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Friday, January 30, 2009, 07:55 am PT (10:55 am ET)

Dell may enter smartphone arena as early as next month

The Wall Street Journal is weighing in on Dell's rumored smartphone offering, adding further weight to rumors predicting the PC maker will enter the arena to take on Apple's iPhone.

Citing sources familiar with Dell's plans, the financial paper reported the Round Rock, Texas-based company has an office in the Chicago area where a group of engineers have been working on the phone "for more than a year."

"They produced prototypes built on Google Inc.'s Android operating system and Microsoft's Windows Mobile software," said the report.

One model has a touchscreen with no physical keyboard, like the iPhone.  Another is a slider-style phone with a keypad that slides out from beneath the screen, like the Pre.  The report also notes Dell's recent hiring of two former Motorola employees.

"We haven't committed to anything," a Dell spokesman told the Journal, which concluded Dell hasn't finalized its plans and could still give up the effort without releasing a device.

Meanwhile, Kaufman Brothers' analyst Shaw Wu wrote in a research note released to clients today that the news is consistent with his supply chain checks and his own comments from earlier this month, predicting an entrance into the cell phone market for Dell as soon as mid-February.

Dell might make its announcement at the GSMA Mobile World Congress event (formerly 3GSM) in Barcelona, Wu said.

"We believe it makes sense for Dell and other PC makers to pursue more aggressive strategies in the smart phone space," Wu wrote.  "We believe smart phones are moving upstream into the notebook space.  Dell is the latest PC vendor to enter the market...So far, only Apple has made material inroads."

The analyst reiterated his warning that Dell will need to stand out from the crowded market in order to succeed, recommending the company use its own operating system because "most of the other players use the same software, including Windows Mobile, Symbian, and/or Google Android, leaving little room for innovation."

Dell, like Research In Motion's BlackBerry Storm and the anticipated yet unreleased Palm Pre, faces a formidable opponent in the iPhone 3G.  Last quarter saw the Apple device outsell the Storm four-to-one.

Since going on sale last summer, the iPhone 3G has sold more than 4.3 million units in the United States.  Recent signs also point to a major update to the iPhone in June, possibly making it that much more difficult for any competitor to gain headway in the sector.

The Wall Street Journal also reported Hewlett-Packard is selling phones in Europe with an automatic backup feature, while Acer is planning to join Lenovo in the smartphone marketplace as well.  Together, the iPhone and BlackBerry control 70% of the U.S. market.

This is a critical time for Dell to find a "hit", as the company is losing PC market share, including a 0.9 percent year-over-year decline last quarter.  Shares of the company's stock have fallen 60 percent since August.

For more information on Dell's rumored smartphone and how the company is evolving, please refer to AppleInsider's previous report.