台灣國際航電 (GRMN) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Q4 2008 earnings call for Garmin Limited.

Today's event is audio broadcast, but you may listen through your speakers, although you will need to control the volume to your speakers or computer system.

(Operator Instructions).

This event is in listen-only mode at the time.

However, after the presentation has completed, we will give instruction for verbal questions.

Thank you for attending today's webinar for the Q4 2008 earnings webcast.

At this time, it's my pleasure to turn the call over to Kerri Thurston, Investor Relations.

You may go ahead.

Good morning.

We would like to welcome you to Garmin Limited's fourth quarter 2008 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 this webcast does include slides which can be viewed during this call.

An archive of the webcast will be available until March 23rd, 2009.

The telephone recording will be available two business days following this call and the transcript of the call will be available on the website within 48 hours 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 share, product introduction, future demand for our product and objectives are forward-looking.

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 and our quarterly reports on Form 10-Q.

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 Etkind, 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 Kevin.

Thank you, Kerri.

Thank you for joining us this morning on short notice.

Before we get into the details of our Q4 earnings, I want to provide a brief explanation of why we issued our earnings this morning rather than on Wednesday.

During our final review of Q4 results, we found certain adjustments for sales programs and price protections that pushed our earnings per share results below our earlier stated guidance.

We elected to immediately announce our Q4 earnings and accelerated our conference call by two days in order to accomplish this.

I would like to turn the call over to Cliff to provide our business update this morning.

Thank you, Kevin.

Good morning.

As you read from our press release this morning, Garmin announced fourth quarter results with strong margins, increasing market share, and significant reductions in our inventories.

Financial highlights from 2008 include revenue growth of 10% to almost $3.5 billion, with revenue growth in all segments of the business.

This represents Garmin's 18th consecutive year of revenue growth.

A significant highlight for 2008 is our gross margin performance of 44.5%, which is down just 150 basis points from 2007.

Our 2008 operating margin was 24.7%, which is a 380 basis point decline from 2007, but exceeded our earlier expectations.

Bill of material cost reductions helped offset most of the PND price declines that occurred during the year.

Excluding foreign currency, our earnings per share fell 3% to $3.69 per share, which includes the gain from the sale of our tender of our Tele Atlas shares.

Throughout 2008, we maintained our strong cash position with free cash flow generation of $743 million, which was enhanced by the significant reduction in inventory during the quarter.

This cash flow allowed us to fund our stock repurchase plan, pay $0.75 per share dividend, and remain a debt free company.

Some notable business highlights for the year include, while we await the final fourth quarter market share reports, we believe that we have expanded our worldwide leadership position in the PND market from 35% in Q3 of 2008.

We believe our share approximated 50% in North America and greater than 20% in Europe.

As a reminder, on a worldwide basis our market share was about 30% in 2007.

Consolidated shipments were almost 17 million units for the full year, resulting in a year over year growth rate of 38% across all of our business segments.

Unit growth was led by our auto/mobile segment with full year growth of 45%.

Turning next to segment highlights.

In the automotive and mobile segment, revenues grew 8% for the year, driven by continued unit growth and moderating price declines when compared to 2007.

We experienced unit growth of 62% in North America for the full year, although it slowed significantly in the second half.

European PND growth for the full year was 16%.

This unit growth was offset by an [SU] decline of 26%, which is down from the 35% declines we experienced in 2007.

For the full year, revenues from our outdoor fitness segment grew 26%, which outperformed our expectations thanks to our strong lineup of new products and specific strength in the fitness market.

We also saw growth in our aviation segment, though again the first half of 2008 was much stronger.

Revenues grew 10% in 2008 as shipments to new and existing OEM partners offset weaknesses in the portable and retrofit markets.

Finally, marine revenues grew 1% in 2008 as the segment continues to be affected by high fuel prices that were present earlier in the year and economic conditions which have slowed the entire marine industry.

Given how hard the marine industry has been hit by the economic downturn, our ability to generate growth in the segment is attributed to the strength of our product portfolio and our market share gains throughout the year.

As the economic crisis continues to play out, we realize that 2009 will be one of the most difficult years in our history.

In the automotive segment, we estimate units will be flat in 2009 on a global basis due to the reduced levels of consumer spending and increased levels of penetration, particularly in Europe.

We are focused on managing our business appropriately in light of these market realities.

Our strong margins and significant reduction of inventory in the fourth quarter validate our ability to use vertical integration to appropriately scale business in realtime.

We also anticipate that ASP declines will moderate in 2009 as additional competitors exit the market and retail channel inventories decline, resulting in less margin pressure.

Our outdoor fitness, aviation, and marine segments will be under significant pressure in 2009 due to the unfavorable economic conditions facing consumers.

While these segments are not likely to grow in 2009, we will continue to focus on market share gains and profitability will allow us to outperform competitors in these respective markets.

In addition, we will continue make prudent investments in research and development and introduce new product innovations that will position us for growth and new opportunities as the economic cycle runs its course.

At the recent CES show, we introduced new products and industry leading features.

The first of the new offerings was nuMaps Lifetime, which offers consumers that ability to update maps and points of interest quarterly for the lifetime of the device for a single fee.

This ensures customers are traveling with the most current maps.

In addition, we introduced ecoRoute, which is a free software update available for many nuvi models that assists drivers with fuel efficient navigation by offering less fuel route routing option.

EcoRoute also calculates fuel costs associated with the trip and the carbon footprint.

At the upper end of our product family, we introduced the nuvi 8X5 series, which delivers two of more popular high end features, lane assisted navigation with graphical junction views, and speech recognition.

The 8X5T series also include MSN Direct Version 3, which provides graphical weather, flight status, traffic, gas prices and more.

Other introductions at CES included the Approach G5 and zumo 660.

The Approach G5 represents Garmin's first touch screen handheld designed specifically for the golf course.

