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Investing in GPS

Written By Brian Hicks

Posted June 30, 2014

Ten years ago, having a GPS receiver in your car was a luxury. Drivers still had to rely on printed-out directions and those impossible-to-fold paper roadmaps if they wanted to get somewhere they’d never been before.

Then in the mid-2000’s, there was an aftermarket GPS boom. Small navigation devices flooded the market, and everyone embraced the ease of travel with turn-by-turn directions.

At the same time, smartphones with their own GPS sensors were also growing in popularity.

The two trends collided.

It only took two years for companies that jumped on the PND (personal navigation device) boom like Dash and TomTom (AMS: TOM2) to find themselves in a stagnating market as customers stopped buying.

Today, 65% of Americans own a smartphone of some type. Twenty two percent of the world’s population owns a smartphone.

As a result, personal navigation is a commodity, so GPS companies without their own satellites have evolved into integrators. Companies like Magellan and Garmin (NASDAQ: GRMN) fell back to their specialty markets like aviation, maritime, and sporting navigation systems.

The shift is ongoing, and in five years’ time, there could be even more dramatic changes.

To The Sea

Garmin recently acquired New Zealand company Fusion Electronics Limited and all its subsidiaries for an undisclosed sum.

Fusion deals with marine entertainment systems, including stereos, televisions, speakers, and amplifiers. Garmin’s long-running list of marine products are mostly the maritime version of aftermarket car navigation systems. By combining its operations with Fusion, it will be able to integrate navigation into Fusion’s entertainment systems.

The company will retain the “Fusion” name, but under Garmin, it will be called “Fusion Entertainment.”

In the first quarter of 2014, automotive navigation systems still constituted 42 percent of Garmin’s revenue, and the rest of its revenue came almost equally from its other segments. Outdoor generated 14 percent, Aviation generated sixteen percent, Fitness generated 17 percent and marine generated 11 percent.

Though marine generated the smallest amount of Garmin’s revenue, it was one of the only segments that has enjoyed significant growth. Revenues increased by 34.6% sequentially, and 19.3% over the previous year.

At the time of its earnings call, Garmin announced that it was, “Trying to build a solid product portfolio (including acquisitions) and the strengthening of strategic relationships with marine OEMs.”

It’s now common to find GPS systems built into the dash of luxury and mid-range automobiles. While Garmin has partnered with Mercedes-Benz to provide software for its in-car systems, the company appears to be building a portfolio that would put it in an even better position for consumer watercraft.

Going Underground

Trimble (NASDAQ: TRMB) never really got involved in the consumer GPS boom. It makes navigation and positioning systems for surveying, construction, and agriculture, so its position was somewhat resistant to the proliferation of consumer smartphones.

However, it has been on a hot acquisition streak for the last three years, and many of its acquisitions focus on data other than position, indicating a move toward comprehensive sensory data and new market development.

In 2012, for example, it acquired Refraction Technology Inc. for its seismic sensor and data logging technology. In 2013, it acquired Actronic Holdings for its weight and payload systems for mining, construction, and waste management; and IQ Irrigation Ltd and RainWave Precipitation monitoring for their water management systems.

Earlier in June, Trimble made a big acquisition of Australian company Mining Information Systems (MIS). Trimble made two big seismic data acquisitions before this, and it intends to combine them all with its expertise in geospatial systems for a suite of mine optimization services.

“Productivity applications in functional areas such as drill and blast, haulage and materials processing have improved operational efficiencies, but the value of this data has not been fully realized since it is not readily collected and integrated for a complete, site-wide view. MIS offers an enterprise-level system that unlocks data and metrics from across functional areas for a complete view of mine productivity and profitability for decision makers across planning, operations and finance,” Nathan Pugh, business area director of Trimble’s Mining Division said in a statement at the time of the acquisition. “With the enterprise-level mine information platform, we can increase the use and value of geospatial data and other data sources for our customers.”

To The Sky

There are around 33 GPS satellites currently in orbit. Normally, when a new one is launched, it’s a huge affair.

The most recent American navigation satellite went into orbit on May 17, 2014 and went into service on June 10th. It weighs approximately 1,360 Kg and has a planned lifespan of fifteen years.

But with technology evolving to smaller scale, it’s possible to have all the necessary equipment for a satellite in a tiny package.

These tiny satellites, known as micro- and nanosatellites, can weigh anywhere from one to a hundred kilograms and approximately a hundred of them were put into orbit in 2013. This represented a 330% increase over 2012, and based upon projects already announced, 2014 will see a 52% increase over 2013.

Nanosatellites Microsatellites satellites

From 2009 to 2013, only 12% of small satellites were used for earth observation and remote sensing; and there haven’t yet been any GPS satellites on the micro or nano scale. The next frontier for GPS is tiny satellites. They’re cheaper to make and cheaper to get into orbit.

There are about ten commercial companies working on micro- and nanosatellites for Observation and sensing, data collection, ship tracking, and asteroid exploration. None of them are public yet, but given the changing nature of the IPO, it’s possible we’ll see a public nanosatellite company within the next five years.

I should buy a boat