdoor/fitness segment to show improvement during the second half due to the introduction of several new products.

Overall our revenues grew 53% for the quarter above our 41% full year target.

Sales of products introduced within the last 12 months as we often report, increased to 45% of our first quarter revenue.

Looking next at revenue by our geographic regions during the first quarter, North American revenue was up 59%, while our European business increased 45% during the quarter.

Our Asian sales also grew 21% during the period.

When looking at our North American unit sales those increased 86% on the strength of the PND product sales, however our Europe units also grew over 50% during the first quarter of 2007.

Because of the explosive growth of the PND market, our automotive/mobile segment now represent 64% of our total business, growing from 46% of the business a year ago.

Within the automotive/mobile segment the North American market unit growth was greater than our European unit growth, however both continents experienced over 100% unit growth quarter-over-quarter.

In total Garmin's North American market growth was stronger than in Europe during the quarter as North America grew to two-thirds of our total business.

Looking next at the margins by the various segments, our first quarter Aviation gross margin and operating margin remained relatively stable at 65% and 37% respectively.

Q1 outdoor/fitness gross margin remained at 65% during the period as expected, but due to the lower volume during the period, operating margins declined to 35%.

Our first quarter Marine gross margins decreased to 49% due to channel clearing in preparation for the upcoming marine selling season, and the new products we have just introduced.

The operating margin in this segment was 26% due to lower volume during the quarter.

As I mentioned earlier, Q1 auto/mobile gross margin came in at 43% beating our expectation.

Keep in mind that Garmin recognized a year-end benefit during the fourth quarter of '06 related to volume rebates with our suppliers, which drove up our fourth quarter margins abnormally.

Primary reason for the strength of the gross margin in this segment is the greater mix of units being sold in the U.S.

relative to Europe during the first quarter.

Operating margin of 25% within the auto/mobile segment was anticipated.

With the exception of our auto/mobile segment we continue to expect short-term margins to be relatively stable despite the possibility of some quarter-over-quarter variability, due to product mix and the timing of the various new product introductions.

We continue to expect that our auto/mobile segment will experience declining operating margins due to reduced pricing and continue transition toward mass market levels.

Operating expenses, our R&D increased over 8 million quarter-over-quarter in dollar terms, but was down 90 basis points, 6.8% of sales.

We added 70 to our engineering team during the quarter, and now employ over 1,000 engineers and engineering associates throughout the Company.

Our ad spending also increased by 11 million over the year ago quarter, and on a percentage of sales basis advertising increased to 6% of sales, compared to 5.7% a year ago.

We expect ad spending to grow sequentially during the second quarter, due to the upcoming global TV ad campaign that's ready to kick off here within the next few weeks.

Other SG&A increased 140 basis points, to 7.4% of sales, from 6% a year ago.

However, we continue to expect that our operating expenses in total will represent approximately 17% of sales for the full year 2007.

Looking next at our balance sheet, we ended the quarter with cash and marketable securities balance of 912 million, despite cash that was spent on the closing of three acquisitions during Q1.

Our accounts receivables decreased to 334 million due to strong cash flow from our December sales, and accounted for approximately 62 days of sales at the end of the first quarter.

We have already collected on that balance on over 184 million of receivables during the second quarter through the month of April.

Our inventory dollars were up 12 million from the end of the year, and our days of inventory metric decreased again.

At the end of Q1 we now hold 75 days of inventory down from 79 at the end of the fourth quarter.

The 75 days was made up of the following components of inventory, 81 million in raw materials, which represents 20 days, 43 million in [whip] and assemblies which make up 11 days of inventory, and 176 in million in finished goods, which is 44 days.

We do still have $18 million of reserves on the books.

The small increase in finished goods was planned, and as we began to ramp up inventory towards fulfilling a higher second quarter demand for PND, and the new Marine product.

Retail channel inventory appears to be very lean as sell through of most of our products was strong during the first quarter of '07.

We also generated considerable cash during the period of the our cash flow from operations was 168 million, we spent 12 million on capital expenditures during Q1, and our free cash flow was $156 million.

