台灣國際航電 (GRMN) 2007 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Q4 and fiscal year 2007 earnings conference call.

After the speakers' remarks, there will be a Question-and-Answer Session.

(OPERATOR INSTRUCTIONS) Thank you.

Ms.

Polly, you may begin your conference.

Good morning.

This is Polly with Garmin Limited.

We would like to welcome you to Garmin Limited's fourth 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 is being broadcast live on the internet.

Please note that this webcast does include slides which can be viewed during this call.

An archive of the webcast will be available until March 21, 2008.

A telephone recording will be available for two business days following 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 position, 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 30, 2006, filed with the Securities & Exchange Commission.

Attending on behalf of Garmin Limited this morning, are Dr.

Min Kao, Chairman and Chief Executive Officer, Cliff Pemble, President and Chief Operating Officer, Kevin Rauckman, Chief Financial Officer and Treasurer, and Andrew Edkind, General Counsel.

The presenters for this morning's call are Cliff Pemble and Kevin Rauckman.

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

Good morning.

We're pleased to report news that Q4 was the best quarter in our history, ending another record-breaking year of strong financial performance.

During the quarter, total revenue increased 99% to over $1.2 billion.

EPS was up 70% to $1.39 per share or 51%, excluding the effects of foreign currency which exceeded our expectations due to higher revenue generation as well as better than expected margins.

Unit volume for the quarter exceeded 5.5 million units, just under the total number of units shipped for all of 2006, and represented approximately 45% of our total deliveries for 2007.

We expect the strong seasonality trend to continue in 2008 and beyond.

Our Auto/Mobile and Outdoor/Fitness lines were both strong contributors to fourth quarter revenue growth.

For our 2007 full-year results, revenue increased 79% to $3.18 billion.

EPS was up 66% to $3.89 per share or 62% excluding the effects of foreign currency.

We experienced strong revenue growth in all four business segments.

Unit volume for the year grew 127% to over 12.3 million units.

Our worldwide employment grew to over 8400 associates, including the addition of approximately 1,900 manufacturing associates during the quarter to meet the increased demand for our products.

We also added over 100 engineers in our quest to drive future revenue growth through new and innovative product introductions.

According to independent market research, Garmin has maintained a strong number one PND position in North America and a strong and improving number two market position in Europe.

We were pleased to see healthy growth in all of our business segments in 2007.

Automotive/Mobile experienced 115% revenue growth and better than expected margins as PNDs became one of the hottest product categories of the 2007 holiday season.

Aviation experienced 27% revenue growth thanks to positive customer response to our retro-fit product offerings and additional G1000 cockpit wins.

Outdoor/Fitness experienced 19% revenue growth in 2007, and particularly noteworthy was the fact that the Outdoor/Fitness segment grew 43% during Q4 on strong sales during the holiday season.

Marine experienced 22% revenue growth as revolutionary new cartography and all new chartplotters drew customers into the Garmin family.

To keep pace with the increasing demand for our products, we are committed to invest in people, facilities, and equipment to support our future growth.

In Taiwan, our capacity currently stands at approximately 20 million units annually.

We will continue to expand the capacity of our LinKou facility to support increasing PND demand.

We'll continue to expand engineering and office space in Taiwan as we look towards Asia as a new growth opportunity.

In Europe, acquisitions of our distributors in France, Germany, and Spain, and Italy were completed in 2007.

And we completed the acquisition of our distributor in Denmark in early 2008.

In the U.S., expansion of the warehouse distribution facility at our Kansas headquarters is expected to be complete in Q1 of 2008.

We have started planning an expansion of our administrative headquarters, and research and development facilities in Olathe in order to support future growth.

Turning next to product highlights, at this year's CES show we introduced several exciting new products.

In our nuvi family, we announced the nuvi 780, the newest member of the 700 Series which includes an expanded MSN direct content like stock prices, news and local events.

We also added a unique send-to GPS capability that allows the customer to select destinations, using Microsoft's live mapping site and send them wirelessly to their MSN-enabled PND.

We announced the nuvi 800 series, a new high-end product line that features cutting-edge speech recognition capabilities, text to speech, MSN direct, Bluetooth Hands-Free, and FM transmitter, and MP3, an audio book player, travel features and premium points of interest.

We also introduced the nuvi 260W, a value-priced navigator featuring a wide 4.3-inch, sunlight readable screen, text to speech, and full North American map coverage, including premium POIs.

Finally, we introduced the nuvi 5000, the perfect product for customers seeking a larger display and advanced features such as an interface to a backup camera.

The nuvi 5000 includes an easy-to-use touch screen interface, an advanced root planning feature, calculation of the most efficient route between multiple destinations, and dynamic content via MSN Direct.

In our Outdoor/Fitness segment, we introduced two revolutionary products which further define our leadership in this segment.

In the fitness market, we introduced the Forerunner 405 which features an all-new form factor with an innovative touch-sensitive bezel.

