I think this is a good move by RIM. Itâ€™s a seven inch tablet for the same price as the 10 inch iconic iPad. By slashing their prices (Wal-Mart is offering them for $249), it gives people like me a reason to look at them.
Hewlett-Packard Co.â€™s TouchPad device was deemed a spectacular failure when it launched this summer, which led to now-former chief executive Leo Apothekerâ€™s decision to discontinue the webOS tablet after just 48 days of sales in the U.S.
But when the worldâ€™s largest computer maker opted to slash the price of the TouchPad to just US$99 in an effort to sell off its remaining inventory â€” a decision which may have cost HP more than US$400-million and helped cause Mr. Apothekerâ€™s untimely ouster last week â€” customers were lining up outside electronics stores to get their hands on the TouchPad.
It appears the PlayBook price cuts may already be having the desired result. Future Shopâ€™s online store lists the 16 GB version of the PlayBook as â€œtemporarily out of stockâ€ and other retailers have reported selling out of the PlayBook.
But just as HP wound up feeling the pain of the TouchPadâ€™s demise on its balance sheet, if RIMâ€™s only recourse to bolster PlayBook sales is to offer steep discounts, the company could be facing a devastating financial reckoning the next time it reports quarterly financial results in December.
While the price drop is likely to give a much needed shot in the arm to PlayBook sales as electronics retailers gear up for Black Friday and the ensuing holiday shopping season, the fact remains that margins in the consumer electronics business are razor thin, and falling prices put a squeeze on potential profit.
In the most recent quarter, RIMâ€™s gross margin fell to 38.7% with net income of US$329-million, down substantially from a gross margin of 43.9% and net income of US$695 in the prior quarter. What sort of impact this price cut has on RIMâ€™s balance sheet remains to be seen.