Can RIM Leverage its Enterprise Market Presence to Lift Tablet Sales?

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Research In Motion

Research in Motion (NASDAQ:RIMM) is expected to launch its PlayBook tablet in Q1 2011. With the launch of PlayBook, RIM enters a tablet market currently dominated by Apple’s (NASDAQ:AAPL) iPad. However, Android-based tablets from Motorola Mobility (NYSE:MMI), Samsung, Dell (NASDAQ:DELL) and LG are also expected to gain meaningful entry into the market. According to IDC, a market research firm, the tablet market is expected to grow from around 45 million in 2011 to 71 million in 2012. [1] IDC estimates that Apple’s share will be around 60%, while Android’s share will be closer to 30% in 2011. [2]

See our full analysis and $74.28 price estimate for Research in Motion

We estimate that PlayBook constitutes less than 6% of RIM’s stock value. However, if RIM can accelerate its penetration into this market beyond our forecast, there could be upside to our $74.28 price estimate for RIM. Notably, our price estimate already implies roughly 10% upside to market price.

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RIM Could Sell 4 Million PlayBooks in 2011

As per the IDC prediction mentioned above, the tablet market will likely be dominated by Apple’s iPad and Android-based tablets in 2011. However, these estimates still leave about 10% market share up for grabs for operating systems like RIM OS and HP’s (NYSE:HPQ) webOS. If RIM could capture around 9% of the tablet market share in 2011, it could presumably sell 4 million PlayBooks. This 4 million figure is similarly predicted in a survey conducted by Royal Bank of Canada Capital Markets (RBC). [3]

We conservatively expect that RIM will be able to increase its tablet sales to around 8.5 million units by the end of our forecast period. We believe that tablet growth for RIM will slow down as other big players like Cisco (NASDAQ:CSCO), Toshiba and HP also enter the market. Additionally, the upcoming iPad 2 will create further competitive pressure on PlayBook’s future growth prospects.

Enterprise Market a Bright Spot for RIM

As discussed above, RIM will face fierce competition in the consumer tablet market. The bright spot for RIM, however, is the enterprise market, a segment that its smartphones currently dominate with a 67% market share as of August 2010. [4] RIM dominates the enterprise market because its smartphones accommodate the more stringent security requirements of enterprises.

RIM could leverage its established presence in the enterprise market to lift its tablet sales. RIM has also undertaken an initiative to improve its software design and performance through its acquisition of QNX in April 2010. RIM not only plans to introduce QNX OS in the upcoming tablet, but also in its future smartphone models. This initiative can improve its product portfolio, which is critical for sustained growth (See RIM Can Lift Market Share, Stock Value with Enhanced Product Portfolio).

Notes:
  1. IDC: Tablet market forecast, January 2011 []
  2. Market share prediction done by Susan Kevorkian, a research director at IDC []
  3. AppleInsider sourcing the results of the survey conducted by RBC analyst Mike Abramsky, January 2011 []
  4. RIM’s share of the enterprise smartphone market dropped from 76 percent in November 2008 to less than 67 percent in August of this year, according to ChangeWave []