Dell Goes for the Gamers With Alienware Acquisition (DELL)

by: SA Editors

Dell Inc. (DELL) announced yesterday that it is acquiring privately held Alienware for an undisclosed sum. Alienware is a Miami-based company that develops high-end machines with hard-core gamers as key customers. Rahul Sood, founder of competitor Voodoo PC, was the first to make this prediction in his blog some three weeks ago.

According to Alienware CEO Nelson Gonzales:

We were at a crossroads, we were at a point in time where we had to make a decision to go public or to perhaps merge with another entity if it made sense...There were very few organizations out there that we would do this with—and there's only one that I could think of, and that was Dell, just because of the similarities in terms of the direct business model, and that we have a lot of similarities with the [company]. The problem is that we were at these crossroads, we needed to raise capital, and we had never raised capital at this company from day one.

Good News for AMD, nVidia, ATI
Dell is the only major PC OEM that has an exclusive relationship with Intel. Alienware runs on both Intel and AMD (Advanced Micro Devices Inc.) processors. While Gonzales claims to be agnostic to chip providers, the industry views this as an opportunity for AMD to get closer to Dell. Information Week quotes Doug Freedman, senior analyst at American Technology Research Inc:

"I think this is the start of a relationship [between Dell and AMD]," Freedman said.

By structuring the deal as to make Alienware a wholly owned subsidiary, Freedman said, Dell is also protecting its arrangement with Intel. While Dell has said in the past that it does not have exclusive agreements with Intel, Freedman said, not a great deal is known about the details of the companies' relationship.

"I've always felt like if Dell really wanted to have a relationship with AMD, it would," Freedman said, adding that one obstacle to such a relationship has been that AMD does not have the incremental capacity to handle all of Dell's business.

Rahul Sood also notes the benefits to nVidia and ATI:

  • Nvidia will certainly benefit immediately with their Quad SLI technology, nForce chipsets, SLI, and all the rest.
  • When AM2 and Conroe come out it’s likely that ATi will also benefit in a big way because we are already seeing massive performance jumps from ATi’s previous generation to their current.
  • What About Dell XPS?
    With a quirky sense of timing, Dell also announced yesterday the release of its XPS 600 Renegade PC, a $10k gaming machine. According to BusinessWeek, analysts believe that the XPS line hasn't been a home-run for Dell:

    "We don't think it's an important driver of growth," says Pacific Crest Securities analyst Brent Bracelin. "XPS is a low-volume product," says Charles Wolf, analyst at Needham & Co. "If you're going to spend that kind of money, get a Mac."A Dell spokesman says despite the Alienware purchase, the company is "not backing off its support of XPS."