RIM: iPad 3 Could Rob Playbook Sales Momentum

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Research in Motion ( RIMM) is making sure it promotes every bit of success that comes its way these days.

The major Canadian retailer Future Shop recently announced that the Playbook was the best-selling tablet at all of its stores last week and RIM was quick to send this message out via its Twitter account.

As with Best Buy ( BBY) in the U.S., the 16GB PlayBook is selling for $199 and the higher-end 64GB model for $299.99. That amounts to a price cut of $300 to $400 over the original price. Whatever the long-term impact is, the deep slashes in the prices of the Playbook are paying off, at least in its home territory.
Research In Motion recently released an upgrade of its PlayBook.

These heavy price cuts have also helped boost the PlayBook's share in the Canadian market increase from 5% to 15%, while the iPad's fell to 68% from about 86%, according to a new research. While it is good news for RIM that it is able to find takers for its tablet even at these reduced prices, it will be interesting to see if it can sustain the demand with Apple's ( AAPL) iPad 3 out in the market.

See our complete analysis for RIM here.

There was speculation that the sudden elevation of the Playbook to best-selling status was because of the anticipated iPad 3 launch over the past couple of months. Now that the iPad 3 is launched, we can only wait and see if the demand for PlayBook sustains itself in the coming months before making any judgment call on the tablet's apparent revival of fortunes.

It is also possible that some genuine interest is building up in the Playbook after the release of the Playbook 2.0 update that addresses many of its predecessor's limitations. The updated version supports a native email client and has a built-in calender and contacts applications and some key applications that were missing in the earlier version. However, we believe that the lack of BBM functionality may still be a deterrent for many of its fans.

However, what is clear here is that giving away huge discounts means the company's margins are bound to slide.

We estimate that the PlayBook's gross margins will decline from about 17% in 2011 to 10% in 2012, and that the trend will continue in the future.

The PlayBook accounts for less than 1% of our price estimate for the RIM stock and that is unlikely to improve if its margins continue on the decline while not leading to any significant change in market share.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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