(Reuters) - Goldman Sachs cut its rating on Dutch navigation equipment and digital map maker TomTom NV <TOM2.AS> to "sell" from "neutral," saying weak European demand and growing consumer shift towards free software on smartphones will hurt earnings.
Best known for its personal navigation devices (PND) used by car and truck drivers, TomTom has struggled for months to overcome slumping demand in PNDs as consumers opt for free or cheap navigation software as well as cooler gadgets like smartphones and tablet computers.
TomTom struck a deal to license its maps to Apple Inc <AAPL.O> earlier this month to tap into the demand for cheap or free navigation software.
However, Goldman analysts said they expect the agreement with Apple to be only slightly accretive compared with the quickly deteriorating licensing income from Google Inc <GOOG.O> over the next 18 months.
"We expect Tom Tom's transition from hardware vendor to its software model to continue to be challenging, calling for a shorter valuation outlook ..." Goldman said.
The brokerage cut TomTom's price target to 3.20 euros from 3.70 euros. The stock was down 4.5 percent at 3.25 euros on the Amsterdam Stock Exchange.
The brokerage also slashed its price targets on other tech stocks, including Wolfson Microelectronics Plc <WLF.L>, CSR Plc <CSR.L>, Kudelski SA <KUD.S>, Pace PLC <PIC.L>, Alcatel Lucent SA <ALUA.PA> and Nokia Oyj <NOK1V.HE>, citing slowing economic growth and persisting uncertainties in Europe.
Goldman said it sees growth opportunities in smartphones, tablets, cloud and product lifecycle management software. It named Sap AG <SAPG.DE>, Dassault Systemes SA <DAST.PA>, AVEVA Group PLC <AVV.L>, Spirent Communications plc <SPT.L> and Imagination Technologies Group PLC <IMG.L> as its top picks.
(Reporting by Aditi Sharma in Bangalore; Editing by Joyjeet Das)