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When I heard about the video of a computer catching fire in a conference room, I thought Dell (NASDAQ:DELL) was in real trouble. But with Apple (NASDAQ:AAPL) also having issues with its batteries heating up, it has now emerged that the problem was with the battery cell produced by Sony (NYSE:SNE), not with Dell’s computers.

Any recall expenses are almost certainly going to be borne by Sony instead of by Dell; it’s possible Dell’s reputation will take a little longer to recover, even thought it wasn’t their fault, but my guess is that most prospective PC purchasers will know better than to blame Dell.

The truth is that Dell faces other problems that are more serious. Its rivals, such as Hewlett Packard (NYSE:HPQ) and several Asian computer manufacturers, have learned how to cut their own costs and are going to offer greater competition to Dell’s ingenious low-price strategy. One always hears of frustrations with Dell’s customer-service divisions (though even the people I know who hate talking to Dell’s service people continue to buy their PCs). Meanwhile, the rate of growth of PC sales is slowing as the market matures.

All of this will make it harder for Dell to grow at a fast pace, but it looks like they’re already starting to adapt by getting into the data-storage business and volume-server businesses. These are higher-margin sectors than the PC divisions, and recent results show Dell is making good progress. Taking a page from HP’s book, Dell is now offering more printers and other consumables, which also tend to enjoy higher margins.

Dell is also offering more IT services, though it remains to be seen how effective they will be. In any case, it is encouraging to see the company making these adjustments, and with their healthy balance sheets and strong management, I think there’s reason to be optimistic that they’ll figure it out.

I also expect that the international markets will continue to offset any PC slowdowns in North America. Dell continues to have the best direct-to-consumer marketing and sales -- its rivals still do much of their business in North America through retailers -- and this model should be adaptable to emerging markets, making Dell less dependent on developing relationships with middlemen. Its server divisions should also find steady demand among new companies in these growing economies.

Type of stock:
One of the most successful PC companies in America, with great fundamentals and good margins, and the vision for adapting to a changing landscape.

Price target:
The stock price has dropped pretty steadily for the past year, and is now below $23, well off the 52-week high of $35.68. I think that’s a good discount to buy this one at, and if you can bear to hold it for a while until earnings start to reflect Dell’s adjustments, you may find yourself with a nice profit.

DELL 1-yr Chart

Source: At Current Prices, Dell Deserves a Closer Look