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How things have changed. Once an ever-growing tech company, Garmin is now very much looking at stagnation as its Q3 results for 2022 are published.
The figures clearly show the continued decline of the Fitness (Forerunner, etc) segments but a stronger performance with some nominal growth for the Outdoor segment (Fenix, Epix, etc).
Will new products turn this around?
Q3 saw the Fitness segment introduce Index BPM and Venu SQ 2 (AMOLED). Both of those may more positively impact sales in the current quarter (Q4) however Venu SQ 2 is going to find ever more intense competition with the Apple Watch, with cheaper smart fitness/watches, and more besides. For example, Google’s Wear OS finally mounting a more serious challenge, all the way down its supported products from the high-end Samsung Watch5 and Pixel Watch to more mass-market Fossils. I expect the competition still has more hotting up to do in Q4 😉 with even more direct sporty competition.
Sadly, I suspect Garmin’s Fitness segment is going to have a relatively lean Q4 and a somewhat lean Q1.2023 compared to the same quarter in the previous years.
We know that the Forerunner 265 (AMOLED) is close to launching as there are pictures here (!) and there will likely also be a Forerunner 965 (AMOLED) but my bet on the release date for these might stretch as far away as early Q2.2023. It seems sensible to assume that all mid to higher-end Forerunners will soon have AMOLED options and I speculate that they will sell well…so there is some good news there for Garmin’s future prospects.
The Fitness segment also includes bike products.
I expect a Tacx Neo 3 in Q4.2022 but…so what? The indoor trainer market is difficult right now as many sales were brought forward to the Covid period. Zwift has introduced a low-cost option with the Zwift HUB and Wahoo has excellent Kickr smart trainers at all price points that are effectively as good as or better than Garmins equivalent.
It’s a similar picture with bike computers and power meters; Wahoo ELEMNT is definitely taking chunks out of Garmin’s Edge market but I don’t know so much about how well Hammerhead is doing despite Karoo 2 being a great product. Power meters are all pretty much as good as they need to be …so where is the incentive to upgrade? plus power meters are becoming increasingly more bundled onto new bikes so impacting the after-sale market opportunity and I’m not convinced that Garmin is the best-placed company for bundling their power meters onto new bikes.
Turning to the Outdoor segment; Epix 2, Fenix 7 and inReach sell well here and account for much of the growth shown in Garmin’s figures by Garmin’s own admission. We’re at least a year away from a Fenix 8 and, to make matters worse, its AMOLED sibling, Epix 3, will follow rather than precede it.
So any future new product growth in the Outdoor segment is going to need to come from lower price points and, indeed, we should see something new with Instinct like the already leaked Instinct Crossover hybrid.
Strategic Opportunity: I think Garmin may soon realise that they have entered several procuct-related cul de sacs, albeit large and profitable ones. The only major new strategic opportunities I see for Garmin are geographical and those linked to AMOLED. I’m not so sure that Solar and Satellite-based personal safety capabilities will become that important for Garmin in the longer term.
Finally, Garmin has oodles of cash in the bank and is not going bankrupt any time soon. But bear this in mind “In the third quarter of 2022, we generated approximately $104 million of free cash flow. We paid a quarterly dividend of approximately $141 million“. That’s in a relatively good quarter, do the math and also note that operating incomes fell by 3 percentage points.
Don’t believe me? Check out the stock charts. Markets don’t usually lie. On either a 5-day basis or a 5-year basis, Garmin significantly underperforms against the relevant index.
I don’t have a position in Garmin or related companies.
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