Peter-Frans Pauwels, chief technology officer at TomTom, demonstrated how the navigation software works on the iPhone. TomTom's offering includes turn-by-turn navigation software with routes and maps from Tele Atlas as well as the car kit, which comes with enhanced GPS, voice instructions, and hands-free calling.

Executives said the application will be available once Apple releases iPhone OS 3.0. Pricing and availability haven't yet been announced, although TomTom said they will be announced before the product's launch later this summer.

Whether the software and car kit will be compatible with Apple's newly announced iPhone 3GS is unknown. The iPhone 3GS is two times faster than the 3G and includes a digital compass that allows users to view a list of turn-by-turn directions. TomTom's application will give users turn-by-turn car navigation.

Strategic Move

Making its navigation software available through the App Store and rolling out a car kit was a strategic move for TomTom as the smartphone market has continued to thrive despite a crumbling economy.

In the fourth quarter, worldwide sales of smartphones reached 38.1 million, an increase of 3.7 percent from the same quarter in 2007, according to Gartner. Global sales of smartphones for the year reached 139.3 million, up 13.9 percent from 2007.

That growth is expected to continue, according to NPD Group analyst Ross Rubin, who said smartphones, which represented 17 percent of handset sales in the first quarter of 2008, now are at 23 percent.

TomTom's roots are actually in developing software for other companies' devices, and it originally created software for PDAs running Windows CE, according to Rubin. But when the portable navigation market took off, it started building its own device and using them exclusively for navigation.

"The iPhone offers many of the conventions that we see in leading navigation devices, including a relatively large screen, a touchscreen that can be used to simplify tasks such as zooming in and out on maps, and two-way connectivity built in, which put it at tremendous advantage compared to other navigation devices that charge an extra fee," Rubin said.

Deal Will Boost Both Companies

Apple has had great success with the iPhone since its launch, selling more than 21 million, according to the company's sales reports. Teaming up with TomTom will only add to its success, and both companies are expected to benefit.

"In terms of developing for the iPhone, you certainly could not ask for a better time as the device will be available at a $99 price point," Rubin said.

TomTom has already benefited just from announcing the collaboration . Its shares rose 17 percent Monday after it announced the deal with Apple, a positive sign for a company that has recently seen huge drops in revenue. TomTom reported a 31 percent revenue drop in the first quarter with $275.5 million, down from $397 million in the first quarter of 2008.