Microsoft, Dell Stumble Into Smartphone War

With so many challengers in the smartphone space, former heavyweights like Microsoft and would-be contenders like Dell will get shoved around a bit.
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The assault on the smartphone market heats up next week as new players and old unveil their latest efforts to capture some of the action.

When the Mobile World Congress trade show begins Monday in Barcelona, the wireless industry will meet several interesting new players. Among the entrants, No. 3 notebook maker

Acer

is expected to introduce a smartphone. PC giant

Dell

(DELL) - Get Report

has phone plans it may or may not talk about. Archos, the French portable media player specialist, has a big-screen phone device powered by

Google's

(GOOG) - Get Report

Android software and

Texas Instrument's

(TXN) - Get Report

chips

.

(Photo gallery: Smart Phones)

But with so many challengers in the smartphone space, former heavyweights like

Microsoft

(MSFT) - Get Report

and would-be contenders like Dell will get shoved around a bit.

Since

Apple

(AAPL) - Get Report

crashed the party two years ago with the touchscreen iPhone, it seems like all the consumer electronics outfits have been itching to give smartphones a try. What else would explain GPS device maker

Garmin

(GRMN) - Get Report

joining with netbook shop Asus in plans to make a Nuvifone.

"After the iPhone's success, people got Apple envy," says Nielsen IAG research analyst Roger Entner.

So why does the annual wireless show in Barcelona attract so many big names from outside the mobile phone market?

For one thing, the cell-phone market is growing in two directions:. At one end, cheap phones are in huge demand in developing countries like India and Brazil, especially in areas still underserved by conventional phone networks.

The rest of the action is at the other end of the price spectrum in smartphones.

Consumers with older cell phones and limited functions are finding it more affordable to updgrade to advanced phones with loads of new features. And telcos are happily subsidizing big portion of the phones' cost in exchange for two-year contracts with higher-priced data and calling plans.

PC's Version 2.0, the Smartphone

With the sheer number of cellphones sold each year -- now more than 1 billion -- and given faster networks that enable more mobile computing, the hardware industry doesn't want to miss out on what is effectively the next iteration of the PC.

However, the upstarts and PC titans are at a disadvantage to such dominant players as

Nokia

(NOK) - Get Report

,

Research In Motion

(RIMM)

and Apple, which not only have the gadgets, but also the software on which they run.

This is a high hurdle for a hardware shop like Dell, which has to develop phones around some other supplier's software. But Dell's core PC business is under attack, and it needs to find a plan.

"It's out of desperation," says Collins Stewart analyst Ashok Kumar, referring to the crushing battle Dell is engaged in on the PC front. "They don't have a song and a prayer against Apple," at the high end of the computer market. "And they are getting a full frontal assault from

Hewlett-Packard

(HPQ) - Get Report

."

Nokia has about 40% of the smartphone market, largely in Europe. And the surge in popularity of the BlackBerry and the iPhone has given RIM and Apple each about 15% of the market. The remainder consists of players like HTC,

Palm

(PALM)

,

Samsung

and

LG

.

"If Dell enters the market, it isn't even going to amount to a rounding error," says Kumar. "Their priority should be to focus on turning around the business."

Microsoft Was Big, but the Screens Got Smaller

But still, the player with the most to lose appears to be Microsoft, and its Windows Mobile operating system. When big partner

Motorola

said last week that it was going with Google's Android system on new smartphones and skipping development of new Windows phones this year, the move revealed how weak Microsoft's grip on the market has become.

"Microsoft dropped the ball," says Neilsen's Entner. "Microsoft did a fine job in the beginning," Entner says. "But over the last year and a half others took their business away, and they didn't fight back."