By combining our Oregon form factor with thousands of preloaded course maps, we expect to gain significant market share in this growing business.

The Approach G5 is differentiated by the touch screen, the number of preloaded courses available without a subscription or fee, and the ability to plan shots using a drop and drag approach on the touch screen.

The zumo 660 is a new motorcycle device that integrates the nuvi form factor with motorcycle specific features, including oversize test screen buttons and waterproof casing.

In addition, the zumo 660 features advanced reading capability, lane assist with junction view, and 3D buildings.

In the aviation market, we began delivery of the GPSMap 695 and 696 during the fourth quarter.

These devices represent Garmin's newest portable offerings and build off the popular 496.

New features and capabilities include a seven inch screen, airways, electronic charts, and expanded weather.

While only available in the last half of the fourth quarter, the 695 and 696 have already proven to be popular.

In the marine market we introduced the GPSMap 600 series and GHP10 Autopilot.

The GPSMap 640 specifically is preloaded with city navigator and BlueChart g2 marine charts, making it an all in one marine navigator and automotive navigator.

The device can also be paired with the GXM 40 antenna, making it XM capable for weather, radio, and traffic.

The GHP10 Autopilot was released in October to great reviews.

It incorporates our patented Shadow Drive technology, which automatically disengages the autopilot if the helm is turned, allowing for quick manual maneuvers without manually disengaging the autopilot.

It is also able to be controlled wirelessly with the GHP10 remote control.

With regard to the nuvi phone, we continue to look forward to the launch of the Garmin-Asus G60 in the next few months as we discussed during our February 4th announcements regarding our strategic alliance with Asus.

In addition, we introduced the second device in the nuvi family at Mobile World Congress recently.

The Garmin-Asus M20 will utilize Windows Mobile and will be released in the first half of 2009.

We will provide further updates on carriers and pricing as launch dates approach.

At this time, I would like to turn the call over to Kevin, who will provide a more detailed look at our fourth quarter and 2008 results.

Thank you, Cliff.

Again I'd like, as typical, go through Q4 and full year, and we will talk about 2009 at the end of this section of the call.

You saw the press release this morning that we announced revenue of $1.05 billion in the quarter, net income of $158 million, and earnings per share result of $0.93 per share excluding foreign currency.

Revenue was negatively impacted by approximately $38 million due to continued weakness of the Euro and other foreign currencies.

So our overall revenue decline was 14%, and EPS came down 29% excluding FX.

We also announced that our effective tax rate was 22.8% in the quarter compared to 11.7% in the fourth quarter of '07, resulting in a negative EPS impact of $0.11 per share.

Unfavorable $0.15 EPS impact was due to the foreign currency loss of $40 million in the fourth quarter of '08.

Our gross margins of 41.1% were better than expected due to material cost reductions and operating efficiencies in the business.

Operating income was down 25% to $236 million compared to the fourth quarter of '07.

We announced 22.6% operating margin, which was down from 25.7% last year.

Overall, our operating margins were generated from a gross margin of 70 basis points unfavorable.

Our advertising expense was 100 basis points favorable.

Other SG&A was unfavorable by 250 basis points.

This was made up primarily of the increase year over year of the integration of our European distributors that were acquired, $7 million due to increases in our Germany and Italy subsidiaries.

And we also announced a $14 million Circuit City writeoff due to their bankruptcy.

R&D was unfavorable 90 basis points during the quarter.

Overall in the fourth quarter, units shipped grew 15% as almost 6.4 million units were delivered on the strength of our auto/mobile segment.

The total company average selling price was $165 per unit, down 27% from the third quarter and 25% from the fourth quarter of '07.

Moving next to the full year income statement, our revenue reported was $3.5 billion, net income of $733 million, and earnings per share of $3.69 per share excluding FX.

So we recognized a 10% top line growth during the year and a 3% earnings per share decrease, excluding foreign currency.

For the full year our effective tax rate was 19.9%, which compares to 12.6% a year ago, resulting in a negative EPS impact of $0.31 per share.

We also saw an unfavorable $0.21 EPS impact due to the foreign currency loss of $35.3 million during 2008.

So the full year gross margin of 44.5% was better than expected due to moderation of ASP declines, material cost reductions, and overall operating efficiencies.

Therefore, our operating income fell 5% to $862 million compared to $907 million in 2007.

Operating margin was 24.7%, down from 28.5% a year ago, but better than expected.

Gross margin was unfavorable 150 basis points.

Advertising was favorable for the full year at 50 basis points, and other SG&A was unfavorable by 190 basis points.

Approximately $46 million of our SG&A was due to integration of the European distributors and a year over year increase in bad debt in total of about $20 million.

R&D was unfavorable for the full year of 90 basis points.

Units shipped grew 38% year over year as over 16.9 million units were delivered during the year on the strength again of our auto/mobile segment.

Total company average selling price for 2008 was $206 per unit, down 20% from 2007.

The non-GAAP measures we reported this morning include net income excluding effect of foreign currency.

The full year FX loss does not reflect the gain associated with the tender of our TA shares.

This FX impact was $0.15 per share unfavorable during the fourth quarter and $0.21 per share unfavorable for fiscal 2008.

Breaking down our revenue by segments, during the fourth quarter we experienced 17% revenue decline within the auto/mobile segment, while the unit growth in that segment was positive 18%.

Our outdoor fitness segment continued to grow with 5% revenue increase.

When compared to the fourth quarter of '07, our fitness category continued to lead the way in that overall segment.

Aviation segment revenues fell 5% compared to the fourth quarter of '07.

Marine segment revenues were flat compared to last year's fourth quarter.

In total, our revenues declined 14% during the fourth quarter.

For 2008, the auto/mobile segment revenue grew 8% while the unit growth in that segment was 45%.

