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Report: Microsoft's Loan to Dell a Bad Sign for PC Sector

By - Source: PC Advisor | B 30 comments

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."

To read the full report, head here.

 

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  • 5 Hide
    Hando567 , February 7, 2013 1:08 PM
    The new gen of convertible tablets, and x86 entering the mobile space could save microsoft. If I could dock my phone into a keyboard/screen and run a full install of windows 8 pro, I would.
  • 0 Hide
    ibjeepr , February 7, 2013 1:17 PM
    So.. the speculation is that Microsoft is so worried that the PC/Windows market is dieing that it invested in the weakest of the big 3 computer makers....
    So how does saving the weakest builder help Microsoft? Sales would just shift to the other 2 manufacturers if Dell went under. If people are shifting to tablets and phones, how does saving a desktop builder help Microsoft?
    The only scenerio in which this makes sense, and was basically stated here, is if Dell shifts away from the desktop PC business and starts making tablets and phones and then uses only Windows as it's operating system. Basically Dell is in Microsofts back pocket in that case.

    So to clearify, I think the speculators are wrong.

    However, if both companies view themselves with such a bleak future outlook, I don't see Dell, again the weakest of the big 3, ever getting high enough tablet and phone sales volume to keep either Dell or Microsoft in the black.
  • 9 Hide
    xpeh , February 7, 2013 1:31 PM
    Windows being irrelevant, possibly. PC being irrelevant, not anytime soon.
  • 5 Hide
    downhill911 , February 7, 2013 1:44 PM
    Maybe Microsoft wanted to make sure that there will be at least someone buying/licensing their Windows 8 a.k.a metrosexual.
  • 1 Hide
    Anonymous , February 7, 2013 1:52 PM
    Michael Dell says, 'idiots' :-P
  • 1 Hide
    amk-aka-Phantom , February 7, 2013 2:00 PM
    I really don't get what's wrong with Dell. Their laptops are much more enjoyable that crap that comes out of HP and Lenovo. Why are they behind?
  • 7 Hide
    Northwestern , February 7, 2013 2:01 PM
    Or it could be the fact Windows 7 is becoming the Windows XP equivalent of the last decade due to Windows 8.

    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.
  • 6 Hide
    Anonymous , February 7, 2013 2:09 PM
    Microsoft is a software company. Windows was created by Microsoft to create a stable base platform in an ecosystem where all the player's were not in alignment. If there is some sort of agreement with the cash infusion to make sure that Dell stays in the commercial PC market that's fine. Last time I checked only Apple is allowed to make Apple computers. Any monkey with $50 bucks can build a computer and put Linux, Windows, Unix or whatever on it without getting sued.

    Dont' forget that PC only stands for "personal computer", so that form factor will change the interaction will change. Things must always change. So for people's taste to change from a conventional desktop to a phone or tablet sized device doesn't change the fact that they are performing a personal computing task.

    Microsoft may be known for Windows for but they right software for every platform.

    Google's Chrome OS...is it any different than any other OS attempt to go to commercial? I think HP and a few others attempted to make LINUX a commercial offering on select PC's. How did that work out for them?

    I think people just bought the cheap Linux versions and formatted the hard drives and put a Windows on them, lol.

    Dell was a good computer company to start out with and it will continue to be a good company. They are just falling prey to changing times. And going private will help them protect themselves from wishy-washy investors getting caught up in the IPAD fads, here today gone tomorrow tech that consumers want for 30 seconds and discard and the volatile market that will de-value a company simply because it hasn't followed suit with the rest of its industry peers. Nothing more irritating than seeing a company create a product because they feel they have to be in that market if they don't plan on seriously competing in that market.
  • 0 Hide
    bllue , February 7, 2013 2:36 PM
    Hando567The new gen of convertible tablets, and x86 entering the mobile space could save microsoft. If I could dock my phone into a keyboard/screen and run a full install of windows 8 pro, I would.

    This is where Dell should aim. We're already at the point where tablets are outpacing notebook sales which are outpacing desktop sales. Devices such as the Surface are at their infancy, they're at a point where they're not quite as strong as notebooks but in a few years the notebook and tablet market will be centered around these hybrid devices.
  • 2 Hide
    dark_knight33 , February 7, 2013 2:36 PM
    It would be a lot easier for Microsoft to stay relevant if they had a younger exec that really understood the changing landscape of technology. Balmer is a business guy, not a tech guy; moreover, he's a hold over from the 80's. If they retire him and put another (younger) emerging Gates in charge, it would revitalize the company.
  • 0 Hide
    belardo , February 7, 2013 2:37 PM
    Windows IS irrelevant. Perhaps in a year or so, Dell becomes a Microsoft PC company. While the others become Linux/chomeOS (what's left of the classic desktop platform ). MS is now the minority OS player. The failure of Win8 in the desktop market is a sign of problems, and MS is doing a lot of stupid things lately. Not in concepts, but in execution.
  • -2 Hide
    belardo , February 7, 2013 2:37 PM
    Windows IS irrelevant. Perhaps in a year or so, Dell becomes a Microsoft PC company. While the others become Linux/chomeOS (what's left of the classic desktop platform ). MS is now the minority OS player. The failure of Win8 in the desktop market is a sign of problems, and MS is doing a lot of stupid things lately. Not in concepts, but in execution.
  • 0 Hide
    Yuka , February 7, 2013 2:41 PM
    Hahaha, I was discussing with a friend of mine this exact same thing.

