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Microsoft Joins Dell Buyout Push: Report

Jeffrey Burt is a senior editor for eWEEK and contributor to TechWeekEurope

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Microsoft is reportedly willing to invest as much as £1.9bn in the efforts to take Dell private again

Microsoft is reportedly joining the buyout push of Dell in order to take the company private, which would help jump-start the struggling PC maker.

Executives with the software giant are in talks with officials from Dell and Silver Lake partners – one of the private equity firms that was initially named last week in news reports about Dell going private after more than two dozen years as a public company – to invest billions of dollars as part of a leveraged buyout of Dell, according to reports by The Wall Street Journal and CNBC.

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Microsoft officials have not made a final decision about whether to invest in Dell, according to the Journal. However, CNBC reported that the company could invest $1 billion (£630m) to $3 billion (£1.9bn), and that a deal is expected to be reach by the end of the week. A special committee for Dell shareholders is part of the negotiations, according to CNBC.

Spokespeople for both companies have declined to comment to the media on the reports.

Microsoft investing in Dell would make sense, given the historically close ties between the two tech giants and their shared mutual interest in returning the global PC market to health. Dell, like other tech vendors with tight ties to the PC market – such as chip makers Intel and Advanced Micro Devices and Hewlett-Packard, the world’s largest PC maker – has been impacted by the relatively sudden and steep slowdown in PC sales in recent quarters, as consumer interest shifts sharply to mobile computing devices such as smartphones and tablets.

Earlier this month, Gartner analysts noted that PC shipments in the fourth quarter of 2012 fell 4.9 percent with Dell, at one time the world’s top PC vendor, seeing shipments drop 20.9 percent. For all of 2012, Dell PC shipments declined 12.3 percent, according to Gartner. Even the release of Windows 8 by Microsoft in October 2012 did little to slow the declining PC sales worldwide, according to Gartner and IDC. Dell is the third-largest PC maker in the world, behind HP and Lenovo, according to the analyst firms.

Structural Changes

The movement toward the mobile devices has been a boon for such companies as Apple and Samsung, which have seen rapid growth in sales of their products. Dell and HP, like other PC OEMs, have made forays into the mobile device space with different levels of success. In the meantime, both are aggressively pursuing efforts to grow their enterprise IT businesses, with the goal of offering end-to-end products.

After reports surfaced last week that Dell officials were considering taking the company private, industry analysts said such a move would enable the PC maker to accelerate its efforts to transform the company outside of the intense spotlight of Wall Street analysts and investors and free up the decision-making process.

“It allows the company to function with the agility of a startup and most of the resources of a large public company,” Rob Enderle, principal analyst with the Enderle Group, told eWEEK after news of a possible leveraged buyout broke last week. “In effect, if you are contemplating making some major structural changes to the company, this is like, in a car race, pulling the car off the track to do the heavy modifications, rather than trying to do those changes during a pit stop or while the car was actually racing.”

Why Microsoft?

Microsoft would have a keen interest in seeing a strong Dell. The software giant is still the top OS vendor for PCs and servers, but Apple and its iOS and Google with its Android operating systems dominate the booming tablet and smartphone spaces. Microsoft is looking to gain a greater foothold in the space – Windows 8 is optimised to run on tablets, and the company also is offering a version of the OS for the ARM chip architecture. Still, despite the slowing sales, Gartner analysts said the PC industry still shipped more than 352.7 million units in 2012, which is a lot of systems, according to Charles King, principal analyst with Pund-IT Research.

“People are still buying 1 million PCs a day,” King told eWEEK. “For an industry that has been labelled … on its way out the door, that’s pretty good.”

For PC makers, the trick will be making PCs desirable again in 2013, according to David Daoud, an IDC analyst.

“Consumers expected all sorts of cool PCs with tablet and touch capabilities,” Daoud said in a statement 10 January, when IDC released its 2012 PC numbers. “Instead, they mostly saw traditional PCs that feature a new OS (Windows 8) optimised for touch and tablet with applications and hardware that are not yet able to fully utilise these capabilities. Despite a generally weak performance, some leading brands managed do to well relative to the market. HP, Lenovo, Asus, and Samsung were among the top performers, taking advantage of some consumer interest in Windows 8, and a push to build up their presence ahead of 2013.”

Michael Dell

This is not the first time founder and CEO Michael Dell has considered taking the company private. Since returning to the CEO chair in 2007 after three years away, Dell has aggressively pushed to build up its enterprise IT services through both in-house development and outside acquisitions, and reduce its reliance on PCs. Michael Dell, who owns about 16 percent of the company, reportedly told financial analysts in 2010 that he had considered taking the company private, though it never materialised.

However, if he does it this time, it could prove rewarding for his efforts, Roger Kay, principal analyst with Endpoint Technologies Associates, told eWEEK last week.

“Michael Dell has been looking to run the company with a long view, and Wall Street is very impatient with that,” Kay said. “In private equity, they’ll wait 10 to 15 years for payback.”

Dell has a market capitalisation of more than $19 billion (£12bn), and generated more than $42 billion (£26.5bn) in revenue and $1.8 billion (£1.1bn) in income during the first three quarters of last year.

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Originally published on eWeek.