RIM's PlayBook Stock Rally Is Fizzling

Research In Motion's stock (RIM) is up about 37 percent since the start of September, primarily because of its tablet device, due out in the first quarter. Yet the share rally may be overdone. Some analysts are warning that RIM's PlayBook may be late to the tablet race in a market led by Apple's (AAPL) iPad. "It'll be a modest seller, and the iPad will likely do 10 times as much," says Shaw Wu, an analyst at Kaufman Brothers in San Francisco who cut his RIM rating to "hold" in early November. Wu estimates that RIM will ship 1 million PlayBooks in 2011, at most.

The tablet's sales will show whether RIM can find growth beyond its iconic BlackBerry handset, which has been losing users to Apple's iPhone and devices that use Google's (GOOG) Android software. Bloomberg surveyed 17 analysts on their expectations for PlayBook sales in the first year of introduction. The median forecast was for RIM to ship 2.55 million tablets at an average price of $430. (RIM has yet to price the PlayBook but says it will cost under $500.) On that basis, the Waterloo (Ont.)-based company would realize sales of $1.1 billion from its new device, equal to 4.8 percent of projected overall revenues. RIM spokeswoman Tenille Kennedy declined to comment on analysts' estimates for PlayBook sales.

Steven Fox, an analyst at Crédit Agricole Securities in New York, figures Apple will have sold some 17 million iPads by the time RIM's PlayBook hits the market. (Apple's tablet went on sale amid much marketing fanfare in April.) In an early December note to clients, Fox wrote that the iPad is now "the early incumbent" in this market and said "RIM would need to one-up in its features" to make inroads.

The iPad's dominance of tablet computing will "change when we're in the market," says RIM Co-Chief Executive Officer Jim Balsillie. Video is one area in which the PlayBook beats the iPad, he says. RIM's device supports Adobe Systems' (ADBE) Flash technology, which underpins much of the video content posted online; the iPad doesn't. Apple CEO Steve Jobs has said that devices such as the PlayBook will be "dead on arrival" because they are too small to compete with the iPad. The PlayBook sports a 7-inch screen, vs. the iPad's 9.7-inch display.

At least six analysts have reduced their ratings on RIM shares in the past seven weeks, and fewer than half those tracked by Bloomberg now recommend buying. (Apple's stock is recommended by 90 percent of the analysts who follow it.) BGC Partners analyst Colin Gillis says that despite the Playbook-driven rally, "the actual competitive positioning and landscape hasn't changed at all."

Some are keeping faith in RIM. Matthew Robison of Wunderlich Securities in Denver reiterated his "buy" rating on the stock in a Dec. 10 research note. He said the PlayBook is compelling because it works with the BlackBerry, allowing those hooked on the RIM smartphone to "continue using their preferred communications device." RBC Capital Markets' Mike Abramsky lists RIM among his top picks. In a Dec. 8 note to clients he touted the PlayBook's powerful QNX software, which is set to be the platform for all future RIM devices. However, Abramsky added: "Apple has a huge lead and Android devices are proliferating."

The bottom line: Despite an initial surge in optimism, many analysts now doubt that RIM's tablet will bolster the company's competitive standing.

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