) --


(DELL) - Get Report

second-quarter results

sent investors fleeing from the PC maker Wednesday, but should be viewed within the context of a longer-term profit push, say analysts.

Despite Dell's comfortable earnings beat, its revenue miss and weak outlook spooked investors -- the company's shares plummeted more than 9% early Wednesday.

Dell is at a crossroads, exposed to fluctuations in consumer spending thanks to its vast PC business. But by shifting focus onto

higher-margin areas

, the company is sacrificing near-term revenue to keep its profits intact.

Even amid weakening consumer demand and a tough federal government spending climate, analysts say that there is no reason to panic.

"We view lackluster revenue growth as disappointing, but not a huge surprise in a difficult macro-economic environment," said Jayson Noland, an analyst at Robert W. Baird, in a note released on Wednesday. "We remain constructive on gross margin improvement and expect to see shares of Dell continue to outperform into the second half of calendar year 2011."

The tech giant's second-quarter gross margin came in at 23.2%, down slightly from 23.4% in the prior quarter, but above consensus estimates of 22.5%.

With Dell ramping up its investments in an areas such enterprise and SMBs, the company's operating expense grew more than 23% year-over-year to reach $2.36 billion during the second quarter.

"Dell reinvested a larger-than-expected amount of gross margin strength back into enterprise sales and marketing during its fiscal second-quarter," explained Richard Gardner, an analyst at Citigroup, who has a buy rating on the company. "We view these investments as necessary and appropriate for Dell at this stage of the company's development. "

"Dell has tremendous opportunities for margin improvement," added Brian Marshall, an analyst at Gleacher & Company, in a note released on Wednesday. "

The company is migrating towards

a high-margin, recurring revenue stream."

Key focus areas include services and data management, both of which are expected to boost Dell's longer-term margins. During Tuesday's conference call, CEO Michael Dell also explained that the firm is "de-emphasizing" its lower-growth businesses, taking a short-term revenue hit to drive longer-term profits. "Net-net, that's a positive for us."

Areas targeted by Dell include resold storage hardware, where the company has been transitioning from



to its own products, and PC software and peripherals. With "significant pruning" underway in this area, Dell has already eliminated a number of its consumer electronics offerings, said CFO Brian Gladden. The company has also ditched some of its low-margin, third-party software.


Jim Cramer recently characterized Dell as a

long-term play

, noting that it will take a while for CEO Dell to shift the company's direction. Nonetheless, Cramer expects Dell's stock to go "markedly higher" over the next two years.

--Written by James Rogers in New York.

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