Dell is primed to enter the mobile-phone arena with a smartphone, but it will need an Apple iPhone killer to really make a dent in the market, analysts said.

A recent report from Digitimes suggested that Dell was working with Foxconn Group to develop Windows Mobile-based handheld devices. Neither Dell nor Foxconn responded to requests for comment.

The development of smartphones, however, seems like a logical step for Dell to expand its presence in the mobile market, said Neil Mawston, director of wireless device strategies at analysis firm Strategy Analytics.

Dell competitors Apple, Hewlett-Packard, and Toshiba are already present in mobile computing with smartphones and PDAs, and the market is just too big for Dell to ignore, Mawston said.

The company already makes cellular laptops, and the move to smartphones isn't a big leap, Mawston said. Apple is ahead with the iPhone, and to attract consumers, Dell will need to make a splash with an attractive handset featuring the right operating system and content. A rumored announcement in support of Google's Android mobile platform never materialized at last month's Mobile World Congress in Barcelona. Dell may adopt the Microsoft Windows Mobile OS for its smartphone, which will be a good win for Microsoft, Mawston said.

Dell last year tapped former Motorola executive Ron Garriques to be the new president of Dell's global consumer division, which could suggest that Dell is working on some form of a smartphone, Mawston said. Last year, Dell CEO Michael Dell said Garriques was chosen for the job partly because he had led Motorola's PCS (personal communications services) division for Europe, the Middle East, and Africa as well as Motorola's $28 billion handset division.

The smartphone will be an effective replacement for Dell's previous Axim personal digital assistants that it killed last year, citing a declining market for pen-based PDAs. Dell's Axim product portfolio was weak with not many devices on offer, Mawston said. The company needs a replacement for Axim, and the new smartphone could fill that void.

A new smartphone will also create a new revenue stream for Dell, and the company's move away from a direct sales model could help in sales, Mawston said.

Now that Dell is selling its products through stores, it is gaining traction through relationships with retailers and carriers to distribute the smartphones, said Andrew Brown, director for wireless enterprise strategies at Strategy Analytics. Dell has a relationship with Vodafone in Europe and Verizon Wireless in the U.S. to bring third-generation wireless broadband connectivity to Dell notebooks.

However, Dell faces challenges if it decides to enter the smartphone market. Dell will need good design and technology to contend with the popular iPhone, which is setting the benchmark on smartphone design, Mawston said.

The company will also need a stronger distribution network, Brown said. Dell is a well-established brand name in the U.S. but not in Europe, where it could encounter some bumps in trying to sell a smartphone. The distribution tie-ups with companies like Tesco and Carrefour, which are established grocery retailers, could help in the sales of prepaid phones, not high-end smartphones. The company will need to tie up with established retailers like Dixon's or Carphone Warehouse to be competitive, Brown said.