With Competition Looming, Future Of E-Readers Looks Blurry

The electronic book reader, introduced just over two years ago, might be nearing the end of its lifespan.

At the Consumer Electronics Show in Las Vegas last week, Microsoft Corp. (MSFT) Chief Executive Steve Ballmer showed off a Hewlett-Packard Co. (HPQ) slate computer, a type of device that may soon supplant e-readers. The machine is designed to display both printed content and video, as well as carry an always-on Internet connection.

The rub: H-P originally envisioned the device as an e-reader. But the Palo Alto, Calif.-based computer giant abandoned the idea after two years of development because its designers wanted to build a machine that could handle more than just printed material.

"Our developers were thinking about the future of content," Phil McKinney, the chief technology officer of H-P's computer group, said in an interview with Dow Jones Newswires. "The slate offers much richer media."

H-P's thinking captures the prevailing mood of many hardware makers attending CES. Though e-readers have proved popular--Amazon.com Inc.'s (AMZN) Kindle quickly sold out when it was launched in November 2007--hardware manufacturers say dedicated e-readers will get squeezed by tablet computers on one side and increasingly versatile smart phones on the other. The result: the popularity of e-readers will likely be challenged.

This year "is going to be the beginning of the tablet revolution," Nvidia Corp. (NVDA) Chief Executive Jen-Hsun Huang told a crowd at the company's press event. In an interview with Dow Jones Newswires, he added that e-readers and netbooks, ultraportable computers primarily used for Web surfing, could see their sales drop after these tablets hit the market.

In addition to H-P, Dell Inc. (DELL) is planning a tablet device and Microsoft is rumored to be working on a dual-screen tablet. Most importantly, Apple Inc. (AAPL) is expected to unveil a tablet computer later this month that will likely cause potential e-reader buyers to reconsider their choice.

Tablets promise to bridge the gap between e-readers and netbooks. Tablets will not only display books, but also allow owners to stream video and music. Manufacturers are betting the increased functionality will lure potential e-reader buyers, even though the devices will likely cost more than a dedicated book gadget.

Meantime, smart phones are becoming more powerful. New models sport larger screens with greater clarity, as well as storage and software necessary to serve as book readers. Virtually any smartphone can support e-reader software. Even Amazon.com offers a Kindle app for Apple's iPhone.

Still, many companies are betting a market for dedicated e-readers may continue for some time. At CES, Plastic Logic Ltd. introduced its long-awaited Que e-reader, while Skiff LLC and Spring Design said they would bring new e-readers to the market shortly. Freescale Semiconductor Inc. (FSL) said it was bringing out a line of chips designed specifically for e-readers.

But increasingly, the sentiment is starting to tip against e-readers.

Research boutique Forrester estimates that some 3 million e-reader devices were sold in 2009, nearly two-thirds of which it thinks were Amazon.com's Kindle. Amazon doesn't disclose sales figures and a company representative didn't respond immediately to a request for comment.

But Apple watchers suggest the Cupertino, Calif.-based company alone could sell 10 million tablets in 2010, if it introduces its device in the next few weeks, as expected.

Even retailers, who profit regardless of which device they sell, see more potential for tablets than e-readers.

"E-readers are great news now, but there might not be e-readers by the end of next year," said Gilbert Fiorentino, Chief Executive of the Technology Products Group of Systemax Inc. (SYX), which owns electronics retailers CompUSA and TigerDirect.

-By Ben Charny, Dow Jones Newswires; 415-765-8230; ben.charny@dowjones.com

(Jerry A. DiColo contributed to this report.)

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