RIM Could Sell Playbooks With Lower Prices this Holiday

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Research In Motion

Research in Motion’s (NASDAQ:RIMM) desperate attempt of driving Playbook sales through aggressive price cuts and promotional deals seems to be working after all, according to a study conducted by Chitika Insights. Ad traffic analyzed by the research firm between November 14 and November 30 shows that the level of online activity for the Playbook started increasing rapidly on Black Friday, steadied over the next day and then saw a tremendous jump on the last day of the holiday weekend. Although demand fizzled out rapidly following the holiday sales, the level of traffic was still up 46% over average levels before the holiday shopping weekend. [1] RIM had announced a $300 discount across all models of the Playbook to reduce inventory stockpiling and drive sell-through to customers this holiday weekend, highlighting its struggles in a market dominated by the Apple’s (NASDAQ:AAPL) iPad and the new poster boy of cheaper 7-inch tablets, Amazon’s (NASDAQ:AMZN) Kindle Fire.

See our complete analysis for RIM stock here

Playbook sales have dropped from a decent 500,000 in the quarter of its launch to a dismal 150,000 this quarter. RIM’s strategy of entering a market that was still in its infancy through a product like the Playbook, which lacked some very important apps such as email, contacts and its signature BBM service, backfired and it is now left holding a huge inventory of unsold Playbooks. Consequently, the company has had to incur a charge of $485 million this quarter to write down the value of this unsold inventory. ((RIM says it will miss Q3 quidance, plans to book charge due to poor PlayBook sales, BGR.com, December 2nd, 2011))

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The company had hoped to do well in the nascent tablet market, driving user as well as developer adoption of its new QNX platform before launching smartphones on the same platform and competing in a more mature marketplace. Although that bet has gone awry, the company doesn’t want to abandon the Playbook yet for fear that it may alienate developers working on QNX, whose support it requires to build an ecosystem rich enough to compete with the likes of Apple and Google Android. (see RIM Bets the House on QNX, 40% Upside if They’re Right) The smartphones it plans on launching next year will be its last chance to show that its QNX bet hasn’t failed completely and if it manages that, we may see a 40% upside to its current market price, bringing it closer to our price estimate of $24.

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Notes:
  1. Playbook Sales up by 46%, Web Traffic Fluctuates, Chitika Insights, December 6th, 2011 []