Our outdoor fitness segment outpaced growth in all other segments with a 26% revenue increase compared to '07.

Aviation segment revenue increased 10% and our marine business was up 1% compared to 2007.

Overall, our revenues increased 10% in 2008 and we were pleased with our ability to post growth in every segment within our business.

During the fourth quarter, all geographies slowed on a year over year basis due to the impact of the worldwide economic slowdown.

On a full year basis, we were able to post growth in all geographies, with North America growing most rapidly at 13%.

Unit growth in our North America business exceeded that of Europe as the North American PND market grew at 62% for the full year on a unit basis and Europe at 16% for the full year.

The auto/mobile segment represented 79% of our total business during the fourth quarter and 73% for the full year.

This is down 1 percentage point from 2007, when auto/mobile represented 74% of our revenues.

Stronger growth in North America during the quarter -- that geographic region represented 73% of total fourth quarter business.

Europe accounted for 24% of our total revenue.

On a full year, North America accounted for 67% of our revenues.

The low end unit sales of PNDs accounted for approximately 85% of total units and the low end revenues of PNDs accounted for approximately 80% of the total revenue.

Moving next to margins, our fourth quarter auto/mobile gross margin and operating margin were 36% and 20% respectively.

The gross margin of 36% was better than expected, with a full year ASP decline of 26%, offset by cost declining 21% on a full year level.

Our fourth quarter outdoor fitness gross margin was 56%, up 3% over last year due to product mix and an increasing ASP.

The gross margin did decline on a sequential basis due to promotional pricing during the holiday season.

Operating margin also increased year over year to 37%.

We continue to target our long-term margins in this outdoor fitness segment of 55% and 35% respectively.

Fourth quarter aviation gross margin was 67%, down slightly from the prior year, but up sequentially due to product mix.

Operating margin was 33% for the quarter due to increased advertising costs on lower volumes.

We continue to target long-term margins in this segment of 65% and 35%, and did achieve this for the full year with growth in operating margin at 67% and 36% respectively.

And finally, our fourth quarter marine gross margin was below the long-term target of 55% -- at 52%, due to the continued weakness in the industry.

In turn, operating margin was also low at 23% compared to a long-term target of 35%.

These margins are consistent with the fourth quarter of '07 due to seasonality in the segment.

Full year margins for Marine were 55% and 29% respectively.

We will manage the business to maintain margins near our long-term target of 55% and 35% going forward.

Fourth quarter operating expenses were down slightly on a year over year basis from $196 million in the fourth quarter of '07 to $194 million in the fourth quarter of '08.

But they did increase 240 bips as a percentage of sales.

R&D increased $2.7 million year over year in dollar terms and was up 90 basis points to 4.8% of sales.

We continue to employ over 1,700 engineers and engineering associates worldwide.

Our ad spending decreased $21 million over the year ago quarter and 100 basis points as a percentage of sales from 6.8% to 5.8% in the fourth quarter.

We were pleased with our decisions relative to advertising spending and the benefit it provided to operating margins during the period.

Other SG&A increased 250 basis points to 7.9% of sales from 5.4% a year ago.

This increase was due to the writeoff of our Circuit City receivable and the integration of European distributor that we acquired since this period last year.

We expect that our SG&A expenses will stabilize at approximately $70 million per quarter in 2009.

Moving next to the balance sheet, we ended the quarter with cash and marketable securities of just over $973 million.

Our accounts receivable increased on a sequential basis to $741 million as sales increased during the holiday quarter.

AR accounted for approximately 77 days of sales.

We have now [selected] $530 million of this balance during the first quarter of 2009.

Our inventory balances decreased $274 million to $425 million as we exited the holiday selling season.

Our days of inventory metric decreased from 105 days at the end of the third quarter to 79 days at the end of the fourth quarter, primarily in our finished goods inventory.

At the end of the fourth quarter, at the end of 2008, we have $151 million in raw materials, which make up 27 days of inventory.

$29 million in WIP and assemblies, making up 5 days of inventory, and $269 million in our finished goods, which represent 47 days of inventory.

We carried $23 million in inventory reserves at the end of 2008.

We're extremely pleased with our level of inventory reduction and will continue to manage the supply chain appropriately given the economic conditions.

It's our goal to have adequate inventory to support customer needs.

However, we intend to carry the right level and mix of inventory to minimize the risk of obsolescence.

Retail channel inventory has become more lean as retailers look to reduce their inventory exposure and conserve their cash during this economy.

Looking next at cash flow.

Cash flow from operations during the fourth quarter was $350 million.

We spent only $9 million on CapEx during the fourth quarter, and our free cash flow during Q4 was approximately $340 million.

Cash flow from investing was $31 million source of cash made up $9 million use of cash on CapEx, $50 million net redemption of marketable securities, and approximately $10 million use of cash on the acquisition of different businesses and intangibles.

Finally, the cash flow from financing was $194 million use of cash during the fourth quarter, made up primarily of the $150 million dividend payment during December, the $47 million of our stock buyback, and $3 million positive cash issuance of stock options.

We earned an average of 3.9% on all cash and marketable securities balances during the quarter.

Garmin repurchased over 2.4 million shares, using $47 million of cash during the quarter.

We repurchased 17.1 million shares during the year, using approximately $672 million.

Current authorization allows for $258 million to be used to repurchase shares through December 31 of 2009, and Garmin intends to be an active buyer of those shares as business and market conditions warrant.

Our diluted shares outstanding declined 9% to 202 million due to the shares repurchased during the year.

And finally, spending a little bit of time on 2009, we do recognize that 2009's going to be a difficult year and we're prepared to manage our business accordingly.

While economic conditions are very challenging and are affecting most of our markets, we continue to see opportunities to invest selectively and grow our business through new product development and market share gains.

Our goal is to maintain healthy margins and a strong balance sheet during the year.