Cash flow from investing was 31 million use of cash during the period, which is made up of 12 million of CapEx, a couple of million on purchase of intangibles, 52 million on the net redemption of our marketable securities, and about 69 million for the purchases of the three acquisitions Digital Cyclone, EME in France, and Nautamatic, the new marine company.

Cash flow from financing was a $5 million source of cash during the first quarter, which is from the proceeds from the options exercised during the quarter.

Overall all cash balances we have a 4.9% on cash and marketable securities balances during the period.

A few more comments on a few other items.

Our effective tax rate you will notice actually came down to 13.1% lower than earlier expect.

We continue to see increased benefits related to Taiwan tax holidays, which are driven by both higher capital expenditures and higher production volumes coming out of our Taiwan factories.

No shares were repurchased during the period under our outstanding share repurchase plan, however we still have 1.8 million of authorized shares to purchase under the plan.

Just for your information, the stock options that were expensed during first quarter impacted earnings per share by about $0.02 per share.

In conclusion we remain very optimistic about the future success of our business and we are at this point reiterating our earlier annual guidance for 2007.

We expect total revenue to exceed 2.5 billion for the year, a 41% growth rate.

We continue to expect earnings per share to grow at least 15% to $2.70 per share.

Our operating margins should still come in at 27% for the full year, a 430 basis point decline due to the lower auto margins during the year, and a greater mix of revenue from our auto segment.

The only change on the guidance for this period now, we now expect a much higher capital expenditures of 140 million for the full year, which was up from our earlier guidance of 65 million.

The 140 million of CapEx is comprised of 100 million of production equipment, and the purchase of a third Taiwan factory that Min mentioned, 8 million from the final U.K.

headquarters build out, and then 32 million of maintenance CapEx across our business.

Just for your information, we intend to provide a formal update to our fiscal 2007 financial expectations during our next earnings conference call at the conclusion of the second quarter in 2007.

That ends my formal comments for the morning, and we now want to open up our time with any questions that you might have.

Thank you.

(OPERATOR INSTRUCTIONS) Your first question is from Stephanie [Wang] with Merrill Lynch.

Hi everyone.

Hello.

If you could provide for the G1000 is an update to the [Cnon] 100 and 300 and how that's progressing, whether or not that's in the plans so far?

Stephanie so far things are going very well, the first aircraft our understanding is it is in production right now.

And flight testing should commence shortly.

As far as our end goes, we believe everything is on track.

Then I saw that I guess the Eclipse has switched out of the Avadine product, I was wondering if you could provide more color as to why the G1000 wasn't chosen?

Well, I think you would probably have to ask Eclipse directly on that, I don't think we can provide any color on it.

Okay, thank you.

Thank you.

Our next question is from Bill Benton with William Blair.

Actually Bill, but morning guys.

First question is really on the outdoor fitness side.

I don't think, well I know you reiterated in Marine, you didn't say anything on the full year revenue outlook there.

I was wondering if you could offer a little bit of color in terms of the timing of product introductions in that segment versus maybe prior years, what might be happening there?

I think we mentioned the Astro dog tracker, which comes out in the back half of the year, there are some other products that we are being developed right now, from from a timing perspective it's all going to be in the second half for any product that would have any major impact on the outdoor/fitness segment.

They are more back end loaded in prior years in that segment, is that correct?

That is a good classification, yes.

Okay.

Did you reiterate the revenue outlook, are you just going--?

We didn't make any changes to our overall segment.

I would say if there is any one segment that's at risk, it is probably the outdoor/fitness segment for the year.

Clearly PND, or auto/mobile and Aviation are exceeding our expectations so far.

Marine is off to a slow start, but we feel like it will catch up in the second and third quarter.

Outdoor/fitness is back half, but likely at risk on the 20% growth for the year.

Okay.

And then with regard to the gross margin on the auto side, obviously very good.

Now, I know you had, it appeared as though you had a premium in the marketplace relative to your peers, that may be sustained a little bit longer, than maybe some of us expected.

