Loss of Renault Exclusive Status Drives TomTom Shares South
07/06/2012| 12:09pm US/Eastern
By Archibald Preuschat
AMSTERDAM--Shares in navigation system maker TomTom NV (>> TOMTOM) slumped Friday on news that the Dutch firm had lost its exclusive status as supplier of in-dash navigation devices for French car maker Renault SA (>> RENAULT).
Renault is TomTom's most important customer in the automotive sector, which was seen as a growth area in the light of a fiercely shrinking market for portable stand-alone satnav devices, which consumers are increasingly replacing with smartphones capable of navigation.
A Renault spokesman confirmed that cheaper versions of a new Renault Clio can be equipped as an option with a low-cost navigation system provided by makers other than TomTom.
SNS Securities analyst Martijn van Drijver downgraded TomTom to hold from accumulate and cut the target price to EUR3.25 from EUR4 earlier Friday.
Mr. den Drijver said he expects that Renault will expand this option for non-TomTom devices to other car models. Mr. den Drijver estimated that Renault in 2011 contributed EUR104 million to the total automotive revenue of EUR235 million for TomTom.
Automotive is an important segment for the Amsterdam-based company, which competes with Cayman Island-based Garmin Ltd. (>> Garmin Ltd.). The unit has increased sales to EUR235 million in 2011 from EUR100 million in 2009.
This contrasts to TomTom's consumer unit, in which the key revenue source is the portable device segment. But that satnav market is shrinking after peaking at the end of 2008 in Europe and a year later in the U.S.
Since then, TomTom's overall revenue has been steadily declining, to EUR1.27 billion in 2011 from EUR1.67 billion in 2008.
TomTom said that in the three months to March, the market for portable navigation devices in Europe was down to 2 million units from 2.4 million a year earlier, while the North American PND market shrank to 1.4 million units from 2.1 million units. This is mostly owing to the growing popularity of smartphones, many of which have built-in satellite navigation and maps at no extra cost for users.
Last month, TomTom said it has forged a deal with Apple Inc. (>> Apple Inc.) to provide maps for the future operating systems of its iPhone and iPad tablet PC, but the financial impact is hard to asses, as no detail has been given.
Renault's move, meanwhile, will have a material negative revenue and EBIT repercussions, Mr. den Drijver said.
TomTom shares closed down 4.7% at EUR3.14, wiping out almost all the gains that TomTom had posted this years so far.
-Write to Archibald Preuschat; email@example.com