In addition, we will continue to manage our inventory carefully in order to scale it to the proper level to support our business in light of these challenging economic conditions.

We continue to closely monitor the global economic developments and our business situation.

We're evaluating making adjustments in certain areas of our business in order to increase cost efficiency and match operation to market demand over the near to intermediate term.

In light of the uncertainties and dynamic conditions, we will not offer specific guidance for 2009 until the outlook for the year becomes more clear.

That concludes our formal remarks for this morning.

We would now like to open the phone lines up for any questions you might have.

Jacob, please take over the Q&A session from here on out.

Thank you sir.

(Operator Instructions).

Jacob, you can go ahead with our first question.

Thank you.

Our first question comes from Reik Read.

Hey, good morning.

Morning.

Kevin, on the target that you gave for gross margin by segment, can you just talk about -- one, how much variability that you see in those targets in the current environment?

And then two, what's your ability to take out costs further?

You guys talked a lot about raw material costs take out.

Can that continue?

And are some other things that you can do from a labor overhead perspective, thanks.

Okay.

Variability, I think you can see from our slides on margins we do have some variability based on volume in the nonPND markets, nonPND segments.

Actually our auto/mobile segment has been relatively stable in the 36% to 38% gross margin, 20% to 25% operating margin and we stated this many times, that the raw materials do make up a vast majority of total unit cost.

So the expectation in 2009, for example, is that prices will moderate, the cost declines depending on sales volumes -- which again we're not giving a lot of guidance on.

But depending on sales volumes, the labor and overhead components are relatively small, and therefore we can try to track unit costs approximately with what our price declines will be for the year.

So we're hopeful that there's not a lot of variability, but we do see quarter to quarter some, especially in the nonPND markets.

And just on what you were saying on the raw material side of things, I take it what you're saying there is just you can continue to get price concessions, and is that still the case in this environment?

I think we're seeing some cost declines even in today's economy.

But we had a 21% overall unit cost decline last year.

I wouldn't expect the numbers to be that large in 2009.

But I think the best way to frame it is price and cost coming down near the same levels in 2009.

Okay, thank you.

Thanks.

Thank you.

Our next question comes from Vivek [Arora].

Thanks, good morning.

A couple of questions.

First is, I just just wanted to dig deeper into this gross margin trend.

Your nonPND segments last year I think were about 27% of sales, but almost 37% of the gross margin dollars.

And in 2009, there is going to be some pressure on these nonPND segments.

So what should we read across on the overall company gross margins from that trend?

I think what you saw in fourth quarter is something we would like to continue, and that is manage and scale our business to be able to manage the different demands as we go forward in 2009.

I think we took action in the fourth quarter by limiting contract and contract labor in our factory, and that helped us maintain pretty strong margins in the fourth quarter.

And I think what we still see is even at a fairly weak economy, the nonPND margins we can still sustain.

Those are not as price sensitive.

We feel like we have the ability to control that.

I see.

And Kevin, secondly, the ASP on the PNDs from what I calculate fell roughly 29% or so in the fourth quarter.

What is your expectation for PND ASP in 2009?

Is it more a mix issue, is it more a volume issue?

Or what exactly is determining that negative surprise at least in the fourth quarter PND ASP?

First of all, I would disagree we saw a negative surprise.

I think the ASP came in about where we suspected -- otherwise our margins would have been significantly impacted in the fourth quarter.

I think overall price declines in 2009 will slow in terms of the overall decline is what we have seen the last two years.

We're not quantifying how much that will be, other than I would expect it will be below 20% without giving the exact number.

Okay.

Is there any excess manufacturing capacity that could have an impact on gross margins next year?

I mean in 2009?

I think that's what our goal is to try to manage that.

It depends on the level of sales, and so we will provide guidance more as we go through the year.

But at this point, we feel like we can scale up and down depending on the need of the market.

Keep in mind that a vast majority of our overall unit cost is raw material.

So there may be some short-term impacts, but overall we think we can manage that manufacture capacity throughout the year.

And just one last question.

Your advertising spend has been trending lower.

Do you think you are spending enough to promote the products?

And how will this spend pick up, or will it pick up once you launch your smart phones?

Well, I think in the fourth quarter we saw that the overall economy was impacting and we didn't feel like it was prudent to spend the typical level of advertising.

So as we said in our formal remarks, we felt comfortable and satisfied with the decisions we made in the fourth quarter, given the fact that we did see advertising down as a percentage of sales, but still had reasonable sales levels.

I think you mentioned the nuvi phone.

Without a doubt, as that phone and that product family gets delivered to the market we will have to take on some additional advertising spend to be able to push that and to promote that in the market.

We haven't commented on how much that will be yet.

I'm sorry, just one last question.

The tax rate, what should we model for 2009?

Thanks.

I think the reason the tax rate came up was because of our overall volumes coming down from the fourth quarter over what we earlier thought.

I think the effective tax rate is nearly 20% for the full year due to tax holidays in Taiwan and other tax incentives.

I think over the next few years after 2009, we expect to continue to see benefit from those holidays.

Expect overall tax rate to increase a little bit above 20% over the near term.

I see, thank you.

Thank you.

Thank you.

Our next question or comment comes from Paul Coster.

Real quick housekeeping questions first.

The interest rate you're earning on your cash is pretty impressive -- do you think that's sustainable?

And the nuvi phone -- how will that be categorized in terms of which revenue segments will it go into?

The first question on interest rate, yes, the 3.9% was higher than we even intended or expected.

It's because of the timing of our marketable securities.

Clearly those will mature over the next -- in the next year and we will see that rate come down.

So I don't believe 3.9% is sustainable.

However, we have done pretty well at I think beating the market average on yield on our investments.

So I would expect 3.9% to come down, but still be healthy for the full year 2009.

