Aliens Land in Texas

Opinion: Acquisitions haven't been Dell's best game, but buying Alienware could pay off if the computer company plays it right.

The aliens have landed in Round Rock, Texas. No, not a group of Bostonians looking bewildered at the strip mall and Wal-Mart that must be passed before getting to the Dell headquarters, but a company that makes high-end gaming boxes—Alienware. You can read the whole story about Alienware here, and I would be remiss not to mention that one of the first places the takeover was mentioned was in the Spencer Katt column.

But in brief, this is a company created in Florida in 1996 aimed at selling high-end gaming systems. Its mission: "Empower the customer to create, work and play faster by innovating and building the most powerful computers in the world."

Dell executives are saying they are going to let Alienware run as an independent subsidiary. This would be a good move, considering Dells spotty history with acquisitions.

In fact, Dell executives from Michael Dell on down have downplayed any desire to grow through acquisitions and often point to the Hewlett-Packard acquisition of Compaq Computer as an example of how much damage a Texas company can suffer when an acquisition goes wrong.

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Dell paints an optimistic picture of the future of business technology. Click here to read more.

Dell can also look at its own experiences. In 1999 the company acquired ConvergeNet Technologies for $340 million, and by 2000 took a $194 million write-off, as it was unable to advance the companys storage virtualization technology.

In 2002, the company acquired a services-based organization named Plural, in New York, which was incorporated into Dells Services division. Neil Isford, the president of Plural at the time, has since left Dell for IBM, where he is currently the vice president for worldwide channel sales. After the Plural purchase, Dells ardor for acquiring companies decidedly cooled.

In a 2004 interview with USA Today, when asked about acquisitions (in particular storage and server acquisitions), Michael Dell answered, "Weve looked at acquisitions from time to time but not particularly seriously. We tend to spend our time figuring out how we can use our business model to grow organically."

And that decision to expand organically, based largely on ever-perfecting the supply and manufacturing direct-order pipeline, has fueled the companys continued growth, which may reach $80 billion in 2009 if Dells projections hold true.

Dell has shown interest in the gaming market, and as recently as the Consumer Electronics Show in January had Michael Dell onstage introducing a game box complete with painted flames on the side.

The acquisition of the gaming-driven Alienware (with about $175 million in 2005 revenues) allows Dell to secure its space in the game business, experiment with AMD-driven architectures while keeping the Dell line purely Intel-based, and see if it can indeed grow by bringing the Dell philosophy to an independent subsidiary.

The acquisition also allows the conservative Dell culture to maintain an arms-length relationship with game content that tends to be extremely violent in its content, visuals and sounds.

Michael Miller says Dells purchase of Alienware feels like a very different proposition from some of the other mergers weve seen in the PC space. Click here to read more.

Dells growth has not been without bumps. In 2005 the company had an embarrassing and expensive recall of systems with faulty capacitors, blamed margin erosion on selling some systems at too low a price, and missed out on the rise of Opteron 64-bit systems as replacements to Intel systems. The gamer market is frequently the place where high-end graphics cards, audio systems and overclocked processors get their most demanding workouts before finding their way to home and corporate systems.

The $80 billion figure appears to be only in reach for Dell by rapidly building out its services, printer, television and non-traditional corporate computer operations. Of course, overextending the product reach is what tripped up Carly Fiorina before her departure from Hewlett-Packard.

eWEEK magazine editor in chief Eric Lundquist can be reached at eric_lundquist@ziffdavis.com.

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