PND Market Needs to Locate Next Evolution, Says IMS Research

Despite what many are predicting, the Personal navigation device (PND) market is not set to tail off dramatically. Rather, the market needs to be a little more realistic in its expectations, while also looking to develop a compelling new feature set.

A report from IMS Research notes that only a year ago, there was optimistic talk of 100m PNDs a year from some quarters, which is unrealistic given the size of the available market and the increasing competition from other platforms. At a fundamental level, this market isn't as large as other consumer device markets, such as cameras or MP3 players- there are only so many cars on the road after all.

However, sentiment is now in danger of swinging back the other way. With a weakened global economy and a lack of innovation and product evolution, manufacturers face a number of challenges. A dominant characteristic over the last 2 years has been the reduction in device average selling prices, suggesting the PND market is in danger of becoming a commodity market, with few key product differentiators. From a mass market point of view, much of the current high-end feature set is "nice to have" rather than "need to have". Without innovation, these are likely to move down the product tiers and become commoditised, much like basic navigation.

Even in its current volatile state, the PND market is now mature enough to sustain medium term momentum. This report identifies the opportunities in this market that will drive sustained revenues over the next five years. There are a lot of eggs being placed in the cellular connectivity basket at the moment and more specifically traffic. But the current revenue models and service packages do not typically have mass market appeal. I personally believe that TomTom's current 30% subscription rate is quite impressive, considering it is the first serious foray into connectivity by a leading PND OEM. However, it also does not constitute "mass market", particularly considering many initial users are likely to be professional or daily navigation users. What will really test this market is the uptake from occasional users, who represent a large percentage of the overall market. Traffic updates and a few other fringe benefits at 10 Euro a month is not compelling.

The problem of connectivity is exacerbated by cellular operators, who are still reluctant to offer competitive flat rate internet. This has greatly affected the cellular LBS market and will continue to do so until this situation is rectified. This is why strong operator partnerships will become key in this market. We are already seeing how this is aiding the laptop and netbook market.

IMS Research has arrived at the following conclusions:

• 2009: Shipments of PNDs to new users will be down as much as 30% in some regions, with a difficult first half of the year. IMS Research is already seeing a significant decline in GPS chip shipments into this vertical market.
• New vs Replacement: The medium term market will recover, buoyed by replacement devices, which are set to represent a significant proportion of the market over the forecast period.
• Competing In-Car Solutions: The total in-car navigation installed base will exceed 50% in all advanced markets by 2014.
• GPS Chip Design: Manufacturers are now investigating some of the more cost effective design techniques, such as SoC, combo-chip and embedded GPS.
• Role of Operators: Cellular operators/MVNOs will play a significant role in the future of PNDs.
• ASPs: In an attempt to prevent further margin decreases, leading manufacturers are forecast to produce fewer low end devices, shifting their product mix towards high-end feature sets.
• Other Devices: Cellular still represents the biggest threat to PNDs, eating up a significant portion of the available in-car navigation market. GPS will become widespread in other portable devices, but not necessarily for navigation.
• Hybrid PNDs: factory fitted PNDs will represent an increasing share of manufacturer's revenues over the short-to-medium term.wireless capabilities with relatively low additional cost, silicon and power demands. Despite the economic downturn, IMS Research forecast 2009 to show a 30% increase in combinations IC shipments, compared with 2008.

Posted to the site on 21st May 2009