Will Microsoft's $2 billion role in Dell's buyout play out like its Nokia partnership?

Will Microsoft's $2 billion role in Dell's buyout play out like its Nokia partnership?

Summary: If Microsoft's $2 billion loan to Dell plays out the same way its Nokia deal has, other PC makers may have less to fear than they initially might expect.

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One of the worst-kept secrets in Microsoft's investment history is no longer a "secret." On February 5, Microsoft made a $2 billion loan to one of its largest PC OEMs, Dell, as part of Dell's move to go private.

dellwin8

Microsoft does not own part of Dell as part of this transaction. However, the situation reminds me of another major Microsoft "investment": The billions it paid to Nokia almost exactly two years ago to help rescue a company teetering on the edge of a "burning platform."

At the time of the February 2011 Nokia deal, Microsoft wanted and needed at least one of its partners to be "all in" with the Windows Phone platform, to the exclusion of competing operating systems like Android. With the money it is loaning Dell, Microsoft also may be seeking a way to keep the third largest PC maker from straying into the Linux/ChromeOS/Android camps, as my ZDNet colleague Larry Dignan and others have speculated.

There's another interesting parallel between the Nokia and Dell situations. When Microsoft backed Nokia, there was a lot of chatter about whether that move would result in an unfair Nokia advantage. There are similar worries around what Microsoft's Dell investment could mean for other PC makers and their customers.

Nokia "will contribute its expertise on hardware design, language support, and help bring Windows Phone to a larger range of price points, market segments and geographies," the original announcement trumpeted. What about the other Windows Phone partners -- HTC, Samsung, even Dell (which delivered the Venue Pro Windows Phone and no follow ups)? Weren't they now second-class citizens in the Windows Phone ecosystem?

Microsoft came out of the gate really pushing Nokia's Lumia as the flagship Windows Phone a year-plus ago. But since then, the Softies have backed off a bit and shared the love.

While Microsoft still gives Nokia props and is counting on Nokia for turn-by-turn navigation and Maps technologies for all Windows Phones, Nokia isn't the only Windows Phone game in town. I see more and more Microsoft managers sporting the HTC 8X Windows Phone 8s, rather than the latest Lumias. (Microsoft identifies HTC as a "signature" Windows Phone partner, but all this really means, I've heard, is HTC agreed to use "Windows Phone" in the official name of its phones, which is something Nokia didn't do.)

When Microsoft chose a phone partner for its just-announced 4 Afrika African-development initiative, it went with Huawei, not Nokia, in spite of Nokia's long history and expertise in selling phones in the developing world. Microsoft and Huawei jointly unveiled the new variant of the Huawei Windows Phone 8 Ascend W1 on February 4.

So it could be that a Microsoft tie-up with Dell won't necessarily be to the detriment of Microsoft's other OEMs. Rather than becoming nothing but a factory for new Microsoft Surface PCs and tablets -- something that some Microsoft watchers believed/feared to be the primary reason Microsoft would invest in Dell -- maybe a Microsoft-backed Dell just becomes a stronger Windows OEM.

It's a tumultous time to be a Microsoft OEM, no doubt about it. The PC market is in decline, revenue-wise. Microsoft is competing with its own OEMs with its Surface line of products. And now Microsoft is providing $2 billion loan to one of its largest OEMs, Dell. I wonder how many Windows OEMs will still be in existence in a year or two, and how many will be backing Windows as just one of several different platforms to hedge their bets.

Topics: Dell, Microsoft, Tablets, PCs, Windows, Microsoft Surface, Windows 8

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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64 comments
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  • I prognosticate that Dell will be leeched by MS

    until they are out of business.....that was not a wise choice from dell :|
    L3thargic
    • Dell has officially received Microsoft Kiss of Death, same as Nokia

      same as Palm
      same as Silicon Graphics
      same as Yahoo.
      They all run into oblivion time after; if Dell cannot provide compelling Android devices to consumers, for sure somebody else will do it.
      theo_durcan
      • seems like you forgot a big one that MS supported by investment

        Company known as Apple
        paulskUK
        • True

          And while it made sense for both parties at the time, I'm sure that both Bill Gates and Steve Jobs saw it as short term. Dell, on the other hand, is a major manufacturer of Windows-preloaded personal computers (Apple never has been), which makes this relationship very different indeed.

          It's also true that Dell is the most Linux friendly of the major PC manufacturers, which can't be thrilling to MS.

          I do see that MS opted to lend money rather than buy stock this time around (I would have offered MS stock rather than taking a loan from it, if I were Michael Dell, so as to minimize debt), so I'm thinking that this is also a short term deal. I just wonder what MS is getting out of it, besides interest.
          John L. Ries
          • Apple and MS software

            Actually, Microsoft was the major producer of Apple software. I am not sure if it still is.

            If Dell is a major manufacturer of Windows-preloaded personal computers, then MS is preserving a major distribution channel and customer base.
            PCcritic
  • I think MS is smart enough not to overly support a single company

    any more then Google would, even though they own Motorola.
    That would quickly have the DoJ looking at them, especially given MS's market share in desktop server OS.
    They really can't just go "all in" with a single OEM
    William Farrel
    • Too far

      MS has already gone too far. How do Lenovo, HP, Asus feel about MS giving $2bil to a rival? They need to get $2bil each, too, I would think. And Acer was already hopping mad over the Surface.

