Garmin 2007 Annual Report Download - page 49

Download and view the complete annual report

Please find page 49 of the 2007 Garmin annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 138

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138

23
We depend on our suppliers, some of which are the sole source for specific components, and our production
would be seriously harmed if these suppliers are not able to meet our demand and alternative sources are not
available, or if the costs of components rise.
We are dependent on third party suppliers for various components used in our current products. Some of
the components that we procure from third party suppliers include semiconductors and electroluminescent panels,
liquid crystal displays, memory chips, batteries and microprocessors. The cost, quality and availability of
components are essential to the successful production and sale of our products. Some components we use are from
sole source suppliers. Certain application-specific integrated circuits incorporating our proprietary designs are
manufactured for us by sole source suppliers. Alternative sources may not be currently available for these sole
source components.
In the past we have experienced shortages of liquid crystal displays and other components. In addition, if
there are shortages in supply of components, the costs of such components may rise. If suppliers are unable to meet
our demand for components on a timely basis and if we are unable to obtain an alternative source or if the price of
the alternative source is prohibitive, or if the costs of components rise, our ability to maintain timely and cost-
effective production of our products would be seriously harmed.
We depend on third party licensors for the digital map data contained in our automotive/mobile products,
and our business and/or gross margins could be harmed if we become unable to continue licensing such
mapping data or if the royalty costs for such data rise.
We license digital mapping data for use in our products from various sources. There are only a limited
number of suppliers of mapping data for each geographical region. The two largest digital map suppliers are
NAVTEQ Corporation and Tele Atlas N.V. Nokia has signed a Merger Agreement with NAVTEQ, and such
Merger Agreement has been approved by NAVTEQ’s shareholders. As of February 21, 2008, the proposed merger
between Nokia and NAVTEQ is currently pending regulatory review by the European Commission and other
closing conditions. In addition, Tom Tom, one of our main competitors in the PND market, is in the process of
attempting to acquire Tele Atlas through an offer to purchase all of the issued ordinary shares of Tele Atlas. As of
February 22, 2008, Tom Tom’s proposed offer to purchase the Tele Atlas shares was under regulatory review by the
European Commission.
If both of these transactions close, the two largest digital map suppliers will become wholly-owned
subsidiaries of Garmin competitors. Although we do not foresee difficulty in continuing to license data at favorable
pricing due to the long term extension signed between Garmin and NAVTEQ in November 2007 (extending our
NAVTEQ agreement through 2015 with an option to extend through 2019), if we are unable to continue licensing
such mapping data and are unable to obtain an alternative source, or if the nature of our relationships with NAVTEQ
or Tele Atlas change detrimentally, our ability to supply mapping data for use in our products would be seriously
harmed.
We rely on independent dealers and distributors to sell our products, and disruption to these channels would
harm our business.
Because we sell a majority of our products to independent dealers and distributors, we are subject to many
risks, including risks related to their inventory levels and support for our products. In particular, our dealers and
distributors maintain significant levels of our products in their inventories. If dealers and distributors attempt to
reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could
be negatively impacted.
Many of our dealers and distributors also sell products offered by our competitors. If our competitors offer
our dealers and distributors more favorable terms, those dealers and distributors may de-emphasize or decline to
carry our products. In the future, we may not be able to retain or attract a sufficient number of qualified dealers and
distributors. If we are unable to maintain successful relationships with dealers and distributors or to expand our
distribution channels, our business will suffer.