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Dell hits analysts&#039&#039 targets

UPDATED Dell Computer met first-quarter expectations.

After market close Thursday, the computer maker reported first-quarter net income of $462 million, or 17 cents per share, in line with the consensus analyst forecast.

Shares of Dell (Nasdaq: DELL) traded at $24.95 in after-hours activity on the Island ECN, immediately following the release of its quarterly results. Dell rose 50 cents to $25.88 in Thursday's regular trading ahead of the news.

Revenue in the first quarter increased 10 percent year-over-year to $8 billion. Analyst consensus predicted revenue of $8.03 billion, according to earnings tracking firm First Call.

Thursday's results were no surprise. Last month, Dell said it would meet analyst estimates.

Gross margins remained about the same as the previous quarter at 18 percent, despite an ongoing price war started by Dell several months ago in a bid to gain market share. The company credited the margin sustenance to lower component costs and higher sales of notebook computers and corporate products such as servers. Many analysts have been worried about falling profits in the PC sector.

"We expect margins to drop in the second quarter of calendar 2001 for the PC industry in general," Robertson Stephens analyst Eric Rothdeutsch wrote this week in a research note previewing Dell's earnings report. "All indications suggest that Dell will continue to accept lower-margin business to gain access to new customers, new corporate accounts and new server accounts. As Compaq and Dell slug it out for customers, margins are likely to erode further."

Although Dell remains one of the most efficient PC manufacturers, the company's recent share gains have not translated into corresponding improvement in earnings, SG Cowen Securities analyst Richard Chu believes. "This becomes troubling if gross margins narrow in coming quarters, as appears increasingly likely," Chu wrote.

And Dell's market share improvements may not continue at the same pace.

"Dell should see greater price competition from Compaq moving forward, which should take away some of the easier share gains that Dell had early in the first quarter of fiscal 2002," Rothdeutsch wrote.

Dell's operating margins increased to 7.3 percent, from 6.8 percent in the fourth quarter. Operating expenses slid to 10.7 percent of revenue, compared with 11.2 percent in the fourth quarter.

First-quarter shipments increased 27 percent year-over-year for Dell, with PowerEdge server shipments rising 50 percent.>