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Intel Beats on Q4 Earnings & Sales, Shares Fall

Mark Vickery

Intel Corp. (INTC), reported Q4 2015 earnings after the closing bell on Thursday, and the world's biggest semiconductor supplier beat estimates on both the top and bottom lines: 74 cents per share on revenues of $14.9 billion topped the 63 cents per share and $14.8 billion in sales. Yet shares sold off 3 percent immediately following the earnings report in the after market.


One possible reason is that at first glance, Intel's Data Center revenues -- the company's biggest growth engine currently -- brought in $4.3 billion for the quarter rather than the $4.4 billion we had anticipated. Its PC business, although in steady, long-term secular decline, actually outperformed expectations at $8.8 billion. Also, its enterprise storage business, SSD, did better than expected.


However, we've seen Intel's gross margins tick down quarter after quarter (-1.1 percent both annually and quarterly year over year) and there appear to be no signs of stopping: Intel's Q1 guidance for gross margin is down to 58 percent from 64.3 percent in Q4 15. The company expects revenue growth in the coming year of "mid-to-high single digits," and the lack of a hard guidance number overall may have something to do with the just-purchased Altera business in late 2015, which is expected to be accretive to non-GAAP earnings and free cash flow by this time next year.


That said, Intel's valuation begins to look compelling here: at 13 times forward earnings and a 3 percent dividend yield, a growing Data Center and a soon-to-be-contributing Altera business, we have certainly seen Zacks Rank #3 (Hold) companies in worse shape than Intel. Plus, if we begin to see strong growth numbers from Microsoft's (MSFT) Windows 10, of which Intel is a major supplier of equipment, there may be even more pop in INTC stock. Intel is down more than 11 percent year over year, including the 2+ percent dip in late trading today. Microsoft's earnings release comes two weeks from today.
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