Early prototypes of the gadget that would run Google's Android software have been built, according to two unnamed people quoted Tuesday in The Wall Street Journal. The device was compared to the iPod Touch, which is similar to the iPhone, but without the cellular phone capabilities.
Another person familiar with Dell's plans told the Journal that the computer maker could release the device this year, but cautioned that the project could be delayed or scrapped entirely.
While Dell has declined to comment on such speculation in the past, the company has acknowledged that it is looking at offering a handheld device. During a speech in Tokyo in March, Michael Dell, company founder and chief executive, said the company was "exploring smaller-screen devices," but declined to give details.
Despite the secrecy, Dell needs a growing market like smartphones. The company has seen profits tumble as PC sales plummet in the economic recession. In the first quarter, Hewlett-Packard replaced Dell as the No. 1 PC maker in the United States, according to two analyst firms.
But successfully launching a smartphone or mobile Internet device won't be easy. The smartphone market is crowded with strong players, such as Apple, Research In Motion, and Nokia, and analysts are skeptical that a Web device without phone capabilities will be attractive to consumers.
In addition, Dell has a poor track record of moving into new markets. In November 2008, the company nixed plans to release a digital music player before the holiday season. It would have been Dell's second attempt. The company launched a line of MP3 players in 2003, but poor sales led it to pull the plug on the line in 2006.
However, Dell could choose to buy its way into the smartphone or other consumer electronics market. In May, Dell hired David Johnson, IBM's top corporate buyout expert.
InformationWeek has published an in-depth report on smartphone security. Download the report here (registration required).