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Why Dell Can't Wait for 2010


Despite the company's mistakes, investors should be able to make some money next year.

Saturday's Wall Street Journal contained an interesting, yet frustrating article about Dell (DELL). It appears that the company is re-organizing (once again) and is creating a new mobile-devices division headed by Ron Garriques, the former head of mobile devices at Motorola (MOT).

While I'm glad to see the change take place, what remains so frustrating is the glacial-like speed in which the company moves.

Garriques has been at Dell for nearly two years (since February 2007). That was one month after Apple (AAPL) rocked the world with the introduction of the first iPhone. Several months later, Michael Dell could see consumers lining up at retailers, sometimes days in advance, to be one of the first to acquire a new iPhone.

Whether you're an iPhone fan or not, it's hard to argue that the industry didn't change in 2007. In essence, that was the point at which the mobile Internet really started to take its first baby steps.

I realize that the company was engaged in solving a number of existing problems, but the world doesn't stop turning because you need to play Mr. Fixit. The reality is that if Dell had started the move into mobile devices two years ago, its problems and stock would be in a far better place today.

Dell's mobile-devices operations are, in essence, coming up to bat with two strikes on them already.

First, their relationships with the cellular carriers are limited. While Garriques had those relationships in the past, that was two years ago. Think of what it would be like for you if you were gone from your job or family for 24 months. Think you can just step back in and pick up where you left off? Not without some difficulty, and in some cases the players will have changed.

The second issue is product. In 2007, 2008, and 2009 I wrote that Dell should buy Palm (PALM). That would have delivered a platform, experienced R&D, carrier relationships, an installed base, a cadre of independent software developers, and a following. Obviously it opted for a different approach.

The company launched two Android-based smartphones last month: one in China with China Mobile and the second in Brazil with America Movil (AMX). Despite the fact that China Mobile is the world's largest cellular provider, Dell's Mini 3i is one of several Android-based smartphones vying for attention on the network.

Dell would appear to be planning to use its scale to compete on price. However, competitors such as LG and Samsung have more than enough scale on their own and are vertically integrated in some components that Dell must purchase. So much for that strategy.

The decision to enter a market after it has taken off is a risk adverse strategy that appears to dominate the thought process in Round Rock, Texas, and that's troubling. The company has to fight to differentiate itself and for mindshare as the waters thicken with competitors. That's not what you expect of a leader.

None of this is to suggest that we can't make some money on the stock. As I noted last month, the bulk of Dell's business is related to corporate IT spending. We'll have a Windows 7-driven hardware refresh cycle and that will start in 2010 in my opinion. Dell will benefit from that. Buy the stock just after the new year with the intention of selling it as 2010 closes as the euphoria builds for the new capital spending cycle.

But any expectations that "Dell is back" should be expunged from the thought processes. The scenery only changes for the lead dog and Dell has demonstrated once again that it's not leading anything.
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No positions in stocks mentioned.
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