GPS PND Supply Chain Enters Period of Fierce Competition
Industry maturity brings reduced opportunity after reaching a plateau in 2009.
After years of triple-digit percentage growth, the Global Positioning System (GPS) Portable Navigation Device (PND) market peaked in 2008 and is set to stagnate from 2009 onward due to fierce competition from smart phones and other products, pressuring OEMs and contract manufacturers participating in the GPS PND area.
PND shipments will decline to 41.2 million units in 2013, decreasing at a negative 0.1 percent five-year Compound Annual Growth Rate (CAGR) from 41.3 million units in 2008, according to iSuppli Corp.
The trend in annual growth rates further illustrates the stagnation of the PND industry. The year-over-year growth rate decreased from 105.9 percent in 2007 down to 40.4 percent in 2008. Growth rate will plummet to the 0 percent range for the next five years.
The decline of PND growth could accelerate in the coming years if replacement purchases of GPS-enabled smart phones rise more quickly than expected.
Threats to the PND Industry
The PND is only one of the many device types that serve consumer demand for GPS. The PND is competing against alternatives such as pre-installed, in-car navigation systems and mobile phones with GPS capability. Consumer interest in GPS PNDs is falling, partly because more car makers are making navigation systems a standard feature and partly because consumers are gradually favoring multi-function mobile devices, such as smart phones, which offer more capabilities than just GPS.
The Effect on Contract Manufacturers
The meager growth prospects and the high level of industry concentration means reduced opportunities for both smaller OEMs and contract manufacturers operating in the PND supply chain.
In the long run, as the PNDs show limited growth potential and lose their appeal to OEMs, smaller players will either choose to exit the declining market or get pushed out of business by the leading suppliers. The three leading OEMs—Garmin, TomTom and Mio—have been dominant in the PND market over the last few years and many signs point to further consolidation among them in the future.
The latest developments in the PND market suggest a flat outsourcing trend, because a few OEMs that maintain internal production are gaining market share faster than those that outsource.
In short, the stable figures over time suggest limited growth opportunities for contract manufacturers. A few Taiwanese ODMs, including Compal Communications Inc., indentified the GPS PND as a growth driver in 2007 but have since scaled back their investments.
Furthermore, outsourced PND production is predominantly served by Original Design Manufacturers (ODMs). Only 0.5 percent of PNDs were outsourced to Electronics Manufacturing Services (EMS) providers in 2008, down from 1 percent in 2007. Flextronics was the only EMS provider conducting PND manufacturing in 2008, thanks to its previously established relationship with Navman, before its acquisition by Mio. However, iSuppli maintains that EMS providers will be absent from the PND manufacturing industry when Mio further consolidates its supply chain.
Fierce Competition Awaits
In conclusion, smaller PND OEMs will either fall out of the market or get acquired by other OEMs. In the contract manufacturing market, seeing little growth potential in the PND industry, second-tier ODMs may decide to withdraw from the PND industry, spurring consolidation at the ODM node.
In either case, meaningful economies of scale are what matters to participants in the PND supply chain. iSuppli suggests that more companies may engage in predatory pricing and/or launch strategic acquisitions to drive out competition.
After years of triple-digit percentage growth, the Global Positioning System (GPS) Portable Navigation Device (PND) market peaked in 2008 and is set to stagnate from 2009 onward due to fierce competition from smart phones and other products, pressuring OEMs and contract manufacturers participating in the GPS PND area.
PND shipments will decline to 41.2 million units in 2013, decreasing at a negative 0.1 percent five-year Compound Annual Growth Rate (CAGR) from 41.3 million units in 2008, according to iSuppli Corp.
The trend in annual growth rates further illustrates the stagnation of the PND industry. The year-over-year growth rate decreased from 105.9 percent in 2007 down to 40.4 percent in 2008. Growth rate will plummet to the 0 percent range for the next five years.
The decline of PND growth could accelerate in the coming years if replacement purchases of GPS-enabled smart phones rise more quickly than expected.
Threats to the PND Industry
The PND is only one of the many device types that serve consumer demand for GPS. The PND is competing against alternatives such as pre-installed, in-car navigation systems and mobile phones with GPS capability. Consumer interest in GPS PNDs is falling, partly because more car makers are making navigation systems a standard feature and partly because consumers are gradually favoring multi-function mobile devices, such as smart phones, which offer more capabilities than just GPS.
The Effect on Contract Manufacturers
The meager growth prospects and the high level of industry concentration means reduced opportunities for both smaller OEMs and contract manufacturers operating in the PND supply chain.
In the long run, as the PNDs show limited growth potential and lose their appeal to OEMs, smaller players will either choose to exit the declining market or get pushed out of business by the leading suppliers. The three leading OEMs—Garmin, TomTom and Mio—have been dominant in the PND market over the last few years and many signs point to further consolidation among them in the future.
The latest developments in the PND market suggest a flat outsourcing trend, because a few OEMs that maintain internal production are gaining market share faster than those that outsource.
In short, the stable figures over time suggest limited growth opportunities for contract manufacturers. A few Taiwanese ODMs, including Compal Communications Inc., indentified the GPS PND as a growth driver in 2007 but have since scaled back their investments.
Furthermore, outsourced PND production is predominantly served by Original Design Manufacturers (ODMs). Only 0.5 percent of PNDs were outsourced to Electronics Manufacturing Services (EMS) providers in 2008, down from 1 percent in 2007. Flextronics was the only EMS provider conducting PND manufacturing in 2008, thanks to its previously established relationship with Navman, before its acquisition by Mio. However, iSuppli maintains that EMS providers will be absent from the PND manufacturing industry when Mio further consolidates its supply chain.
Fierce Competition Awaits
In conclusion, smaller PND OEMs will either fall out of the market or get acquired by other OEMs. In the contract manufacturing market, seeing little growth potential in the PND industry, second-tier ODMs may decide to withdraw from the PND industry, spurring consolidation at the ODM node.
In either case, meaningful economies of scale are what matters to participants in the PND supply chain. iSuppli suggests that more companies may engage in predatory pricing and/or launch strategic acquisitions to drive out competition.
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