Fri, Sep 30, 2011 - Page 11 News List

Kindle Fire’s impact on E Ink has analysts divided

‘DOUBLE-EDGED SWORD’:Citigroup thinks Amazon’s new tablet will not undercut e-readers, but JPMorgan thinks it will, and also squeeze component suppliers

By Kevin Chen  /  Staff Reporter

Amazon’s launching of its Kindle Fire tablet and new electronic book readers on Wednesday in the US is likely to create more revenue growth at its e-paper display supplier E Ink Holdings Inc (元太科技), Citigroup said yesterday, but JPMorgan warned the low-priced tablet was a “double-edged sword” for the Taiwanese firm.

The Kindle Fire, which has a seven-inch (17.7cm) screen and uses E Ink’s fringe field switching (FFS) technology, is forecast to ship 4 million units by the end of the year, while E Ink is likely to obtain a 40 percent share, Citigroup Global Markets analyst Arthur Lai (賴昱璋) said in a note.

Moreover, the US online giant’s three new Kindle e-readers also use E Ink’s most advanced e-paper technology, boding well for the Taiwanese company as the e-reader market continues to thrive, Lai said.

The Citigroup analyst’s optimism was based on an assumption that tablet computers will not significantly undercut demand for e-readers, given that Apple Inc’s iPad tablet did not substantially eat into the e-reader market as some had expected.

In his note, Lai said he believed Amazon was positioning the Kindle Fire as a multimedia/shopping tablet instead of an upgraded e-reader. The US company’s simultaneous launching of three new e-readers with aggressive pricing also indicated it was still expecting stable growth for the e-reader market in the US and Europe, he added.

Based on Citigroup’s study, more than 10 million e-readers were shipped last year, compared with 3.5 million units in 2009. The market is expected to expand to 27 million units this year and 40 million units next year, according to Citigroup.

E Ink chairman Scott Liu (劉思誠) said last month that global e-reader shipments would reach between 25 million units and 30 million units this year, compared with last year’s shipments of 10 million units.

“Historical data suggest e-readers and tablets can both simultaneously grow fast,” Lai wrote. “As such, we believe potential cannibalization should be limited at less than 10 percent.”

E Ink reported a revenue of NT$6.92 billion (US$226.96 million) in the second quarter after making a record NT$10.09 billion in the first quarter. Citigroup expects the company to deliver a sequential growth of 45 percent in the third quarter, along with improving operating margins.

However, JPMorgan maintained that Amazon’s US$199 Kindle Fire, costing less than half the price of the cheapest iPad, would take over a large portion of global e-reader sales.

Worse, JPMorgan said it believed Amazon’s effort to sell low-priced tablets and e-readers was made possible by price compression from its components suppliers.

“Amazon has more bargaining power to demand price cuts on components, including E Ink displays,” JPMorgan analyst Narci Chang (張恆) wrote in a separate note yesterday.

Chang said the Kindle Fire tablet was “short-term positive, but long-term negative for E Ink,” adding that decelerating growth and declining margins would continue to weigh on the company’s share price.

E Ink closed 4.47 percent lower at NT$66.3 on the Taiwan Stock Exchange yesterday. Its stock has risen 12.18 percent this year, compared with a decline of 29.28 percent on the main bourse.

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