By Joel Hruska
May 13, 2008 - 02:40PM CT

Dell announced today that it intends to phase out its XPS desktop systems in order to prop up Alienware sales. Dell acquired the much-smaller boutique computer manufacturer in March, 2006, but initially believed that the its own XPS products would complement Alienware's custom-built systems rather than compete with them for sales.

This assessment appears to have been incorrect; Dell now reports that XPS sales have eaten into Alienware sales to a certain degree. Dell currently offers two desktop product lines. The lower tier (Inspiron), is meant for cost-conscious buyers, with entry prices as low as $379, while the upper tier (XPS), further bifurcates into XPS Performance/All-in-One and XPS Gaming PCs. Out of this group, only the XPS Gaming tier is being eliminated, and Dell apparently intends to continue using the XPS brand on mainstream desktops and higher-end laptops.

As for the reason why Dell chose to eliminate its XPS gaming division, the numbers paint a sobering picture. PC gaming (and by extension, PC gaming hardware sales) may not be dead, but the PC gaming industry is clearly not what it used to be. In 1998, the PC gaming industry generated 1.8 billion in sales and accounted for 32.72 percent of total video game software sales. The video game software market grew by 72 percent between 1998 and 2007, while PC gaming sales have consistently decreased every single year in both relative and absolute terms.

The picture isn't quite as bleak as the graph makes it seem, given that NPD's numbers don't track digital distribution or subscription-based revenue, but neither category could possibly account for the tremendous decline in PC game sales. Even if Steam, and other services like it, accounted for a massive 50 percent of "hidden" PC game revenue, total PC game software sales would only have reached $1.37 billion in 2007, down 24.9 percent from 1998.