Dell: Not Too Smart About Smartphones

By Tara Seals

Curious as to why we haven’t seen the fabled Dell smartphone? After weeks of speculation as to why the No. 2 computer-maker hasn’t yet jumped into the market despite its competitors attacking it wholesale, it turns out that the carriers just don’t think Dell can cut it.

Shaw Wu, an analyst at Kaufman Bros., said that Dell has two smartphone versions ready to go, one for Windows Mobile and one running Google Android as its OS. The problem, Wu said in a research note, is that Dell’s handsets are generally undifferentiated, meaning that carriers have greeted the prototypes with a collective ho-hum. And that means that carriers would be unwilling to underwrite the handsets…which means little margin for Dell if it wants to offer the handsets at market rates—around $200 or so.

“From our conversation with supply chain and industry sources, it appears that it ultimately came down to lack of carrier interest and small subsidies, making it difficult for Dell to make a profit,” Wu wrote in a research note.

Dell rose to prominence in the PC world by driving efficiencies into the supply chain and carrying very little inventory—it uses a just-in-time manufacturing process that focuses on combining basic building blocks as needed, quickly. In turn that has allowed the vendor to offer low-cost, no-frills PCs. Call it the Southwest Airlines approach.

In the hyper-competitive smartphone world, this concept is anathema. It’s not enough to have basics like a touchscreen and a Web browser in order to compete. Offerings like the upcoming Palm Pre, the ongoing force of nature that is the iPhone and ever-evolving range of BlackBerry models have raised the stakes when it comes to device expectations.

So Dell will need to change its ethos, manufacturing approach and design team mission to craft something worthwhile. Wu said the manufacturer is doing just that, considering acquisitions to effect the change and looking to design something that “likely involve vertical integration of some sort including software and/or services.”

And it can’t afford to wait. Acer, Hewlett-Packard Co. and other rivals have all started staking out the mobile phone space, as traditional desktop and laptop sales have flagged. And, the rising class of netbooks and high-end smartphones are expected to be the growth areas going forward.