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Universal Display Corp. Message Board

  • rul4king rul4king Feb 19, 2013 9:54 AM Flag

    One man's analysis of whats happening to UDC

    Quite a bit of new information has come out this year that I have been trying to make sense. There was the deal with Duksan, CES, Macquerie’s Report and statements by Sid at Goldman’s Conference. Following is my understanding what is happening.

    Sid has on several occasions compared the host emitter relationship as the synergy of chocolate syrup and milk with the end result of chocolate milk. A drop of expensive syrup and the bulk less expensive milk. OEM’s typically begin with a mixture of 95% host and 5% emitter. Over time they tweak the compound gradually reducing the emitter to as low as 2% and making the host 98%.

    At the beginning Samsung produced 3 inch screens in which I calculated the red material costs were approx. $.15. Gradually screens have been increasing in size. I estimate that a 4” screen (which is almost double the area of the 3”) has a material cost of approx. $.20. This is approx. what Brian Lee (Goldman Sachs) suggested in their conference however Sid would not confirm. At the CES 2013 show, in January, Samsung introduced a 4.99” screen believed to contain UDC’s green materials. Many believe this screen will be used in the next Galaxy phone. The 4.99” screen is 1.5 times the area of a 4” screen thus red material cost of approx. $.30 screen.

    Macquarie Research had an interesting report on Duksan come out a couple of weeks ago. Figure 21 showed a chart on the adoption of UDC’s green. The more intriguing chart was Figure 19 which had a breakdown of the value of the bill of materials for a screen. According to the pie chart 2% of the costs were for red emitter materials (UDC). An additional 12% were for red host materials. The green emitters represented 3% with green host of 15%. Sid has said that red and green emitter costs are approx. the same. The difference in cost was due to a higher concentration of emitter in the green compound. The red compound represented 14% (2%+12%) of the cost per screen vs. the green cost of 18% (3%+15%). As a result of the red emitter cost of $.30 calculated above for each 1% of material costs represents $.15 for a total material cost of approx. $30 per screen. The cost of the red compound at 14% equals $2.10 per screen. The cost of green compound at 18% equals $2.70 per screen. Samsung will insist that the green will be reduced from $2.70 to $2.10 with a savings of $.60. Some of the cost differences are a result of the higher concentration of emitter but the bulk of the difference is in the cost of host materials. I’ve calculated that the cost of host will have to be reduced by 22%. Some of this reduction will be due to higher quantities but the key will be the agreement with Duksan to be produced locally.

    At current quantities material sales per screen would be as follows: red emitter $.30, green emitter $.30 and green host $1.80 for a total of $2.40 per screen. Due to significantly higher volumes of material I can see this reduced to $2.00 per screen.

    I believe that this screen will be used in the new Galaxy S phone (4?). During 2012 Samsung sold 41 million in the 7 months that the Galaxy S 3 was on the market or just shy of 6 million per month. It has been rumored that they are planning on producing 100 million Galaxy S 4’s. This would utilize approx. 500,000 panels or 42% of their present capacity. Based on estimated 250 screens per panel less 50 screens damaged equaling a net yield of 200 screens per panel. Samsung currantly produces 75,000 sheets per month but is increasing to 100,000 per month. Macquerie Research has a chart Fig 21 on green ramp-up. The other 58% of capacity would be primarily red only with some green ramp-up.

    Should the Galaxy S 4 ramp up as above using the $2.00 sales on 100, million screens the gross margin would be as below: red emitter $.25 x 100 million = $25 million and green emitter $.25 x 100 million = $25 million for a total emitter sales of $50 million x gross margin of 85% (Sid said 85-90%) $42.5 million. Green host $1.50 x 100 million = $150 million x gross margin of 60% (Sid numbers) = $90 million. Total gross profit $132.5 million.

    The key is for Samsung to ramp up the green as rumored. UDC to continue research for hosts. Duksan to produce the host chemicals as promised. The Duksan deal is key as it eliminates a local competitor and iliminated a patent challenger.

