Garmin reorganises for 2023
Garmin’s full results for 2022 are out and hidden away in the footnotes is a tantalising tidbit of info that signal significant changes within the company.
As of now, Garmin has combined two business segments, AUTO and OUTDOOR, and the company makes this statement.
Change in Operating Segments:
In January 2023, the Company combined the consumer auto operating segment with the outdoor operating segment. As a result, beginning with reports filed in the first quarter of fiscal 2023, the Company’s operating segments will be fitness, outdoor, aviation, marine, and auto OEM. Prior periods will be recast to conform to the revised composition. [Garmin]
the Company announced an organization realignment, which combines the consumer auto operating segment with the outdoor operating segment. As a result, beginning with reports filed in the first quarter of fiscal 2023, the Company’s operating segments will be fitness, outdoor, aviation, marine, and auto OEM. [Garmin]
What does that mean? Where is the change?
Simplistically, the car stuff that’s sold directly to the public is now moved within the OUTDOOR organisational segment.
Garmin also sells other automotive stuff directly to, say, vehicle manufacturers which are then sold as part of the finished vehicle.
This kind of organisation makes sense to me as, for example, the salesforce required to sell Garmin products to the likes of GM, VW and Porsche is different to the salesforce that sells consumer satnavs to the likes of Walmart and Halfords. The point of sales materials are different and the warranties are different…and so on. It does make sense to move consumer automotive into another consumer-focused segment, some of the customers might even be the same eg Walmart.
Why indeed! That is a more interesting question.
The following chart displays high-level operating figures that have been restated historically based on the new organizational structure planned for the future. Observing the figures for 2021, it appears that combining Consumer Auto with Outdoor has created a well-balanced division that performs similarly to Fitness, resulting in two comparable business units. However, as we fast forward to the end of 2023, we see that the world has changed, and the Outdoor+Consumer Auto division has grown to be 50% larger than FITNESS.
What Does This Mean
We can interpret this situation in different ways, but ultimately we do not have enough information about the politics or economics that are the true cause.
I believe the main reason behind this move is to reduce headcount costs and other overheads by streamlining the old AUTO business unit.
It appears that the new AUTO OEM business unit’s gross profits are around 30%, and this particular business is loss-making. Therefore, another explanation is that AUTO OEM is now highlighted as a problem child and may even be considered for closure, demerger, or sale.
Perhaps the executive who oversees OUTDOOR is a shrewd character who saw an opportunity to take control of a reasonably profitable part of the company. Alternatively, that person may have been recognized as a skilled manager of that kind of business. It’s difficult to say for sure.
Some people may argue that this move doesn’t make sense and that even the old structure made little sense. They simplify the matter by stating that Fenix products and Forerunner products are essentially the same and should be combined into one business unit. However, Garmin is likely organized based on customer behaviours rather than product technologies. Therefore, even though you and I might have a hard time deciding between a FORERUNNER or a FENIX, the structure probably makes sense. That said, Garmin has created a skewed internal business structure that increases the power and prestige of the OUTDOOR business unit.
Finally, I am unsure if there are any obvious implications for those of us interested in Garmin’s sports technology products. Any thoughts on this are welcome below.
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