Dell facing identity crisis?

SAN FRANCISCO: Dell Inc's efforts to reignite growth, which may include selling mobile phones, are prompting questions about the PC maker's seemingly seesawing strategic focus and hammering its stock price.

Dell, a technology name once synonymous with groundbreaking sales tactics and just-in-time supply, is now overexposed to a slowing market for personal computers. Its core corporate clients are also slashing IT budgets as the recession deepens.

Once the world's top PC maker, Dell now ranks behind Hewlett-Packard Co and has been bleeding market share since it dragged its heels on getting into the hot-selling market for netbooks, or small, low-cost notebook PCs.

The company is searching for a new franchise to help fuel its turnaround, but whether that turns out to be a mobile phone or its new ultra-light Adamo PC, Dell will be late to a market brimming with formidable competition.

Some say Dell should stay with what it knows best for now. Chief executive Michael Dell has stressed the importance of profitability over growth, sending a message that the company -- once lauded for a super-efficient direct sales model -- must take serious steps to rein in costs.

"It's best they stick to their sandbox and try to turn around the core business rather than going on these tangents," argued Collins Stewart analyst Ashok Kumar.

Industry pundits are looking with most interest -- and some scepticism -- at the firm's on-again, off-again flirtation with mobile phones. Dell declined to comment.

Dell's move into mobile phones has been rumored since it hired Ron Garriques from Motorola Inc in 2007 to lead its consumer products division. The Wall Street Journal reported last week that Dell was mulling an entry into mobile phones as early as this month.

Overall mobile phone sales are declining, but the smartphone segment -- where Dell's eyes are reportedly focused -- is booming. Although Research in Motion and Apple Inc now dominate the segment, more and more players are entering the space, chasing fatter margins.

However, analysts say Dell appears hesitant and indecisive about which markets to attack. Investors seem to agree, and they have been beaten the company's shares down around 60 per cent over the past 6 months. The Nasdaq and S&P are both down around 34 per cent over that time, and Hewlett-Packard, its main rival, is down 22 per cent over that time. Dell's shares closed at $9.43, down 36 cents, on Thursday.

Past failures
Dell has not had much success in hand-held devices. Its earlier foray into the PDA market, the Axim, was discontinued
in 2007. It abandoned the digital music market in 2006 and was rumoured to be thinking of going back, but last fall Dell indicated a new player was not in the works.

Barton Hooper, an analyst with Weitz Funds which owned more than 5.5 million Dell shares as of the end of 2008, said the market senses confusion.

"I don't think it's clear as to what Dell will do and I think that's part of the reason its stock is where it's at."

Business customers make up around 80 per cent of Dell's revenue, while PCs account for roughly 60 per cent. Pushing to diversify, Dell is aiming to increase its business services revenue and at the same time sell more consumer products.

"They're in an identity crisis, they haven't figured it out yet," said Kaufman Bros analyst Shaw Wu. "They have two choices, they could compete with Apple ... or they go after HP and IBM in the enterprise, and that doesn't look easy either."

Wu expects Dell to enter the mobile phone market, perhaps in a matter of weeks, but he isn't certain whether its offering will be more tailored for consumers or businesses. Avian Securities analyst Matthew Thornton said a Dell move into smartphones would come as no surprise. "They do have some expertise in supply chain, they do have some expertise in hardware design," he said.

One of Dell's strengths is it has nearly $8 billion in cash. However, Thornton noted Dell's would-be competitors are also very well-capitalised and companies -- other than RIM and Apple -- have had a hard time differentiating their products. Carrier relationships are also key to success in mobile.

Dell's efforts to spur growth come even as it continues to overhaul its corporate and cost structure and shed jobs. It closed 2008 on a sour note, with market share slipping to 13.2 per cent, according to Gartner, within striking distance for No. 3 PC vendor Acer Inc, whose rise has been fuelled by sizzling sales of netbooks.

To be sure, Dell appears to be accelerating its efforts. It gave a very brief glimpse of its Adamo ultra-light notebook in January, calling it a "new luxury franchise." It also unveiled a 10-inch netbook to join its 9-inch and 12-inch netbooks.

But in December, Dell announced the departures of two top executives who were recruited to help turn the company around. It was the second major shake-up since Michael Dell returned as CEO in early 2007. Dell will release fourth-quarter results February 26.