台灣國際航電 (GRMN) 2008 Q1 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Q1, 2008 earnings call for Garmin Limited, conference call.

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

After the speakers' remarks, there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS).

Thank you.

Ms.

Kerri Thurston, you may begin your conference.

Thank you.

Good morning.

We would like to welcome you to Garmin Limited's first quarter 2008 earnings call.

Please note that a copy of the press release concerning this earnings call is available at Garmin 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 can be viewed during this call.

An archive of the webcast will be available until May 30th, 2008.

A telephone recording will be available 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 introduction, future demand for product, products 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 29th, 2007 filed with the Securities and Exchange Commission.

Attending the call this morning on behalf of Garmin Limited 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 Etkind, General Counsel.

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

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

Good morning and welcome to our Q1 call.

As you've read from our press release this morning, Garmin has achieved another record quarter of revenue and earnings.

Financial highlights from Q1 include revenue growth of 35% to $664 million, with strong double digit growth across all business segments.

Strong gross margin of 48.2% which was essentially flat year-over-year but increased sequentially by over 600 basis points from Q4.

We also achieved strong operating margins of 26%, which was better than expected.

As a result our operating income grew 25% to $173 million for the quarter and earnings grew 17% to $0.69 per share, excluding the effects of foreign currency.

Some notable business highlights for the quarter.

We maintained our strong market position in the U.S.

and increased market share in Europe, which further solidifies our worldwide leadership in the PND market .

We announced the nuvifone early in the quarter, which has generated significant interest from both carriers and retailers around the world.

We delivered innovative new devices to the market like our Edge Series which features a color display and detailed street level map with automatic routing tailored to cyclists .

We also delivered the new Colorado series which offers innovative new features for the outdoor market, such as 3D topographic map presentations and wireless transfer between devices.

And we completed the acquisition of our Danish distributor, the fifth distributor acquired to date, and consistent with our strategy to improve European market share and presence.

We are pleased to report healthy double digit revenue growth in every business segment.

In the automotive and mobile segment, revenues grew 43% as unit volume more than doubled resulting in improved European market share and continuation of the global market leadership we established in 2007.

Aviation revenues grew 19% with strong growth in both our retrofit and G1000 product lines.

Revenues from the outdoor fitness segment grew 16%, driven by recent product introductions.

And finally marine revenues grew an impressive 30%, on the continued strength of our network chart plotted series and industry leading vision cartography system.

Many of you are are wondering how we view the current market and economic trends which have been emerging in event months.

The slowing of the PND market growth has been well established with the U.S.

market doubling in size year-over-year and Europe growing at approximately 40% year-over-year.

These growth rates are down from approximately 300% and 100%, respectively, from the prior year.

While this leveling of growth is expected, we also see that customers are becoming increasingly sensitive to price and we believe that economic factors are at least partly responsible for this.

However, the PND market is one of the fastest growing category of consumer electronics and we continue to see strong opportunities in this segment.

Garmin continues to experience strong market share in North America.

According to MBT our monthly share ranges from 40 to 50%.

We have also increased our market share in Europe.

While the overall European market grew at 40%, our unit volume more than doubled, which resulted in improved market share.

Year-over-year we experienced a 35% decline in ASP, as the overall pricing in the market come down and other PND providers have aggressively reduced prices ahead of plan to clear excess inventories and exit the market.

While some are predicting that prices will stabilize as inventories are cleared and as the market further consolidates, we are anticipating further ASP declines of approximately 25% during 2008.

The good news is that we have also achieved significant cost reductions, which will help support margins in this product category.

Finally, despite the strong growth in the marine market during Q1, we are seeing signs of weakness during Q2 as general economic conditions higher fuel prices and prolong winter conditions has had an impact on consumers.

As I mentioned earlier, we recently completed the acquisition of our Danish distributor which is the fifth distributor acquisition we completed to date.

These five distributors cover approximately 75% of the European market and are helping to increase market share and serve customers better than we were able to do in the past.

Additionally we expect to complete the acquisitions of our distributors in Finland and Belgium during Q2.

Our improved results in Europe is validating our strategy and we would evaluate opportunities to further consolidate our distribution on a selected basis in order to achieve our goals.

