Microsoft's loan to Dell certain to trigger more OEM angst, say analysts

$2 billion loan will affect Microsoft's relationships with other partners, but how that will play out is unclear

Microsoft's $US2 billion loan to Dell, one of its largest computer-making partners, will have an impact on how other OEMs view their Windows ecosystem collaborator, according to analysts.

The extent of that impact, however, is unclear to the experts, although they are certain it will do something to the relationships Microsoft has with others.

"This has to strengthen the relationship between Microsoft and Dell," said Michael Cherry of Directions on Microsoft. "If you and I were OEMs, we might have thought that we played in a moderately-level playing field. But after Microsoft said, 'Guess what, we're an OEM, too,' it would only be human nature to think that 'There's us and everyone else, and then there's the Surface guys ahead of us.' Now there's Dell in front of us, and in front of them is Surface."

Cherry was referring to Microsoft's surprise announcement last summer that it would take the unprecedented move of becoming an OEM (original equipment manufacturer) to design, build and sell a pair of Surface tablets. The first, the Surface RT, debuted last October; the Intel-powered Surface Pro goes on sale Saturday.

"I feel that any kind of assurance to the contrary, that this has got to weigh in everyone's mind," said Cherry. "It changes things."

Not as much as it would had Microsoft done a different kind of deal with Dell, said other analysts.

"The fact that it's a loan distances Microsoft from Dell a bit, so the OEMs should be better with this than if Microsoft took an equity stake," said Michael Silver of Gartner, in an email.

For its part, Microsoft was closed-mouthed about any details of the deal, acknowledging only that it had provided a $2 billion loan to the group that proposes to take Dell private.

"Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future," the company said in a statement Tuesday. "We're in an industry that is constantly evolving. As always, we will continue to look for opportunities to support partners who are committed to innovating and driving business for their devices and services built on the Microsoft platform."

Allan Krans, an analyst with Technology Business Associates, agreed with the "constantly evolving" concept.

"The top tier of OEMs is in a period of realignment," said Krans. "They're in flux and need a lot of help. And Microsoft has the deepest pockets of anyone in the ecosystem, and they needed to take more of a leadership role. Someone needed to come in and make sure that there's stability there."

By pitching in on the Dell deal, Microsoft ensured that Dell continued to be a major PC player -- last quarter, it was the world's third-largest personal computer maker, with an estimated 11% share of the market -- and committed to Microsoft's software, said Krans and others.

"It's not necessarily a bad thing [for HP and Lenovo]," said Krans of the loan, referring to last quarter's No. 1 and No. 2 OEMs. "If [Microsoft's loan and Dell's privatization] can be successful, HP and Lenovo benefit indirectly because it makes the overall Windows ecosystem stronger. That's the unifying piece across all this."

Krans believed Microsoft would be very cautious in its future relationship with Dell. Any move that might have an impact on the relationships with other OEMs, said Krans, would be "closely managed" to make sure it wasn't seen as playing favorites.

But others questioned whether Microsoft's OEM partners would trust the developer to not leverage its $US2 billion loan in ways that would hurt their business.

"There were already strained relationships with the OEMs," Krans acknowledged. "There's been uncertainty about manufacturers' evolving relationships for quite some time."

That there has.

Executives at both Hewlett-Packard (HP) and Acer, for instance, have knocked Microsoft's Surface hardware, and Redmond's decision to become an OEM. Analysts have generally downplayed the tension, noting that computer makers have few -- if any -- choices for their PCs besides Microsoft's Windows.

But those relationships could be even more tense if Microsoft leans on Dell in ways conceived by Cherry, who pointed out areas where Dell has more expertise than Microsoft.

"Dell has a lot of experience in operating a manufacturing business, knowing how to do it efficiently and effectively, how to keep the lines running," said Cherry. Microsoft, comparatively speaking, does not, and may look to Dell for insights on how to more efficiently build hardware like the Surface tablets.

Likewise, Cherry added, Dell has far more experience handling consumer support, another area that Microsoft, for all its prowess in dealing with enterprises, lacks. Saying that his calls to Microsoft's support for help with both Windows and the Surface RT was a "nightmare," Cherry, who acknowledged he was a long-time buyer of Dell PCs, applauded its support. "I'd much rather call Dell than Microsoft."

Microsoft's loan wasn't the first time the company gave a helping hand to an OEM. In 1997, Microsoft and Apple negotiated a deal under which Microsoft purchased $150 million in Apple stock, signed a five-year patent cross-licensing agreement, and settled lingering issues from 1988 litigation where Apple accused Microsoft of stealing its graphical user interface (GUI) to create Windows. Another part of the package committed Microsoft to ship a Mac version of its Office suite, which it continues to sell.

That deal was credited with saving Apple from going under; today's loan, though, is in the context of a completely different technology environment.

"This speaks to how much the OEMs' relationship with Microsoft has changed," said Krans. "You can't operate a stand-alone PC business anymore because computing is changing. It's not just the PC today."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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