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For Dell Investors, In-Line Earnings Taste Bittersweet

Though execs at the company insist everything is A-OK, many on the Street are concerned that Dell is not <I>beating</I> analyst estimates like it used to.

Last night, on the eve of


(DELL) - Get Free Report

latest quarterly announcement, a lot of people at the company's Round Rock, Texas, headquarters were smiling, confident that its

first-quarter earnings were strong.

Today, however, many on Wall Street had a decidely different facial expression for the company, one that, in itself, was nothing to smile at.

For while Dell met both earnings and revenue expectations Tuesday, the company didn't


analyst estimates, a practice that had become routine for the PC direct seller until the previous quarter, when it met earnings estimates but fell short on revenue forecasts. Dell earned a profit of $434 million, or 16 cents a share, in its first quarter ended April 30. That figure -- 42% above the year-ago profit of $305 million, or 11 cents a share -- was in line with the

First Call

consensus estimate. Revenue climbed to $5.5 billion from $3.9 billion one year ago, a 41% year-over-year increase.

Dell, which rose 13/16 Tuesday to close at 44 1/16, was down almost 3 in after-market trading in the wake of the earnings announcement, according to

Reuters Instinet


On a conference call to discuss the earnings, Dell CFO Tom Meredith said that the company's Internet sales were now up to $18 million a day, or 30% of total revenue. The most robust segment of Dell's balance sheet was its U.S. small-business and consumer unit, which showed 54% year-over-year growth.

Asia-Pacific revenue rose 48%, further evidence that the region is beginning to solidify.



said it

had an uptick in Asia-Pacific sales Monday.

Even with such robust results, Dell detractors came out of the woodwork to offer a more muddled outlook for the stock. "If it's an Internet stock, then we don't need to talk about earnings, but if it's a PC vendor, we've got a problem," says Bill Fleckenstein of

Fleckenstein Capital

, a longtime PC bear. Fleckenstein has a short position in Dell stock.

Some analysts are more concerned about the company's second quarter because Wall Street expectations still seem too high, says

U.S. Bancorp Piper Jaffray

analyst Ashok Kumar. He sees Dell having year-over-year revenue growth of between 30% and 35% in its second quarter, a rate which is flat with the first quarter.

"The unit number growth was impressive, but average selling price declines concern me," Kumar says. The average selling price of Dell's PCs fell 12% to $2,200 in the first quarter from $2,500 a year before, notes Kumar, who has a buy rating on Dell. His firm has done no underwriting for Dell.

Another dilemma for the company is gross margins, which fell to 21.5% from 22.3% in last year's quarter, a trend that most PC makers are seeing.

'If it's an Internet stock, then we don't need to talk about earnings, but if it's a PC vendor, we've got a problem,' says Bill Fleckenstein of Fleckenstein Capital.

The second quarter "is going to be a tougher quarter," says Dan Niles, an analyst at

BancBoston Robertson Stephens

, who rates Dell a market perform.

Dell, which became the favorite boxmaker of tech geeks the world over for providing the most powerfully configured boxes, is now having trouble moving less-profitable items. "It's definitely a profit issue going forward," says Niles, whose firm has done no Dell underwriting.

For Dell investors -- who are watching lofty expectations overshadow yet another quarter of strong earnings and revenue growth in a fiercely competitive PC industry -- the future looks choppy. At least they can take solace in knowing their stock is the top-performer of the decade.