Dell: A Phone is Not a PC

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Dell plans to enter one of the most competitive consumer electronics businesses in the world, handsets.

Over the last two years, in the PC business Michael Dell has been beaten like a rented mule. His company continues to lose market share particularly in the U.S.

Industry analysts would say that Dell has done a poor jobs of bringing out innovative and attractive products. Apple (AAPL) Mac sales keep rising. HP (HPQ), Sony (SNE), and Lenovo have launched new product lines which have had warm receptions. (See pictures of the iPhone.)

Dell's core business is being pinched by three things. The first is that the company was fairly late at expanding into retail outlets overseas. It depended on its direct sales model for too long. The second problem is that the recession has cut Dell's sales. Dell's final problem is that it cannot find the right people to run the company. It recently dumped most of the senior management that it hired just over a year ago. It takes time for new people to get up to speed. Dell does not have time.

Word has gotten out that Dell plans to launch its own high-end smartphone. According to The Wall Street Journal, "Dell is focusing on so-called smartphones, higher-end devices that include features like Web browsing and email."

Dell does not do well what it is supposed to do well. It has become a second rate PC company. It proposes to partially offset that by entering a business which is controlled by Apple (AAPL) and RIM (RIMM), the maker of the Blackberry. Because smartphone margins are high, Nokia (NOK), the world largest cellphone company, Samsung, and Sony Ericsson are also rushing into the market. The traffic jam is going to be extraordinary.

Dell also lacks one of the most important ingredients for being in the handset business. It does not have established relationships with carriers like AT&T (T) and Verizon Wireless (VZ)(VOD). These companies already have product lines in place. It is hard to see what the incentive is for them to add a new brand to those lists, unless Dell wants to pay a bounty to edge itself in.

Dell can't win in the handset business. Period. It ought to try to plug the leaks of the ship it is already on.

Douglas A. McIntyre

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