High-end PCs not so alien

MIAMI, Florida (AP) -- Just a few months after cleaning out his bank account and quitting his job to help start up a childhood friend's new computer company, Alex Aguila sat alone in the fledgling firm's office and began to have some second thoughts.

Banks had laughed at their concept of selling expensive PCs for video gamers at a time when other computer companies were cutting prices to grab more customers. The fact that the new company, Alienware, took its name from UFO lore didn't help either.

Aguila and his friend, Nelson Gonzalez, had just $10,000 between them.

"I was there and all the walls were black ... and the phones were sitting there and not ringing. And I'm thinking, 'What did I do?"' said Aguila.

But 10 years later, Miami-based Alienware Corp. is widely acclaimed by video gamers and on track to hit $225 million in sales this year, up from $172 million in 2005. The success of the privately held company has lured others, including industry leader Dell Inc., to target the high-end market, too.

"The PC industry is quickly becoming commoditized as prices come down and penetration rates go up. ... But there are certain segments where folks can still make a lot of money," said Richard Shim, an analyst at the research firm IDC.

Companies such as Alienware, VoodooPC and Falcon Northwest have been pioneers in capturing customers willing to spend $7,000 or more for a computer, he said. Performance in high-demand games and applications is worth any price for many of those people, who are mainly men with a lot of disposable income.

Gonzalez, 40, envisioned a big market for these PCs in 1996 when he came up with the idea for Alienware, so named because of his interest in UFOs, science fiction and the "X Files." He and Aguila, 38, grew up playing video games, and they always had to upgrade motherboards, microprocessors and graphics cards in their PCs to handle the latest programs.

He was an information technology manager at a small post-production company and Aguila was a medical technician with little business experience, so they didn't think they'd get too far.

"Initially the expectation was 50 machines a month, maybe a 100, and we don't have to work for anybody," said Gonzalez, the company's CEO.

They got a favorable review of their first machine by a magazine now known as Maximum PC. The next review was even more flattering: the magazine PC Gamer liked Alienware's work so much that an editor didn't want to send the computer back, Gonzalez said.

From that time on, sales multiplied as they borrowed Dell's direct sales model to eliminate retailers. Alienware's buzz among gamers grew as it released turbocharged PCs with sleek UFO-themed designs with cases that resemble alien heads and have flashing lights in their eyes.

Its Area 51 and Aurora lines of PCs come in colors like conspiracy blue and cyborg green.

Alienware's least expensive laptops and desktops today 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.

An average Alienware PC costs about $3,000 to $4,000, hundreds of dollars more than similarly configured machines from mainstream manufacturers. Gonzalez said the extra money pays for performance and customer service that competitors can't match.

Alienware's "unparalleled level" of customer service also helped fuel its growth, said Michael Gartenberg, a vice president at Jupiter Research.

The company has a Costa Rica call center with about 300 workers -- all of whom are Alienware employees and not contractors. As a result, they feel like they're part of the team, Gonzalez said. Its computers are assembled by hand at Alienware's Miami headquarters.

Alienware's success has drawn the attention of the computer market's big players. Dell revamped its XPS line in 2001 to feature high-powered, high-priced computers to better compete with companies like Alienware and Voodoo.

Gartenberg said that Dell's immense size and greater financial resources could eventually mean trouble for Alienware. But Gonzalez and Aguila welcome the challenge and see Dell's move as validation of their belief in the gaming niche. Dell declined to comment.

Alienware has branched out a bit by offering 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 and the U.S. Army.

Gaming PCs, however, still make up 80 percent of sales, Gonzalez said.

Still, that expansion has led some to complain that Alienware is losing its focus on its core, video game-playing customers.

"Especially in that audience, the notion of street cred plays a factor in what these consumers will buy. These niche players do run that risk. But at the same time these companies have to grow their business," Shim said.

Some gamers also say that Alienware PCs are now overpriced. Adam Campbell, a 26-year-old gamer from the Milwaukee suburb of Cudahy, Wisconsin, recently bought a Dell XPS computer to replace an Alienware PC because of a deal he got. But he's still a fan.

