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Edited Transcript of OLED.OQ earnings conference call or presentation 29-Oct-20 9:00pm GMT

·36 min read

Q3 2020 Universal Display Corp Earnings Call Ewing Oct 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Universal Display Corp earnings conference call or presentation Thursday, October 29, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Darice Liu Universal Display Corporation - Director of IR & Corporate Communications * Sidney D. Rosenblatt Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director * Steven V. Abramson Universal Display Corporation - President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Andrew Lodovico DeGasperi Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst * Atif Malik Citigroup Inc., Research Division - Director & Semiconductor Capital Equipment and Specialty Semiconductor Analyst * Brian K. Lee Goldman Sachs Group, Inc., Research Division - VP & Senior Clean Energy Analyst * Christopher James Muse Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst * James Andrew Ricchiuti Needham & Company, LLC, Research Division - Senior Analyst * Robert Bruce Mertens Cowen and Company, LLC, Research Division - Research Associate * Shek Ming Ho Deutsche Bank AG, Research Division - Director & Senior Analyst * Zhihua Yang Oppenheimer & Co. Inc., Research Division - Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to Universal Display's Third Quarter 2020 Earnings Conference Call. My name is Kevin, and I'll be your conference moderator for today's call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I'd now like to turn the conference over to Darice Liu, Director of Investor Relations. Darice, please go ahead. Ladies and gentlemen, now reintroducing, Darice Liu. -------------------------------------------------------------------------------- Darice Liu, Universal Display Corporation - Director of IR & Corporate Communications [2] -------------------------------------------------------------------------------- Thank you, and good afternoon, everyone. Welcome to Universal Display's Third Quarter Earnings Conference Call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Sid Rosenblatt, Executive Vice President and Chief Financial Officer. Before Steve begins, let me remind you today's call is a property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the expressed written consent of Universal Display is strictly prohibited. Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, October 29, 2020. During this call, we may make forward-looking statements based on current expectations. These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements. Now I would like to turn the call over to Steve Abramson. -------------------------------------------------------------------------------- Steven V. Abramson, Universal Display Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Darice, and welcome to everyone on today's call. We hope that you are all continuing to stay safe and healthy. While we continue to face uncertainties during this pandemic, our priority remains on the health and safety of our employees, customers, partners and community, safeguarding and growing our business operations and advancing our strategic growth programs. We are pleased to report third quarter results of $117 million in revenue, operating profit of $48.4 million and net income of $40.5 million or $0.85 per diluted share. As we noted during our second quarter earnings conference call, we saw a significant pickup in customer orders in July and that strength extended into August and September. Looking to the near term, while ongoing uncertainties relating to the COVID-19 pandemic persists, we see continued strength in the fourth quarter. Based on current estimates, we believe 2020 revenues will be in the range of $385 million to $400 million. As we look to 2021 and beyond, as new OLED production comes online, new OLED consumer electronic models are launched, and customers continue to advance their OLED commercialization plans, we expect to resume meaningful growth. OLED activity in the consumer electronics market continues to broaden and grow with new models and new applications. On the OEM front, Apple recently unveiled its iPhone 12 series, all 4 models. The iPhone 12, 12 mini, 12 Pro and 12 Pro Max, all support 5G and have OLED displays. As Apple noted on its website, the iPhone 12 is the best iPhone display ever. Apple described the display as "vastly more contrast, incredible color accuracy and a huge jump in pixel density. OLED delivers brighter brights, darker blacks and higher resolution for everything you look at. This is the best iPhone display we've ever made, and it goes all the way to the edge". Apple also highlighted under the header "the brilliant leap from LCD to OLED that" unlike LCDs that use a backlight to illuminate all the pixels at once, OLED pixels each emit their own light. They can be completely turned off to produce true blacks or light up all the way to 1,200 nits for HDR content. That's how you get 2 million to 1 contrast ratio. The difference is dramatic." Within the consumer electronics landscape, an increasing topic from panel makers to OEMs to consumers is form factor. As many of you are aware, because OLEDs are essentially thin-fill layers, they are inherently conformable, foldable and rollable, and you can manufacture OLEDs on glass, metal foil or plastic. The versatility and flexibility of OLEDs is exciting the consumer market with new ideas, designs and products. Previewed in August and officially launched in September to rave reviews, Samsung's third foldable smartphone, the Samsung Galaxy Z Fold2, has