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TheStreet Open House

Microsoft on Deck As Dell Rumors Swirl

Stocks in this article: MSFTDELLAAPL

NEW YORK ( TheStreet) -- Microsoft (MSFT) reports its fiscal second-quarter results after market close, amidst rumors that the software giant could help finance a private buyout of Dell (DELL).

On Wednesday Bloomberg reported that Dell is close to clinching a leveraged buyout by private equity specialist Silver Lake, with Microsoft discussing providing part of the funding. Citing people with knowledge of the matter, Bloomberg reported that Microsoft may contribute about $2 billion toward the deal. One unnamed source told Bloomberg that a deal could be announced this week.

Both Microsoft and Dell declined to comment on this story when contacted by TheStreet, although the software giant will likely have to address the rumors during its earnings conference call.

Microsoft, which exited its last quarter with more than $66 billion in cash and investments, could easily afford to finance a Dell buyout. This could also be a shrewd move, with Microsoft using the hardware maker to bolster its tablet efforts. The company's Surface tablet, for example, has hardly set the world on fire, and Microsoft faces stiff competition from Apple's (AAPL) iPad and Google (GOOG) Android devices. Additionally, Microsoft's wrestling with the effects of a tough PC market, so Dell could help the software maker refocus its gadget efforts.

Number three PC maker Dell, which has a market cap of $22.53 billion, is already a close Microsoft partner, although a financing deal could antagonize the likes of Lenovo and HP (HPQ), who also rely heavily on Windows software. Nonetheless, Microsoft may take a calculated gamble to become part of a Dell buyout, thereby avoiding the anti-trust challenges of an outright acquisition.

Analysts surveyed by Thomson Reuters expect Microsoft to report second-quarter revenue of $21.53 billion and earnings of 75 cents a share, compared with $20.89 billion and 78 cents a share in the same period last year.

Thanks to its highly profitable software business, Microsoft is expected to deliver a gross margin of 72.96%, roughly flat from 73% in the same period last year. For its fiscal third-quarter, however, analysts surveyed by Thomson Reuters expect a higher gross margin of 76.53%.

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