Now you have since I think lowered some of those.

What kind of I guess the question is do you agree with that characterization, it may have helped the gross margin in the quarter, and what kind of premium do you expect to be able to maintain in the marketplace relative to your peers, kind of a fuzzy question?

I am not sure we will be able it to answer a premium, how long that will last.

Clearly in the U.S.

market we saw greater strength there.

As you know we make better margins at this point versus the European market.

That did help sustain gross margin for the period.

I am not going to be able to comment on premium pricing over competition other than to say that pricing is doing down.

We have commented between 25 and 30% on an annual basis within the auto segment.

Final questions, could you offer us any color in terms of what you think your market share was in Europe on PNDs in the quarter?

I know you typically want it to get north of 20%, can you give us any color on that outlook.

I think it's still in the mid to upper teens is the market share in the European market.

We feel like we were able to have at least 50% share in the U.S..

Okay.

Great, thanks guys.

Thanks.

Your next question is from Jeff Evanson with Dougherty and Company.

Good morning, thanks for taking my questions.

Well, I will follow on with some more PND questions.

Could you talk a little bit about what you saw with auto/mobile ASP compression in the quarter, and maybe how that compared between Europe and North America?

I think overall ASPs on the automotive segment came down.

I think it was around 4% for the period.

Clearly we saw more average selling price reduction in the U.S.

than we did in Europe.

But keep in mind that our pricing is higher there, so that's not a surprise.

We also took some price actions during the period, so I think that's how we categorized it in total.

To me it seems you kind of did your auto/mobile with one arm tied behind your back here, because you didn't really have much benefit from the nvi 200 series.

Could you talk about a little bit of how much that product line might have fallen into Q1, and how the GMs of the nvi 200 line compare with the C300 line?

You are absolutely right, the nvi 200 had very, very minimal impact.

We released the product I think in the last week of the quarter, so it virtually had no impact on Q1.

Clearly it is a lower price point.

It's one of the reasons we have said what we said about the PND, is that pricing is becoming more aggressive both in the U.S.

and Europe.

Margins are definitely at the lower end of our overall PND or auto segment on the nvi 200, but I am not going to get into comparing margins on that versus the C330.

My last question is on Aviation.

Cliff, could you talk about how many WAAS upgrades you did in the quarter, and when is it we should expect to see G600 revenue.

We did about 2,000 WAAS upgrades during the quarter.

And we continue to have a strong backlog of WAAS upgrades that remain to be done, although it will remain to be seen how many of those actually materialize.

We are experiencing basically capacity in the field, in terms of being able to install and certify the systems, because of the shop capability that's out there.

As far as the G600, we don't expect any contribution from the G600 during 2007.

Okay.

Great, thank you.

Our next question comes from Rob Sanderson with American Technology.

Hi, good morning, thanks for taking the question.

Just a clarification first Kevin, on the talk of I think you said 25 to 30% ASP declines in auto, is that on a like unit basis, or are you considering the mix shift as you grow your presence in the lower end?

That is on a like-for-like product basis, Rob.

What would you expect in terms of, I guess it remains to be seen just how the demand skews, but at this point what do you expect the impact on mix could be on the overall blended, or how should we think about that?

I think the ASPs on that segment will be closer to between 15 and 20%.

It is very difficult for us to predict that at this point, based on both product mix within the segment, and also geographic mix between the U.S.

and Europe, that is our best estimate at this point.

One final, just on your foreign exchange benefits in the quarter, what, on the EPS guidance for the year of 270, what implications of currencies do you have in your assumptions there?

We exclude FX from our $2.70 EPS, so zero.

So we're looking at stronger currencies, we can build up from 2.70 on the currency impact.

If you're using $0.59 which is the number that we reported excluding FX, then yes.

Got it, thanks a lot.

Thank you.

Your next question is from Noelle Swatland, Lehman Brothers.

Hi guys, just two quick questions.

First just with respect to some of the favorable component pricing we saw notably in Flash this quarter.

