MicroDell: It's All About the Margins

If Silver Lake can get a deal done for $25 billion, a roughly 10% premium to Dell's current market cap, Microsoft could take a little less than 20% of that for cash on hand, knowing it has another $60 billion in short-term investments on its books. That would keep Dell's results off Microsoft's books -- Google margins are still being driven down by its Motorola investment.

Now, suddenly, Microsoft has a platform for its tablet work that's better than what Nokia offers it in phones. It has all the connections and financial leverage it could need in China to get access to the best parts at the best prices, and deliver something that's truly competitive with Android and even Apple.

You know, the company Microsoft saved with $150 million back in 1997, as CNET reported at the time. That worked out pretty well.

Through Dell, in other words, Microsoft can deliver a Surface product at a lower price with better margins than before, and gain all the same advantages in cloud hardware, an area where costs are going to be an issue, as the current price war with Amazon.com (AMZN) and Google grinds on.

No, this is not a deal being done from strength. It's a deal being done from weakness. There is risk in this deal. But there is more risk in doing nothing at this point. Letting the PC business slowly drift away while there's nothing to take its place is not an option.

At the time of publication the author had positions in ARMH, AAPL, MSFT and GOOG.

Follow @DanaBlankenhorn

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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