Research in Motion (RIM) has effectively issued a profit warning two weeks ahead of its third quarter results, announcing that a large unsold inventory of its PlayBook tablet has cost it $485m.
The company has slashed the cost of the device from £499 to £199 to generate sales and clear the inventory backlog, and will be looking to spend on promotional activity to drive sales.
RIM has sold 150,000 BlackBerry PlayBook tablets in the third quarter, 200,000 in the second quarter and 500,000 in the first quarter. Apple by comparison is expected to sell well over 10m iPads across the December quarter.
The long delayed PlayBook OS 2.0 hasn’t helped, as consumers interested may be holding off for the update before investing, in what appears to be a classic example of the Osborne Effect. The company reiterated in the statement that the current PlayBook would be upgradable to the new OS – pre-empting any Osborne-esque behaviour.
PlayBook OS 2.0 is due in February, and will significantly increase the tablet’s feature set with dedicated email and calendar support, alongside through the company’s new BlackBerry Mobile Fusion multi-platform Mobile Device Management software. The company is also busy preparing the PlayBook 2.
RIM also announced a cut to its revenue forecasts for the third quarter, which included a further US$50m hit due to the service outage in October. None of this is good news for a company which saw its share price fall to a seven year low two weeks ago.
The company claims that the price cuts have seen a ‘positive response’ to its promotional activity late in the third quarter, and is pursuing a loss-leader strategy to drive adoption of its new QNX-based software platform which will be on all BlackBerry devices in 2012.
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"RIM is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy. Although a number of factors have led to the need for an inventory provision in the third quarter, we believe the PlayBook, which will be further enhanced with the upcoming PlayBook OS 2.0 software, is a compelling tablet for consumers that also offers unique security and manageability features for the enterprise," said Mike Lazaridis, co-CEO at Research In Motion.
The company also said that its overall sales would fall short of the $5.3bn to $5.6bn forecast range it had previously issued.
"Early results from recent PlayBook promotions indicate a significant increase in demand across most channels. We look forward to continuing to grow the installed base of PlayBook users and to attracting more and more developers to expand the volume of applications, content and services that leverage the power of the industry leading QNX-based platform," the company added.
The company said it shipped approximately 14.1 million BlackBerry smartphones in the third quarter ended November 26, 2011. It is still in the process of finalizing its fourth quarter outlook, but based on estimates, RIM expects shipments in the fourth quarter to fall below third quarter levels.
Email: allan.swann@industryreview.com
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