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Why did E Ink sell?

E Ink has sold itself to Prime View International, a large Taiwanese display manufacturer, and I don’t understand why.

Now, it’s not surprising I don’t understand why. I have no info about E Ink’s financial state other than this article by Robert Weisman in the Boston Globe, and in any case I’m not a great financial guy (and I have the bank statements to prove it). So, my surprise may well be due to nothing but ignorance. Nevertheless, here’s why I was taken aback by the announcement.
E Ink is on a roll in a market that is about to explode (in the good sense). After ten years of work developing a low-power, highly legible display, it’s got something that works. Thanks to Kindle, it’s proven itself in the mass market and it’s in lots of people’s hands. And the market is about to take off now that we have digital delivery systems, a new generation of hardware, and a huge disruption in the traditional publishing market. So, why would E Ink sell itself?

The price — $215M — seems relatively low for such a hot product. If they need the money to fund R&D or to build manufacturing facilities, surely (= it’s not at all sure) there were other possibilities. Apparently the market crisis made an IPO implausible, although, to tell the truth, I — with my weak financial grasp — am not convinced. Investors are looking for places to invest, and E Ink looks like it’s exactly the sort of company they’d love to back: a proven leader in a market that’s obviously on the verge of explosive growth. It’d be like getting in on the early stage of iPods, only potentially bigger, since everyone who reads eventually will have an e-reader. But, if an IPO was out, why wouldn’t E Ink have preferred other forms of investment, including giving a partnership and equity stake to Prime View?

The most likely explanation by far is that I don’t understand what I’m talking about. Another explanation is that the company and its investors simply wanted to cash in by cashing out; the Globe article suggests this. But, that again raises the question of why they’d want to exit a company with a product in a market that’s about to take off. Perhaps they have reason to think the market is not going to take off , but that seems wrong; note that Google yesterday announced it’s going to enter the online book sales business. Or maybe they have doubts about E Ink technology. Maybe they worry the cost won’t drop fast enough for a commoditized market. Maybe color isn’t on its way fast enough. Maybe they’re worried about the inability (or so I’m presuming) of their tech ever to handle video, since the winning e-reader will eventually be multimedia. Maybe they know about ebooks on the way — Apple iPad or whatever the presumed product will be called — that will make static, black-on-gray pages seem obsolete.

So, I don’t know. But it smells fishy to me…although, as I may have mentioned, my financial sniffer has never been very reliable, and I’ll be happy to be set straight about this.

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12 Responses to “Why did E Ink sell?”

  1. I have not read any of the source documents, but is it possible that they have become tired of trying to make it work and/or they have a brilliant new idea they want to work on, but that cannot be done in the E Ink environment?

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  3. I suspect that after many, many years of work, the founders decided that a certain 10-15 million was better than a potential 100-150 million.

    This is critical:

    “It has raised more than $150 million in capital from venture firms and strategic investors such as Hearst Corp., Intel Corp., and Motorola Inc.”

    “Those backers were clamoring for an “exit,” a way to recoup their investments, just as the economic downturn made it impossible for high-tech start-ups to go public and build companies with more than $1 billion in annual sales”

    So … sell for $215 M, give investors their $150 M back (not great, but I assume the investors decided breaking even or a little bit better was reasonable in this economic climate), spread remaining $65 M among founders and key employeers, maybe get some stock in the buying company … One could do worse. MUCH worse (see Technorati for an example).

  4. […] David Weinberger wonders why eInk would sell when it seemed about to take off.  Seth Finklestein suggests that their investors wanted to exit and recoup their investments. […]

  5. There’s the possiblity that the technology is difficult to come up with the first time, but isn’t very hard to duplicate if you can see a working version of it and is insufficiently patentable to prevent knockoffs. In that scenario, they don’t become the market leader, but one provider of many. E-ink-like displays may be about to take off, and that may mean very little for the prospects of E Ink the company.

  6. Obviously because it isn’t as great as one would think. There must not be sufficient interest from VC’s etc to bring it to the next level. It’s probably easy IP to circumvent as well (or maybe even not going to be that long lived)

  7. Hey David-

    Saw this quote today in the NY Times, where E Ink explains that they didn’t have the resources (read: money) to develop the color version of their display:

  8. The MIT display technology group split years ago. Two different philosophies, like Route 128 and Silicon Valley, like proprietary and FOSS, like information appliances and personal computers. E-ink screens cannot be made on mass production LCD lines ($100 billion business bigger than silicon wafer manufacturing, and dominated by a few Taiwan and Korea companies). Mary Lou Jepsen took a different path, to improve LCD technology. The first fruit was the OLPC display, very low power and price. Now Pixel Qi has released the 3Qi. It can do most everything the E-ink screen can do, as well as color video. Proprietary appliances such as Kindle will continue as content owners want to lock up information from the top down and seek rent. Personal computers from the bottom up using 3Qi will succeed if they can meet user needs. Business schools should teach this case of E-ink vs. Pixel Qi, it is really a microcosm of many important issues today.

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