* Sees holiday unit sales below year ago
* Q3 non-GAAP EPS $1.02 vs est $0.69
* Q3 sales $781.3 mln vs est $703.9 mln
* Fall in average selling price slows
* Shares down 14 percent, reverse early gains (Adds conference call comments; updates shares)
By Savio D'Souza
BANGALORE, Nov 4 (Reuters) - No. 1 U.S. navigation device maker Garmin's (GRMN.O) forecast of a weak holiday quarter fueled concerns about PNDs' long-term survival prospects, sending its shares down almost 14 percent as investors warily eyed Google's entry into the navigation space.
The personal navigation device (PND) market, once controlled by Garmin and TomTom (TOM2.AS), has been hammered by a slump in demand and selling prices for most of this year, and last week Google (GOOG.O) dealt a further blow by unveiling plans to launch free navigation software for smartphones. [ID:nLU565010]
To add to the company's woes, competition from smartphones with navigation aids, such as Research In Motion's RIM.TO BlackBerry, Apple's (AAPL.O) iPhone and offerings from Palm PALM.O and Nokia NOK1V.HE, is increasing.
"While these developments are interesting, we don't believe they will impact the market for PND any time soon," Chief Operating Officer Cliff Pemble said on a conference call with analysts.
Garmin, which posted a surprise rise in third-quarter profit, now expects to sell fewer units in the key holiday season quarter than it did last year, indicating that it expects weak demand.
Shares of the company dropped almost 14 percent to as low as $27.14 in afternoon trade on Nasdaq after the weak forecast. They had risen about 10 percent when the company posted a profit that blew past market expectations.
"The (third-quarter) beat, as impressive as it is, will likely do little to ease investor concerns about the sustainability of the PND business in a world of free Google mobile navigation," analyst Yair Reiner of Oppenheimer & Co said. "Against that backdrop, some holders may use any strength this morning as a pathway to a clean exit."
Garmin's shares are usually volatile on the day it reports earnings, and short interest on its stock is at about 9 percent of the total float. By comparison, blue-chip technology stocks such as Google and Apple have short interest positions below 2 percent.
"We expect to see our unit shipments increase 40 percent to 50 percent sequentially during the fourth quarter, but also anticipate pricing and margins to be in line with 2008 levels," Pemble said.
That would mean that it expects to sell 5.5 million to 5.9 million units in the quarter. It sold 6.4 million units a year ago, with an average selling price (ASP) of $165 per unit.
Garmin sold 3.9 million units in the third quarter with an ASP of $202 each as pricing, cost and volumes improved.
The PND segment continued to show growth on a unit basis in North America, Asia and Europe, Chief Executive Min Kao said in a statement.
Net income in the quarter rose for the first time in four quarters, to $215.1 million, or $1.07 a share, from $171.2 million, or 82 cents a share, a year ago.
Excluding the impact of a fluctuating dollar, profit rose to $1.02 a share from 87 cents a share. Analysts on average were expecting earnings of 69 cents a share, according to Thomson Reuters I/B/E/S. [ID:nWNAB9727]
"Contrary to the impression people had last week after TomTom's results, pricing pressure has not increased and prices have been benign enough to allow Garmin to deliver the highest PND margins it has had in many years," said Reiner, who has a "perform" rating on Garmin's stock.
Garmin's results come a week after TomTom posted healthy results but warned of falling selling prices and low visibility into the key holiday season. [ID:nLS458927]
Garmin's margins were 52.4 percent, compared with 44.3 percent a year ago. PND margins improved to 48 percent from 38 percent, helped by a moderation in the fall of average selling prices, currency fluctuations and cost cuts. (Reporting by Savio D'Souza in Bangalore; Editing by Vinu Pilakkott and Saumyadeb Chakrabarty)