Can you talk about some of the benefit, if any, you saw in the first quarter, and how we should think about that in the second quarter and through the year?

I think definitely we saw Flash prices come down, but that wasn't the only component.

As I think we stated earlier we do not believe overall material, raw material component cost reductions are going to keep pace with price, so our best estimate at this point remains about 15% on an annual basis.

But we did experience some benefit in Q1 on Flash.

Do you expect that to accelerate a little bit more in the second quarter, in terms of the full benefit given the lag I guess about a month, a month and a half or so?

I don't think we expect it to accelerate, maybe to benefit, but not accelerate.

Okay.

Then just in terms of figuring out some of the one-time impact in the first quarter, and kind of the pushout in the Marine, can you give us some qualitative things to think about, in terms of modeling the overall business and segments moving into the second quarter?

Without giving an absolute number, I think the historical sequential growth that you have seen between Q1and Q2 seems pretty reasonable to us.

That has been in the, greater than 30% range on sales.

I think that seems reasonable to us, given the new marine product that Cliff outlined, and also continued strength on PND.

So Q2 will definitely ramp up significantly from Q1 on sales.

We are also as I mentioned spending quite a bit of incremental dollars on TV ads for the second quarter, so that is another data point to keep in mind.

I think Marine will also because of the new product will sequentially grow quite a bit.

In total business, which is driven by Marine and PND that will be up say 30% plus.

Then just to clarify, the Aviation business I think you had said would also be pretty decent, so it could be flat to growth there sequentially, and outdoor/fitness maybe flat ahead of the stronger second half?

Yes, I think yes to both of those number is yes, aviation and outdoor/fitness.

Then just a clarification on the SG&A spending in the second quarter, what does that typically look like in terms of the ramp from the first quarter?

Advertising typically ramps up quite a bit.

I think we will be over 7% of sales on advertising due to the TV ad campaign.

R&D continues to grow because we will continue to hire new engineering associates throughout the period.

I think because of the strong sales in Q2 as a percentage of sales R&D will come down, but it continues to go up a couple million, 3 to $4 million probably next quarter, in Q2.

Thanks very much.

Thank you.

Your next question is from Yair Reiner, CIBC.

Hi, most of my questions have been answered, but one last question on the full year guidance.

It looks like you're building capacity because you see more demand building, tax rate is looking better for the year, gross margins were solid in the quarter, I was hoping you could give us some color about your decision not to change guidance for the full year at this stage?

It's pretty much our historical way of dealing with the year.

I think because there is so much change, we really don't have visibility into the back half of the year yet.

We prefer to wait until we get to the first half, and give a more formal update.

We try to trend and say that, you know, 41% was our average expectation.

We exceeded that with 53% for the year.

So in general we are positive on the outlook, but it's difficult to say how much we would change guidance until we get to the end of the second quarter.

Fair enough, thank you very much.

Thank you.

Your next question is from Jim Duffy, Thomas Weisel Partners.

Thank you, good morning.

Hi Jim.

Can you guys provide a little bit of color on Europe?

A little bit of deceleration in that business, can you speak to the channel inventories there, and, you know, was it a situation coming out of Q4 there was some inventory overhang in the channel that maybe caused shipments to decelerate into Q1?

Our channel inventory in Europe is quite clean.

I know that according to recent independent research we have [Nagin Makashi or later,] but we believe that in Q1 we did not discount our older products ahead of new product releases, because we didn't have much inventory.

I see, okay.

Then your inventory seems pretty lean coming into Q2.

Are you comfortable with the level of inventory you have in each of the different component categories, or are there some areas where you wish you had more inventory?

We are either too lean or too much, we can never hit it just right.

Right.

I think there are some components that are in shortages, but we are doing the best we can to manage that.

We are also taking action to try to build up capacity to handle the increased demand.

But in general I think we have been through these periods before, we are being very proactive to try to manage the supply chain, and we will do the best job we can to hit all the targets that we have for PND.

Very good.

