RIM Needs to Dump the PlayBook

You cannot cure a chronic illness by diverting the patient's attention to a different issue, but that precisely was what BlackBerry (Nasdaq: RIMM; Toronto: RIM) tried to do with the BlackBerry PlayBook tablet PC. The device didn't catch on with consumers, and there are now reports the company may be considering ratcheting down production or even killing off the PlayBook. (See: Has RIM Bailed on the BlackBerry PlayBook?.)

RIM has reportedly denied it will terminate production of the PlayBook, but such denials are typical in the manufacturing world; few companies want corporate secrets revealed before a formal announcement. It's also possible RIM is still reviewing what it should do with the PlayBook and that no substantive decision has been taken. While the challenges facing RIM are numerous, its main problem is the harsh competitive climate it ran into when companies like Apple Inc. (Nasdaq: AAPL) began encroaching on its smartphone turf. That problem hasn't gone away, and a weakened RIM distracted with another device is a company in severe jeopardy.

RIM's response to the explosion in demand for the iPad was, in many ways, similar to the kneejerk reaction seen at its rivals, many of which are chasing Apple's innovative design and new product introduction strategies, rather than coming up with their own unique, market-winning plans. Similar to the experience of other companies, including Hewlett-Packard Co. (NYSE: HPQ), which has terminated production of its TouchPad tablet PC, the PlayBook was a flop; shipments sank to 200,000 units in the fiscal second quarter ended August 27 from 500,000 units in the previous quarter.

In order to determine its future in the tablet PC market, RIM's management must honestly answer the following questions. Can RIM be competitive in the tablet PC market? What's the price point that would make the Playbook competitive? Is the product itself viable against competing devices from Acer, Amazon, Apple, Motorola Mobility, and a host of other rivals? Does RIM have the financial resources to commit itself to a long, drawn-out war for market share in the sector?

I left one additional critical question out of the above list and would like to pose this separately because it is the subject of this blog: Does RIM need to be in the tablet PC market to remain a viable, profitable, and ongoing concern? In my opinion, this is the most important query RIM's management should answer urgently. The answer to this question will decide whether answering the other questions is even necessary.

Until Apple reignited interest in tablet PCs, few OEMs considered the sector important to their futures. RIM was not a contender, and I don't believe the company even considered entering the sector until Apple began making waves there. Its half-hearted response has resulted in more losses and negative press than if it had stayed out.

I don't believe the tablet PC market is essential to RIM's future. What RIM needs right now is to stop the erosion of its market share in the smartphone market; reclaim some leadership in enterprise messaging, where it still has a strong and loyal base (and a widely acknowledged technology edge); and, importantly, put an end to talks of its potential demise. The vultures are gathering around RIM, and the company must demonstrate clearly that talks of its death are premature.

RIM can still enter the tablet PC market in the future with a well thought-out offering that complements its primary BlackBerry smartphone, but right now, the PlayBook isn't up to the competition, and the efforts involve financial and operational costs the company shouldn't be paying.

The BlackBerry smartphone is RIM's bread and butter. It continues to sell in huge volume -- although margins are suffering -- and shipment is estimated to grow between 27 percent and 37 percent over Q2 shipments, according to the statement announcing fiscal second quarter results. The PlayBook is a distraction a company already in distress does not need.