Dell shares jump on strong Q4 profit, solid margins

The company reported market-topping fourth-quarter margins at 21.5 percent, as component costs dropped, and expects more benefit from the ongoing corporate spending to replace old technology and equipment.

Brokerage Stifel Nicolaus forecast a boost for DELL (DELL.NQ)shares on the results and an increased comfort in pricing discipline, and saw potential reengagement among value investors.

The market has often worried that Dell's reliance on low-cost commodity PCs will drag on margins and offer little chance of significant growth.

"While it may be a little premature, Dell appears to be building some sustainability with the gross margin increase in the past two quarters, which we believe bodes well for the stock," BofA Merrill Lynch said in a note.

Dell, which gets most of its revenue selling PCs, is looking to diversify into the data-center equipment market and the fast-growing mobile space, but faces competition from the likes of IBM, Hewlett-Packard and Apple.

"We continue to believe the corporate PC refresh cycle is still in the early innings, and that IT spending will translate into server deployments," Needham & Co said in a note.

The company's stock, which has remained about flat over the last quarter, was trading up 10 percent at $15.31 in morning trade on Nasdaq. About 45 million shares had changed hands by 1030 ET - three times the stock's average trading volumes.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Joyjeet Das)