Did Microsoft Miss Out on BlackBerry?
For all of the talk about Microsoft's (MSFT) perceived irrelevance, investors often forget that this is a company that still produces a significant amount of cash flow.
The problem, however, has been the company's inability to effectively deploy its capital. Plus, Microsoft’s biggest challenge is convincing a market filled with pessimism that it can finally shed its PC dependency. So it came as a surprise when the company made a $2 billion investment in Dell (DELL).
I don't believe Microsoft thinks it can save a dying PC industry. The company's own recent investments in mobile devices have made this clear. Nonetheless, Microsoft, which still controls more than 91% of desktop operating systems, wants to ensure that if Dell emerges stronger, Windows will still be at the center of the hardware. Meanwhile, Dell's rival, Hewlett-Packard (HPQ) is rumored to have formed a relationship with Google (GOOG), which is presumed to run HP's mobile devices. But why would HP just stop at there?
Google has proven to be a formidable force in operating systems, not only with Android, but also with its Chromebook hardware. HP, which is already struggling with profitability, should find some margin incentive with an Android powered Ultrabook versus paying a Windows license to Microsoft. It's worth speculating, however, at what point Microsoft decided to pledge its allegiance to Dell. Was it before or after it learned of HP's affair with Google?
The other question is, what does Microsoft get for $2 billion? And more importantly, is it worth throwing good money after bad? After all, with Apple (AAPL) and Google's dominance, PCs aren't going to suddenly become relevant again. For what essentially amounts to a $2 billion Windows insurance policy, Microsoft could have used that money towards R&D and work to come up with the next game-changing product. But for now, it's a matter of wait-and-see; waiting for Dell to grow in value and seeing if Microsoft can realize it.
In the meantime, I can only shrug my shoulders and think how that the $2 billion which was given to Dell was 1/4 of what it would have cost to acquire BlackBerry (BBRY). As noted above, Microsoft does not have a reputation for effectively deploying its cash. Until Dell proves its value, for now, this reputation lives.
Disclosure: At the time of publication, Richard held shares of Apple and no positions in the other companies mentioned.