'Your company,' as annual reports like to say, has bought a piece of a hardware manufacturer that was doing so well as a public company it...decided to take itself private...
And if you are a Dell shareholder, you are on your knees prayerfully thanking your favorite deity for confirming the existence of the Greater Fool Theory. Assuming, that is, you can unload your shares before everyone else does. Because being owned by Microsoft is, to be polite, a blessing of indeterminate value.
Strategically, it is hard to imagine how the world's largest software purveyor benefits from owning a middle-of-the-pack hardware company. Yes, you can force them to abandon whatever dreams they had of staging a comeback based on their own intellectual property and demand that all of their products become platforms for your vision. But given how badly Windows 8 is doing in the marketplace, that does not sound like a long term proposition for either of you.
And its not as if Dell is turning heads or wallets with its latest offerings, either. We will stipulate that there are a lot of smart people in both companies. And that they clearly have a vision - maybe even a plan. But two companies struggling to survive in the present so that they get a chance to figure out the future does not sound like the sort of value-added merger for which investors and managers are rewarded - as the accompanying illustration suggests, in this world or the next. JL
David Goldman reports in CNN/Money:
Dell has been a Microsoft customer for decades. Soon, Microsoft may be calling the shots.
According to CNBC, Microsoft is in talks to invest $1 billion to $3 billion in the PC maker as part of a move to take Dell private. If Dell (DELL, Fortune 500) is bought out for its present $23 billion market value, that would give Microsoft a 4% to 13% stake in the company.
CEO and founder Michael Dell's 16% stake is worth roughly $3.5 billion, so he would still control a bit more than his ally in Redmond, Wash., if CNBC's report is accurate.
Representatives from both Dell and Microsoft declined to comment.
The move would make strategic sense for Microsoft. The software giant invested heavily in Windows 8, but PC and tablet salesare lackluster so far -- particularly in the low end of the laptop market, which goes head-to-head with the blockbuster iPad.
With Dell directly under its influence, Microsoft could pressure the PC maker to produce Windows 8 devices that more closely align with its vision.
"I think Microsoft has identified this is an issue and is trying to have more say in its destiny," said Al Hilwa, an analyst at IDC. "It's clear that Microsoft wants to be more aggressive in controlling and directing the hardware ecosystem for PCs."
Microsoft's strategy is evident in the Surface, the first PC of its own design. But having a say in Dell's affairs could also give Microsoft the ability to head off its rivals.
For instance: Dell's tablet line right now exclusively runs Windows 8. If those devices still haven't gained traction by the middle of this year, Dell might go looking outside the Windows ecosystem. It's done that before, using Google's Android to power its Dell Streak line. Those poorly reviewed gadgets are now discontinued, but Android remains a threat.
"An obvious alternative would be to sell an Android tablet a la Google to compete with the Nexus 7 and Nexus 10," suggested Carl Howe, an analyst at Yankee Group. "How would that decision play with Microsoft as a strategic investor? My guess is not so well."
Controlling both the software and hardware is a model that works particularly well for Apple.
Google made a similar move last year in acquiring Motorola Mobility. Android was starting to slip from Google's grasp, with manufacturers rapid-firing too many disappointing devices into the market with no clear-cut design strategy. Google (GOOG, Fortune 500) plans to focus Motorola exclusively on high-end devices and use the company to promote its vision of the Android platform.
So why not just buy all of Dell, as Google did with Motorola?
That's too big a risk, analysts say.
"Microsoft shouldn't be perceived as favoring one hardware maker over another," said Ronald Gruia, principal consultant at Frost & Sullivan. "That's the last thing Microsoft needs."
Taking a stake could be enough to help mold Microsoft's vision for Windows. For Dell, though, having to serve Microsoft as its overlord might not play out so well.
The company lost a third of its market value in 2012 and failed to keep up with rivals like Apple and Samsung. They've done a much better job adapting to the "post-PC" landscape with innovative tablets and smartphones.
"The point of going private is so you can serve your own long-term goals without having to worry about short-term performance," said Yankee Group's Howe. "Having an outside investor -- Microsoft -- muddies those waters. I think Dell would have a more certain future going it alone."
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