So far this year, Intel (NASDAQ:INTC) has put together an unbroken record of beating, or at worst hitting, its quarterly earnings targets -- more often than not, even posting a bit of earnings growth. But as the recession deepens, investors are nervous about the fourth-quarter numbers due out Thursday afternoon -- and for good reason.

What analysts say:

  • Buy, sell, or waffle? Out of 35 analysts tracking Intel, 20 rate the stock a buy, 13 more a hold, while just two say "sell."
  • Revenue. Yet these same analysts expect to see Q4 sales plunge 23% to $8.21 billion.
  • Earnings. And they expect profits to fall off an even deeper cliff, dropping 87% to just a nickel a share.

What management says:
Management partly confirmed analyst estimates last week when it issued "preliminary" Q4 results estimating "revenue of approximately $8.2 billion," down 23% "as a result of further weakness in end demand and inventory reductions by its customers in the global PC supply chain." Gross margins will come in "at the bottom of the previous expectation of 55 percent, plus or minus a couple of points" -- which to me sounds like about 53%.

On the plus side, bad as it sounds, a 53% gross margin would still be better than rivals NVIDIA (NASDAQ:NVDA), AMD (NYSE:AMD), or Texas Instruments (NYSE:TXN) have managed to pull down over the past 12 months.

What management does:
It's also worth pointing out that while a fall to 53% will be steep, the clear trend in Intel's margins over the past several quarters has been up.

Margins

6/07

9/07

12/07

3/08

6/08

9/08

Gross

49%

49.5%

51.9%

52.8%

54.7%

56.7%

Operating

18.3%

19.8%

22.8%

23.9%

25.8%

27.8%

Net

15.9%

16.6%

18.2%

17.3%

17.8%

18.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
But that happy fact will do little to dull the pain of Thursday's news, I fear. Why? Let's work a little math and find out.

Start with Intel's putative 53% gross margin on $8.2 billion of revenue. That works out to $4.3 billion in gross profit. Subtract from this $1.2 billion worth of "net ... loss from equity investments and interest" (primarily, a writedown in the value of Intel's stake in Clearwire, the wireless broadband provider that it is backing alongside Google (NASDAQ:GOOG), Comcast (NASDAQ:CMCSA), and Time Warner (NYSE:TWX)).

Subtract further: "Spending (R&D plus MG&A) [of] approximately $2.6 billion." Finally, take out $250 million in "restructuring and asset impairment charges." By my calculations, it all works out to about $300 million in pre-tax profit, which is less than 4% of revenue. Take out income tax, and that's going to knock a sizeable hole in Intel's long-term trend of rising margins, and could spook investors come Friday morning. Fools, though, need to keep their eye on the long-term trend. And at Intel, that trend is clearly pointing up.

Intel is a Motley Fool Inside Value pick. Google is a Rule Breakers recommendation. NVIDIA is a Stock Advisor selection. The Fool owns shares of and covered calls on Intel.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.