    MS is really looking for ways to re-invent itself and failing miserably in all of them. Putting money on Dell, might give them some sort of confidence, but in reality, it won't at all.

    They already brought Nokia down with them (just give it another year and you'll see) and, luckily for Dell, they just lent them money. I wonder what Dell will do now. The "Windows" bandwagon is going fast and the wall looks very tough.

    Cheers!
  • 0 Hide
    sykozis , February 7, 2013 2:48 PM
    I don't see where Microsoft loaning money to Michael Dell is any indication that the "PC industry" is becoming irrelevant. I see it as a sign that Dell is trying to re-invent themselves and Microsoft is supporting that move. Nothing more, nothing less.

    These analysts really don't have even the slightest clue what's going on. Does anyone else remember the analysts that claimed the "PC market is shrinking" only days before Intel announced record profits after the launch of Sandy Bridge?

    It's time for analysts to face facts. The world economy sucks. Most people aren't going to buy new computers as long as their current one is getting the job done. Computers are still luxury items and most people are going to treat them as such, only buying when "needed".
  • 6 Hide
    Anonymous , February 7, 2013 2:48 PM
    Yet another "analyst" article regarding the irrelevance of PC industry. The fact is, PC is not going to go away. The analysts always fail to account of the huge number of customized software running in the corporate sectors all around the world. It is impossible to replace all of them overnight, not possible to do that in a few years, and not even in 10 years. Simply because of the amount of skilled knowledge and costs involved.

    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.
  • 4 Hide
    sykozis , February 7, 2013 2:51 PM
    belardoWindows IS irrelevant. Perhaps in a year or so, Dell becomes a Microsoft PC company. While the others become Linux/chomeOS (what's left of the classic desktop platform ). MS is now the minority OS player. The failure of Win8 in the desktop market is a sign of problems, and MS is doing a lot of stupid things lately. Not in concepts, but in execution.

    ChromeOS and "classic desktop" don't belong in the same sentence. ChromeOS was a "cloud based" OS the last time I checked and required an "always on" internet connection to be able to actually use it.
  • 0 Hide
    spartanmk2 , February 7, 2013 2:54 PM
    Dont see how they can be hurting.. all the computers at my college campus are all Dells, and we just bought about 100 new ones over the winter break...im sure a lot of other colleges are loyal customers to Dell as well.
  • 3 Hide
    jn77 , February 7, 2013 2:57 PM
    I don't for see the death of the pc to smart phones and tablets for a long time. If all you are doing is surfing the web, reading emails, etc you will be fine.

    If you are processing 1080p or 4k, 8k video in realtime or 2x,4x,8x realtime, or working with photo's 12+MP in raw format, you will need a pc. A phone or tablet will not do it it.

    And broadband internet needs to catch back up. There are still people on dialup around the world, and people already using 30mb down/ 5mb up want gigabit down and 100-500mbit up.
  • -1 Hide
    DRosencraft , February 7, 2013 3:17 PM
    The purpose of this really actually modest investment, relative to their MSFT's overall cash reserves, is to keep up appearances. Every time something goes bad, every time sales drop off a bit somewhere, the bullhorn sounds off on the imminent death of the PC. Dell has been in a downward spiral, played out in the public sphere of releases of quarterly reports. They are likely to see steeper losses while in the process of restructuring. That would only stoke more talk of a dying industry. But as a private company, we will never get a clear idea of how well Dell is doing. There will be estimates and means of making accurate guesses, but no solid facts unless released by the company itself. So, even if Dell is drying up in a corner, the new most will start hearing is increased sales at HP, Lenovo, Acer, and the rest. That alone is a very beneficial bit of publicity for MSFT on a whole.
  • 0 Hide
    hate machine , February 7, 2013 3:18 PM
    amk-aka-PhantomI really don't get what's wrong with Dell. Their laptops are much more enjoyable that crap that comes out of HP and Lenovo. Why are they behind?


    To be fair the consumer grade laptops from both HP and Dell are absolute crap IMO. However when it comes to enterprise level equipment. HP is light years ahead of dell in terms of materials and quality of components/build. That and they are much more easily serviceable.
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