E-readers are displayed at the Computex Taipei 2010 in Taipei, Taiwan province, in June. Because of fierce competition and poor software support, many Chinese e-book manufacturers are shifting their focus to tablet PCs. [Photo / Bloomberg]

Supply issues, reduced profit margins may cause many to abandon market

BEIJING - Low profit margins caused by fierce competition and poor software support may force Chinese e-book manufacturers to upscale their production and enter the tablet PC industry instead, said industry experts.

According to data from IT research company Analysys International, the market growth for e-book readers in China this year will be 1.05 million units, below previous estimates.

Although tablet PCs arrived on the market later than e-book readers, sales for the former will hit at least 4.5 million units this year.

"Unlike the United States, Chinese e-book producers haven't formed a cohesive business chain that integrates devices, applications and e-book copyrights," said analyst Sun Peilin from Analysys International. "The profit margin from selling hardware has become increasingly narrow due to intense competition."

He also points out that because the "E Ink" screen technology, which allows characters on e-books to appear similar to ink, is held by a Taiwan-based company, it is not available to unauthorized manufacturers.

Sun estimates that more than half of China's e-book producers will eventually devote themselves to the tablet PC market and change their marketing strategies.

Many e-book manufacturers have already begun switching to the production of tablet PCs. A-share-listed Hanwang Technology Co Ltd, China's biggest e-book producer, told China Daily that the company will launch several tablet PCs this year.

"Our company accounts for about 70 percent of the production of e-book readers in China. The remainder is produced by more than 40 other companies," said Zhang Lei, chief strategist at Hanwang Technology. "That will make small- and medium-sized e-book manufacturers lose their confidence in the market."

Zhang said he noticed last April that some small e-reader companies were already leaving the market, and expects only five or six big players to remain in the near future.

"From a hardware standpoint, there is a shortage of high-quality e-book screens, while tablet PC screens are much easier to get for small- and medium-sized companies," said Sun from Analysys International. Sales of tablet touch screens will increase from 15.4 million in 2010 to 136 million in 2014, according to the IT research company iSuppli.

In addition to screen sales, the direction of chip architecture research also illustrates the trend. ARM Holdings, the UK-based semiconductor intellectual property supplier, has a Chinese market share of more than 90 percent for e-book readers and tablet PCs. The company told China Daily that many Chinese e-book manufacturers are now requesting chips for tablet PCs.

Related readings:  Hanvon debuts eBook products for US  E-book maker Hanwang shows TouchPad  Hanwang to triple sales of e-readers  Hanwang float makes owners rich overnight

"Because of the demand, we developed a solution for a dual-purpose chip, which can be used for e-readers or tablet PCs," said Allen Wu, country manager and vice-president of sales at ARM China.

"I think traditional e-readers will eventually become a niche market, but we predict the growth rate in ARM's tablet PC sector will double this year," Wu said.

However, Sun from Analysys International pointed out that China's tablet PC market will face increasing competition this year. "Numerous multinational companies, such as Hewlett-Packard Development Company, Dell Inc and Lenovo Group, will launch their tablet PC products in the Chinese market soon," he said.

At the end of 2010, a number of multinational PC companies announced that they will launch new tablet PC products in China this year.

"What Chinese e-book producers can do is to cooperate with publishers for software development," said Sun. "Otherwise, they won't survive by only providing hardware."