Updated from Jan. 15

SAN FRANCISCO -- Intel ( INTC) grew its bottom line 51% in the fourth quarter and raised its profit margin to the highest level in two years.

But with Wall Street gripped by economic anxiety, Intel's lackluster financial forecast Tuesday afternoon trumped the good news and triggered a sharp selloff in the company's shares.

Intel's stock plunged 13% to $19.82 in premarket trading Wednesday.

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In a post-earnings conference call, Intel CEO Paul Otellini stressed that the company wasn't seeing any signs of an economic slowdown. And he said Intel's plans for 2008 assumed that the global PC market, to which Intel is the No. 1 supplier of microprocessors, would continue to grow at a low-double-digit clip.

"At this point we don't see anything on the horizon; our customers don't see anything on the horizon," Otellini said regarding a slowdown in spending on PCs.

While Otellini acknowledged having the same concerns about U.S. economic conditions "that anybody in America who watches CNBC has today," he stressed that Intel doesn't see a potential slowdown "bleeding over" into its business, which is 75% tied to overseas markets.

But the comments seemed somewhat at odds with Intel's below-seasonal sales guidance, which called for first-quarter revenue between $9.4 billion and $10 billion. The average analyst expectation called for $10 billion in first-quarter sales with EPS of 34 cents.

The midpoint of the revenue guidance represents a 9% sequential drop in sales, vs. the average falloff of 7% at this time of year.

And Intel's profit margin outlook was even less reassuring.

The company posted a sharp boost in its profitability during the fourth-quarter, growing gross margin to 58%, compared with 52.4% in the third quarter, and 49.6% in the year-ago period.

Intel ascribed the margin improvement to increasing chip shipments, and lower production costs resulting from its new generation of manufacturing tools.

Yet Intel said the gross margin will dip back down to 56% in the first quarter, and said the margin for all of 2008 will be 57%, plus or minus a few points, raising questions about whether the company has reached the end of its path to improved profitability.

After losing market share to rival Advanced Micro Devices ( AMD) in recent years, Intel mounted a counteroffensive in 2007, releasing a slew of new chips and slashing about 10% of its workforce.

AMD, which is due to report earnings on Thursday, has meanwhile undergone a rough patch, with a bug in its new chips causing it to delay the product's availability.

The fruits of Intel's comeback were apparent in its fourth-quarter results.

The Santa Clara, Calif., chipmaker said it earned net income of $2.3 billion, or 38 cents a share, in the three months ended Dec. 29, compared with net income of $1.5 billion, or 26 cents a share, at this time last year.

Intel's EPS included 2.5 cents of restructuring and asset impairment charges relating to its NOR flash memory business, which is due to be spun off into a separate company as part of Intel's restructuring plan.

Analysts polled by Thomson Financial were looking for 40 cents a share, excluding the charges.

Intel's top line grew 10.5% year over year to $10.7 billion, just short of the average analyst expectation of $10.8 billion.

Intel blamed the shortfall on its NAND flash memory business, where prices have been under pressure industrywide, and noted that its computing chip businesses all performed as expected.

Intel's digital enterprise group, which includes processors for servers and desktop PCs, saw sales increase 12% year over year to $4.3 billion. Sales of notebook PC processors also increased 12% year over year.

"We exit 2007 with the strongest combination of products, manufacturing and silicon technology leadership in our history," said Otellini.