Barnes & Noble Inc. (BKS)’s Nook e-reader business, renewing efforts to challenge Amazon.com Inc. and Apple Inc. (AAPL), is teaming up with Samsung Electronics Co. (005930) to create co-branded tablet computers.
The new devices will combine the Nook software with Samsung’s Galaxy Tab 4 hardware, creating full-service tablets that can access Barnes & Noble’s collection of more than 3 million books, magazines and newspapers, according to a statement today. The 7-inch model will debut in early August, followed by a 10-inch Galaxy Tab 4 model about two months later.
Barnes & Noble, a bookstore chain with almost 700 stores, has been scaling back its investments in the money-losing Nook unit after earlier tablet models flopped with consumers. The company, which has struggled to compete with Amazon’s Kindle and Apple’s iPad, hasn’t released a new device since October. As part of today’s agreement, Barnes & Noble will buy at least 1 million devices from Samsung within the first 12 months.
“This will drive cutting-edge designs as well as dramatically cut losses” in the Nook division, David Strasser, an analyst at Janney Montgomery Scott LLC in New York, wrote today in a note to clients. Partnering with Samsung is “as good as it gets for Barnes & Noble.”
Samsung, based in Suwon, South Korea, is the world’s largest maker of mobile devices that run Google Inc.’s Android software. The deal will bring world-class technology to Nook, Barnes & Noble Chief Executive Officer Michael Huseby said.
“Our job and focus is to be a content company, not a device manufacturer,” he said in an interview. The partnership with Samsung “allows us to focus on what we’re good at.”
Shares of New York-based Barnes & Noble rose 3.5 percent to $19.57 at the close in New York. The stock has gained 31 percent this year.
Barnes & Noble said in February that it was planning to team up with a manufacturer to create new Nooks. While the devices initially will be sold through the company’s stores and website, distribution may be expanded to other outlets, according to a commercial agreement.
The tablets will contain pre-installed Barnes & Noble applications and a Nook homescreen, according to the document. Users also will have to navigate a Nook account setup screen.
Though Barnes & Noble enjoyed initial success in the tablet business after entering the market in 2010, analysts have long doubted it could maintain the investments necessary to compete with Amazon and Apple.
Those predictions came true during the 2012 holiday shopping season when the chain released two tablets, including a 9-inch model that then-CEO William Lynch said could challenge the iPad. The devices didn’t sell well, leading to writedowns on excess inventory and eventually the replacement of Lynch by Huseby.
Since then, the Nook business has narrowed its losses by scaling back spending. In the most recently reported quarter, the loss before interest, taxes, depreciation and amortization shrank to $61.8 million from $190.4 million a year earlier. That helped the overall company post a profit in the period.
To further cut costs, the Nook unit is moving to a smaller office space in Santa Clara, California, and Barnes & Noble College’s digital staff will move to a facility in nearby Mountain View. The moves will reduce expenses by $10 million and future lease commitments by about $102 million, the company said in a separate statement.
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