The Commoditization of the 'Dellphone'

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Includes: AAPL, BB, CHL, DELL, NOK, QCOM
by: Joel West

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 (NYSE: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 (NASDAQ: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 (NASDAQ:AAPL), Nokia (NYSE:NOK) or RIM (RIMM) smartphones? Right now, those would be much harder predictions to make.

Disclosure: None