In addition to these acquisitions, we are also setting up local offices in emerging markets which have strong growth potential.

On July first we will open an office in Australia which would allow us to serve the market.

In addition we are establishing offices in India and China, in order to provide better support to our in country distributors to seize opportunities in these growing markets.

Many of you are wondering about hour progress on the nuvifone.

I'm pleased to report that we make good progress in the development and we have been privately demonstrating the device to key carriers and retailers along the way.

The response to nuvifone continues to be very strong and we remain committed to launch the device in Q4.

As I mentioned earlier, the feedback from our marine shark plotters continues to be very positive.

In this picture you can see a representative installation of a new boat which includes dual touch screen chart plotters, marine instruments, autopilot, sonar and radar.

Customers have expressed appreciation such for our touch screen displays and innovative features, such as automatic routing, fuel management and our vision cartography.

During Q1 we delivered a full line of marine instrument, which compliment our chart plotters and expanded our ability to serve customers in the marine market.

In the Outdoor/Fitness market we delivered our new edge 605, 705 cycle computers which display a color display and detailed street level mapping with automatic routing capabilities tailored to cyclists.

The initial feedback from users has been very positive and we look forward to expanding our presence in the marine market.

In addition, we recently started delivery of our Forerunner 405, 505 GPS enabled fitness watch at the Boston marathon.

We've accumulated a strong following of enthused customers who appreciate the power of our GPS enabled fitness device and we are pleased with the initial feedback we have received from the market.

We also started deliveries of the new Colorado series of outdoor handheld devices.

Colorado provides industry leading features such as the three inch color TFT with 3D mapping display, preloaded maps, wireless connectivity for sharing data with friends and an innovative new UI, based on our Rock 'n Roller keypad.

In the automotive market we announced new products which combine digital television with PND functionality.

The nuvi 900 DVB-H is being developed in cooperation with the Italian carrier H3G, which will reach retail shops later this summer.

We also announced a version of this product which is compatible with the Japanese 1seg television system.

The 1seg version will also reach retail shops later this summer.

In addition we announce new version of our entry level nuvi series which provide additional features not found in our existing nuvi 200 series.

We have incorporated HotFix technology which makes the nuvi 2X5 ready for navigation much faster than before.

We also added traffic compatibility, improved mapping display, MSN direct contact and Google panoramial photo sharing, which offers customers a unique way to identify and find interesting destinations.

In addition our entire nuvi product line is now compatible with Google and Mapquest local search, making trip planning simply and convenient using the power of the Internet.

While the economy and market conditions have increased uncertainty, we see many opportunities which we are prepared to grasp.

We feel we are well positioned to continue growth in Europe with our base of newly acquired distributors.

We will continue to invest in R&D and product innovation, which will drive growth into the future.

And finally we will continue to invest in advertising to build awareness of our brand and products.

This concludes the business update.

Kevin will now walk us through details of our first quarter

Thank you Cliff Good morning.

I would like to jump into the results that we announced this morning on the press release starting with the first quarter income statement.

First of all the revenues that we announced this morning came at $664 million net income of $148 million and our earnings per share was $0.67 per share.

That represent as 35% top-line growth, 5% earnings per share growth.

However we did announce that we have $0.02 earnings per share unfavorable impact, due to the foreign currency loss of $4 million during the period.

Excluding foreign currently, our EPS grew at 17%.

So 35% top line, 17% bottom line and I think the surprise of the quarter for us was the gross margin of 48.2% better than expected, primarily due to better material cost reductions than we anticipated.

We also experienced operating efficiencies and some favorable product mix during the period.

Overall, we grew our operating margin line $35 million increase over Q1 in '07 and our operating margins as Cliff mentioned came at 26%, down from 28.1% last year but again better than we anticipated.

The 26% gross margin was primarily came from the following sources.

Gross margin was 20 basis points unfavorable year-over-year.

Advertising was actually 30 dips favorable Q1.

The SG&A line was 160 basis points unfavorable and R&D, 70 basis points unfavorable.

I'm sure many of you notice also that our units grew at 80%, on a quarter-over-quarter basis as nearly 2.8 million units were delivered during the quarter on a strength of our auto/mobile segment.

