Fixed Mobile Convergence

There has been significant activity out of Dell (News - Alert) this week with the company dancing around the possibilities of smartphones, the purchase of Palm, new servers and services and the potential of an IBM-Sun merger. Given the increased competition and financial strains in the industry, movement in any of these directions could help to strengthen the company’s positioning.

Consider first Michael Dell’s hints to the potential of a mobile Internet device. According to a Computer World report by Martyn Williams, Dell gave strong hints as to the company’s development of a mobile Internet device or smartphone at a speech in Tokyo today.

"It is true that we are exploring smaller-screen devices," Dell said in his speech. "We don't have any announcements to share today, but stay tuned as when we have new news we will share that with you."

While this hint really reveals little, it shouldn’t be any surprise that Dell has been closely monitoring the development of mobile devices, especially the success of Apple and its iPhone (News - Alert) and Google with the Android. With the growing opportunities in this field, it would be more surprising if Dell sat this one out.

Perhaps Dell’s primary entry into this part of the market will be through the purchase of Palm Inc. Matt Hamblen reported in Computer World yesterday that while analysts say the potential of such a deal is promising for both companies, another analyst believes the opportunity has long since passed.

Palm is certainly not in a position to take on Apple on its own, according to financial strategy consultant Sramana Mitra, but a Palm-Dell union would change the equation dramatically. Mitra made this statement on the financial news site Seeking Alpha.

"Palm is vulnerable, and Dell has cash," said Yankee Group Research Inc. analyst Carl Howe, in the Computer World report. "A merger sounds like a good idea."

Palm is staking its potential for survival and market threat against Apple on its Pre, which runs the WebOS. If Palm can get this to market quickly, some analysts believe that it won’t need Dell. But, the success of the Pre lies largely on the success of Sprint Nextel (News - Alert), Inc. the exclusive carrier of the Pre. Sprint hasn’t made waves with good news in the recent past and that could hurt the prospects for the Pre.

Jack Gold, an analyst at J.Gold Associates LLC, told Williams that the potential for a sale is long passed. "I think they have both missed the window of opportunity. It's more likely that Dell would buy an Asian handheld maker such as Asustek Computer Inc., Acer Inc. or HTC Corp.”

While Dell remains on the fence regarding its entry into the mobile Internet space and the potential of a Palm purchase, it does plan to announce in the next few days new servers and service offerings.

At the Tokyo news conference, Michael Dell said: "We have a very big announcement coming in the next few days around the Intel (News - Alert) Nehalem architecture, our eleventh-generation enterprise architecture, along with new improvements in our services offering and enhancements to our EqualLogic storage offering storage offering.”

Martyn Williams announced in Computer World that Dell has scheduled a news conference in San Francisco for Thursday morning at which these announcements are expected to be made.

Finally, Sachi Izumi reported on CNBC.com that Dell CEO said that the possibility of IBM buying Sun Microsystems could provide significant opportunity for Dell in the corporate server market.

"Just the rumor of IBM potentially purchasing Sun creates an enormous opportunity because all of the Sun accounts are very concerned what will happen to the Solaris platform and Sparc microprocessor," Dell said in Tokyo. "I think this accelerates the migration (to x86-based servers) and sends a lot of those accounts into an opportunity.”

According to the Wall Street Journal, IBM is offering to pay at least $6.5 billion in cash, with the total deal value at about $8 billion, including $1.4 billion of cash on Sun's balance sheet.

At present, Dell lags behind both IBM and HP in the server market, with a 2008 market share of around 12 percent, according to research group IDC (News - Alert). The potential purchase could create a whole new world for Dell, but it must be able to act quickly on the created opportunity or it could miss its window for dominance.