Garmin's ~$40B Pivot

“Necessity is the mother of invention.”

Whoever said it, the quote kept popping into my head as I read into the history of Garmin, the hardware technology firm that makes GPS products for automotive, aviation, marine, outdoor, and fitness.

My interest was piqued by the company’s +63% stock performance in 2024, sending its market cap to an all-time high of $40B+.

It’s an impressive achievement when you consider that Garmin — which was founded in 1989 — almost got wiped out by huge challenges from Apple and Google.

In 2008, Garmin made ~70% of its $3B+ in sales from personal GPS navigation devices for the car. That business line was completely wrecked by the combined launch of the iPhone and Google Maps in consecutive years.

Then, just as the company was finding success with GPS-enabled watches for runners (growing from $0to$1B between 2008 and 2014), Apple took another dump in Garmin’s front lawn by launching its Watch.

The 3rd drawdown during COVID and not the fault of Big Tech (blame it on Fed money printer)

By 2018, Garmin’s sales were back to its previous 2008 highs but with a very different revenue mix. As shown in the chart below, Garmin has completely pivoted from a car navigation company to an outdoor and fitness tracking company with annual sales surpassing $5B.

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Source: The Economist

At a high level, Garmin was able to survive Big Tech because it is a vertically-integrated company that spends huge resources on R&D. This combination has allowed it to find new GPS markets, develop products for them and move quickly for the customers.

The Invention of GPS and Founding of Garmin

Two people interested in the GPS consumer market were Gary Burrell and Min Kao. Burrell was born in Kansas and had a Masters in electrical engineering from Wichita State University. Kao was born in Taiwan and moved to America to get advanced degrees including a PhD in electrical engineering from the University of Tennessee.

“The idea for Garmin was conceived during a casual dinner conversation with [my colleague Burrell],” says Kao about the company’s founding moment in an

. “The GPS constellation was still under construction, and it was being developed primarily for military purposes, but Gary and I began discussing its potential as the base technology for a wide array of consumer products. Our conversation became more animated when we envisioned creating products that would help guide pilots, boaters, drivers, and hikers safely and efficiently on their journeys.”

Pivot from Car Navigation to Outdoor & Fitness

In May 2000, President Bill Clinton put into effect a new policy that completely changed Garmin’s fortunes.

Fortunately, the company’s salvation was already cooking internally. Remember how we talked about Garmin’s commitment to R&D? Just as they had found a way to take the GPS from the ocean (boats) to air (planes) to the street (cars), Garmin’s R&D team had identified fitness as a niche market all the way back in 2003.

The transition from car navigation to fitness GPS was far from seamless, though.

While these attempts at new mobile business lines didn’t take off, the aforementioned Forerunner — the pager-sized device that became the world’s first GPS-powered trainer — had catalyzed a fitness segment including watches and trackers that reached $400m in 2008 (10%+ of Garmin’s total sales).

Building off that base, Garmin kept improving the form factor and integrating more features (activity tracking, training plans for niche sports, sleep coaching, stored maps, better battery life, lights).

One notable outcome from Garmin’s approach is that it’s able to price discriminate to a very fine T. Customers have so many options to pay for the exact functionality they need.

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A Reddit discussion from last summer had some solid insights:

“Apple Watch is a Smartwatch with fitness features, Garmin is a Fitness watch (with admittedly lacking) smartwatch features. I think if you get an Apple Watch expecting it to do Garmin’esque things you’ll be disappointed, especially in terms of battery life.”

“Garmin offers more and — typically with Apple’s yearly release schedule — I don’t see Apple matching Garmin’s functionality anytime soon.” [Note: Garmin fitness watches start at $300andcangetupto$3000; Apple Watch also starts at ~$300anditsfitness-focussedUltra2is$1200).

“Apple is still playing catch up with Garmin for running. Even with the [recent software] update, I don’t believe Apple has equivalents for Garmin’s Training Readiness, Body Battery, Race Predictor, or Daily Suggested Workouts to name a few.”

“Even with all of Apple’s new updates, the big issue is still battery. You’re going to be logging some substantial miles and I hated always having to make sure I had enough juice to make it through my run at the end of the day. 13-15% left on my Garmin and I can still make it a whole day.” [Note: Garmin’s highest-end watches can last up to a month with solar charging; the Apple Watch Ultra 2 lasts up to 3 days]

For fitness enthusiasts, Garmin is just a much-more focussed offering. The company’s success with watches is the best example of a more general theme: Garmin continually finds niches for GPS technology and spends a ton on R&D to invent products that appeal to high-value customers in each vertical (to give an idea of Garmin’s business model, its operating margin of 28% is comparable to Ferrari; Apple is at 30% but also has a massive software business to complement its hardware).

Garmin’s Secret Sauce is R&D

Instead of milking whatever business it could and cutting costs, Garmin went on the offensive and has stayed on the offensive. As a point of comparison, Garmin’s R&D spend hitting 17% of sales in 2023 is significantly more than Apple and very competitive with the leading Big Tech firms: Meta (R&D spend is 27% of sales), Amazon (15%), Alphabet (14%), Nvidia (14%), Microsoft (12%) and Apple (8%).

While the co-founders are no longer in leadership positions, Garmin’s DNA has allowed it to successfully adapt to competitive threats. We’ve discussed the company’s engineering-first approach and emphasis on R&D. Kao highlighted some other notable corporate attributes in that

“Gary and I both are fiscally conservative by nature, and we managed our company accordingly. Our early success bred more success. We reinvested in the company and established disciplines like having cash in the bank, maintaining sufficient inventory levels, and staying debt-free. Those practices helped avoid a lot of hurdles. We pioneered new products, new markets, and systems that integrated a variety of technologies which enabled us to supply complete glass cockpits to airplanes, full lines of electronics for boats and in-dash ‘infotainment’ systems for cars today. Our expansion into global markets, selling directly to consumers, happened quickly and relatively smoothly.”

“Our business to business development was much more challenging. Original equipment manufacturer (OEM) businesses in aviation, marine, and automotive industries all have very long development cycles, and a very strong tendency to stay with existing suppliers instead of seeking new partners. We persevered though, and over the years, we’ve developed deep relationships with some of the world’s leading OEMs, like Cessna, Embraer, BMW, and Chrysler.”

“From the beginning though, Gary and I believed in our business model of vertical integration — a philosophy that keeps all design, manufacturing, marketing and warehouse processes in-house. By doing so, we have been able to have greater control over timelines, quality and service. It might have been easier in the short term to offload many of these functions, but in the long run, we’ve learned that by controlling the entire process, we’ve had higher levels of innovation, reduced risks, lower costs, and greater scalability.”

“My partner, Gary, liked to say, ‘we live and die by customers’ perception of our products’. By concentrating on great products that delight customers, our brand takes care of itself.”

[Side note: Garmin has also spent decades working in regulated industries such as aviation and cars, so the company understands the needs of regulators around privacy and sensitive data; this understanding helps it to port GPS-related technology from one regulated industry to another]

As Confucius Jeff Bezos once said, “One of the only ways to get out of a tight box, is to invent your way out.”