It came in at $238 per unit, which was an increase from the fourth quarter of '07 by about 8%.

However, went down about 25% comparing to Q1 of '07.

As I mentioned with the foreign currency, we do have non-GAAP measure that we reported net income excluding the effect of foreign currency this impact was $0.02 per share unfavorable during the period.

Looking next at our segment revenue.

During the quarter, we experienced a 43% revenue growth within the auto/mobile segment, while the unit growth in that segment was 119%.

We experienced a great start for 2008 with the Marine Segment, as revenues grew 30% compared to Q1 of '07.

Our Aviation Segment achieve growth in both OEM and retrofit channels with a 19% revenue increase during the quarter and our Outdoor/Fitness Segment also experienced double digit revenue growth of 16% compared to Q1 of '07 with the fitness category leading the way in the gross category.

In total, our revenues grew 35% during the first quarter, which represents growth in our global PND market share.

Looking next at our geographic regions, during Q1 North America revenue was up 27%, while European business increased 43% during the period.

Our Asia-Pacific region sales also grew 100% during Q1, due to strong year-over-year sales in Taiwan, Australia and with our auto business relationship with Kenwood.

Revenue growth in the EMEA region, exceeded that of North America primarily due to the strength of the Euro relative to the U.S.

dollar.

Interestingly we experienced triple digit unit growth from our PND product in all regions; North America, Europe and Asia-Pacific.

As the Auto/Mobile segment remains the highest growth business at Garmin, the Auto/Mobile now represents 68% of our total business during Q1 which is up about four points from 2007.

Because of the stronger growth in Europe during the period, that geographic region now represents 32% of our business.

North America accounted for 62% of our total revenue.

When we evaluated the segmentation of the PND, the low-end unit sales of PND's now accounts for approximately 80% of our unit total.

The low end revenues of our PND accounts is approximately 70% total.

That is up from our Q4 levels and significantly up from our Q1 '07 levels, where we roughly sold about 50% at the low end.

Looking next at our margin by segment.

During Q1 our aviation and Outdoor/Fitness gross margins remain stable at 64% and 53% respectively.

Operating margin declined in our aviation segment to 33% because of R&D expense and the growing business jet market.

The Outdoor/Fitness operating margin declined to 27% from 35% in Q1 of '07, because of discount son some of our older product that need to make way for our newer fitness and outdoor devices, that is Cliff mentioned in his part of the presentation.

Q1 Auto/Mobile gross margin and operating margin were essentially flat with Q1 of '07, at 43% and 24%, respectively.

Gross margin was better than expected and higher than the fourth quarter, due to favorable product mix, material cost reductions and a stronger Euro relative to the U.S.

dollar.

First quarter marine gross margin improved to 58% compared to 49% during Q1 of '07, thanks to the heavy interest in our innovative product mix.

Operating margin within this segment also improved at 32% compared to 26% during the year ago quarter.

We expect our PND price declines of approximately 25% during 2008, to be offset by projected raw material cost reductions of approximately 20% for the full year.

As a result, we expect our PND margins to decline from the 43% in Q1 to the low to mid 30% range in late 2008.

Looking next at our operating expenses.

R&D increased $16 million quarter-over-quarter in absolute dollar terms and was up 170 basis points to 7.5% of sale.

We now employ over 1500 engineers and engineering associates worldwide.

Our ad spending increased by $9 million over a year ago quarter, but on a percentage of sale basis, advertising was down 30 bits to 5.7% of sales.

We do expect that our ad spending will increase sequentially, as we are in the middle of the second quarter by nearly $25 million due to the upcoming spring TV ad campaign.

Other SG&A increased 160 basis point to 9% of sales from 7.4% a year ago.

We expect that our SG&A expenses will decline, as a percent of sale during the remainder of 2008.

Over the last two years we've doubled staffing within our overhead function and feel that we are in a strong position to manage the business in the future.

On the balance sheet , we ended the quarter with cash and marketable securities of nearly $1.2 billion.

Our accounts receivable decline significantly during Q1 to $516 million and now accounts for approximately 56 days of sale.

