By Jessi Hempel
August 12, 2009

The PC maker widely rumored to be pursuing a phone for Chinese market. Is that a smart call?

Will Dell (DELL) be able to get a smartphone off the ground in China?

The mobile world is abuzz once again over rumors that the No. 2 PC maker has plans to do just that. According to a Techcrunch report and an article on Chinese news portal, Dell may soon offer an “oPhone” device featuring Google’s (GOOG) Android mobile operating system. The reports say the phone will be called the “mini3i.”

OPhone is the name for China Mobile’s customized version of Android, an open mobile operating platform. The phone reportedly is “iPhone like,” with a touchscreen and no physical keypad. Dell is not commenting on the rumors. A spokesperson will only say: “Any mention of Dell in context with smartphones would be speculation.”

But that speculation has been occurring for some time. Speaking at the company’s annual financial presentation in Texas last month Dell consumer division president Ronald Garriques said the company would work with the top three or four wireless carriers to identify their needs. Garriques, who was former chief of Motorola’s cell phone efforts, didn’t identify the carriers by country.

The China Opportunity

What’s certain is that China offers a great and mostly untapped opportunity to handset makers, particularly those that might be late coming to the North American market, which has become increasingly crowded. With more than 600 million current customers, China has the world’s largest cell phone market. As of last year, Nokia (NOK) was the top mobile phone seller in China with a 46% share of shipments into China, but Nokia has yet to come up with a killer smartphone. The market remains wide open. What’s more, mobile phone sales overall in China next year are predicted to hit 192 million units, up from 180 million this year, according to Gartner analyst Carolina Milanesi.

But for Dell to be successful, it will have to conquer the myriad challenges of a Chinese market. Most important, according to Milanesi: strong relationships with the two main carriers, either China Mobile or China Unicom. “They pretty much control the market,” she explains. If the early reports are correct, China Mobile will distribute the device.

And as companies from Apple (AAPL) and RIM (RIMM) to Acer and HTC eye the Chinese market, Dell will have to manufacture well-designed competitive devices. That might be hard for the company, which has long specialized in hardware, because the strongest smartphone manufacturers combine deep knowledge in both hardware and software.

As more computing takes place on handheld devices instead of PCs and laptops, Dell clearly has to look at new form factors. But analysts expect the move to mobile won’t be easy for the Round Rock, Texas-based company. “Increasingly differentiation in the handset market is more about software than hardware, and Dell does not have a strong software background — especially in handheld devices,” says Forrester Research analyst Charles Golbvin. “That lack of expertise exacerbates the challenge they’d face significantly. ”

In other words, it won’t be an easy call.

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