Can Alienware Keep Its Cool?

It was an obsession with computer flight-simulators that got Nelson Gonzalez interested in building computers tricked out for gaming. In late 1996, he and partner Alex Aguila maxed out their credit cards to the tune of $13,000 to start Alienware, a boutique maker of computers aimed at obsessive gamers. Their goal: to sell between 50 and 100 machines a month. Last year they sold about 60,000 high-end machines, booking more than $173 million in sales.

Those are small compared with numbers posted by the company that just bought them out: Dell (DELL) sold 37.3 million computers, generating $56 billion in sales in fiscal 2006, ended in February (see BW Online, 03/23/06,"Dell Goes High-end and Hip").

If the contrast makes you wonder what Dell sees in such a small player, consider this: Alienware's average selling price per unit works out to about $2,883, while Dell's is $1,500.

The day after the deal was announced, BusinessWeek Online's Arik Hesseldahl spoke with CEO Gonzalez about the deal and Alienware's future as a wholly owned subsidiary of the world's largest computer maker.

Alienware has always been about building boxes that are different from everything else on the market. Dell has always been about building commodity beige boxes. Why would you want to sell out to Dell?

We were at a crossroads. From the day we started in 1996, we've never been capitalized. We started this company with $13,000 and a prayer, and it's been like that from Day One.

What happened was that we entered a period where we were in hypergrowth mode. We wanted to expand geographically, and we had a long-term goal of growing the company to the billion-dollar mark. The only way we could reach that would be to go public, raise capital, or be acquired strategically.

There was much rumor and speculation about this deal before you announced it, much of it focused on how Alienware fits into Dell, and how it will operate going forward.

All the buzz going around failed to include the potential that Alienware might become a wholly owned subsidiary. There were a lot of questions about how we would preserve our brand identity after being absorbed into Dell. The answer is that we would have to remain more or less independent.

We move about 60,000 units a year, and that's very small potatoes for Dell. This is not an acquisition about revenue. What makes sense is that this acquisition empowers us. Dell will be helping us along and letting us do our thing in order to meet our goals faster.

Their supply chain is a lot more efficient than ours is, and we can leverage that and plow the savings right back into building the company. We know what our weaknesses are. The turnaround time on one of our systems can be three to six weeks, which is horrendous.

We're a small player, but we have a lot of high-end requirements, which makes it very difficult to source our parts in a timely fashion. Dell will help us do that. Dell will also help us with financial services. They have their own private-label credit card. We've struggled to do something like that for many years, and they'll be able to help us with that.

Your machines are still assembled mostly on site right there in Miami, which is unusual for any large-scale PC vendor. Is that going to change?

No. Our machines are hand-built, and we pride ourselves on that. We've made the process a little more automated in the last few years, but there are no plans to change that for the foreseeable future.

How do you expect PCs to change in the coming years? What kind of PCs will Alienware be making?

We've got some interesting things in development. You'll be seeing more and more portability and more computing power being put into small-form factors. Eventually I see the PC being turned into a home media server.

Your machines are sold primarily to gamers. What kind of games do you like to play?

I play a little bit of everything. Call of Duty 2. FEAR. Civilization IV. I'm really big on flight simulators, which are a dying breed. The reason I started the company was to play Falcon 3.0. Back in those days we played it on a PC with a 386 chip, and you had to buy a math co-processor. That's the game that pushed me to say to myself, 'There's gotta be people out there who want machines outfitted to play these games.'

Much of the attention around this deal in the speculation leading up to it centered on Intel (INTC) and Advanced Micro Devices (AMD). Dell is so far an Intel-only shop, but it now owns Alienware, which uses chips from Intel and AMD. Will being a Dell subsidiary cause you to change the suppliers you use?

I can't imagine ever changing what we do. We will always offer what is the best product. If that means we offer Intel, we offer Intel. Or AMD or NVidia (NVDA) or ATI (ATYT). We are completely supplier-agnostic. We've always been that way.

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