The computer hardware industry is frothy with speculation on mergers and acquisitions these days. This usually happens when growth rates are slowing (otherwise known as a maturing industry) and keeps everyone entertained and excited about prospects. A few years ago there was the big Compaq/HP linkup – nearly catastrophic – the distraction of reorganizing and merging these two companies gave others, notably Dell, plenty of marketing opportunity (very similar to the DaimlerChrysler merger for those auto aficionados – an advantage Toyota, GM, and Ford were quick to squeeze). IBM exited the desktop hardware business gracefully by selling off their lines to Lenovo Group Ltd in China. Apple struggled with processors and ended up latching onto Intel for their next round. Gateway has changed CEO’s, marketing strategies, and headquarter locations as fast as a cow can change its spots as it tries to keep its top tier position. An article in “The Deal” (X) urges Gateway to herd in the blunders since they are being squeezed from Dell, the improving HP organization, and offshore competitors. They suggest Gateway should put itself up for sale. But there may be another, and better, route.

Despite the stickers slapped on the cases, most of the largest computer OEMs are sourcing components from the same supply base. As an example, I have two and used to have four computers in my garage with the exact same motherboard and processor produced by the different OEMs (straddling the automotive business, that’s like having the same engine and transmission in a GM, Ford, Honda, and Toyota “appliance”) – they each had different cases and boot splash screens embedded in the BIOS, add a few “no consumer serviceable components” stickers and no one seems to look inside. It’s evidence the computer manufacturers have done a much better job branding their products than the automotive manufacturers have done. However, the computer branding world is shifting.

For many good reasons, the principle owner of VoodooPC (X) has come up with the theory that Dell should purchase Alienware (X) since Dell desperately needs to shore up it’s high end branding (X). Dell has done very well with the high volume low and middle markets, but profits have eluded them (worrying to Wall Streeters) and so they started their pursuit of things eXtreme. However, there is probably another company that more needs the link than Dell, would be able to integrate the partnership faster, and would actually get more mileage out of it than Dell. And that’s Gateway.

The reason is Dell has more invested in their XPS gamer lines (I get a catalog practically twice a month) that their brand managers will be resistant to change (otherwise known as “worried about keeping a job”). Dell has taken the path of brand extensioning their name onto everything they do (big flat-screen TVs, portable music players, etc) and will more likely continue that pattern. They also seem to be wavering on their Intel processor alignment and are probably busy huddling to really figure out a possible AMD migration plan.

Gateway already has set out different divisions to keep their brands focused on different markets (eMachines for the value equation, standard Gateway for the middle market, and a brand hole at the upper end…). Alienware would provide the capability of servicing that high end market, offer the cache, and more volume capacity than other boutique high-end assemblers. Gateway does have some cash and, while currently low, stock with a good upside if they were to add a customer Gateway to those Alien environs.

Cheers!