If the computer industry were high school, Apple would be captain of the football team and Dell would be president of the math club. Known for its efficiency and manufacturing prowess, Dell's computers have never been as acclaimed as Apple's for their designs. But if Dell can't be cool, it can certainly buy cool. The company this week announced the purchase of Alienware, a maker of high-end computers beloved by hardcore gamers for their high speeds and sleek looks.
Dell rarely buys companies. The two most recent acquisitions were of Web software developer Plural in 2002 and of electronic storage firm ConvergeNet Technologies in 1999. Alienware caters to a niche that competes directly with Dell's XPS line of personal computers for gamers. As part of Dell, Alienware will operate as a standalone company at its Miami headquarters, quarantined from its nerdy parent in Round Rock, Texas. And Dell will continue to make its second-rate XPS computers. Lehman Brothers analyst Harry Blount thinks cost-conscious gamers will buy the less expensive XPS boxes, while Alienware will continue to draw gaming fanatics.
Financially, Dell dwarfs Alienware. Sales of Alienware computers represent only 0.3% of Dell's total revenue of $56 billion for the fiscal year ended February 3. The deal will give a small boost to Dell's revenue but is "not a needle mover," says Steven Fortuna, a Prudential Financial analyst.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Blount estimates that Dell paid $150 million to $300 million for Alienware. The acquisition could be worth the cost, he says, if Alienware's "cool" factor rubs off on Dell and helps it build a stronger brand image. Perhaps as important, the guts of Alienware computers might help Dell drive down component costs. Alienware uses microprocessors made by Advanced Micro Devices and Intel, while Dell relies solely on Intel chips. Having a second supplier gives Dell "the ability to drive down costs on the processor side," Blount says. Cut-throat competition from Asia makes supplier negotiations more important for Dell to maintain its earnings growth. For fiscal 2006, income rose 17%, to $4 billion, or $1.46 per share.
Dell (symbol DELL) recently traded at $30, or 18 times the $1.66 per share that analysts, on average, expect the company to earn for the year that ends next January. Blount and Fortuna believe the stock, which fetched nearly $60 in 2000, is worth $36.
--Thomas M. Anderson
-
$100,000 Travel Emergencies You Don’t See Coming and How to PrepareTravel emergencies can get expensive fast. Here's how to protect your wallet from the worst case scenario.
-
Ask the Tax Editor: Residential Rental Property QuestionsAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on reporting income and loss from residential rental property.
-
11 Stock Picks Beyond the Magnificent 7With my Mag-7-Plus strategy, you can own the mega caps individually or in ETFs and add in some smaller tech stocks to benefit from AI and other innovations.
-
If You'd Put $1,000 Into UPS Stock 20 Years Ago, Here's What You'd Have TodayUnited Parcel Service stock has been a massive long-term laggard.
-
How the Stock Market Performed in the First Year of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
