Updated from 8:22 a.m. with Intel stock prices.

Intel (INTC) - Get Intel Corporation (INTC) Report shares plunged in Friday trading after the world's largest chipmaker said gross margins, a closely watched level for Intel, would drop to their lowest levels in years.

For the upcoming first quarter, Intel said GAAP gross margins would drop to 58%, plus or minus a couple of points, down 6.3 percentage points, while non-GAAP margins are expected to be 62%, plus or minus a couple of points, as the company continues to work through the Altera acquisition, which closed on Dec. 28.

For the fourth quarter, Intel generated earnings of 74 cents a share on sales of $14.9 billion, better than the Thomson Reuters estimate of 63 cents a share on sales of $14.8 billion.

Intel's Client Computing Group, which comprises both mobile and desktop chips, actually saw a tick up from the third quarter, with revenue rising 3% sequentially to $8.8 billion. Its Data Center Group, where it expects Altera to help, saw revenue rise 4% sequentially and 5% year over year to $4.3 billion.

Shares were down sharply, falling 9.5% to $29.65 by midday, their lowest level in more than three months.

For the first quarter, Intel said it expects revenue to be between $13.5 billion and $14.5 billion, with R&D and other expenses expected to be $5.6 billion, up around $300 million, mostly related to the Altera acquisition. For the full year, Intel said it expects revenue to be up mid- to high-single digits on a percentage basis, with gross margins to be 61%, plus or minus a couple of points, mostly due to the Altera acquisition.

Here's what analysts had to say following the quarter:

BMO Capital Markets analyst Ambrish Srivastava (Market Perform, $30 price target)

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"PCs appear a touch weaker exiting 4Q, and Intel indicated that 1Q guidance is at the lower end of the normal seasonal pattern. For the reported quarter, DCG missed and was lower at a y-o-y growth of 5% vs. our modeled 7%. While we concur with Intel that DCG tends to be lumpy, we believe the company's long term CAGR assumption for that business is aggressive. For 2016, Intel's guidance suggests about a percent or two in weaker growth vs. its expectation set at the Analyst Day in November.

"Our 2016 EPS estimates move lower largely due to acquisition related charges, partly offset by a lower tax rate. Our 2017 EPS estimates move higher on a lower tax rate, with the impact of a lower depreciation being balanced by acquisition-related costs, and due to some accretion from the Altera acquisition. Our 2016 EPS goes to $2.20 from $2.28 while 2017 EPS goes to $2.63 from $2.50."

Wells Fargo analyst David Wong (Outperform, $40 to $50 price target)

"Intel beat its December quarter revenue and gross margin guidance midpoints. March 2016 quarter guidance and updated full year 2016 guidance is confused by the Altera operations and acquisition charges, and an extra week in the March 2016 quarter.

"Nevertheless it appears that Intel remains on track for organic growth and solid gross margin in 2016. Our 2016 GAAP EPS estimate decreases to $2.17 from a prior $2.59. We are introducing our 2017 revenue estimate of $65 billion and our 2017 EPS estimate of $2.70. We are maintaining our valuation range of $40-$50, based on approximately 15-18.5x our 2017 EPS estimate. We are reiterating our Outperform rating on Intel, Intel remains our Top Pick."

Jefferies analyst Mark Lipacis (Buy, $39 price target)

"Both 4Q15 results and INTC's 2016 outlook saw upside to GM, driven by a longer depreciation schedule, a longer manufacturing cadence and higher ASPs. Our bottom-up GM model implies 67% exiting 2017, which we still view as conservative.

"In 2016 we think INTC continues to benefit from secular trends in Cloud computing, and we expect it to gain share in Networking via SDN/NFV. Reiterate Buy."