The 405 tracks speed, distance, heart rate, and location, and can be used indoors with the addition of our speed and distance foot pod.

The 405 works in conjunction with our Garmin Connect Fitness website which enables setting and monitoring of fitness goals, as well as sharing of location-based fitness information between users.

In the outdoor market, we introduced an all new product named Colorado which includes a brilliant high resolution 3-inch color display and an innovative new thumb-driven UI we call Rock 'n Roller.

This product family includes versions with built-in maps, including topo, inland lakes, and coastal blue charts.

Colorado is the first product to include the Wherigo player from Groundspeak which takes the enjoyment of geo-caching to the next level through a game-like, multi-media based user interface.

In our New York media event on Wednesday, January 30, we announced the nuvi phone, the newest product in our nuvi family which integrates wireless voice and data connectivity.

The nuvi phone is the first device of its kind to integrate the most commonly-used functions of connecting, communicating, and navigating in an elegant mobile form factor.

The premium features offered by the nuvi phone include a personal navigator with on board maps and premium POIs, a premium 3.5 G phone with UMTS, HSDPA and Wi-Fi data connectivity, a premium mobile web browser, a local search portal that seamlessly integrates with navigation functions, personal messaging using e-mail, SMS and instant messaging, a camera with automatic location tagging and picture navigation capability, and multi-media functions including a video recorder, MPEG 4 video player and MP3.

At last week's GSMA show in Barcelona, we had the opportunity to show the nuvi phone to most major carriers across Europe and North America.

We're very pleased with the positive feedback we received from carriers, and will be working in coming days to solidify relationships.

We anticipate providing additional details at a later date.

Turning next to our 2008 business outlook, while we've just finished an exciting year, we're even more excited about 2008.

We do anticipate that 2008 will present increased challenges from competitors as well as declining ASP and margins, but we also believe that we're prepared to take advantage of the growth opportunities in all market segments.

For 2008, we anticipate overall revenue will exceed $4.5 billion and EPS will exceed $4.40 per share.

We look forward to introducing many innovative products again this year which will allow us to take advantage of the growing interest in location-based devices and services.

We will continue to promote product awareness and build equity in the Garmin brand.

We will maintain our focus on new acquisition opportunities, and continue to invest in people, facilities, and equipment to support our growth.

Finally, in the PND market, we will work hard to maintain our leadership position in North America and increase our market share in Europe through expansion of our distribution and direct relationships with major retailers.

This concludes our business update.

Kevin will now walk us through the details of the fourth quarter and full-year results.

Thanks, Cliff.

Good morning, everyone.

I will be presenting the fourth quarter and fiscal 2006 financial results, including business segment details, and we'll conclude with our 2008 outlook and guidance.

As you saw from the press release this morning, we recognized revenue of $1.2 billion net income of $307 million for an earnings per share of $1.39 per share.

This was a 99% top line growth and a 70% EPS growth, and included favorable $0.08 EPS impact due to foreign currency gain of $19.5 million during the quarter.

Our gross margins were 41.8%, and they were better than expected due to stronger PND volume in the U.S.

than in Europe, PND price erosion offset by our material cost reductions, ongoing operating efficiencies, and of course product mix.

We experienced more than a $100-million increase in our operating margins compared to the fourth quarter of '06.

The operating margin of 25.7% was down from 32.6% last year, but much better than expected.

Our gross margins were 810 basis points unfavorable with the year ago quarter, advertising was 30 bits unfavorable with fourth quarter.

Our other SG&A, was favorable by 30 basis points, and our R&D was 120 basis points favorable.

As Cliff mentioned, we shipped over 5.5 million units during the quarter on the strength of our Auto/Mobile Segment.

And the average selling price across the business was $220 per unit and 19% reduction below the third quarter of 2007 which was $271.

Looking next at the full year income statement, our revenue was nearly $3.2 billion at a net income of $855 million for earnings per share of $3..89.

Top line 79% growth and bottom line 66% growth on EPS were better than expected, and included a favorable $0.09 EPS impact due to the foreign currency gain of $23 million during the full year.

Our gross margins for 2007 were 46% across the business, better than expected again due to the stronger PND volume in the U.S.

and rather than in Europe, PND price erosions offset by our material cost reductions, again operating efficiencies and mix.

When comparing our operating margin dollars year-over-year, we experienced more than a $350-million increase on that line.

The operating margins of 28.6% were down from 31.2% in 2006, again much better than expected.

So for the full year, gross margins were unfavorable by 370 basis points.

Advertising as a percentage was sales was flat with 2006.

Our other SG&A, 40 basis points unfavorable, and our R&D was 140 basis points favorable.

For the full year.

we shipped over 12.3 million units across the business on the strength of our Auto/Mobile Segment.

ASPs across the business were $258 per unit which was a 21% drop from the full year of 2006.

