DvDand Solutions, LLC

Wall Street Journal, yesterday, reported that Dell is set to enter the smartphone market (subscription required).  Dell has been making prototypes based on Android and Windows Mobile platforms for more than a year.  The plans are still up in the air and Dell could decide not to enter the market after all. If it does go ahead, the announcement likely to come at the Mobile World Congress next month.

If Delll does decide to enter the market, in my opinion, it should stay for the long haul and innovate to make money.It should also look at some of the Japanese manufacturers, not just look at Apple, as the report suggests.  Being just another cell phone provider will not cut it, as Motorola and Palm can attest. Based on Dell’s track record, it will have to be head and shoulders better than in the PC business to survive.

That’s right browser wars are coming. Only this time, they are coming to a mobile phone near you. So far we have Microsoft Mobile IE,  Apple’s Safari, Opera, Google’s Chrome and the Blackberry’s proprietary browser. Add to that mix the recently announced and currently undergoing alpha testing, Fennec, the mobile browser from Mozilla, the maker of Firefox open source browser.

Given all these browsers, there is bound to be a shakeup. However, on the flip side of it is the fact that there are so many mobile platforms, Windows Mobile, Apple iPhone OS, Google’s Android, Symbian and Blackberry OS. So, one could argue that each of these are walled gardens and therefore the browsers work in these walled gardens. However, two of the above-named browsers, Opera and Fennec are not tied to any specific platform, though they may not work on all platforms yet. Not to mention, all the big players, except maybe RIM, have the resources to quickly make their browsers platform independent. So, while I don’t expect the browser wars to start right away, I fully expect them in maybe late 2009, early 2010.

Yesterday, AT&T announced some stellar performance numbers for the 3rd quarter 2008 led by growth in Apple’s iPhone 3G products. AT&T activiated 2.4 million iPhones during the quarter and their wireless data revenue grew to $2.7 billion. More recently, Apple also announced a great quarter with record sales of 6.9 million iPhones during the quarter. However, the future is very uncertain.

The end of last quarter saw the beginning of the economic downturn. We have already seen the effects of the downturn on Nokia which said its Q3 revenue fell by 7% from previous quarter. Sony Ericsson has also been affected by the downturn with their sales down 10% over previous quarter and profits down 1% over last quarter. No one knows how long it is going to last. As such all three companies mentioned above have lowered their forecast for the next quarter and the new year. That was expected, that is not the big story.  

The bigger story is the profit squeeze that the Mobile sector is facing. Take for example AT&T which is considered the bellweather for this sector. As I mentioned earlier, its revenue grew impressively. However, it had to subsidize the iPhones heavily, to the tune of $900 million in the quarter which amounts to a 10¢ reduction in its earnings per share. Clearly, AT&T has to subsidize the iPhones to stay competitive with RIM Blackberry, T-Mobile’s G1 and Microsoft Windows Mobile based phones with various carriers including AT&T. However, it is going to get worse going forward as consumers reduce their spending and shun expensive plans. There is a danger that consumers might shun smartphones all together. As Sanford C. Bernstein analyst Craig Moffett said to BusinessWeek:

you wonder whether the iPhone runs any risk of tilting from being the next cool gadget to suddenly being a symbol of excess.

I have a feeling that not just iPhones, but other smartphones will end up looking like “symbol of excess”. If that happens, RIM will probably be affected the most. Unfortunately for RIM, its Blackberry Storm and Blackberry Bold launches are coming in the first quarter after the major financial crisis and as US heads into a recession. Whether RIM will see the same bounce in sales as Apple did, remains to be seen.

All carriers will see further worsening of their ARPU during Q4 2008, according to the IE Market Research Corp.’s 4Q 2008 United States Mobile Operator Forecast, 2008 – 2010 report. In Q208, the ARPU declined by 1.7% across all carriers. However, Sprint and T-Mobile will be more adversely affected as it takes them longer to get a return on their their investments in WiMax and 3G respectively.