Is RIM Rolling Into Irrelevancy?

The tragedy that is Research In Motion (Nasdaq: RIMM  ) reached epic proportions in 2011. But yesterday, the tragedy morphed into comedy. As analysts hurled accusations that RIM aims to kill its PlayBook tablet, RIM shot back that -- to the contrary -- it "remains highly committed to the tablet market." Any suggestions to the contrary are "pure fiction."

RIM's right about that ... if by "fiction," it means "facts."

Fact No. 1
The analyst that sparked the kerfuffle, Collins Stewart, bases its assertions on recent news out of Taiwan's Quanta Computer. Quanta helps RIM manufacture the PlayBook, but the contract manufacturer recently "laid off a significant number of production workers from a factory focused on producing the PlayBook." Business-wise, this would appear to make sense. After all, RIM only sold 500,000 PlayBooks in the second half of the fiscal first quarter -- and sales are reportedly in free fall, with the company moving only 200,000 units in all of the second quarter. Clearly, RIM is struggling to compete with Apple's (Nasdaq: AAPL  ) iPad, Motorola's (NYSE: MMI  ) Xoom, and the 80 other tablet models that flooded the market this year. Seeing the writing on the wall, Collins reports that RIM has "canceled development of additional tablet projects."

Fact No. 2
Could Collins be wrong about that? It's certainly possible, and RIM sounds adamant about its plans to continue selling the PlayBook. (Then again, announcing anything else would surely panic the market and dissuade even more consumers from considering buying a soon-to-be-defunct product.) Fortunately, we don't have to just take Collins (or RIM) on its word alone in figuring this out. No sooner had the analyst released its report than market researcher NPD Group backed Collins' view of events. According to NPD, "supply chain research indicates [RIM has no] production plans for PlayBooks beyond this year."

I'm begin to see a trend here ...

Fact No. 3
And that's not all. Over at Best Buy (NYSE: BBY  ) , a major reseller of RIM's products, facts on the ground suggest a hasty retreat from the tablet market is under way. Yesterday, Best Buy slashed the prices of the remaining PlayBooks on its shelves by $200. While this may not be an inventory liquidation preparatory to product cancellation, it sure looks like one.

Shades of HP
Perhaps it's just a matter of seeing current events through the rearview mirror of what happened at Hewlett-Packard (NYSE: HPQ  ) last summer. But I for one do see parallels here. Announcing an exit from the PC market and the cancellation of its TouchPad tablet, HP held a weekend fire sale on its remaining TouchPad inventory. By dropping prices to as low as $99 per unit, HP quickly sold every tablet in its warehouses ... and more. Literally within hours of HP's announcement, everyone from Best Buy to Office Depot (NYSE: ODP  ) to OfficeMax to HP itself was sold out of the device. According to anecdotal reports, HP sold 350,000 units in a single day -- nearly as many PlayBooks as were sold at the height of its Q1 popularity.

So if RIM looked at the HP debacle and thought to itself, "Hey! These guys got it all backwards! To get the best prices on our junk, we need to liquidate the inventory before we tell people it's discontinued!" could you blame them? Sure, that might not be the most honest and forthright way to break the news to its customers, but as a ploy to maximize profits on a losing position, I couldn't fault the logic.

Foolish takeaway
Now let me state this straight out: I could be entirely wrong about this. Collins Stewart could be wrong, too, and NPD could be mistaken as well. RIM could be telling us the truth about its plans to keep the clock running on PlayBook. Or it could be just trying to "keep its options open" as it waits to see if the price cuts at Best Buy spark a buying frenzy like the one we saw happen with the TouchPad.

But even if this is just RIM playing for time, I suspect the writing is on the wall. There's no denying PlayBook isn't selling well. And I honestly don't think that RIM choosing a "liquidation price" of $299 -- $200 higher than the price HP picked, and $100 higher than the cost of Amazon.com's (Nasdaq: AMZN  ) brand-new Kindle Fire -- is going to help matters much.

Whether RIM plans to kill it or not, I think we're looking at "game over" for the PlayBook.

Fool contributor Rich Smith does not own (or short) shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 279 out of more than 180,000 members. The Motley Fool owns shares of Research In Motion, Best Buy, and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Amazon.com, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 30, 2011, at 2:24 PM, infektu wrote:

    The PlayBook in its present form will most likely disappear, save a few corporate accounts maybe.

    QNX 1.1 or 2.0, they will have to clear the inventory.

    However, the RIM tablet story is just starting, they said they will come up with an LTE version soon (how soon?).

    Bummer, they had started on the WiMax version first, but got screwed by Sprint.

  • Report this Comment On September 30, 2011, at 4:02 PM, BR14 wrote:

    So they're single sourced for this device? Are you sure?

    Your comments might have some relevance were it not for the fact that the Playbook is actually an excellent device. In particular for BlackBerry smartphone owners. The integration between phone and tablet is unmatched in the market.

    And selling 700,000 Playbooks - even with the negative PR - doesn't seem so bad. Even if you only make a relatively small profit, it's still worth while.

    Never has one company generated such inaccurate and pointless negative press, generally by people who have never even used RIM products.

    The upgraded OS should resolve any lingering issues and with LTE on the way the future is not so bad for Playbook.

    Perhaps that's the real reason production has ceased, because they're building the new product elsewhere.

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