(Reuters) - Dell Inc plans to launch a smartphone with Google's Android mobile software on carrier AT&T's network, a source said, marking the PC maker's first foray into a cut-throat U.S. cellphone arena.

Dell will become the latest tech manufacturer to try to establish a footprint in a fast-growing market dominated by Apple and Research in Motion. Its planned phone would also give a boost to Google's fledgling mobile platform, which vies with Apple's and Microsoft's platforms.

A source with direct knowledge of the matter told Reuters Dell plans to introduce a U.S. version of its "oPhone" for China -- which runs on Android -- and that the device had been certified by AT&T for its domestic network.

The Wall Street Journal, which broke the news on Wednesday, cited people briefed on the matter as saying Dell's phone could be launched as soon as early 2010.

Smartphones -- or cellphones that come with an array of complex functions from email to multimedia -- have exploded onto the corporate and consumer market as users increasingly access information and entertainment on the go.

Worldwide factory shipments of smart phones are expected to rise to 235.6 million units in 2010, up 27.9 percent from 184.2 million in 2009, according to iSuppli. That is a far cry from a 12.3 percent decline projected for cellphones overall in 2009.

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But analysts warn that the world's No. 2 PC maker would face a tough challenge in a market already crowded with competition. On Wednesday, South Korea's Samsung said it would also begin selling an Android phone through Sprint Nextel's network.

Others including Taiwanese rivals Acer and Asustek Computer are moving into smartphones, which tend to offer higher margins than PCs.

Dell spokesman Andrew Bowins declined comment on the AT&T tie-up but said: "We are deeply engaged with our operator partners around the world to deliver mobile broadband enabled computing devices."

He added: "We haven't announced anything around voice or Android although we continue to explore opportunities in those areas with operators around the world."

Google declined comment, as did AT&T. But a spokesman for the telecoms giant, Michael Coe, declined comment on the tie-up: "We expect to sell Android phones in the future."

Dell has been coy about its plans, although such a move has been rumored ever since it hired Ron Garriques from Motorola Inc in 2007 to lead its consumer products division.

U.S. chip designer Marvell Technology had developed the "oPhone" platform for cellphone makers who wanted to make smartphones without investing the associated research and development costs. Dell was one of the first companies to sign up to make them.

Marvell subsequently came up with a mobile device for China Mobile Ltd -- a large, touchscreen phone.

The Wall Street Journal, citing people briefed on the matter, reported Dell's Android phone for AT&T would also come with a touch-screen, plus a camera.

"They've been working on a phone for awhile," said Kaufman Bros analyst Shaw Wu. "But it's going to be really hard for them to differentiate from what's already on the market."

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Several companies including LG Electronics, Lenovo and Philips Electronics, are also making smartphones based on the oPhone technology used by Dell, according to reports. The source said talks were underway to bring them to the United States, Japan and Europe.

"Four big carriers are working with China Mobile on this platform, in the U.S., Europe and Japan," the source said. "The top carriers in the world, representing about half of all subscribers, are working on these phones."

Forrester Research analyst Charles Golvin said a partnership between Dell and AT&T would make sense given the flurry of announcements around Android smartphones.

"It's pretty natural that these other guys are going to jump on the Android bandwagon... From AT&T's perspective, it's a gap that they're looking to fill. Get an Android phone, get one that's different than the one everybody else is offering."

But Golvin cautioned that Dell does not have a strong track record moving into areas where it has little experience. Other analysts noted that Android was generating plenty of momentum.

"The goal here of Google is to make the Android operating system a real alternative to that of Apple, Research In Motion's Blackberry and Palm," said C.L. King and Associates analyst Lawrence Harris.

Google is gaining some traction with its fledgling software. On Tuesday, it said it was partnering with Verizon Wireless to co-develop multiple phones based on Android. They plan to bring two phones to market this year. Verizon Wireless is a venture of Verizon Communications Inc and Vodafone Group Plc.

Other Android phones include Motorola's recently announced Cliq, and HTC's Hero, slated for U.S. release next week.

(Additional reporting by Ritsuko Ando, Anupreeta Das and Ian Sherr; Editing by Edwin Chan and Anshuman Daga)