I

I J

/ -J

I
Amnon Landan of 5 4 . 9 9 / CANADA $ 6 . 9 9

Mercury Interactive
Garmin
54-year-old chief execu-
Found: Mm Kao of Garmin Ltd.
tive, are a mini Paul
in Olathe, Kans. (North, 38
Allen and Bill Gates.
degrees, 51.333 minutes; West,
94 degrees, 47.941 minutes). Both made it onto
Users of its GPS receivers
The Forbes 400 for the
never have to ask
first time this year, thanks
for directions.
to Garmin's remarkable
growth through the tech
recession. With the com-
pany's market value at a
recent $4.5 billion, Kao is
worth $970 million and
Burrell, $810 million.
Revenue is up 23% annu-
ally since 1996 to $465
million this year. Profits,
now at $142 million, have
kept apace. Together Bur-
rell and Kao control 45%

Takin of Garmin's outstanding

shares (never a lick of
venture capital).
Consumers scooped

by Hand up some 2 million GPS

handhelds in 2002, more
than half of which were
Garmin-made. Thousands
Garmin rules the hot GPS business. But for how long? more bought Garmin's
BY ARIK HESSELDAHL dashboard-mountable re-
ceivers for their car, boat
or plane. Still more re-
placed the electronics
of their private planes
with the "Garmin stack,"
a $25,000 set of cockpit
instruments that com-
bines navigation and
communications gear. Its
new G1000 cockpit system
replaces all those clunky

U
NLESS YOU'RE A PILOT, AN AVID locations to within feet—American tax- gauges and indicators with sleek flat-panel
hiker or hunter, or own a car payers paid the $15 billion bill to launch displays.
with a navigation system, you the 27 GPS satellites that orbit 11,000 miles But these are tricky times for Kao.
may not have noticed that one above the Earth and help pinpoint terres- Just as he is beginning to enjoy a taste of
of the fastest-growing sectors trial locations—has become a plaything the mass market, he has to begin fend-
in the otherwise chilly technology busi- for the leisure class. Civilian GPS users ing off the big electronics giants such as
ness is gadgets to help lost people figure now outnumber military ones 100-to-l. Sony and Toshiba, which are licking their
out where they are. The greatest financial beneficiaries chops at Garmin's 58% gross margins
Sales of Global Positioning System, or of this giant public works project are and imposing market share. Prices for
GPS, receivers—in handheld devices, cars, two folksy engineers: Gary Burrell and GPS chips have dropped from $100 per
planes and boats—will reach $4.7 billion Min Kao, the founders of Garmin Ltd. 1,000 to $20 in the past five years. Sony
in North America this year and more than of Olathe, Kans. Garmin's easy-to-use has a GPS receiver built into its Memory
double by 2008, according to research devices are the closest thing the GPS Stick, aimed at users of its Clie hand-
firm Frost & Sullivan. What began as a world has to Windows. And Garmin's helds, while Toshiba has done the same
way for missiles and troops to peg their Burrell, 66, now retired, and Kao, the with its Secure Digital cards.

90 F O R B E S - October 27, 2003

Garmin
Kao dismisses the threat of the big
electronics houses taking his products
down to commodity status. "The GPS
market is sizable, but it is made of niches,
and the barriers to entry are rather high.
Getting into these markets takes special-
ized marketing knowledge and a combi-
nation of technology like software and
cartography that those companies don't
have," says Kao.
He should be more worried about
his main rival, Magellan, since 2001 a
brand of Thales (pronounced TAH-less),
a $10.5 billion-in-sales
French aerospace concern.
For many years Magellan
was the brand of choice until
it was passed among different
owners, and Garmin started
winning business in the mid-
1990s. "Back then the company
was focused on other things,'
says Dean Senner, chief executive
of Thales Navigation.
Thales is going after Garmin's
core business. It has a line of hand-
held GPS receivers with color
screens, which Garmin doesn't. And it is
readying a launch of RoadMate, an after-
market automotive GPS receiver that will
compete head-on with Garmin's popular
StreetPilot.
While mobile phone makers like
Motorola and Nokia have started putting
GPS chips in their handsets, Kao doesn't
see much of a threat. "That's the type of
commodity business we want to avoid,"
says Kao.
Instead, Kao is going after the PDA
market, where margins can be higher for
those with a distinct product. Its iQue
3600 PDA hit the market in July with an
integrated GPS receiver and Palm operat-
92 F O R B E S " October 27, 2003
The founders: Gary Burrell and Kao.
Left: Garmin's GI000, a cockpit GPS
that goes in small aircraft. Below: a PDA
called the iQue.
ing system. The PDA can load detailed
road maps and, when used with a car kit,
can give spoken driving directions. An
impressive start, but first tries are
often too expensive for the
masses. At $589 retail, sales
have been a bit slow, says IDC
analyst Alex Slawsby. Kao says
more iQues are in store that
will include wireless net-
working. Also in develop-
ment are less expensive GPS
add-on modules for exist-
ing handhelds.
Last year Garmin
shook up the market
for handheld two-way
radios with the Rino, a
walkie-talkie with integrated GPS screen
that allows its users to share their loca-
tions with each other. "The two-way-
radio market was in decline and in the
midst of a price war when we entered it,"
Kao says.
Burrell and Kao got Garmin off
the ground in 1989 over a seemingly
unremarkable dinner at the Olathe Red
Lobster. Both were frustrated that their
employer, then a division of AlliedSignal,
was squeezing research funds for GPS
receivers. Kao, a Taiwanese engineer who
had developed the first GPS receiver cer-
tified for use in planes, was convinced it
was a big deal. Burrell had wanted Allied
to pursue GPS for the marine market, but
was met with deaf ears.
"I asked Gary if he had ever thought
about starting his own business, and he
said he hadn't," Kao says. "He was prob-
ably half-joking, but he then said that he
would only start a company with me."
So Kao and Burrell left Allied within
months of each other in 1989. Weeks
later they were on a plane to Taipei,
eventually raising $4 million by clearing
out their savings accounts, and tapping
investment bankers and Kao's friends
and family.
At the time the Pentagon was still
building the GPS system, which uses the
radio signals transmitted by the satellites
to determine the position of a receiver
on the ground. The more satellites a
receiver detects overhead, the more accu-
rate its fix, expressed as latitude and lon-
gitude. The signals are free to anyone in
the world who wants to use them.
Kao and Burrell hired a dozen engi-
neers in Lenexa, Kans. to design and build
their first prototype, the $2,500 GPS 100
for boaters. It was a hit right out of the
gate, generating a 5,000-unit backlog
soon after its debut at a trade show.
While most tech companies don't
reveal their product plans until their
wares are in the hands of retailers, Gar-
min would stoke demand by showing off
prototypes months before they were
ready for sale. They could do that
because, unlike most electronics firms,
which outsource everything, Garmin out-
sources almost nothing. Its factory in Tai-
wan produces consumer products, while
another at headquarters produces avia-
tion gear. Gross margins have risen each
year since the mid-1990s.
Garmin's biggest frustration has
been in wooing automakers. It domi-
nates the $170 million global business
for aftermarket GPS receivers. But auto-
makers are building receivers into dash-
boards, and will spend $5 billion this
year doing it, according to one estimate
by market researcher ABI, none of it, so
far, with Garmin.
Be patient, Kao says. Garmin spent
a decade building its 80% share of the
civil avionics business. "So far we've
been in the automotive aftermarket only
three years." F