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Wanted: A Big Beat at Dell

Just meeting or slightly beating estimates won't be enough to get investors excited.

As shares of


(DELL) - Get Dell Technologies Inc Class C Report

round $40 ahead of the company's second-quarter report, investors await further clarity about expected business conditions in the coming months.

On average, analysts have predicted that the Round Rock, Texas-based computer maker will meet or slightly beat targets that call for earnings of 38 cents a share and sales of $13.7 billion, after the bell Thursday, according to Thomson First Call.

That consensus is virtually the same as what analysts were expecting three months ago, when Dell predicted earnings of 37 cents to 39 cents a share and sales between $13.6 billion and $13.8 billion.

Investors following this lead haven't significantly moved the stock since the previous financial

report in mid-May.

Since then, shares have traded in a range between $39 and $42, ending Wednesday's regular session at $39.73.

Lending weight to the expectations that Dell will post strong numbers is that overall second-quarter demand for computers and related electronic gear was high, with several industry researchers boosting full-year expectations.

But those same researchers were also

cautious about continued robust spending on PCs in the back half of the year.

Dell's report and that of


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next week will help complete this picture. During the previous quarter's conference call, Dell CEO Kevin Rollins called the PC market "healthy," adding that "it's not explosive, and it's not trailing off."

For the third quarter, analysts' expectations have Dell earning 41 cents a share on sales of $14.6 billion.

Analyst Richard Chu with SG Cowen expects Dell to hit the consensus numbers for both the second and third quarters because of stable pricing, normal lead times and positive component-pricing trends.

"We don't expect investors' assumptions with regard to Dell's competitive positioning, business model evolution and demand dynamics to change materially post the release," he wrote in a note to clients. SG Cowen does and seeks to do business with the companies it researches.

Indeed, Dell has become such a force in the PC market that investors no longer get excited by results that merely meet or slightly exceed estimates.

For the year, Dell shares are down 4%; the


is off 0.5%. However, the third and fourth quarters are typically the company's strongest, and Thursday's report will serve as the substantial indicator regarding this strength.

Mobile sales will be key. In the first quarter, notebook sales rose 22% sequentially to $3.3 billion, while desktop sales increased only 6% to $5.3 billion. These two groups accounted for 64% of Dell's overall sales, with mobile's growth rate expected to continue outstripping its desktop counterpart.

Though Dell investors want to see the company maintain its execution advantage, which is built on its hyper-efficient supply chain, much more is needed from the company if the stock is going to consistently advance.

To that end, Dell has pushed into new markets, both geographically and productwise. Dell now gets 15% of its sales from software and peripherals, 10% from server computers and 3% from data storage products.

Analyst Shaw Wu with American Technology Research said Dell should continue to grow overall market share, but he thinks the shares are fully valued based on his earnings assumptions through 2006.

Granted, the company performed well in the first quarter, and a repeat performance is expected -- and assumed -- in the second quarter, but Dell's stock has yet to pay off this year.

Clearly, it's going to take more than just meeting assumptions for Dell to generate investor excitement from here.