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

Unprecedented deal meets unprecedented flux in the personal computer industry, say analysts

Microsoft's $2 billion loan to Dell, the world's third-largest seller of personal computers, was a signal that the personal computer, Microsoft's Windows, or both, are at growing risk of irrelevance, analysts said Tuesday.

The loan was part of a $24.4 billion move driven by Dell CEO Michael Dell to take the firm he founded private, where it will not have to face the wrath and impatience of shareholders each quarter.

In lieu of details from Dell or Microsoft, analysts speculated that the latter's loan came with strings -- one pegged them as a "gentleman's agreement" -- that could make other OEMs (original equipment manufacturers) even more nervous about Microsoft's strategic decisions and cause them to wonder if Dell would be given "most favored nation" status.

But while they disagreed on the whys of Microsoft's motivation for parting with $2 billion, they all noted it came at a tumultuous point for the computer industry.

"Along with lackluster sales of Windows 8, we view the transaction as another sign of the fading importance of the PC industry," said Brian Marshall, a Wall Street analyst with the ISI Group, in an email Tuesday.

The PC industry has been in a slump, caused by a myriad of factors but led by a shift in tastes for tablets and smartphones. In turn, that's triggered lower sales of Microsoft's Windows as its share of the operating system market for all "computing" or "connected" devices -- both terms have been bandied -- has plummeted.

"This deal was unprecedented," said Allan Krans, an analyst with Technology Business Research, in a Tuesday interview. "But the shift in PC buying [to other devices] is also unprecedented. After a couple of decades of growth, computing is changing. It's not just about the PC any more."

Some theorized that Microsoft's money came with a clear understanding between the two companies, that Dell would not only stay in the PC business but would also not test the waters with machines powered by rival operating systems. No 1. PC OEM Hewlett-Packard (HP), for instance, just introduced a laptop running Google's Chrome OS, following in the footsteps of Lenovo and Acer, the No. 2 and No. 4 PC makers, respectively.

"I think there's a 'gentleman's agreement' that gives incentives to Dell to use more Microsoft products," said Patrick Moorhead of Moor Insights & Strategy.

Such an agreement could have been driven by Microsoft's fear that a privatized Dell would abandon the traditional PC market, said Moorhead, who speculated that Microsoft would rather have numerous strong OEM partners rather than just one or two.

But it's as much Microsoft's relevance that's at stake, Moorhead argued. "Microsoft is having relevance problems in the personal computer, tablet and phone markets," he said, repeating assertions he has made in the past that Microsoft's Windows 8 and Windows RT have failed to excite computer and tablet buyers.

As with its deal with Nokia, Microsoft may expect its $2 billion to buy a lead partner in Dell, an OEM that would make more effort than others to come up with hardware that struts Windows 8 or a follow-up Windows 9.

But will that work now? Some think it's already too late.

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