Our inventory balances increased to 676 million in preparation for the spring selling season during Q2.

Our days of metric increased from 77 days at the end of the year 2007, to 98 days at the end of Q1, primarily in our finished goods inventory.

As we have historically given, I am prepared to give the break down of our inventory.

We ended the quarter with 194 million in raw materials, which is about 27 days of inventory, 49 million in WIP, about 7 days, 462 million in finished goods, about 64 days, and we still have reserves of about $29 million booked on the balance sheet.

Product availability is a top priority and has contributed to our success.

However given the shorter product life cycle of PND products, we are working to manage our inventory carefully.

It is our goal to have adequate inventory to support customer needs but we intend to carry the right level and mix of inventory minimize the risk of obsolescence.

When evaluating the retail channel inventory at the end of Q1, the channel inventory continues to be lean as sales of most of our products was quite strong during the first quarter.

Looking at cash flow, the cash flow from operations during Q1 came in at $192 million.

We had CapEx of $27 million during the period.

So therefore our free cash flow during Q1 was $166 million.

Cash flow from investing was at $216 million use of cash during the period, which is made up of $27 million use on CapEx, a net purchase of marketable securities about $163 million, and then acquisitions of businesses and intangible of about $26 million.

Cash flow from financing was $87 million use of cash during Q1, primarily due to the $90 million cash use for stock buy back that was initiated during Q1.

On average we are about 3.0% on all cash and marketable security balances during the first quarter.

One change that you may I'm sure you saw this morning was the change to our annual and first quarter tax rate.

Our effective tax rate during Q1actually came in at 19% higher than we'd anticipated.

The increase in this effective tax rate from 12.6% that we booked in 2007 to 19%, was primarily due to a change in Taiwan tax law related to the repatriation of earnings from our Taiwan subsidiary.

Therefore we now expect the 19% rate to continue for the remainder of fiscal 2008.

As I've just mentioned, Garmin repurchased shares through stock buy back plan and that amount came in just over 1.4 million share, using $90 million of cash during the quarter.

The remaining 3.35 million shares available for repurchase.

Garmin intends to be an active buyer of those shares as business and market conditions warrant.

Diluted shares outstanding declined 219 million due to shares repurchased during the period.

And finally I'd like to spend a minute on expected guidance for 2008.

We believe that the introduction of the new products will continue to drive business growth through the remainder of 2008, similar to what occurred in the first quarter.

However, we recognize that economic conditions will remain a factor on our future growth.

While still objective to reach our earlier guidance of $4.5 billion in full year revenues and $4.40 in EPS, these goals include some risk.

Without clear visibility of the economic outlook, we don't feel it is appropriate to be more specific at this time.

As in prior years we'll wait until the end of the second quarter to provide an update to our full year financial expectations.

That concludes our formal remarks.

At this point, we would like to open up the conference call for any questions that you might

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Rich Val

Good morning.

With respect to the nuvifone Cliff, is there any more color you can put on your discussions with carriers and it sounds like you earlier talked about a Q3 launch.

Now you are talking about a Q4 launch.

Can you us any color on what is behind that seeming quarter delay in the launch?

When we talk about the launch, Rich, we did indicate it will be later in the third quarter.

So talking about fourth quarter, we really are talking about something earlier so that it can get on retail shelf.

So we don't view that as being a material slip per se.

As far as the discussion with carriers we are not able to discuss specifics at this time.

I think people have commented that we are not showing very much of the working device at trade shows, which we understand and actually is intentional.

We're are doing a lot more demonstrations with carriers in private to try to keep the device a little more under wraps.

Great.

And Kevin I wanted to revisit your discussion of ASP declines and material declines.

Just to clarify your prior guidance was ASP of 20% and now you are looking at 25% and I thought before you were looking for 10% material declines and now you are looking at 20%?

That's correct.

I think we not only saw ASP decline in Q1 a little bit higher than we projected for the full year which is not a surprise to us.

I think the surprise is how significant the cost reductions were and that's what really helped prop up our margins in Q1.

Just to reiterate, yes, we are expecting not just a 10% material cost reduction, but closer to 20% for the year, with overall ASP decline on PND market to be 25% for the full year.

