Dell hasn't shelved its planned smartphone but has taken to a significant redesign to salvage its effort, Kaufman Bros. senior analyst Shaw Wu said in a research note on Friday. While he and other sources were originally thought to have been mistaken when a predicted smartphone didn't show at Mobile World Congress last month, it's now believed that Dell was forced to redo the project as a "lack of carrier interest" and few offers of deep discounts made it risky to sell the proposed device. Prototypes had already been created with both Android and Windows Mobile as the operating system.

Much of the hostile reaction was purportedly triggered by a lack of originality, Wu claims. The hardware was relatively similar to existing designs from HTC, LG, Nokia and other firms; no carrier had an incentive to choose Dell's phone over another from a competitor that would achieve a similar purpose. Palm's Pre is also thought to have made the damage worse by giving some carriers a viable alternative.

To counter the response, Dell is not only said to be creating a more distinct design but may be pursuing a vertical integration of hardware and software in the vein of Apple's iPhone or Research in Motion's BlackBerry. The PC builder may need to buy out specialized companies to complete the project.

Wu warns that Dell would need to be careful entering the smartphone business as its margins are too low to afford a loss. Simultaneously, he adds that a successful launch may give Dell an edge through its experience with computing, which would give it an understanding closer to Apple's than to phone-only rivals.

"PC vendors may have an advantage over traditional cell phone competitors as a smart phone is more PC than cell phone with all the computer functionality and voice as a commodity," he wrote. "So far, PC peers Acer, Asustek, and Lenovo have beefed up their smart phone offerings with the success of the iPhone as likely inspiration."