"You talk to any PC gamer anywhere in the U.S., if they tell you that they wouldn't prefer an Alienware PC, they're lying," he said.

Gonzalez and Aguila, who is the company's president, have heard the criticism about "selling out" and going corporate, but they say they still are in touch with their roots.

"I remember being in awe the very first time we ever sold a PC and that somebody trusted us with $5,000. I was like 'Wow, we really have got to make this PC special for this person.' I'm very proud to say that to this day, that still exists," Aguila said.

"We're a bunch of nerds and geeks at heart," Gonzalez added.

Lego robot builders unite

When Geoff Gray got a phone call at work from Lego recently, the longtime fan of the iconic plastic bricks did a little dance around his cubicle.

Gray is one of 100 people Lego chose on Friday to be members of its Mindstorms developer program. Gray and his fellow selectees will be the first members of the public to get their hands on Mindstorms NXT, the latest generation of the company's programmable robot toys.

Legos, which range from the old-fashioned building blocks to the cutting-edge Mindstorms sets, have enjoyed "geek chic" status in recent years, and much of that has to do with the company's efforts to embrace its often-rabid customers. Last year, for example, some Lego fans figured out a way to hack the development tools on a company Web site. Instead of going after them with lawyers, Lego responded by saying, essentially, "That's terrific."

"Companies are (often) worried they'll get sued over something, and they lock themselves out of opportunity," Gray said. "Lego is saying, 'What does it harm us if someone comes up with an alternate way of doing (things)?'"

The Mindstorms developer program is just the latest example of that customer embrace. The 100 Lego fans named last week have a chance to help develop the product by road-testing it in ways Lego never anticipated, and then share their impressions with Mindstorm executives.

"I think it's extremely valuable for Lego" to get its users involved in Mindstorms, said Gray, who does enterprise software support for Microsoft. "I know from past beta work I've done for Microsoft that feedback we get from customers is different from feedback we get back from the (internal) beta testers."

Mindstorms NXT has a lot of people excited beyond Gray and his fellow developer program members. It is the latest update to Lego's line of programmable bricks, which first came out in 1998. But the 2006 iteration--which is expected to be publicly available in August--gives users the ability to build and program robots that incorporate visual, sound- and touch-sensitive sensors and that can be controlled wirelessly using Bluetooth devices like cell phones.

Mindstorms director Soren Lund said his team knew their open call for applications to the developer program would get the Lego community energized, but he wasn't sure how many people would actually get it together to enter the competition.

"We thought, if we get 1,000 to sign up, that could be really cool," Lund said. "If we could get 2,000, that would be crazy."

The actual response probably sent Lund and his colleagues reeling. More than 9,600 people from 79 countries submitted applications. That made the job of whittling down the entrants to a pool of 100 selectees--14 people had been participating in secret before the competition opened to the public--a little difficult.

"We went from 9,600 to 450, and that was the first big step, and then we went another round from 450 to 150," Lund said. "Then it becomes tougher and tougher because they're all so good, and I feel sorry for this guy and sorry for that guy" Lego didn't choose.

The 100 developer-program members Lego announced Friday come from 26 countries (though 40 percent are American), range in age from 18 to 75, and are heavily technical. Only six are women.

Microsoft faces new fines threat

Microsoft's efforts to comply with the European Commission's anti-competition ruling are "entirely inadequate", Brussels has warned.

The Commission said it would impose fines of up to 2m euros (£1.4m) a day if the firm continued to drag its feet.

The comments followed reviews of how the US giant was meeting EC demands that it open up its Windows operating systems to rivals.

Microsoft rejected the claims saying it had "surpassed" the EC's requirements.

The US giant's troubles go back to March 2004, when it was fined 497m euros for abusing its dominant market position in a landmark EC ruling.

But more importantly it was also ordered to open up its core software systems to rivals making it easier for them to build products which would work with Windows.

