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Dell Dabbles in Tablets

The PC giant is warming to products it once ignored as part of a bigger effort to recapture business sales lost to rivals HP and Lenovo

After sitting on the sidelines for about five years, PC giant Dell (DELL) is making its first foray into the market for touch-screen computers known as tablet PCs.

The devices hit store shelves in the late 1990s amid high hopes their introduction would help reverse the PC industry's flagging fortunes. Things didn't quite work out that way. So why is Dell dabbling in tablets? Analysts say the move is indicative of a newly aggressive Dell, eager to win business lost to such rivals as Hewlett-Packard (HPQ) and Lenovo.

Filling a Product Gap

Tablets PCs typically boast a touch-sensitive screen that lets users "type" with a finger or a pen-shaped stylus. The devices should account for roughly 7% of the personal computing market in a matter of years, from about 3% now, says analyst Richard Shim of market research firm IDC.

Since other vendors like HP and Lenovo, and even Gateway, a newly acquired unit of Acer, have had tablet PCs in their product lineup, Dell may have lost some sales to large corporate customers, Shim says. "Dell needs to protect the accounts that it has, and so at least some of the motivation to launch this product is account protection," Shim says. "Dell wants to offer its biggest accounts the widest product portfolio it can."

Margaret Franco, a director in Dell's Product Group, says the company is responding to customer requests. "We'd been tracking tablets for some time," she says. "Customers told us that with the ones out there already, they had great form factors and capability, but they wanted the interface to be more intuitive."

Upgraded Tablet Uses Multitouch

The result is the $2,499 Dell Latitude XT, which will come in two versions, one with an LED screen and one with a screen designed for outdoor use. Dell's main improvement is the use of a multitouch screen that allows for input from more than one finger at a time. Dell previously had sold tablet PCs from Motion Computing. Franco says the company doesn't expect that arrangement to end.

Multitouch technology is a cornerstone of Apple's (AAPL) popular iPhone. Some analysts and Apple watchers speculate the company will release a small notebook, possibly with a multitouch screen, in January. The company declined to comment on coming products.

Historically, Japan's Fujitsu has led the market for tablet PCs, which are typically aimed at business users. In 2000 Microsoft (MSFT) launched its version. The first tablets based on a new version of Windows that allowed touch input appeared in 2002. Few sold, prompting Dell to stay on the sidelines.

Dell's New Marketing Moves

The tablet is part of a newer, larger strategy that has the company on the offensive. Last week Dell signed a deal with electronics retailing giant Best Buy (BBY) that will put Dell's XPS and Inspiron consumer PCs on the shelves of 900 Best Buy stores. That's a big change for a company that became the industry leader by selling directly to consumers and companies, reducing costs by skipping middlemen like retailers and distributors.

Dell has been making other moves aimed at serving previously ignored niches. Among them: rugged notebooks, machines that can survive drops, spills, and rough handling, which are popular with law enforcement and military buyers. Panasonic (MC) and General Dynamics (GD) Itronix generally control much of the rugged notebook market, while Dell's connection to rugged PCs has been through Augmentix, a privately held vendor based in Austin, Tex. Augmentix rebuilds Dell notebooks and servers to rugged standards.

Neither tablets nor rugged notebooks by themselves bring the kind of demand that would usually get Dell's attention, says analyst Roger Kay of Endpoint Technologies Associates in Boston. "Lenovo has been able to take some business away from Dell because its clients have been including in the purchase relatively small numbers of various types of machines like tablets that Dell couldn't supply," Kay says. "When someone says they need 20,000 notebooks, 2,000 desktops, and 100 tablets, Dell couldn't bid on that business. Now it can."

Hesseldahl is a technology writer in New York.

With Louise Lee in Silicon Valley

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