Dell results miss expectations

By Gabriel Madway

SAN FRANCISCO (Reuters) - Dell Inc's (DELL.O) quarterly profit plunged 54 percent on lower-than-expected sales as it lost market share to competitors engaged in a budding price war in the PC market.

Shares of Dell, the No. 3 maker of personal computers, tumbled 6 percent following the results, which also show a decline in gross margin that disturbed Wall Street analysts.

The weak performance reflected the growing divide between Dell and its larger rival Hewlett-Packard Co (HPQ.N), which had posted higher-than-expected preliminary earnings.

"It was universally expected they would beat because pretty much everyone else in the PC space has posted strong numbers," Kaufman Bros. analyst Shaw Wu said of Dell. "So the conclusion is that they lost share -- lost a lot of share."

Despite the report, Dell executives spoke optimistically about demand trends and expectations for a wave of new spending next year as companies update ageing equipment.

PC sales had weakened ahead of the October 22 launch of Microsoft Corp's (MSFT.O) Windows 7 operating system, before surging afterward, said Chief Financial Officer Brian Gladden, adding that the backlog at the October 30 close of the quarter was larger than normal.

"I think it's going to be a pretty powerful cycle," Chief Executive Michael Dell said, repeating earlier assertions.

Dell reported a net profit of $337 million (202.2 million pounds), or 17 cents a share, for its fiscal third quarter, down from $727 million, or 37 cents a share, in the year-ago period.