3 reasons a new Nook Color is likely coming soon

Barnes & Noble is reportedly planning a new Nook Color tablet as early as this month, based on information from component suppliers in Asia. The company is looking to have up to 3 million Nook Color 2 devices produced before the end of 2011, based on industry sources speaking to DigiTimes. Although the current Barnes & Noble (s bks) Nook Color is technically an e-reader, it’s also likely to be the most successful selling tablet outside of Apple’s iPad(s aapl), with several million estimated since it debuted in October of last year.

DigiTimes isn’t known for 100-percent accuracy, but the publication does have well-placed contacts within the Asia-Pacific region where many of today’s consumers electronics and computing devices are made. And news of an updated Nook Color makes sense to me for three reasons:

  1. Success of the current Nook Color. This is a two-sided coin, because on one hand, if a product is selling well, there’s less reason to replace it with a new product. On the other hand, technology cycles are changing ever faster, so in order to “keep up” and stay competitive, timing is important to continued success. Part of the company’s timing may have much to do with the anticipated Amazon tablet that many, including myself, expect to debut before the holiday season. Beating Amazon’s (s amzn) first tablet with a second generation unit could blunt the impact of Amazon’s entry to the tablet market, even if it is a heavily customized 7-inch Android slate for $250 with an Amazon Prime membership as I guessed a few days ago.
  2. Tablet competition. Many are happy with the existing Nook Color as a tablet, and for good reason. The $249 cost is far less than most tablets, and it’s an easy process to unlock the standard Google Android tablet experience on the device. Doing so gives the best of both worlds: A solid e-reader and a full-featured Android(s goog) slate. But a new generation of powerful tablets is on the way soon. The current Nook Color won’t compete against them, but it may compete against more capable older tablets that are likely to start dropping in price. And there’s even new competition in today’s market, evidenced by the just announced Lenovo A1, which has more hardware features — cameras and faster processor, for example — costing only $199.
  3. Reliance on digital media. Earlier this week, Barnes & Noble reported financial results for its fiscal first quarter of 2012. Traditional store sales decreased 3 percent to $1 billion, but the company’s Nook business including hardware, digital content and accessories jumped 140 percent to $277 million. The company also provided guidance by saying its Nook business is expected to double to $1.8 billion this fiscal year. Essentially, the Nook business is a large focus for the company’s future, and it needs to keep a fresh product pipeline flowing.

So if there is a Nook Color 2 debuting soon, there’s a question of what will it look like. While the company could go with a larger design to rival a rumored 10-inch Amazon offering, I’m leaning more towards the 7-inch screen size used in the current Nook Color. Any larger, and the device becomes less of a reader and more of a tablet that’s unwieldy for long periods of reading. The only reason I could see Barnes & Noble go with a bigger screen is because of magazines: Last month, the company announced more magazine titles along with enhanced interactivity that could benefit from a larger screen.

Even if the screen size on a Nook Color 2 increases over the original model, however, I’d think it would be more of a jump to 8- or 8.9-inches, not 10.1-inches. That is, unless Barnes & Noble plans to supplement its digital e-book content with other media such as movies or television shows, although I’m doubtful of that.