'Non-compliant'

However, Brussels is still pressing the firm for more detailed information about its systems and claims the software giant is failing to meet its demands.

"Microsoft is still not in compliance with its obligations under the March 2004 Commission decision," the Commission said after the latest reviews of its performance.

The reports, by the Commission's Monitoring Trustee and Colorado consultant TAEUS, found that parts of the latest documentation provided by Microsoft were "entirely inadequate, devoted to obsolete functionality and self-contradictory", the Commission said.

"TAEUS concludes that Microsoft's documentation was written 'primarily to maximize volume while minimising useful information'," it added in a statement.

But Microsoft rejected the findings, saying the information it had offered "meets and surpasses the requirements of the Commissions 2004 decision".

Microsoft has challenged the ruling, and a hearing on its underlying case is due to be heard on 24 April at the European Court of First Instance, Europe's second highest court.

Intel aims to get back on track

SAN FRANCISCO, California (Reuters) -- Intel Corp., reeling from weak sales as it loses share to rival Advanced Micro Devices Inc., hopes to get back on track this week when it unveils faster, more efficient computer chips.

The world's biggest chip maker hopes the fanfare around its twice-annual developers' forum in San Francisco, beginning on Tuesday, will eclipse its Friday revelation that first-quarter revenue will be considerably lower than earlier thought.

The event is a chance for Intel to showcase upcoming chips for business computers, laptops and desktops. It needs to prove that it too can make chips with heaps of processing horsepower but which use less power than previous designs.

AMD, once content to mimic Intel's advances, has set the technological pace in recent years with innovations such as putting two processing cores in a single chip -- moves that have helped it gobble market share from its much-larger rival.

"My expectation is that Intel's new products are definitely going to narrow the gap with AMD, and in some cases may even close the gap," said Nathan Brookwood, head of semiconductor consultancy Insight64.

Analysts expect Intel to focus mainly on chips for the server computers that run corporate networks. Highlighting the importance of that segment, the event's main speech will be by Pat Gelsinger, head of Intel's enterprise business.

The Santa Clara, California-based company will also try to build more buzz around its line-up of microprocessors for laptop computers that form the hottest-selling slice of the maturing computer industry.

"You hear a lot of how the product roadmap is stronger than it ever has been, and this is sort of putting the meat on those bones," Intel spokesman Chuck Mulloy said.

Of course, AMD isn't standing still, either.

The company plans to unveil a chip with four processing cores next year, and analysts say they expect it to show a high degree of integration of the various components, one of the advantages AMD has had over Intel's multiple core chips.

"We think AMD has a 12 to 18 month lead, and we haven't seen anything to change that view," said JoAnne Feeney, an analyst with New York-based investment bank Punk, Ziegel & Co who has a "buy" rating on AMD stock.

AMD's edge has translated into more market share in every segment of the computer industry.

The company had nearly 22 percent of the global desktop market at the end of 2005, compared with 19.6 percent a year earlier, according to market research firm Gartner. In laptops, AMD's share rose to 10.5 percent in 2005 from 8.5 percent in 2004.

AMD's gain has been Intel's loss. After disappointing Wall Street last quarter with lower-than-expected revenue, Intel on Friday warned that revenue in its current quarter would also fall short of initial forecasts.

The company now expects revenue of $8.7 billion to $9.1 billion, down from the earlier range of $9.1 billion to $9.4 billion.

Intel shares have fallen steadily since late last year. Its Friday closing price of $20.32 was its lowest level since October 2004 and 30 percent below a high of nearly $29 hit in July 2005.

Intel stock now trades around 17 times expected 2006 profit, while AMD trades at nearly 27 times.

AMD Plans New Laptop, Desktop Chips

Expect processors, first by AMD to support DDR2, by mid-year.

Dan Nystedt, IDG News Service

Thursday, March 09, 2006

HANOVER, GERMANY -- Advanced Micro Devices plans to launch its first desktop and laptop processors by the middle of the year that support DDR2 (double data rate 2) memory chips, AMD executives said on the sidelines of a news conference at the CeBIT IT show in Hanover, Germany.

