Nov. 15 (Bloomberg) -- Garmin Ltd. and TomTom NV, the two biggest manufacturers of portable navigation devices, may find their market swallowed by mobile-phone companies no matter who wins the bidding war for money-losing mapmaker Tele Atlas NV.

Handset makers led by Nokia Oyj will sell 48 percent more GPS-equipped phones this year than last, according to researcher iSuppli. Consumers also will find navigation systems available in more new cars, giving them little reason to pay $250 or more for units from Garmin or TomTom, said consultant Blair Swedeen.

``They are getting squeezed from both sides,'' said Swedeen, a principal at Partenza Consulting in San Francisco, which advises navigation companies. ``Competition is inevitably going to drive down margins and commoditize standalone hardware.''

Just as cell phones crushed the electronic organizers made popular by Palm Inc., they'll probably end the boom that has driven personal GPS sales to a 20 percent rise this year, said Canalys researcher Chris Jones in Reading, England.

That means Garmin, up 51 percent year-to-date, and TomTom, up 73 percent, may prove expensive even after the damage done by their bidding war. They started fighting over Tele Atlas, one of two companies that make digital maps for GPS navigation devices, in October after larger mapmaker Navteq Corp. agreed to be bought by Nokia for $8.1 billion. No matter who wins Tele Atlas, Garmin and TomTom both face an onslaught of competition from GPS-enabled phones and cars.

``They're trying to protect themselves as the whole world goes wireless around them,'' said Jeff Rath, an analyst at Canaccord Adams in Vancouver, who tells clients to hold onto Garmin. The auction for Tele Atlas, based in Den Bosch, Netherlands, is about ``self-preservation.''

Nokia's Role

Nokia, the world's biggest mobile-phone maker, will add tracking to dozens of models by the end of 2008, said Anssi Vanjoki, head of the Espoo, Finland-based company's multimedia unit. Location-based services are a ``cornerstone'' of Nokia's Internet strategy, Chief Executive Officer Olli-Pekka Kallasvuo said on Oct. 1.

Nokia, Samsung Electronics Co., Motorola Inc. and other handset makers will sell 162 million GPS phones this year, dwarfing the 20 million units Garmin and TomTom have forecast they will sell combined. By 2011, 444 million phones, almost one-third of those shipped, will have GPS in them, estimates iSuppli analyst Tina Teng in El Segundo, California.

Vulnerable Business

Shares of Garmin, based in George Town, Grand Cayman, and Amsterdam-based TomTom have dropped as their eagerness to buy Tele Atlas took investors by surprise and revealed the vulnerability of their existing businesses, Rath said.

TomTom rose 1.91 euros, or 3.5 percent, to 56.75 euros today in Amsterdam. The stock has declined 16 percent since Oct. 30. Garmin fell $1.60, or 1.9 percent, to $84 at 4 p.m. New York time in Nasdaq Stock Market trading and has dropped 30 percent in the same span.

In the contest for Tele Atlas, Garmin and TomTom are trying to avoid what happened to handheld computer maker Palm. The Sunnyvale, California-based company has fallen 98 percent since November 2000 as the market for electronic organizers was usurped by so-called smartphones such as Research In Motion Ltd.'s BlackBerry.

Garmin, a Navteq customer, mounted a hostile attempt to buy Tele Atlas last month, forcing TomTom to raise its original July offer 41 percent to 2.9 billion euros ($4.25 billion), or 30 euros a share, on Nov. 7. Garmin's U.S. unit is in Olathe, Kansas.

Higher Offer?

Tele Atlas shares fell 1.40 euros, or 4.2 percent, to 32.10 euros in Amsterdam, staying above TomTom's offer. Garmin may eventually win by paying as much as 44 euros a share, American Technology Research analyst Rob Sanderson estimates.

Garmin is still ``evaluating'' whether it will raise its bid, spokeswoman Jessica Myers said.

For Garmin, winning Tele Atlas would mean an expensive transition away from using Navteq maps and dilution of profit until 2010, when it adds to earnings per share, according to Sanderson. TomTom, which gets maps from both suppliers, would have an easier integration. With a winning bid of 42.50 euros, the acquisition would add to earnings for two years before becoming dilutive in 2010 as TomTom loses customers. The projections assume that unit sales keep climbing.

Both bidders would probably lose digital-map sales to competing makers of personal navigation devices, Sanderson wrote in a Nov. 12 report. Both would try to sell maps to mobile-phone makers that don't want to rely on Nokia, and add features to attract car manufacturers, Rath said.

`Parallel Market'

Garmin's Clive Taylor, head of products and marketing in Europe, says ``dedicated'' personal navigation devices will be able, at least for a while, to fend off the threat from mobile phones. ``There's a good opportunity for selling these devices at least for a couple of years,'' Taylor said in an Aug. 31 interview in Berlin.

TomTom CEO Harold Goddijn also says his company can withstand competition from handsets threatening to take over the navigation market.

``That won't happen,'' Goddijn said in an Oct. 24 interview. ``There will be a parallel large market for phones that won't compete.''

Portable navigation devices accounted for 93 percent of TomTom's sales in the third quarter, when the company's revenue rose 21 percent to 427 million euros. Garmin's sales rose 79 percent to $728.7 million, with 71 percent coming from finders purchased by consumers mostly for their cars. That market can coexist and grow even as mobile phones enter the turf, Garmin's Myers said.

Cars' Share

Carmakers are also buying navigation displays from parts companies such as Denso Corp. and building them into the dashboard at the factory. More than 7 percent of new cars and light trucks sold in 2006 had built-in GPS, up from about 6 percent in 2005, according to Ward's Automotive Yearbook.

Mobile-phone makers are working with carmakers to turn cell phones into the focal point for providing functions such as navigation and music in the car, said Canalys's Jones.

``By 2015, the handset will be the natural server, the one device that's got everything,'' said Jones. Portable navigation devices are ``a dangerous place to be if that's all you're doing.''

To contact the reporters on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net; Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net

Last Updated: November 15, 2007 16:14 EST