Dell Inc. (DELL) picked up private Alienware Corp., which specializes in ultra-spiffy computers for gamers, for undisclosed terms. The advantage to Alienware is obvious: even with the brands kept separate, Dell's logistical expertise is legendary. Meanwhile, Dell has a strong technological motivation.
From a business standpoint, selling personal computers to gamers isn't really a growth industry. The shelf space in a typical Gamestop Corp. (GME) store dedicated to PC games has dwindled dramatically in recent years. In fact, apart from the massively multiplayer games and some strategy games, which are still best served by the PC market, most video games have shifted to the consoles. Granted, those games and the gamers who game them are more than enough to create a market for Alienware, but Dell already had gaming PCs available. So based purely on the numbers, there seems to be little reason for Dell to make the acquisition.
Technologically speaking, there seems to be speculation that Dell is using this as an initial overture with Advanced Micro Devices Inc. (AMD), which are used in the Alienware machines. But this sounds more like wishful thinking than anything else; why pay millions – Alienware has about $200 million in annual sales – for a third-party company when a phone call to AMD would be free? While that's not the company's main motivation, though, undeniably Dell is now working with AMD. That has to be seen as a positive for AMD and a negative for Intel Corp. (INTC)
Actually, the key to deal can be found in Alienware’s substantial expertise in cooling.
Modern processors (both central processors and such things as bridge or graphic controllers) run very hot – temperatures between 60 degrees and 90 degrees Celcius are quite normal for CPUs. At the very high end, heavy-duty gamers are willing to go to extremes to keep their systems cool.
Alienware's liquid cooling system is refined, compact, mass-producable and addresses one of the biggest issues with powerful computers. (If temperatures creep too high, systems crash; most companies maintain a chilled room for their servers for this reason.) Self-cooling servers or workstations could be a substantial advantage for Dell's high-end market. This could potentially lead to sales gains company-wide at Dell that are much larger than the cost of Alienware. In this light, the deal seems not only prudent, but cagey.
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