Dell's Profit Pinched (Update)

Dell(DELL Quote - Cramer on DELL - Stock Picks) blew past Wall Street's revenue estimates in its fiscal second quarter, but the company's efforts to stoke sales dented the bottom line, pushing net income down 17%.

Dell said the profit pressure was a result of decision to expand its sales to consumers across the globe as well as to customers in the Europe, Middle East and Africa region, where Dell said it grew unit shipments of servers faster than any of its major competitors.

"Strategic actions to accelerate growth in certain areas of our business affected gross margins this quarter and there will likely be some non-linearity in the improvements in our operating income margins as we rebalance our portfolio, make cost improvements and drive growth," said CFO Brian Gladden in a statement.

Shares of Dell were off 9%, or $2.23, to $23 in extended trading Thursday.

In the three months ended August 1, Dell had sales of $16.4 billion, up 11% year-over-year and ahead of the average analyst expectation of $15.9 billion, according to Thomson Reuters.

Sales of notebooks -- the fastest growing segment of the PC market -- were up 26% year-over-year to $4.8 billion, roughly matching the growth rate posted by rival Hewlett-Packard(HPQ Quote - Cramer on HPQ - Stock Picks), which reported its quarterly earnings results earlier this month.

Dell posted net income of $616 million, or 31 cents a share, vs. net income of $746 million, or 33 cents a share at this time last year.

Dell said its earnings included $52 million in restructuring and amortization costs, equal to 2 cents a share. Even after backing those costs out, however, Dell fell short of the Street's EPS expectation of 36 cents.

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