"Dual and single core (desktop processors) will both be out at the same time," said Doug Hooks, AMD director of marketing for Europe, the Middle East and Africa.

The desktop version, the Athlon 64 socket AM2, already enjoy broad motherboard support from companies showing off finished designs at CeBIT. Spec sheets from board makers say the chips are meant for use with DDR2 memory chips, a speedier generation of memory already available that run at 667MHz or faster.

"Until you hit 667MHz or 800MHz, you don't tend to end up getting a significant performance advantage with our architecture over DDR," said Hooks, explaining why the company has waited longer than rival Intel to support DDR2. He also cited cost, since DDR2 commands a premium over older DDR. With no real performance advantage and no cost advantage, it made little sense for AMD to push a chip that supported DDR2, he said.

Technology Updates

The first few series of DDR2 ran at only 400MHz and 533MHz, which caused some analysts and systems makers to balk at the added cost. They became popular in laptops since the main advantage they offered was power savings. But DDR2 has had a tougher time in desktops, where DDR chips that run at 400MHz, or DDR-400, have enjoyed a long reign as the most widely used memory chip.

But more advanced DDR2 chips offer better performance and an advantage in power savings, which will be good for servers, desktops and laptops, Hooks said. That's why AMD will offer a host of chips in the middle of the year, including an update to its Turion laptop processors.

Already in Progress

Chip set makers and motherboard companies at CeBIT were already showing broad support for the next generation of AMD Athlon processors, in particular the big five Taiwanese motherboard makers, which account for well over half the global supply. Motherboards are printed circuit boards inside every computer that hold and connect all of the chips and systems on a PC.

Taiwanese motherboard maker Elitegroup Computer Systems has two designs for the AMD processors at its CeBIT booth, one dubbed the A25G that uses a chip set designed by Via Technologies, the Via K8M890 IGP chip set, and another one, the A33G, with a Silicon Integrated Systems chip set, the SiS 761 GX+964. The spec sheets beside the two motherboards say they both support dual channel DDR2 running at 667MHz, and can carry a maximum of 2G bytes of memory on board.

Giga-byte Technology, another one of Taiwan's major motherboard makers, has two AMD motherboards on display that use chip sets from graphics designer nVidia and support dual channel DDR2. Giga-byte's GA-MXE-S4 motherboard carries an nVdia nForce 570 SLI chip set (scalable link interface), which enables users to connect two nVidia SLI-ready graphics cards together on one PC for better game playing. The other motherboard, the GA-MN-S3, has an nVidia nForce 4-4x chip set on board.

Micro-Star International displayed three motherboards that support DDR2 for the AMD microprocessor, while Hon Hai Precision Industry and Asustek Computer were also showing such motherboards.

Second coming of the DS Lite

Nintendo releases Ice Blue and Enamel Navy versions of the new DS Lite in Japan; new colors draw larger crowds.

Following last week's launch of the Crystal While DS Lite, Nintendo Co, Ltd. shipped its Ice Blue and Enamel Navy models today in Japan. Considering that the handheld has already made one debut, the industry wasn't expecting the same high turnout for these new models.

But contrary to conventional wisdom, the machine's second launch drew even more demand than the first.

At 6:15AM in Tokyo, when GameSpot arrived in Akihabara, there was already a line forming outside the train station. It extended fully to Asobit City, one of the well-known stores located in the heart of this popular electronics district.

Over 100 people were already waiting for the store to open, but it was nothing compared to what we were about to see next.

A few blocks away at Yodobashi Camera, the crowds were considerably larger. The store was said to have had the longest line in the city last week for the first launch, with approximately 400 people waiting by opening hours.

Today's turnout easily topped last week's, as the throng had reportedly hit 500 late last night, and there were over 1,000 people waiting by 6:30 this morning. The line nearly circled the entire block. Even after a store employee walked halfway down the line and announced that customers behind that point likely would go away without a DS Lite, a number of hearty souls stayed to take their chances.

