RIM is taking a substantial charge against its PlayBook inventory, blaming tablet market dynamics and software update delays.
Research In
Motion is taking a substantial charge against its PlayBook inventory, a
decision that could have significant repercussions on the company's bottom
line.
The write-down
will total $485 million, or $360 million after applicable taxes, according to
RIM's Dec. 2 statement.
"The Company
now believes that an increase in promotional activity is required to drive
sell-through to end customers," that statement continued. "RIM will record a
provision that reflects the current market environment and allows it to expand
upon the aggressive level of promotional activity."
RIM 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.
In an attached
quote, RIM co-CEO Mike Lazaridis reaffirmed his faith in the PlayBook, and
suggested that recent promotions had led to a "significant increase in demand
across most channels."
Indeed,
retailer Best Buy managed to sell out of the PlayBook when it dropped the
tablet's 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.
However, it's
questionable whether a lowered price point can give RIM the margins on the
product it needs-much less prevent each unit from selling at a loss. Earlier
this year, a teardown by analysis firm IHS placed the materials cost of the
16GB PlayBook at around $271. If that number proves accurate, it could still
give RIM some margin at the reduced price-albeit less than at the tablet's
original $499 tag.
But The Verge, referencing "multiple" unnamed
sources, suggested Nov. 28 that RIM is selling the PlayBook to employees for
$99 via a "special corporate portal." That's on top of a significant three-for-two
PlayBook deal for enterprise customers. If those moves prove harbingers of more
drastic price cuts, and not just employee- and business-only perks, it would
mean that RIM is prepping to essentially flush its stock-an idea supported by
its massive write-down and accompanying Dec. 2 statement about "an increase in
promotional activity."
With
price-cuts and write-downs, though, comes the inevitable question: how exactly
does RIM plan on making money off the PlayBook, if its customers become
accustomed to these margin-killing prices and promotional efforts? RIM doesn't
have an Amazon- or Apple-style online storefront that would allow it to recoup
any losses in hardware via digital-content sales.
The PlayBook's
February software update will include integrated email in addition to a host of
other much-requested features. RIM is also prepping a line of "superphones,"
loaded with a QNX-derived operating system named BBX, that it hopes will help
it regain traction in the smartphone arena. The latter devices are expected
sometime in the next few quarters.
Follow Nicholas Kolakowski on Twitter
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.
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