Final question, cash balances are building, how does the pipeline for acquisitions look, there are some interesting properties out there, not necessarily mentioning any specifics, but have you been pleased with your research efforts on the corporate development front?

I think it has taken quite a bit of time to pull these companies in, but we are very pleased and continue to evaluate opportunities to acquire business and technology, that would I think support Garmin's overall efforts to grow our business.

So we are still in an evaluation mode on other businesses, we are not saying we are done, so that is kind of where we stand today.

And your competitors have become inquisitive as well, has it become competitive from a valuation standpoint, or any commentary you can provide there would be helpful?

You mean are we bidding on these businesses against our competitors, is that what you are talking about?

Yes.

When you get into those situations, you know, do the prices oftentimes get to the point where they are unattractive?

If you look at the four companies that we have been able to acquire.

I would say no on all of those.

We haven't been in a bid war for any of those.

Okay.

In other situations has that been the case, and you have walked away or -- ?

Not generally, no.

All right.

Thanks very much.

Thank you.

Your next question comes from Peter Friedland, Soleil Group.

Hi, could you give a break down in the PND business geographically, between Europe and the U.S., then also between the major products, nvi versus C series?

I can give it to you in general terms.

I think in general the U.S.

in terms of number of units in PND is larger than in Europe for Q1.

I am not going to be able to give you absolute numbers, but that is the general number.

And then from a breakdown on what I would classify as low, mid, and high price points we have seen even though the margins were, we have seen I think a move to the mid range, and then down into the low end.

Probably around close to 50% is what I would call low end pricing, and 50% on the mid and the upper pricing is where we stand today.

Okay.

And then any update on what you guys are thinking about in mobile?

Not at this time.

Great, thank you.

Thanks Peter.

Your next question is from J.B.

Groh, DA Davidson.

Hi guys.

Hi J.B.

You mentioned some positive impacts from Flash, was there any other bill of materials items that helped you out in the quarter, LCD?

I am guessing your licensing fees drop as the volumes go up?

We have had some favorable pricing on some other key components as well, although not as dramatic as what we saw in the area of Flash last year.

In terms of licensing fees, as the volume builds and the contribution increases for certain of our suppliers, definitely there is more incentives.

And we have already included some of those in our total '07 guidance so far.

Okay.

So there was some impact that in the fourth quarter with that rebate that you received.

Yes.

Okay.

And then in the instances where there is a choice on navigation equipment, on G1000, I think there's only one general aviation OEM where you can go with a competitor, can you characterize what sort of share you are getting in those instances?

There has actually been a few situations where the G1000 was brought in as what they would call an option.

Right.

And in the past case, we definitely saw pretty much 100% take rate for the G1000.

Piper is just now spinning up the G1000 as an option on the Saratoga and the 6X, and it remains to be seen what will be the take rate there.

But as Min mentioned, they have already started delivering airplanes to customers, so we are thrilled with that.

Okay, thank you.

Your next question is from Jeff Rath with Canaccord Adams.

Hi guys.

A different way of asking a similar question, the volume benefits that really showed up in the fourth quarter of last year, how should we think about that from a seasonal aspect this year, with possibly your unit volumes in PND ahead of schedule, is setting up that we could see a similar kind of sort of hit to margins, a positive hit to margins for the fourth quarter again this year?

No, I think we are planning on doing and what we did in Q1 is to do the best job of estimating what those volume discounts would be.

So I think you have to think of it more of a linear benefit throughout the year, as opposed to one big bang at the end of the year.

Okay.

Second question, I guess sort of a different way of looking at demand elasticity, when you are looking at the tradeoff between price discounts and advertising spend, as far as your ability to drive your model in units, how is that tilting as you are going down this path to a mass market, and how do you think about that tradeoff?

Thanks.

I think we generally think about prices, you know, we try to be need to be at or near what the market is bearing, so that is kind of driven by the overall industry of the markets.

Discounts we have are, you know, pretty stable with the major retailers that we have both in the U.S.

and Europe.

