Is Dell Dialing Up a Smartphone?

Dell (Nasdaq: DELL) may be gearing up to launch one or more new smartphones, possibly based on Google's (Nasdaq: GOOG) Android operating system and/or Windows Mobile software.

The prototypes, according to a Wall Street Journal report that cited anonymous sources, might include a touchscreen-based model and another with a slide-out keyboard. Apparently, Dell has had engineers working on the phones for more than a year, the sources said.

To achieve anything near success , Dell would have to produce a smartphone that could compete against the likes of Apple (Nasdaq: AAPL), Nokia (NYSE: NOK), Samsung, Research In Motion (Nasdaq: RIMM), Sony (NYSE: SNE), HTC and Palm (Nasdaq: PALM), among many more. But hey, didn't another computer company just make the leap? That would be Apple, of course, whose iconic iPhone has set the bar for the smartphone space.

Dell did not respond to requests for comment by press time.

Does Dell Have Apple iPhone Envy?

iPhone envy may be a bit strong, but it's hard to imagine that Dell hasn't seen the halo effect Apple's iPhone has brought to sales of its Mac computer lineup.

"Dell was looking at doing an MP3 player, and I think what they did is, they sat back and said, 'You know, the market is moving to phones. The MP3 thing is pretty much done. Bringing out an MP3 player and competing with Apple now that Apple has 80 percent of the market ... they saw what happened to Microsoft," Rob Enderle, principal analyst for the Enderle Group, told TechNewsWorld. He referred to the Zune media player, which has recently seen a massive drop in device sales.

"On the other hand, phones remain wide open, and Apple has signaled itself the move from standalone MP3 players to phones that have this capability. Since this is a market that's not yet defined -- you've got some choices, both the Google and Microsoft (Nasdaq: MSFT) platforms coming to market with abilities that speak either to a business audience or to a consumer audience ... and will run on the same hardware, so there is an opportunity to come up with what could be a unique device," Enderle explained.

Undefined, Crowded and Moving Fast

"The smartphone market is already a very crowded, competitive and fast-moving market -- just look how quickly GPS (global positioning systems) and WiFi have become checklist items for smartphones," Sean Ryan, a mobile enterprise research analyst for IDC, told TechNewsWorld.

"We are moving towards an age of software differentiation -- operating system, OS, Web-based platforms intrinsically linked to the devices. Dell will have to hit the ground running if it wants to keep up," Ryan added.

Smartphones are increasingly behaving like miniature computers, albeit complicated ones. The line is blurring from the other side as well -- netbooks are now being sold bundled with 3G cellular data service plans. Might entry be easier than ever these days?

"We have evolved beyond the days where a smartphone was conceived as a PDA that could also make phone calls. It is something more now, with greater emphasis on multimedia capabilities, location-based services, along with powerful mobile applications and services leveraging high-speed wireless networks," Ryan said.

If smartphones are more like computers, and Dell could simply install Android or Windows Mobile on its new offerings, are the likenesses close enough to succeed in the market at large?

"The mobile device market is fundamentally different from the PC market -- mobile operators play a pivotal role in distribution and marketing . In addition, the usage model is very different," Ryan said.

"The one potential bright spot I could see for Dell would be in its ability to leverage its existing channels to market, distribute and support bundled offerings -- but this would need to be in coordination with mobile operators," he added.

Gains vs. Risks

"I believe this is a huge risk for the company at a time where the economic conditions are not favorable. The challenges of designing a great phone in light of strong competition, in addition to dealing with distribution issues, carrier negotiation, etc. ... are formidable," Ken Dulaney, an analyst and vice president of mobile and wireless research for Gartner (NYSE: IT), told TechNewsWorld.

"Given this, I do not think that Dell is ignorant of these issues, and I would say this is either an unfounded rumor or a move of desperation," he added.

Still, if the rumors are true -- and if Apple could come out of nowhere -- isn't there a chance Dell could pull it off?

"For the record, Dell going into smartphones could be very interesting, [though] this is new territory for Dell and not without risks," Laura DiDio, principal analyst for ITIC, told TechNewsWorld.

"However, given that Dell plays in the highly commoditized end of the PC and server market where the profit margins are razor thin -- especially with PCs and notebooks -- I think the potential gains outweigh the risks," she added.