      I'm not sure what Dell is thinking. They need to compete with MS more in business software and services, not build more PCs. That's how IBM did it. That's how HP wants to do it. That's the only way to do it: high profit software. Just ask Microsoft!
      solomonrex
      • They didn't give Dell 2 billion

        they loaned Dell 2 billion, which is a big difference. The first would be a gift, the second is an investment with a positive outcome later on, with either hardware as the profit, or cash, just the same they did with Apple, Facebook, and Nokia.
        Challenger R/T
      • How does Microsoft feel that ...

        ... HP, Lenovo, Asus, Acer and others sell phones, servers, tablets and other devices running Linux, Android, etc? And how does Microsoft feel that MANY OEM's ship truly nasty bargain-bucket PC's laden with crapware, offering customers a horrible experience?

        I don't see why Microsoft should give any of their OEM 'partners' special treatment considering the fact that most of their 'partners' are already competing with Microsoft on several fronts.
        bitcrazed
    • They're much more involved than they've ever been in the past

      Historically, MS has avoided direct involvement, focusing on software and playing OEMs off against each other. This is a major change and I can't think that most OEM execs are happy about it.
      John L. Ries
  • Your Opinion?

    What's your opinion on this, Mary Jo? Do you think long term this was a bad decision for Microsoft, or smart business? I really can see it going either way...
    jhnnybgood
  • Other ideas

    1) It could just be a nice looking investment with a decent return.

    2) They turn the possible perception of Dell turning away from its PC roots to speculation that it will be a renewed player fighting other eco-systems.
    curph
  • Will Microsoft's $2 billion role in Dell's buyout play out like its Nokia p

    We can only hope it does. Nokia have stated they are on their way to financial independence from Microsoft now that the Lumia line is selling very well. Nokia's problem was offering a high end phone only on AT&T instead of all carriers. Rumor has it they are working on one for Verizon but I will believe that when I see it.

    If Dell can do something similar to this and make a high end PC like their Alienware line then relabel it as a Microsoft branded PC it would be a pretty good thing for both companies.

    "Microsoft also may be seeking a way to keep the third largest PC maker from straying into the Linux/ChromeOS/Android camps"
    I hope this is true as well. If I loan someone money its not so they can help my competition. You are most likely right about the real reason being that Microsoft now has an OEM to go to so they can build out their own hardware to their own specs.
    Loverock-Davidson
    • Hmm

      It's described as a loan, rather than equity. I recall the Nokia deal as being an exchange of licenses and services with compensation going in both directions, but favoring Nokia.

      I'd guess that Microsoft can get a better deal by going directly to the factory owners than by using Dell as an intermediary to those same factories, unless Dell can pass on significant volume discounts, though I don't know if the factory business works like that.

      Right now, I'm leaning towards Microsoft looked at the business plan and thinks it's going to get its investment back and have a strong customer in a few years, once Dell's management frees itself from the "The stock price lost a dollar today. Do layoffs and change your business to be like that company whose stock gained a dollar today!" crowd. Maybe Microsoft throws business Dell's way, but for the most part, I think Microsoft recognizes the advantage of multiple large OEMs, because the fewer there are, the more the leverage moves to the OEMs.
      DannyO_0x98
    • I don't agree with that one sentence

      "Microsoft also may be seeking a way to keep the third largest PC maker from straying into the Linux/ChromeOS/Android camps"

      Why? it's not like they are massive desktop and server camps, and if Microsoft can make a profit from all three I don't see what the problem would be.
      Challenger R/T
      • MS doesn't like to legitimze rivals...

        ... if they can help it; especially the free software movement it has been trying to discredit for over a decade. Apple is much less threatening because you have to buy an Apple machine (considerably more expensive than the typical IBM architecture PC) to use their software; this makes it much easier to replace Windows with Linux than it is to replace it with OSX.

        But there are dangers to playing up one competitor as legitimate while trying to destroy the other, as the "legitimate" competitor might end up supplanting you.
        John L. Ries
  • Great oppurtunity for Dell and MS

    With HP making stupid decisions year after year, it's great opportunity for Dell to become the top PC vendor in Enterprise.
    Owlll1net
  • Dell is much stronger than Nokia...

    Nokia was in free fall when they joined with Microsoft. They really only had two choices--go with Windows Phone or go with Android. A lot of people thought they should've chosen Android, but I think those people were wrong. HTC was a strong Android OEM back then and are now being clobbered by Samsung. Do you really think Nokia would be faring any better? Probably not. Instead, Nokia is the "big fish" in the Windows Phone pool. That means they have a lot of influence with Microsoft (though Microsoft is still calling the shots). Nokia has a long way to go, but it's climbing & is the leading Windows Phone OEM.

    Dell is going private so it doesn't become the next Nokia. Sure, Dell's market share has been falling, but they're still huge. And going private will give them the ability to make the necessary changes much faster than they could have otherwise. It's a smart move, and Microsoft is smart to get behind it... especially since HP seems to be getting deeper and deeper in bed with Google. If HP doesn't like Microsoft's latest move, it's their own fault. Where has HP's loyalty been? They've been trying to find success with Android & WebOS for about a decade now.
    newyorkcitymale
    • Dell is still preffered supplier to majority of businesses at least here in

      the US.
      Ram U
    • Nokia is not alone

      There are more companies in the windows 8 bandwagon.
      If Nokia is not able to fight Samsung with android, I don't think they can do it with windows8, because Samsung it's where the money is and if windows8 start to become successful they will be all over it.
      Nokia with android, at least would be betting on a successful platform, obviously they would have to better than the competition. With windows8 they have to beat the competition and expect that windows8 gains some traction - something not happening.
      AleMartin