Is there any room left for Dell?

Rumor has it that private equity investment firm Blackstone may be considering putting up a last-minute bid to buy Dell that beats the price being offered by Michael Dell and Silver Lake Partners. While this is great news for shareholders, it raises the question as to what the winner plans to do with the PC OEM in the face of a deteriorating industry.

According to Sterne Agee analyst Shaw Wu, the two factors determining how high a Blackstone bid could go are down to how much debt the investors are willing to shoulder and how much more equity are buyers willing to put in.

"On the one hand," Wu wrote in a note to clients, "carrying more debt would mean more interest payments (not to mention a potentially higher interest rate) that would end up soaking up more of its cash flow. And, on the other hand, increasing the equity invested could increase the risk and lower the rate of return."

But while we are all focusing on the buyout, we are ignoring the fact that the problems with Dell go beyond the fact that it is currently a public company. Where there's no doubt that shifting to being privately run will take some of the focus off how the company is run and allow changes to me made behind close doors, it doesn't change the fact that what's wrong at Dell is, partly, at any rate, down to the fact that the company is tied to the PC industry, and, as Wu points out, that is an industry that "is under secular and structural pressure from mobile devices".

To put that more bluntly, Dell is essentially a PC company, and people aren't buying as many PCs as they used to.

And it's not like Dell hasn't already tried to diversify. Over the past six years the company has made $13 billion worth of acquisitions in an attempt to add strings to its bow. But despite all this investment, about 70 percent of its business is tied to PCs. This is down from a figure of 85 percent to 90 percent for the early 2000s, but it still leaves the company quite vulnerable.

Of this, Wu estimates that some 45 to 50 percent of its revenue is from desktop and notebook PCs and 20 percent from non-PC businesses highly tied to PCs including peripherals.

So, where could Dell go?

• Become more aggressive in the PC industry and attempt to outsmart, outwit, or, at the very least, outprice, the competition.

• Focus more on enterprise services. Some suggest that this is what's behind the buyout, but it is unclear is Dell could reinvent itself enough to make this work.

• Another possibility is mobile. Dell has already dipped its toes into this market, and then rapidly retreated when things didn't work out.

• A combination of some or all of the above.

None of these options are easy. In may ways, the PC market of the early 2000s was much easier and clearer than the post-PC era of today. To make matters worse — for Dell, at any rate — it is not the top predator in the PC industry, and has failed to gain any traction in post-PC businesses.

Whatever path Dell takes, there will be interesting times ahead for the company.