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Dell's Smartphone Better Be Spectacular

Analysts agree that Dell would have to go beyond the Apple iPhone, the RIM BlackBerry, and the upcoming Palm Pre.

If Dell delivers a strong product, then it has some advantages, Spooner said. The company could bundle the phone with other products to get it to consumers, and it could leverage its software from Zing Systems to move music and video between the phone and PCs. Dell acquired Zing in 2007.

In addition, Dell could attract customers with price. Prices for smartphones from the major competitors start as low as $200 with a two-year service plan from a wireless carrier. Dell could offer its phone for a lot less, trading the lower profit margin for higher sales, Spooner said.

But no matter what Dell's chances for success are, the company may have little choice but to give smartphones a shot, if not now then eventually. While Dell's traditional PC market has been in a slump because of the economic downturn, the smartphone market is growing.

Smartphone shipments last year were up nearly 27% from 2007 at 157 million units, according to IDC. By 2012, that number is expected to nearly double.

And Dell needs a growing market. For the quarter ended Oct. 31, the company reported a 5% drop in profits as revenue fell 3%. The company has had layoffs and has seen its stock fall 60% since August.

Dell also has lost PC market share. Last quarter its share fell to 13.7% from 14.6% the same period a year ago, according to IDC.

Chief executive and founder Michael Dell, who returned to the company in 2007 to turn it around, has moved the company deeper into the consumer market, hiring Ron Garriques, former head of Motorola's mobile phone business, to lead Dell's consumer products unit. CEO Dell has been eyeing the smartphone market since his return.

So far, however, Dell the CEO has been cautious in entering new markets. In November, the company nixed plans to release a digital music player before the holiday shopping season. It would have been Dell's second attempt. The company launched a line of MP3 players in 2003, but poor sales led to it pulling the plug in 2006.

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