Dutch developer of navigation software TomTom is thinking about cutting its consumer branch. The free navigation systems in smartphones made TomTom's profits from paid systems come crashing down.
Smartphones decimate TomTom's profits
The sales of navigation systems and subscriptions for map updates are under massive pressure because of all the free applications that are available for smartphones and tablets. This will cause the demand for paid solutions to drop by ten to fifteen percent each year, says CEO Harold Goddijn in Dutch paper NRC Handelsblad. Even though they are good for the brand recognition of the company, they eat away at profitability.
TomTom wants to start focusing on selling licenses, such as the ones the company is currently supplying to Apple. The cooperation with car manufacturers should also bring in higher margins. By quitting the consumer market the company would be able to free up more means for this part of the company.
Sales down by 13%
Subscriptions for traffic services and map updates are already being cancelled for newly sold navigation systems. Currently these devices are worth half of sales of TomTom, totalling 202 million euro in the first quarter of 2013, a drop of 13% when compared to the same period a year earlier. For the entire year TomTom is expecting sales of 900 to 950 million euro. The eventual result will cohere with the evolution of car sales.
TomTom made a loss of 2.3 million euro in the first trimester of 2013. During the same period in 2012 the loss was limited to about 1.5 million euro.