Dell topped analysts' estimates by a penny a share in its second quarter Thursday, earning $603m, or 22 cents a share, on sales of $7.7bn.
First Call consensus expected the PC maker to earn 21 cents a share in the quarter.
Dell shares closed off 1/16 to 41 3/4 ahead of the earnings report.
The $7.7bn in sales marks a 25 percent improvement from the year-ago quarter when it earned $507m, or 19 cents a share, on sales of $6.14bn. Company officials credited an enhanced product mix and favourable pricing and component costs for the upside surprise.
But overall revenue fell about $200m short of the company's target. Dell executives blamed the shortfall largely on soft demand in Europe.
"There was a significant slowdown in the [European] market relative to prior expectations, especially in the commercial sector," chief financial officer James Schneider said, during a Wednesday conference call with analysts. "We are encouraged by our progress given the software demand environment."
The company also cited weaker-than-expected government sales, because agencies accelerated their buying last year on Y2K worries.
Many industry observers fear PC demand will fall from historical levels, but Dell insisted its previously-stated goal of 30 percent annual growth is achievable.
"We remain confident that demand will be strong," Schneider said.
Dell traditionally sees ten to 13 percent sequential growth in the third quarter. "The lower end of that range is consistent with our view and consistent with where most [analyst estimates] are already," Schneider said.
Operating margins should rise above ten percent by the fourth quarter, he added.
More than 50 percent of its total sales were made online this quarter.
By region, Dell enjoyed a 27 percent jump in sales in the Americas while sales into Europe, the Middle East and Africa improved ten percent.
Sales into the Asia-Pacific region, which includes Japan, rose 48 percent including an impressive 98 percent jump in enterprise sales. China was particularly strong as sales increased 86 percent from the same period last year.
Combined sales of notebook computers, workstations, servers and storage products accounted for 49 percent of total system sales.
Sales from enterprise computing systems -- network servers, storage products and workstations -- increased 46 percent from the same period last year.
More impressive, sales from its high-density rack-mounted servers grew more than 300 percent during the quarter, and represented 33 percent of total server sales.
Last week, Dell was downgraded by USB Piper Jaffray's Ashok Kumar.
Kumar cut the stock from a "strong buy" recommendation to a "buy", saying Dell has fallen into a "real technical deterioration" in the past year and doesn't possess anywhere near the momentum it did in 1997 and 1998.
"We continue to believe that Dell does not have adequate earnings power in notebooks, server and nonsystem revenue to offset the secular weakness in consumer and commercial desktops," Kumar wrote in a research note. "Current revenue growth guidance of 30 percent is unsustainable."
In fact, Kumar predicted Dell would post second-quarter sales of $7.85bn.
In its first quarter, Dell beat the Street estimate, earning $525m, or 19 cents a share, on sales of $7.3bn. First Call consensus expects it to earn 25 cents a share in its third quarter and 92 cents a share in the fiscal year.
Dell shares peaked at 59 11/16 in March after falling to a low of 35 in February.
Twenty-four of the 28 analysts tracking the stock rate it either a "buy" or "strong buy".
Sergio G Non contributed to this report.
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