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Gamers helping specialty PCs thrive

The PC industry is grappling with becoming a low-profit, high-volume business. But specialty shops' flashy, high-end gaming systems are booming. Lamborghini-yellow PC, anyone?

With 400 PCs going through its doors in an average month, Voodoo PC isn't about to challenge Dell Computer in terms of volume.

But the Calgary, Alberta-based specialty PC maker boasts a few other numbers that could start CEO Michael Dell drooling. Like an average selling price of $5,000, at a time when mainstream PC makers are struggling to get consumers to spend more than three figures on a PC. And a loyal customer base that seldom lets a PC sit around for a year without significant upgrades or replacement, as mainstream PC makers scramble to keep customers on two- or three-year upgrade cycles.

While the rest of the PC industry grapples with the economics of becoming a low-profit, high-volume commodity business, a cast of little-known companies is aiming at a less cutthroat market. Companies such as Voodoo as well as Hypersonic PC, Falcon Northwest and Alienware are selling high-end PCs to computer game buffs who don't mind paying a premium for state-of-the-art components and flashy cases.

"People go all out when they get a system from us," said Rahul Sood, president and founder of Voodoo. "Our average configuration, it's basically the best of all hardware--the fastest CPU (central processing unit) possible, the latest graphics card--plus things to make it look good."

Gamers have become an increasingly important audience for high-end PC specialists, prone to some of the same hot-rod urges that motivate car buffs. Games such as online role-playing phenomenon "EverQuest" demand significant computing horsepower. For devotees of fast-paced shooting games such as "Quake III," a PC outfitted with the latest graphics chip can make the difference between victory or ignominy during "LAN parties," one- or two-day events where serious gamers gather to compete on networked PCs.

The result is a small but treasured class of PC buyer who has to have the latest and best.

Fred Kohan, president of Great Neck, N.Y.-based Hypersonic PC, said that more than 90 percent of the PCs the company has shipped since Nvidia's GeForce 4 Ti graphics card became available last month have been ordered with one of the cards, which add $75 to $185 to the PC price tag, depending on configuration. "Even when we do offer a slightly slower option, our customers just seem to naturally go for the high end," Kohan said.

Voodoo's F510 PC Serious gamers are also better repeat customers, coming back often for upgrades or replacements to ensure they have the latest and fastest components.

Kelt Reeves, CEO and founder of Falcon Northwest, an Ashford, Ore.-based specialist in gaming PCs, said his average customer upgrades or replaces his PC every year.

"Then we've got what we call the rich zealots. They send us their PC every six months and say, 'Put whatever's new in there.' We love those guys."

Chipmakers are also big fans of game enthusiasts, who account for a large portion of sales in the first month or two in the life of a graphics chip or a CPU, when the manufacturer can charge a significant premium for the product, MicroDesign Resources analyst Peter Glaskowsky said.

"Then we've got what we call the rich zealots. They send us their PC every six months and say, 'Put whatever's new in there.' We love those guys."
--Kelt Reeves, CEO and founder, Falcon Northwest
"There's always some sort of demand that you can service at an unusually high price for a period of time," he said. Specialty PC makers "help Nvidia find those customers; they help drive demand for the product. It makes them important way out of proportion to their volume, which isn't that much."

While performance is paramount, looks also count for a lot. Most gaming PC specialists offer cases in custom colors, many done up in paint jobs using the same materials and methods as used for auto bodies. Hypersonic's options include a case with a Plexiglas window, the better for viewing light cables that blink in response to sounds emanating from the PC.

PC cases in colors such as Saucer Silver and Conspiracy Blue have helped Miami-based PC maker Alienware attract attention as it tries to bring gaming PCs to a larger audience through a partnership with retail chain Best Buy, which has demo units and ordering stations for Alienware PCs in more than a thousand stores.

Alienware CEO Nelson Gonzalez said that while the colorful chassis helps draw customer interest, performance remains the main selling point. "The looks draw attention, but what really makes the difference is when they see the demo units and see how liquid-smooth games play on our systems," he said.