The non-GAAP measures that we reported include net income excluding the effects of foreign currency.

As I just mentioned, this impact was $0.08 per share favorable during the fourth quarter and $0.09 per share favorable for fiscal year 2007.

Looking next at revenue by segment, during Q4 we experienced triple-digit revenue growth across the Auto/Mobile Segment while the unit growth in the Auto/Mobile Segment grew 244%.

Revenue within the Aviation Segment continued its strong growth with a 16% growth rate over the fourth quarter of '06.

Our Marine Segment also extended its Q3 growth into the fourth quarter with a 32% revenue increase.

Our Outdoor/Fitness Segment also continued its recovery, as the growth within that segment was 43% during the holiday season.

In total, our revenues grew 99% during the fourth quarter which exceeded our expectations by over $200 million.

For all of 2007, our Auto/Mobile Segment grew 115% while units in that segment grew 210%.

We ended the year with all segments growing revenue above 20%, with the exception of our Outdoor/Fitness Segment which made a strong second half recovery and grew at 19% during the full year 2007.

In total, our revenues grew 79% during the year as we exceeded our expectations set out at the beginning of the year by nearly $700 million.

During the fourth quarter, North American revenue was up 113% while our European business increased 74% during the quarter.

Our Asian sales also grew 79% during the same period.

Looking at our unit sales, North American unit sales during the fourth quarter increased 226% on the strength of PND product sales.

Our Europe unit sales also experienced triple digit growth at 116%, and our Asian units grew at a healthy 60%.

Looking next at the full year by geography, our North American revenue for 2007 was up 89%, while our European business increased 63%, and Asian grew at 66% rate.

During 2007, North American unit sales increased 158% on the strength of PND product sales, and our Europe unit sales also grew nearly 100% at 96%.

As we've seen in the past, because of the explosive PND market, our Auto/Mobile Segment during the fourth quarter now represents 82% of our total business.

Within the Auto/Mobile Segment the North American market unit growth was greater than Europe.

However, both continents experienced 100% unit growth quarter-over-quarter.

Garmin's total North American market growth exceeded the growth in Europe during the quarter as I said, and North America during the fourth quarter now represents 68% of our total business.

Moving next to our margins, the fourth quarter aviation gross margin and operating margin increased to their highest levels in the last couple of years at 69% and 39%, respectively.

The fourth quarter Outdoor/Fitness gross margin and operating margin also increased to 53% and 35%, respectively.

Our fourth quarter Marine gross margin remained flat at 53%.

However, our operating margin within the segment decreased down to 22% due to sequentially lower volume during the quarter.

As I am sure you saw this morning, our fourth quarter Auto/Mobile gross margin came in at 43%, beating our expectations.

The primary reason for the strength of the gross margin in this segment is that price compression was not as severe as earlier expected.

We also experienced the benefit from favorable product mix, as PND units sold in the U.S.

as I said, were greater than in Europe.

Operating margin within the Auto Segment was 24%, again higher than expected.

Due to expected price competition of PND products during 2008, we expect that our Auto/Mobile Segment will experience an ASP decline of approximately 20% which will cause our gross and operating margin compression during the year.

On the operating expense line, R&D increased nearly $7 million quarter-over-quarter, but was down 170 basis points to 3.9% of sales.

We now employ over nearly 1400 engineers and engineering associates worldwide.

Our ad spending increased by $42 million over the year-ago quarter.

On a percentage of sales, advertising was up 30 basis points to 6.8% of sales.

We do expect our ad spending to decrease sequentially during the first quarter of 2008 by nearly $30 million, as we don't plan TV advertising during this quarter with the exception of the Super Bowl ad that you saw a couple of weeks ago.

Our other SG&A decreased 30 basis points to 5.4% of sales from 5.7% a year ago.

We expect our operating expenses will represent approximately 16 to 17% of sales for the full year 2008, but only 12 to 13% during our fourth quarter 2008, as the holiday season becomes a more significant percentage of our year due to growth towards mass market sales.

Looking next at our balance sheet, we ended the year with cash and marketable securities of over $1.1 billion.

Our accounts receivable increased to $953 million, and represents approximately 62 days of sales.

However, we have already collected on over $695 million of receivables during the first quarter of 2008.

Our inventory dollars were basically flat with Q3 '07, and our days of inventory metric decreased.

At the end of 2007, we now hold 77 days of inventory, down from the 99 days we reported at the end of the third quarter of '07.

This can be broken down in the following areas --- $130 million in raw materials, which represents 19 days of inventory, $58 million in work-in-process and assembly, which represents 9 days, $343 million in finished goods which is 49 days of inventory, offset by $26 million in inventory reserves.

The reduction in raw materials and finished goods was planned, as we produced and shipped a record number of units during the fourth quarter.

Finished goods of 49 days is within our typical range of inventory needed to support the various distribution channels that we serve.

