SAN FRANCISCO (CNN/Money) -
A couple of weeks ago, I wrote about the growing low end of the PC market, where new full-featured desktops can be had for less than $800. It's a market that's resonating with consumers who don't need the latest and greatest technology to e-mail relatives, print digital photographs, or compile music CDs.
For PC manufacturers, however, it's a tough transition. While the volumes in the low end are high, the profit margins are tiny, tiny, tiny. eMachines, for example -- the topic of the earlier column -- reportedly has net profit margins hovering around 1 percent. You have to sell a lot of computers to subsist on that wage.
So when Dell (DELL: Research, Estimates) reported its Q4 earnings on Thursday, we heard an unaccustomed silence on the subject of Dell's leadership among PC makers. That's because Gartner had just reported that Hewlett-Packard (HPQ: Research, Estimates) had stolen the No. 1 slot -- largely due to growth in its low-end SKU.
But Dell has answered in a way that gives me confidence in the company. On Thursday evening in San Francisco, Dell unveiled a mobile gaming machine, the Inspiron XPS, which significantly bolsters the company's efforts in the small-but-growing very-high-end gaming PC market. The notebook comes tricked out with the latest technology, including an Intel Pentium 4 Extreme Edition, and hard-core gamers can even order a version with a skull and crossbones design on the back (a model the company calls Skullz).
Dude. Dell's gettin' it.
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This isn't your father's Dell -- and that's the point. Dad's off in the den trying to put together a photo book on his five-year-old Dimension, while Junior -- the target of Dell's new effort -- needs the most sophisticated technology and will gladly pay for it. Dell's new notebook sells for more than $2,800. Other PCs in this category, from small private companies such as Alienware and Voodoo, sell for upwards of $5,000. Gateway (GTW: Research, Estimates) and HP are also eyeing PC gamers.
"It's a lucrative market, and a great audience," says Rob Enderle, president of the Enderle Group. "These are people who spend money and replace their machines on a regular basis."
"While corporations eke another year of life out of their PCs, these [gamers] buy the new graphics chip the day it comes out," says Roger Kay, director of client computing at IDC. "Sometimes two or three times a year."
The catch, of course, is that this is a very small segment of the PC market. I couldn't find any market share data for gaming-specific PCs, but two analysts I spoke with put it between 1 and 4 percent of the total market. The high end of that range is roughly equal to Apple's (AAPL: Research, Estimates) share. Small, but not insignificant.
And here's why I like Dell's move even more. According to Jon Phillips, editorial director at Maximum PC magazine, gamers are typically 18- to 24-year-old males with lots of disposable income -- historically the most sought-after demographic. If Dell can get a foothold with these enthusiasts as they make early and expensive PC purchases, it might be able to recruit new lifelong customers just as they're beginning their PC purchasing path.
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