Research in Motion is denying that it is killing the PlayBook, but on further review it may not be such a bad idea. RIM may be battling in an unwinnable war.
Should the PlayBook stay or go?
On Thursday, RIM faced a good bit of hubbub over a research report from Collins Stewart analyst John Vinh, who covers semiconductors. In a research note, Vinh said:
We believe RIM has stopped production of its PlayBook and is actively considering exiting the tablet market. While Quanta last week acknowledged that it had laid off a significant number of production workers from a factory focused on producing the PlayBook, our research indicates that the ODM has essentially halted production of the tablet. Additionally, our due diligence indicates that RIM has canceled development of additional tablet projects.
RIM denied that it will exit the PlayBook and called the speculation pure fiction. Here's RIM's statement via Barrons:
RIM doesn’t typically comment on rumors, but any suggestion that the BlackBerry PlayBook is being discontinued is pure fiction. RIM remains highly committed to the tablet market.
On further review, it's a bit fuzzy what Vinh's due diligence was exactly, but speculation about the future of the PlayBook isn't unwarranted.
Earlier this month, Quanta, which makes the PlayBook, said it would lay off workers at its Linkou plant in Taiwan due to weak demand for RIM's PlayBook.
Quanta acknowledged the layoffs in a statement. Quanta didn't name RIM specifically, but it's common knowledge that the plant referenced is where the PlayBook is manufactured. Roxy Wong, an analyst at Mirae Asset in Hong Kong wrote in a research note:
As the Linkou plant was set up under a special program with RIM, the downsizing cost would be shared by RIM and Quanta. This cost would also include the write-off of the work in progress inventories in Quanta, along with the cost of cutting operators. The details of how the cost will be shared is still unknown, however, we estimate the total cost of laying off the staff would be minor to the P&L.
On that final note, there's no need to cry for Quanta since Amazon's Kindle Fire will pick up any PlayBook slack. Wong estimates that most of the operators will take Quanta's severance package---pro-rated annual salary and six months basic salary.
So RIM has to be at least pondering a retreat given the profit margins pressure the company will see from the likes of Amazon's Kindle Fire and the fact that the PlayBook just isn't selling well. RIM moved 200,000 PlayBooks or half of what was expected in its most recent quarter.
RIM has touted an October software update for the PlayBook that will make good on all of those unkept promises so far: An Android app player and native email and calendar support.
Pulling the plug on the tablet can't be an easy decision. RIM can forge ahead or pull an HP. My hunch is that RIM has to forge ahead so the lack of tablet success doesn't tarnish its QNX operating system---the basis for the company's superphones in 2012.
In the end, it's quite possible that we'll look on HP's decision to cut its TouchPad losses early as a good move. For RIM to be a tablet player, you have to believe that the company will become better at integration. I've had a hand-me-down PlayBook for a day and I have no reason to believe RIM can get its act together.
Here's my last day with the PlayBook:
- A wipe that turned the PlayBook into a brick.
- A recovery via BlackBerry Desktop Manager, an extensive download and more time than I care to admit in support forums.
- Once I go through the activation process, I find that AppWorld can't complete a transaction.
- I go to AppWorld on the desktop and the service is down for maintenance.
- I still can't figure out how to update payment information.
- And my only goal here is to download a game or two and hand the PlayBook to my 4-year-old. And the PlayBook is supposed to be for business.
- At this point, the PlayBook is a glorified browsing device and is damn close to being thrown off the roof of my hotel.
The bottom line is that any lingering positive feelings I had toward RIM are now wasted. In fact, I'd probably start screaming if I listened to all that optimism from co-CEO Jim Balsillie on the earnings conference call replay. The line between confidence and being delusional is really thin. It's should be clear where I think RIM lands on the confidence-delusional line when it comes to the PlayBook.
In the end, RIM probably should kill the PlayBook, but it can't because QNX is allegedly its future.
- RIM's biggest problem: Always seeking a device home run
- RIM's PlayBook price cuts: Still not enough thanks to HP's TouchPad
- Amazon's Kindle Fire just nuked the tablet market: Winners and losers
- RIM PlayBook to support Android apps ... well, sort of
- Is the PlayBook about to get killed? No way, says RIM
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