It's a no-brainer. Within a couple of years it will be possible to make tablets the size of the Kindle with a dual-mode screen that has all the qualities of e-ink and LCD. It will have more power than a current iPad and will cost what a Kindle costs now. There will be effectively no benefit of a regular ereader, and no market for a device that costs the same (as a tablet) but does less.
It's just a matter of the technology getting a little better and cheaper.
It's exactly like a PDA. Smartphones are now PDAs. There is very little market these days for PDAs that don't make phone calls.
There will always be demand for dedicated devices, but I doubt that demand will be enough for manufacturers to bother with.
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