And then your comment about nuvi phone -- we would book that into our auto/mobile segment.

Okay.

Now, maybe I can just sort of drill down on the expectations for '09.

Did I understand you correctly in saying that the unit pricing or the ASPs will decline, will moderate -- did you say anything about unit volumes for '09?

Well, we didn't comment a lot other than we expect that the PND markets and what Garmin can ship will be roughly flat.

That's our best estimate at this point.

Then we didn't give an exact number, but ASPs will moderate.

If you look out a little bit longer, once we're through the economic downturn, what do you think your CAGR is over the next five nears in terms of unit volume?

I think if it's difficult for us to give 2009 guidance, it's more difficult to give 2010, 2011, 2012.

I'm not sure we can really give anything concrete at this point.

I try my luck.

Then finally, now competition seems to be wobbling a little bit.

But one area I'm concerned about is the secondhand and refurbished market.

What extent is that a challenge for you and what do you do about it if it is?

Definitely there's a big market out there for secondhand and refurbished.

We participate in that as well as we get returns from customers, and we refurbish them, put them back out on the market.

It does tend to make the ASP come down, but on the other hand it offsets costs with return processing.

That's unavoidable and the way a lot of these consumer market work.

Okay, thank you.

Thank you.

Thank you.

Our next question comes from Tavis McCourt.

Thanks for taking my question, guys.

Cliff, I'll start with one for you, and then a couple of financial ones.

I guess the one new market you're entering this year would be kind of the golf market.

I was wondering if you could tell us what your estimate is of that market size, whether in units or revenues?

Seems like a pretty impressive market, impressive product from a competitive standpoint.

Then Kevin, I think you mentioned in your prepared remarks that you expect SG&A to base out around $70 million a quarter.

Did I hear you right and does that include or exclude advertising?

And then my last question is in terms of accounting for the Garmin-Asus, will you be booking the full revenues from that or just half the revenues?

Or exactly how will the accounting work for that given the nature of the partnership?

To get the question out of the way on the golf market, I think it's a small market at this point, very niche, and I don't think there's any qualified or credible estimates in the industry in term of what the total size is.

We're entering the market because we believe we have something to contribute from the location technology and the mapping side, but it is somewhat of a small niche market and don't really have an ability to give you an estimate at this time.

Concerning the SG&A, I did mention $70 million per quarter and that excludes advertising.

So we would like to be able to hold the line on SG&A as we go through the year.

Advertising will likely come down in total dollars invested in the year, but we will have to see how the year develops as we go through.

Then finally you asked about Garmin-Asus revenue.

We haven't given a lot of details other than that's a strategic partnership and we will share profits on that business.

But we really can't comment how much is booked in our P&L versus Asus's P&L at this point.

Then can you just remind us what the full year advertising was this year, whether dollar amount or percentage of sales?

Yes, in 2008 we spent $208 million on advertising, which was approximately 6.0% of sales.

Okay, thanks a lot.

Thanks.

Thank you so much.

Our next question comes from Jeff Rath.

Great, thanks.

A couple questions.

Kevin, you made a comment about the automotive segment being overall flat.

I mean no one knows, but you were suggesting your expectations would be for flat unit volume growth in '09 versus '08.

What comfort do you have that in fact we will see flat growth in this environment?

Well, I think it's a difficult number to know, because we're treading in an environment we've really never been in.

The way we come up with that is we talk on our major customers to see what their expectations are.

We look at a geographic mix, and we talk to each of the countries and see what is developing in each of those fronts and come up with our best estimate.

So we don't have I think clear visibility, which is the reason we're not giving 2009 guidance.

But that's as good as we can do today.

With -- I guess maybe a different way to ask the question is, are there some areas of the world that you're entering that are expected to have more meaningful growth rates because they're less penetrated?

Is there anything worth speaking about there?

I think Eastern Europe is still underpenetrated, and so it's been an area of growth, although I would say that they're affected by the economic situation now as much as anybody.

So that is an area of focus.

Latin America, South America is definitely areas of potential growth as well as Asia.

US market is still very much underpenetrated compared to some markets in Europe, so we believe there's still growth opportunities here in North America.

Even in a pretty weak economy, we saw 33% unit growth in the fourth quarter in the US, and I think I would add another comment that Cliff made is probably Australia.

Australia is still an area we would like to be able to push further into and gain some share.

Second question is following your inventory sort of success here, you have taken inventory levels down pretty dramatically.

Can you -- you offered a little bit of color around your thoughts on the channel right now.

Are you saying you're comfortable with the channel inventory here?

Do you expect a little bit more say seasonal weakness in Q1, because maybe there's still some excess channel inventory?

Can you speak to that a bit?

Sure.

I think what we saw in the December month is we did see -- we saw the major retailers slow down their orders.

They wanted to go out of the calendar year with less inventory.

And I think they have continued that desire.

They have gone through the first part of 2009.

So I would definitely -- without giving any specifics, I would expect year over year, we would not see growth in the first quarter, just due to what we have seen with the retail market in the first six weeks of 2009.

I think they are carrying very low levels of inventory.

We're just now starting to see some pretty large orders coming out of those retailers.

Then just a final question for me, I'll pass it along, Kevin.

There's lots of moving parts as it relates to foreign exchange.

If we were just to take the baseline assumption that in the PND segment your overall ASPs were flat, that is your pricing that you would get -- what would be the impact of the foreign exchange on I guess your net ASPs '09 versus '08?

If you look at current spot rates right now.

Would that cause your ASPs to be down 5% or 10%.

Yes, we would still an expect an ASP decline even with FX being neutral.

Is a 5% or 10% kind of range reasonable?

I think that's a reasonable expectation, yes.

Thank you very much.

Thank you.

Our next question comes from Yair Reiner.

A couple questions for me.

First of all, do you have any target at this point in terms of CapEx for next year?

