Will a New Strategy Save RIM’s PlayBook Tablet?

Should Research In Motion kill its PlayBook tablet?

Last quarter, RIM took a substantial charge against its PlayBook inventory, totaling some $485 million before taxes (or $360 million, once those taxes are taken into account). During a Dec. 15 earnings call, RIM co-CEO Mike Lazaridis suggested the company remains committed to the device, which he touted as the most secure and advanced tablet on the market today. Recent price cuts at retailers such as Best Buy have spiked consumer sales, albeit at the possible cost of RIM’s margins on each device sold. 

RIM had a rough quarter in general, reporting revenues of $5.2 billion, up 24 percent from the previous quarter but down 6 percent from the same quarter last year. That was slightly lower than Wall Street analysts estimated, according to Barron s. Net income fell 71 percent year-over-year, to $265 million.

At the time it first announced the write-down, RIM suggested in a statement that an increase in promotional activity is required to drive sell-through to end customers. It also cited the competitive dynamics of the tablet market and the delay of a significant PlayBook software upgrade as reasons behind its need to clear a high level of tablet inventory.

The PlayBook is capable of selling well, albeit at a steeply reduced price. Retailer Best Buy managed to sell out of the tablet when it dropped the price to $199 and $299, respectively, for the 16GB and 32GB models. “We will have additional units available in the near future,” the company wrote in a statement after that sales micro-burst.

But it’s questionable whether the PlayBook at a greatly reduced price can afford RIM the sort of sustainable margins it needs on a product, particularly at a time when its flagship BlackBerry line finds itself under assault from the iPhone and a growing family of Google Android devices. Earlier this year, a teardown by analysis firm IHS placed the material cost of the 16GB PlayBook at around $271. If that number proves accurate, a reduced price could still give RIM a bit of margin–but one less than at the tablet’s original $499 price tag. And meanwhile, there are the millions in sunk costs associated with the tablet’s production and marketing to be made back, somehow.

RIM has pledged a PlayBook software update for February, complete with long-awaited features such as integrated email. Later in 2012, the company will release a line of superphones, loaded with a QNX-derived operating system named BlackBerry 10, that it hopes will allow it to regain traction in the smartphone arena. The ultimate goal, it seems, is a refreshed ecosystem that appeals equally to both consumers and businesses, and elevates RIM back to a position of prominence.

Since the PlayBook also utilizes a QNX-based operating system, some sort of heightened interoperability will presumably exist between the tablet and the new BlackBerry smartphones. But that doesn t necessarily mean that RIM needs to keep the PlayBook alive if the device refuses to sell. RIM could reorient its tablet as more of a niche device for enterprise users, or hang on and hope that the market dynamics shift in its favor–but whatever its eventual choice, RIM needs to do something radical with regard to the PlayBook.

To read the original eWeek article, click here: RIM’s PlayBook Needs a New Strategy