Summary
For the last couple years Dell has coveted entry into the smartphone market. Unfortunately for Dell, their PC-related assets do not necessarily translate to the mobile industry, and success in the highly-competitive handset business will prove very difficult.
Analysis
The mobile device business is extremely competitive, filled with entrenched incumbents including Nokia, Samsung and LG, as well as innovators such as Research in Motion, HTC and Apple, and requires significant capital. In addition, there are design, usability and technology trends, that if mishandled can lead to a downward spiral that requires years and even more resources to correct - Motorola and Palm are prime examples of companies that stumbled badly and are attempting to regain their once-prominent positions.
With no handset experience (though it did hire Motorola’s head of mobile devices, Ron Garriques, in 2007) and limited brand recognition in mobile (only that which can be extended from its laptop business), Dell is fighting an uphill battle as it explores the smartphone market. Dell tried unsuccessfully to market its work-in-process smartphones to mobile operators in the US and Europe. Its devices reportedly had limited appeal, especially considering the proliferation of products currently on the market and the subsidy required to remain competitive with devices priced at $200 or less.
While a deal with China Mobile may represent a small victory for Dell in their handset effort, they have a long road ahead of them. It is highly risky to build a platform for global smartphone success based solely on the Chinese market. Without additional market penetration, Dell may have to decide whether in fact it makes sense to remain in the mobile handset business.
Dell is a newcomer to the competitive global device market with little brand equity or relationships with the primary gatekeepers, mobile operators. Given that their devices have generated limited appeal, Dell likely needs a significant product breakthrough (e.g., in the area of design, software / interface or cost) as well as increased customer appeal to justify continued expenditures in the smartphone business.
Tal Raeside consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
