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Microsoft investing in Dell: A sensible move?

BusinessAnalysis
by Joel Hruska, 23 Jan 2013Analysis
Microsoft investing in Dell: A sensible move?

Last week, rumours surfaced that a group of investors were in talks with Dell to take the company private. The rumours kicked off thanks to a generally miserable PC market in the fourth quarter of 2012. Now there’s a new spin on those rumours – Microsoft might opt to invest $1 to $3 billion (£630 million to £1.8 billion) in a privatised Dell.

That’s an intriguing idea. It would give Microsoft access to manufacturing facilities and the ability to partner with Dell for releasing Signature PCs, exploring new device concepts, and creating peripherals. It’s not hard to see some of the upsides for both companies – Dell could capitalise on the partnership to reinvent the company’s brand image.

It’s difficult to understate the complexities of such a move, though. Microsoft has already come in for criticism when it chose to compete directly against OEM tablets with its own Surface RT and Surface Pro. This would substantially up the ante, and you can bet that partners like HP, Acer, and Lenovo would be anxious to confirm that Dell got no special bonuses in the form of licensing discounts or software deals.

Microsoft is big enough that virtually anything the company ties to Windows or Office runs the risk of creating an antitrust lawsuit, and the company has run afoul of EU investigators on multiple occasions.

It’s equally fair to ask if a partnership with Microsoft is what Dell needs to improve its business performance. There’s the chance that the two hooking up could disrupt other innovative projects, like Dell’s Ophelia (the system in a flash drive). There’s also the simple fact that Windows 8 simply hasn’t established itself as the go-to solution for tablets, and Windows Phone 8 shows only modest signs of improved sales in the smartphone market. A partnership between the two companies could produce interesting products, but it could also be seen as two giants clinging to each other when neither knows how to swim.

A limited partnership might make the most sense. Dell could easily handle the manufacturing arm of Microsoft’s device ambitions, while a Microsoft purchase would provide the company with additional capital to tackle other projects. As for Dell going private in the first place, I stand by what I said last week, when rumours of Dell’s privatisation first emerged: If this is what it takes for Dell to challenge the PC market status quo, and to possibly branch out into other markets, then I’m all for it.

Does Dell need to go private? I still think not. It’s one option among many. It’s also an option that could distract the company at a critical time when it needs to focus on product creation, not the internal churn and turmoil which would be created by such a move.

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