Updated from Nov. 13

Dell

(DELL) - Get Report

shares were barely changed a day after the company delivered in-line October quarter earnings and forecast it would match Wall Street's EPS expectations for the upcoming quarter. On the top line, Dell managed to deliver some revenue upside and said sales would also come in above expectations in the January quarter.

The stock was up 3 cents, or 0.1%, to $35.67 in afternoon trading.

"Dell again showed its ability to hit revenue targets while not sacrificing margin, despite a difficult pricing and component cost environment," said Merrill's Steve Milunovich, whose firm hasn't banked for Dell. He called unit growth of 22% "slightly disappointing" and said it is likely due to a shortage of flat panels and the fact that Dell had passed up low-end business.

Though he said Dell should be a core holding, he called the stock fairly valued at a price-to-earnings ratio of 29 times next year's estimate.

More positive on the name was Goldman Sachs. "We would buy into weakness as Dell gets closer to an improvement in the only underperforming part of its business -- namely, large corporate accounts where an improvement could add $0.05-$0.10 to yearly earnings," recommended analyst Laura Conigliaro. "With Dell, Cisco, and Intel continuing to mirror one another in valuation, and Cisco and Intel having slightly lower revenue growth rates, yet trading in line with or slightly above Dell's P/E, we continue to rate Dell an outperform within our neutral coverage view." Goldman hasn't banked for Dell.

On a conference call yesterday, the computer powerhouse said big companies haven't seriously stepped up their hardware buys yet -- though there's reason to think they may begin to do so over the next year.

"There was not really a heck of a lot of upside. That may have been a bit of a disappointment to some. I actually think it was a solid quarter," said Robert Cihra of Fulcrum Global Partners.

Dell's unit growth was a few points shy of expectations for around 25%, he noted. "But revenue growth was actually higher than expectations, so I think that reflects a focus on profitability over unit sales," said Cihra. He had a buy heading into the call; his firm doesn't do banking for Dell.

Dell posted third-quarter sales of $10.62 billion, helped along by strong growth in servers and storage systems. Revenue was up 16% from last year and above the consensus estimate for $10.54 billion.

Gross margin stood at 18.2%, about flat with the prior quarter. Some analysts had been concerned that it might show a slight decline due to tight component costs.

Third-quarter operating expenses amounted to 9.6% of revenue.

Dell's net income totaled $677 million, or 26 cents a share, up 24% from last year and in line with expectations.

IT spending is "still fairly muted and cautious in the large corporate markets. There's a bit more light in the tunnel in consumer and small to medium business," said President Kevin Rollins on the conference call. But he added later, "I think into next year, we are seeing a number of larger corporations that have delayed upgrades and refreshes getting more interested, and we're starting to see some refreshes occur. We're feeling relatively encouraged about the corporate market possibly being a bit better."

Dell's average selling price stayed flat with the prior quarter, at about $1620.

"The competitive environment is always intense. It was probably more so in the last quarter or two than we've seen in a while. We anticipate that's going to continue," said Rollins.

Meanwhile, on the expense side, he added that the last several quarters had "probably seen the slowest decline in component costs that we've seen in some time, due to a fairly tight supply environment, particularly for LCDs and memory." He predicted LCDs may stay that way in the short term, though memory may moderate.

Also today, Dell reported that its third-quarter global server shipments jumped 30% for its fiscal quarter ending in October. That compares with unit growth of 20.8% for the total server industry in the third quarter ending in September, according to Gartner.

Dell's external storage systems revenue rose 68% in the quarter. Overall, Dell's enterprise computing revenue was up 32% from last year's levels.

In the upcoming fourth quarter, Dell guided for $11.5 billion in sales, above Wall Street's estimate for $11.23 billion. Earnings should total 28 cents, on par with expectations.

In the calendar fourth quarter, Dell expects its own unit sales of hardware to post sequential growth of about 25%, vs. growth in the mid-teens for the overall industry.

Dell explained on the call that it decided to release its earnings report about 40 minutes ahead of schedule after some financial data was inadvertently posted on its internal Web site.