Dell Chases Cheap Notebook Buyers

The move into low-cost PCs fits with the company's plans to target more niche markets.

Dell is preparing to enter the low-cost notebook market later this year.

In a statement, the Round Rock, Texas, PC maker announced that it would enter the emerging market for low-cost notebooks, confirming rumors that had been swirling for weeks.

"Dell plans to enter the market with products that are smaller and lighter and address the more mobile users in a very cost-effective way," said Anne Camden, a spokeswoman for Dell, but she declined to offer any additional details.

The timing of the Dell announcement coincides with Hewlett-Packard unveiling its own $499 notebook, the Mini-Note PC, earlier this week. Asustek, which has had some success with its Eee PC, is also planning to upgrade its machine and additional features to the product line.

Dell appears to be waiting until later this year to launch its yet-to-be-named low-cost PC. If the company does wait until June, Dell will likely use Intel's Atom line of processors for its notebook. HP, in order to get ahead, tapped Taiwan's Via since the company already offers several low-watt, low-cost x86 processors. The idea is to keep prices down -- less than $500 -- while offering low-power processors that will extend battery life.

It is also not clear if Dell will rely on Microsoft for the operating system or if it will turn to Linux.

Part of Dell's New Notebook Focus

The move into the low-cost laptop market is also reflective of some of the new directions CEO Michael Dell wants to take the company in the next year. In a meeting with analysts, Michael Dell said notebooks and emerging markets are two areas the company needs to move into soon in order to stay competitive.

Stephen Baker, an analyst with the NPD Group, said that Dell's older business model was to enter markets that had already matured and use its logistics abilities to take over those markets. Now, Baker believes Dell is interested in entering more niche and emerging markets where it doesn't necessarily have to dominate in order to be successful.

"Right now, they are looking at smaller opportunities and the ability for Dell to cultivate niche markets is pretty important right now," Baker said. "The margins are better in these markets and it's a chance to access new customers and get a different perspective on the market."

In some ways, Dell is already changing its business model. The company entered the tablet market late in 2007. The market is small - about three million units were shipped in 2007 - but it could grow in the next couple of years. The fact that Dell entered the market could help it along.

IDC believes that the market for low-cost notebooks will only reach 10 million units by 2012, although more and more vendors are entering the market.

Since Dell sells a majority of its desktops and notebooks into the U.S. enterprise market, Baker believes that the company might tailor its low-cost notebook to address the needs of business users as well as the education market that HP is targeting with the Mini-Note.

"I think it will be a little more of a business machine in the U.S., and I think there will certainly be demand for it," said Baker. "It should also help Dell out in the emerging markets where they still don't have a model down yet."