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How Broad Is Dell’s Brand?

Posted by: Aaron Ricadela on January 30, 2009

The latest reports that Dell is eyeing the smart phone market also beg the question whether any foray into consumer electronics—now or in the future—can successfully expand its portfolio.

A Dell smart phone—if it comes—may fare better than the PC maker’s past attempts to proffer music players, handheld computers, and TVs. This time, Dell’s armed with shelf space in retailers like Best Buy and Wal-Mart, and a consumer division president, Ron Garriques, who propelled Motorola’s Razr to popularity, back before that company’s results tanked.

Yet Dell is also saddled with a brand that’s closely associated with the stagnant PC market, and no apparent design advantage when it comes to cutting edge computing gadgets, analysts say.

Dell has built prototype smart phones with operating systems from Microsoft and Google, and may be getting ready to announce products at a trade show in Barcelona, Spain in February, The Wall Street Journal reported on Jan. 29. Dell declined to comment on the report, which it called “speculation.”

There’s little doubt Dell needs to evolve beyond the troubled PC business. PC shipments are expected to rise modestly this year, but revenue from those sales will decline for the first time since the tech industry’s dog days of 2002, according to market researcher IDC. Against that dim backdrop, Dell’s market share is slipping, while rival Hewlett-Packard’s and Taiwanese vendor Acer’s grow. “The desktop is obviously going through a transformation,” Dell senior vice-president Alex Gruzen told me recently. That is, demand is only really growing in the hardest to reach markets, among them China, Russia, and Brazil.

Reaching toward new categories like smart phones poses its own problems though. For one, Dell may need to enter the smart phone market as a defensive play. The phones, which combine Web and e-mail functions with a cell phone, are starting to challenge notebook computers and netbooks for sales, says Shaw Wu, an analyst at investment firm Kaufman Bros. "If you're taking away time someone spends on a regular PC, it takes away some of the value," he says.

Second, it's tough to stand out from Apple and Research In Motion amid a sea of Windows- and Google-powered smart phones. Apple and RIM supply the hardware, the operating system, and much of the application software in their phones, which delivers a usability punch that's hard to beat, says Wu.

Finally, Dell’s brand, while widely known, is closely associated with PCs, not sexier products like smart phones or other gadgets. “They’re thinking they can use the Dell brand to expand out into other product categories,” says Richard Shim, an analyst at IDC. “They need to branch out of the PC business. I just don’t know that this is the way.”

Kaufman’s Wu is blunter. “Dell is in the midst of an identity crisis, and needs to figure out what it wants to be and where it wants to go,” he wrote in a Jan. 13 research note to clients.

To be sure, Dell has an opportunity to take a slice of the CE market. Only 13% of the world’s 1.1 billion handsets sold each year are smart phones, according to Wu. Dell could bring lower prices to bear on a category where $300 phones are common. And unlike its past expeditions into consumer electronics, this time Dell has distribution at major retailers, where consumers can see and touch the products. That’s a lesson Dell learned the hard way in computers when the market’s growth engine shifted from utilitarian business machines to fancier consumer laptops.

If Dell does make the leap into smart phones or other gadgets—a long discussed music player appears to be on indefinite hold—Dell will need to retool its brand, and its practices, to stand more clearly for innovation. The company spent just 1% of revenues on R&D in its most recent quarter, while Apple and HP commit 3% of sales.

Yes, Dell’s made strides in quality and design. Its upcoming slim, aluminum and glass Adamo laptop could turn buyers on, though it looks like nothing so much as an obsidian MacBook Air. And Dell’s compact Studio desktops at least move the company beyond gray boxes.

But good quality products and a sense of style are pretty much table stakes in the tech market these days, says Gordon Haff, an analyst at Illuminata. As Dell positions for the future, transcending its brand image and standing apart from Apple and other pocketable computing pioneers are going to be tougher tasks.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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