Barnes & Noble Tumbles as Partners Take NOOK Tablet

NEW YORK ( TheStreet) -- What was supposed to be Barnes & Noble's ( BKS) saving grace has turned into a tale of woe, and the final chapter is now written.

Barnes & Noble shares were tumbling on today's weak earnings report, falling 14% to $16.21.

As part of the book retailer's abysmal fourth-quarter earnings, Barnes & Noble announced that it would be sourcing its NOOK hardware to a third-party to limit the losses associated with developing and building the tablet.

For the quarter, Barnes & Noble lost $2.11 a share on $1.28 billion, a 7% year-over-year decline. Analysts were looking for a loss of 97 cents a share on revenue of $1.33 billion.

The NOOK segment had revenue of $108 million for the quarter, down 34% year-over-year. Device sales continue to be poor, as the tablet game is dominated by the likes of Apple's ( AAPL) iPad and devices running Google's ( GOOG) Android operating system. NOOK EBITDA losses were $177 million for the fourth quarter, which includes $133 million in inventory write-downs.

What was supposed to be a home run deal for Barnes & Noble, as well as Microsoft ( MSFT), when the NOOK partnership was announced last year, now appears to be nothing more than a weak ground ball to second base.

Tech hardware is an extraordinarily competitive industry, with low margins on devices. Apple has been an industry leader with its margins, well north of 30%, as the company not only offers hardware that people love, but software and content that people want, making the Apple ecosystem very difficult to move away from. The NOOK never had that experience, with digital content sales falling 8.9% for the fourth quarter, as NOOK hardware sales fell, as results were impacted by the strong sales of Fifty Shades of Grey and The Hunger Games.

Barnes & Noble isn't completely abandoning the NOOK experiment. It will still design the e-Readers, as well as the Simple Touch and Glowlight products, and continue to build out its digital catalog, as well as launching new NOOK apps.

The NOOK business was supposed to breathe new life into the struggling book retailer. Perhaps Microsoft does eventually buy the hardware business from Barnes & Noble, throwing it a bit of a lifeline, as Microsoft looks to seemingly throw good money after bad and continues to build out its hardware division.

Otherwise, it seems like it's last chapter for the NOOK as we know it.

-- Written by Chris Ciaccia in New York

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