April 14, 2009 / 8:09 AM / 10 years ago

UPDATE 1-Dell to launch smartphones in China by yr-end -analysts

* Dell to roll out smartphones in China by year-end

* Manufacturing done by Hon Hai unit, OS by China-based firm

* Analysts sceptical on Dell’s smartphone prospects

(Adds details, analyst comments)

By Kelvin Soh and Michael Wei

TAIPEI/BEIJING, April 14 (Reuters) - Dell DELL.O, the world’s No.2 PC brand, plans to enter the lucrative but crowded smartphone market by year-end with an initial rollout in China as it looks for new revenue sources, two analysts said on Tuesday.

The analysts, speaking on condition of anonymity because Dell has not confirmed the plan, said Dell was working on handsets with Chi Mei Communications, an unlisted unit of Taiwan electronics giant Hon Hai (2317.TW), while China-based software maker Red Office is designing the phones’ operating system.

Spokesmen from Hon Hai’s office in Taiwan and Dell offices in China and Singapore had no comment, but a Red Office spokeswoman confirmed her company was developing an operating system for a smartphone for Dell.

“We’re still in preliminary development of the software, and haven’t done any publicity on this yet,” said the Red Office spokeswoman.

The two analysts said they had verified the news with officials at Chi Mei, which already counts Dell as a client.

Many top electronic makers typically design their products in-house but rely on contract manufacturers such as Hon Hai and Singapore-based Flextronics (FLEX.O), who have large production facilities in lower-cost countries.

The analysts could not provide details on what mobile carrier in China would offer the phones. But they said the roll-out would occur first in China, the world’s largest cellular market by subscribers, followed by the United States and Europe.

Buzz about Dell’s potential entry into the smartphone business has circulated since the beginning of the year, though the company has not commented.

Goldman Sachs wrote in a research note released to clients last month that Dell was working with its original design manufacturing partners and a third-party software company, but did not identify either party.

“Our industry checks indicate that Dell, barring any further delays, is likely to launch its first Android smartphone in 2Q09,” Goldman wrote in its report. Android is Google’s (GOOG.O) open-source operating system used in mobile phones.

ANALYSTS SCEPTICAL

Dell’s move comes as many of its peers, including Acer (2353.TW) and Asustek (2357.TW), enter the increasingly competitive smartphone market, going head to head with major brands such as Apple (AAPL.O), Nokia NOK1V.HE, HTC (2498.TW) and Research in Motion RIM.TO, maker of the BlackBerry.

Smartphones are feature-packed phones that combine many computer functions with traditional handsets in what some are calling a convergence between the two products.

However, many analysts have expressed scepticism on Dell’s move into the smartphone sector, saying it may not have much that will differentiate it from the other players already entrenched in the market, and in consumers’ minds. [ID:nSP92017]

Local Chinese media reports, citing unnamed sources, said Dell was looking to work with China Mobile (0941.HK) to distribute its handsets in the massive Chinese market, but company officials were unavailable for comment.

“It will be in line with industry practice if they approach one of China’s mobile operators,” said Andrew Chang, an analyst at Daiwa Securities. “Almost all handset makers do it when they are trying to gain a foothold in any market.”

Editing by Doug Young

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