So we have discounted programs, and then periodically we add even special deals to try to push demand in a short-term basis.

Then in advertising the way we look at advertising is more growing the Garmin brand.

We know that periodically right now we consider periodically twice a year, with the second and the fourth quarter ad campaign we need to have additional TV focus and TV awareness to try to build the overall Garmin brand.

So that is probably the best way we could look at those three pieces.

Okay, just the last one here, when you are looking at your geographic footprint, that is the footprint that you sell into, as far as your end markets, are there any geographies out there that you view as very prospective, maybe not this quarter or next quarter, but any color you can give us there?

I think the only other color I would say is you could see that the U.S.

and Europe are the largest, but there's still other markets say in Asia that are not developed, and maybe even classify as emerging over the next several years.

Other than that I can't add any other comments.

All right, thanks.

Thanks.

Your next question is from Rich Valera with Needham and Company.

Thank you.

Kevin, I just wanted to review, did you say you expect OpEx as a percent of revenue to be about 17% for the whole year?

That's correct.

So that would trend down over the next few quarters, about 20% in the first quarter?

Yes, it will be below that in the second quarter.

We expect, typically it is driven by how much the sales growth is in the current period.

Second quarter if you look historically we have been closer to 18, sometimes 19%.

But I think because of the higher volumes we are expecting in both Q2 and Q4, I think for the full year 17 still makes sense.

Great.

And then with respect to the auto gross margins, I think in your prepared remarks you said you saw that sort of stable in the near term.

Would you care to say how long the near term is, you know, any sort of sense of where you might exit the year in terms of auto gross margin?

I think, let me reiterate there.

I didn't mean to imply stable other than what we saw in Q1.

I think margins will be coming down in second quarter, both on a move to a lower price point, selling at the lower volume, the nvi 200, the newer product that comes out will impact that definitely, but margins will come down in the second quarter on gross level.

Okay.

Any sort of sense of the next few quarters, with the stuff going on in terms of mix, but sort of getting the component tail wind, do you think you are still say above 40% near term, or is there any--?

We still think that trends continues from Q2, Q3 in the year in Q4 even lower, so it will continue to come down, that is our best estimate at this point.

Okay.

Thanks guys.

Thanks.

Your next question is from Jon Braatz with Kansas City Capital.

Morning Kevin.

Kevin, I am looking at an aviation website, avionics website and it shows that the Garmin 600 looks like it's available.

Is that indeed the case, are we ahead of schedule there?

No, that is not the case.

Okay.

Okay.

It looks like it is, it certainly could be a mistake.

Well, Cliff can you tell me where we stand on that, in terms of when we might be expecting revenue from the G600?

I would not expect revenue until 2008.

2008.

Yes.

Okay.

Is that somewhat behind schedule?

It has fallen a bit behind schedule, yes.

Okay.

Is there any particular reason?

Well, it's all of this aviation business, I like to say it really is rocket science, very complex certification and design work.

We are trying to fit a product into a market that is dominated by aircraft that are anywhere from 15 to 50 years old.

Right.

So accomplishing that in the design is very challenging, but we are making good progress, we are showing working prototypes, we are starting to fly them, and we feel good that by early 2008, we will be able to field the product.

Okay.

And Kevin, you mentioned earlier that there is a new global TV spend program.

Is there a new theme, or is there anything different about this advertising program than maybe some of the other things you have done?

We are looking at in production on that right now, and there will be some new creative ideas that will be brought to the campaign.

When should we expect to see that on our local TVs?

I think the timing is May.

May.

Mid to late May.

Okay, so shortly.

Shortly.

Thank you Kevin.

Thank you.

Your next question is from Ingrid Ebeling, JMP Securities.

Hi, thank you.

Pretty much all my questions have been answered, but I was wondering if you could quantify the backlog of aviation customers compared to the 2,000 you did in the first quarter, did we see a real big spike in Q1, or can we expect to see linearity throughout the year, because I understand they do take quite some time, and there is some shortage of labor to get it done?

I hear that.

