Production is starting and should hit mass-market stride in February, says an analyst

Artist's rendition of an Apple tablet computer, with iPhone. Credit: AppleInsider

"The manufacturing cogs for the tablet are creaking into action," writes Oppenheimer's Yair Reiner in a note to clients issued Wednesday morning.

According to his supply chain sources, Apple (AAPL) appears to be gearing up to build as many as 1 million tablet computers per month. Assuming the company would need 5 or 6 weeks of inventory before going live, that suggests — barring production hiccups — a March or April 2010 launch.

Among the other "tidbits" Reiner says he's picked up:

• Apple has settled on a 10.1-inch multi-touch display using the iPhone's LTPS LCD technology, not the considerably more expensive OLED technology suggested in earlier reports.
• Apple has been approaching U.S. book publishers with what Reiner describes as "a very attractive proposal" for distributing their content: an App Store-type 30/70 split (30% for Apple) with no exclusivity requirement. [See UPDATE below.]
• According to Reiner, publishers are disgruntled by Amazon's (AMZN) terms, which force exclusivity, disallow advertising and demand a "wolfish cut" of revenue. The typical Kindle/publisher split, he says, is 50/50, rising to 30/70 if Amazon gets exclusivity.
• Apple's tablet would make ebooks more attractive for the education market by simplifying functions such as scribbling marginalia.

"We have not adjusted our model to show the impact of the tablet," Reiner concludes, "but we believe it will be substantial. Conservatively assuming 1M-1.5M units per quarter at an ASP of $1,000 and a corporate average net income margin of 22%, the tablet could contribute $0.25-$0.38 of incremental EPS per quarter."

An average selling price of $1,000 seems a little steep for the college market. But if Reiner is right about the timing, we'll find out soon enough.

UPDATE: In an interesting twist that might be related, the Wall Street Journal reports today that Simon & Schuster is delaying by four months the electronic-book editions of about 35 leading titles coming out early next year, and that a second publisher, Lagardere SCA's Hachette Book Group, has similar plans in the works. According to the Journal, S&S is "taking a dramatic stand against the cut-rate $9.99 pricing of e-book best sellers."

For more artists' renditions of what Apple's unnamed and unannounced tablet computer might look like, see Silicon Alley Insider's gallery here.

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Barnes & Noble eReader, the Nook

If you're the type of early Christmas shopper who bought a Kindle last week, I hope you kept the receipt, because a newer, equally affordable option is about to hit shelves.

Barnes & Noble (BKS) CEO Steve Riggio on Tuesday took the stage before hundreds of authors, agents, publishers and pundits to debut the company's electronic reader, the Nook.

The Nook will sell for just $259, a steep discount from competitors like the Sony (SNE) Reader and the iRex DR800SG , which both retail for $399. The price suggests Barnes & Noble is going straight for Amazon (AMZN), which recently lowered the Kindle's price to $259.

The Nook uses the same screen technology that powers Amazon's Kindle, but adds an iPhone-like color touchscreen below for easy navigation. Readers have access to 3G wireless on AT&T's broadband network.  The reader holds up to 1,500 books (like its major competitor), but an expandable memory slot allows readers to add up to 17,500 more. "You're getting a lot of eReader for the money," says Sarah Rotman Epps, an analyst with Forrester Research.

Another novel experiment: lending. Barnes & Noble lets readers share titles with friends on any platform in the Barnes & Noble ecosystem. So you like the "Tipping Point?" Buy it for your Nook and lend it to your sister to read on her Barnes & Noble iPhone application. (She'd better not procrastinate; she has 14 days before it disappears.)

Barnes & Noble will turn its massive retail presence into a competitive advantage. Over the next few weeks, the bookstore chain will roll out Nook displays in its 700 stores and 600 college bookstores. Through complimentary Wi-Fi connections in all the stores, readers will be able to browse eBooks on their readers just as they might have always browsed the shelves.

The eBook market is tiny, but its growth has been explosive this year. eBook accounts for less than 2% of traditional book sales, but the $16.2 million in sales for July, for example, represented a 213% increase over a year ago, according to Forrester Research.

Right now Amazon has 60% of the market, but the eReader is expected to be a popular Christmas item this year, and Barnes & Noble plans to get in on that opportunity.

Pre-orders for the Nook will begin this week, and the company says it will begin shipping in late November.

The large bookstore has been lunging into the eBook market at full force. It purchased independent eBook seller Fictionwise earlier this year and launched its own eBook store in July. It has also unleashed a series of smartphone applications, with more planned.

