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TomTom Posts Major Profit Loss: Is The End Near?

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Homer Simpson on TomTom

Homer Simpson on TomTom

Earlier today, TomTom posted a major drop in profit for the third quarter of 2010. How major? About 37%. That may not be the deathknell for the Dutch telematics company, but TomTom clearly needs to revamp its strategy if it wants to avoid the corporate coffin down the line.

Part of TomTom's problem is beyond its control, stemming from the weakness of the dollar. When TomTom's sales in the U.S. are converted to euros, they generate far less revenue than they once did. (We saw the same problem a couple of years ago in Japan, which led Honda to call for artificial devaluation of the yen.) The euro is slowly weakening, so the differences between it and the U.S. dollar may soon minimize, but for the time being, TomTom is warning investors that it expects flat profits for 2010.

TomTom's other major problem is, of course, that many, many other companies now do what TomTom does -- and often, for less. OnStar, for example, offers many of TomTom's features, with the added advantage of linking subscribers with live operators in case of emergencies. Smartphone apps like Google Maps and Waze provide goodies like turn-by-turn navigation, updates on speed traps, and other useful driver info -- and they do it for free. And let's not forget TomTom's direct competitors like Garmin, which are in the same boat and breathing down TomTom's neck.

So far, TomTom's strategy seems focused on brokering deals with automakers like Mazda and Renault to make its devices optional (or sometimes standard equipment) in new vehicles -- which is fine, but that seems more an act of circling the wagons than striking out for new tech territory. The company's stock price has fallen from €56 a share in 2007 to about €6 today, which says that we're not the only ones who see the dikes are ready to burst. Clearly TomTom has to make some decisions, lest he company be left in the same tomb of the tech universe to which answering machine manufacturers were relegated a decade ago.

[WSJ]

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