Dell flip-flops into Alienware acquisition

Dell has agreed to purchase gaming PC maker Alienware, in a rare acquisition designed to improve Alienware's supply chain and boost Dell's standing among PC enthusiasts.

Financial terms of the deal were not disclosed. Alienware will operate as a wholly owned subsidiary of the world's largest PC maker, said Nelson Gonzalez, chief executive officer of Alienware. Gonzalez will now report to Jim Schneider, Dell's chief financial officer but the company will operate separately from Dell, he said.

A Dell representative confirmed the deal but said the company was deferring comment until later on Wednesday. A Dell representative in Australia had downplayed the possibility of a deal earlier this month. The transaction should be finalised about 30 to 45 days after regulatory hurdles are cleared, Gonzalez said.

There will be no cross-marketing of Dell and Alienware PCs on their respective websites, at least initially, according to a Dell spokesman. Some Dell-branded products that Alienware doesn't sell - such as monitors - might be sold on Alienware's site but that hasn't been finalised.

The deal gives Dell a chance to tap into the profitable high-end PC gaming market, said the spokesman. The purchase is not material to Dell's finances, he said.

Alienware had considered raising capital through an IPO but came to realise that being acquired by Dell would allow it to raise more money and to take advantage of Dell's supply chain and procurement expertise, Gonzalez said.

He said: "We know our strengths and know our weaknesses, and one of our weaknesses has been supply chain." Both companies use direct sales models to reach customers but Dell is well-known for its efficient manufacturing process.

In fact, it's so well-known for that strength that after rumours of the deal first surfaced some analysts said a company such as Alienware would not be a good fit with Dell. Alienware specialises in exotic designs and colourful systems that take longer to build than the standard building blocks used by many of Dell's PCs.

But Dell's efficiency will not hurt Alienware's product development process, Gonzalez said. "We're not going to sacrifice the design of a product for the sake of the efficiency," he said.

Alienware will also continue to offer PCs that use processors from both AMD and Intel, Gonzalez said. Dell has an exclusive relationship with Intel but that will not affect Alienware's relationship with both chipmakers.

Gonzalez said: "I can't speak for [Dell's product plans] but from our vantage point, nothing has changed there."

Analysts had been sceptical about the deal when it was first rumoured, and some remained sceptical after it was announced.

Stephen Baker, an analyst with NPD Techworld, said: "I still think it's a bad idea, and a bad fit." Alienware's customers buy from that company in part because of its image as a technology-driven company that understands the needs of gamers, while Dell is viewed by those customers as a stodgy corporate supplier.

Even though Gonzalez said Alienware will operate separately and not promote Dell on its site, Baker said, "Alienware customers are smart enough to understand" that Dell will own the company.

The deal could also mean Dell has to rethink its consumer PC strategy, said Roger Kay, principal analyst with Endpoint Technologies Associates. The company has sunk a lot of effort into building its XPS line-up of high-end desktops and laptops for gamers and multimedia enthusiasts. Now, it looks like those systems compete with Alienware in certain areas, he said.

Alienware sells very powerful and very expensive PCs to the top tier of the gaming market. Dell, on the other hand, has a stronger identity with casual gamers who want a good PC but don't want to pay Alienware prices. Both companies have recently tried to appeal to gamers that fall in between those two groups, with Alienware reaching down and Dell reaching up, Kay said. It's unclear how those strategies will continue.

Tom Krazit writes for CNET News.com