a 6.2-inch exterior screen that opens to a 7.6-inch mini tablet. In conjunction with the Fold2 launch, Samsung announced that it successfully commercialized a foldable OLED display panel that delivers near-perfect folding and outstanding image quality with the world's smallest curvature of 1.4R rating. As Samsung further noted, with a rapid increase in application usage fueled by much higher levels of content amid rising 5G commercialization, demand is already growing for more advanced form factors. Also launched in September was Royole's second-generation flexible smartphone, the FlexPai 2 with a 5.5-inch display that folds out work to a 7.8-inch tablet. Dual screen devices with OLED displays are also making a splash in the form factor landscape, from Microsoft Surface Duo with a 5.6-inch screen that opens to an equivalent 8.1-inch display, to the launch of LG's WING smartphone, which has a 6.8-inch main screen that can swivel 180 degrees into landscape orientation to review a 3.9-inch screen underneath for multitasking and gaming. In IT, Lenovo launched the world's first foldable PC last month. Equipped with a 13.3-inch OLED screen, the ThinkPad X1 fold can be used as a tablet or as a desktop monitor or folded into a clamshell. Speaking of IT and foldables, it's recently been reported that Samsung Electronics, Intel and Microsoft are collaborating to commercialize 17-inch foldable notebooks. Samsung display and BOE are reportedly developing the 17-inch foldable OLED displays that can be used as a monitor or a large tablet or as a laptop when folded at a 90-degree angle so a virtual keyboard can appear at the bottom half of the display. In TVs, LG Electronics announced last week the launch of the world's first rollable TV in South Korea. As noted by LG, the LG Signature R TV "boasts a liquid smooth 65-inch flexible OLED display that leverages self-lighting pixel technology and individual dimming control to deliver supreme picture quality." But beyond the advanced hardware, the new TV represents LG's unrivaled ability to innovate and create new possibilities that directly contribute to consumer benefits. The R in the name not only signifies that the TV is rollable, but that the TV is also revolutionary in the home entertainment space, redefining the relationship between the TV that can disappear from view at the touch of a button and the surrounding space. Another beneficial characteristic of OLEDs is transparency. Transparent OLED pixels are nearly as clear as the glass or plastic substrate on which they are built. In mid-August, Xiaomi unveiled a 55-inch transparent OLED TV with a description of "the pictures its display seems to be floating in the air, merging the virtual and the real to bring an unprecedented digital experience." Also around mid-August, LG Display announced and supplied the world's first transparent OLEDs for subway windows in China. LG's 55-inch transparent OLEDs were mounted on the Beijing Line 6 and Shenzhen Line 10 subway cars to provide passengers with real-time information, such as train schedules, flights, weather and news. As noted by LG, the parent OLEDs are gaining interest, not only from the mobility customers in the areas of self-driving cars, airplanes and subways, but also from sectors such as smart home and smart building industries. As OLEDs are self-emitting with no need of backlights, they are able to produce a maximized transparency rate. In OLED lighting, BOE has demonstrated a red OLED automobile taillight that offers up to 2,000 nits in brightness in a lifetime of over 20,000 hours. Switching gears from automotive to medical technology, Tohoku Pioneer, UDC's very first commercial customer in 2003, is supplying OLED light panels that will be integrated into a sleep mask used to treat diabetic retinopathy. Diabetic retinopathy is a complication of diabetes that can cause blindness if left untreated. This OLED sleep mask delivers a precise dose of light therapy to help treat this condition. The exciting world of OLEDs continues to broaden the imagination and transform the definition of what a consumer product can be. We are encouraged by the growing customer discussions and pipeline activity that we are seeing in the OLED display and lighting markets. As the OLED industry continues to gain strong momentum, we remain focused on extending our innovation leadership and enabling our customers. Across the company, we are strengthening our first-mover position by expanding our customer partnerships, amplifying our R&D efforts, enlarging our technical field capabilities and fortifying our product development engine. We continue to make great strides in broadening the breadth and depth of our phosphorescent technology and materials portfolios, including new reds, greens, yellows and hosts. On the blue front, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system. OVJP is our novel manufacturing process for maskless, solventless, dry direct printing of large-area OLED panels, which we continue to advance and that we believe will pave the path for high throughput, scalable and cost-effective manufacturing of RGB side-by-side OLED TVs. Innovation and invention remains a core of UDC's DNA, and we are continuing to build on our core competencies and pioneering work in phosphorescent materials and OLED technologies. Last month, Nature published our paper titled Plasmonic enhancement of stability and brightness in organic light emitting devices, describing UDC's groundbreaking device architecture that can extend the lifetime and enhance the efficiency of OLED panels. This work is part of our long-term R&D roadmap for continuing to enable the OLED ecosystem with best-in-class