TomTom 2010 Annual Report Download - page 32

p 30 / TomTom Annual Report and Accounts 2010
Business
Risks (continued)
Our success depends on our ability to rapidly develop and
commercialise new and upgraded products and services,
the timing of releases of these, our ability to accurately
forecast market demand, our product mix relative to that
of our competitors, and our ability to understand and meet
changing consumer preferences. Although we continue to
focus on producing high quality automotive navigation
solutions, there can be no guarantee that our products
will compete successfully against current or new market
entrants or competing technologies.
We mitigate these risks by investing in the development
and sharing of our technologies between the different
business units. This is driven through our platform units
which focus on creating innovative benefits to enhance
the navigation experience for our customers.
Average selling price and volume decline in PND market
Navigation solutions are available on a variety of different
platforms including PNDs, built-in automotive systems,
smartphones and on-line. We have navigation products and
services offerings on all these different delivery platforms.
The majority of our revenues and profits are generated
from our PND business. We are expanding our automotive,
smartphone, service and on-line businesses. By offering a
superior navigation experience on our PNDs relative to our
competitors’ offerings we aim to maintain a strong brand
and ensure robust demand and stable pricing for our PND
devices over the medium and short term.
The average selling prices (ASPs) of our products are
primarily affected by the competition we face in various
markets, our pricing compared to alternative products, our
ability to provide enhanced services, levels of discretionary
consumer spending, and the strength of our brand in terms
of innovation, quality and user-friendliness. The volume of
demand for our PND devices is affected by the level of
market penetration in the various countries in which we
operate, the price of the products and our market share
relative to other competing navigation solutions.
We plan our business based on management estimates
of average selling price and volume in the PND market and
growth in demand for navigation on alternative delivery
platforms. If the average selling price and/or volumes in
the PND market decline faster than we anticipate this could
have a material negative impact on our revenues, gross
margins and/or results of operations which we may not
be able to offset with cost reductions, upgrades or new
product innovations.
Brand
We use the same TomTom brand across all our business
units and the products and services that we offer. If we
face factors that negatively affect our reputation or brand
image, such as adverse consumer publicity, inferior product
quality or poor service, this could have a material adverse
effect on our business, results of operations or financial
condition. We may be unable to sustain or improve the
strength of our brand and may, as a consequence,
experience difficulty in maintaining our market acceptance.
Automotive
Our business is focused on the automotive navigation
experience, and we aim to be a tier one supplier to many
car manufacturing clients. With our current technology
capabilities, end-user experience of navigation and map
quality we believe we will continue to grow as a supplier
to the automotive industry.
Trends indicate that the penetration rate of in-dash
navigation solutions for new cars is increasing although
the refresh rate of new cars each year is only a small
percentage of the total cars on the road. Therefore we
expect over the long term that a significant portion of
navigation systems will be built-in. The automotive industry
is an integral part of our long-term business strategy and
we are focusing on collaborating with vehicle manufacturers
to produce embedded in-dash navigation devices, provide
map data and deliver navigation software solutions.
Although the navigation experience for our end-users is
similar, whether the navigation system is built into the
dashboard or provided on a PND, the dynamics of being
a tier one supplier in the automotive industry are very
different from those for delivering mass-market consumer
electronics. The dynamics of supplying to the automotive
industry present challenges in growing our automotive
business and maintaining profitability over the longer term.
If we are unsuccessful in maintaining and growing a
profitable automotive business, our organisation results
will suffer. Even if we are able to achieve in the in-dash
sector the same volumes of portable navigation devices
we produce today, we may be unable to deliver the same
level of profitability.
We are pursuing new automotive opportunities and
considering a variety of different navigation solutions for
these clients. We expect our revenue from this segment
to continue to grow and we will be paying particular
attention as an organisation that all new automotive
customers we sign will be profitable and sustainable
over the longer term.
Innovation
Our markets are characterised by rapid technological
change. We believe that, to be successful in the consumer
electronics industry, it is vital to have the right capabilities
to deliver innovation to market with speed.
The majority of our revenue is derived from integrated
PNDs. If new product implementations do not achieve
required levels of market acceptance, or if the speed of
development and time-to-market of these products
compares unfavourably with directly competing products,
or alternative navigation solutions, this could have a
material adverse effect on our business results. In order
to mitigate product concentration risks related to sales of
PND hardware we aim to diversify our product and service
offering and to expand our recurring revenue streams.