Alienware is by far the leading gaming PC specialist, selling an average 2,000 units a month at prices in the mid-$2,000 range. Gonzalez expects volume to increase significantly as the Best Buy arrangement matures and more consumers become aware of luxury PCs.

"A lot of people who would be interested in a performance PC just haven't known we're around," he said. "Mercedes has a pretty good business selling luxury cars. I think we can do the same in the PC business."

"It's kind of like the custom street rods. A lot of people want to brag about having the coolest PC, especially if they're going to LAN parties."
--Kelt Reeves

Hot-rod fever
Reeves said it's surprising, the lengths to which gamers will go to soup up their machines.

"I'm just stunned that people are spending more money on their case than the CPU," he said. "It's kind of like the custom street rods. A lot of people want to brag about having the coolest PC, especially if they're going to LAN parties."

Catering to such a demanding clientele is no easy task, however. While mainstream PC manufacturers use name-brand components only for high-profile items such as video cards and CPUs, anyone spending $3,000 and up on a gaming PC is likely to scrutinize every component down to the power supply and cooling fans.

"In general, they're much more savvy users," Reeves said. "You've got to pay attention to every single part of the PC. If there's a single weak link in the chain, it all falls down."

And it's not just a matter of having the best parts; otherwise, gaming PC companies would have a tough time competing against do-it-yourself PC enthusiasts. Assembly counts for a lot, especially in improving airflow through the PC chassis, a vital part of the cooling systems that high-performance chips require. Voodoo promotes the airflow advantages of its secret "origami" method for folding the IDE drive cables that connect PC components.

"It's a lot more than high-end components," Voodoo's Sood said. "Our systems are built using methods that allow us to get far better performance than you would building it yourself."

High-end customers also expect service to match. While $5,000 sounds like a fat price for a PC, the package includes "upgrade insurance," Voodoo's program that allows customers to upgrade PC components for three years for little more than the cost of the new hardware.

"The profit margins are probably a little bit better than Dell('s), but they're still tight," Sood said. "The price may seem good for us up front, but overall the customer is also buying service that's unparalleled in the industry.

"We like to refer to our PCs as 'street legal.'"
--Kelt Reeves
Drag racing
Gaming PC specialists also have to perform a delicate balancing act between meeting the needs of customers and the demands of suppliers when it comes to overclocking, the practice, common among gamers, of running CPUs and graphics processors above their rated speed. The generous ventilation and other cooling features of gaming PCs make them prime vehicles for overclocking, a practice chipmakers discourage.

"We have an overclocking policy," Kohan said. "We prohibit the customer from doing it on the CPU because it's too dangerous, and the results just aren't worth it."

Reeves said he's sure a good portion of the systems Falcon sells get overclocked by the user, a practice the company accommodates with the PC design but doesn't endorse. "We take the clocking as far as the manufacturer's warranty allows," he said. "We like to refer to our PCs as 'street legal.'"

"It's a double-edged sword" for chipmakers, Glaskowsky said. "The companies can't afford to appear to officially support the idea of overclocking. But at the same time, they benefit from the companies who do that because it helps them test their product and helps drive demand for high-end products."

One of the bigger liabilities of specializing in gaming PCs is having business cycles that are heavily influenced by component and software makers. Kohan said his business typically slows down significantly in the month or so before the release of a new graphics chip.

And game makers tend not to push hardware requirements as much as they used to, although Gonzalez said he hopes Sony has started a new trend with the latest version of "EverQuest," for which customers are advised to have a PC with a hefty 512MB of memory.

"Software makers usually try to lowball it as far as the hardware requirements they list," Gonzalez said. "'EverQuest' was different; they said, 'This is what you're going to need to really enjoy the game.' It'd be nice if more software makers did that."

Reeves has high hopes for "Doom III," the next installment of the shooting-game series. "From everything we've seen, that game is just going to bring PCs to their knees. We love it when game makers do that," he said.