I think you can probably expect a more linear fulfillment rate on the WAAS upgrades from this point forward.

As I mentioned and as you reiterated the shop capability out in the field is at capacity really trying to absorb all of these.

But we do still have a very strong list of back orders out there for the upgrade.

So we remain hopeful, optimistic that those will occur in 2007.

Okay, great.

And will the 4000 and 5000 series in the marine segment be available, I heard going into production in May, that would put them out there in June, is that correct?

Yes, we expect production by the end of this month and it should be out in the field some time in June.

Okay, great, thanks look, great quarter.

Thank you.

Your next question is from David Neiderman with Pacific Crest Securities.

Good morning.

If you look at PNDs and the proprietary content that you guys have been adding, when do we see, or do we see introduction of devices that really are head and shoulders above competing products, as far as proprietary content, what could the impact and timing of that be?

Thanks.

I think we already have products that are heads and shoulders above others in terms of proprietary content.

In terms of topping our own, our own content that is out there, I mean obviously doing that is a major effort, but we will continue to add content that's exciting and enticing for people that the market is asking for.

Thanks.

Thank you.

Your next question is from Brandon Dobell, Credit Suisse.

Hi, thanks.

I wonder if we could talk a little bit about the retail environment, U.S.

versus Europe, in particular do they think about their gross margin requirement or gross margin targets differently and as volumes grow does that behavior change, do you think Circuit City, or a Best Buy, or somebody over in the U.K., would change how they think about what they want from you guys in a margin perspective?

And then from an advertising perspective same kind of question, is there more or less requirements in a European relationships for co-op advertising, or do you see that changing as this category starts to hit more of a mass market?

I think on the margin side, you know, we have dealt with many of these big box or national retailers for many years, and our relationships are pretty strong.

I think the way they think of margin hasn't changed a whole lot.

I think what they are looking at right now is let's grow this market, because it's at an inflection point in the U.S.

in particular, we can see significant volume upsides, that is one of the things we experienced in Q1.

It is a partnership where we are trying to both as a supplier and as a retailer go after that market as it is growing quite rapidly.

In Europe I think we do see lower margin expectations in general, but there is still, there is still advertising and co-op and deals that are being made to be able to drive volume, but it is a little bit more mature market in Europe.

As we have said over and over again it's a fragmented market, it's not in the same realm as a Best Buy and Circuit City in general, because every country has their own unique retail environment.

Okay.

The implication there would be lower margin expectations in Europe, with the introductions of some of these lower priced products there, that you don't see the same kind of margin compression, with ASP compression, as you would in the U.S., is that fair?

I think they are already at a lower price point.

No.

I didn't mean to imply that the margins or the pricing isn't still going to be coming down, in fact, it's just the opposite, pricing will continue to come down in Europe as well.

Then as you think about the different price points the retailers in Europe seems to be moving toward a 3-segment strategy, is the U.S.

ready for that low, middle high, the retailers on board that kind of an outlook, or is it still kind of have the best devices on the shelves, and we will see what happens?

I think the low middle and high still is prevalent in the market, and will remain segmentation of that market.

Thanks.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question is from Stephanie Wang with Merrill Lynch.

Hi guys, I just had a follow up question.

Kevin you mentioned that the outdoor forecast was at risk, I was wondering if you could provide more color as to what those risk factors could be?

I think it has to do with the timing of the new products in the second half, and I guess generally, you know, we see strength in the forerunner product on fitness side.

I think edge, which is a cycling product has been a little bit weaker than we earlier thought, that is about all the additional color I can offer at this point.

Okay.

And then in Marine, I know you mentioned that revenues were impacted by the timing of new products, but was there any impact as a result of kind of the slower marine market that is going on right now?

Yes, there has been.

Can you quantify that or provide more color on that?

I don't think we can quantify it at this point.

Okay.

Okay, thank you.

Thank you.

At this time, there are no further questions.

Thank you for joining us today.

We will talk to you again next quarter!

This concludes today's Garmin Limited first quarter earnings conference call.

You may now disconnect.