Why Dell needs a handheld

Dell may no longer be the darling of the PC industry, but a tiny gadget could do wonders to help it win back the hearts of mainstream consumers.

It's been a rollercoaster of a year for the company, and now could be a good time for Dell to take another risk: offering a new handheld device. It could be a smartphone, or a portable music/video player that connects to the Web and a PC for downloading and transferring content.

It's a perfect opportunity for Dell to show it's not just a PC manufacturer, but that it's a consumer products company. Its competitors have made the transition--Apple dropped "Computer" from its name this year even before the iPhone madness ensued. And Hewlett-Packard has been steadily moving into the home with entertainment and communication-oriented devices.

There have been rumors that Dell would be launching a smartphone since Ron Garriques came onboard in February. Then a Forbes article last week got the rumor mill churning again. Perhaps more indicative that something is in the works, Dell purchased Zing Systems this summer, and trademarked and registered a similarly named online content portal.

So is there a handheld device coming in the future? Dell's not saying, though the biggest stage for a potential launch, the International Consumer Electronics Show, is in early January.

"(Dell needs) some cutting-edge, convergence, HD content-type products to become a relevant piece of the market, (to be more) than just a PC company."

--Stephen Baker, vice president of industry analysis, NPD Group

Dell is definitely setting itself up to do something new. The company has brought in a host of new executives, including Garriques, who found success reviving Motorola's handset business with its line of Razr phones. His hiring is part of the turnaround mode that Dell has been in for almost a year now, and the company has methodically begun to check things off the list: trimming its workforce, reassessing IT infrastructure and its ill-behaved accounting department, and refocusing on industrial design and consumer appeal. Not to mention switching up its sales strategy to include a real retail presence for the first time.

But there's more to do. Dell is bleeding market share to HP in its core PC business and is embarrassingly close to being overtaken by Acer for second place in the notebook market. Dell needs something, and a handheld device could be a buzz-worthy product that brings it a new level of consumer attention. (And if it wanted to add in some fun, multi-touch functionality, that would be good, too. We know it has the technology, as it demonstrated at Oracle Open World last month.)

In the meantime, here are some reasons why Dell needs a handheld device:

• It has nothing. Dell axed its Axim device earlier this year when the bottom fell out of the PDA market. While that was arguably wise, there was no follow-through with any sort of next-generation handheld, like a phone/Internet device--or anything at all. Even leaving out the iPhone from Apple, chief rival HP has the iPaq, which isn't the prettiest thing you've ever seen, but it is packed with current technology and has been well-received.

So Dell has been MIA. In fairness, there have been more pressing issues. But Dell's reputation and balance sheet could greatly benefit from an iPhone-like, or even an iPaq-like, device.

• Handheld devices are popular, but demand for smartphones in particular has skyrocketed in the last year. Smartphones now account for 12 percent of the U.S. cell phone market, according to data collected by NPD Group. Smartphones' share of the handset market doubled from 4 percent to 8 percent in one quarter at the end of last year. As consumers continue to expect all their gadgets to be mobile, Dell could get in on that demand. Plus, it has demonstrated brand awareness and a $4.5 billion marketing budget to play with for the next three years.

• A consumer-focused smartphone or handheld device that is done well would show a commitment to innovation. The company's historical business, PCs, isn't exactly a hotbed of creativity. The industry is more mature and is now mainly about cranking out products quicker and cheaper than the other guys. But smartphones, where there are many new technological possibilities, are essentially becoming small PCs. While leading-edge technical innovations have not been the hallmarks of Dell or the personal computing industry in recent years, it doesn't have to be that way, as Apple has demonstrated.

Making a consumer gadget is necessary for Dell if it wants to be a consumer products company and compete with Apple and HP. "They can't be just a PC company," said Stephen Baker, vice president of industry analysis at NPD Group. And a printer and ink business doesn't really count. "They need some cutting-edge, convergence, HD content-type products to become a relevant piece of the market, (to be more) than just a PC company."

The company's obviously not opposed to trying new form factors or device categories. Soon Dell will be selling its first tablet PC, and it recently reworked its humdrum desktop offerings with the very consumer-friendly XPS One. It also has experience trying new consumer electronics products: TVs, portable music players, and a home music player.

Sure, it dropped out of all of those, but Dell didn't necessarily have to exit the TV market, some would say. "Not only should they have stayed in TVs, they were in earlier (than most). They just screwed it up," said Baker. Eventually its LCD TV prices weren't low enough to compete with other consumer electronics makers and it abandoned making its own Dell-branded TVs. "When things got tough they lost interest," but if they stuck with it or had a better strategy from the start, they could have been successful, he said.

"Not only should (Dell) have stayed in TVs, they were in earlier (than most). They just screwed it up."

--Stephen Baker, vice president of industry analysis, NPD Group

• Which is why now could be a good time to start fresh. A gadget with a flashy design with the right price would demonstrate how Dell understands consumers. Consumer demand for gadgets is higher than ever right now, particularly in a world where converged devices that connect to each other are the next frontier. Technology from Zing, which is used to share and download music wirelessly, could easily be incorporated into such a device. And now Dell has a brand-new retail presence where it could get attention from non-Dell customers, such as at Best Buy or Wal-Mart Stores.

Timing is everything, of course. Watch what Dell says at CES this year, where it could launch any number of new product categories. The company has something up its sleeve, though what is not entirely clear yet, Baker said. "That doesn't mean it has to be a handheld, but they need some other place to go."