while the stock has been weak today (and yesterday), it has been characterized by fairly low volumes, for example, today is only slightly ahead of avg. daily volume. To me this is not a sign that anyone knows anything, but rather a sign that people believe that the risk of a lackluster Q (in terms of PPS move down) is worse than the reward of a decent to good Q. But if you look at stocks that have been weak, but then post a good number and a solid outlook (SWIR is a good example today) then not only will the longs pile in, but the shorts will have to cover as well.
My view (and backed up by a large position in the name) is that sales to Customer A (SME) will be down a tad sequentially...sales to Customer B (ie host sales that go through Nippon Steel) will be also be down a tad (both A & B driven by SME end market softness not by lost host sales, and importantly some of the handset losses will be made up in tablet sales) but the strength of LG's ramp (ie Customer C) will make up for the revenue lost to A. And since LG does not have a LT agreement (yet) the margin on sales to LG is significantly higher than the margins of like materials to SME. The key to look for is in the "royalty" line item. Since this is Q3, there will be NO license fee from SME, so the vast majority of the Q3 royalty will come from the "allocated" percentage of the sales$ that went to LG....So revenue will be in line or a tad light, but EPS will be stronger.
Sentiment: Strong Buy
I'm not on facebook, so it didnt allow me to respond...so if anyone cares to correct one of my pet peeves for me, I would appreciate it...you hoe a "row" not a "road"...and if I had a nickel for every time someone says it wrong, maybe I could buy one of those sweet TVs!!
The mainstream press is covering the 2 guys who are free climbing El Capitan in Yosemite. The Black Diamond insignia is front and center on the tents that hang on the side of the face (where they sleep)
It should also not be characterized as a "leak" since it occurred during routine maintenance when a valve was mistakenly opened. While it is always unfortunate when workers are hurt, or in this case die, it seems that it was more of a procedural mistake rather than a fault with the design of the fab. In addition, it sounds like there was no damage to the facility, so that it should be back up running relatively quickly....and like you say, it was GREAT news to hear that this facility was actually online producing TVs.
If you are trying to figure out how much product UDC sells into a TV, you are almost wasting your time, since the amount of rev UDC books is much more dependent upon the number of TVs sold vs what $ they get from each (its not unimportant, but just very difficult to calculate). Having said that, if your question is "will UDC have to cut material prices for OLED TVs to be cost competitive?" then I believe that the answer is a strong "NO". From what I have learned talking to people a lot more knowledgeable than me on production costs, the biggest "cost" is the combination of capacity of the fab and yield. For the most part, the "labor" component of a fab is fairly low, but clearly you need people monitoring production and being there to "adjust" or "tweak" the process if need be. So to use an easy example, if your line can only produce 100 units per day, you probably need about the same labor component if your line was producing 1000 per day. And of course if you get up to a full line that is actually producing 100,000/month (or about 3000/day) then you might need a few more people, but the incremental cost is very low, especially spread out over 3000 per day. So in other words, simple operating leverage kicks in on the human capital side if you can spread the "people cost" over thousands of units.
But the biggest "cost" is yield from the line. Lets assume that the material costs (not just from UDC but ALL material costs) for a TV panel is $200, and if you run the line at full capacity the amortized cost of the line turns out to be $50 per TV (these are not meant to be accurate, just illustrative). Said differently, the amortized cost of the plant is about $5,000,000/month (capacity is 100,000 times $50 = $5,000,000. And lets also assume that you need $1,000,000 of labor per month to run the line...so at full capacity that labor comes out to $10/panel. Adding up all of those you get a "cost" per unit (at full capacity) of $260/panel. But yield...
then rears is ugly head. If yield is only 50% then that means that 50% of the materials used are wasted. So instead of material of $200 you bounce up to $400/panel...and the amortized cost gets doubled to $100 and the labor gets doubled to $20 and instead of a "cost" of $260" you are now at $520. It would also be worse if the line was not operating at full speed, but yet the yield was still 50%...in that scenario, the materials still get doubled, but depending upon the speed, the amortized cost of the plant might be tripled as might the labor component...boosting the cost to well over $600...and of course if the amortized cost of the plant is more like $200/panel (at full capacity and full yield) then the math gets even worse.
But of course, this is why LG has been running a pilot line first...they want to get all the kinks out so that when the bigger line starts, they can get 80% yields and work their way up from there.
