The Commoditization of the 'Dellphone'

Dell (DELL) is developing an Android smartphone, reportedly for China Mobile, the world’s largest mobile phone carrier.

All the conventional analysis makes sense: Dell wants to be in smartphones to line extend down from netbooks. There’s the obvious question of whether a smartphone is more like a netbook or like an MP3 player, where Dell entered last summer and predictably failed. One nice thing for Dell is that it didn’t have a retail store to compete with the iPod, but for cellphones the operators will supply the distribution.

I don’t quite get why CM (CHL) needs Dell. HTC has already shipped two Android phones, and overall there are three Taiwanese and one Chinese handset vendor to choose from. Maybe Dell offered an aggressive price to break its Dellphone into the cellphone business in the world’s largest market.

Of course, this illustrates the number rule of Dell: if Dell enters your market, you’re a commodity. As with any other open source software, Android commoditizes handset operating systems, in this case enabling easy entry by handset makers who know nothing about making usable handset software. WIth help from suppliers like Qualcomm (QCOM) or TI, I’m guessing there will be more than a dozen Android handset vendors by Xmas 2010.

If Android succeeds in product proliferation and commodization, will it gain significant market share? WIll it cut price premiums for Apple (AAPL), Nokia (NOK) or RIM (RIMM) smartphones? Right now, those would be much harder predictions to make.

Disclosure: None

Comments

[HereAndNow]

If you think of smartphones as mobile computers that happen to make phone calls, then it definitely makes sense for Dell to be in this segment. Besides, mobile operators are likely to want smartbooks, netbooks, tablets, etc. to be able to make cell phone calls, send SMS/MMS, etc., so that they can generate additional revenue, over and above basic data contracts.

The experience Dell gains with Android on smartphones can be applied to building the same Android functionality into their other mobile computers. That is where they can really differentiate their products, from the rest of the smartbook/netbook crowd.

2009 Aug 19 06:21 AM

[Yagottabe Kidding]

Commoditization of the cellphone space is exactly what that RBC "analyst" didn't take into account. Lack of profit margins will kill the less-than-nimble. The HTCs and Nokias of the world, able to spew out a dozen phones every couple months, should do okay (but not liking it) but whither the two-phones-a-year companies like Palm? Can they afford perpetual 15% margins?

2009 Aug 19 07:16 AM

[Jon T]

Dell DJ, Microsoft Zune etc etc, these companies have not got a clue beyond the mediocre software and tasteless boxes they have always churned out.

I would not bet on the Dell phone changing anything.

2009 Aug 19 09:17 AM

[User 368585]

@Yagottabe

I'd put it a slightly diffferent way. While the market for smartphones will be really big, most of the volume will be low-end phones that use "commodity" OSes like Android. If you go back and look at the featurephone market three or so years ago (before everything was commoditized), there was a segmentation between phones such as the MOTO RAZR and lower end phones. That same shift will occur in the smartphone market and ultimately be what drives the volume expansion. The RBC's "analysis" (or lack thereof) assumes a monolithic consumer market. So, in his mind, all Palm/Apple/RIMM have to do is to get 5% of this BIG market and they'll be worth billions. Only problem is that probably 20% of this BIG market will be accessible to the high end players and the largest volume will be crushed by the Samsung/MOTs/LGs of the world making low end Android and, to a lesser degree, WinMo phones. So, instead of needing 5% of the total market, a more appropriate way to ask the question is how much market share does Palm/Apple/RIMM and other high end phone manufacturers needs of the high end market. When the analysis is performed that way, the road for guys like Palm is much scarier and they ARE directly competing and have to take share from Apple.

2009 Aug 19 10:08 AM

[Stop Paying Analysts]

Anybody else got nothin o write about. This is a shit article

2009 Aug 19 01:30 PM