Dell Shares Jump Despite Grim Quarter

Shares of Dell Inc. climbed Friday despite the PC maker's grim quarterly report the night before, which saw a 48 percent whack to earnings on revenue that dropped 16 percent.

While investors focused on the positive — it wasn't as bad as it could have been — some analysts worried that Dell's cost-cutting ambitions and focus on preserving profits could hurt sales, and that Dell's accounting didn't quite reflect the true state of the business.

The stock jumped 45 cents, or 5.5 percent, to $8.65 in afternoon trading.

Maynard Um, a UBS Investment Research analyst, wrote in a note to investors Friday that he is concerned about "whether the company can cut costs faster than revenues decline."

But there's no easy answer, he wrote, as it's hard to know when demand for PCs will bounce back. He predicted that technology spending by businesses will be off for at least a couple more quarters — a problem for Dell, which gets more than 80 percent of its revenue from corporations.

"Though the near- to medium-term outlook is bleak, Dell's longer-term strategy of product design and application focus is, in our opinion, the right one, though unfortunately, right now, at the wrong time," he wrote.

Um maintained his "Neutral" rating on the shares.

Kaufman Bros. analyst Shaw Wu, who has a "Hold" rating on the stock, took issue with Dell's accounting in recent quarters in a note to investors Friday.

He questioned Dell's decision to exclude 11 cents per share in one-time items — including stock-based compensation charges — which boosted earnings per share above Wall Street's expectations.

"The problem we have with this is why all of a sudden Dell doesn't recognize stock compensation when every other quarter it did? Moreover, peers Hewlett-Packard , Apple and IBM recognize stock compensation consistently," he wrote.

Wu also questioned Dell's decision to put the cost of layoffs and other organizational cost-cutting into the category of cost of goods sold, and thus exclude those items from an adjusted calculation of margins. "We believe it is more appropriate under operating expenses," Wu wrote.

The analyst wondered if investors would have responded more negatively if competitors hadn't already posted poor results.

"We wonder if Dell had reported first, its miss would have caused more controversy, but we believe investors have been softened up a bit by Hewlett-Packard and Cisco's top-line misses," he wrote.

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