That is why an agreemnet with LG will be a great "tell"...after all, they don't need a LT agreement unless they are buying LOTS of materials.
Hope that is somewhat helpful
This is VERY good news. Clearly the price is important, but it is also telegraphing Samsung's desire to sell OLED screens to the broader industry. In 2014 they were reserving capacity for their own smartphones, and when demand for those phones slowed dramatically, they were stuck with unused capacity. And of course that affected UDC's results. While other OEMs were definitely interested in offering OLED screens, they had to be confident that Sammy wouldn't pull supply from them. I think Sammy has come to the conclusion that it is better to be profitable than to hoard OLED screens for only their product. And of course, if Sammy is successful in getting lots of outside orders, then more capacity is sure to follow.
As to the Chinese LCD competitors, if OLEDs have better color quality, are 30% more energy efficient, have the potential for different form factors AND are the same price (and eventually cheaper because there is no backlight and color filter) then it is only a matter of time before OLED screens become the norm for ALL smartphones (including Apple)
While the LG agreement communicates that there is indeed another serious player in the OLED Display business, the REAL news is that the agreement runs through 2022.
If you are/were short the stock I am sure you kept saying to yourself "I don't care what Apple might do in the OLED space, but since UDCs patents are falling off a cliff in 2017/18 and their Revenue will be zero by then, I will just hold my short until then. Guess what...that leg to the short story was just kicked out from underneath you today.
Or lets say you were a potential large owner (maybe you are Fidelity or TRowe, neither of which owned a share as of Q3'14) and you look at the long term potential for the OLED space (so you are excited) but then you look at the short term headwinds facing UDC right now (Samsung capacity utilization; Samsung's use of Host materials, timing on the LG TV ramp) and you recognize that all of those short term issues are already built into the price, but in the back of your mind you wonder about the patent cliff...and if its true, why do you want to buy the stock in front of punky 2015 revenues? Even if lighting and Apple and 75" TVs are all kicking in by late 2016, do I really want to own it with a patent cliff coming a year later? Well...those people now have no excuse but to buy.
So while the agreement validates LGs commitment to the space, its greatest importance is that it tells the market that UDC's intellectual property is rock solid, and it if you believe in the long term potential of the OLED business, the best way to invest in that is through Universal Display!
I think we need to prepare ourselves for rev projections that are "different". What I mean by that is that this agreement means that UDC will be paid for materials when they are delivered, and a royalty when a product is sold (eventually), and that total revenue per unit will probably be LESS than what we have been seeing in the past. (After all Sid has been very out-front as to how UDC was content to sell materials to LG under the old contract) So if LG bought $100 worth of material for an OLED TV under the prior arrangement, and if UDC was allocating 1/3 of that revenue to material cost, and 2/3 to embedded royalty, then that $100 of rev would show up when the material was delivered. So lets assume that LG will now get a 10% discount for signing the agreement, and the material cost is now $30, and the assumed royalty will be about $60. If the material is delivered in Q1 and the TV is sold in Q2, UDC will book the $30 in Q1 (vs $100 in the past) and won't book the remaining $60 until the TV is actually sold, plus some time to do the accounting. So it might be that the Royalty doesn't hit until Q3!
Obviously the good news is that LG is planning on producing a bucketful of TVs (which is why they wanted to sign this type of agreement). So 2015 AS A YEAR should show some solid revenue gains vs last year, but the revenue from LG is going to be booked differently than last year, so the comparisons will be "funky"
amazed how few even mention the new transmission platform let alone believe it is meaningful. In simple terms SBGI will reposition the old spectrum used for analog TV into a "one to many" mobile platform. THat means you will be able to watch broadcast TV from ANYWHERE, without going through your wireless provider, paying for data minutes and getting things at a lag. Advertising dollars will explode!
Did you know that AAPL lost its touch? At least that is what the tech conscious market was saying in the Spring of 13 and again last Spring. I also believe that "analyst coverage" can mask transformational change...because the analysts who have covered a name for years do not have the ability to think outside the box...
GE sold the appliance business to Electrolux...and it is unclear what their plan is for lighting (since the two of them were reported together) Perhaps that is the reason why GE has not made a move to OLED....why "invest" today (and make your near term financials look bad) if you are planning on selling the unit.