Microsoft's potential $1 billion to $3 billion investment in Dell as part of a private-equity-backed leveraged buyout could cause friction between the software giant and other PC vendors/PC OEMs and ultimately reduce competition in the market, according to an exclusive CRN survey of 194 solution providers.
The results from the survey, conducted last week, come amid reports that Dell is attempting to complete what could end up as a $20 billion leveraged buyout led by private equity firm Silver Lake with financing from Microsoft, other investors and a number of banks.
The CRN survey found that of the partners who see the Microsoft investment having a negative impact on their combined Dell-Microsoft sales, 75 percent believe the deal will cause "friction between Microsoft and other PC vendors." In addition, 71 percent fear the combination will create "an unhealthy alliance that reduces competition in the market." Finally, 54 percent believe the Microsoft investment could lead to more "confusion/frustration" in the market.
Michael Goldstein, president and CEO of LAN Infotech, a Dell partner based in Fort Lauderdale, Fla., said he was shocked by the possibility of the two industry giants -- Dell and Microsoft -- teaming up.
"Dell is one of the largest Microsoft software resellers in the world so Microsoft is effectively buying into what may be their best customer and creating what I look at as a small monopoly," he said. "You have the guys that make the software engine teaming with one of the dominant hardware suppliers. It's got to have an enormous impact on someone like HP and the other major PC OEMs."
Todd Swank, vice president of marketing at Nor-Tech, a Burnsville, Minn.-based system builder, said he sees the potential Microsoft investment in Dell as aimed at "keeping a good Microsoft partner focused on Microsoft" in an era in which the PC industry is in "shambles."
IT vendors really cannot survive with a focus strictly on the PC business, Swank said. "I see this as Microsoft trying to keep its desktop business going," he said. "Microsoft wants companies to push its client solutions." The deal could make Dell less likely to move to other platforms, specifically Android, Swank said.
Microsoft has a lot riding on the success of Windows 8 and its client systems business supported by OEM partners such as Dell. In its fiscal year ended June 20, 2012, Microsoft's Windows and Windows Live Division sales -- before Windows 8 -- dropped 3.5 percent to $18.37 billion compared with $19.03 billion in fiscal 2011.
In contrast, in the second fiscal quarter ended Dec. 31, Microsoft said the Windows Division posted a 24 percent increase from the year-ago quarter to $5.88 billion. Adjusting for recognition of previously deferred revenue from Windows 8 presales and the net deferral for a Windows Upgrade offer, Microsoft said Windows division non-GAAP sales increased 11 percent.
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