Disappointing Sales Lead to Cost Cutting Efforts, Layoffs

Research in Motion (NASDAQ:RIMM) announced last week that cost cutting efforts will include layoffs following a sluggish start to the year and continued new product delays. Shares sold off sharply as investors bailed on lowered guidance and delayed new Blackberry launch.

The delay in the new Blackberry 7 also means that RIM misses the back to school period and will face continued competitive pressures from Apple’s (NASDAQ:AAPL) iOS, Google’s (NASDAQ:GOOG) Android and now Microsoft’s (NASDAQ:MSFT) Windows Phone 7 operating system platform.

Expenses Jump in 2011 for RIM

We expect RIM's SG&A and R&D expenses as % of gross profits to increase dramatically in 2011. We are optimistic that this ratio will decline in 2012 as cost cutting efforts gain traction and sales recover.

PlayBook Fails to Support Stock Despite Solid Sales

The company announced that it shipped 500,000 PlayBook units within six weeks of its April 19th launch. This beat the average 350,000 units analysts were expecting according to Bloomberg.

Blackberry Makes up Majority of Value

The PlayBook is still a small portion of the company's overall value making up 6% to our $42.60 price estimate. On the other hand, Blackberry devices make up over half of our valuation and so are a larger driver to the stock.

Playbook is a Fraction of RIM's Sales, Similar Contribution as iPad to Apple

The iPad still has a dominant lead in the tablet market, and we expect unit sales to hit just about 24 million compared to 2 million for PlayBook and 1.75 million for Zoom. However Apple's iPhone makes up over 50% of its stock value similar to Blackberry. See full analysis for Blackberry | See full analysis for Apple