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Dell's Death Not Greatly Exaggerated

Stocks in this article: DELL IBM AAPL GOOG

NEW YORK ( TheStreet) -- Dell (DELL) missed expectations in its third-quarter results and the company's hopes rest on its server and networking segment. But that's going to take a long time to outweigh the PC business.

Dell still generates nearly half of its revenue from its slowing PC business, and it's losing market share and mind share to smartphones and tablets, particularly those from Apple (AAPL), Samsung and Google (GOOG).

The Round Rock, Texas-based technology company earned 39 cents a share on a non-GAAP basis in the third quarter on revenue of $13.7 billion. Revenue fell 11% year over year, as desktop and mobility revenue decreased.

Analysts polled by Thomson Reuters expected Dell to earn 40 cents a share on $13.89 billion in revenue.

Topeka Capital Markets analyst Brian White said he believes the results could've been worse, given the trends.

"Given the challenging tech results over the past month, the growing macro fears and the weakening trends in the PC market, Dell's results and outlook had the potential to be much worse than reported," White wrote in a research note. White rated Dell buy with a $13.50 price target.

Dell's bright spot in the quarter was its server and networking segment, which saw revenue rise 11% year over year, led by networking. Networking revenue grew 40% year over year, as Dell transitioned itself from being a PC-centric company to a software and services company, similar to IBM (IBM). Dell's issue is that it's taking longer to turn itself around than most expected, and that's weighing on the share price.

Shares of Dell have fallen 34.65% year to date, compared to a 8.9% gain in the Nasdaq.

Dell is not in an enviable position of turning itself around in a slowing economy. Perhaps some of that is due to waiting for Windows 8, but PC revenue still declined $1.5 billion year over year, as inventory remains high. Dell mentioned a slowdown in corporate refresh on the conference call, but expects it to pick back up in 2013.

Deutsche Bank analyst Chris Whitmore noted that enterprise visibility is poor at best, with IT budgets being managed closely. Any positive impact Windows 8 would have is going to be muted at best for a while given the uncertainties facing the global economy, including the fiscal cliff, Europe, and others, Whitmore noted.

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