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

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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  • Hando567
    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.
    Reply
  • ibjeepr
    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.
    Reply
  • xpeh
    Windows being irrelevant, possibly. PC being irrelevant, not anytime soon.
    Reply
  • downhill911
    Maybe Microsoft wanted to make sure that there will be at least someone buying/licensing their Windows 8 a.k.a metrosexual.
    Reply
  • Michael Dell says, 'idiots' :-P
    Reply
  • amk-aka-Phantom
    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?
    Reply
  • Northwestern
    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.
    Reply
  • 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.
    Reply
  • bllue
    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.
    Reply
  • dark_knight33
    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.
    Reply