While there's no guarantee Barnes & Noble will succeed, it's a necessary move as the book market becomes increasing tough to navigate.

Traditional books — the kind you bring to the beach and lug on the subway — are getting much cheaper.

In the last week, Amazon, Wal-Mart (WMT), and Target (TGT) have begun selling some of this year's hardbacks that are anticipated to be the most popular — books like Stephen King's "Under the Dome " ($35.00) and Sarah Palin's "Going Rogue" (list price: $28.99) — for roughly $9 on pre-orders.

Sure, it's typical to discount bestsellers, especially during the holidays, but few retailers are bold enough to bring down the prices by more than 50%. Barnes & Noble must now hope the Nook masters its niche.

Tyrese Gibson's Mayhem is a comic book – the first standalone print publication for sale in Apple's iTunes LP format.

Tyrese Gibson’s Mayhem is the first digital book for sale on iTunes 9 – perhaps an early sign of Apple’s (AAPL) desire to take on Amazon’s (AMZN) Kindle and Sony’s (SNE) Reader in the digital book market.

I would have missed the significance of Mayhem on iTunes if I hadn’t run into Gibson himself on Wednesday. After the Steve Jobs iPod keynote, I spotted the actor/singer known for roles in action movies like Transformers 2 in the demo area where attendees were playing with the new iPods and software. He had a laptop open and was doing a few TV interviews about his Mayhem project, and its debut on iTunes.

Gibson isn’t the first person you’d expect to make a mark in the comic book business. For one, he’s not a longtime comic book fan – he only recently got interested in the medium while attending the Comic-Con convention to promote the movie Death Race. After seeing the devotion of die-hard fans there, he was determined to get in on the action – and he conceived of Mayhem, a vigilante tale with a diverse cast of characters.

Take a look at the Mayhem comic iTunes LP ($1.99), and it’s easy to see the potential of book or magazine sales over Apple’s digital store. For starters, Apple has amazing reach – there are more than 100 million iTunes accounts connected to credit cards, which is a sizable audience. In the Mayhem iTunes LP itself there is a beautiful flow to the action; new panels zoom into the foreground as others fade away.

And it’s not just text and images; both audio and video come along with the package. The interface is designed so that it would obviously work nearly as well on a touch-sensitive tablet – or even on an iPhone – as it does on a full-fledged PC.

Perhaps that’s because Apple itself had a hand in designing this digital version. While hanging out with Gibson, I also briefly spoke with the two creators of the Mayhem iTunes LP, Sam Herz, one of Apple’s user interface engineers for the iTunes Store, and Barry Munsterteiger, creative director for rich media and Internet technologies.

The pair said that while working on Mayhem, they created some tools based on standard web technologies like HTML, Javascript and CSS that others might be able to use to create iTunes LPs. But they’ve since turned over their work to higher-ups at Apple, and they’re not sure what will happen to their work.

They might not know, but we can hope: Though CEO Steve Jobs has publicly talked down the idea of Apple building an e-book, he hasn’t closed the door on a multi-purpose device that does the same thing – something that might look like an oversized iPod touch. Maybe the tools Apple created to digitize Gibson’s Mayhem comic will be part of an author’s kit with that oft-rumored Apple tablet?

Sony Reader

In what is fast shaping up to be a war in the e-reader marketplace, Sony (SNE) has launched the latest salvo, a sub-$300 touch-screen "Reader Touch Edition" and the $199 "Reader Pocket Edition," which features a 5-inch display. The company is also lowering prices of ebooks. New releases and best-sellers will all be $9.99, matching Amazon’s (AMZN) price point for the first time.

In addition to lowering prices, adding a touch-screen and trimming form factor, Sony is also attempting to differentiate itself by opening the ebook market place. It offers free access to the 1 million public-domain books digitized through the Google Books Project, and ebooks purchased at Sony’s store, which use the standard EPUB format, can be shared on any combination of six PCs and e-reader devices. Owners of the Sony devices can download ebooks in the library for 21 days.

It’s ironic that Sony would play open-standards champion, given its rich history of proprietary technologies (Betamax, Memory Stick, etc.), but Steve Haber, president of Sony’s Digital Reading Division, says the company is committed to openness as a way to hasten the move from paper to digital.

“A year and a half ago, when we mentioned ebooks, people would say, ‘That’s not going to happen.’ But it’s a very hot category right now and it can grow tremendously,” he says. “Our plan is for a ubiquitous content for consumers. It’s not about one store/one device. It’s many stores and many devices.”

