Dell's $1 Billion Mobile Business

by: Trefis

Dell (NASDAQ:DELL), which competes with HP (NYSE:HPQ), Acer, Apple (NASDAQ:AAPL) and Lenovo in the global PC market, is ready to enter the lucrative smartphone market with a range of mobile phones that are scheduled for release over the next year.

We estimate that the smartphone business will add slightly more than $1 billion in value to our valuation of Dell’s stock if Dell can achieve a modest 0.5% market share within the global mobile phone market and maintain smartphone prices comparable to many of the existing players in the space.

We estimate that the mobile phones business constitutes 3% of the $17 Trefis price estimate for Dell’s stock. Below we discuss our expected pricing and market share trends for Dell’s mobile business.

Dell’s Smartphone Prices to Decline from $450 to Below $300

Dell is making an aggressive entry into the smartphone market in 2010 – a market that has gained significant traction since the launch of RIM’s (RIMM) BlackBerry in 1999 and Apple’s iPhone in 2007.

Many other players like Nokia (NYSE:NOK), Motorola (MOT) and Google (NASDAQ:GOOG) have also entered the smartphone market with their own versions of smartphones. Apart from a couple of exclusive features, most of the smartphones have a common set of features which has resulted in standardization of smartphone prices to some extent.

Dell plans to a launch a series of smartphones in 2010, of which "Streak" has been priced at around $500. We estimate the price for Dell’s other smartphones to be in the range of $400 to $500 for 2010, and forecast an average value of $450 for Dell smartphones in 2010.

We expect Dell’s smartphone prices to decline further and reach below the $300 levels by the end of the Trefis forecast period, fueled by growing competition in the segment and increasing commoditization of smartphones.

Dell’s Mobile Phone Market Share to Increase To 0.5%

Dell will face strong competition from smartphone vendors such as Nokia, Apple, RIM, HTC, Samsung (OTC:SSNLF) and Motorola who have strong presence in countries like the US, China, Brazil, UK and India where Dell plans to introduce its phones over the next year. This has led us to remain conservative in our estimates for Dell’s smartphone share. For 2010, we estimate Dell to capture only around 0.1% share of the total global mobile phone market.

We expect Dell’s unit sales in 2010 will be led by the "Streak," a smartphone / tablet device ideal for consumers who do not want to spend on two separate devices. Streak has a bigger screen than other available smartphones in the market, making it convenient for the user to read and watch videos. Its 5-inch size with camera features (that are not present in the iPad) give it an upper-hand in some ways over other tablets.

As Dell introduces new smartphones such as "Flash," "Lightning," "Smoke" and "Thunder" over the next year and expands into other regions, we expect its market share to benefit. We estimate Dell’s market share in the global mobile phone market to reach 0.5% by the end of the Trefis forecast period.

Disclosure: No positions