Military GPS technology is expected to

become multi-billion dollar business by 2000

by Michael Brush

Wednesday, April 3, 1996

From: moneydaily@pathfinder.com

By pledging that the Pentagon's Global Positioning System (GPS) will continue to be publicly available at no cost for years to come, the White House last Friday gave a booster shot to the rapidly-growing $1.25 billion industry for GPS navigational equipment. GPS is used by everyone from car drivers and hikers to surveyors and farmers.

In light of the government's commitment that GPS would remain open, industry analysts predicted sales of GPS-related equipment would increase seven-fold to $8.5 billion in the next four years. This explosion in the industry promises new products for consumers, jobs for high-tech workers and opportunities for investors.

GPS equipment gives users a precise fix on their location by scanning signals from four or five of the 24 U.S. government GPS satellites circling the earth. Originally developed by the Defense Department during the 1970s for use by the armed forces, GPS receivers over the past six years have been increasingly used in civilian applications like car navigation, surveying, precision mining, trekking and boating.

"The White House announcement brings stability and predictability to the international marketplace for GPS products," says Mike Swiek, the executive director of the US GPS Industry Council in Washington, D.C. "Overseas GPS users, from governments to civilians, will now have more confidence about incorporating GPS into long-term infrastructure products."

John Dutton, who follows GPS equipment producers for L.H. Friend Weinress in Los Angeles, agreed that the policy decision would support markets for GPS products overseas, where about half of U.S. production is sold. "This was a very intelligent decision. It took away some of the big arguments against GPS in foreign countries by making it clear that GPS will be available in all countries without charge."

Dutton says the White House announcement will also help the foreign markets for GPS products by affirming that the Pentagon will not control the system. "If I run an airline and I put GPS on my 747, I want to make sure the U.S. military won't shut off the system when I have an airplane approaching the airport," Dutton says. The Defense Department will still have the right to shut down GPS in war zones, notes Swiek. But that should have little impact on civilian use, he said, since civilian activities are generally not carried out on or around battlefields.

The White House also announced last Friday that over the next four to ten years it will stop "degrading" civilian GPS signals--a process that makes them less accurate. This change won't actually do much to help the market for civilian GPS products, however. That's because anyone who wants to can currently buy special equipment that upgrades signals to provide almost pinpoint accuracy.

"Its a common myth that the military has the best accuracy available," says Swiek. "But that's not true. Someone with an artillery shell doesn't need as much accuracy as a surveyor." The "degraded" GPS signals available for civilian use now offer accuracy to within 330 feet, compared to the 45-foot margin of error for the encrypted signal used by the military.

If the government stopped interfering with the civilian GPS signal it would be accurate to within about 60 feet. Special equipment currently in use, however, corrects the signal so that it provides accuracy to within about three feet, Swiek says. Upgrading equipment is used most often by surveyors. The Pentagon does not object to signal upgrading systems, because they can be easily jammed during a military crisis, if needed.

Aside from surveyors, hikers and boaters, some of the biggest users of GPS navigation systems are car drivers. GPS systems are used in the U.S. in some cars available from General Motors Corp. and Avis car rentals, but sales are much higher in Japan, where drivers provide about half the world-wide demand for the systems.

Analysts cite two reasons for the greater demand in Japan. First, the digital mapping required for GPS is complete there, while in the U.S. it is still underway. Second, the systems used in Japan can double as televisions or games, and these kinds of dashboard-mounted devices are illegal in many U.S. states. Some analysts predict that by 2000 the car navigation market in Japan could be as large as 2.2 million units with sales of $2.8 billion.

Analysts say GPS may soon be used a lot more in aviation. Within about five years, the Federal Aviation Administration may authorize a "free flight" system that would allow airlines to use GPS to help them chose the best routes on their own, instead of relying on air traffic controllers. This would help airlines save on fuel costs.

What's the best way to invest in GPS technology? Here is a survey of the major players in the field.

• Trimble Navigation Ltd (NASDAQ:TRMB) The overall technical leader in most market segments, this California-based company is probably best known for its products used in surveying, car navigation, and recreational activities like hiking, boating and aviation. Trimble's annual sales have grown almost four times since 1990 to reach $235 million in 1995.
  
• Magellan Systems Corp. This California-based subsidiary contributes about 20% of the annual sales of its parent company, Orbital Sciences Corp. (NASDAQ:ORBI). The leader in consumer products, especially hand-held navigational equipment, Magellan has aggressively cut prices, and now offers receivers for less than $200. A GPS receiver it expects to put on the market next January for under $1,000 will allow users to send and receive messages using the ORBCOM satellite communications network. The company expects that product to be popular for remote field activities like gas and oil exploration.
  
• Pioneer Electronic Corp. (NYSE:PIO) This consumer electronics company produces car navigation systems with equipment licensed from Trimble Navigation and was one of the first into the Japanese markets. It also sells car navigation equipment in the U.S.
  
• Sony Corp (NYSE:SNE) One of the three largest manufacturers of car navigation systems in Japan, Sony also sells its models in the U.S. Its hand-held GPS receivers have been less successful.
  
• Rockwell International Corp. (NYSE:ROK) The producer of the first U.S. GPS satellites, Rockwell makes car navigational systems for General Motors Corp., and is a major supplier of GPS equipment used by the military.
  
• Motorola (NYSE:MOT) This company provides chips and software for car navigation systems and makes products that integrate GPS with communications equipment like cellular phones.
  
• Eastman Kodak Co. (NYSE:EK) The well-known photographic supply manufacturer has developed a digital camera that imprints time and location data from GPS signals. The cameras will be used by public utilities or governments to confirm repairs carried out on equipment like utility poles and traffic signals.
  
• Xanavi A joint venture between Nissan (NASDAQ:NSANY) and Hitachi (NYSE:HIT), this Japanese company is one of the three big producers of car navigation equipment in Japan.
  
• Ashtech A privately-held company in California, Ashtech provides high-precision equipment used in surveying, scientific work and earthquake forecasting. It is branching out into products used in aviation and automobiles, including a system that would automatically make car phones send signals for emergency help once airbags are inflated.
  
• DeLorme This Maine-based privately-held company makes mapping software used in GPS systems.

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