Dell Computer Corp. (Nasdaq: DELL) met analysts' estimates in its first quarter Tuesday, returning a profit of $434 million, or 16 cents a share, on sales of $5.54 billion. Its shares closed up 13/16 to 44 1/16 ahead of the results.
But merely meeting analysts' estimates apparently isn't good enough for Dell investors. The stock fell 2 7/16 to 41 5/8 in after-market trading.
First Call consensus expected the PC giant to earn 16 cents a share in the quarter.
The $5.54 billion in sales represents a 41 percent improvement versus the year-ago quarter when it earned $305 million, or 11 cents a share, on sales of $3.92 billion.
Company officials credited an incredible surge in online sales as well as strong demand in the U.S. and throughout Asia for the solid earnings.
"Industry demand was solid during the first quarter, and we once again achieved industry-leading results," said CEO Michael Dell. "We're increasingly applying the Internet to our entire business.We believe we're doing so to a much greater degree than anyone else in our industry, and it is already a compelling difference in winning and retaining customers of all types."
Dell said its online sales tripled compared to the year-ago quarter, resulting in sales of more than $18 million a day. Online sales accounted for 30 percent of the firm's total sales in the quarter.
Sales from the North and South America improved 45 percent versus the year-ago quarter while sales into Asia, primarily due to "exceptional" growth in China, jumped 48 percent.
But it gets even better.
Sales of network servers and workstations surged 97 percent in the quarter, accounting for more than 16 percent of Dell's total sales.
Unlike Compaq Computer Corp. (NYSE: CPQ), which has struggled in the past few quarters, Dell was able to execute its direct-sales model while rolling out new machines in the hotly contested sub-$1,000 market.
Despite the solid earnings and sales growth, some analysts had expected even better results from Dell.
Piper Jaffray analyst Ashok Kumar predicted Dell would report sales of $5.7 billion in the quarter.
"The company is currently at 70 percent of Compaq's quarterly run rate and if it maintains its current trajectory, it should surpass Compaq in the near future," Jaffray said in a research report.
Kumar currently rates Dell a "buy" and has set a 12-month target price of $55 a share. He also predicted net income would be diluted a bit this quarter.
"However, earnings upside to our consensus estimate of 16 cents a share will be muted about 1 cent to 2 cents due to the large share count of 2.5 billion," said Kumar.
"There are no problems with Dell this quarter," said Lou Mazzucchelli, an analyst at Gerard Klauer Mattison. "I expect them to be very bullish this quarter. Look for them to gain market share and see a sharp upturn in international sales."
Mazzucchelli also rates Dell a "buy" and has set a 12-month price target of $50 a share.
Dell shares were trading at a 52-week low of 19 5/16 in January before going on a torrid tear. The stock surged to a high of 55 in February and split 2-for-1 in early March.
Despite all this optimism, analysts are concerned a slowdown in PC spending by the government could dent sales and earnings in the second quarter.
Twenty-four of the 25 analysts following Dell's stock maintain either a "buy" or "strong buy" recommendation.