Intel Corp. (INTC – Analyst Report), 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 – Analyst Report) 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.