The Backdrop to Dell’s Consumer Tablet Plans

by Anthony John Agnello | January 18, 2012 2:20 pm

Research In Motion (NASDAQ:RIMM[1]) is hunting for a buyer and no one’s taking the bait. Meg Whitman is trying to wrangle Hewlett-Packard (NYSE:HPQ[2]) into a stronger defensive position and further its recovery from the catastrophic failure of its mobile division following the $1.2 billion acquisition of Palm. Apple (NASDAQ:AAPL[3]), meanwhile, is likely going to report more than $40 billion in revenue for the holiday quarter on Tuesday, thanks to sales of portables like the iPad and iPhone. The old powerhouses of computing have been displaced by what used to be the weakest competitor in the market just 10 years ago, and their failure to compete in the tablet and smartphone race has left them in dire circumstances.

The question then: What is Dell (NASDAQ:DELL[4]) plotting?

In the same way that HP and RIM have found their businesses permanently altered by changing consumer tastes and Apple’s juggernaut products, Dell has seen its role in the market transformed. Even as HP remained the leading worldwide PC vendor during the fourth quarter of 2011, research firm Gartner found that Lenovo (PINK:LNVGY[5]) pulled ahead of Dell to take the No. 2 spot. (Dell remains the No. 2 PC vendor in the U.S.) Following the company’s narrative throughout 2011, though, the decline was expected. Unlike HP and RIM, Dell wasn’t chasing consumers across 2011, just business clients. The company was in fact prepared for slow growth of just 1% to 5% last year while it continued to shift its focus. In November, CEO Michael Dell declared that his company raised R&D spending to further build its position as a “solutions provider” in business Internet technology.

Dell’s enterprise evangelizing may have included a bit of misdirection, though, because the Dell of 2012 seems to be positioning itself for a run at the consumer market its peers failed to penetrate. At the International Consumer Electronics Show last week, Dell CCO Steve Felice confirmed that the company would release its own consumer tablet by the end of the year. Details were scarce. Felice said the company hadn’t decided whether its device would use Microsoft‘s (NASDAQ:MSFT[6]) new Windows 8 operating system or a future version of Google‘s (NASDAQ:GOOG[7]) Android. What Felice did say was that Dell had learned important lessons from both its own failures with the Streak (a tablet aimed solely at business clients) and those of its competitors like RIM and HP.

Felice’s lip service is encouraging. His CES talk emphasized that tablets need a strong, marketable ecosystem of apps, services, and clean functionality to succeed, not just strong technical specifications. The tablet seemed to only be the beginning of Dell’s new consumer-oriented plans. The company also debuted its first Ultrabook laptop at CES, the XPS 13, an incredibly beefy laptop built for both consumers and business clients. It is priced at $999, directly on par with Apple’s MacBook Air.

It’s impossible to say at this point whether or not Dell stands a chance in the tablet market. It’s certainly in a better position to succeed than HP or RIM were, if for no other reason than because Dell’s ability to release a more affordable device is backed by more-developed platforms, whether from Microsoft or Google. Amazon (NASDAQ:AMZN[8]) has proven that companies other than Apple can sell a tablet, but Amazon has a media retail empire to back up its device, whereas Dell only has a faded brand name.

What the company’s nascent tablet plans and its new Ultrabook prove, though, is that despite diminished growth and statements to the contrary, Dell hasn’t given up on the consumer market just yet. It’s possible that the company’s patience will pay off while the market reorients itself in the post-smartphone, post-tablet era. That possibility is far from a guaranteed, though.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[9] and become a fan of InvestorPlace on Facebook.

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