Handicapping Dell's Smartphone Bid
In August, Dell (DELL) announced plans to release a smartphone in China. In early October, it hinted at plans to enter the U.S. smartphone market, without going into detail.
Dell is nothing if not conservative, and it continues to waffle about exactly what it has planned. The company appears to have chosen to enter the smartphone market in as low-risk way as possible, partnering with established industry giants AT&T (T) and Google (GOOG). But it won't say when its products will arrive or how they'll work. Part of the reason for this tentative stance is that the stakes are extremely high.
Fallen From Its Perch Dell was once a formidable rival to other PC makers, and a Wall Street darling, thanks to its ability to produce more cheaply, and sell more plentifully, than competitors. Now it has fallen from its perch.
When PC industry growth shifted from business desktops to notebooks sold to consumers, Dell was out of its element. It had trouble managing the notebook supply chain and making the kind of smartly designed machines consumers wanted. The company has taken steps to remedy those ills in recent years. Its computer designs now rival even those of Hewlett-Packard (HPQ), the industry leader in consumer notebooks.
But it's still playing catchup in the handheld computer market. It might be asking too much for a company known for making boring business PCs to leap to the front of the pack in the smartphone market. Dell may not have the DNA for this kind of reinvention.
Tablets on the Way A few years ago, mobile computing pretty much meant carrying a notebook computer. Then, Research In Motion (RIMM) put the office in our pockets with its hit BlackBerry device, and Apple (AAPL) opened the smartphone market to a whole new class of consumers with the iPhone. The iPhone lets it users read Web pages, send e-mail and text messages, talk on the phone, and run a huge number of productivity and entertainment applications. Pretty much the only thing it doesn't let users do is create documents, and that idea was always a nonstarter in handheld computing anyway.
I saw these developments coming in 2005, when I formed Endpoint Technologies. I had been the PC analyst at market researcher IDC, but I suspected the PC's heyday was drawing to a close. At Endpoint, I decided to consult on computing trends that encompassed all manner of computing devices, including smart phones, netbooks, tablet computers, and even home theater systems.
The smart phone may not be the pinnacle of handheld computing's evolution. Even now, Microsoft (MSFT) and Apple are said to be creating new kinds of tablet machines. But for now, phones are where the action is in personal computing. The PC industry sells about 250 million to 300 million units a year, but the overall cell-phone market is at least twice as large.
No Zing After All And while PC prices continue to fall, the prices of popular smartphones are rising, and so are the carriers' average revenues per subscriber. Data plans make up an ever greater percentage of smartphone revenue, and nearly everyone in the computer industry is trying to get in on it.
Which brings us back to Dell. It's tried to enter new markets, including mobile music, and had hired ex-Apple executive Tim Bucher, who has since departed Dell. The Round Rock (Tex.) company has planned to bring out a portable music player called the Zing to compete with Apple's iPod, but it never made it to market.
In 2007, Dell hired Ron Garriques, the force behind Motorola's (MOT) Razr cell phone. Two and a half years later, all we're getting is rumors of Dell phones.
Adding Something to the Mix This is a big, important market, and Dell can ill afford to get it wrong. By agreeing to sell phones that run Google's Android operating system, Dell wants to leverage Google's software development expertise and winning brand name. By partnering with AT&T, Dell sets itself up with an experienced operator.
Yet unlike Apple, Dell doesn't bring its own flair to the phone market. Dell is good at assembling and distributing hardware. But unless it can add some interesting intellectual property to the mix, it's hard to see how it can muscle its way into a meaningful place in the smartphone market.