HP Acquires Gaming PC Maker Voodoo

In a move to compete with rival Dell (Nasdaq: DELL) , HP (NYSE: HPQ) on Thursday announced it has signed a definitive agreement to acquire VoodooPC, a manufacturer of high-performance gaming computer systems.

Following the close of the transaction, HP will form a separate business unit within its personal systems group focused on the gaming industry. HP plans to maintain VoodooPC's current distribution model and brand name along with its marketing , sales , support and development operations.

This operational model will align the gaming business with HP's research and development organization by providing access to the latest technologies and innovation, according to the company.

Financial terms of the deal were not disclosed. The acquisition is expected to close by November 2006.

The PC Gaming Opportunity

HP sees significant opportunity in the gaming PC market. This perception is backed up by Forrester Research's latest report on the industry, entitled "North American Video Gaming: Surviving a Midlife Slowdown."

The report reveals that PC gaming is the dominant platform for video game users and predicts the PC gaming market will grow stronger in the future. Specifically, 39 percent of all households use PCs for playing video games. This group accounts for the majority of the 48 percent of households that own video game hardware. By contrast, 37 percent of U.S. households have a console-based video game system.

Another telling Forrester stat says 53 percent of all households that own PCs play games on the PC. That figure indicates there is room for growth. Forrester predicts PC gaming usage will increase from 39 percent to 44 percent by 2011.

Tit for Tat

Dell sees the same growth opportunity -- and got a jumpstart on HP earlier this year. Dell acquired high-end gaming PC maker Alienware in March in its quest to tap the growing demand for multimedia PC products. HP, which has been grabbing market share from Dell in recent months, now prepares to go head to head with its rival in this portion of the personal computer segment.

At a time when HP is struggling with internal political issues that have shaken up its board of directors this month, the VoodooPC acquisition is a positive move that demonstrates HP is doing business as usual, according to Marc Pado, an analyst with Cantor Fitzgerald.

"Dell for a while just took over in the PC segment. HP fell by the wayside, and then went through this huge restructuring. Now HP has the upper hand and has to keep the momentum going. With this acquisition, that's exactly what they are doing," Pado told TechNewsWorld.

With HP stock at its high point and Dell stock at its low point, Pado said HP has a strong opportunity to continue building on its reputation for stealing Dell market share. Its reputation has been key to its restructuring strategy over the past two years.

Order in the House

According to HP, VoodooPC co-owner Rahul Sood will become chief technologist for the new unit and co-owner Ravi Sood will become the unit's director of strategy.

"The benefits of this acquisition to VoodooPC are immense, not least of which is having a direct conduit to HP's unparalleled innovation and international presence," Sood said.

Both executives will report to Phil McKinney, who will become general manager of the gaming business unit while maintaining his current role as chief technology officer of the HP personal systems group.

VoodooPC was founded in 1991 in Calgary, Alberta, Canada.