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8/31/2006
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Gaming Computer Vendor Alienware Targets Enterprise

Alienware execs describe life three months after Dell acquired the company. Best known for turbocharged gaming PCs with science-fictional designs, Alienware now finds that enterprises value its systems for high-performance computing.

A little more than three months after Dell completed its acquisition of gaming-computer specialist Alienware, there are few outward signs to indicate the two operations have any relationship. But Alienware executives say its ownership by the world's largest computer maker is already paying dividends, including the ability to more effectively target commercial accounts.

Dell acquired Alienware, known best for high-end desktop and mobile PCs used by gaming enthusiasts, in May. Operating as a wholly-owned subsidiary with separate product development, marketing and sales teams, Alienware had revenue of $180 million in the fiscal year ended shortly before the acquisition, and is growing at a double-digit rate, says Mark Vena, VP or marketing.

About 10% of Alienware's revenue is derived from commercial and government accounts, a segment the company believes it can expand by utilizing new resources gained from the Dell acquisition.

"There are platforms that we bring to market where there is synergy with the requirements for high-performance gaming and workstation users," Vena says. "We are looking at opportunities in those commercial and government accounts that are quite different from those addressed so well by Dell."

Alienware continues to operate under the direction of founder and chief executive Nelson Gonzalez. The only significant change made to the Alienware's product line following the acquisition was to discontinue its recently launched line of high-end servers.

"We felt that it didn't make sense to continue that effort," says Frank Azor, senior VP and general manager of Alienware's worldwide product group. "Dell is hugely successful in that category with a lot of experience and there was no reason to try and fight an uphill battle to win some market share."

Although the operation has remained relatively intact, Alienware has begun to realize some improvements related to its association with Dell. By tapping into Dell's supply chain it is able to take advantage of Dell's much larger economies of scale to source components at a lower price and reduce the prices Alienware charges to its customers, Vena says.

Alienware is also able now to more quickly introduce new systems based on the latest processor technologies, such as instantly adding three new laptop PCs based on Intel's new Merom processor that was introduced on Monday. In the past, Alienware generally lagged weeks behind in its ability to get systems based on the newest processor technology into the market.

Alienware is also able to take advantage of Dell's more advanced enterprise operation to speed up its direct sales effort on the Web, particularly its ability to provide instant financing.

"It may not sound very sexy, but you've got a direct model, giving the customers the ability to be approved instantaneously is a big deal," Vena says. "It was highly manual process for us in the past, and using Dell's back-end has really made a difference."

Alienware has begun to leverage its relationship with parent Dell to address some specific commercial opportunities that Dell could not adequately address. While there is no misconception that Alienware will compete with Dell in most large commercial accounts, there are specific areas within those accounts that require specialized desktop and mobile computers where Alienware can exert its expertise.

"You can find a Dell computer for $399 than runs Outook just fine," Azor says. "That's not our application. Our applications include Photoshop, Illustrator or Pro/Engineer, which are very specialized and high-end. Our strategy is to go after IT departments, design groups, and CAD and CAM engineers within those large organizations that have need for 10, 20 or even 100 specialized machines."

Alienware's manufacturing capabilities are more suited to small quantities and custom configurations than Dell. The Area 51 and Aurora mobile workstation lines have been particularly applicable to commercial applications, Vena says.

The mobile workstations are targeted mostly as desktop replacements. The systems can offer desktop-grade processors with higher performance than mobile processors because the users are not as concerned with battery life. The systems also generally use GL graphics cards instead of more traditional graphics cards used in gaming platforms.

Rob Enderle, an analyst with The Enderle Group, says Alienware's budding success in government and corporate accounts was a major reason that Dell decided to make the acquisition.

"Alienware was showing some incredible growth in a market you would think would have locked them out," Enderle says. "Their growth rate was outpacing other players in the market, and certainly was enough to give (Dell) a wake up call that there was a large government and business piece that was being missed."

In addition to being able to leverage Dell's supply chain, joining forces with Dell provides Alienware with the instant credibility needed to continue to expand its presence in commercial accounts that tend to shy away from small companies with uncertain futures, he says.

Perhaps most significantly Dell was likely impressed by Alienware's ability to create some highly unique platforms for a workstation market "that has become largely stagnant and saturated."

And while Alienware does not want to relinquish is reputation in the gaming industry, it would like to grow its overall market awareness.

While Dell's brand awareness is among the best in the world at 90 plus percent, Alienware's brand awareness in the general market is around 10%, Vena says.

"We tend to be a word-of-mouth brand, and we don't spend millions on TV advertising," he says. "In the consumer space there is a panache and brand elegance associated with our product and they are esthetically cool. Those are elements we like about our reputation, but we do want to build overall brand awareness. We're not going to accomplish that overnight, but we believe the more people know about us, the more they'll like our product."

Alienware has relatively small revenue compared with Dell, which means sheer volume of Alienware sales won't be able to help Dell turn around its recent revenue and earnings slide, Enderle says. But adding Alienware provides a new "image" boost, and adds new blood the executive pool.

"They've gained some fresh eyes," he says. "It's an expansion of thought that can lead you out of a hole, and Dell is clearly in a hole right now.

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