RIM on Thursday denied allegations that the company will no longer continue to produce PlayBook tablet, saying the news was pure fiction.  Some analysts have said the company may consider withdrawing from the tablet PC market all together.

RIM spokesperson Marisa Conway said “the BlackBerry PlayBook will no longer produce the rumors are purely fictional, RIM is still committed to the Tablet PC platform, QNX system market and its future.”

Semiconductor industry investment firm Collins Stewart analyst John Vihn said earlier today that RIM may stop and cancel the other PlayBook project. In his report, he said “we believe that, RIM has stopped production PlayBook, and is actively considering exiting the tablet market.”

“Additionally, our due diligence indicates that RIM has canceled development of additional tablet projects,” Vihn wrote.

In a market dominated by the Apple iPad, the PlayBook has been unable to achieve much progress since it launched. RIM has shipped nearly 700, 000 playbooks in the current fiscal year, much lower than the 10 million iPad sales.  HP had already given up its TouchPad in the last month after its fanfare launch seven weeks ago.  Amazon upped the competition on Wednesday with the release of the media-centric and inexpensive Kindle Fire for $199.

Best Buy Cuts PlayBook Price

In one other development, after Amazon’s announcement of the new Kindle Fire Tablet, RIM has decided to cut down the price of its PlayBook by 40 percent.  At the popular Best Buy site, the PlayBook 16GB is now selling at $299, a 32GB model at $399 (previously $599), and a 64GB model at $499 (previously $699).  A number of retailers selling the PlayBook have also cut prices recently in a bid to compete with Apple’s iPad.

Despite these efforts, the price of Amazon’s Fire is increasingly competitive (still half of the current reduced PlayBook price).  Soon, we could see a price war amongst tablets makers, especially for Android tablet manufacturers and retailers to cut prices in order to stand out.

RIM’s hopes now ride on the new Blackberry OS 7 phones, which they released last month. The company is hoping their new QNX OS phones would revive the smartphones and tablets sales, lest it join the ranks of casualties in today’s tablet war (read HP’s TouchPad), as some analysts predict.