Microsoft's investment in Dell could be a sign that both the PC and Windows are becoming irrelevant.
Many analysts are pointing to Microsoft's recent $2 billion loan to Michael Dell as a sign of a growing irrelevance for the PC industry, for Microsoft's Windows platform, or both. It's a sign of the fading importance of the PC industry, one even said, as consumers turn to smartphones and tablets for their daily computing needs.
Microsoft's loan was part of a $24.4 billion move to make Dell private so that it can transform without having to face shareholders each quarter. But analysts believe that the loan came with strings attached, AKA a "gentleman's agreement", that may cause some concern with other Microsoft OEMs. Google's Android partners faced the same threat when the company purchased Motorola Mobility: a possible "most favored nation" scenario.
One of the rumored strings is that Dell would stay in the PC business despite wanting to focus on the Enterprise sector. Another string supposedly forced Dell to stick with Windows and not follow rival HP's footing by using another platform like Google's Chrome OS. Similar to its deal with Nokia, Microsoft will want Dell as the leading OEM for Windows 8 and beyond.
Naturally Dell hasn't fessed up to any "strings", reporting in its filing on Tuesday with the U.S. Securities & Exchange Commission (SEC) that the loan and [Microsoft] will not have a direct role in day-to-day operations of Dell. "Microsoft is making a loan that allows Dell to independently execute its long-term strategy," the company said.
But the whole loan issue is only a minor complaint compared to what it seemingly signifies. Allan Krans, an analyst with Technology Business Research, called the transaction in a Tuesday interview unprecedented. "But the shift in PC buying [to other devices] is also unprecedented," Krans said. "After a couple of decades of growth, computing is changing. It's not just about the PC any more."
Krans went on to say that the top tier of OEMs is in a period of realignment as they face a shift in consumer spending. "They're in flux and need a lot of help," he added, referring to Dell. "And Microsoft has the deepest pockets of anyone in the ecosystem, and they needed to take more of a leadership role. Someone needed to come in and make sure that there's stability there."
Dell, which at one time was the world's leader in consumer PCs from 2001 to 2006, has dropped to the third largest PC maker since 2011, falling behind HP and Lenovo. The company only shipped 9.5 million PCs during the last quarter, more than 4 million units behind its two rivals, accounting for a mere 11-percent of the global market.
But that's just Dell. The PC industry itself is seemingly being cannibalized by tablets and smartphones. "I've been saying for years that the PC business has been in decline," said Michael Cherry, analyst with Directions on Microsoft. "I realized that when people started looking at the PC like they looked at a TV set. The picture may be small or the colors may be off, but they don't buy a new TV until the old one conks out."
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I wish I could say Windows 8 would get it's repairs and fixes (As Windows Vista did with SP2) but it's highly unlikely with Microsoft being so bull-headed on using Metro.
What really has happened, is that PC does not enough incremental upgrade to force the users to buy new hardware just to have the better features. PC now, is like an air-conditioner or a freezer or a TV. Once you buy one of them, it lasts for several years. The need to repeat the purchase usually only happens when the old one break downs. The market now is substantially smaller because of this. PC vendors, so used to the huge volume in the past, have grown too big and now finding it hard to adjust to the new market behavior. In fact, it is likely that HP or Dell will never see the same PC shipment volume ever again. PC, will go into the same common household electrical appliance category such as a washing machine or a freezer. People will continue to need them, but they will not buy them as often as before. Do you see any electrical company making a single product nowadays? No, they have diversified into making several products, and so all existing PC vendors such as HP, Dell, Acer etc will have to do as well. The huge PC market has disappear and will be replaced with a smaller one, either these companies have to scale down in size, or have to learn to diversify to make products instead of only making computer related equipments. This has been going on for some time with both Intel and AMD unable to deliver significantly faster CPUs, and that has caused even entry level computers are essentially good enough for most needs, and profit has been dropping as every PC vendor struggle to retain market share and drive profit margin to the bottom.
In fact, tablet and smart phone are quickly heading into this direction as well. Once the market become saturated and incremental upgrade does not deliver enough value, same thing will happen, market will shrink, and revenue will drops. Those companies like Apple which has a few products will be affected most, while companies making lots of lots of different products like Samsung will be less affected.