Motorola Xoom: Underwhelming Sales

Jefferies analyst Peter Misek via ZDNet:

Xoom sales have been underwhelming. While marketing has just started we believe MMI will likely have to cut production if it already has not done so. We believe the device has been a bit buggy and did not meet the magic price point of $500. We believe management knows this and is hurrying development and production of lower cost tablets. Importantly we believe management will likely have to make the painful decision to accept little to no margin initially in order to match iPad 2’s wholesale pricing.

First, timing was terrible. You don’t want to start selling a competing product right before the possibility of Apple announcing something. That’s exactly what Motorola did with its Xoom Honeycomb tablet. Strike one.

Two, I don’t think Motorola will be slashing the price of the Xoom, its halo tablet, anytime soon. Apple can figure out quickly whether or not the iPad 2 is selling well thanks to its network of Apple Stores. Motorola can’t do that. It has to depend on other companies to send them the reports and that takes time, a lot more time than Apple. Sure Apple needs to wait for other retailers to report back sales figures but it sells most of its stuff through the Apple Stores. So Motorola will be in the dark for some time while the latest iPad 2 will fly off the shelves. By the time Motorola responds it will probably be too late. I’ve had the pleasure of being a cog in the market research industry and lets just say that consolidated, meaningful, and useful market information takes time to compile, often too long to have an impact on current business decisions.

To be fair, the Motorola Xoom connects to 3G networks and will be upgraded to work with 4G. So the magic price point isn’t US$500; it is instead $629, which is the starting price of the iPad 2 with 3G. Of course, it would be smart of Motorola to bring out a WiFi-only Xoom starting at $499, or cheaper. The $499 price point excites potential tablet buyers; $599 or $799 doesn’t.

Three, even with a lower priced WiFi-only Motorola Xoom, the Honeycomb tablet brings little competition to the table. I don’t think there are many of us who decide which tablet to get based purely on technical specifications. If that were the case the original iPad should have sold poorly. The Samsung Galaxy Tab had specs that were on average better. The more portable 7-inch tablet didn’t sell nearly as much as the original iPad. What do we look for in a tablet? We look at the whole picture: things like ease of use, the number of apps that make our lives easier, a sexy design even. The iPad 2 is the whole package. The Motorola Xoom not so much. And that’s why the original iPad sold well and the iPad 2 will sell like gangbusters.