Tuesday, June 25, 2013

Bad News for the Nook?

Barnes & Noble announced today that they're getting out of the manufacturing business. It is their intent that in order to cut losses, they won't make any more Nooks. They'll design them, make apps for them, support them with their catalog, but won't build them without outside help.

Here's the original text:
The company plans to significantly reduce losses in the NOOK segment by limiting risks associated with manufacturing. Going forward, the company intends to continue to design eReading devices and reading platforms, while creating a partnership model for manufacturing in the competitive color tablet market. Thus, the widely popular lines of Simple Touch™ and Glowlight™ products will continue to be developed in house, and the company’s tablet line will be co-branded with yet to be announced third party manufacturers of consumer electronics products. At the same time, the company intends to continue to build its digital catalog, adding thousands of eBooks every week, and launching new NOOK Apps™.

The company will continue to offer its existing inventory of its high quality NOOK® HD and NOOK® HD+ devices at amazing prices through the holiday. As always, Barnes & Noble will provide world-class pre- and post-sales support in its stores for its NOOK HD and NOOK HD+ customers, as well as ongoing software upgrades and improvements to the digital bookstore service.

This move comes despite the fact that a year ago Microsoft announced plans to invest $300 million in the Nook. How bad are the losses?
NOOK EBITDA losses were $177 million for the fourth quarter, which include an additional $133 million of inventory charges as the company adopted more aggressive promotional strategies given the shift in strategic direction. NOOK EBITDA losses were $475 million for the full year, primarily driven by cumulative NOOK inventory related charges of $222 million.

While they managed to outlast Borders, they don't have the means to keep up with Amazon and Apple. It's a shame that this loss continues but perhaps it's for the best. Does B&N really want to be in the electronics manufacturing business when there are so many others out there that excel in it? With all the tablets and e-readers out there already, maybe B&N can stick to its core business of selling books rather than trying to maneuver their way through the cutthroat business of making gadgets. Samsung and Sony make gadgets; they don't sell books. Microsoft has lots of experience in finding the right partners to make hardware. It seems like any of them could be effective partners. If B&N plays it smart and finds a skilled partner, the Nook will survive.

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