We remain committed to proper inventory planning as we enter 2008.

However, we expect that our business will experience even stronger seasonality during the year, and as such, we intend to more effectively level our product production requirements and inventory levels throughout the 2008 year.

We believe that our retail channel inventory continues to be lean as sell-through of most of our products was strong during the 2007 holiday season.

On the cash flow statement, we generated cash flow from operations of $126 million during the quarter, capital expenditures were $28 million.

Therefore, free cash flow during the fourth quarter was $98 million.

Cash flow from investing was a $118-million use of cash during the quarter, which is made up of $28 million of the capital expenditures, $45 million net purchase of marketable securities, and $45 million acquisition of business and intangibles.

Cash flow from financing was a $5-million use-of-cash during the quarter, and we earned an average of 3.7% on all of our cash and market securities' balances during the quarter.

For the year, we generated cash flow from operations of $682 million or free cash flow of $525 million.

You probably saw this morning that our effective tax rate during the quarter was 11.7% and 12.6% for the full year of '07, lower than our earlier expectations.

Incremental revenue and the net income during Q4, and the tax incentives in Taiwan were the primary drivers of the lower rate.

We now expect an effective tax rate of approximately 12% for the full year 2008.

Garmin did purchase 57,000 of our shares back prior to the share repurchase exploration at the end of 2007.

And you also, I am sure saw this morning that we announced a new 5 million share, two-year repurchase plan that will expire at the end of 2009.

The approved share repurchase reflects our continued confidence in Garmin's strong cash generation ability and business prospects.

Given the current Garmin share price, we intend to be active buyers in the market, thereby increasing shareholder value.

We continue to grant stock appreciation rights broadly to our employees during 2007, as we granted nearly 2.9 million SARS last year.

Our annual SAR grants account for 1.3% of total outstanding shares.

Finally, we're providing full-year 2008 revenue and EPS guidance for the first time this morning, as Cliff mentioned earlier.

We expect our total revenue to exceed $4.5 billion, a 42% growth rate.

We expect EPS to grow at least 16% to $4.40 per share.

Operating margin should come in at 23% for the year.

This does represent a 600 basis point reduction.

However, operating margin contribution will increase by over $150 million during 2008.

Our capital expenditures are expected to hit $115 million.

A significant portion of this amount will include manufacturing capacity expansion in Taiwan, due to the purchase of new production lines.

As I just mentioned, our global effective tax rate is expected to be 12%.

All four of our business segments will again experience double-digit revenue growth.

The Auto/Mobile Segment will continue to lead the way, and revenue is expected to grow 45% during 2008.

The Aviation revenue growth is expected to be 30%.

Both our Outdoor Fitness and Marine Segments are expected to grow by 25%.

These 2008 expectations are conservative in nature, but factor in the macroeconomic trends that have existed since the beginning of 2008.

We remain confident in our competitive position and business model, but do not have a crystal ball obviously into the remainder of 2008.

While we continue to operate within a growth cycle that defines the navigation industry, we have considered the global economic environment within these just recently announced 2008 expectations.

Thanks, everyone, for their attention this morning.

At this point, we would like to open it up for questions.

So if you do have a question, please get in the queue, and we will address them one at a time.

(OPERATOR INSTRUCTIONS) We will pause for just a moment to compile the Q & A roster.

Your first question comes from the line of Aaron Husock with Morgan Stanley.

Thanks for taking my questions.

A couple of things quickly just to start.

On the Auto/Mobile gross margin, should we see that kick back up some in Q1 as the mix gets a little bit richer post the holiday season and you've ended life of some low margin products?

I think in general, yes, our expectations are that overall ASPs should come up slightly, because we had some very low price points as we end the life on the C-330 during the holiday season.

So in general, yes.

On a trend basis, Q1 should be slightly above what Q4 was on PND margins, yes.

Could we see that get back above 40%, especially as you take out some NAV cost with that transition tip?

It is likely we could get that high, yes.

Okay.

Great.

Can you address just the European PND market?

There has been a lot of concern about slowing and signs of saturation there.

Can you tell what you're seeing overall?

Yes, I think --- Aaron, this is Cliff.

I think the projections for 2008 ranged anywhere from 35% to probably in the 40%-range, which is kind of our expectation at this moment as well.

That does represent obviously, a slowing of the growth that we've seen in Europe.

The quantity in the market is very large, and we see ourselves as taking an increasing share in Europe as well.

Okay.

Great.

And then just can you elaborate a little bit more on the feedback you got at 3GSM on the nuvi phone?

I am assuming from your comment, you haven't actually signed any carriers yet.

Do you feel like you're actually close?

I mean, could we expect something signed within a month?

Well, we're not really prepared to give timelines of when we'll announce particular signing.

There is a lot of activity going on.

And as we mentioned, the response at the show was quite positive, in fact overwhelmingly so for us.

