Smartphone market recovers strongly! Qualcomm (QCOM.US) beats expectations in Q4 and is optimistic about Q1

Qualcomm (QCOM.US), the world's largest smartphone processor seller, reported better-than-expected fourth-quarter earnings and made an optimistic forecast for the current period, signaling a recovery in the mobile device industry. Shares jumped sharply after hours on Wednesday.

The company said in a statement that it expects revenue for the quarter ending in December to be between $10.5 billion and $11.3 billion, topping the average analyst estimate of $10.5 billion. Adjusted earnings per share could be as high as $3.05, topping Wall Street's expectations.

Investors are looking for signs of a rebound in the smartphone market, especially in China, where Qualcomm has an advantage because most popular smartphones, especially high-end models, use its chips. The guidance provided on Wednesday suggested demand is recovering. The company said Android phone sales in China grew 40% in the year ending Sept. 29.

The stock closed at $172.99 on Wednesday and rose more than 10% after hours. It has gained about 20% this year through Wednesday's close.

Despite CEO Cristiano Amon's push to get the company deeper into other markets such as cars and computing, more than 60% of its revenue still comes from chips related to phones, making its financial results a bellwether for the smartphone industry.

Adjusted earnings per share were $2.69 in the fourth quarter. Revenue rose 19% to $10.2 billion. That compared with analyst expectations of $2.56 per share and $9.91 billion.

Revenue from chips related to phones rose 12% to $6.1 billion, slightly above the average analyst estimate of $6 billion. Revenue from car chips rose 68% to $899 million, topping the $816 million expected by analysts. Revenue from connected devices chips was $1.68 billion, topping the average estimate of $1.55 billion.

One of Qualcomm's biggest customers, Apple (AAPL.US), uses its modems in iPhones, but Apple is working to replace them with its own. The company has worked with Apple longer than many expected, but it has repeatedly warned investors that this revenue stream will eventually go to zero.

Another major driver of Qualcomm's profits comes from licensing fees for the underlying technology that powers all modern mobile networks. Phone makers pay these fees regardless of whether they use Qualcomm chips.

Finally, the company approved a $15 billion stock buyback plan to replace the $10 billion plan announced in October 2021. Qualcomm said in the statement that the current buyback plan has $1 billion left.