That should actually help your PND margin trajectory, I would think, since the increase in material decline is greater than the ASP decline.

Is that fair?

As we go through the year, we hopeful that that occurs but we have to wait to see how the year develops.

We are encourage by the fact that cost reductions were more favorable than we'd earlier anticipated.

I don't know if there are any more color you can give.

I think this is in someone's prepared remarks about seeing signs of weakness in 2Q.

Any more color you can give on that, where it is geographically, what product areas you are seeing that weakness in?

I think we are right in the middle of the second quarter in terms of spring selling season.

We are selling some of the major retailers upcoming here in the next few weeks.

I think we are still expecting growth across the business in all four of our segments.

Clearly we saw over 40% growth on revenue and like we said triple digit growth in Q1.

So we are hopeful that the unit growth will continue as we experienced in Q1 but we didn't really comment on anything specific to Q2.

Okay.

Thanks very much.

Your next question comes from the line of Ron Epelstein.

Good afternoon guys.

Yes, Kevin, can you talk about the inventory just a little bit more.

The build up year-over-year just seemed like a lot.

I think what we commented on our last earnings call is we had planned on coming out of Q1 and probably Q3 with higher inventory level to support the growth in the business.

So if you look at 98 days of inventory, which is what I commented on, that is pretty consistent with what we've had as our goal internally has been to have around 90 days of inventory so I think we are pretty close to that.

We don't view it as a major concern.

I did comment on supply chain in general, that we are watching because the product life cycle to be very careful of how we manage that supply change.

So I think in general inventory is about where we would expect it to be.

With the spring selling season come up, we hope the sell through would be strong and move forward with our business.

Now, okay changing gears here a little bit.

Why aren't you more active buying back the stock?

The stock's been hammered, I would think this would be a good opportunity for you guys to do more buy backs.

Well, we did.

We were pretty active right after we announced the stock buy back in late February, and since then we saw price continue to decline.

We were waiting for it to bottom out and then we get into a period where there's a blackout, that we are not allowed to buy from mid March on.

So I think we'll be more aggressive right now, as we come out of the blackout period in a couple of days and be buying back likely buy the rest of those shares.

Cliff, a question for you.

In the Aviation Segment, how active are you guys right now on new platforms?

Well, we have a lot of activity going on.

Our teams are fully consumed with some of the Turbine aircraft that we talked about before like Embraer, as well as other programs that haven't been announced yet.

Now, how is it going?

I mean the Phenom 300 just flew, I think yesterday or the day before.

I mean how is that going?

Going very well.

Embraer they were able to accomplish their flight ahead of schedule, and the avionics performed well during the flight, as expected, and we felt very positive about the results.

Have you guys seen any impact of the sky high aviation fuel prices right now, have you seen any impact in your aviation market say, let's say for the hand held or the retrofit stuff?

I think that is where the market gets more impacted by the fuel prices than the turbine segment.

I think it's a little early to tell but it does appear that the hand held segment is showing some weakness.

That tends to be somewhat cyclical as well as we introduce new products.

So again the data, the variables that are at play in the data aren't clear to us yet.

As far as OEM and retrofit, both of those continue to be very strong in Q1.

Thank you.

Your next question comes from the line of Amir [Roslavosky]

Hello?

Good morning, folks.

Thank you very much for taking the question.

I was wondering if you can provide more color on the ASP trajectory and PND.

It seems you have a decline of 35% year-over-year in the first quarter and guiding towards the 25% for the year.

I was wondering what type of new product roll outs or how we should think about that progression through the course of the year.

I think you should, not necessarily tie to new product, but more just the general market slice.

I would expect that ASP, as we enter the spring season, we are into some promotional activity -- promotional programs, the thing that helped us in Q1 is we didn't have a lot of product transition.

We weren't moving from one product to the next.

We were selling consistent product with what we sold in 2007, with the exception of the C330 which has been at the low end.

But ASP going forward I think, we would see a decline in Q2 and another decline in Q3 but Q4 is where most of the pricing will occur for the rest of the year.

On average we still feel 25% is the right number right now.

Great Thanks.

