Chip Firms Want to Know: When It Comes to e-Readers, Will Brains or Beauty Win?

Things are looking dire for dead tree media of all sorts as the consumer electronics industry takes aim at newspapers, magazines, and the humble mass of paper known as a book. But between iPhones (s aapl), dedicated e-readers and the much anticipated tablet, what does the consumer electronics industry’s infatuation with reading mean for those providing the components that make such devices work?

The answer could be big for the chip industry, as In-Stat estimates that up to 28.6 million dedicated e-readers could be sold in 2013. However, such a prediction don’t take into account the launch of Apple’s tablet and may not accurately factor in the habits of those who read on their smartphones. Mobile application analytics provider Flurry, as Om noted back in November, sees books becoming the leading category of apps downloaded on the iPhone.

David Carey, a teardown expert at Portelligent, says it’s not clear if dedicated e-readers or tablets designed to consume media will displace existing netbooks, notebooks or smartphones. If they add to our overall gadgets then yes, they will expand the market opportunity for chip vendors. If they don’t, they’ll just help to redistribute consumer device spending.

It’s an obvious point, for sure, but less obvious is how the success of a particular type of device may affect industry players. Currently Freescale Semiconductor is the market leader in the dedicated e-reader space with chips in the Kindle (s amzn) and the Sony (s sne) Reader. When it comes to smartphones, companies like Qualcomm (s qcom), Samsung (its applications processor powers the iPhone) and Texas Instruments (s txn) are vying for domination. Those same companies, along with Marvell (s mrvl) and its Armada line of chips, will also attempt to power a tablet with Samsung said to be providing the silicon inside the new Apple device.

That covers the brains of the reading devices, but what about their displays? When evaluating the total cost of a reading device certain form factors will imply more spending on the brains than the display — the component that I think of as beautiful. Dedicated e-readers have overall higher costs thanks to the proprietary nature of e-ink displays, and those costs are unlikely to come down as fast as the price for LCD screens. Using the brains vs. beauty ratio (application processor vs. display), Carey said dedicated e-readers have a 1:2 ratio with manufacturers spending $2 on beauty for every dollar spent on applications processors.

With smartphones or superphones, for every dollar a manufacturer spends on beauty, they spend 75 cents on brains. For example, in Google’s Nexus One the Snapdragon processor with integrated cellular radio costs $30.50 and the screen plus the capacitive touch components costs $41. In the iPhone 3G S, the applications processor plus the cellular radio (it’s not integrated in the iPhone) costs $27.46 while the screen and touch components cost $35.75.

It’s likely that the ratio of brains to beauty will start out closer to the 1:2 ratio for dedicated e-readers, but that the prices will drop as the cost of LCD screens drops, estimates Carey. Of course, as consumers decide they want their tablet to do more, the demand for smarter slates could force the application processor innovation (and costs) up.

So for the chip firms hoping that e-readers will provide a steady market for their wares, the future is still cloudy. The end products are so different they can’t possibly meet the needs of every consumer. Dedicated e-readers last longer on a single charge, but likely won’t ever deliver as rich media a experience that a tablet or smartphone could (plus young people aren’t that into them), while words on LCD screens used by smartphones and potentially on a tablet can be hard to read over a long period of time. Some folks may use a smartphone, since they don’t read that much anyhow, while others will go to their graves clutching their ripped, dog-eared novels proud to have only owned printed versions of the printed word.

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