Dell Launching A Phone? We Have Our Doubts Of Its Success

With a failing PC business, Dell Inc. (DELL) now plans to enter the mobile phone market. Rumor has it that Dell will launch its first mobile phone - in the Chinese market exclusively - within the next two days.

Not much information is known about the phone, either on the hardware or the software front, but according to some sources, it will be like an iPhone with a large touch-screen and without a physical keyboard.

The phone is anticipated to be based on Google’s (GOOG) Android operating system with either China Mobile (CHA) or China Unicom (CHU) to be its carrier partner. However, Dell has refrained from commenting so far, but it expects the offering to be part of its long-term consumer strategy.

Dell has struggled to keep pace with the consumer market due to intense competitive pressure. If Dell launches the phone, it will have to face stiff competition from Apple (AAPL), Research in Motion (RIMM) and Nokia (NOK).

In our view, Dell may not be able to surpass competition as it lags in all respects. In general, Dell’s products lack what is desired by consumers who are more focused on features such as multimedia capabilities, style and ease of use. Dell is struggling to keep up with the retail distribution capabilities offered by large competitors. Neither can it can compete with Apple due to its large brand following in the iPhone market.

Although Dell expects some revenue generation from the phone, we have our doubts of its success. There may be no buyers. Despite choosing China Mobile, which is one of the largest mobile carriers with a large number of subscribers, Dell’s revenue generation will be minimal due to its small market share compared to large rivals. Hence we maintain our Underperform rating on the stock.

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