So we feel like we have a strong product concept, there is a lot of interest from carriers in the industry, and we're just moving forward with our plan.

Great.

Thank you.

Thank you.

Your next question comes from the line of Jonathan Goldberg with Deutsche Bank.

Just first, a housekeeping question.

You mentioned an $0.08 foreign exchange impact.

Is that right, for the quarter?

Yes, I did.

And so that is --- your headline number of 139 is favorably back to $0.08, is that right?

Yes, so when you strip that out, it's 1.31.

Yes.

Okay.

And then, just I want to talk a little about guidance.

You mentioned that you had factored in a global -- some form of global slowdown when you were making your forecast for 2008.

Could you just elaborate on that a little bit more?

How bad do you think things are going to be?

How long in advance do you -- are you receiving orders from retailers now for the middle of the year, end of the year?

How do you --- Could you walk us through how that process works?

Yes.

And I think what we're experiencing is very typical with what we've seen in the past few years.

We do get some orders talking about spring promotional activity already.

It depends on the retailer.

In some cases, we are already talking about plans for next year's holiday season, but we don't have huge backlogs.

We've never been a large backlog business, but we get orders in as we go through the quarter, for the current quarter, and also for the upcoming spring selling season.

So I don't see anything major different on how we deal with the retail channels, but we just don't have great visibility on the back half of the year at this point.

So how did you get to your guidance if you're not clear on end of the year?

What do you think --- when you built your models, what did you factor in for growth at the end of the year?

I think the fourth quarter will continue to be a larger portion of our full year as the PND has now become a mass market.

It approached 40% last year.

I think it was 38%.

I think we probably will be close to 40% in the full year in the holiday season.

But the way we do our forecasts are a combination of overall trends in the four market segments that we serve.

And then also, doing kind of a bottom up country-by-country look at what the business appears to be able to achieve during the year.

Are you seeing any signs of global --- or U.S.

and European recession, right now from what you can actually see?

I think you guys are the experts on global economic recessions.

I am not sure I can make a comment on whether we're going there, but I think we've tried to be conservative with our ---

But, you're not seeing it in your numbers now?

It doesn't feel like a slowdown yet?

No.

I think we still --- some retailers are still growing quite rapidly.

Others are maybe not so much, but in general, we still see growth.

That's what we've outlined today with our guidance.

Thank you very much.

Thank you.

Your next question comes from the line of Jeff Evanson with Dougherty & Company.

Good morning.

Thanks for taking my questions.

Kevin, could you talk a little bit about how long you think this 12% tax rate can last, and what are maybe the policy swing factors that go into determining that?

Taiwanese tax policy?

Yes.

I think we've been pretty open about the holidays that we get.

And those are --- those are only about five-year forward-looking, so at a minimum we'll get that type of rate for the next five years.

Part of it has to do with the incremental growth, too.

So the more that we generate out of and produce out of Taiwan, the better the effective rate can get.

So I would just say for now, the expectation would be 12% for the next foreseeable future, for the next five years.

Great.

Okay.

Can you give us either some sense of how many PND units you shipped into Europe or where you think your market share is in Europe at this point?

We believe we came close to -- we're in the 20 to 25% range on market share in Europe.

We did ship more units into the U.S.

market, as I mentioned.

It grew at a more rapid pace than Europe.

Definitely shipped more than 50% of the PNDs into the U.S.

than we did in Europe, but still strong and growing market share in Europe.

Is your expectation for PND growth in Asia Pacific at that geography, will grow faster than Europe and North America in 2008?

The same or slower?

I think the overall Asian contribution is still relatively small, but we do see, I think we do see a growing demand for the Asia market in the next couple of years.

But it is still a relatively small mix of our total $4.5 billion expectation.

Any sense on whether or not it will grow faster, though?

(inaudible) limitation in most of the Asia countries.

Okay.

Thanks, Min.

Two more quick questions.

Could you tell us a little bit about what your plans are for reducing inventory?

Your days here are down 20% year-over-year.

What kind of target are you looking for?

And then, where are those reductions coming from?

Well, I think one of the messages that we wanted to communicate to you all today was that, we generally are shooting for around 90 days of inventory.

But there may be periods, like in order to level load our production, we don't want to be going up and down on volume throughout 2008, but try to build at a reasonable kind of linear rate.

We may build ahead in some cases.

For example, Q1 would be an example of that, where we probably will end up with a little bit higher inventory, much like we do in Q3 as well, as we approach the higher selling seasons.

But in general, the 90 days of inventory is still a pretty good target.

Okay.

My last question, could you give us some sense of what kind of assumptions we ought to be putting into our models for the nuvi phone in 2008?

I think it is hard when you come out with a new product and a new category like this.

And until we get deals signed, we were --- I would say --- really don't expect major part of our revenue.

We're still assuming the PND growth is where most of the growth comes from.

And keep in mind, nuvi phone is in the back half of the year, too.