Moving on to Shinjuku, Bic Camera sported a turnout around 7AM that was about equal to the previous week's launch. About 300 customers were split into two different sections, with each snaking into three rows. Employees were once again holding "Sold Out" signs at the end of the lines before the store had even opened.

At the Shinjuku Yodobashi Camera (scene of the official launch for the PSP), today's line still wasn't as long as the one for Day 1 sales of the Sony handheld back in 2004, but it definitely had more people than last week's launch of the Crystal White DS Lite. With two new models released today, more than twice the number of people waited in line.

All in all, today's lines were longer than those from last week in many locations, and with good reason. First and foremost, the DS Lite was released on a Thursday last week, whereas today's launch was on a Saturday--so more consumers with weekday jobs could line up to purchase the handheld. Would-be customers who walked away empty-handed last week also might have learned a valuable lesson: no lining up early, no machine.

To that end, people in the front rows were prepared for a long wait--very prepared. They came armed with portable chairs, instant noodles, and even sleeping bags to catch the occasional nap.

The fashion factor should also be kept into consideration. Some consumers are more interested in the two new color models compared to the earlier-released Crystal White model. In fact, Mainichi Interactive reports that the first person on the line at Akihabara's Yodobashi Camera didn't line up last week at all, but decided to do so this time since there was a color he just had to have.

Gamers interested in picking up the DS Lite when it launches in America can get an idea of what to expect by taking a look through GameSpot's on-site photos of this morning's Japanese launch, linked above.

By Hirohiko Niizumi -- GameSpot

Internet wars: Google vs Yahoo!

Don't stare so hard at Google you miss Yahoo!

The Internet powerhouse may be growing slower than Google now, but it's well positioned for long-term success as a central site on the burgeoning Web.

By David Kirkpatrick, FORTUNE senior editor

March 10, 2006: 9:09 PM EST

NEW YORK (FORTUNE) � With all the attention going to everything GoogleResearch) these days, it's worth pointing out that it's not the only Internet powerhouse. (

Yes, Google is growing a lot faster than Yahoo! -- 92 percent last year compared to 28 percent. But Yahoo! (Research) is very well-positioned for where the Internet is going.

Yahoo! is no slouch on search. A recent French academic study found that the quality of Yahoo!'s search results was just about exactly as good as Google's. One big advantage Google has over Yahoo! at the moment is its AdSense network for placing ads on sites all over the Web, not just in search. But Yahoo! is close to rolling out its own ad network, now in beta.

---

Yahoo! is superbly on top of one of the Internet's most important trends -- the move toward social networking. Yahoo! recently purchased both Flickr and De.licio.us -- businesses that use social networking to improve our ability to find things -- photos with Flickr and useful Web sites with De.licio.us. Yahoo! has concluded that it can get an edge on Google, MSN, AOL and other rivals by leveraging the fantastic power of friends helping friends.

I think Yahoo! is onto something. People are always going to have better judgment than computers about what is relevant and interesting. The holy grail will be to effectively use social networking in search itself, something Yahoo! strategists are thinking hard about.

And let's not forget MyYahoo!. The customizable site is my own personal Web home page, and has been for eight or nine years. Most of the demographically-desirable tech industry execs and investors I know also use it as their home page.

Yahoo! has backed off somewhat from its efforts to develop lots of original content. But it may not need to. What Yahoo! has proven consistently adept at is identifying and gathering under its umbrella high-quality content from others.

The company's biggest problem is that while it has a number of good Web businesses, it is not number one in many of them. It is number two in Web e-mail, behind Microsoft, and number two in search, behind Google.

Its total Web traffic remains tops online, but it needs to clearly differentiate itself with an industry-leading business -- and soon. Building a community with social networking that enables it to improve search may be the secret.

Yahoo! CEO Terry Semel is almost universally regarded as one of the Internet's best leaders. He confounded many skeptics like me after he arrived from Hollywood. His moves to make Yahoo! a more advertiser-friendly environment have paid off in spades.