It seems as though from the cost perspective you folks are benefiting from declines in cost ahead of your expectations.

How should we consider the improved sort of capacity it from your own production side though, with respect to potential challenges to manage that cost?

I think as we've done always in the past as demand picks up we ramp-up our production capacity and production requirements out of Taiwan.

And we do that primarily through increased surface maps, purchases of surface map technology and then hiring labor, but we did some some efficiencies in Q1 and we would like to be able to believe we will get some additional manufacturing efficiencies as we go through 2008.

But I think we've proven over many, many years that we are very good at scaling up as demand picks up and we'll like to take advantage of that in 2008.

Great.

Thank you very much again.

Your next question comes from the line of Aaron Husock.

Thank you for taking my questions.

I guess maybe just to start Kevin, I'm a little baffled as to how you mix in PND's got worse sequentially in Q1.

I mean, you end the life of C330.

We moved out of the holiday gift giving season and you've been thinking originally that we would see significant improvement in the mix away from low end.

What changed there?

Let me make sure we are clear.

I didn't say product mix got worse.

Other than the fact unless you are referring to the 80% unit on low end

That's exactly.

Okay.

We exited the year in Q4 around 70% at low end.

But I mean, I think we are primarily left with the nuvi platform and the C330 that we sold at the end of last year, was much lower margin product.

So I think we have benefited from the fact that we didn't sell C330 in Q1.

Sure, sure I understand that, but when we talked last quarter you thought there was a chance we would see a move all the way back to 50% low end unit in Q1 and it ended up at 80%.

Kind of where was that -- what do you think drove that variance?

It's probably also the definition of the high end versus the low end.

At this time, we cost-wise, 300-700 are the only high end product.

I think as we exited 2007 we still had a mid range product like the nuvi three series that is essentially now being sold at lower price points.

So part of it is how we classify low end and high end commence points, we're basically left with a low and a high not low, mid and high.

Okay, okay that makes sense.

Last quarter you talked about seeing a recovery in PND unit volumes in Q2 on the order of 50% sequentially.

Is that still something you are expecting, or is it now more maybe in the 30% sequential range?

We don't want to talk to talk about sequential, we would rather talk about year-over-year.

And I think we still expect the Auto/mobile business to continue to show solid growth year-over-year.

I'll just say directionally, we are expecting because the selling season that Q2 should be larger than Q1 but I am not going to quantify that.

Maybe one more from me.

Can you help me understand the gross margin benefit that you got in Q1 from such a large inventory build.

Kind of helping the prop up utilization despite the slow season?

We really don't-- first of all we can't quantify, but I don't believe it's a material number.

The larger benefit was from the cost reductions and we did benefit from the strength of the Euro dollar as I mentioned.

Okay great, thank you.

Thanks.

Your next question comes from the line of Yair Reiner.

Congrats on the relatively strong results given how challenging the environment was.

Thank you.

On one more question on the gross margin.

I hate to belabor this, but can you be more specific of where the cost reductions came from?

Well, I think most of you all know what our billable material came they came from the area that you would expect like flash memory and LCD primarily.

Those are the two largest areas of benefit.

And did you move during the quarter to an MLC or did that already happen in the fourth quarter?

That started happening in the fourth quarter but we continued to move towards that in our product line.

Okay and now based on the inventory that you have on this quarter, you have a lot of inventory that will sell in the second quarter already in your warehouses.

Based on what you have there, sequentially how much do you think your cost on the same products will go down quarter on quarter?

Are you asking what the overall cost reduction like we experienced a 25% cost reduction in Q1 and what that number will be in Q2?

Is that what you are asking?

Yes, I guess what I'm asking if you look at the product you sold let's say the nuvi 200 in the first quarter, you already have that in inventory for the second quarter.

How much is that nuvi 200 going to cost you in Q2 versus Q1?

I would just say in general the trend I'm not going to give a specific number, but the trend will be in the range of what we've commented on, down about somewhere in the neighborhood of 20%.

One last question and I'll get back into queue.

It looks like at this stage you have a bit of a cost advantage relative to your largest competitors and your largest competitors looks like it's going to have a lot of new financial responsibilities come May.

