Why RIM Would Throw in the Towel on Playbook

Research in Motion (NASDAQ:RIMM) might have stopped production of its 10 inch PlayBook 2 tablet in favor of the QNX-powered BlackBerry “super-phone”, according to some recent reports. ^[1] If true, we believe that RIM might have done this to avoid direct competition with Apple’s (NASDAQ:AAPL) iPad – a market on which Apple has a firm hold – amid lower than expected sales following its highly anticipated Playbook launch in April. RIM competes with Apple, Motorola Mobility (NYSE:MMI), Nokia (NYSE:NOK), Samsung and others in the smartphone and tablet markets.

Our $42 price estimate for RIM stock is about 50% above market price.

RIM shipped around 500,000 PlayBook tablets in the last quarter after its launch on April 19th while Apple sold a much larger number of around 4.7 million iPads in the last quarter. ^{[2] [3]} Based on softening demand sales from the initial launch according to DigiTimes, the company decided to slow its production and focus on its new superphone. Given RIM’s struggle so far to counter the iPhone and iPad, shoring up its core BlackBerry offering with a “super” phone makes sense.

The BlackBerry phone makes up over 50% of our valuation while the Playbook contributes another 5%.

See our complete analysis for RIM stock

1. 10 inch PlayBook Production Stopped In Favor of First BlackBerry ‘Superphone’, N4BB, June 28th, 2011 [↩]
2. Apple FY Q2 2011 earnings results, SEC [↩]
3. RIM FY Q1 2012 earnings results, press release, June 16th, 2011 [↩]