"I think Yahoo! is one of the best-managed companies in America," says Mike Volpi, who runs Cisco's routing and service provider technology group and who frequently deals with Yahoo!, a big customer.

Co-founder Jerry Yang is less visible than a few years ago, but he's now playing a big role behind the scenes helping sharpen Yahoo!'s underlying software. Yahoo! has a formidable tech arsenal, which I predict will be more apparent in the coming year.

Aside from simply becoming an even more appealing place for Web users to hang out and get their information and entertainment, Yahoo! wants to become more of a platform for other businesses to build on. That's what has made eBayResearch) so successful -- becoming a home and platform for retailers. If Yahoo! can build its ecosystem, it will develop more places to stick advertising, more revenues and a higher stock price. (

I expect the day isn't far off when Yahoo! is seen as Google's true peer.

Origami looks paper-thin

As Microsoft's new handheld unfolds, analysts say it's too pricey and unfocused.

By Om Malik, Business 2.0 Magazine senior writer

March 9, 2006: 6:01 PM EST

Instead of launching its own device, Microsoft (Research) created the specs for Origami, a new ultra-mobile PC, or UMPC, and lined up hardware makers to manufacture the devices. UMPCs will run a modified version of Microsoft's Windows XP operating system, with a form factor that bridges the gap between a personal digital assistant and a notebook computer. The devices are expected to sell at prices between $599 and $999.

UMPCs can play videos, music and games, among other content, but can also run standard Windows programs. The new class of devices has a special user interface for easy access to digital content, games and other such applications. Microsoft says that these devices typically will weigh less than 2 pounds and feature a 7-inch screen, and have built in Wi-Fi and Bluetooth

Tellingly, Microsoft has yet to sign up any major U.S. PC makers for Origami. Samsung, the South Korean consumer electronics maker, and Asustek, a Taiwanese computer maker, are the only manufacturers showing off devices at CeBit.

Hobbyists only

Michael Gartenberg, an analyst at Jupiter Research who tracks the digital device industry, says that Origami UMPCs will excite early adopters. Gartenberg sees the geek set carrying them around as "reference devices" used to quickly check e-mail or look up documents.

But the UMPC faces several hurdles on the road to mass adoption. The biggest shortcoming is its three-hour battery life, which is a quarter of Apple'sResearch) iPod, which can also play video, and much less than that of a high-end smartphone, which can check e-mail and display office documents. (

"This is yet another failed attempt to jam everything into one device," says Pip Coburn, technology strategist with Coburn Ventures, a New York-based investment advisory firm. "The way I see it, they don't really know what they want it to be."

Coburn believes Microsoft needs to simplify Origami devices and bring more focus to their form and function, just as they did with the XBox 360 game console. "It would be great if they did a PlayStation Portable competitor," says Coburn.

Ashok Kumar, an analyst with brokerage firm Raymond James, says that the new devices need to have cellular connectivity, not just Wi-Fi and Bluetooth. Carriers like Verizon Wireless, Sprint Nextel (Research), and Cingular already subsidize expensive smartphones in the hopes of getting customers to sign up for pricey data plans. Adding support for high-speed wireless connections could win similar subsidies for UMPCs, bringing the price down to a more attractive level for consumers. "At $999, consumers are not going to bite," says Kumar.

Cynthia Brumfield, president of Emerging Media Dynamics, a consulting group, agrees that the UMPC is too expensive for consumers.

"If the price stays at the $600 to $1,000 range, Microsoft will have a tough time distinguishing [Origami] from low-end laptops or notebooks," says Brumfield. "However, if the manufacturers can get the price down, and Microsoft positions it as a truly portable multimedia device that also comes equipped with all these office productivity applications, then [Origami] is, I think, a winner. I don't think this is a video iPod killer -- Microsoft is just not....cool. But the enterprise market is ready for a portable media device with a big screen that can serve as a computer."

In other words, don't expect an iPod-like gold rush for Microsoft. At least not yet.