Intel CEO Brian Krzanich, holding a Curie module for wearable computing. Image source: Intel.

Semiconductor titan Intel (NASDAQ:INTC) posted fourth-quarter and full-year results after the market close on Thursday. On Friday, traders reacted to the news by bringing Intel shares 9% lower.

Investors largely saw this report as a tough bite to swallow for the chip industry as a whole. Archrival Advanced Micro Devices (NASDAQ:AMD) fell as much as 10% on Intel's news. We'll see how Intel's numbers actually apply to AMD's situation next week, when the smaller chip designer presents its own quarterly report on Jan. 19. For now, AMD's plunge looks like a knee-jerk overreaction.

So let's get back to Intel. Was this sharp drop an appropriate reaction to a report that actually exceeded Wall Street's expectations? Let's take a look.

Intel's Q4 results: The raw numbers


Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)


$14.9 billion

$14.7 billion


Net Income

$3.6 billion

$3.7 billion


Earnings per Share




Data source: Intel.

What happened with Intel this quarter?
Intel met or beat almost all of its own fourth-quarter guidance figures, except for spending 4% more than expected on R&D and other operational costs. This was a good quarter by any reasonable metric, in spite of continued weakness across the crucial PC market.

  • Three months ago, Intel's management forecast fourth-quarter revenues of roughly $14.8 billion with a 62% gross margin. The company came in above the top end of its sales forecast, and gross margins ended up at 64.3%.
  • Management had expected an effective tax rate of roughly 26%, but the tax bill stopped at just 16%. This was due to a renewal of the U.S. research and development tax credit and other one-time items. If the tax rate had landed at the expected 26%, earnings would have landed at $0.65 per share.
  • The Internet of Things division saw 6% year-over-year sales growth, stopping at $625 million. The far larger data center group almost kept pace, lifting sales by 5% to $4.3 billion.

The company closed a $14.6 billion acquisition of Altera at the end of the fourth quarter. This deal changes things for Intel, and Altera's expected contributions were baked into management's new guidance for fiscal year 2016.

  • Revenues are seen increasing by "mid to high single digits." For comparative purposes, Altera's annual sales were roughly $1.7 billion when Intel signed the acquisition papers. That works out to 3% of Intel's revenues over the same period, so at least some of the 2016 gains should be organic.
  • Full-year gross margins are expected to stop at approximately 61%, including one-time costs related to the Altera buyout. Backing out these items, adjusted gross margins should hold fairly steady at 63%.
  • Intel is stepping on the accelerator when it comes to capital investments. Capital spending in 2016 will rise 30% to $9.5 billion, and none of these expenses are related to the Altera integration.

What management had to say
"Our 2015 results demonstrate that Intel is evolving and our strategy is working," said Intel CEO Brian Krzanich in a press statement. "This year, we'll continue to drive growth by powering the infrastructure for an increasingly smart and connected world."

On a conference call with analysts, Krzanich took a wider look at Intel's market position. Traditional PC sales are becoming less important to the company's top and bottom lines, making way for Internet of Things technologies and data center servers. According to Krzanich:

Our future as a company will increasingly be a product of the virtuous cycle of opportunities in the data center, memory, and IoT market segments.

In fact, you can see the impact of that virtuous cycle in our 2015 results. Data center, IoT, and memory delivered nearly 40% of Intel's revenue, and more than 60% of Intel's operating margin in 2015.

Additionally, these three adjacent markets delivered $2.2 billion in profitable revenue growth in 2015 alone, and as we look ahead to 2016, we'll continue to build on that strategy.

Looking ahead 
Krzanich's statements make it clear that Intel is in a period of transition, in case that wasn't already obvious. As the guidance figures showed, Intel expects to see some solid organic growth in 2016 after a few lean years, and this surge will be built by data center products and the Internet of Things.

Of course, the company must execute in order to deliver on these promises. There ain't no such thing as a free lunch, after all. In the meantime, Intel can offer new investors a low P/E ratio of just 12.8 times trailing earnings and a generous dividend yield around 3%.