Update: HP acquires enthusiast PC maker VoodooPC

Posted by Wolfgang Gruener

Palo Alto (CA) - Hewlett-Packard is buying its way into the high-end PC market: Rather than establishing its own brand, the company decided to swallow VoodooPC, one of the larger enthusiast PC brands in the U.S. The deal comes about half a year after Dell's acquisition of Alienware.

After a surprise announcement released on late Thursday, HP now has its place in the gaming community. The company said it will be integrating VoodooPC as a separate, gaming industry-focused business unit within its Personal Systems Group. VoodooPC co-owner Rahul Sood will become chief technologist for the unit and co-owner Ravi Sood will become the unit's director of strategy.

HP said it plans to maintain VoodooPC's current distribution model and brand name along with its marketing, sales, support and development operations. Financial details of the deal were not disclosed.

The acquisition follows the same model that Dell has applied earlier this year. The company announced the purchase of Alienware in March of this year and, at least on the surface, hasn't changed Alienware's brand perception. However, Alienware has stated that it has been taking advantage of Dell's experience in the direct sales business model.

A Voodoo 'Omen' PC

In a letter to customers, Alienware co-founder Nelson Gonzalez explained his decision to sell the business to Dell: "Since 1996 when Alex Aguila and I co-founded Alienware on not much more than a dream and a personal credit loan of $10,000," Gonzalez wrote, "no other business has had the inspirational impact on our organization from a business model and efficiencies standpoint than Dell." He pointed to the synergies between the two companies, including their parallel commitments to the direct sales business model.

Conceivably, the Alienware acquisition changed the landscape for enthusiast computers - and mainstream PC builders such as HP. While high-end PCs aren't high-volume systems, they carry significant premiums on high-end components and offer higher margins. HP's highest-performing desktop PCs, for example, currently top out at about $2600 - with monitor - and custom Voodoo PCs, equipped with everything money can buy today, can cost more than $12,000 - without monitor. Complete systems can cost more than $17,000 at Voodoo PC.

Dell's march deep into the enthusiast segment may have been a signal for HP that made it necessary to follow and create a stronger, more emotional flagship brand for a mainstream PC business whose profits are dwindling. According to IDC, Dell sold about 10.0 million PCs in the second quarter of this year and held a market share of 19.2%. HP out grew Dell with 13.0% vs. 10.9%, but it sold only 8.3 million PCs. These numbers resulted in sales of $6.9 billion for HP - and profits of $275 million. It doesn't take much to see that HP not only wants to compete with Dell/Alienware, but also sees an opportunity to increase its margins with the VoodooPC brand. Take in account HP's distribution experience and reach and VoodooPC may be growing faster than it did in the past.

However, that growth, in terms of the whole market, may not be visible for some time. During a Q2 earnings conference call, Dell's chief executive officer Kevin Rollins mentioned that revenues generated by Alienware were "negligible."

Other than Dell, who already had established a gaming PC line within its portfolio when it acquired Alienware, HP is starting pretty much from scratch - including the positioning of the brand within HP. During a conversation last July, Dell chairman Michael Dell mentioned that the Dell and Alienware brands combined share 60% of the high-end gaming and enthusiast computer market in the US.

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