Dell shares slide on margin concerns

* Financial performance inconsistent-analyst

* Shares down nearly 7 percent

SAN FRANCISCO, Feb 19 (Reuters) - Shares of Dell Inc DELL.O fell on Friday, as investors showed their frustration with the computer maker's margin performance for the January quarter.

Dell’s shares fell 6.9 percent to $13.44 in noon trading on Nasdaq.

The world’s No. 3 PC maker reported better-than-expected profit and revenue for its fiscal fourth quarter -- including an upside surprise of roughly $1 billion on the top line -- but it was margins that Wall Street focused on.

Dell reported an adjusted gross margin of 17.4 percent in the quarter, down from 18.2 percent last year and below Wall Street’s expectations. The company said its margins were hurt by a larger mix of lower-cost PCs for consumers, and some higher component costs.

BMO Capital Markets analyst Keith Bachman noted that three of Dell’s four business units saw a sequential operating margin decline despite strong quarterly revenue growth. He rates Dell market perform.

“We had expected that Dell’s revenue growth would improve in CY10, and it began about a quarter earlier than we anticipated,” Bachman wrote in a research note. “However, Dell’s inconsistent financial performance suggests that investors should only look for a very attractive entry point, which [we] believe is below $13.”

JPMorgan analyst Mark Moskowitz noted that Dell’s peers are facing the same challenges in the market but are showing limited margin pressure.

Moskowitz said the revenue growth from the previous quarter was strong and broad-based. Dell’s revenue for the period ended Jan. 29 came in at $14.9 billion, beating the average analyst estimate of $13.8 billion.

“Such results should not be unexpected given broader industry commentary. Here, we are puzzled as to how the strength is not providing some semblance of gross margin improvements,” Moskowitz wrote.

He has an underweight rating on Dell.

But Broadpoint Amtech analyst Dinesh Moorjani maintained that Dell’s margin woes are a temporary problem.

“We believe the gross margin pressure is due to short-term factors, and does not reflect a structural issue with Dell’s business model,” Moorjani wrote.

Moorjani, who reiterated his buy rating on Dell, said he continues to see the company as a great way to get exposure to the PC and server upgrade cycle, which is expected to begin this year.

(Reporting by Gabriel Madway; Editing by Tim Dobbyn)

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