The Trouble With Dell's Beat

And the fact is, Dell's closest competitor, Hewlett-Packard(HPQ Quote), grew its top line more than three times faster than Dell during the quarter, a feat that's even more significant when one takes into account H-P's much larger revenue base.

"It almost seems to the point where Dell has been beaten down so badly, and people have such low expectations, that they come out with this number and everybody's applauding," says Daniel Morgan, a portfolio manager at Synovus Trust Company.

Morgan, whose firm owns no Dell shares, says it's still too early for him to get excited about the stock.

Of course, Dell doesn't need to blow the roof off at this point in its rehabilitation; only to demonstrate that it is improving. And the company's gross margin, which increased to 19.9% from 15.5% at this time last year, was impressive.

For Dell bulls, this rising gross margin reveals a new leverage that will allow Dell to deliver outsize earnings relative to revenue growth.

The causes of the gross margin uptick were low component costs and higher average selling prices. And while favorable component costs may soon go away, Goldman Sachs analyst Laura Conigliaro sees a rainbow of additional margin magic on the horizon.

"We are in an early enough stage for forecasts to keep rising as Dell goes through various phases of its turnaround, including more layoffs, more cost efficiencies, greater us of ODMs, better procurement, more cost-efficient designs, coupled with revenue enhancers such as more appealing product line, better pricing discipline, and closely allied, more upsell," Conigliaro wrote in a recent note to investors.