We think 2009 is going to be -- we spent $120 million in 2008, but we think it will be pretty close to what we call our maintenance level, which is going to be around $60 million of CapEx.

Okay.

And also, I guess rephrase of the prior question, I guess we're close to two-thirds of the way through 1Q.

I realize you don't want to give specific guidance, but can you give us a little more color on what you have seen thus far?

I'm not sure I can give much more color other than what I just mentioned with the big box retailers in the US.

I think definitely Q1 will be down year over year from what it was in Q1 '08 and that's about as much detail as we're willing to give at this point.

Okay.

As far as aviation, it's been quite volatile now quarter to quarter.

Recognizing that end market there is slowing pretty dramatically, I mean is the level we saw in 4Q, should we think of that as a baseline level, right now based on the orders that you're seeing from your customers?

I mean what do you think we should look for in 2009?

I think aviation has a much longer market cycle than some of the consumer markets.

So I believe it's still reacting to the economic conditions, and the full story on the order situation and the deliveries are probably still to play out during the year.

So there could be some additional downward pressure from what we saw in Q4.

And then finally, on nuvi phone, it sounds from the wording of the press release now that you're pretty certain about the first half release.

Are there deals that are effectively signed, and now it's just a matter of announcing them?

Or are you still working out the final details?

I think we're still working out some final details.

Okay.

Is there any way for us at this point to size the opportunity for you in 2009?

Would you be able to venture a guess on how big a part of your automotive business it might be this year?

I think we still view 2009 as the period to get into the market.

From a quantity perspective, we still view that the PND part of our auto/mobile segment is by far the largest in 2009, and we're talking about from a revenue perspective probably $100 million to $200 million is the net range -- is the most we would see in 2009 on nuvi phone.

Great, thank you very much.

Thank you.

Thank you.

Our next question comes from Jeff Evanson.

Good afternoon or good morning, everybody.

I guess if your PND unit assumption is for flat units year over year, I'm curious what kind of market share gains you think you need to do to achieve that?

And if you could unpack that between say Europe and North America, that would help.

Well, we're not prepared to give market share expectations.

I think it's a little bit early to even know what happened in 2008 until all the competitors come in with their results.

We do believe that in fourth quarter, we did gain global share for the best estimates we could come up with.

Market share gains in 2009, a lot of it depends on the economy obviously in the US.

We still feel like we have a strong position, 50% or greater in North America, and we're hopeful that will continue.

I think if there's gains anywhere, it will be some of these other areas that Cliff talked about -- in eastern Europe and Latin America and even Australia.

And then we should be able to sustain our share in the US.

I don't expect that Europe will be a big market share gain for us in 2009.

Like it was in 2008.

Yes, there was quite a bit of gain there in 2008.

Okay.

And then if your assumptions about units are prove incorrect and you need to scale down production capacity, at what point would that start to negatively impact your tax rate?

Well, I talked about tax rate earlier -- probably having to raise it above 20%, and factoring into that was an expectation of unit volume and overall volume.

I think we're probably pretty close to that at this point.

We're at that level, depending on how 2009 shakes out.

I would not expect the tax rate to get below 20% in 2009.

I guess what I'm saying is if you had to scale down units by 10%, would that start to impact your tax rate above and beyond what you have already said?

Yes.

To what extent Kevin, any sense?

I think between the 20% and 25% range, somewhere in there.

We hope it doesn't get as high as 25%, but I think the effective rate for the company should be for the year in that range.

Okay, great, thank you very much.

Thank you.

Thank you.

Our next question comes from Jonathan Goldberg.

Hi.

Hi, Jonathan.

Thanks for taking my call.

I just wanted to dig down a little bit into your thoughts on industry channel inventory.

You sound relatively upbeat.

Our checks indicate there is a lot of your competitor products still on the shelves at most electronic retailers and general merchandise retailers both in the US and Europe.

Do you see that affecting you?

There's a lot of Tom Tom product out there -- aren't they going to end up cutting prices and that's going to hurt the whole category?

I think it's somewhat obvious there is an effect.

You can't argue that there is not.

I think the good news right now is our product is selling well against those lower price products and we just have to watch the situation play out as they try to move the inventory.

All right.

So it sounds like it's on your radar, but you're comfortable you're getting big box orders right now?

I'm sorry?

It sounds like it's on your radar as an issue that could pop up, but you are comfortable that you're getting orders now from the big box retailers?

Yes, we're starting to see those.

I wanted to clarify also on the nuvi phone, is it currently in carrier certification and route testing or are we still -- ?

We're in some of the final phases of preentry.

Got it, thank you very much.

Thank you.

Thank you.

Our next question comes from Mark Sue.

Hi guys, this is Joe [Spec] for Mark, actually.

A couple questions -- one on inventory again, sorry to keep coming back to it, can you give us some sense of the metrics that you are comfortable with going forward?

I know you talked about it on a days basis or a turn basis would be fine as well.

And as follow up to that, any sense -- I mean historically you guys have used a lot of working capital on an annual basis.

Can you give us any sense of working capital expectations for 2009?

Well, I think what we have often commented on inventory is number of days.

I said we ended the year at about 79 days, which was better than what we had targeted going into the quarter.

We thought we would see an absolute dollar reduction, about $150, and we beat that by quite a bit.

It's a $274 million reduction.

The overall metric we're looking at is days of inventory based on forward-looking demand.

I think the numbers that we want to keep it under is 90 days or below.

We're still -- we're trying to get more efficient in our supply chain.

Like I say, we have done a pretty good job in short term.

As far as working capital goes, given the difficult economic environment, we're watching the receivables quite a bit, trying to manage cash as best we can and also limit writeoffs on the AR side.

So the combination of AR and inventory are the two major metrics that we're watching internally.

