NEW YORK -- Barnes & Noble Inc.'s decision to stop competing in the tablet business potentially will accelerate a break-up of the largest U.S. bookstore chain.
With its Nook Media digital unit racking up more losses in its fiscal fourth quarter the company said that to cut costs and limit inventory risk it will stop making tablets and partner with electronics manufacturers.
Since Barnes & Noble got into the tablet business in 2010, analysts questioned how it would maintain its initial success because the amount of investment to churn out devices to compete against the likes of Amazon.com and Apple would be difficult for a company of its size and acumen. This decision removes those hurdles, which could help make the Nook more viable on its own or as an acquisition target.
"It's a positive because anything they can do to cut back on that cash burn is a good thing," said Michael Souers, an analyst for Standard & Poor's in New York. "That definitely has to be seen as a good thing and could potentially help find a buyer for Nook Media."
That in turn could allow founder Leonard Riggio, the company's largest shareholder, to go ahead with his February proposal to buy the chain's retail arm.
The New York-based company has been exploring ways to increase its value for more than two years as management has said that investors weren't properly assessing its accomplishments with the Nook. The company started the digital content and mobile device division in 2009 to help navigate readers' shift away from paper books.
Last year, the company created a subsidiary that included the Nook and college bookstore divisions and dubbed it Nook Media with an eye toward spinning it off into its own company. Microsoft and Pearson invested in the unit last year. That came after Liberty Media Corp. bought a stake in the entire company in 2011.
Then in February, Riggio said he planned to offer to buy the bookstore chain's retail assets, which included its more than 680 stores and website. That would leave Nook Media as a public company. It had a combined loss before interest, taxes, depreciation and amortization of $364 million in fiscal 2013 on revenue of $2.54 billion.
"It would be much easier to separate the businesses if Nook was doing better,"said Souers. Nook's results looked much better last year when the idea of a spinoff took shape. While it was still losing money, revenue continued to grow.
That changed during this holiday shopping season as its lineup of new devices failed to connect with consumers. Sales at the Nook unit declined for the first time and the company had to write off excess inventory. That continued last quarter, leading to the decision to exit the tablet business.
"We've been very focused here for the last three years on devices, and we realize we have to shift our focus to distributing the content more aggressively," through other platforms, Chief Financial Officer Michael Huseby said in an interview.
Barnes & Noble will keep making the black-and-white e- readers, on which it sells the majority of its e-books. It expects to generate more sales of digital content through its Nook application on other devices and sell more digital textbooks through the college unit, Huseby said.
Barnes & Noble will sell its remaining inventory of Nook tablets through this holiday shopping season and then transition to the partnership model. The company declined to provide details on the plan beyond saying it is in talks with multinational technology firms.
The Nook division was part of a companywide net loss in the fiscal fourth quarter ended April 30 of $118.6 million, or $2.11 a share, from $56.9 million, or $1.06, a year earlier, Barnes & Noble said in a statement. Analysts projected 90 cents, the average of five estimates.