Dell's First Smartphones May Have Been Rejected by Carriers

Dell has supposedly been working on its first smartphones for some time, and was hoping to enter the market this year. However, an industry analysts reports that no wireless carriers were interested in the initial devices this company came up with.

An analyst at Kaufman Brothers, Shaw Wu, says that Dell showed both Windows Mobile and Google Android smartphones to a variety of carriers, who all passed on them because of "lack of differentiation" with other smartphones.

He also said that the Palm Pre drew interest away from Dell's offerings, as Palm's next smartphone is "generating interest from carriers as a viable competitor."

Wu's research note on this said:

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. In our view, the last thing Dell needs is to enter another money losing business.

The Dell Way
Dell has been successful in offering good-quality products less expensively than its competitors. Because mobile phones aren't sold directly to consumers, to pull this off in the smartphone market Dell needs the cooperation of the carriers.

Wireless service providers sell the phones they offer with subsidies to lower the costs for consumers. If a device maker has a product that is drawing heavy interest from potential buyers, it can negotiate with the carrier to increasing the subsidy, which will increase demand. However, if a device isn't likely to generate much excitement among consumers, carriers aren't willing to pay for a heavy subsidy. This reduces the device maker's profit margin.

Dell's first smartphone offerings reportedly fell into the second category.

Not Giving Up
The Kaufman Bros.'s analyst goes on to say that even though Dell first foray into the smartphone market fell flat, it is going to keep at it.

Wu wrote:

Dell remains committed to the cell phone space as it appreciates the opportunity in smart phones and the longer-term cannibalization potential of PCs. At the end of the day, PC vendors may have an advantage over traditional cell phone competitors, as a smart phone is more PC than cell phone with all the computer functionality and voice as a commodity.

A Bit of History
In the early part of this decade, Dell was a major player in the handheld computer market with its Axim series. However, the company dropped out as interest in traditional handhelds waned and the market switched to smartphones.

Since that time, there have been unconfirmed but persistent reports that Dell is prepping a smartphone, especially after it hired Ron Garriques, a former Motorola executive, to be the head of its consumer group.

Garriques has supposedly been under a non-compete clause with Motorola, but that expired in February.

Source: Kaufman Brothers via Barron's