I can't comment on exact numbers, but we do expect that our free cash flow and our cash flow from operations will continue to be quite strong as we go through 2009.

Okay.

And then just one more if I can -- Kevin, I believe you said on the nuvi phone expectation $100 million to $200 million revenue net.

By that, did you mean your portion of sales or can you just clarify that comment?

Yes, that would be what we would recognize, yes.

Okay.

Thanks.

Thank you.

Thank you.

Our next question comes from Amir Rozwadowski.

Thank you very much for taking my question, gentlemen.

Kevin and Cliff, in looking at 2009 I know we have discussed a bit about the competitive environment.

How should we think about sort of your strategy plays out for the course of the year?

Is it you continue to operate, sort of managing the business the best you can against difficult background?

And then just see what happens with the competitors and how things play out?

Or is there opportunities where you can selectively adjust your strategy in order to help accelerate some of the competitors leaving the marketplace?

I think we're certainly not wanting to be taking risks in order to try to force situations with competitors at all.

That's not our goal.

We want to maintain a profitable business, which we mentioned in our remarks.

As such, we're focusing on innovating and creating products that the market wants and maintaining our market share.

Okay, okay.

And then one of the things that we have often discussed in the past is potential new geographic regions of opportunity and growth.

Do you think that 2009 can be -- or are there specific regions that you folks are perhaps targeting for additional opportunities for market expansion in 2009?

Well, I think we already commented on the areas that we feel could be higher growth than the rest.

As far as expansion, I don't believe we will be acquiring any further distributors.

We feel like we're in a good position there on the distribution channel.

I think it will be -- given the global economy, it would be difficult to go out and push into certain areas of expansion.

It would be more of sustaining or maintaining the level of business and trying to pick up share where we can.

Great, thanks for the additional color.

Thank you.

Thank you.

Our next question or comment comes from Jim Duffy.

Thanks, good morning.

Hey, Jim.

Hey, Cliff, question for you, as you have discussions with your major retailers -- how do they plan to merchandise the nuvi phone?

Will it be with the phones themselves or alongside personal navigation devices?

What would your preference be?

I think retailers -- they already know how to sell PND category very well.

So you see definitely some interest on their part to merchandise with PND category.

And likewise, because it's a great phone, you also see interest in the phone side as well.

So there could be an expanding opportunity for a device like this within retail.

And can you maybe shed a little bit of light on marketing plans to help you break through the clutter of the smart phone market and highlight some of the nuvi phone's unique attributes?

I think when the time comes, we do plan a campaign that we will be able to articulate the message of the connective device with voice and data capability.

And I think again, because the PND category is a strong category, I think people are aware already of the benefits of location, and as such I don't think we will have to do a lot of major reeducation on what it does.

Okay.

And then as you do your business planning looking out with the introduction of the nuvi phone, how do you think about the substitution effect to PND versus the nuvi phone or perhaps some other smart phone that offers navigation?

Well, we think that we're approaching this from a different angle than everybody else.

I think a lot of people look at navigation as an application on the device and it's one thing that it does amongst many things, but a lot of times it doesn't talk across applications in terms of the ability to share location and user information.

That's what we're doing with nuvi phone that's different, and while there definitely could be some substitution effect that goes on with mobile phones and PNDs, the usability case is pretty challenging if you try to use it in the car.

We believe nuvi phone addresses that quite well, and we also believe customers will still want to have a dedicated device when they have enough use case scenarios that compel them to use the device more than just once in a while.

Okay.

What about the substitution effect from Garmin personal navigation device to the nuvi phone, potential cannibalization there?

Well, you could look at it cannibalization or participating in the new market.

So that's one of the reasons why we are doing this in order to be able to give the market what it wants in a single device.

Okay.

Thanks very much.

Thank you.

Thank you.

Our next question or comment comes from the line of Thomas Lee.

Hi, thanks for taking my call.

I just had a question on ASPs again.

So -- in some of our retail checks we actually noticed a significant mix shift toward lower end devices, more so than what happened in 2007 -- to the point that Black Friday we saw ASPs decline 40% year over year and it looks like that accelerated in the month of January.

Obviously, you guys are saying ASPs are going to moderate this year.

Just curious one, how confident you won't see ASP declines accelerate in 2009, and perhaps can you help reconcile some comments versus maybe what we're seeing on the retail side?

We participated strongly in the Black Friday specials as well.

So nothing there really was out of the -- outside our expectations.

We did see ASPs come down, just not as strongly as they have in the past.

I think the other area that gave us some comfort is the level of profitability, and we have already seen several of our competitors exit the market because they're not making money at the current pricing level.

So when you look at the 2009 competitive landscape, we don't believe pricing will need to come down, nor do we expect it to come down as much as it has the last two years.

The other aspect of that is we want to be able to add other features and push the consumer to buy up, so to speak, on some of our products.

So then just a follow on to that, I mean I think you said your mix although end versus I guess high end was 80/20, if I'm not mistaken.

One, do you expect that level -- that mix shift to be relatively constant throughout '09?

Then two, I mean are you seeing, even any change in pricing within that segment, it's basically -- how you define low end PNDs.

Are those ASP coming down?

Yes, actually what I said was 85% on the unit basis at the low end versus high end.

How we define that instead of on price is really on product line.

Anything that's nuvi 5 series, 7, 8, and 9 series would be what we call the higher end.

Everything else would be the lower price or low end.

So 85% on the low end.

We don't expect that to really change much going forward.

So the mix shift we have seen over the last two years we believe is behind us and should stabilize over the next year or two.

Two other quick questions.

Does your long-term gross margins for PNDs on the auto/mobile segment -- did you provide that?

No, we did not.

You did not.

I mean do you, is there, do you have a number that you could share with us?

In terms of how we should think -- ?

Yes, we had 36% in an environment where prices were pretty low, so we're thinking 33% to 35% -- in that range is what we would likely see in 2009.

