UPDATE 4-Dell results miss expectations, shares drop

* Q3 EPS 17 cents vs year ago 37 cents

* Q3 rev falls 15 pct to $12.9 bln vs Street view $13.2 bln

* Analysts concerned about margins, market share loss

* Shares down 6 pct after hours (Adds CEO, CFO comments, additional details from report)

By Gabriel Madway

SAN FRANCISCO, Nov 19 (Reuters) - Dell Inc's (DELL.O: 行情) quarterly profit plunged 54 percent on lower-than-expected sales as it lost market share to competitors engaged in a budding price war in the PC market.

Shares of Dell, the No. 3 maker of personal computers, tumbled 6 percent following the results, which also show a decline in gross margin that disturbed Wall Street analysts.

The weak performance reflected the growing divide between Dell and its larger rival Hewlett-Packard Co (HPQ.N: 行情), which had posted higher-than-expected preliminary earnings.

"It was universally expected they would beat because pretty much everyone else in the PC space has posted strong numbers," Kaufman Bros. analyst Shaw Wu said of Dell. "So the conclusion is that they lost share -- lost a lot of share."

Despite the report, Dell executives spoke optimistically about demand trends and expectations for a wave of new spending next year as companies update aging equipment.

PC sales had weakened ahead of the Oct. 22 launch of Microsoft Corp's (MSFT.O: 行情) Windows 7 operating system, before surging afterward, said Chief Financial Officer Brian Gladden, adding that the backlog at the Oct. 30 close of the quarter was larger than normal.

"I think it's going to be a pretty powerful cycle," Chief Executive Michael Dell said, repeating earlier assertions.

Dell reported a net profit of $337 million, or 17 cents a share, for its fiscal third quarter, down from $727 million, or 37 cents a share, in the year-ago period.

Revenue fell 15 percent to $12.9 billion, missing the average analyst estimate of $13.2 billion, according to Thomson Reuters I/B/E/S.

While the revenue shortfall was troubling, some analysts also expressed concern about Dell's margins, particularly because the company had stressed profitability over growth amid a $4 billion cost-cutting effort.

Dell said it saw pressure on component costs, a trend that has continued into the current quarter. Its gross margin was 17.3 percent in the third quarter, down from 18.7 percent in the second quarter and 18.8 percent in the year-ago period.

On an adjusted basis, it reported a margin of 18.3 percent. The company said it walked away from deals during the quarter in order to prop up average selling prices.

"Certainly, the gross margin pressure is an issue. If they're having to let business go because of price and gross margin pressure, that's going to severely limit their ability to generate profit off any kind of (PC) refresh cycle," said Pacific Crest Securities Andy Hargreaves.

Acer Inc (2353.TW: 行情) supplanted Dell as the world's second largest maker of personal computers in the calendar third quarter, fueled by sales of cheap notebooks and netbooks.

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