Can Barnes & Noble Revolutionize the Tablet Market?

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It's about that time of year: 7-inch tablet hardware refresh season!

While Apple (NAS: AAPL) may kick off the festivities first with its spring unveiling of the latest and greatest iPad, we're now approaching numerous inevitable and important tablet hardware announcements in the 7-inch arena. Of course, Google (NAS: GOOG) is putting the pressure on by launching its Nexus 7 this month, especially because it's sold out virtually everywhere.

The usual suspects
By now, Amazon.com's (NAS: AMZN) Kindle Fire and Barnes & Noble's (NYS: BKS) Nook Tablet, which were leading the 7-inch market, are aging devices and must respond. Quickly. Both tablets were launched late last year and are steadily approaching their one-year birthdays, meaning they're now senile compared with the young whippersnapper that is the Nexus 7.

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Nook Tablet (left) vs. Kindle Fire (middle) vs. Nexus 7 (right). Sources: B&N, Amazon, Google.


Nook Tablet (left) vs. Kindle Fire (middle) vs. Nexus 7 (right). Sources: B&N, Amazon, Google.

Amazon is expected to release not one, but two new Kindle Fires, targeting both the 7-inch and 10-inch markets within a matter of months. Apple is also thought to announce its own slightly larger 7.85-inch iPad Mini as well. Now it's B&N's turn.

According to CNET, such a device is just around the corner. A "reliable" source says the bookseller has a proprietary "revolutionary screen technology" up its sleeve that it developed in-house along with the help of some other anonymous company. To the best of my knowledge, B&N isn't in the display panel business, so clearly it would need to collaborate with an actual display maker for innovation in that department. This mystery technology has supposedly never been seen in any other product ever before but will somehow enhance the reading experience.

Cue speculation now
The company made a major announcement with software giant Microsoft (NAS: MSFT) a few months back, settling the pair's outstanding Android-related patent dispute, among other things. The deal involved having Mr. Softy invest $300 million into a new subsidiary geared toward digital reading and tablets. Microsoft is also getting into tablet hardware with the Surface as well as display hardware with its acquisition of Perceptive Pixel. Could Microsoft somehow be our mystery contestant?

Fat chance. If this "revolutionary" technology has never been seen before, that would include in the Surface tablet. The Surface's specific display technology is but one of the many details that Microsoft refuses to tell us. Besides, it's reportedly manufactured by Asian contract manufacturer Pegatron, which also makes iDevices, so there's unlikely to be anything there we haven't seen already.

Perceptive Pixel makes enormous touchscreen displays up to 80 inches, and its smallest is 27 inches. Again, we've already seen this, so we can go ahead and scratch this possibility. Plus, the deal hasn't closed quite yet.

Mr. Softy will still be there
Microsoft will probably still play some type of role, but likely related to content and potentially the inclusion of some Xbox Live services. CNET's source says the new tablet will not run Windows 8 and will stick with Android.

Content is one area where B&N has lagged its rivals, specifically in music and videos. It has plenty of other types of tablet content, like e-books, magazines, newspapers, and apps, but music and video are lacking. Conveniently, Microsoft just announced its own Xbox Music service and already has a decent selection of video.

Color me intrigued
Thankfully, B&N has just recently changed its reporting structure and now breaks out the Nook business explicitly, making life easier for everyone instead of stating its consolidated Nook business in addition to its prior segments of retail, college, and BN.com. Investors care the most about the Nook business anyway, and it's now easier to track and compare over time.

The Nook segment, which also includes digital content and accessories, jumped 34% in fiscal 2012 to $933 million. However, it decreased year over year in the fourth quarter by 11% to $164 million. B&N attributed the drop to slow device sales to higher third-party retailer returns, lower selling volume, and lower average selling prices.

Like Amazon, Barnes & Noble doesn't disclose unit sales, but we do know they're stalling, so the company definitely needs some new hardware to try and reinvigorate device sales. Meanwhile, content sales remain healthy, more than doubling for the full year.

Any hype B&N can garner over this new screen technology won't compare to the attention that Apple's moves get. Calling this mystery screen technology "revolutionary" is clearly hyperbole, since it's impossible for B&N to revolutionize the tablet market, but I'll give it one thing: I'm intrigued.

Apple's rumored iPad Mini could put a quick end to its 7-inch rivals, which is but one of many growth catalysts it has in store. Sign up for The Motley Fool's brand-new premium research service all about Apple to read more. Retail is changing as we know it, and these two companies are leading the way. Grab a copy of this special free report before it's gone.

At the time this article was published Fool contributorEvan Niuowns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Amazon.com, Microsoft, Google, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Microsoft, Google, and Apple, writing puts on Barnes & Noble, and creating bull call spread positions in Apple and Microsoft. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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