Are you going to use your cost advantage to try to take away more share and do you see yourself becoming more of a price leader in the second half of the year?

I think our assumptions on the ASP decline of 25% for the year have take into account what we think we need to do to be to continue be the market leader and take share in Europe as we've already communicated.

Thank you.

Uh-huh.

Your next question comes from the line of Jeff Evanson.

Good morning.

Thanks for taking my questions.

Cliff you laid out a lot of impressive development in the PND category on the high end TV voice recognition that type of thing, but I'm curious given the your comments about the market moving lower costs, what is your strategy on the low end side of PNDs?

I think continue cost reduction is an area of focus, Jeff, and feature differentiation as well to drive that segment.

We do think as we roll out some of these new products now in Q2, like the nuvi 860 with speech recognition, as well as some of the things we talked about, that will help attract people back into the higher end segment.

So you are expecting a higher a shift toward the higher end in your financial model?

A shift to the higher end is stronger than what I would word it.

I will tend to support additional sales in the higher end which will support our overall ASP.

Alright kind of buffer it.

Impressive results in the marine category.

Do you have any thoughts about market share there that you can discuss with us?

I think marine market is pretty hard to quantify because it's a small market to begin with and there's not a lot of market research that goes on there.

We believe that we are doing a good job taking share in the mid to upper plotter range from competitors, and it seems like the low end of the market, as we mentioned earlier, we are starting to see some weakness in the marine and the low end has been particularly challenging.

Okay.

Thank you.

Your next question comes from the line of Peter Friedland.

Peter?

Hello?

Hey guys, can you hear me?

There we go.

Yes, go ahead.

Sorry about that.

Can you give some color on the OpEx lines for both SG&A and R&D what you expect those lines to grow at for full year '08?

Well to our earlier guidance numbers that we gave at the last conference call we haven't seen a significant change there.

I still think between the total OpEx number should be around a 16% to 17% for the full year of sales.

Okay.

And that should include some operating leverage primarily in advertising and SG&A, as a percentage of sale over what we spent last year.

How much flexibility do you think you have on the SG&A line, depending on how your sales are trending, still things are trending a bit weaker, how much flexibility do you have to take costs out?

I'd say we have a fair amount of flexibility If you look at our nonadvertising expenses, actually we came down from the fourth quarter to the first quarter.

That shows that some flexibility on our expense line.

Advertising as you know is seasonal, so we advertise quite a bit in Q2 and Q4.

And we're about to hit the Q2 season on advertising.

But we can bring that -- we can scale that depending on the season.

R&D, I think will continue to be committed to innovative new products, so we need to spend roughly about a 35% growth rate per year.

Okay.

Great.

Thank you.

Thank you.

Your next question comes from the line of Jim Duffy.

Hello everyone.

Hi Jim.

Some point of clarification to help me understand this.

How do you define low end versus high end.

Is it a price point break or is it within each of the different product line themselves?

Yes, it is how we define the $300 is probably where we separate high end and low end.

Okay.

$300 retail price.

With regard to high end versus low end, is there a difference in mix that you are seeing by geography?

Is the shift towards lower end concentrated or uniformed across both markets?

I'd say the only difference would be in general the EMEA or the European market has slightly lower prices but as far as the mix there is not a significant difference there.

Europe has about a 10% to 15% difference in price lower.

And then within your inventory balances on the finished goods side, how are you positioned in high end products versus low end?

I think it's pretty consistent with our sales rate.

We are at about 80/20.

So from a forecasting point you don't feel you missed the mark there?

No.

And then Kevin a question on the effective tax rate.

What were the factors behind the rate change?

Has there been a change in your business that affected the tax holiday's?

Well this isn't a tax holiday, it's more of a tax rule that came by Taiwan at the end of the quarter that essentially we weren't able to achieve some of the tax benefits that we had earlier achieved as we repatriated earnings from our Taiwan subsidiary up to the parent company.

So we had to account for that in our numbers for Q1 going forward.

That will likely occur in the future too.

When you say likely occur in the future, that is where I'm going with this.

What kind of visibility do you have in to these tax law changes?

On a tax law like this, we didn't have much visibility at all.

