E-Books Are Hot, So Why Did E-Ink Sell for So Little?

The Kindle DX uses E-Ink technology
The Kindle DX uses E-Ink technology

Prime View International, a Taiwanese company that makes an e-readers display part, said today it would purchase E-Ink, a company that provides the digital ink technology in the Amazon Kindle (s amzn) and Sony Reader, (s sony) for $215 million. The two companies have been partners in developing the Sony and Amazon e-reader products, and the deal highlights PVI’s attempt to own the top provider of an essential technology for the growing e-reader market.

And there’s no question the market is growing, with research firm In-Stat noting today that e-readers will grow from almost 1 million shipments in 2008 to 30 million by 2013. PVI quotes data from DisplaySearch noting that the total e-paper market will be $3 billion by 2013, which will be used in e-readers as well as e-textbooks. However, despite optimism about the growth rate for both e-paper and e-ink, the investors who funneled $150 million in Cambridge, Mass.-based E-Ink since its spinout from MIT 12 years ago, don’t seem to have generated a great return on their exit, given the sale price. Investors include Intel Corp. (s intc), Motorola Corp. (s MOT) and Hearst Corp.

A company release noted that E-Ink had sales of $18 million for the first quarter of 2009, which means that it sold for about three times annualized revenue. That may be because while e-books are now gaining mindshare, the overall sales of devices and books on such gadgets are still miniscule compared with those printed on dead trees. If E-Ink’s exit through this acquisition is a sign of what’s to come, that may bode ill for the venture firms backing Plastic Logic, which has raised more than $100 million. Plastic Logic last week showed off its own e-reader built using different technology. Its backers include BASF Venture Capital, Morningside Technology Ventures, Intel Capital and Amadeus Capital Partners. If venture backers can’t command big multiples from their investments in the e-paper and e-ink market, it may also mean that investors will be loath to back other startups that may try to commercialize e-paper and e-ink efforts inside university or corporate labs.

Still, Forrester today also published a report highlighting the growth of e-readers, and laying out a timeline of when new product features may hit the market (see chart). The report also notes that the e-reader market is getting crowded as technology firms such as Apple (s aapl), whose iPhone runs several popular e-reader programs, and Google, (s goog) which today announced a program allowing publishers to sell digital copies of their books through the Google site, also build products that could siphon off buyers of e-readers.