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Amnon Landan of Mercury Interactive
5 4 . 9 9 / CANADA $ 6 . 9 9
54-year-old chief executive, are a mini Paul Allen and Bill Gates. Both made it onto The Forbes 400 for the first time this year, thanks to Garmin's remarkable growth through the tech recession. With the company's market value at a recent $4.5 billion, Kao is worth $970 million and Burrell, $810 million. Revenue is up 23% annually since 1996 to $465 million this year. Profits, now at $142 million, have kept apace. Together Burrell and Kao control 45% of Garmin's outstanding shares (never a lick of venture capital). Consumers scooped 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 dashboard-mountable reBY ARIK HESSELDAHL ceivers for their car, boat or plane. Still more replaced the electronics of their private planes with the "Garmin stack," a $25,000 set of cockpit instruments that combines navigation and communications gear. Its new G1000 cockpit system replaces all those clunky 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. But these are tricky times for Kao. with a navigation system, you the 27 GPS satellites that orbit 11,000 miles 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 fendin the otherwise chilly technology busi- for the leisure class. Civilian GPS users ing off the big electronics giants such as Sony and Toshiba, which are licking their ness is gadgets to help lost people figure now outnumber military ones 100-to-l. 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 handfirm 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.
Found: Mm Kao of Garmin Ltd. in Olathe, Kans. (North, 38 degrees, 51.333 minutes; West, 94 degrees, 47.941 minutes). Users of its GPS receivers never have to ask for directions.
F O R B E S -
October 27, 2003
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 specialized marketing knowledge and a combination 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), 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 probably 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 accurate its fix, expressed as latitude and longitude. The signals are free to anyone in the world who wants to use them. Kao and Burrell hired a dozen engineers 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, Garmin 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 outsources almost nothing. Its factory in Taiwan produces consumer products, while another at headquarters produces aviation gear. Gross margins have risen each year since the mid-1990s. Garmin's biggest frustration has been in wooing automakers. It dominates the $170 million global business for aftermarket GPS receivers. But automakers are building receivers into dashboards, 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
The founders: Gary Burrell and Kao. Left: Garmin's GI000, a cockpit GPS that goes in small aircraft. Below: a PDA called the iQue.
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 mid1990s. "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 handheld GPS receivers with color screens, which Garmin doesn't. And it is readying a launch of RoadMate, an aftermarket 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 operat92 F O R B E S " October 27, 2003
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 networking. Also in development are less expensive GPS add-on modules for existing 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 locations with each other. "The two-wayradio 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 certified for use in planes, was convinced it was a big deal. Burrell had wanted Allied to pursue GPS for the marine market, but
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