..and with pre-tax operating margins of approximately 40% the company will probably be able to bank another $100 million in the next 5 quarters. In addition - operating leverage is such that as LG royalties start to kick in, the margins will actually begin to expand. But if you believe the wheels fall off the UDC car in a year or two, then yes, sell the stock...but if you believe that in 10 years we will have fold-able smartphones (with 3 or 4 times the screen size); OLED TVs priced for the masses; OLED panels in car interiors as well as for tail lights; OLED lighting in the mainstream as well as new uses for OLEDs that we cant even imagine, and you believe that UDC will be collecting royalties and selling emitters and other systems products to OEMs then you will look back at 2015 and say "you mean I could have bot UDC when it was selling for only 3 times book value and 13 times forward cash flows?!"
Yes management erased a lot of credibility with the $33 million write-off, but the host business was never part of the long term thesis...and had/has nothing to do with the aforementioned growth of the OLED industry.
what is fascinating (if these rumors are true) is that in all likelihood the phone would not only have the large "fold-able" screen on the inside, but it would probably continue to have a screen on the outside. In others words, from a square cm of screen perspective, each phone might have triple the amount of cm2 of OLED screens vs today's Galaxy S6...and since the emitter revenue UDC receives is highly correlated to the cm2 of screen coverage, emitter rev per phone produced could be as much as three times what it is today. And of course, if the phone turns out to be wildly successful, then Samsung's smartphone market-share would rise as well.
Google "getting the light out umich" and you will read about some interesting and seemingly simple new technology (done at the University of Michigan) for increasing the light coming out of an OLED. As the article notes, the research was funded in part by UDC, and UDC would have the rights to commercialization.
The LG agreement put a nail in the patent expiration short thesis. If LG thought that they could get cheaper emitters starting in 17, they would not have signed the deal they signed. The next deal we get with Samsung will show that as well.
Sentiment: Strong Buy
some people would posit that the reason UDC reached $55 earlier this year was based on Apple euphoria - and it faded when it became apparent that it was not (yet) in the cards. There are so many investors/traders/Cramers of the world looking for the Apple derivative "play", that if this news could be confirmed, the euphoria would start yesterday...
This morning i also got an email ad from Best Buy with the same tagline. Clearly they have the TVs in stock; hopefully an indication of improving yields at the LG fabs.
I am planning on buying a flat 65 version this fall.
I am not a close follower of Apple, but I was under the impression that they NEVER had a sole source provider if a key component. Given that LG has been the major LCD supplier (and LG supplies the OLED screen for the watch) it would seem more plausible for Samsung to be another OLED supplier....on the other hand, Sammy's phone panel production has been running at high gear for years now, and LG doesn't even use UDC green...so maybe this is merely a "short term" (ie for the first 3 years) exclusive supply relationship.
...interesting stuff nevertheless...
Hmmmm....maybe that is why UDC mgt was confident in keeping revenue estimates even after host biz disappeared. ..
while clearly a writeoff does not directly affect revenues, what DID change (and this was noted after the last EPS call) that at the beginning of the year, UDC expected to sell a fair amount of Host (thus their investment in said inventory). So if you assume that they lost $10 million of estimated host sales from their original estimate (which might actually be fairly conservative), then coming in at $200 million for the year is pretty good performance from emitter and royalty sales.
And with LG growing 80% YoY (and becoming the largest customer, at least for Q3) then we should have confidence in your final statement "Things are accelerating into next year"
(obviously all of the people calling out your mistake wish they owned the stock today...or even worse are having their face ripped off since they are short)
For all of the hand wringing that occurred after the $33 million write off (released after the market closed on August 6th) we are now over $3/share higher. Since OLED has been a (successful) playtoy of the shorts these past few years, I am sure that part of the reason the stock got down to $33 on October 1st was due to shorting, while at the same time, this recent move upwards has at least been partially fueled by short covering. But as Sid mentioned in today's Q&A, the market opportunity long term for OLED TVs is ginormous. He didn't overtly say that, but he DID mention that of the 235 million TVs projected to be sold in 2015, a mere 400-500 thousand of them will be OLED. That leaves some pretty solid market share opportunities going forward.
While we may back fill a little in the days to come, it is also possible that Brian Lee (GS analyst) decides to reverse course and change his rating....after all, it will look pretty silly if everybody comes away from your OLED meeting thinking positive, and you (as the host) stay negative...
BDE just released a pro-forma balance sheet post the deal (June 30th numbers adjusted for the sale of POC). My back of the envelope was pretty spot on: the company has $187.5 million in current assets against a mere $16.2 million in current liabilities (ie working capital of $171.3 million). Of that $187.5, $105 is cash and marketable securities and about $21 million in A/R. All of the current liabilities are A/P. Inventories represent about $51 million, and if the company had any concerns about the quality of those inventories they would have addressed that now...but they didnt. On the long term liability side, you have LT Debt of $19.3 million and other LT liabilities of about $2.3 million i.e. total long term liabilities of $21.6.
At $5.38/share the company now has a market cap of about $177 million...only $6 million more than its working capital...and if you remove the LT liabilities, you essentially have an operating business that is selling for $27 million!
(the company still has a share repurchase authorization outstanding (10% of the shares), and will almost certainly be in the market now that they have released this info, or at the latest, after the November 8th conference call.
If you go back to the last conference call (when they dropped the bomb that they might only sell one business...and didn't take questions) what got lost in that release was how healthy the Black Diamond (equipment and apparel) business is. So as the stock continues to drop, the difference between cash and market cap gets narrower and narrower....Hopefully we will get more info on the range of options for the sale of Black Diamond/PIEPs brands. In other words, if they were offered 1.5 times sales, but decided to decline, it would show the absurdity of the current price...after all, there is nothing that would prevent them from going back to that prospect and "hitting the bid".
What is most laughable is that he cut and pasted from the transcript and included the translation errors. Samsung's sales are going to "merchant" customers not "emerging" customers...you can see/hear why the auto transcript service made the mistake, but anyone who actually pays a little attention to the company/industry would correct the wording...
The TV reviewer from Forbes did a test to rank smartphone's viewing experience. Clear winner - Samsung S6.
The only problem is that he didn't attribute the victory to the fact that it has an OLED screen...which we all know is the case.
the process continues...the market turbulence does not affect bidders desire to buy these assets...yet the stock price is almost as low as it was before they announced their intention to "look at strategic alternatives"
investors selling the shares here are not paying attention to the balance sheet. In simple terms post the deal, including the additional cash received from the POC sale, the company will have positive working capital of about $170 million ($100 of which is cash, with the rest made up of inventory and A/R minus A/P) and long term debt of $20 million...and the market cap is about $180 million...( and of course that gives no credit for the $160 million in NOLs) If the Black Diamond brand stunk, then maybe the market would be correct...but the brand is alove and well, so the market is being emotional....so you can effectively buy the $150 million (and growing) sales business of Black Diamond/PIEPS for about $30 million.
It might not rally at all until we receive more clarity on strategy...but there is an awfully large safety net at these levels!!
and if/when we get news of another deal with a huge multi-national (could be any day now...mgt thought it would be by end of Q3) the validity of the technology will be validated (again) and the stock should act accordingly
This technology is worth A LOT more than its $30 million market cap; maybe even 10 times that!