In a bid to resurrect its success of the past, Dell, which has been slipping of late, especially to competitor HP, is reorganizing and making changes in its executive ranks. Recently, Dell lured Ron Garriques away from Motorola. Garriques was in charge of Motorola’s handset division, which is currently feeling some pain of its own. He will be in charge of Dell’s consumer division and given his significant experience, we believe this is a good choice. But is this just part of Michael Dell’s re-architecting the company to renew its luster, or something deeper?
Dell needs Garriques for its consumer division, especially since he has extensive international experience, an area in which Dell has been week. If Dell is serious about consumer markets (e.g., large screen TVs, multimedia, gaming, etc.) it will need a more experienced hand at the helm. But Garriques also brings another unique capability which we believe Dell is on the verge of utilizing. He has extensive wireless experience, an area Dell will have to become a player, and soon, as HP and Apple push into this key market segment.
We believe that within the year, Dell will exit the stand alone PDA market (where overall sales of its Axiom have fallen drastically over the past 2 years along with the PDA market in general), and instead fill this niche by offering a smart phone device that has all of the features both business and high end consumers would want (e.g., push email, office document viewing/editing, media capability). We believe Dell will aim at both consumers and enterprises with slightly modified and/or differentiated products, but we expect the products to be Windows Mobile powered, maintaining the relationship Dell currently has with Microsoft for its handhelds. But to be successful, it will require not only good products, but also partnerships with carriers that will power these devices – another area in which Garriques has extensive experience, and where the existing Dell organization has virtually none. We would expect him to fill the ranks of what would be a new carrier group to initiate and maintain these coming relationships.
Although it is likely Dell will use an ODM to source the products (e.g., HTC), it could chose to buy an established player (e.g., Palm) to fulfill this need, and get not only devices but carrier partnerships as well. This is a real possibility and bears watching, as it would give them an installed base and instant credibility in the market. Dell could jettison the non-strategic components of Palm’s business and concentrate on its strengths.
Once Dell enters the wireless smart phone market, Lenovo will be the only major North American enterprise PC supplier without a smart phone device, although they do offer such a device in the Far East. We expect this device to be quickly brought into the US market (subject to testing and local approvals), but Lenovo will face the same challenges of building a carrier organization as Dell faces. Nevertheless, we believe Lenovo must do this to stay competitive. Several of the consumer-oriented PC vendors (e.g., Toshiba, Fujitsu, Sony) could also compete in the smart phone market by bringing in products from their Far East organizations. However, these devices are probably not sufficiently oriented towards the growing business market to initially be competitive.
Bottom Line: We believe the market for business oriented smart phone devices will change dramatically in the next 12-18 months as the PC vendors move into this potentially lucrative market where millions of devices are sold each year (we estimate about 200M per year by 2010). However, it is likely not all will be successful, as building a good smart phone device is a difficult task. We do not believe that any of the current smart phone device leaders (e.g., RIM, Nokia, Motorola, Palm) are particularly threatened in the short term. But the entry of new players will give business users a new breed of devices attuned to there unique needs and offer increased competition, ultimately driving down prices and increasing features/capabilities.