So we would not include anything in the first half.

But any kind of sense you could give us on units and margins?

Even though it is small, would be helpful.

I think the margin you should assume, it is near or maybe just slightly below our PND margins, but not materially off there.

I am really not -- we're really not prepared to talk about actual nuvi phone units this morning.

Okay.

All right.

Thanks a lot.

Thank you.

Your next question comes from the line of Noelle Swatland with Lehman Brothers.

Good morning, guys.

Good morning.

Congratulations on the quarter.

My question related to --- actually just a couple questions here.

First on the seasonality in PNDs, you had mentioned very strong sell-through moving into the first quarter.

I think last year units sequentially were down around 25 to 30%.

Is that the kind of range we should be thinking about for this year as well?

PND units last year were -- I guess revenue, I am looking at revenue --- close to 30% in 2007 Q1.

Given just this really strong Q4 we just experienced, I think it is going to be more than going into Q1.

Sequentially, our business came down in total about 20%.

I think it could be much closer to 40% in Q,1 as we look at seasonality this year.

Okay.

And then just on the other businesses, you've given some obviously full-year guidance.

But can you just run us through some of the seasonal trends that we should expect in those businesses in the first half?

Will we see the Marine business kind of fall in line with level that is we've seen last year?

And I know Outdoor/Fitness, you just released a variety of new products, so how do we think about seasonality there?

And I guess just on Aviation, is it kind of steady growth through the year or more back-end loaded?

Thanks.

In general, I think you'll see similar trends in 2008.

For example, on Marine we have -- we start picking up in Marine sales in Q1 and then we have a big Q2.

And we see a drop off back down to Q3, and down further in Q4.

So that trend really won't change much.

Aviation, because of our expectations with some new OEM sales, we have more sales expected in the back half of Aviation.

So there is some data points, I guess a data point on seasonality.

Outdoor fitness will, I think again operate very much like it did last year, where we will see a decline from Q4 to Q1 sequentially.

And then an increase up into Q2, and then kind of increase each quarter throughout the rest of the year.

Then as I mentioned, the PND, the Auto/Mobile, it will operate much like a mass market where the holiday sales will probably approach 40% of the year.

We will see a sequential decline on PNDs, as much as 50% from Q4 last year to Q1 this year.

And then a big increase, probably another 50% sequential increase, going into the second quarter, flattening out in Q3.

And then, a big bump up in Q4.

So, there is a lot of detail.

That's the way we see the year rolling out.

Right.

Thank you very much.

Your next question comes from the line of Scott Sutherland with Wedbush Morgan.

Hi.

This is Cary Rice for Scott.

Just a couple questions.

You've touched on each of these in previous questions.

But in the prepared comments, you mentioned that inventory levels were at the -- you felt were at appropriate levels.

And so, I was curious at what --- do you look at this on a weekly basis?

Can you give us some insight on what you think the weekly inventory level is?

And if you think that -- does that change seasonally a little bit as well?

Are you talking about inventory in the retail channel?

Yes.

Inventory ---

Yes, I think in the certain geographies, we have pretty good information from our major retailers on what inventory they hold, and that hasn't really changed.

We get, in some cases, daily --- we have daily feedback on what our retailers hold.

And again I said, that I felt like the sell-through was very strong in Q4, obviously with the strong revenue.

So we were in pretty good shape on the channel inventory going into the year.

So far this year, sell-through continued to grow, as I mentioned.

Some geographies, not so much, but in the U.S.

continue to be pretty strong --- strong sell-through.

Is there any kind of metric we can look for, like five weeks at the retail channel?

No.

It's really pretty --- pretty divergent based on which retailer we're talking about.

Some of the retailers hold just a few days.

Others hold weeks of inventory.

Okay.

And then, you mentioned that you didn't really see any economic impact or negative impact of the current economic environment in your guidance.

But with the Auto/Mobile being such a big piece of your revenue --- of revenue, if the auto market continues to experience the challenges that they have in '07, do you see that causing any kind of additional negative impact to your guidance?

I don't know that I said we didn't see any impact on the economy.

I think we're trying to be conservative of what we see going on in the overall global trend, so I just want to be a little bit more clear there.

Okay.

Clearly, the growth rates are slower in 2008 than they were in 2007 on the PND.

And I guess finally on your question on the overall automotive industry, I think that --- yes, that could impact the overall Auto/Mobile business for us in 2008.

And then, one final question.

Obviously you're seeing pricing pressure, which is not new.

But can you talk a little bit more about the material costs and how that could offset -- somebody mentioned NAND, but what about the LCD screens and other components that might see some pricing offset?

As I mentioned overall, we believe our total ASPs on the Auto/Mobile Segment will come down about 20%.

And we're budgeting about a 10% material cost reduction across that segment.

So that will clearly have, on a percentage basis, have some compression pressures.

But again, we still expect pretty strong top line growth.

