Why Microsoft would want a piece of Dell

Michael Dell

If Microsoft takes a $1 billion to $3 billion stake in Dell, a possibility under discussion according to CNBC, the deal would mean more of a captive audience for Microsoft’s bread-and-butter Windows desktop and server operating systems.

dell+xps+10+dockCNBC reporter David Faber characterized Microsoft’s prospective investment as part of mezzanine funding — a mix of debt and equity that typically goes to finance the expansion of an existing company — for the stressed hardware maker. Talk of Dell going private has circulated for a week or so with Silver Lake Partners reportedly driving that deal. The rumored price is $13 to $14 per share.

Dell, based in Round Rock, Texas, used to dominate the tech industry with PC sales and server sales, but missed the boat in the massive shift to mobile and smart phone computing. Dell and rival HP have both suffered from their miscues in trying to catch Apple in that booming market.

Microsoft is likewise under pressure by the mobile/phone shift. By investing in Dell — which now also offers Linux on its boxes — it could push a Windows-focused agenda. For its part, Dell has tried to lessen its dependence on commodity hardware and move more into cloud computing, storage and related services with acquisitions of EqualLogic, Compellent, Quest Software, Wyse Technology and other companies.

Some on Wall Street are not sold on a proposed buyout. Despite all those acquisitions — totaling $13 billion over 5 years,  70 percent of Dell’s business remains tied to PCs, according to Sterne Agee analyst Shaw Wu. Improvement compared to nearly 90 percent in the early 2000s, but not good enough, Wu wrote in a research note.

Redmond, Wash.-based Microsoft has invested in companies including Barnes & Noble, Facebook and others companies. Its decision to manufacture its own Surface tablets last year alienated many of its long-time hardware partners.

Microsoft CEO Steve Ballmer has taken the brunt of the blame for the company’s seeming inability to parlay its desktop operating system and applications dominance into this new era. The latest blast came from former Microsoft exec Joachim Kempin who’s inked a new book about his 20 years at Microsoft.

This story was updated at 9:50 a.m. PT with analyst comment background on Microsoft CEO Steve Ballmer.

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