RIM PlayBook's $485 Million Write-Down Hints at Trouble
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.