Microsoft Corporation (NASDAQ:MSFT) has had an effective enterprise and corporate-customer relationship with Dell Inc. (NASDAQ:DELL) over the years, which has helped both companies to establish a strong market share in business environments.
But now, with reports out that Dell Inc. (NASDAQ:DELL) company president Michael Dell has begun discussions with some private-equity firms to follow through on his desire to take the company – with a current market cap of about $5 billion – private, key partner Microsoft Corporation (NASDAQ:MSFT) is now apparently placing itself in the discussions to become a significant invest0r in the new venture.
There are reports that Microsoft Corporation (NASDAQ:MSFT) may be willing to invest at least $1 billion in this opportunity. While Microsoft is more than flush with cash – so that paying $1 to $3 billion wouldn’t be such a big deal – there is this question that is being asked: Why would Microsoft, mainly a software company, be interested in investing in a hardware company like Dell Inc. (NASDAQ:DELL), and what might Dell gain from this. A blog post on the Wall Street Journal tries to delve into a plausible answer.
One of the benefits of this tighter relationship in the favor of Microsoft Corporation (NASDAQ:MSFT) is that it could leverage its investment in Dell Inc. (NASDAQ:DELL) to further develop its ecosystem in terms of hardware – perhaps helping Microsoft develop a better Surface tablet or at least develop better synergy between the hardware and the Windows 8 operating system. The need for hardware is especially important for Microsoft’s quest for a siloed ecosystem similar to Apple Inc. (NASDAQ:AAPL), and the Surface tablet with Windows 8 has posted modest but underwhelming sales results so far. It’s possible that the hardware intelligence that Dell Inc (NASDAQ:DELL) has developed oer the years may help Microsoft re-tool its Surfact to be more intuitive with Windows 8 and all of the other software that comes out of Redmond.
What could be the corporate benefit for Dell Inc. (NASDAQ:DELL) in this relationship?
As Steve Rosenbush wrote in his post, “… (F)rom Dell’s point of view, Microsoft could help the company achieve what it needs more than anything: sharp business focus … an area of Microsoft strength. There is one additional potential benefit from Dell’s point of view. The presence of a powerful partner like Microsoft could help ramp up the pressure on its struggling rival Hewlett -Packard Company (NYSE:HPQ).”
Michael Dell is reportedly pushing to pay between $13 and $14 per share to take the company private, but it may take more than that. At the end of Tuesday’s trading, Dell Inc. (NASDAQ:DELL) stock was up more than 2 percent on the day to $13.13 a share. Meanwhile, Microsoft Corporation (NASDAQ:MSFT) finished the day down slightly to $27.17 per share.
What do you think? Should Microsoft Corporation (NASDAQ:MSFT) invest in Dell? How do you see this affecting both companies? We’d love to get your feedback in the comments below.
DISCLOSURE: I own no positions in any stock mentioned.
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