Is Microsoft’s financing of the Dell buyout a sign of panic over Android and the post-PC era?

February 6, 2013
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    dell-logoDell is destined to become a private company. The massive PC maker has revealed that its founder and CEO Michael Dell along with financing from a Microsoft backed company called Silver Lake Partners will buy up all the stock and turn Dell back into a privately held company. The reasoning is that the Dell, which is facing stiff competition from Lenovo and has seen its profits falling dramatically during 2012, wants to continue its turnaround plans without the scrutiny and limitations of being a publicly traded company.

    As a private company, Dell won’t be responsible to shareholders, nor to the fickleness of the stock market. This means the board can take a long term view of how to re-model the¬†business¬†in the post-PC era and make some radical business decisions without having to give answers to those looking for¬†immediate¬†or short terms gains and¬†profits.

    However it is, Dell’s role in the tablet and smartphone age that makes Microsoft’s¬†involvement¬†interesting.¬†According to Microsoft the reason it invested such a large amount in the buyout is because it 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.” Or, in other words, the PC ecosystem is being destroyed by the likes of Android and iOS and Microsoft needs a way to prop up the PC so that it doesn’t collapse all together.

    Although Dell has dabbled in alternatives to its core Windows on a PC business, including the Android-based Streak and a bit of flirting with Linux, it is¬†Microsoft’s¬†Windows OS running on Intel hardware that makes up the backbone of Dell’s business as it sells hardware, software, and services to end users and enterprises.

    However, for $2 billion, Microsoft doesn’t get¬†representation¬†on Dell’s board of directors, nor does it get any operational¬†control. What it does get is a gentlemen’s deal that Dell won’t get into the Android business again and will stay loyal to Microsoft at every level. This likely means that even if Dell wants to re-attempt an entry into the tablet market it will do it with Windows 8 RT.

    Ironically, by limiting its options to just Microsoft based solutions Dell could fail in the long term. All the other major IT companies including IBM, HP and Lenovo all have¬†successful¬†business units that are not based on Microsoft’s software. Dell’s biggest rival Lenovo is a very big Microsoft customer but even so it has¬†built a thriving Android mobile device business in Asia.

    Of course, Microsoft is¬†describing¬†its investment in Dell as “passive”, as it¬†doesn’t¬†want to upset other PC makers like Lenovo or HP who are rivals to Dell but generate large amounts of income for Microsoft by installing Windows on their PCs. But with Microsoft’s partnership with Nokia, its launch of the Surface tablet, and now its investment in Dell, it is clear that the old model of “we will make the software and you make the hardware” is dying.

    What do you think? Is Microsoft really panicking about Android? Is the PC doomed?

    Comments

    • NGM123

      Hardly panic, just a smart move to shut your competitor out, just like google is currently doing to them on many fronts.

    • Ignacio Mart√≠n

      I think it’s the combination of what Android+ChromeOS might become in the medium term what worries Microsoft most.
      Now they’re increasing prices accross all their product lines to cash the end of support of Windows XP next year.

    • tBs_Battousai

      I don’t think the PC is ready to roll over into it’s grave just yet but the way we are using computers and interacting with the world around us is changing fast, if you fall behind even a little it can have a dramatic effect on your business, just ask RIM, so I think it’s a smart move to try and change your whole business model to ensure long term health but the bigger the company the harder it is to change…

    • http://www.facebook.com/msantaka Mochammad Santaka

      I read somewhere that the reason Dell becomes a private company again is so they can execute a long term plans with low or moderate short term revenues. This is only possible to do when the company is in private hands because when it is public, investors gets giddy rather quickly when they look at a 3 month report and start panicking and send stocks low (Look at Apple). So executing plans like before is a big no, no.

      What they are planning is everyone’s guess. But I would assume it has something to do with how Microsoft is trying to create a convergence between desktop, laptop and the phone with the single windows 8 kernel.

      • http://www.garysims.co.uk garysims

        You read that in the article!!!

        “This means the board can take a long term view of how to re-model the business in the post-PC era and make some radical business decisions without having to give answers to those looking for immediate or short terms gains and profits.”

        • http://www.facebook.com/msantaka Mochammad Santaka

          Major brain fart. Sorry about that Gary.

    • Noapplefan

      All I really care about is pushing apple back to less than 5% market share of smug hipsters. Shallow aren’t I?

    • Jon

      Post PC era?

      Really?

      If nobody knows why this is simply insane…then you need professional help.

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