Microsoft's $2 billion loan to Dell is a sign that the software maker wants to influence hardware designs in a post-PC world while protecting itself from the growing influence of Linux-based operating systems in mobile devices and servers, according to analysts.
Michael Dell and equity firm Silver Lake on Tuesday announced a buyout of computer maker Dell in a deal valued at about $24.4 billion. Dell will continue as CEO of the company, which he founded in 1984. The transaction includes the loan from Microsoft, which in a statement said it views the deal as a commitment to the "long term success of the entire PC ecosystem."
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The leveraged buyout is mainly being financed by cash and equity contributed by Dell, cash from investors affiliated with Silver Lake, and cash from MSD Capital. In addition to Microsoft's loan, debt financing has been committed by Bank of America, Merrill Lynch, Barclays, Credit Suisse, and RBC Capital Markets.
As the world's third-largest PC maker, Dell is important to the success of Microsoft's server and PC software. Even though Microsoft's loan does not represent a big part of the total value of the transaction, the software maker does not throw around money lightly, and its participation in the deal might be an attempt by the software maker to influence hardware designs in the post-PC world of touch laptops, tablets and smartphones, analysts said.
It may also be an attempt to secure the partnership and to stop the PC maker from looking toward alternative operating systems like Linux, analysts said. Dell offers Linux servers and in late November introduced a thin and light XPS 13 laptop with a Linux-based Ubuntu OS, also code-named Project Sputnik. Major PC makers in recent months have also introduced laptops with Chrome OS.
"It's a simple symbiotic relationship. Dell is a platform for Microsoft products. Thus, helping Dell helps Microsoft maintain an important customer," said Anthony Michael Sabino, a professor at St. John's University's Peter J. Tobin College of Business, in an email.
The investment could help Microsoft ensure that Dell doesn't drift toward Linux-based operating systems such as Chromebook or Android, said Al Hilwa, program director at IDC. "For them it's a little investment, but it allows them to put strategic influence" behind the device designs and software implementations, Hilwa said.
Microsoft's Windows 8, which shipped in October, so far has failed to lift PC shipments, which fell by 6.4 percent in fourth quarter of 2012 compared to the same quarter in 2011, according to research by IDC. Dell's PC shipments fell by 20.8 percent during the same quarter. Few touch PC models were available in the fourth quarter, and PC makers failed to effectively communicate the benefits of Windows 8, which was partly responsible for the drop in PC shipments, according to IDC.