Dell Inc's quarterly earnings and margins blew past Wall Street's expectations as component costs slid and corporations replaced aging technology, propelling its shares 6 percent higher.
But some analysts questioned whether its gross margin of 21.5 percent -- about 15 percent above the average forecast -- was sustainable given a big boost from the falling prices of memory chips for computers and other production costs.
Shares of Round Rock, Texas-based Dell leapt nearly 5 percent to $14.60 after hours, following a brief trading suspension, from a regular Nasdaq close of $13.91. It had spiked briefly as much as 8 percent after the news.
Chief Financial Officer Brian Gladden said he was confident about the company's ability to sustain a sharp gain in its margins.
I still don't think in the long term they can sustain gross margins based on lower input costs because that will get competed away, said Michael Holt, an analyst at Morningstar.
But they're definitely benefiting a bit from their focus to build out services and enterprise technology.
Dell, which is trying to shed a reputation for specializing in low-margin computers, still pulls in most of its revenue from selling personal computers. It has benefited from a surge in spending as businesses of all sizes spend again on equipment after two years of recession.
Its non-GAAP gross margin came in well ahead of analysts' estimate of 18.6 percent. Revenue rose 5 percent to $15.7 billion, matching Wall Street's target.
The No. 2 PC maker on Tuesday reported a net profit of $927 million, or 48 cents a share, in the fiscal fourth quarter ended January 28, up from $334 million, or 17 cents a share, a year ago. Excluding items, Dell earned 53 cents a share, beating the average estimate of 37 cents a share, according to Thomson Reuters I/B/E/S.
For fiscal 2012, Dell expects revenue growth of 5 to 9 percent, and non-GAAP operating income growth of 6 to 12 percent.
The quarterly results offered some affirmation of Dell's efforts to turn itself around and boost profitability.
Dell is waging an uphill battle to diversify its revenue base: it wants to become a larger player in the data center equipment market, a provider of IT services, and gain a toehold in the fast-growing mobile space with tablets and smartphones.
But it faces stiff competition from the likes of International Business Machines Corp, Hewlett-Packard Co and Apple Inc.
Investors have remained on the sidelines as Dell's turnaround plan proceeds in fits and starts. Analysts say they are still looking for the company to show it has a sustainable plan to boost profitability.
Although Dell has made plenty of noise in smartphone and tablet markets, its products have not been well-received, and it will have to work hard to set itself apart from rivals.
Revenues were a little bit less than expected but they performed well on the margin side. Our question is -- how sustainable is this going forward? asked Brian Marshall, an analyst at Gleacher & Co.
We want to see how sustainable of a ramp this is on the margins front. That's key.
(Additional reporting by Noel Randewich in San Francisco; Writing by Edwin Chan; Editing by Richard Chang)