technologies and materials. We believe that these and our other strategic initiatives will strengthen and support our primary focus of enabling our customer successes and therefore, our long-term success. On that note, let me turn the call over to Sid. -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [4] -------------------------------------------------------------------------------- Thank you, Steve, and again, thank you, everyone, for joining our call today. Revenues for the third quarter of 2020 were $117 million, sequentially up from second quarter 2020's $58 million, and third quarter 2019's $98 million. Our total material sales were $68.7 million in the third quarter compared to material sales of $31.9 million in the second quarter of 2020, and $51.8 million in the third quarter of 2019. Green emitter sales in the third quarter of 2020, which include our yellow-green emitters, were $52.9 million. This compares to $24.2 million in the second quarter of 2020, and $40.2 million in the third quarter of 2019. Red emitter sales in the third quarter of 2020 were $15.2 million. This compares to $7.5 million in the second quarter of 2020, and $11.4 million in the third quarter of 2019. As we have discussed in the past, material buying patterns can vary quarter-to-quarter. Some of the contributing factors include COVID-19 issues as well as consumer product demand cycles, capacity ramp schedules, production loading rates, device recipes, product mix, material ordering patterns, customer inventory levels and customer production efficiency gains. Since a number of these factors are moving variables for our customers, they are also moving variables for us. Third quarter 2020 royalty and license fees were $44.6 million. This compares to $22.4 million in the second quarter of 2020, and $43 million in the third quarter of 2019. The third quarter 2020 Adesis revenues were $3.8 million. This compares to $3.7 million in the second quarter of 2020 and $2.7 million in the third quarter of 2019. Cost of sales for the third quarter of 2020 were $23.4 million. This compares to $12.6 million in the second quarter of 2020 and $17.3 million in the third quarter of 2019. Cost of OLED material sales were $20.8 million, translating into material gross margins of 69.7%. This compares to 67.8% in the second quarter of 2020, and the comparable year-over-year's quarter material gross margin of 70.6%. As we have noted in the past, material gross margins can vary quarter-to-quarter. A primary driver of this variance is product mix. With OLED momentum continuing to grow, and our customers' product roadmaps continuing to expand due to their growing list of OEM wins, applications and models, our material pipeline, in turn, is busier than ever. Some of these developmental materials have higher initial costs. As a result of this year's product mix of developmental and commercial materials, we believe that our 2020 average material gross margins will be closer to 70%. Third quarter 2020 operating expense, excluding cost of sales, was $45.3 million compared to last quarter's $46.5 million, and a comparable year-over-year's quarter of $39.4 million. Operating income was $48.4 million in the third quarter of 2020 compared to last quarter's operating loss of $1.2 million and year-over-year comparable quarter's operating income of $40.8 million. Third quarter 2020 income tax rate was 18.5%. Without ASU 2016-09, our third quarter 2020 tax rate would have been 19.2%. Net income for the third quarter of 2020 was $40.5 million or $0.85 per diluted share. This compares to last quarter's $815,000 or $0.02 per diluted share, and the comparable year-over-year's quarter of $37 million or $0.78 per diluted share. We ended the quarter with $673 million in cash and equivalents or over $14 of cash per diluted share. For the year, we believe that our 2020 revenues will be in the range of $385 million to $400 million. And lastly, our Board of Directors approved a $0.15 quarterly dividend, which will be paid on December 31, 2020, to stockholders of record as of the close of business on December 15, 2020. The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. With that, I will turn the call back to Steve. -------------------------------------------------------------------------------- Steven V. Abramson, Universal Display Corporation - President, CEO & Director [5] -------------------------------------------------------------------------------- Thanks, Sid. For the past 2.5-plus decades, Universal Display has built a corporate culture of integrity, collaboration and diversity. Our steadfast drive has also created a culture of continuous improvement and operational excellence. Our company's core competencies center on energy efficiency. The discovery of UDC's proprietary phosphorescent technology was a major breakthrough in the OLED industry. With efficiencies that are up to 4x higher than conventional OLED materials, UDC's patented and award-winning phosphorescent OLED technology and universal PHOLED materials are proven and integral to enabling high performance, low power consumption and energy efficiency in OLED displays and lighting. As a leader in the OLED ecosystem, Universal Display supports a range of educational initiatives designed to inspire and encourage future generations interested in science, technology, engineering and math, STEM, fields. We established the UDC, Inc. PHOLED Scholarship, which aims to support a graduating U.N. high school student, the town of which UDC is headquartered, pursuing a degree in STEM field. Universal Display has also partnered with the Smith Family Foundation to promote educational excellence in the Trenton, New