Dell Inc. is working on a "smart" phone for AT&T that runs Google Inc.'s Android phone operating system, according to a newspaper report Wednesday.

The touch-screen phone could be ready early next year, The Wall Street Journal reported. Representatives for Dell, AT&T Inc. and Google all declined to comment.

In the year since the economic meltdown, businesses and consumers have sharply cut back spending on Dell's main products — computers and servers. Research groups IDC and Gartner Inc. have both predicted a year-over-year decline in PC shipments in 2009, which would be the first such drop since 2001.

Mobile is one area where Dell sees a chance to expand and diversify. Dell hired Ron Garriques, a Motorola cell-phone division executive, to lead its consumer technology group in 2007. That sparked rumors that the PC maker was readying a smart phone.

Garriques told analysts at a meeting in July that wireless carriers want a consumer "solution" from Dell, but didn't give any specific details about design, hardware or software plans.

In August, Dell showed off what appeared to be a smart phone at a Beijing event hosted by China's biggest cell phone carrier, China Mobile. The Round Rock, Texas-based PC maker said it was a "proof of concept mobile device prototype."

Android, which is free for phone makers to use and modify, is increasingly making its way onto higher-end phones as a potential rival to Apple's Inc.'s iPhone. AT&T is the iPhone's exclusive carrier in the U.S., but AT&T has not shied away from offering competing units, such as BlackBerry devices and phones that run Microsoft Corp.'s Windows Mobile software.