Why Microsoft (NASDAQ:
) is taking a seat at the negotiation table for Dell (NASDAQ:
) isn't clear, but according to multiple sources Tuesday, the
company is doing just that. The company is in talks with private
equity firm Silver Lake Partners to invest $1 to $3 billion in a
leveraged buyout of the once popular PC maker.
But why? First, there's no doubt that PC sales are falling
reports that in Q4 of 2012, PC shipments declined 4.9 percent
year over year. Gartner analyst Mikako Kitagawa said it is more
than just a weak economy causing the decline.
"Tablets have dramatically changed the device landscape for
PCs, not so much by 'cannibalizing' PC sales, but by causing PC
users to shift consumption to tablets rather than replacing older
Is Microsoft interested in Dell in order to reignite PC sales?
Microsoft CEO Steve Ballmer said he believes that unlike the
Apple model, multiple companies manufacturing PCs is essential to
the sale of Microsoft software.
Could it be the opposite of what Ballmer indicated? In a
letter to shareholders
, Ballmer reiterated his commitment to relying on the PC
community to drive innovation, but there are signs that may point
to other motives.
First, Microsoft took a giant leap forward with its Surface
tablet. The product hasn't been the blowout success that
Microsoft had hoped, but along with Xbox, it proves the company
has its eye on designing and manufacturing hardware.
In the shareholder letter, CEO Ballmer wrote that one of
Microsoft's focus areas for future development is, "Firmly
establishing one platform, Windows, across the PC, tablet, phone,
server, and cloud to drive a thriving ecosystem of developers,
unify the cross-device user experience, and increase agility when
bringing new advancements to market."
Does this sound like another technology company? Apple
) already does this and the company has done it to the point
where Microsoft is barely on the company's radar screen as a
An interest in Dell would give Microsoft a giant leap into the
PC market-a strategy well-known to the company. In 2008, when
Microsoft was aggressively pursuing Yahoo (NASDAQ:
) Ballmer indicated that interest in Yahoo stemmed from its
desire to rival Google. Clearly, Microsoft looks for ways to
enter markets without starting from scratch.
There's the company's $605 million investment in Barnes and
). Microsoft gained a 17.6 percent share in a Barnes and Noble
subsidiary that includes the eBook division-an area where rivals
were gaining market share. And going way back, the company's $150
investment in faltering Apple.
Microsoft's interest in Dell may be an attempt to return to
its roots. Microsoft's investments in areas outside of the PC
have not been standout successes. Microsoft still generates the
majority of its earnings from the PC market. Investing in Dell
puts the company back in a business it knows well.
Microsoft is trading down fractionally in afternoon trading
while Dell is up more than 2.5 percent.
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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