Microsoft's $2B loan to Dell sign of turbulent times in PC biz

"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. They think about the PC that way now. They know what they have is old and slow. But when they ask themselves, 'Where do I want to spend my consumer electronics budget?' there are more compelling things to buy than a PC."

Truth be told, Dell had long ago de-emphasized the PC part of its business, even though Michael Dell famously started out selling PCs from his college dorm room. Once the world's leading seller of personal computers -- it held that spot from 2001 through 2006 -- Dell last quarter shipped 9.5 million PCs, according to IDC estimates. That represented 11% of the global market, keeping Dell in third place, where it's been since 2011, and more than 4 million units behind HP and Lenovo, the quarter's top two OEMs.

"This speaks to how much the OEMs' relationship with Microsoft has changed," said Krans of the Microsoft loan. "You can't operate a stand-alone PC business any more because computing is changing."

And the loan may not prove to be the firebreak against change that Microsoft wants it to be. "As a private company, we believe Dell could become even more comfortable ceding low-end PC market share to Asian competitors," said Marshall of the ISI Group.

As if Microsoft doesn't face enough problems, on Tuesday reports surfaced that HP's board was considering breaking up the corporation, in some ways a repeat of an aborted plan two years ago to spin off or sell its PC business.

For its part, Dell said only that Microsoft would not be involved in its operations. "Microsoft is making a loan that allows Dell to independently execute its long-term strategy," Dell said in a filing Tuesday with the U.S. Securities & Exchange Commission (SEC). "This is a loan and [Microsoft] will not have a direct role in day-to-day operations of Dell."

Dell will reveal more about the deal -- "the material terms," according to yesterday's 8-K filing with the SEC -- in a follow-on document to the regulatory agency. Maybe that will clarify things.

Because everything else in the computer business, it seems, is muddled.

"The top tier of OEMs is in a period of realignment," said Krans. "They're in flux and need a lot of help. 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."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@ix.netcom.com.

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