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Not a Happy New Year for E-Book Reader Makers

Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the midst of a disappointing sales season for retailers, there have been several bright spots. One of those has to be the number of e-book readers that appeared under Christmas trees. 

But the cheer is not expected to last throughout 2013. According to some technology analysts, this category of tech gadgets is expected to see a very rapid decline in its fortunes over the coming months thanks to competition from other devices.

Competition from tablets

There are several well-known e-readers on the market, including the Nook from Barnes & Noble (NYSE: BKS). Last April, the company announced a partnership with Microsoft (NASDAQ: MSFT) whereby Microsoft invested $300 million into its Nook unit. This investment is interesting in the light of Microsoft's move into tablets with Surface.  

There are also a number of Asian manufacturers, but the best known of the e-readers are the various versions of the Kindle from Amazon.com (NASDAQ: AMZN). In the run-up to Christmas, the latest Kindles occupied three of the top 10 slots for electronics at Amazon's website.  

But they were outsold by tablets, which occupied eight of the top 20 spots for electronics on Amazon's website. 

Tablets are becoming more user friendly, lighter, cheaper and with longer battery life. Not to mention tablets are multifunctional. The Kindle and others are under direct fire from the mini-iPad from Apple (NASDAQ: AAPL) and the Nexus 7 from Google (NASDAQ: GOOG) that costs only $199. 

It is this competition that has industry analysts so worried.

The way of the dinosaurs?

One worry wart is the research firm IHS iSuppli. It titled its recent report on the industry: Ebook Readers: Device to Go the Way of Dinosaurs? 

According to iSuppli, total e-book readers shipments grew from a mere one million worldwide in 2008 to ten million in 2010. Shipments hit a peak of 23.2 million units in 2011. But even then, tablets had already taken the lead over e-readers with shipments of 67 million units. 

In 2012, iSuppli has forecast that sales will fall 36% to just 14.9 million units. Another drastic 27% fall is forecast for 2014 when shipments decline to 10.9 million units. The firm sees sales of only 7.1 million units by 2016 as the consumer trend toward a multifunctional device – the tablet – continues. 

Research firm Forrester is in agreement with iSuppli. It also believes that tablets will be become cheaper and cheaper while at the same time screens and battery life improves. 

An analyst with Forrester, James McQuivey, believes e-reader prices and sales have only one direction to go -- down. He told the Financial Times' Chris Nuttall, “Prices are falling so quickly that at some point Amazon's going to give you one for free to extend its customer relationship.”

Small hope

As iSuppli points out in its report, it is an inexorable move from a single-use device to multifunctional devices. But it doesn't mean the complete end for e-readers. Think GPS devices and MP3 players. 

There still may be some demand for the devices from one specific sector – the education industry in emerging markets. 

With the growing popularity of the iPad and other tablets, it may too late to tap into the U.S. educational market in a big way. But it is a different story in the emerging world, but only if the e-reader makers grasp the opportunity quickly.  

Jordan Selburn, an analyst with IHS, told the Financial Times “the future [for e-readers] is in emerging regions and in heavily subsidized opportunities.” 

But in those markets, with incomes low, e-readers would have be very low-cost, perhaps in the less than $20 range for end users. Some one (governments?) would have to subsidize the cost so e-reader manufacturers would make some profit. 

So there is a bit of hope for e-reader manufacturers. Just not a lot of it.   


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