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Why Is Microsoft Financing Dell's Takeover?

|Includes: AAPL, DELL, GOOG, Microsoft Corporation (MSFT)

As reports emerged last week that Microsoft might be willing to sponsor Dell's takeover as it has a $66 billion cash pile, a question arises, what is Microsoft's motive behind this deal?

Personal computer sales are falling each year and the market is being captured by tablets and mobiles. Dell and other computer makers are facing not just a shrinking market by a contraction in profit margins. This has brought the once giant Dell computers to this perilous position. Why then, bet $20 billion behind a falling giant?

This is Microsoft's defense against a vacuum that might be created should Dell go bankrupt or should PC sales fall further. Consider the personal computer market and imagine Dell going bankrupt. It will essentially create a vacuum which might be filled in by other PC makers that run Windows software or by Mac books and Android devices. Microsoft will be comfortable if the other PC makers who run Windows on their computers are able to fill in this vacuum, but it might be disastrous for Microsoft if the non-Windows market forces like Apple and Google capture this market.

In the event of Dell's bankruptcy or continued drop in sales the second option seems very likely and to protect itself against such a possibility Microsoft is willing to bet $2 billion. One of the most aggressive market players in the software sector is adopting a defensive strategy as it fights for its own survival.