Riding the GPS Wave 

I'M NOT A big fan of losing my way. Neither are a lot of other people.

The rapidly growing popularity of all things GPS (Global Positioning System) over the last couple of years is testament to that. In 2005, 17.75 million navigational units were shipped in North America, Europe and Japan, up 69% from 10.51 million units a year earlier, according to research and consulting house Strategy Analytics. By 2010, the firm predicts that sales in those regions will climb to a remarkable 87.72 million units.

Yet, figuring out how to invest in GPS has become as confusing as finding your way through the labyrinthine streets of Istanbul. Auto makers, hand-held-personal-navigation-device purveyors and mobile-device makers, are all vying for GPS dollars. At the epicenter of this craze is a little-known chip maker named SiRF Technology Holdings  that has skillfully positioned itself to shine like the North Star as navigation services continue to expand and evolve.

SiRF — the name stands for silicon radio frequency, if you're curious — has been developing GPS chips and software since its founding in 1995, giving it an edge over rivals like Qualcomm's  SnapTrack unit and the GPS technology venture between Trimble Navigation and privately-held U-Nav Microelectronics. SiRF claims some of the top GPS device makers as customers, most notably Garmin  and TomTom — the leaders in the highly popular market for personal-navigation devices, commonly referred to as PNDs. PNDs not only offer directions from point A to point B, but a plethora of other fun extras like MP3 players, city guides, Bluetooth hands-free calling and foreign-language dictionaries. The popularity of such devices has helped SiRF realize double-digit sales growth. In 2005, revenue climbed 41% to $165.2 million and analysts expect the company to report revenue of $247.2 million this year.

Always looking toward the road ahead, SiRF hasn't allowed itself to get too comfortable with these PND cash cows. The San Jose, Calif.-based company has been carefully plotting its course and creating new products for a variety of industries, most notably the automobile-electronics and wireless-phone businesses, which are set to put the squeeze on PNDs.

Until recently, buying a car with a navigation system installed by the manufacturer has been a costly proposition left mainly to luxury car buyers at a cost of $1,500 and up. Cheaper alternatives like hand-held PNDs, which run anywhere from $200 to $1,000, have kept the in-vehicle navigation market in check. But that soon may change. Last year SiRF unveiled a cheaper GPS chip for in-car navigation that is intended to bring the cost of an embedded system down to the $400 to $800 range, making it a more attractive option for both the luxury and midrange auto makers. SiRF already provides its chips to LG Electronics for General Motors'  OnStar navigation system and it has separate deals with automobile electronics makers Bosch-Blaupunkt and Kenwood.

Wireless phones, including PDAs and smart phones, are another hotspot for SiRF. Carriers are growing more interested in offering location-based services. These services would enable your phone to help you find the closest sushi restaurant or ATM while walking around town. On the flip side, it may also allow advertisers to target ads to your phone based on your location. For example, say you're at the mall. Your phone may display a coupon to the AMC Theatres next door for $2 off a large popcorn and soda combo.

Sprint Nextel  and Verizon Communications have launched basic location-based services and more carriers are expected to follow suit. (Cingular and T-Mobile are widely anticipated to announce something soon.) Deutsche Bank analyst Brian Modoff said in a report published in early June that he expects the rollout of these services to result in increased demand for SiRF's products as early as the end of this year.

Even while SiRF finds its way through these growing markets, it continues to seek out new frontiers, especially in the wireless multimedia area. Last December, the company bought Impulsesoft of Bangalore, India, which makes Bluetooth stereo technology that can be used for MP3 players and other wireless devices. Most recently, SiRF bought a company called TrueSpan, which has developed chips for high-quality audio and video for mobile devices, which will help SiRF get into the mobile TV market.

SiRF has developed a track record of seeing trends before they hit and getting there first, making this a company with strong growth prospects. Jefferies & Co. analyst Adam Benjamin, who has a $42 price target and a "Buy" rating on SiRF's shares, said in a June 19 research note that the company will continue to benefit from the three-plus-year secular trends in the GPS market. (Jefferies & Co. makes a market in the company's shares.) SiRF's stock currently trades at $31.64, way off of its 52-week high of $42.50.

SiRF has done a good job of plotting its course thus far. I expect to see more of the same in the years ahead.