has been struggling to catch a break for months but the negative reports show no sign of slowing. According to UK rag The Guardian, the company has slashed production of its seven-inch tablet due to an enormous backlog of unshipped hardware. This follows the company's admission last week that it shipped just 200,000 PlayBooks in Q2, down from 500K in Q1. If true, it would mean that RIM has more PlayBook's in inventory than it's managed to sell to date.
Quantas, the company that actually manufacturers the PlayBook, has cut its staff from 2,000 to less than 1,000. Unidentified sources with the company claim that RIM is manufacturing less than 100,000 units per month at this point, down from initially projected sales of 4-5 million for 2011. RIM's balance sheet shows an enormous jump in inventory, from $618M in Q1 to $943M in May, and $1.37B at the end of the last quarter.
RIM's inventory levels, from 2002 to the present date. Image originally by The Guardian
and Staples have both begun offering discounts on PlayBooks and are selling the 16GB version for $450 and the 64GB model for $550, down from original MSRPs of $500 and $700, respectively; RIM is purportedly mulling a significant price cut on all models. At present, the PlayBook's form factor make it less attractive than the iPad, why buy a seven inch tablet for $450, when a 9.7 inch model is available for $500? A price cut would help to create a value proposition around the smaller device.
Price, however, may not be the PlayBook's biggest problem. RIM's decision to launch the device without native messaging tools was baffling given the company's typical business/government orientation. As nice as the PlayBook's hardware is, it's only half of the equation; a number of reviews that gave the device high marks overall knocked off points for poor launch software. Nearly four months after launch, RIM still hasn't offered native messaging apps. In the meantime, some of the company's partners are taking matters into their own hands, the Canadian cellular company Rogers has begun offering employees a 50 percent discount on the device.
RIM recently launched new devices and an updated version of its BlackBerry OS, so its Q3 sales should improve if these products deliver. The company's new smartphones will be competing with Apple's iPhone 5 and updated iPhone 4, which could easily stall any momentum RIM builds around its newer smartphones this quarter.
According to RBC Dominion Securities, RIM's stock and future prospects will remain in the doldrums until the company deals with certain core issues. "We view recent Q2 results as symptomatic of RIM's failure to address these challenges, which are: 1) backwards-looking, uncompetitive products and software; 2) marketing and launch execution; 3) investor credibility/visibility; and 4) governance," said analysts Mike Abramsky and Paul Treiber.
Thus far, RIM has resisted calls to change its corporate structure or dramatically shift its business focus. The company has claimed it will earn $5.25 - $6 per share for fiscal year 2011--but hitting that target would require it to post historically record sales in Q3. Investors and analysts are both dubious that the company can deliver, particularly given the challenges it's facing.