It seems like everyone and anyone is making a tablet PC these days. But the young tablet market can’t support so many competitors, each vying for a sliver more of market share than the next. Inevitably, when it comes to new product sales, disappointment will set in for laggard companies with stale products. Barnes & Noble, Inc. (NYSE:BKS) is a prime example of a stubborn tablet producer that is letting a failing product run its business right out of business.
A broken tablet
The first reason Barnes & Noble, Inc. (NYSE:BKS) won’t live past 2014 is its Nook tablet. Sometimes the hardest thing to do is admit a failure and move on. Barnes & Noble, Inc. (NYSE:BKS) can’t. By continually lagging the market in functionality, battery life, and connectivity, the Nook tablet never performed well for the bookseller. But 2013 took those problems to another level.
A company official stated that the latest figures revealed Nook’s losses to be “much higher” than expected. As second-quarter tablet sales numbers fell 34% short of expectations, Barnes & Noble, Inc. (NYSE:BKS)’s loss on the division increased 130%, ballooning to $177 million compared to a $77 million loss the year before. The company, never able attract a large enough customer base, is now paying the costly toll.
A punishing market
Barnes & Noble, Inc. (NYSE:BKS) is also failing miserably because of the market it is attempting to conquer. At the dinner party that is tablet PCs, Apple Inc. (NASDAQ:AAPL) sits at the head table. It’s no secret that Apple is enjoying incredible success with its iPad, averaging a 43% profit margin for the last year on its low-end (yes, low-end) 16 GB model. No doubt that type of seemingly impenetrable margin is just another reason why Apple boasted over $10.00 per share in earnings for the second quarter of 2013.
Those earnings are likely to continue. Apple Inc. (NASDAQ:AAPL)’s iPad sales revenue increased 22% two quarters ago and 40% last quarter, sequentially. Such staggering figures hint that more trouble is coming for the rest of the market.
Tablet Market Share by Company
Coming in at about one-third of Apple Inc. (NASDAQ:AAPL)’s market share is second-place Samsung, which uses Google’s Android as its operating system. Samsung is catching Apple not only with its smartphones, but also enjoying a year-over-year tablet market share increase from 16% to 22%. By offering consumers phones loaded with features not found with Apple’s iPhones, such as larger screen size and multitasking capabilities, Samsung is finding ways to be competitive in a tough market.
Of course, with its $199 Nexus tablet, Google is no pushover, either. Moreover, the Android software is activated on almost 190 million devices worldwide, bringing the tech giant $2.5 billion dollars of yearly revenue from just the Android division.
But when you don’t have the sales or market share that Apple or Samsung enjoy, it’s hard to make even a slim profit margin. Barnes & Noble, Inc. (NYSE:BKS) finds its tablet, the Nook, in this category with just 2% market share. It’s a sliver so small that the company can’t make a dime off tablet sales.