Proving once again that it's not what you do but what you were expected to do that counts, Intel Corp. disappointed analysts today with third-quarter earnings that were up only 21 percent from last year.

The announcement, made after the close of trading, pounded the stock. After rising 18.75 cents to $76.68 3/4, the Santa Clara, Calif., company's shares fell as low as $70 in after-hours trading.

News of Intel's performance came after stocks fell sharply today over concern about interest rates. The Dow Jones industrial average dropped more than 231 points. Given Intel's bellwether role, some analysts feared there could be more damage to come.

Intel, the largest maker of microprocessor chips for computers and thus a tech barometer, earned $1.9 billion, or 55 cents a share, in the quarter, excluding acquisitions-related charges. Analysts polled by First Call Corp. had been expecting an average of 57 cents a share, and the unofficial "whisper" numbers had been as high as 60 cents. Last year, earnings were $1.58 billion, or 45 cents a share.

Revenue was $7.3 billion, up 9 percent from $6.7 billion last year but also a little lower than analysts had been expecting.

In a conference call with analysts, Chief Financial Officer Andy Bryant said that while revenue growth was actually a little better than the company had expected, gross margins--sales minus production costs--were a little worse, falling from 59.4 percent to 58.7 percent.

Among the reasons for the decline, Bryant said, were a lower price for Intel's chips in the sub-$1,000 PC market and an increase in start-up costs for various chip lines. He noted that gross margins were 6 points higher than in last year's third quarter.

"A solid third quarter," Executive Vice President Paul Otellini called it. "We remain on track for a seasonally strong second half." The impact of the earthquake in Taiwan, where Intel sells a lot of merchandise, was negligible, Otellini said, adding: "Our customers have not asked us to do anything differently."

The executives said they expected gross margins to improve in the last quarter of this year. But no matter how much Intel played down the earnings results, they still came as a surprise to the market.

Merrill Lynch, for instance, in an "earnings preview" sent out earlier this week, forecast Intel to come in at 60 cents a share. The report predicted gross margins improving to 61.4 percent.

The analyst who wrote the report, Joseph Osha, said late today that he wasn't going to talk to the media about Intel until he "decided what he was going to do"--presumably referring to whether or not he would change his "buy" rating on the stock.

Another leading analyst, Ashok Kumar of U.S. Bancorp Piper Jaffray, wrote in a report earlier this week that he was lowering his estimate for Intel--to 60 cents a share.

In July, when Intel reported second-quarter results, earnings were also 2 cents shy of the analysts' forecasts. The stock rose after the news, however, because the company said it expected a strong second half.