Okay.

Thank you very much.

Your next question comes from the line of Yair Reiner with Oppenheimer & Co.

Thank you.

And also, congrats on the stunningly strong quarter.

A couple of questions.

First, in the U.S., we saw in the fourth quarter some pretty stiff price competition.

How concerned are you about that kind of coming back next year?

And to what extent have you baked that into your gross margin assumptions for 2008?

We're in an environment where prices --- something we look at daily, and it's just part of the environment we operate in.

And thats --- we just factor in expectations on what we want to do with the pricing road map throughout the year.

20% is what we think we're going to see throughout the full year.

I think from a trend, you'll see pricing maybe come up a little bit in Q1 from the very low Q4 holiday season, but then trend down as we go through the rest of the year and the holiday season for '08.

And long-term, what do you think the margins should be for the PND business?

Define long-term.

You mean in 2008?

I would call that medium-term.

Let's say 2009, 2010.

Okay.

We're not really prepared to talk about 2009.

But, I would just say, we've factored in a much lower margin percentage in 2008, to be able to get to a 23% operating margin.

So probably 5 to 600 basis points decline on gross margin across the business.

Kind of depending on the bigger picture, we're seeing various GPS --- applications and mapping applications appearing on a lot of devices.

And I think there's some concern out there that maybe over time, PNDs will become less relevant as a motive with navigation.

In the marketing work that you guys have done, what is your best estimate of how much PNDs can penetrate into the end market and how big do you think this market ultimately is?

I think there is a lot of debate about what the ultimate penetration level can be, and I don't think anybody has a crystal ball.

We heard numbers anywhere from the mid-to high 20s, up to 45 to 50.

And again this is a major question.

And then from there, what is the device replacement cycle as there's new innovations and so forth.

So quite honestly, I don't think anybody has a clear answer to that.

Very good.

Thank you very much.

Thank you.

Your next question comes from the line of Ben Radinsky with Bear Stearns.

Good morning.

The first question is --- you talked about ASP declines of 20% in '08.

What's your assumption for the offset in cost amount declines?

I said about 10% material cost reduction.

Okay.

Multiple times in your prepared remarks, you talked about how you exceeded your expectations in Q4 from margins.

What were your Q4 expectations for margins?

Well, we thought on the PND for example, we could get as low as 35%.

So as you saw, we were at 38%, so that came in about 300 basis points higher there.

What happened?

How were you able to achieve better margins than you expected, especially considering the fact that I think multiple times you said that ASPs declined faster than you thought they would?

I think what I said on a couple of occasions, is that the U.S.

component or the U.S.

market had more unit sales.

And that we still make more margin in the U.S.

than we do in Europe right now.

That favorable product mix helped us offset what our earlier expectations were.

So that implies that the strength in margins was simply a matter of mix in Europe, meaning Europe was much weaker than you expected?

Not the only factor, but it was a significant factor, yes.

And then I know that you don't want to give much commentary about the phone, but let's assume you actually are successful in signing up a carrier --

What you think, yes.

You mentioned margins would be similar to PND margins, if not slightly lower.

Which PND margins are you talking about?

Exiting 2008 margins or current margins?

About 30%.

Low 30s.

Okay.

And is there --- given the fact that you're using manufacturing capabilities outside of your company, would you say that your operating margins are going to be significantly lower than currently exists for the PND business?

Yes.

Yes, depending on what we have to do with branding and advertising, but yes.

So your gross margins might be stable, but your operating margins would be significantly lower?

Lower than the overall operating margin in the business or in the PND segment.

(inaudible) small, but --- volume, we expect the operating expenses may not be as high as the PNDs.

Okay.

Then just one last one from me.

Conceptually, given the fact that Q4, you're expecting it to be such a fantastic quarter in 2008 given historical trends.

Do you expect that the phone will represent a large percentage of Q4 revenue?

Or are you assuming that it will be a very small percentage of Q4 revenue?

As I mentioned earlier, it is back-half loaded.

So for the full year, it is not a significant number.

And even for one individual quarter, it won't be 25 or 30% of our quarter, so it is still a relatively small part of our forecast at this point.

Can assume 5 to 10%.

Okay.

So just as a follow-up to that.

In Q4, you expect that the consumer demand will still exist for the PND and that the nuvi phone will not cannibalize the PND business, even if you have very substantial carrier relationships?

Right.

That's correct.

What we said for at least --- I talked about this for at least twelve months, is that the PND category is still going to be a strong category.

The mobile and handset market will grow.

There will be more users.

And that's one of the reasons that we're --- that we announced the nuvi phone.

We feel like we needed to contribute to that part of the market.

PND does not get cannibalized to the point where it goes away or reduces.

Thanks very much.

Thank you.

Your next question is from the line of J.B.

Gorra with VA Delta.

J.B Groh, D.A.

Davidson.