    What will UDC forecast?

    Their assumption will be as follows:

    Since there is no contract for green host they have to assume minimal sales.
    Production remains at 75,000 sheets per month not 100,000 sheets.
    Green emitter will be lower until Samsung announces Galaxy S4 phone.
    Green emitter will be lower until Samsung announces Galaxy Note 3.

    There will be minimal OLED TV sales LG or Samsung.
    Low levels of production from LG, AUO cell phones.
    Minimal lighting effects.

    UDC Conservative Forecast for 2013

    Samsung Licensing Contract $ 45,000,000
    Sales of red emitter to Samsung @75,000 sheets 50,000,000
    Minimal green emitter to Samsung 10,000,000
    All other revenue LG, AUO, lighting & Gov’t Revenue 20,000,000

    Total Forecasted 125,000,000

    Potential (not in forecast)

    Sales of re emitter to Samsung 25,000 additional sheets $ 15,000,000
    Additional green emitter for Galaxy S4 phones 25,000,000
    Green emitter used in Note 4 7,000,000
    Green host materials in Galaxy S4 phones 150,000,000
    Green host material in Note 4 40,000,000
    OLED TV sales 15,000,000
    All other ramp-ups LG, AUO & lighting 13,000,000

    Additional potential not included in UDC’s forecast 265,000,000

    While 100% of this potential may not be reached. UDC cannot forecast materials for devices not yet announced by Samsung else they may violate samsung trade secrets. They will not assume host materials sales until they are actually made since they are not sole sources.

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    • You seem to be trying to make a case to ignore UDC's forecast. I'd like to see those revenues as much as anyone but in addition to the host material assumption and that not all Galaxy S4's and definitely not the Note 4's will be made this year ...

      how is that red emitter sales in the conservative forecast are going from 25m this year to 50m next year if you're not including any new production?

      it also seems like you're mixing computing some revenue based on sheets of production and some based on products so that it's getting counted twice in some cases. Revenue based on sheets of production is a good method.

      The story is pretty good with just basic projections as we look out for the next few years.

      • 1 Reply to ynotgoal
      • ynotgoal,

        You’re question, How do we double red usage without increasing the capacity from the present 75,000 panels to 100,000 panels per month? Is a good question that I’ll try to answer.

        We can agree the demand, in square meters is growing significantly in the past few years this has about doubled. Increases in number of cell phones and size of screens has led to this doubling. Therefore along with this increase red emitter will increase.

        Samsung has rapidly increased capacity to meet this growth in demand as a result capacity at the end of year is much higher than the beginning of the year.
        Utilization rates in this environment is often low as the assembly lines ramp-up.

        For example: If a plant began 2012 with a capacity of 45,000 panels and finished with a capacity of 75,000 panels its avg. capacity may have been 60,000 panels.
        Should the utilization rate have averaged 40%, the average would have been 24,000 panels / month. If in 2013 the beginning capacity of 75,000 was not expanded at all and the utilization rate improved with experience to average 70% the panels produced would have increased to an average of 52,500 or more than doubled.

        I have read that in anticipation of the Galaxy S4 launch the ramp-up of 4.99” screen are as follows: February 2-3 million units, March 4-5 million, April 8-9 million. Is this accomplished by speeding up one assembly line?

    • Another important question is how soon we'll know which path we're on ... will it be in the Q1 Numbers? Or do we have to wait for Q2 to get our green host numbers in order to resolve the conservative vs potential range.

      Sentiment: Strong Buy

      • 2 Replies to sidneyleejohnson
      • Sid,

        From what I've read 2-3 million of the 4.99" screens are to be shipped in February, 4-6 million in March and 8-9 million shipped in April. The Feb/Mar production of 6-9 million would be needed to launch the S4 in April so this figure seems to be in theballpark. Since the materials for Feb/Mar/Apr must be at hand prior to to production presumably all or most of this will ship in the 1st qtr. The totals of 14-18 million screens should green/green host be included an additional $1.75 per screen could be added. Therefore we could see a spike in material sales of $24.5-31.5 million. This would more than offset the loss of Licensing in the 1st qtr. I would hope that a few million $ of these materials were purchased in December.