Sony’s e-readers, Amazon’s Kindle, and the forthcoming Plastic Logic device (which will partner with Barnes & Noble and be available sometime next year), all use E Ink technology. Unlike Kindle, the Sony devices, available later this month, will sell at many retail outlets, including Best Buy, Costco, Target, and Wal-Mart. Also unlike Kindle, the Sony devices aren’t wireless. Downloading content requires consumers to connect the readers to PCs.

But Haber says the company has been working on a wireless device and plans to announce availability soon. The Christmas selling season would seem a safe bet. “We will be sharing more things later this month and more later in this year,” he says. “We’re breaking a brand new price zone with a pocket-size reader. It’s a really wonderful experience. It will introduce ebooks and epaper to a whole new audience. But this is the beginning. This is not the whole story.”

As of last January, Sony had sold more than 400,000 e-reader devices, at which point it stopped disclosing sales. Haber intimates that the company adopted the policy in reaction to Amazon’s reticence. “We were giving out numbers and realized we were the only ones,” he says. “but we’ve sold a significant amount since January, and the momentum is only getting faster and faster.”

One Forrester analyst estimates that as many as 3 million e-reader devices will have sold by the end of this year.

Book retailer partners with Plastic Logic and Google to take on rival Amazon.

The world’s largest bookseller has taken the wraps off the world’s largest e-bookstore. Barnes & Noble (BN) announced yesterday the availability of more than 700,000 digital e-books, along with free e-reader software for the iPhone, BlackBerry, Mac and PC platforms. “It’s a unique every-device strategy,” said William Lynch, president of BN.com in a conference call.

The strategy is clearly aimed at Amazon.com (AMZN) and its popular Kindle e-reader, which I wrote about recently here, as well as the eReader from Sony (SNE). Like Amazon, BN is offering many new releases and best-sellers for $9.99. Unlike Amazon, Barnes & Noble will also allow users to download nearly a half-million public-domain books for free, courtesy of a partnership with Google (GOOG).

As part of the announcement, Barnes & Noble also revealed an exclusive agreement to provide ebooks for the widely anticipated Plastic Logic e-reader, an 8.5 x 11 device that’s scheduled for release early next year. (Plastic Logic uses technology developed by E Ink of Cambridge, Mass.) The deal started to come together in the spring after Barnes & Noble acquired e-book platform Fiction Wise, which had been working with Plastic Logic to develop an e-book store.

Plastic Logic vice president of business development Daren Benzi says his device is geared for business travelers, and as such will support the display of PDF files, Microsoft's (MSFT) MS Word, Powerpoint, and Excel, as well as newspapers and magazines. But ebooks are a big part of the game plan. “Will we carry every single one of those 700,000-plus titles? I don’t know. We’ll announce that as we get further along,” Benzi. “But we will have access to them all.”

Barnes & Noble first entered the e-book business in 2001, but as Barnes & Noble's Lynch and Amazon CEO Jeff Bezos both now acknowledge, nobody was buying. Lately, however consumer attitudes have changed, due in large part to bigger screens and increasingly mobile lifestyles. Wholesale ebook revenue exceeded $25 million in the first quarter of this year, compared to $7.5 million in Q1 2008, according to the International Digital Publishing Forum. “We see a number of [positive] indicators coming together,” says Benzi. “One of the factors is the Kindle; and Sony has experienced significant growth as well. But over and above that, the content providers are embracing new technology and new business models. Even some of the media companies are talking about investing in their own device. All the pieces are there to make this a vibrant and exciting market.”

The book industry seems to agree, and certainly welcomes a healthy competition among device makers. “I'm all in favor of seeing more e-books on more screens,” says Tim Sullivan, executive editor of Basic Books, a New York-based publisher. “And I'm pretty sure that an open format – which is what it sounds like Barnes & Noble is going to offer – will be disruptive to both Amazon and Sony,”

It took Amazon (AMZN) less than a month after the release of the second-generation Kindle electronic-book reader to put a free Kindle application on the iPhone App Store. It took another two months for it to fix the app's second most annoying drawback (after the iPhone's tiny screen): the hoops you had to jump through to buy new titles.

Amazon solved that problem Monday morning by launching a Kindle store "optimized" for the iPhone. Before if you wanted to buy a book for the iPhone, you had to get it from your Kindle (if you had one), or from Amazon via a computer, or from Amazon's site as viewed through the iPhone's browser — not a user-friendly experience.

