Barnes & Noble to Stop Making Tablets In-house but Will That Be Enough?

One way or the other Barnes & Noble Inc. BKS will change. In a major way, it already has with its decision to stop making tablets and farm the work out to electronics partners, according to Bloomberg.

Barnes & Noble really had no choice. The company’s Nook Media digital unit has continued to book losses, sending shares down 17 percent Wednesday, the most since Aug. 2011. As a result, Barnes & Noble said that in an effort to cut costs and limit risk, its in-house tablet-making days are over.

The “tablet” problem, for Barnes & Noble, has always been competition. The company simply doesn’t have the ability to go up against Amazon.com Inc. AMZN, Google Inc. GOOG, and Apple Inc. AAPL. The decision to give up the fight removes a huge burden from the parent company. In addition, according to Bloomberg, the move helps make the Nook more viable as a public company or possible acquisition target.

Michael Souers, analyst for Standard & Poor’s said, “It’s a positive because anything they can do to cut back on that cash burn is a good thing.” Souers added that finding a buyer for Nook would now be easier.

The company had already set the stage through the creation of Nook Media, a subsidiary consisting of the Nook and its college bookstore divisions. Microsoft Corp. MSFT and Pearson Plc. PSO invested in the new unit last year, raising speculation about possible acquisition interest.

All that opens the door for Barnes & Noble founder, Leonard Riggio, to buy the retail arm of the company, something he proposed in February.

The question is whether spinning off tablet production will be enough. The Wall Street Journal isn’t sure. The paper pointed out, Wednesday that retail sales in Barnes & Noble bookstores, not counting Nook e-readers, were down 5.8 percent on the prior year at the end of the most recent quarter.

The company blamed the retail drop on the fact that two big sellers from 2012, Fifty Shades of Grey and The Hunger Games, had not been replaced by anything similar this year. That said, Barnes & Noble CEO, William Lynch seems to think the next Harry Potter is just around the corner. At least he did, according to The Wall Street Journal, in 2012 when he cited examples like Stieg Larsson’s Millenium series.

Companywide, Barnes and Noble had a net loss in fiscal Q4 of $118.6 million, or $2.11 a share. Analysts had projected a loss of $0.97 a share.

At the time of this writing, Jim Probasco had no position in any mentioned securities.