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October 24, 2011
To regain lost share of the navigation market and restore growth and profitability, Dutch navigation equipment maker TomTom (News - Alert) is switching focus away from the cash-bleeding personal navigation devices (PND) to live auto traffic and mapping services. "We have started a restructuring program which will focus our organization on the areas where we see the greatest potential for growth, of which Automotive and Content & Services are clear examples," chief executive Harold Goddijn told Reuters’ (News - Alert) reporter Roberta Cowan.
Besides being popular for its PNDs used by car and truck drivers, TomTom also sells real-time traffic services through its Internet-connected devices and smartphone apps, mapping data to businesses, as well as navigation units which are built into cars, including various Renault, Fiat and Mazda models, wrote Reuters.
According to Cowan’s report, TomTom's biggest division, and biggest bleeder of sales and profits, is the consumer PND unit, with growth at the other units is still far from offsetting losses at PNDs. As per this report, the company has been struggling for last several months to overcome declining demand for PNDs as consumers opt for free or cheap navigation software, as well as cooler gadgets like smartphones and tablet computers.
This change in strategy has come as a big relief for investors, who have seen TomTom's shares plunged from a high in 2007 of 56.326 euros to a September 23, 2011 low of 2.4 euros, wrote Cowan. As a result, TomTom plans to focus on driving growth in more promising areas including in-built navigation systems for cars, as well as mapping and live traffic services, while it scales back its consumer unit, as per the report.
Per Reuters report, the company launched a restructuring program initially targeting 50 million euros in cost cuts over 2012, including job cuts. Plus, TomTom said that sales in all of its business units outside of consumer PNDs grew in the quarter. Thus, sending shares skyward, reported Cowan.
Analysts expect cuts to come from overheads, research and development, marketing and the offshoring of more jobs to low-cost countries.
Meanwhile, Goddijn told Reuters that TomTom will not sell its troubled PND unit, but added that the firm needs to be "less dependent" on the consumer PND market and move into higher growth business and service markets.
Ashok Bindra is a veteran writer and editor with more than 25 years of editorial experience covering RF/wireless technologies, semiconductors and power electronics. To read more of his articles, please visit his columnist page.
Edited by Rich Steeves