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Dell is likely to introduce a smartphone device in the next six months,
attracted to the form factor by high margins, falling sales of laptop and desktop
computers, and the potential of mobile Internet devices.

That prediction from Bernstein Research is no surprise, given Gartner’s bleak
assessment for PC sales in 2009, showing them declining nearly 12 percent. And
while Dell faces many disadvantages against established players in the
smartphone market, the benefits could be substantial.

Dell has publicly stated that it is working on “smaller-screen devices,”
according to analyst firm Bernstein Research, in a brief report addressing the
question of whether Dell will enter the smartphone market.

“Given the sheer size of the smartphone market, even a modest success could add
meaningfully to Dell‚Äôs revenues,” says Toni Sacconaghi, senior analyst at
Bernstein, in his brief report.

Dell’s advantages may have more to do with its existing business models than
its technological know-how, according to Bernstein.

“Where Dell may have an advantage, in our view, is in distribution,” he says.
“If one believes the smartphone will eventually become commoditized‚ÄĒto the
point where consumers are comfortable purchasing their smartphones based solely
on a set of technical specifications‚ÄĒthen Dell may be able to create
significant value through direct distribution. Moreover, we believe that this
model could be effective with enterprise sales.”

Bernstein acknowledges that this is a big change from the current distribution
model for smartphones. That’s why direct distribution may be a stronger play
for enterprise customers, the firm says.

The firm also believes it’s unlikely for Dell to enter the mobile phone space
with anything but a smartphone.

“We also do not believe it makes sense for Dell to start its own wireless data
service via a resell arrangement with carriers,” says Sacconaghi. “Unless Dell
has some proprietary content or service to offer, we do not believe there is
incremental value to be captured by owning the wireless service relationship.”

The biggest risks to Dell entering the smartphone space are most likely to come
from Dell making too big of an investment in the initiative or from a collapse
of the high margins that exist today for smartphones.

“We note that Dell‚Äôs previous foray into adjacent consumer electronics
categories‚ÄĒfrom televisions to PDAs to MP3 players‚ÄĒhas not been successful,”
says Sacconaghi.