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Dell shares are down about 6% since reporting earnings on Thursday afternoon. Last quarter's earnings of $0.43/share were slightly ahead of analyst estimates, but guidance for the current quarter was light: EPS of $0.39-41, while expectations were for $0.41 or more.

In the conference call, one analyst put his finger on Dell's pricing problem:

Q - Tony Sacconaghi, Sanford Bernstein

I’m struggling to understand why gross margins deteriorated so significantly, both sequentially and year-over-year in the quarter. If you look at things like unit growth versus revenue growth, units up 15, revenues up 14, those look reasonable, don’t point to any really bad pricing. There was a strong mix shift to enterprise and notebook; that should have helped gross margins. But again, gross margin was down substantially. Can you help reconcile and explain what’s going on?

A - Jim Schneider, CFO Dell

I think part of it, we talked about this coming into the quarter, that depending on what the opportunities were for us to grow, we would balance that with what the profitability looked like on any individual sale or segments. So we actually overachieved on the revenue line, and also at the end of the day on the EPS line, which is what we’re really shooting for at the end of the day. So I think the margins came down somewhat. I actually talked about coming into the quarter that I expected that to happen. And with us able to leverage the OpEx, we’re able to be a little bit more aggressive on pricing. So I think it was exactly the way that we want to work the model overtime.

Q - Tony Sacconaghi

Were there any areas where you were particularly aggressive in choosing to pursue revenue, to pursue this trade-up between revenue and gross margin across your product family?

A - Jim Schneider

I think we did it selectively. If you look at the growth in notebooks, it’s one of the things you said may hold that up. But if you actually look at the growth rates for ourselves and our competitors in notebooks, in terms of units versus revenue, we had 47% unit growth in notebooks and about 25% or so growth in revenue. So, you can see there’s been a lot of pricing compression in notebooks, and it’s a place we want to continue to grow. I think in a number of cases, we were a little bit more aggressive. Again, it’s not all that much different. At the end of the day we’re trying to balance this down to a reasonable operating income percentage. You can see again when you get some revenue growth how you can leverage your OpEx.

DELL 1-yr chart:

(Hat tip: Jeff Matthews)