Qualcomm, the leading chipmaker, reported impressive fourth-quarter earnings on Wednesday, surpassing sales and earnings expectations despite significant year-over-year declines. The company also provided a robust forecast for the current quarter, signaling a potential recovery in the chip industry.

According to LSEG (formerly Refinitiv) consensus expectations, Qualcomm's adjusted earnings per share (EPS) for the fourth quarter stood at $2.02, higher than the expected $1.91 per share. Similarly, the company's revenue reached $8.67 billion, beating the projected $8.51 billion.

Investors welcomed the positive news, causing Qualcomm stock to rise by over 3% in extended trading.

Looking ahead to the current quarter, Qualcomm expressed confidence with its forecast of adjusted earnings per share between $2.25 and $2.45 on sales ranging from $9.1 billion to $9.9 billion. These figures outperformed LSEG consensus expectations of $2.23 per share on $9.2 billion of sales. If Qualcomm achieves the midpoint of its guidance, it would indicate a slight growth in adjusted revenue compared to the same period last year.

However, Qualcomm's year-over-year performance paints a different picture. During the fourth quarter, the company experienced a 48% decrease in net income, amounting to $1.49 billion or $1.32 per share, compared to $2.87 billion or $2.54 per share in the previous year. Additionally, revenue declined by 24% year-over-year, from $11.39 billion last year to $8.67 billion this year.

Qualcomm's fortunes are closely tied to the smartphone industry, which has been in a slump for nearly two years following the impact of the COVID-19 pandemic. As a key player in the market, Qualcomm manufactures processors for high-end Android devices, as well as lower-end smartphones. During the fourth quarter, handset chip sales recorded a 27% decline, reaching $5.46 billion, slightly exceeding Street Account expectations of $5.34 billion. This decline was reflected in Qualcomm's largest division, QCT, which experienced a 26% drop in sales, amounting to $7.37 billion.

Despite the challenges in the smartphone industry, Qualcomm's automotive business delivered positive results. With a 15% year-over-year increase, the division generated $535 million in sales, surpassing Wall Street expectations. While still a relatively small portion of the company's overall business, Qualcomm's automotive division continues to grow as more automakers and parts manufacturers choose to incorporate Qualcomm chips in their vehicles.

However, the "Internet of Things" (IoT) business, which includes the chips used in headsets like Meta's Quest, experienced a 31% year-over-year decline in revenue, totaling $1.38 billion. On the other hand, Qualcomm's licensing business, QTL, reported $1.26 billion in sales, a 12% decrease from last year's figures, aligning with Street Account expectations.

To showcase its capabilities in artificial intelligence (AI), Qualcomm aims to position itself as an AI-focused company. With chips equipped with AI features in millions of smartphones, the company hopes to take advantage of Wall Street's recent interest in semiconductor stocks for machine learning. Earlier this month, Qualcomm introduced new Android and Windows PC chips, equipped with improved AI portions called NPUs, capable of significantly enhancing AI image processing speed compared to previous processors.

In response to the positive performance and future prospects, Qualcomm CEO Cristiano Amon highlighted the company's roadmap for "generative AI and mobile computing performance."

During the fourth quarter, Qualcomm allocated $400 million for share repurchases and $900 million for dividends, demonstrating its commitment to delivering value to shareholders.

As Qualcomm beats expectations and provides a strong outlook, the company appears poised to rebound from the chip industry slump, aligning with the overall recovery in the smartphone market. Investors will be closely monitoring Qualcomm's performance in the coming months as the company strives to solidify its position as a leader in the chip industry.