Now iPhone users can buy directly from within the Kindle application through a new interface that works like an iPhone app should and doesn't require a magnifying glass.

It's no mystery why Amazon keeps showing the iPhone its love. The company hasn't released sales figures for either the Kindle 1 and the Kindle 2, but according to press reports, it has probably sold 700,000 to 800,000 of the devices in their first 18 months.

Apple (AAPL), by contrast, has sold some 37 million iPhones and iPod touches.

And since Amazon CEO Jeff Bezos has made it clear that he is far more interested in selling e-books than he is in selling Kindles, it makes sense for him to put his content on as many devices as he can — and to make reading that content as seamless as possible.

At the launch of the Kindle 2, Amazon VP Ian Freed said that the company was working hard to bring Kindle apps to a variety of existing smartphones, starting with the ones that offer the best reading experience.

Apparently that was the iPhone, because there's no sign yet of a Kindle app for Research in Motion (RIMM), Android (GOOG), Symbian (NOK) or Mobile Windows (MSFT) phones.

UPDATE: iLounge's Charles Starrett points out that there could be a small wrinkle in the Apple-Amazon relationship: By selling its e-books directly to readers, Amazon may have found a way to avoid the 30% cut Apple will start taking this summer when it opens the App Store to so-called " in-app purchasing."

The new Kindle store, writes Starrett, "appears to be a workaround to enable easy purchasing without Apple revenue sharing."

See also:

• Amazon’s Kindle hits the iPhone
• Amazon’s Kindle: Did Steve Jobs blow it?
• Amazon unveils the new Kindle 2

If there was ever any question that Amazon's (AMZN) Jeff Bezos is more interested in selling books than selling Kindle electronic book readers, the answer showed up on the iTunes App Store overnight Wednesday: a free application to read Kindle books on Apple's (AAPL) iPhone.

Given that there are more than 17 million iPhones in circulation and probably not more than a few hundred thousand Kindles, Amazon has, with a single stroke, vastly increased the size of its potential readership without necessarily boosting sales for its $359 reader.

The app, which you can download here, works pretty much as advertised. You can't order books directly from the iPhone — you have to do that from a Kindle or through a Web browser. But once you've established that you have an Amazon account, the books you've ordered show up instantly — and wirelessly — on the screen, thanks to the magic of Amazon's new Whispersync technology. If you've started to read a book on a Kindle, Whispersync is smart enough to remember what page you were on.

There are plenty of titles to choose from in the Kindle Books section of the Amazon store — more than 240,000, according to Amazon's press release — although as you might expect, the list is heavily tilted toward current bestsellers (104 of the 112 titles on New York Times' list, most for $9.99 each).

At the store, you can arrange books by popularity ("The Shack" by William P. Young currently tops that list), customer review (Ron Paul's "The Revolution") or publication date ("Eye of the Beholder," Jade Falconer).

But you get a better feel for the range of books available when you list them by price, high-to-low or low-to-high. The most expensive title is something called "Selected Nuclear Materials and Engineering Systems (Part 4)," which sells for $6,431.20. On the other end of the spectrum, there are pages and pages of books priced at $0.00, including Arnold Bennett's "Sacred and Profane Love" and Hugh Dalton's "With British Guns in Italy," to name a couple at random.

The books are certainly readable on the iPhone, although I'm not sure anybody is going to make it through Doris Kearns Goodwin's 944-page "Team of Rivals" (No. 16 on the Kindle bestseller list) on a 3.5-inch screen. The pages are formatted for Kindle, not the iPhone, which creates some unfortunate typographical effects. At right, for example, is what the preface page of Barack Obama's "Dreams from My Father" looks like on the iPhone, with an ugly and unnecessary break in the word "preface."

All in all, the reading experience on Kindle for iPhone falls somewhere between Google's (GOOG) free iPhone Book Search app, with 1.5 million titles to choose from but minimal formatting, and Andrew Kaz's $2.99 Classics, which offers only a dozen or so books, but each of them specially formatted for the iPhone screen.

And that's probably as it should be.

See also:

• Amazon unveils the new Kindle 2
• Amazon's Kindle: Did Steve Jobs blow it?

Apple CEO Steve Jobs was pretty dismissive of Amazon's Kindle electronic book reader when it first came out. "The whole conception is flawed at the top," he told the New York Times a little over a year ago, pointing out that 40% of Americans make it through one book a year or less. "People don’t read anymore."

