RIM's BlackBerry PlayBook Struggles to Make the Play

Research In Motion's BlackBerry PlayBook tablet seems to be struggling to offer up the right play to take on the increasing dominance of the competition. On Friday, the company admitted that it would have to mark down a massive number of the unsold tablets in the third quarter of fiscal 2012, on the order of $485 million before tax or $360 million after tax.

The company, which has seen its once high-flying BlackBerry fortunes plummet as iOS and Android devices gobble up the lion's share of the market, has already reduced the price of the BlackBerry PlayBook device from $499 to $199, which analysts agree is below the production cost of the device. But while RIM (NASDAQ:RIMM) said the price drop has led to increased demand, it still finds itself with a high level of PlayBook inventory. The company conceded that it would have to market the device more aggressively to drive sales.

The company also pointed to the delay in its release of the PlayBook OS 2.0 software as a factor in the tablet's sluggish sales. The PlayBook can't use the BlackBerry e-mail service—which made the company the darling of the enterprise world—without connecting to a BlackBerry phone at the same time. The company promised to fix that and add other features with the release of PlayBook OS 2.0, which was due in the fall. The company was unable to meet that deadline, and it has since promised to deliver the software update in February.

Despite PlayBook's difficulties, RIM Co-Chief Executive Officer Mike Lazaridis said the company is not throwing in the towel.

"RIM is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy," he said. "Although a number of factors have led to the need for an inventory provision in the third quarter, we believe the PlayBook, which will be further enhanced with the upcoming PlayBook OS 2.0 software, is a compelling tablet for consumers that also offers unique security and manageability features for the enterprise. Early results from recent PlayBook promotions indicate a significant increase in demand across most channels. We look forward to continuing to grow the installed base of PlayBook users and to attracting more and more developers to expand the volume of applications, content and services that leverage the power of the industry-leading QNX-based platform."

The company said it sold about 150,000 of the tablets into the channel in the third quarter, noting that based on its internal data, sell-through to customers exceeded that amount.

RIM (NASDAQ:RIMM) also adjusted its guidance for the quarter down ahead of the Dec. 15th call. The company blamed lower-than-expected sell-through in the third quarter, along with the mark down of its PlayBook inventory and a BlackBerry service outage in the quarter. It said adjusted revenue would come in slightly lower than the guidance of $5.3 billion to $5.6 billion it had previously given investors. It expects adjusted diluted earnings per share to come in at the low to mid point of the $1.20 to $1.40 per share range.

Additionally, while noting it is still finalizing its fourth quarter outlook, the company warned that it expects unit shipments to come in below those of the third quarter based on lower-than-expected sell-through in the third quarter and its current view of fourth quarter demand. The company said it no longer expects to meet its full-year adjusted diluted earnings per share guidance of $5.25 to $6.

Thor Olavsrud is a contributor to InternetNews.com, the news service of Internet.com, the network for technology professionals.

TAGS:

RIM, Research In Motion, BlackBerry PlayBook

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