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Why in Hell Is Dell After PDAs?

There has been much speculation recently about Dell Computer Corp. (Nasdaq: DELL) entering the handheld computer market with a low-cost PDA.

Unstrung has been wondering why Dell would bother. After all, sales of handheld computers are poor; the market is stagnant; margins are getting worse; and there are new classes of devices coming on the market, such as smartphones and Webpads, that threaten to further erode the humble organizer's share. Company CEO Michael Dell has even gone on record in the past questioning the viability of handheld computers.

Yet a number of reports out of Taiwan suggest that Dell will launch a $299 handheld computer, based on Microsoft Corp.'s (Nasdaq: MSFT) Pocket PC operating system, before the end of 2002. Consulting firm Ars Inc. suggests that any device Dell produces will be wirelessly enabled and aimed at the corporate market.

So why would Dell enter the handheld market in this downtime? Probably because it believes it can make money from bundling handhelds with servers and PCs for corporate customers, according to an analyst source familiar with the company's plans.

Dell, the source says, looked at how Compaq Computer Corp. (now part of Hewlett-Packard Co. [NYSE: HPQ]) uses its iPaq handheld device to drive revenues. While Dell found that virtually no money is made from the device itself, handhelds are a useful lever when sold as part of a package with servers and PCs into the enterprise. And there is money to be made selling backend software and services to support the use of handhelds in the enterprise.

With that in mind, Dell has gone hunting for a manufacturer that can produce a low-cost but powerful PDA, branded with the Dell name, to sell to the corporate user market. It seems many contract manufacturers said it could not be done for the price Dell was targeting: Most Pocket PC devices retail for $500 or more, not $300.

However, Taipei's Economic Daily News reported that Wistron Corp. has won a contract to make 1.5 million devices for Dell. Wistron reportedly declined to comment.

"Dell will make a margin of about $4 per device," says the source.

That is, if the computer giant doesn't back down again. The company was apparently gung-ho to get into the market in 2000, but backed off because the margins "weren't wide enough." Dell already resells Research In Motion Ltd. (RIM) (Nasdaq: RIMM; Toronto: RIM) and Palm Inc. (Nasdaq: PALM) devices.

"I can't really offer any insight... We haven't announced anything yet," a Dell spokesperson said, when Unstrung popped the handheld question.

— Dan Jones, Senior Editor, Unstrung

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