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PC companies make risky smartphone call

Profit-hungry PC brands rushing to the booming smartphone sector are likely to falter in their ambitious plans to capture market share from formidable players such as Nokia and Apple.

Dell and Acer, the world's No. 2 and 3 personal computer brands, have recently announced or been linked to smartphone launches, joining leader Hewlett-Packard and No. 4 PC maker Lenovo in the high-growth space.

But these companies are unlikely to make any headway.

“We've got Nokia, who's the 500-pound gorilla in the room, then there's Apple, which is super cool, and there's Blackberry, which all executives must have,” said IDC analyst Aloysius Choong “What are these PC brands going to offer?”

PC makers, less known for their creativity than their ability to mass produce, may find that selling smartphones depends more on looks and less on mass marketing.

“It's a lot more about style, form and brand, rather than substance,” said IDC's Choong. “The mobile phone universe is very different from the PC world, and smartphone buyers are more likely to go with something they feel they like.”

The PC industry has been grappling with rapidly weakening demand in recent months, leaving vendors on the lookout for new products to revive growth.

Acer and Asustek, pioneer of the low-cost netbook PC, both unveiled new models this week at the Mobile World Congress trade show in Barcelona.

HP and Lenovo already sell such phones, while Dell is rumored to be weighing a move into the space.

“I don't see PC vendors going anywhere,” said Roberta Cozza, a Gartner analyst. “It's very tough and risky for PC vendors, especially if they want to enter the sector right now, because it's a different business altogether.”

PC makers however remain upbeat.

In an interview, Acer's head of smartphone business, Aymar de Lencquesaing, said: “We are extremely serious entering this space” adding that Acer aims to become one of the top five smartphone makers within five years.

Smartphones were one of the few bright spots in the technology sector in 2008, growing by more than 22% worldwide and, in some regions, by more than 70% from the previous year, according to data tracking firm IDC.

These feature-jammed phones with computer-like functions also offer fat margins, with Nokia, Apple as well as HTC and BlackBerry maker Research in Motion enjoying profit margins many times those of PC makers whose margins are in the low single digits.

But as often happens with a hot product, there is a risk of oversupply as others rush in, leaving newer arrivals the most vulnerable as most lack a special niche.

That could lead to rapid price cuts and lower margins, a scene that has already played itself out once after Asustek launched its low-cost netbooks in 2007.

“The kind of margins we're seeing in the smartphone sector is just not feasible in the long run,” said Pranab Sarmah, an analyst at the Daiwa Institute of Research.

PC makers might also be saddled with perceptions of being stodgy and less than cool.

Shoppers at a Taiwan service center run by mobile operator Chunghwa Telecom balked at the idea of buying dull, grey cell phones in a part of the world where they are often seen as a fashion accessory.

“Didn't Asustek sell phones before,” asked Leon Lin, a 22-year-old university student. “Those looked really bad!” (Reuters)