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Dell Gobbles Up High-End Game-Machine Maker Alienware

Dell Inc. (DELL), the world's largest computer maker, was long known for cheap, high-quality computers that didn't have much style or cachet among hardcore video gamers.

But Dell took another step to shake up that reputation Wednesday, when it said it would buy Alienware Corp. The company's high-ends PCs are widely acclaimed by gaming fanatics for their fast performance and sleek, UFO-themed looks.

Dell didn't announce terms of the deal, which will help expand its offerings for the lucrative gaming and multimedia market. Dell said Alienware would operate as a wholly owned subsidiary and will keep its brand name and many of its own operations.

Miami-based Alienware was founded in 1996 by Nelson Gonzalez and Alex Aguila, two childhood friends who have built a cult-like following for their PCs, which cost an average of about $3,000 to $4,000. They will continue to run the company as a standalone unit of Round Rock, Texas-based Dell.

"This acquisition makes sense because the space that Alienware plays in is a high-growth segment of the PC business. It's also a high-margin segment," IDC analyst Richard Shim said.

One risk, though, is that hardcore gamers may think that Alienware has lost its street credibility by making a deal with a mainstream player like Dell, he said.

"It'll be interesting to see what Dell does. If they're smart, they'll leave the brand alone. If the brand is tainted in the eyes of gamers, then the acquisition won't live up to its potential," Shim added.

Alienware is on track to hit $225 million in sales this year, up from $172 million in 2005, according to recent projections by Gonzalez, the privately held company's CEO. Aguila is president.

Dell revamped its XPS line in 2001 to feature high-powered, high-priced computers to better compete with companies like Alienware and Voodoo PC, another niche player. Earlier Wednesday, Dell launched its XPS 600 Renegade system for gamers starting at $9,930 with a flat panel monitor.

"Alienware's products are an excellent complement to Dell's own line of high-performance computers designed for gaming, enthusiast and media content customers," Chairman Michael Dell said in a statement.

"We believe that Alienware will realize significant advantages from Dell's world-class supply chain and operational efficiencies," Gonzalez said in a statement. "They will allow us to continue to satisfy our core customers with the most innovative and highest-performing PCs, and ultimately extend the reach and appeal of the Alienware brand."

Alienware's least expensive laptops and desktops start at around $700, but the top-of-the-line, liquid-cooled ALX models can approach $10,000 when fully tricked out with dual-core processors, hard drives that can store up to a terabyte of data, and state-of-the-art graphics cards.

Its machines cost hundreds of dollars more than similarly configured machines from mainstream manufacturers.

Alienware has branched out a bit by offering some cheaper computers. It also has growing sales of workstations and servers — not shaped like alien heads — to corporate and government clients, such as Lockheed Martin (LMT) and the U.S. Army. Gaming PCs, however, still make up 80 percent of sales.

Gonzalez, 40, said he envisioned a big market for souped-up PCs when he developed the idea for Alienware, so named because of his interest in UFOs, science fiction and "The X Files" television series.