* Average selling price 99 euros versus expected 109 euros
* No clear view on Christmas sales spend
* Net profit 31 million euros, in line with forecast
* Google launches navigation software for smartphones
* Shares extend losses, down 17 percent
(Adds details, analyst comment, background, updates shares)
By Harro ten Wolde
AMSTERDAM, Oct 28 (Reuters) - Navigation device maker TomTom suffered two blows on Wednesday as it warned of ongoing declines in selling prices and Google made a high-profile entry into the market.
TomTom shares were hovering around two-month lows after it reported third-quarter average selling prices for its navigation devices were 9 percent lower than forecast. The company said it expected this trend to continue in the fourth quarter, when it traditionally sells more lower priced devices.
The shares extended losses at mid-afternoon after Google said it would weave technology for driving directions into new versions of its smartphone software.
"That is really bad news for TomTom," said analyst Paul Beijsens at Theodoor Gilissen in Amsterdam.
TomTom shares were down 20 percent at 8.23 euros by 1515 GMT and were the biggest decliner in the Amsterdam blue-chip index, which was down 2 percent.
TomTom and its main competitor Garmin are feeling increasing competition from navigation aids on mobile phones, and TomTom has launched software and hardware to turn Apple Corp's iPhone into navigation units using its technology. Garmin shares fell 9.7 percent.
The navigation market, once a duopoly between Garmin and TomTom, now has to compete with newer rivals such as Research In Motion's BlackBerry, Apple, and offerings from Palm, Nokia and Taiwan's HTC.
SLOWER PACE OF DECLINES
TomTom sold 2.58 million devices at an average selling price of 99 euros. Analysts had expected an average selling price of 109 euros -- with estimates ranging from 101 euros to 116 euros -- and unit sales of 2.5 million for the third quarter.
For its biggest markets in Europe and North America, TomTom said it expected to sell, respectively, about 15 million and 17 million personal navigation devices (PNDs) for 2009.
Chief Executive Harold Goddijn told Reuters he expected average selling prices to decline further during the fourth quarter, but the pace of decline over the full year 2009 would be slower than in 2008.
"The fourth quarter is traditionally a very strong quarter especially for the North American market," he added. "But we have limited visibility of what the actual spending on the navigation category will be in the fourth quarter."
Goddijn also said he expected 2009 gross margins to remain above 40 percent.
However, in spite of the lack of visibility and the expected weakening in average selling price, analysts said the selloff had been overdone, and pointed to several positives from the third quarter.
"While there will be some disappointment at weaker than expected average selling prices, there were good trends for units (sales), gross margins, operating expense control and cash generation," Nomura analyst Stuart Jeffrey said.
Petercam analyst Eric de Graaf said investors had overreacted. "As long as gross margins remain strong I don't see a problem. Lowering selling prices is just a strategy to generate more volumes."
TomTom's net profit of 31 million euros ($46 million) was down 47 percent from last year but up 53 percent from the second quarter. The average expectation in a Reuters poll was 29 million euros, with individual estimates of 11 analysts ranging from 22 million euros to 41 million euros.
TomTom reduced its net debt to 599 million euros from 1 billion euros at the end of the second quarter, using about 400 million euros in net proceeds from a rights offering and a private placement. ($1=.6718 Euro) (Editing by Simon Jessop and Jon Loades-Carter)