Unsold PlayBooks lead RIM to lower Q3 outlook

Rich Fiscus
2 Dec 2011 12:01

With sales of their PlayBook tablet remaining low, even with significant discounts, Research In Motion seems to be caught between a rock and a hard place.
They have just announced a negative adjustment of $485 million to their Q3 financials to account for unsold tablet inventory. At the same time, the company remains commited to the tablet market and believes sales will improve with aggresive promotions.

A company statement says:

As previously disclosed, RIM has a high level of BlackBerry PlayBook inventory. The Company now believes that an increase in promotional activity is required to drive sell-through to end customers. This is due to several factors, including recent shifts in the competitive dynamics of the tablet market and a delay in the release of the PlayBook OS 2.0 software. As a result, RIM will record a provision that reflects the current market environment and allows it to expand upon the aggressive level of promotional activity recently employed by the Company in order to drive PlayBook adoption around the world.

RIM's problems stem primarily from their failure to recognize the threat posed to their business by the iPhone. Prior to the iPhone's introduction, RIM was the unquestioned leader in the US smartphone market.

RIM's market dominance was built on email services and integration with corporate email servers. It wasn't until the iPhone was threatening their US dominance and Android was on the rise that they began trying to broaden the BlackBerry's appeal to match the expanding smartphone market.

The problem was summed up in an open letter published by BoyGeniusReport in June, purportedly from an anonymous RIM executive, begging the company's senior management to make significant changes. The letter's author complained:

We often make product decisions based on strategic alignment, partner requests or even legal advice - the end user doesn't care. We simply have to admit that Apple is nailing this and it is one of the reasons they have people lining up overnight at stores around the world, and products sold out for months.

The PlayBook was released earlier this year as part of effort to change RIM's image. Even the name screams "not just for business."

When the PlayBook was released in April, initial sales were promising. It didn't take long to see that wasn't going to be a long term trend and the PlayBook to become yet another also-ran in the tablet market.

Eventually RIM began an aggressive pricing campaign designed to stimulate sales, but by that time Amazon's Kindle Fire had already captured the spotlight. It's hard to see the PlayBook as a serious competitor for that tablet.

In addition to the Kindle Fire, Barnes & Noble's Nook Tablet, and even their legacy Nook Color, seem to have a clear advantage with consumers.

At the same time, RIM executives clearly believe the tablet market is essential to ressurecting the company's fortunes. It's hard to argue with that assessment, but it's equally difficult to see the PlayBook as the product to make them relevant again.