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Universal Display Corporation (NASDAQ:OLED) Lays an Egg, but It Could Hatch Nicely Down the Road

Universal Display Corporation (NASDAQ:OLED) had a bad day on Friday after reporting a surprising bad quarter – especially surprising given the information from Apple on its OLED content. That really caught the tape leaning the wrong way and accounts for how bad the one-day losses look at this point. Over the past four days, the stock is almost even.

The straight data: EPS rose 71% Yr/yr to $0.48, but that was well below market expectations. Revenue rose 25.7% yr/yr to $77.6 mln, but that also was well below market expectations. The guidance was disappointing also as OLED expects 2018 revenue of just $240-250 mln vs prior guidance of $280-310 mln. That computes to Q4 revenue of just $63-73 mln, so expect a sequential decline in Q4.

Universal Display Corporation (NASDAQ:OLED) trumpets itself as a company that engages in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for use in flat panel displays and solid-state lighting applications.

As of February 22, 2018, it owned or had exclusive and co-exclusive licenses, or had sole license rights with respect to approximately 4,500 issued and pending patents worldwide.

The company licenses and supplies its proprietary UniversalPHOLED materials to display and lighting manufacturers, and others.

It is also involved in the research, development, and commercialization of other OLED device and manufacturing technologies, including FOLED that are flexible OLEDs for the fabrication of OLEDs on flexible substrates; encapsulation technology for the packaging of flexible OLEDs and other thin-film devices, as well as for use as a barrier film for plastic substrates; UniversalP2OLED, which are printable phosphorescent OLEDs; OVJP, an organic vapor jet printing technology; OVPD, an organic vapor phase deposition process for manufacturing a small molecule OLED; and TOLED, which are transparent OLEDs for the fabrication of OLEDs that have transparent cathodes.

In addition, the company provides technology development and support services, including government contract work and support provided to third parties for the commercialization of their OLED products.

Universal Display Corporation has strategic relationships with Samsung Display Co., Ltd.; LG Display Co., Ltd.; BOE Technology Group Co., Ltd.; Tianma Micro-electronics Co., Ltd.; AU Optronics Corporation; EverDisplay Optronics (Shanghai) Limited; Shenzhen Royole Display Technologies Co. Ltd.; Japan Display Inc.; Sharp Corporation; Konica Minolta Holdings Inc.; Sumitomo Chemical Company, Ltd.; OLEDWorks GmbH; and Kaneka Corporation.


Two Sides to Everything

As noted above, OLED just announced EPS and revs well below market expectations. The guidance was also disappointing.

“During the quarter, we saw a pick-up in the smartphone market, driven by a number of new OLED display launches, including mobile products from Apple, Google, Huawei, LG, Samsung and others,” said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. “We believe that these launches are indicative of the increasing demand and value of OLEDs in leading OEM product roadmaps, and reinforces the strong secular OLED growth story. However, the magnitude of the second-half pick-up in our material sales is not shaping up to the degree that we had earlier forecasted.”

Rosenblatt continued, “As we look to 2019, we anticipate it to be a meaningful year of growth. With the continued proliferation of OLEDs across the consumer electronics market, the introduction of new form factors that will pave the way for new ideas and applications, and new production capacity that is expected to expand the panel maker landscape, coupled with billions of dollars committed to advancing the commercialization of OLEDs, we believe that OLEDs are poised to become the dominant display technology in the long-term.”

According to Needham, “OLED said the decline was mainly due to weakness in the smartphone market, though revs from LG, UDC’s OLED-TV customer, were down q/o/q by $9M. Add to that the complications of ASC 606, which can magnify changes in the impact of license rev by customer, particularly a customer the size of Samsung, and there unfortunately is a perfect storm. With the expected selloff today, the firm believes the risk-reward on OLED shares will look particularly attractive given growth expectations for next year.”

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