The launch Monday of the Kindle 2 after 14 months of strong sales — as many as 500,000 units, according to one analyst (Amazon does not release sales figures) — has led some second-guessing among Apple watchers.

"Why don't we own this market?" asked one investor on The Mac Observer's Apple Finance Board (AFB). "Apple had ALL the elements here, the capacity to design, the money to market, and the distribution system already in place via the App Store and the iTunes Store." (link)

It's an interesting question, with an unsual twist.  Although Apple and Amazon are both making white hand-held electronic devices these days, they come at it from very different directions.

Amazon (AMZN) is primarily an electronic retailer; it ventured into manufacturing with the Kindle to drive sales of titles from its huge online bookstore.

Apple (AAPL) is an electronics manufacturing company; it provides music, movies, apps and even some books on the iTunes Store primarily to drive sales of Macs, iPods and iPhones.

Both companies are profitable — but Amazon is much less so, which drives Apple investors crazy. Even as Wall Street has been rewarding Amazon for finally breaking into the black, it has been pummeling Apple.

"The Kindle is a good product.  Amazon is a good company," wrote another commentator on AFB. "Notwithstanding that, the P/E disparity is staggering."

He has a point. Check out the tale of the tape:

Apple is three times the size of Amazon and nearly four times as profitable, yet Amazon trades at 44.7 times earnings while Apple closed Monday at less than 20. And that's not including the growing stash of deferred revenue Apple is squirreling away from sales of iPhones. (See Spotlight on Apple's hidden revenue stream.)

Of course it's not too late for Apple to get into the e-reader market, should its management team overcome its CEO's skepticism about America's reading habits.

Meanwhile, Amazon has signaled that it is willing, once some technical hurdles have been overcome, to let iPhone owners read the books in its electronic library — as long as they buy a Kindle first.

In fact, Jeff Bezos is convinced that anybody who tries to read a book on a smartphone will quickly see the virtue of a dedicated e-reader.

"If you are going to read for a couple of hours, you are going to have problems with battery life with a mobile phone, you are going to have eye strain and you are going to have problems with screen size," he told the New York Times yesterday. "Reading is an important activity and deserves a purpose-built device."

Amazon's (AMZN) Kindle has a skinny sister — the Kindle 2.

At a press conference Monday morning in Manhattan, CEO Jeff Bezos introduced a thinner, lighter and faster version of the company's surprisingly popular handheld electronic book reader. The price is the same — $359 — and it goes on sale today for delivery in 15 days.

The new device looks very much like the old one, with these improvements:

• Thinner: 0.36 inches thick, 25% thinner than an iPhone
• Quicker: Turns pages 20% faster
• Longer lasting: 25% increase in battery life
• Better display: 16 shades of gray (was 4)
• Bigger memory: Stores up to 1,500 books
• Bigger vocabulary: Built-in 250,000 dictionary
• Better navigation: With a 5-way joystick
• More vocal: Able to read text aloud in a semi-robotic voice
• Less accident prone: The page-turn buttons are smaller and harder to hit by mistake
• More wired: New Whispersync technology (more below)

"We want the Kindle to disappear," said Bezos before a packed audience in the basement of Manhattan's Carnegie Library. "It's designed so nothing interferes with that incredibly pleasurable mental flow-state you get into when you are reading a good book."

Bestselling thriller author Stephen King read from new a short story — "Ur" — that is available, for now, exclusively on the Kindle. "I'm the entertainment," he quipped.

The original Kindle allowed users to download books (standard price: $9.99) wirelessly from the Internet using a built-in 3G cellular modem.

The Kindle 2 goes one step further. The new Whispersync technology allows users to pause in their reading on, say, a Kindle 1, and pick up where they left off on a Kindle 2 and, eventually, on future wireless devices — a phrase Bezos left tantalizingly vague. Earlier reports suggested that the company's electronic library of 230,000 books would be available on various cell phones including Google's (GOOG) Android phones and Apple's (AAPL) iPhone.

Ian Freed, VP for Kindle, said the company was working "as quickly as possible" to bring Whispersync to a variety of existing smartphones, starting with the ones that offer the best reading experience. He declined to give a timeframe.

Amazon has never released Kindle sales figures, nor would its spokespeople confirm analyst estimates that it has sold as many as 500,000 units of the original model. The company had trouble keeping up with demand through much of 2008, especially after Oprah Winfrey endorsed the device on national television, calling it "my new favorite thing in the world."

Click here for the press release.