Microsoft defends frayed PC ecosystem with $2 billion Dell loan






SEATTLE/SAN FRANCISCO (Reuters) – Microsoft Corp is playing defense with a $ 2 billion loan to help Dell Inc’s founder buy back the world’s No.3 PC maker as it seeks to shore up support for Windows and beat back the march of Google Inc’s Android.


The investment in the landmark $ 24 billion buyout led by Michael Dell marks the latest step in Microsoft‘s plan to gain more influence over the hardware supply chain – a departure from the decades-old, software-centric philosophy that helped it dominate the computing world but is now increasingly under threat.






It is far from clear, however, if this strategy will be successful, while the world’s largest software maker risks upsetting other computer producers.


“It doesn’t mean it’s a bad move, but it’s definitely defensive. Microsoft is realizing it must be much more engaged in the hardware business than it used to be, it needs to be making bets and forming relationships,” said Andrew Bartels, an analyst at Forrester Research.


The company that built its fortune on making high-priced software to go in other companies’ computers is inching closer to Apple Inc’s belief that software and hardware must be closely integrated for the sake of the user experience.


Microsoft struck a deal to pay Nokia to make phones running Windows software in 2011 and a year later invested in Barnes & Noble‘s Nook e-reader. It then launched its own computer, the Surface tablet, in October, which rankled some PC makers initially.


In the face of declining PC sales and the onslaught of Apple‘s iPad, “Microsoft has taken more unconventional measures than they would have in the past,” said Sid Parakh, an analyst at investment firm McAdams Wright Ragen.


This time, Microsoft made extra efforts not to alienate its other PC makers, talking to them before inking the deal, said sources familiar with Microsoft‘s relations with its partners, and holding off from an ownership stake.


Microsoft reached out (at the highest levels) a bit before all of it came out,” one of the people said. “There were multiple conversations. Clearly they put some thought into it and definitely a schedule was pulled together.”


Even so, world No.1 PC maker Hewlett-Packard Co (HP) issued a statement critical of the deal.


Dell “faces an extended period of uncertainty and transition that will not be good for its customers,” HP said, adding that Dell’s ability to invest in products and services will be extremely limited with its debt load.


Lenovo Group Ltd said it remains focused on products and customers rather than “distracting financial maneuvers and major strategic shifts.”


Microsoft, advised by Lazard Ltd, declined to comment on the terms of the Dell loan, or what exactly it gets in return, but made it clear it would look for “opportunities to support” companies that buy in to Windows, in whatever form. That suggests this may not be its last third-party investment.


Still, there is no guarantee that Microsoft‘s loan will give it any sway over Dell at all. One former Microsoft executive said the deal was pointless.


“I know Michael (Dell), he will continue to run his empire the way he has always done – without any outside influence,” said Joachim Kempin, once Microsoft‘s top executive in charge of its relationships with PC makers, who left the company in 2002.


PLATFORM WARS


Chief Executive Steve Ballmer made it clear last year that he sees Microsoft as a “devices and services” company with an explicit interest in hardware, whoever it is made by.


Microsoft has every interest to keep such a key player in its ecosystem alive and well,” said Al Hilwa, an analyst at tech research firm IDC. “Dell supplies a large number of Microsoft customers with hardware, and it is important that their confidence is bolstered in the overall Microsoft ecosystem.”


Dell decided last year to focus its tablet strategy on the new Windows 8 operating system, in contrast to rivals such as Samsung, Asus and Lenovo, which are hedging or leading with Google‘s Android system, and HP which said this week it would make a Google Chromebook.


Dell did experiment with Android with its Streak tablet in 2010, but it flopped.


“This investment might help Microsoft influence whether Dell adopts Android or not, that is likely the goal behind this,” said Parakh.


The loan, negotiated by Microsoft‘s Chief Financial Officer Peter Klein, takes the form of a 10-year subordinated note and will pay 7 percent to 8 percent interest, according to sources familiar with the deal.


It is not clear how much sway Microsoft will have on Dell’s strategy, but the two have been close partners for 25 years, and will likely build on that.


“I don’t think Microsoft is going to run Dell at any time or have a dispositive say in what Dell does,” said one source familiar with Microsoft‘s thinking, who asked not to be named. “Microsoft wants to continue to have a strong and ever deepening relationship with Dell and you can take it as the expectation on both sides.”


PCs are clearly in decline, with sales falling last year for the first time in a decade as the popularity of tablets surges.


Some analysts suggest Microsoft got involved in the deal to learn more from Dell about selling to businesses and individuals.


“Dell is one of the best at building hardware and putting an operating system on it,” said Michael Cherry, an analyst at Directions on Microsoft, an independent consultancy.


With the rise of Google trying to sell into enterprises, it should help Microsoft to have some influence over one of the largest IT vendors, said Parakh.


Microsoft has not always been successful in its tech investments.


Its multi-billion dollar bets on cable firms AT&T Inc and Comcast Corp in the late 1990s did not yield success. Its $ 150 million in a struggling Apple in 1997 ended a long-running patent spat between the two companies, but saved Apple and put it on course to eclipse Microsoft financially.


Apple is the model, and Microsoft can’t become Apple overnight,” said Bartels at Forrester. “But it needs to have really good partners.”


(Additional reporting by Greg Roumeliotis, Poornima Gupta, Nadia Damouni; Editing by Ryan Woo)


Wireless News Headlines – Yahoo! News





Title Post: Microsoft defends frayed PC ecosystem with $2 billion Dell loan
Url Post: http://www.news.fluser.com/microsoft-defends-frayed-pc-ecosystem-with-2-billion-dell-loan/
Link To Post : Microsoft defends frayed PC ecosystem with $2 billion Dell loan
Rating:
100%

based on 99998 ratings.
5 user reviews.
Author: Fluser SeoLink
Thanks for visiting the blog, If any criticism and suggestions please leave a comment




You're reading an article about
Microsoft defends frayed PC ecosystem with $2 billion Dell loan
This article
Microsoft defends frayed PC ecosystem with $2 billion Dell loan
can be opened in url
http://newsdiscourager.blogspot.com/2013/02/microsoft-defends-frayed-pc-ecosystem.html
Microsoft defends frayed PC ecosystem with $2 billion Dell loan