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I realize the blue arrow on Google map, as you rotate the phone around, it will rotate as well. May I know how does it know the north south direction? It works too even my GPS is turned off.

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up vote 8 down vote accepted

GPS doesn't understand static direction at all; it can only infer direction from motion. But there is an electronic compass inside the phone as well as the GPS.

You might want to download the "GPS Status + Tools" program from the Market; you can see detailed status information for both the GPS and the compass.

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To add...there's a magnetometer within almost all Android phones. This also allows your device to act like a metal detector. Quite a few apps in the market that enhance this functionality. –  Sparx Jul 3 '11 at 11:26
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