Hey Kevin, how are you doing?

Good, J.D.

I think you touched on, sort of what's embedded in your guidance, in terms of ASP and material costs.

But it sounds to me like you're not baking in huge amount of revenue from nuvi phone?

Or how should we view that?

I know you don't want to get too granular on what your expectations are.

But it seems to me that could be a wild card to the guidance, at least from a top-line perspective.

Yes I mean, to what Min just said, if you think about 5 to 10% of any quarter, that's as large as it gets this year, is what we think.

Okay.

And then, what sort of C Series inventory do you still have on the balance sheet and the channel, do you think?

I think we pretty much end of lifed it.

There is not much left.

I should say on the C-330.

We still sell C-5 Series, but on the C 30.

Very, very small.

Very, very small, Min.

Yes.

Okay.

Sorry, the deal is gone.

Darn.

We really did kill the product.

And then nuvi phone is going to -- is the goal to have a multiple carrier relationships here?

As many as we can.

Okay.

Thanks for your time.

Congratulations on the year.

Thanks a lot.

Your next question is from the line of Peter Friedland with Soleil.

Hey, guys.

Can you just give us some absolute numbers, in terms of your estimated size for the PND market in 2007, both U.S.

and Europe?

And then, you mentioned some growth expectations for the European market and then so what are your expectations for the U.S.?

Thanks.

We believe that we don't have all the numbers in yet, but we believe that the U.S.

market in PNDs likely exceeded 12 million units.

And we think the European market was close to 16 million units.

Those numbers, at this point we think the 16 in Europe will probably go into the low 20s, like 22, 23, in 2008.

And the U.S.

market will likely go from 12 to probably 20.

You'll see that the divergence, or I guess the relative size difference in U.S.

and Europe will not be very great at the end of 2008.

Great.

Thank you.

Thank you.

Your next question is from the line of Rich Valera with Needham & Company.

Thanks.

All my questions have been answered.

Thanks, Rich.

Your next question is from the line of Jim Duffy with Thomas Weisel.

Yes.

Hi.

I was wondering if you could provide a little detail on some of the moving parts on the bill of material savings?

Where is the low-hanging fruit there?

As Kevin indicated that we have projected around 10% of the cost decrease in the components.

And we issue some costs of the reduction in the spring, and also in NAND.

NAND flash, yes.

Okay.

Thanks a lot.

Thank you.

Your next question is from the line of Brandon Dobell with William Blair.

Thanks.

Kevin, question about historically put it in perspective I guess on the distributors.

How much of an impact was that in the fourth quarter, in terms of revenue for your guys?

Are you happy with how the progress has been, getting those businesses squared away?

And is there any --- any kind of impact in your assumptions on what that might do for you?

I think that the distributor acquisitions we acquired, our Italian, and our Spanish distributors late in the quarter, so they really had very little contribution.

France and Germany which were earlier 2007-acquired companies, I think continue to do very well for us as overall European market.

And in fact, we have seen market share gains in both of those countries since the acquisition.

And then Denmark, it is just --- that just happened a few weeks ago, so it is too early to tell on that.

But I think in general, the strategy of acquiring those major countries, I think we now own about 65% of the overall European market that are now Garmin.

I think that has been a so far been a successful strategy for us.

Any change in the retailers are working with you guys in Europe now that you own more of the distributors as [ inaudible ]

I believe in many cases that we're now --- have a common front to the retailer.

And we've been able to get deals, and work promotional activities in several of the retailers in Europe in those countries, so it has helped us.

I am not prepared to give specifics on which distributor or which retailer.

But in general, it has helped us.

Yes.

And as you think about the split of advertising dollars in the Auto/Mobile Segment between the U.S.

and Europe, what's the strategy there?

How can we think about the different proportion of dollars to --- different geographies?

I think we need to advertise effectively on both continents to be able to continue to push PND as a mass market.

So that's what's in our advertising budget for the year is continued print and TV and branding, both in U.S.

and country by country in Europe.

And the final question on that is, it fair to assume that the relative size of the advertising budget kind of maps the revenue in those geographies for Auto/Mobile or a little bit build the brand --

I think it is fair to assume that that's the way to evaluated it.

Thanks.

Your final question comes from the line of David Niederman with Pacific Crest Securities.

Good morning.

Just hoping you could comment on your expectations for OpEx for Q1?

Should we see a similar sequential trend that we saw in '07?

Yes.

I think what we typically see is sales sequentially down, and we have more of a fixed cost.

So even though I commented on 16 to 17% for the year, it is going to be very low in Q4, but it will be --- operating expenses will be higher as a percentage of sales in Q1.

Great.

Thanks.

Thank you.

All right, everyone.

Thanks for your continued interest in our company.

We aim to continue to expand our brand throughout 2008.

We look toward to talking to you again at the next conference call.

Thanks very much.

This concludes today's conference call.

You may now disconnect your lines.