Got it.

And then lastly, any -- on your I guess on your dividend policy, is that have you guys considered or thought about what you're how you're going to approach that in 2009?

Is it likely to be the same as it was last year, or is that being discussed I guess?

Typically we would make a recommendation based on the cash available, and excess cash in our business.

I think it's too premature to talk about whether we would pay a dividend or how much we would pay.

We will just keep an eye on the cash balances during the year Clearly we want to have enough cash not to get in a position like some of the rest of the market where they have to go out and debt finance their business.

That's one thing we want to avoid.

We want to stay debt free during a very difficult economy.

We will stay tuned on that whether we pay a dividend in 2009 or not.

Great, thank you.

Thank you so much.

And your next question comes from J.B.

Groh.

Morning guys, thanks for taking my call.

I had a question on aviation.

I think you touched on it a little bit, but there's a pretty dramatic dropoff Q3 to Q4.

Would you attribute that to -- is it seasonality, is it a later new product introduction that you mentioned in Q4?

Is it a business jet or is it handheld, or can you maybe explain that dropoff just to help us get a little better gauge as to what's going on there?

There may be a combination of factors including some seasonality, but I think the primary reasons are consumers really slowed down during the fourth quarter and that included people in the high end of markets like aviation.

Retrofit markets were challenged as well as portable markets, and so that's really I think the bulk of what we saw there in the fourth quarter for aviation.

But in terms of, but would you say that the business jet production or the higher end OEM production that you're in, did that fall in -- that fell off in Q4 too as well, didn't it?

Yes, it really depends on what segment of the market and what particular product lines you're talking about.

The light jets have been fairly strong, not a lot of movement there in terms of changes.

The smaller, lower cost aircraft have been affected somewhat by the economic conditions.

And as I mentioned earlier, some of that will still play out in the coming year as order cycles are quite long in aviation.

Great, hey, thanks for your time.

Thank you.

Thanks, J.B.

Next question comes from John Bright.

Thank you.

Good morning.

Kevin, in your prepared remarks you talked about evaluating, making some adjustments in certain areas to align your cost structure I think with market demand.

Is there something there that you could share with us that might be in the works?

Well, I think it's a little bit too early to tell.

We're watching again market demand for both short term, and then throughout 2009 evaluating the level of costs in our business, and it is too premature to talk about anything specifically.

It is something we're watching carefully.

We put a budget in place in terms of number of people we have and the size of the business, and then we're carefully evaluating that week to week on how things shake out.

On the nuvi phone side, in the current economic environment, have you changed your benchmarks, your benchmark for success for the nuvi phone?

I think previously we talked about maybe 1 million units over a 12 month period -- have you changed what you think would be success -- or your benchmark for success in the current economic environment?

No, I think we still view that there will be a market available.

We get the product out and into various channels and start to sell them.

We think the location based services that will be -- that are I think as difference as Cliff already alluded to will be a key differentiator in that market, but we don't really have any changes on what we think we will be successful -- whether we will be successful or not in that market.

Thank you.

Thank you.

Thank you.

Our next question comes from Ben Bollin.

Thank you.

Good afternoon.

Could you talk a little bit about what you see happening with your retail and channel partners, as far as their strategy as they look at GPS and PND and shelf space and their total SKUs that they're allocating?

So far retailers are still showing a lot of commitment to this product category.

We're going through resets now for spring.

And we're really quite encouraged in terms of the product placements as well as the amount of space that people are allocating to that.

Have you -- can you talk a little bit also about which components are the most expensive in the bill of materials and which pieces contributed most of the cost savings in 2008?

I think there haven't been a lot of changes there.

It continues to be the LCD or display, the flash, and GPS chip set -- those are the three major components.

Not necessarily hardware component, but the mapping data that we license from NAVTEQ is another major component in our cost structure.

But those have not really changed at all.

I would say the flash from a cost perspective has come down faster over the past year than some of the other components.

But the bill of material is essentially pretty stable over the last 12 months.

My last question, when you look at nuvi phone, can you say how much total R&D you spent on the platform and how many total SKUs you're targeting to launch in 2009?

I think we're approaching life to date or program to date nearly $20 million of R&D in that product line.

And then the number of SKUs, we have announced two at this point.

There will be other products we will announce as we go through the year.

Thank you.

Thank you.

Our time question comes from the line of James Faucette.

Thanks very much.

I just had a couple follow up questions.

Firstly, a question of clarification.

When you said that you expect that your PND will be roughly flat in 2009, did you mean you expect revenue from that to be flat?

So growth in units offsetting decline in ASPs?

Or should we think about PND units being down year over year?

We meant PND units flat with some ASP decline inherent in the market.

Okay, great.

And then just a question on as best you can on near term development of demand particularly in the PND group, but if you have more color on other spaces, that's welcome as well.

But just wondering from your perspective what you have seen from a sellthrough perspective so far in February versus maybe the way January ran for you?

Well, we have commented on that on earlier questions.

I think we see that Q1 over Q1 year over year will be down.

And we have had a sellthrough of some of the inventory major retailers were carrying.

And we watch that very carefully on week to week basis, and starting to see larger orders coming out of the big box retailers, primarily in the North American market.

I understood the year over year commentary.

I'm just wondering like if you compare how February would be running, has been running versus what you saw in the month of January, if that -- ?

February is going to be a month -- we can't give a lot of details without giving quarterly guidance, but definitely February sales was up over January.

That's about all I can communicate at this point.

Okay, that's great, that's very helpful, thanks very much.

Thank you.

We have no further questions in queue.

All right.

Thanks everyone and we will catch everyone up later.

Thanks for your interest and we will be talking later in the year.

Thank you.

Thank you.

That does conclude today's conference everyone.

You may now disconnect.

Presenters, please hold one moment.