The news that Dell is considering a move into mobile phones (MW last week) looks to be far more than just a cosmetic diversification by the troubled computer giant.
It is, say analysts, further evidence that the company is seeking to change the business model on which it was built. Dell announced last week that fourth-quarter profits plunged 33% to $673m (£349.4m).
Founder Michael Dell, who replaced Kevin Rollins as chief executive in January in an attempt to revive the company, said he was “disappointed” with the results, which failed to meet analysts’ already reduced expectations.
Analysts are now calling on Dell, which was overtaken as the world’s biggest personal computer maker by Hewlett-Packard (HP) last year, to ditch its 23-year-old policy of selling direct to customers. They claim the direct model is not well-suited to the current realities of the consumer PC market and that increased competition and more advanced technology mean people prefer to compare products in a store.
Dell does have some small kiosk-type stores in shopping malls in the US but, while customers can try out a limited number of Dell products, they cannot buy them in store.
Principal analyst at Forrester Research JP Gownder says: “It’s a step in the right direction but Dell just doesn’t reach a large enough number of people. Dell has not had a lot of success diversifying into other markets. I think it will make the change to a more retail-oriented strategy sooner or later.”
The growing trend for trying products in store appears to have benefited HP and Apple. During the fourth quarter, Dell saw its PC shipments fall more than 17% on the previous year, while HP’s rose 16% and Apple’s increased by 31%, according to Gartner. Apple’s 170 retail stores accounted for $1.14bn (£598.1m) in sales when the company reported first-quarter results in January.
Dell, which says it is committed to its business model but is open to “experimentation”, poached Motorola’s head of mobile devices, Ron Garriques, to run its new global consumer group last month. Industry sources claim the move is a sign of Dell’s intention to launch own-branded mobile phones.
But its previous attempts to diversify beyond its core computer business have had mixed results. While the company had some success selling flat-screen televisions, other efforts, such as a range of Dell-branded music players, have failed.
The global mobile phone manufacturing market is dominated by a handful of players, led by Nokia and Motorola. Electronics giants such as Panasonic and NEC have tried to break into mobile phones but have been forced to quit Western Europe because of the intense competition.
Gartner analyst Carolina Milanesi does not believe Dell’s offering would work in mobile phones. “It’s not an easy market to get into,” she says. “It would be difficult for someone like Dell to come in and make an impact.”
It is thought that Dell will outsource production of the phones and rebadge them with its own brand name – as it already does with the majority of its PCs. But it is not yet clear whether the company will launch into the consumer market or stick to smartphones.
Whatever its plans in mobile, it seems that the move is part of a wider strategic shift to make Dell more consumer friendly. It is clear that urgent action is needed to return this technology leviathan to former glories.