UPDATE 1-Dell sees modest decline in fiscal Q2 margins

* Sees modest decline in fiscal Q2 gross margins

* Sees fiscal Q2 revenue up slightly sequentially

* Says demand stabilizing versus year ago

* Shares fall 3 percent in after-hours trading

NEW YORK, July 13 (Reuters) - Dell Inc (DELL.O) expects to report a slight sequential increase in revenue for the quarter ending July 31, but it forecast a modest decline in gross margins due in part to higher component costs and an unfavorable mix of products.

The news, which came ahead of Dell's analyst day on Tuesday, sent shares of the world's second-largest PC maker down 3 percent to $12.61 in after-hours trading.

Dell is targeting in the long term 5 to 7 percent compound annual sales growth, operating income at or above 7 percent of revenue, and cash flow from operations exceeding net income, the company said in a statement on Monday.

"We continue to believe that customers are deferring IT purchases, and that we will see demand return to more typical levels at some point," Chief Financial Officer Brian Gladden said in the statement.

While demand for Dell's products and services seems to have stabilized, that varied significantly by segment and geography, he added. (Reporting by Tiffany Wu; Editing by Richard Chang)