Intel Corp. reported a further drop in revenue in its latest quarter but managed to exceed expectations on its closely watched gross margin, signaling early signs of financial recovery. The improvement comes as the company begins receiving funds from the U.S. Chips Act, aimed at bolstering domestic semiconductor production.

Despite the margin beat, Intel’s first-quarter outlook fell short of Wall Street’s expectations on both revenue and earnings. The chipmaker projected revenue between $11.7 billion and $12.7 billion, below analyst forecasts of $12.9 billion. The company anticipates a sharper-than-usual slowdown in the first quarter, citing macroeconomic uncertainty and potential stockpiling by customers ahead of anticipated tariffs under the Trump administration.

Intel’s adjusted gross margin for the fourth quarter came in at 42.1%, surpassing its guidance of 39.5%. While this marks a decline from 48.8% a year ago, it reflects a substantial improvement from the 18% recorded in the third quarter when Intel incurred significant restructuring charges. Interim Co-CEO David Zinsner noted that the company’s cost-reduction efforts are starting to yield positive results, with a renewed focus on operational efficiency.

Intel’s stock responded positively, climbing 3.7% in after-hours trading following the earnings release. Corporate Vice President of Investor Relations John Pitzer highlighted that Intel, as a fixed-cost business, stands to benefit significantly when revenue exceeds expectations. The company also gained from the Chips Act grants, which helped offset expenses.

Looking ahead, Intel expects a sequential decline in gross margins for the first quarter, forecasting 36.0%. This decline is attributed to lower projected revenue and a reduced impact from the Chips Act benefits seen in the previous quarter. As the semiconductor industry navigates economic headwinds, Intel remains focused on restructuring efforts and optimizing its cost base to improve long-term profitability.