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SAN FRANCISCO, Feb 15 (Reuters) – Dell Inc’s (NASDAQ:DELL)
quarterly earnings and margins blew past Wall Street
expectations as component costs slid and corporations replaced
aging technology, propelling its shares 6 percent higher.

Its forecast for a 5 to 9 percent rise in current
fiscal-year revenue also modestly surpassed Street targets.

Dell executives expressed full confidence that the company
could sustain the boost in profitability, but some analysts
questioned that premise. Dell posted a gross margin of 21.5
percent — about 15 percent above the average forecast — aided
in part by falling prices of items like memory chips and LCD

Shares of Round Rock, Texas-based Dell leapt nearly 6
percent to $14.70 after hours, following a brief trading
suspension, from a regular Nasdaq close of $13.91. It had
spiked briefly as much as 8 percent after the news.

Shares of larger rival Hewlett-Packard Co (NYSE:HPQ), which
would also benefit from lower input costs and better corporate
spending, gained more than 1 percent to $48.54 after hours.

Dell’s servers and networking revenue climbed 16 percent,
while commercial personal computer revenue rose 10 percent, as
businesses spent to upgrade outdated hardware.

"There’s still a majority of our customers who have not
begun the corporate refresh, or who have started and still have
a long way to go," Chief Financial Officer Brian Gladden said
in an interview.

Although Gladden said he expects component costs to remain
favorable through the first half of the new year, he downplayed
input cost declines as the central factor in Dell’s improved
profitability. He stressed supply chain improvements and
disciplined pricing. Dell’s quarterly operating income was its
highest in 5 years.

But many analysts still need convincing that Dell’s
turnaround effort is bearing fruit.

"I still don’t think in the long term they can sustain
gross margins based on lower input costs because that will get
competed away," said Michael Holt, an analyst at Morningstar.

Dell still pulls in most of its revenue from selling PCs.
It has benefited from a surge in spending as businesses of all
sizes spend again on equipment after two years of recession.

Dell is waging an uphill battle to diversify its revenue
base: it wants to become a larger player in the data center
equipment market, a provider of IT services, and gain a toehold
in the fast-growing mobile space with tablets and smartphones.

But it faces stiff competition in those markets from the
likes of International Business Machines Corp (NYSE:IBM), HP and

Investors have remained on the sidelines as Dell’s
turnaround plan proceeds in fits and starts. Analysts say they
are still looking for the company to prove it can sustain
higher levels of profitability.