        Sentiment: Strong Buy

      • We should already know what path we are on. The Goldman analyst asked exactly the right question which Sid answered. The problem is that either he was obfuscating or we are all wrong and the host material revenue opportunity is much smaller than analysts are projecting.

        If he was obfuscating, I see little defense for his answer.

    • Great Analysis.......thanks. Basically PANL for Dummies

    • RULE4KING do you see PANL forecasting $125 million in sales as they want to be conservative but the real potential is $125 + $265 million in sales = $390 million gross sales in 2013 or are you saying that sales might reach as high as $265 million in the best of all best of all best of all possible worlds?

      • 1 Reply to dca1125
      • The best of all possible worlds would be the $390 million in gross sales. Using the values suggested by Macquarie in the bill of materials suggests the revenue increase by adding green/green host to that of 7 times red. For a 4.99" screen used in the rumored Galaxy S4 the revenue would be about $2.00 / screen. I've seen forecasts of 100 million screens. That alone would bring in $200 million in Revenue and $132.5 million in gross profit. An addition $190 million in Revenue would be all other sources (ie. licenses, Galaxy S3 phones, tv's, lighting, tech services).

    • you mean $134 million net profit or gross sales?

    • Very nice analysis

      Thank You

    • The big assumption in your post is on the revenue from host materials. Macquerie's estimate (as well as Arete's from Oct 2011) indicate that the host material market is much larger than the emitter market. The problem is that Sid seemed to contradict this at the Goldman conference. The GS analyst asked a great question about the possible revenue opportunity when green gets adopted. Sid's response made it sound like green emitter sales would be the same as red emitter in a handset and that green host would also equal red emitter sales.

      I said before that his response made little sense to me. The thickness and doping concentration in the red and green layers are likely to be different and the odds that the green host material is exactly 1/20th (assuming a 5% doping ratio) seems low. However, if you take Sid at his word, the revenue opportunity in 2013 would be much lower than your post indicates.


      • 1 Reply to slacker7_11
      • With a wide range of doping concentration, anyware from 20x emitter to up to 50x emitter by volume a lot would depend on the price per gram for the host. Is the price/gram of host 1/50th or is it 1/5th the cost of emitters. You're saying based upon Sid's hazy definition it could be closer to the 1/50th.
        Macquerie prices it at 1/5th. Should Sid indication be correct and host pricing is one -one the green host potential would be reduced from $190 million to $38 million reducing the addition potential by $152 million to addition revenues of $113 million in addition to the $125 million forecasted bringing in the actual revenue to $238 million.

        Whether the addition of green/green host increases increases revenue by 3x or 7x its important but in either case its hugh additional revenue.

    • Excellent post, realistic assumptions

    • investmenttankerblogspot investmenttankerblogspot Feb 19, 2013 10:31 AM Flag

      According to yahoo
      PANL's 2013 revenue estimate range is 100 to 143.
      So even your conservative estimate is higher by 25% than the low end of the estimate range. Clearly analysts have brought their numbers down way below your potential number. There is plenty of room here to create beats. Also I don't think the stock price has anywhere near pricing in the potential such that there are much higher "whisper" numbers that would hammer the stock if the company misses them. For the record rul4king has had some of the best estimation work on panl over the last 10 years.

    • investmenttankerblogspot investmenttankerblogspot Feb 19, 2013 10:27 AM Flag

      conservative : All other revenue LG, AUO, lighting & Gov’t Revenue 20,000,000
      potential : All other ramp-ups LG, AUO & lighting 13,000,000
      Did you reverse these by accident?

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