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Dell's Smartphone Better Be Spectacular

Analysts agree that Dell would have to go beyond the Apple iPhone, the RIM BlackBerry, and the upcoming Palm Pre.

Antone Gonsalves

January 30, 2009

4 Min Read

Dell is reportedly working on a smartphone that the computer maker could introduce as early as this month, but if the company has any hope for success in the fiercely competitive market, its phone will have to go beyond good. It will have to be "spectacular," analysts say.

The Wall Street Journal on Jan. 30 reported that Dell engineers have been working for more than a year on the device and have built prototypes on Google's Android operating system and Microsoft's Windows Mobile software. Quoting people familiar with the matter, the newspaper said one model would include a touch screen, but no physical keyboard, like Apple's iPhone; while the other would have a keypad that slides from beneath the screen.

Contacted Friday by InformationWeek, a Dell spokesman declined comment, saying in an e-mail, "As a rule we do not comment on rumors and speculation."

Dell's plans aren't final, and the company could decide to abandon the project, the Journal said. But Dell executives have discussed a possible smartphone launch next month at the GSMA Mobile World Congress, a communications conference in Barcelona, Spain. If that happens, then Dell will be setting off on a difficult journey.

"It would be one of the riskiest moves Dell has ever made," Ken Dulaney, analyst for Gartner, told InformationWeek. So risky that Dulaney found it hard to believe the company would even try to slug it out with the likes of Apple and Research In Motion, given that Dell would be a newcomer in such a highly competitive market. "They can't be that stupid," he said.

Indeed, the one thing analysts agree that Dell would need is a smartphone that wows consumers and analysts, which means it would have to go beyond the Apple iPhone, the RIM BlackBerry, and the upcoming Palm Pre.

"If they don't have something that's spectacular, than it's going to be a problem," Dulaney said.

John Spooner, analyst for Technology Business Research, agrees that the Dell phone would have to be "really, really good," and said the company would have better luck on the Android platform than Windows Mobile, which he called "clunky."

"If they want to compete with the iPhone versus other Windows Mobile phones, which is less lofty of a goal, then they're going to have to make it really simple and easy to use, and that's a real challenge," Spooner said. If Dell delivers a strong product, then it has some advantages, Spooner said. The company could bundle the phone with other products to get it to consumers, and it could leverage its software from Zing Systems to move music and video between the phone and PCs. Dell acquired Zing in 2007.

In addition, Dell could attract customers with price. Prices for smartphones from the major competitors start as low as $200 with a two-year service plan from a wireless carrier. Dell could offer its phone for a lot less, trading the lower profit margin for higher sales, Spooner said.

But no matter what Dell's chances for success are, the company may have little choice but to give smartphones a shot, if not now then eventually. While Dell's traditional PC market has been in a slump because of the economic downturn, the smartphone market is growing.

Smartphone shipments last year were up nearly 27% from 2007 at 157 million units, according to IDC. By 2012, that number is expected to nearly double.

And Dell needs a growing market. For the quarter ended Oct. 31, the company reported a 5% drop in profits as revenue fell 3%. The company has had layoffs and has seen its stock fall 60% since August.

Dell also has lost PC market share. Last quarter its share fell to 13.7% from 14.6% the same period a year ago, according to IDC.

Chief executive and founder Michael Dell, who returned to the company in 2007 to turn it around, has moved the company deeper into the consumer market, hiring Ron Garriques, former head of Motorola's mobile phone business, to lead Dell's consumer products unit. CEO Dell has been eyeing the smartphone market since his return.

So far, however, Dell the CEO has been cautious in entering new markets. In November, the company nixed plans to release a digital music player before the holiday shopping season. It would have been Dell's second attempt. The company launched a line of MP3 players in 2003, but poor sales led to it pulling the plug in 2006.

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