Too Many Smartphones

Dell (NASDAQ:DELL) announced that it will launch a smartphone with AT&T (NYSE:T) next year. The handset will be powered by the Google (NASDAQ:GOOG) Android operating system. 

The news about Google’s role has to annoy Microsoft (NASDAQ:MSFT), which has a mobile package of its own, and Symbian, which has about 50% of the smart phone operating system market.

The Dell phone is also, at least in theory, competition for the RIM (NASDAQ:RIMM) Blackberry, Apple (NASDAQ:AAPL) iPhone and Palm (NASDAQ:PALM) Pre. Each of these products has the same basic functions. Some have better e-mail and business software and others have better entertainment capacity. No one other than Dell or AT&T knows how the PC firm’s new product will be configured and which part of the smartphone market it will target.
What is almost certain is that there are too many companies in the smartphone business today just as there were too many in the PC business ten years ago. That is why IBM (NYSE:IBM) and Gateway and a number of smaller operations have been sold or closed.

The handset business is still dominated by Nokia (NYSE:NOK) and Samsung, and LG. Motorola (NYSE:MOT) and Sony Ericsson each have about 6 percent of the market and are in financial trouble. A company in fourth place in most industries is not likely to survive.

The large handset companies will do everything they can to keep their piece of the market as people move up from fairly simple phones to ones with larger numbers of features. Nokia, Samsung, and LG have extensive relationships with the world’s largest cellular carriers which give them an inside track, particularly if they can launch good smartphone products. Apple and the RIM Blackberry have had more than two years to stake out their spots at the high end of the smartphone market even though they do not produce inexpensive phones. This crowded makes it nearly impossible for smaller companies like Palm to get any meaningful sales at all.

The wireless market is changing with a rapidity that is amazing even in the technology world. VoIP applications now work on a number of handsets which will bring down the cost of calling and probably, sending data over wireless networks. VoIP may also damage the profit margins of the traditional carriers like AT&T, Verizon Wireless (NYSE:VZ), and Sprint (NYSE:S). Only five years ago, Symbian was by far the dominant operating system which made it easier for programmers to produce software for a single platform that ran on most phones. There are now at least half a dozen important mobile operating systems and only the most successful will get time from programmers building popular features. The less successful systems will eventually be marginalized or will die.

Dell has a habit of being late and it has hurt the company’s shareholders tremendously. It was late getting into the business of selling PCs through retailers. It was late improving a customer service system that outsiders knew was in trouble. It was late launching a mini-PC line of products. Now, it will be very late into a smartphone market that is already too crowded.

Douglas A. McIntyre