Kindle screen maker will increase capacity to meet demand

IDG News Service - E Ink Holdings, the company that makes the screens for Amazon.com's Kindle, said it is dedicated to increasing capacity to meet the requirements of the market, after Amazon revealed that its US$189 Kindle had sold out.

A representative for the Taiwanese company, which used to be called Prime View International before it bought U.S. technology developer E Ink Corp., said she could not comment on any specific clients.

Amazon posted a note on its website Tuesday that says the popular Kindle e-reader is temporarily out-of-stock, and the company revealed that it does not know when it will have more in.

Amazon did not immediately respond to e-mails or phone calls seeking more information.

Another Taiwanese company, Foxconn, manufactures the Kindle for Amazon, according to analysts. The world's largest electronics contract manufacturer operates a subsidiary for its e-reader production, called Netronix.

The company may be hard pressed to increase the supply of Kindles because it's also scrambling to meet demand for other devices, including Apple's iPad and iPhone 4.

A Foxconn representative declined to comment for this story.

But the supply problem could become a thorny issue because the Kindle e-reader faces its greatest challenge yet with the launch of the iPad, according to market researcher iSuppli.

"The move by Barnes & Noble as well as Amazon to slash the prices of their eBook readers reflects a fundamental change in their business strategy intended to counter the rising competitive pressure from Apple’s iPad," iSuppli said.

Apple in May announced that after just 28 days, the iPad had already sold 1 million devices, and over 1.5 million e-books had been downloaded from the new iBookstore. Shortly after, Amazon dropped the price of the Kindle to $189 from $259, while Barnes & Noble lowered the price of its Nook e-reader to $199 from $259, and launched a new Wi-Fi-only version for $149.

The cheapest iPad costs $499.

The price drop on Kindle appears to be working for Amazon, which last week said it had "reached a tipping point with the new price of Kindle." The growth rate of Kindle e-reader unit sales had tripled since the price cut.

But iSuppli predicts that the price drop will only entice consumers to buy e-readers in the short-term, while the longer-term future of the devices is likely to be more niche than initially expected.

For Foxconn, the decision on where to increase supply could be tough because the company faces labor shortages in China and there some components are also in short supply. Besides, Apple is a far larger customer for the Taiwanese company than Amazon.

Strong sales for Apple have translated into a bonanza for Foxconn, according to market researcher iSuppli. "Foxconn’s customers are some of the hottest companies in the electronics business today, most notably Apple,” said Thomas Dinges, an iSuppli associate, in a recent report.

The Taiwanese company, criticized earlier this year for a spate of suicides among workers in China, became the world's largest electronics contract manufacturer years ago due to its emphasis on cutting costs.

In the first quarter of this year, Foxconn's revenue reached US$17.15 billion, according to iSuppli, far higher than second place Flextronics, which was $5.94 billion.

Foxconn is the trade name of Hon Hai Precision Industries of Taiwan. It has taken several steps to combat the suicide problem at its factories in China, including raising pay and requiring less overtime work.