Speculation about potential buyout partners has been circulating since Bloomberg reported Dell's intentions on Jan. 14. The news followed a rough year for the Round Rock, Texas-based company, which made a variety of noteworthy acquisitions but could not sustain enthusiasm among investors. Even with buyout rumors provoking a momentary rise in Dell's shares, the company's stock was, as of Tuesday afternoon, still down almost 30% relative to its 52-week high of $18.36.
Just over a month ago, the company had positioned Dell World as a coming out party for its new identity as an end-to-end service provider with a competitive software portfolio. Though the transition earned Dell some praise, it didn't stop the company's PC sales from declining sharply, even relative to the depressed overall market.
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Michael Dell expressed allegiance to the PC business during his Dell World keynote, praising Windows 8 and next-generation form factors as catalysts for a revitalized market. That confidence hasn't yet translated into sales, however, and many commentators have suggested Dell might go private in order to restructure free from scrutiny.
Microsoft has a history of investing in other companies, such as the infusion it gave Nokia as part of the Windows Phone 8 push, and the $150 million bet it made on Apple in 1997. Neither of those investments involved taking a company private, so the situation will be somewhat different if Microsoft supplies Dell the additional equity it needs. Regardless, the interest from Microsoft makes sense, given Dell's status in the Windows sales channel.
"Microsoft's involvement doesn't surprise me," Gartner research VP Steve Kleynhans said in a phone interview, noting that Dell is "a really big customer" and that Microsoft would probably value "a little bit of insight and control over whatever restructuring might take place."
As for Dell's motivation, Kleynhans echoed suggestions that Michael Dell is looking to restructure his company without Wall Street's watchful eyes. "It's the typical reason you take a company private," he remarked.
Regarding the sorts of post-buyout moves Dell might make, Kleynhans cautioned that one can only speculate. Nevertheless, he expressed that PCs are likely to remain a meaningful part of the plan. He noted that although few of Dell's purchases have targeted PCs directly, several, such as KACE and Qwest, "have a big play on PCs." He said the company's new PCs have remained competitive, despite slow sales, and that the market remains "a big viable, business."
As to whether a Microsoft-Dell pact might trouble other PC makers, Kleynhans said, "It's all how they structure it." When asked, he agreed that the Surface tablet had likely caused "some friction" in Microsoft's relationships, as the device was widely interpreted as a criticism of OEM products or a new force that would eat into those OEMs' sales. Nevertheless, he noted that Microsoft has invested in many companies without controversy. He also suggested that because "nobody seems to have done terribly well with Windows 8 tablets in the fourth quarter," most companies are probably focused internally on solutions, rather than "finger-pointing with competitors."
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