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Qualcomm (NSDQ:QCOM) fourth quarter results beat analyst expectations as the world’s leading mobile chipset manufacturer enjoyed strong growth in chipset shipments, ably supported by new licensing deals in China. Wall Street was expecting the company to report earnings per share of $1.13 with revenue of $5.84 billion, while the company reported earnings of $1.28 and revenues of $6.2 billion, hitting the top end of their guidance range for the fourth quarter. Well, we will lay out the facts and let you decide for yourself to buy the stock now or not.

Bolstered by the recent $38 billion acquisition of NXP Semiconductors, Qualcomm expects continued growth of global 3G/4G shipments in 2017. The company has forecast Q1-2017 sales numbers to be in the range of $5.7 billion to $6.5 billion - a wide range, as the low end of the forecast would mean a drop of 1% and the high end would mean a growth of 13%.

A Turnaround Year For Qualcomm Despite Revenue Slide?

Qualcomm’s full year sales have declined by 7% from $25.3 billion in 2015 to $23.6 billion in 2016, but most of the decline happened during the first half of the year. Qualcomm recovered nicely during the second half, posting revenue growth of 4% in Q3 and 13% in Q4.

Qualcomm had set an ambitious $1.4 billion cost reduction plan for 2016, as the company wanted to improve its margin on the face of the smartphone sales slowdown around the world. Thanks to their better-than-expected sales during the second half of the year, Qualcomm’s operating margin for the year expanded by 463 basis points. Operating income was $5.8 billion in 2015 on sales of $25.3 billion, an operating margin of 22.92%, while the company reported a 2016 operating income of $6.5 billion with sales of $23.6 billion, an operating margin of 27.55%.

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The cost-cutting plan was indeed a sizable one, and with most of the benefits realized we can expect operating margins to stabilize in the next few quarters. 

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Looking Forward to Qualcomm’s Performance

One of the primary factors that drove Qualcomm's fourth quarter numbers to higher levels was better-than-expected MSM shipments, which grew by 4% during the quarter.

“QCT had revenues of $4.1 billion, reflecting MSM shipments modestly above the midpoint of expectations, driven by higher demand in thin modems and from OEMs in China. Revenue per MSM was modestly higher sequentially, primarily due to growth in adjacent businesses.” - Qualcomm 4Q Earnings Call

Qualcomm expects shipment growth to continue during the first quarter 2017 and now expects shipments to grow 2% sequentially and hit approximately 205 million to 225 million due to strong seasonal demand, primarily from Chinese manufacturers.

“Turning to our expectations for global 3G/4G device shipments, in calendar 2016 we estimate 1.625 billion to 1.725 billion devices will be shipped, consistent with our prior forecast, with the year-over-year unit growth of approximately 8% at the midpoint. We continue to see a strong 4G ramp in China as each of the operators pursues aggressive subscriber growth targets with their 4G plus service offerings, and design momentum continues to drive an increasing percentage of all mode devices across China.” - Qualcomm Q4 Earnings Call

Qualcomm’s dividend yield of 3.18% is still great, and the stock price also has gone up by nearly 60% in the last eight months.

The company has indeed done a great job in improving its bottom line numbers by cutting costs and thereby improving its margin levels. Market conditions haven’t really changed much, with smartphone sales around the world doing a little better than expected but still far away from the strong double-digit growth numbers the industry consistently posted during the 2010-2014 period. The next one year should give us an idea about the direction the industry will take in the future. And, with it, Qualcomm.