Dell plans to launch its first smartphone, according to a report from Digitimes which claims the company is working with Taiwanese manufacturer Foxconn on a Windows Mobile-based device.

Neither Dell nor Foxconn responded to requests for comment, but rumours of a Dell handset have been rife for some time. Dell competitors Apple, HP and Toshiba are already present in mobile computing with smartphones and PDAs, and the market is just too big for Dell to ignore, according to Neil Mawston, director of wireless device strategies at analysis firm Strategy Analytics.

The company already makes cellular laptops, and the move to smartphones isn't a big leap, Mawston said. Apple is ahead with the iPhone, and to attract consumers, Dell will need to make a splash with an attractive handset featuring the right operating system and content. A rumoured announcement in support of Google's Android mobile platform never materialised at last month's Mobile World Congress in Barcelona. Dell may adopt the Microsoft Windows Mobile OS for its smartphone, which will be a good win for Microsoft, Mawston said.

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Dell last year tapped former Motorola executive Ron Garriques to be the new president of Dell's global consumer division, which could suggest that Dell is working on some form of a smartphone, Mawston said. Last year, Dell CEO Michael Dell said Garriques was chosen for the job partly because he had led Motorola's PCS (personal communications services) division for Europe, the Middle East and Africa, as well as Motorola's $28bn handset division.

The smartphone will be an effective replacement for Dell's previous Axim PDAs that it killed last year, citing a declining market for pen-based PDAs. Dell's Axim product portfolio was weak with not many devices on offer, Mawston said. The company needs a replacement for Axim, and the new smartphone could fill that void.

A Dell smartphone will also create a new revenue stream, and the company's move away from a direct sales model could help in sales, Mawston said.

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Now that Dell is selling its products through retail stores, it is gaining traction through relationships with retailers and carriers to distribute the smartphones, said Andrew Brown, director for wireless enterprise strategies at Strategy Analytics. Dell has a relationship with Vodafone in Europe and Verizon Wireless in the US to bring third-generation wireless broadband connectivity to Dell laptops.

However, Dell faces challenges if it decides to enter the smartphone market. Dell will need good design and technology to contend with the popular iPhone, which is setting the benchmark on smartphone design, Mawston said.

The company will also need a stronger distribution network, Brown said. Dell is a well-established brand name in the US but not in Europe, where it could encounter some bumps in trying to sell a smartphone. The distribution tie-ups with companies like Tesco and Carrefour, which are established grocery retailers, could help in the sales of prepaid phones, not high-end smartphones. The company will need to tie up with established retailers like Dixon's or Carphone Warehouse to be competitive, Brown said.

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