Microsoft and Dell: What the buyout means for them

Struggling PC-maker Dell has gone private after founder Michael Dell struck a $24.4 billion deal with investment firm Silver Lake to buy back the publicly traded Dell Inc and take it private. The deal also includes $2 billion loan that Microsoft has given to Dell to help it go private. In a press statement, Microsoft said,

“Microsoft has provided a $2 billion loan to the group that has proposed to take Dell private. Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future. “We’re in an industry that is constantly evolving. As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform.”

Microsoft’s investment in Dell has sparked off a buzz of reactions, given that the PC market has been declining thanks to the growing popularity of the tablets and smartphones. According to this IDC report, Worldwide PC shipments totaled 89.8 million units in the fourth quarter of 2012, which is down 6.4 percent compared to the same quarter in 2011 and worse than the forecasted decline of 4.4 percent. [caption id=“attachment_615596” align=“alignleft” width=“380”]  The Dell logo is seen in this file photo. AP[/caption] Nor has the launch of Windows 8 helped sales of personal computers as it was being hoped. Meanwhile Dell has struggled much more compared to HP and Lenovo, with Dell’s Q4 market share for 2012 being 10.6 percent. According to IDC, Dell has seen a -20.8 percent growth in Q4 2012 when compared to Q4 2011. Dell is currently at number three as far as PC makers go worldwide. Microsoft’s continued investment is can be seen as a great opportunity to gives both companies some creative options, states this piece in the PC Journal. The report states,

Dell and Microsoft can focus on core PC products in an effort to invigorate sales, or shift their focus to cloud and mobile tools. They can also choose whether to target businesses, consumers, or both. Why not focus on tablets?

Microsoft has just launched its own Surface tablet, with Pro version hitting the stores yesterday. As far as Dell is concerned attempts at entering the tablets and smartphones space have not been very successful. There’s also a concern that Microsoft’s Dell Buyout could annoy other PC makers. HP, Lenovo, Samsung are also making Chromebooks as well now which run Google’s Chrome OS. But according the Wall Street Journal, The Microsoft investment, which people familiar with the matter described as similar to high-yield debt, doesn’t come with a board seat, equity ownership or formal strategic involvement. The report also goes on to say that for Microsoft the Dell investment is a smart bet to keep a key partner in the game and with a vested interest in Microsoft’s Windows operating system. Dell is responsible for roughly one out of every 10 new computers running Windows. Dell also is an important player in corporate computing gear such as servers, for which Microsoft also sells software. The Dell-Microsoft-Silver Lake Buyout is also an ironical situation for founder Michael Dell. According this LA Times piece points out that when Apple was in trouble in 1997, CEO Michael Dell offered a now infamous assessment of what he would do if he were running then-troubled Apple. “What would I do? I’d shut it down and give the money back to the shareholders,” Dell had said. Sadly for Michael Dell that’s what he has been forced to do with his own company.