We did have a fair amount of understanding of what the tax rate should be given this new change.

In general, I think over the next several years as we continue to enjoy the tax holiday's in Taiwan, the rate should move somewhere between 15% to 20%.

That's the rough range we'll experience.

For this year it's 19%.

Okay, so we shouldn't expect kind of continual step functions upward in that tax rate?

It's hard to know but we don't anticipate at this point.

Okay, very good.

Thank you.

Your next question comes from the line of Bennett Notman.

First off can you just talk a little bit more about when we'll know more about what is going on with nuvi if there is a time frame in your mind about when plans maybe unveiled?

I'm assuming nuvifone is what you meant?

Nuvifone.

Yes.

I would think there will be more information towards the end of Q2 into Q3.

Okay.

And then on the guidance to sort of try and hit the original targets before 40 on EPS, I assume we should adjust that down for the new tax rate as well?

The tax rate is like I said, it needs to be adjusted for the full year.

Alright, great.

Thank you.

Your next question is from the line of Scott Sutherland.

Good morning.

Hi Scott.

I wanted to dig in guys -- I know you are more cautiously trying to achieve your goals.

You have a higher tax rate.

Is there something in the business, is it better margin that is offsetting to still think you would make that 440?

Like I said there is risk with that number, but we are going to wait until the end of the second quarter to formally guide any difference in that.

I think as we mentioned, the cost reduction in general the raw material cost reduction, how large is the market, what is the growth, there are a lot of variables.

Those are the main things we are watching to see what's going develop as we go through the year.

What I am trying to get at is that tax rate increase is going to ding you guys by about $0.30, over $0.

30 for a year.

So is there something that's come up that been more favorable to cautiously maintain that goal?

Is it just the cost reductions?

That's pretty much it at this point.

Yes.

I want to confirm.

It sounds like your mix, high and low end, you expect a 80/20 mix to be a more stable mix going forward?

Yes, we don't see a major shift from that level.

The margin, you said kind of mid to low, you said ASP declined 35% -- 25% for the year.

You're staying at 35%.

I missed what you kind of mentioned in Q4.

You mentioned it to be more like 20% or 15% year-over-year decline.

So it's going to moderate as the year progresses to get that 25% overall goal.

Yes, what I meant is we will not seek 35% ASP declines for the rest of the year.

That number will have to come down.

The declines will not be as steep in the remainder of the year in order to get an average of 25 for the year.

So it trends lower during the year?

Yes.

Okay.

On the Outdoor/Fitness you mentioned in the prepared remarks that the margins were low, getting rid of some old products Is that largely completed?

We believe so.

We are now into the 400-405, the Edge Series and the Colorado, which is the three major new products that we rolled out.

And last question on nuvifone.

I think you mentioned last quarter 5% to 10% of revenue in Q4.

Is that something that you think is achievable or at risk?

I don't think our view of the revenue contribution from nuvifone has really changed materially since our last call.

Great.

Thank you.

Your next question comes from the line of Jeff Rath.

Things have been answered here.

Kevin one follow up with the nuvifone.

You are talking about Q4 launch here.

At what point do you think you'll be able to provide a little bit more visibility to carriers and agreements?

Are we going to wait until you are launching or are there some other milestones here's that you might want us in Q3?

Anything like that might help us.

I think developing carrier relationships does take time and it's also a lot of work to go through the certification process.

So in the interim, we are not really prepared to give a lot of details until we have more notable progress that we can demonstrate in that area.

Cliff, just to expand on that then.

What would you say is your understanding of the lead times to effectively, look at a Q4 launch?

Is it to go through the certification process and all the internal back and forth with the carriers?

Is that measured in months?

How do you think about that?

We've been talking in terms of units of weeks, but it varies by carrier and by region.

Some carriers are longer than others.

For example as long as 16 to 18 weeks and some are shorter like eight weeks.

So we are just trying to balance all those factors as we engage with key carriers partners and can then be able to observe our progress.

Great.

Thank you very much.

There are no further questions.

Presenters you may resume with the conference.

Okay.

Thank you very much.

We'll be in touch next quarter.

Thank you.

This concludes today's conference call.

You may now disconnect.