Jersey area by providing a grant to their scholarship program. We have also instituted 2 annual award grants in South Korea to recognize outstanding individuals or teams that have demonstrated innovative ideas or research initiatives impacting the organic electronics industry. UDC is committed to fostering a workplace that encourages and embraces diversity and inclusion. Last week, Universal Display was recognized by The Forum of Executive Women and PwC and named a champion of Board diversity, joining a prestigious list of companies who have 30% or more women on their Boards. We understand that the success of our company is due to the hard-working and brilliant global team at UDC. I would like to take this opportunity to thank each of our employees for their drive, desire, dedication and heart in elevating and shaping Universal Display's accomplishments and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth and delivering cutting-edge technologies and materials for the industry, for our customers and for our shareholders. In closing, Universal Display is committed to advancing our efforts around sustainability through innovation and continuous improvement. As an integral part of the OLED market revolution, we will endeavor to continue to make positive contributions to the industry and the communities around us. And with that, operator, let's start the Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question today is coming from C.J. Muse from Evercore. -------------------------------------------------------------------------------- Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [2] -------------------------------------------------------------------------------- I guess, first question, when I look at the customer breakdown, it looks like your large Chinese customer came in a bit stronger than what we were expecting. So I guess curious, where are we in terms of inventory burn through there? And how are you thinking about the Huawei embargo headwind for your sales to that business? Or is there a follow-through with Oppo, Vivo, Xiaomi picking up the slack? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [3] -------------------------------------------------------------------------------- We do believe that the inventory that was as that customer has been burned through at this point. So I think that's why it looks so strong. In terms of the Huawei issue, we believe that if the Huawei issue impacts the overall OLED industry, obviously, it's going to have an impact on everybody in the industry. However, if -- as you just said, if it is really just the substitution, and that the overall industry growth remains intact, then it probably won't impact us at all. -------------------------------------------------------------------------------- Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [4] -------------------------------------------------------------------------------- Okay. That's helpful. And a follow-up related to 5G, but bigger picture. Obviously, there's a power gain by adopting OLED in addition to the better picture. But you also run across the higher bill of materials associated with RF. So curious, thus far in terms of what you're seeing in terms of design wins as far as OLED penetration into 5G? How would you compare that penetration relative to 4G? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [5] -------------------------------------------------------------------------------- Well, it's a difficult question for us to answer in terms of pricing since we're not the OEMs that actually make the displays. What we're seeing though, I think, is the benefits of OLED overall in picture quality and power consumption. You're seeing the new iPhones, all have OLED screens, higher-end ones, and the others that are being introduced. So we believe that the increased power consumption that 5G is going to require and the power efficiency of OLED screens is only going to help the OLED industry to grow. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question today is coming from Brian Lee from Goldman Sachs. -------------------------------------------------------------------------------- Brian K. Lee, Goldman Sachs Group, Inc., Research Division - VP & Senior Clean Energy Analyst [7] -------------------------------------------------------------------------------- Great job on the quarter. I guess I had a question first off on the guidance. If I just take the midpoint, it would mean that revenues are down 10% from the third quarter to fourth quarter. And I know fourth quarter tends to be seasonally softer, but clearly, this isn't a normal year. So the question would be, did you see some pull-forward in 3Q, maybe owing to per C.J.'s question, the Huawei situation and maybe that's not flowing through into 4Q? Just trying to get some of the puts and takes on the cadence here to end the year in the context of your commentary around demand trends being very solid and persisting into the fourth quarter? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [8] -------------------------------------------------------------------------------- Thanks, Brian, for the question. I mean the drivers for our guidance are primarily the panel production schedules, fab utilization rates, OLED, end market demand, year-end inventory issues, COVID issues and in terms of -- we are monitoring it obviously, very closely. We are pretty comfortable with our guide the way it is. So yes, you are correct. The math is correct. And it is something that we just have to monitor very closely. But the quarter so far is tracking consistent with our expectations for the quarter. -------------------------------------------------------------------------------- Brian K. Lee, Goldman Sachs Group, Inc., Research Division - VP & Senior Clean Energy Analyst [9] -------------------------------------------------------------------------------- Okay. Fair enough. That's helpful. And then I know you're not going to preemptively give us guidance for next year. But if I think about just the cadence that you've seen this year, you had a pickup ever since July, and it sounds like you're expecting trends to be pretty solid here into year-end. The inventory situation seems to be cleared up, so that's not going to be a headwind heading into next year. And I know year-on-year comps in the COVID world are pretty tough. But when I look at the 4Q number, you're kind of guiding to mid-single-digit year-on-year growth heading into '21. And I think there's an expectation that you'd be back to sort of significant double-digit growth, which was what you had been targeting this year before the pandemic hit. So how do you kind of -- if I had to frame that question, what are you thinking about here, sort of over the next 12 to 18 months, in the context of getting back to double-digit growth? What gives you confidence that, that deal you have a path to get there? And then you didn't mention the 50% capacity growth target across the industry that you had always sort of outlined as part of your view over the next couple of years. Is that still intact? Maybe you can speak to it in that context as well? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [10] -------------------------------------------------------------------------------- I will try to answer all of your questions, Brian. There was a lot there. And regarding the 50% growth from the end of 2019, the end of 2021, for installed capacity, we do think that's intact. It is a fluid situation, and there may be some things that get shifted out a little bit. But overall, we think that the long-term growth picture for OLEDs is really still very strong. And moving to expectations for next year, I mean, it's clearly trying to look at this year and use it as a guide for next year because of the COVID issues, particularly with Q2, it's obviously very difficult. And so right now, we're focusing on this quarter, and we're confident, as we said, it's tracking where we think it should be. And to be honest, in our next earnings conference call, we will give you guidance for 2021. -------------------------------------------------------------------------------- Brian K. Lee, Goldman Sachs Group, Inc., Research Division - VP & Senior Clean Energy Analyst [11] -------------------------------------------------------------------------------- Okay. Fair enough. I'll wait for next quarter. Maybe just one last one, if I could squeeze it in. On the gross margins for materials, I appreciate the detailed explanation. It makes a lot of sense. But I guess, it begs the follow-up question of, if you're seeing some developmental materials in the mix that are weighing on margins a bit, and it's been pretty persistent through the year because I think this was the first quarter where you got right at that 70% target, and in prior quarters, you were in the 60s. Can you give us some sense of where the developmental materials are happening? Are they in next-gen red, next-gen greens, are they in host? Are you actually seeing some blue developmental material revenue? Just any context would be helpful. -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [12] -------------------------------------------------------------------------------- Sure, Brian. The developmental materials, I mean, we -- as we stated, and we have more customers, we have more work to do with each customer. Our pipeline of developmental materials is very strong, and it's across the board. It's all of our materials. And once we start putting them into commercial production, we start building up batch sizes, our economies of scale kick in. And so we still believe that our gross margin picture is intact. But it is -- to some extent, it's one of the benefits or drawbacks of success in that we have more and more customers and more and more materials that we're developing. And as we've always said, in the beginning, when you develop something that you're going to commercialize, it does cost you more money per gram or per kilogram to produce. But in the long run, it is going to continue feeding our growth engine. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question today is coming from Jim Ricchiuti from Needham & Company. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [14] -------------------------------------------------------------------------------- I just wanted to pursue the timing for reinstating guidance, which obviously, we all welcome. But were there any particular factors that really drove that? I mean, is it the fact that perhaps Q1 -- Q4 has started off more strongly? Is it the idea that your inventory that you're expecting to be burned off by your customers in China have come down? Is it the strength of potentially some of the newer products that are being introduced into the market? Any particular things that really drove that decision? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [15] -------------------------------------------------------------------------------- To be honest, Jim, it's a number of things. It's based upon our ongoing customer discussions, the feedback from our field team in Asia, our analysis of where things are as of today, and the fact that this quarter is tracking consistent with our expectations. And based upon -- obviously, there are some year-end inventory issues that may kick in and utilization rates are -- obviously, we'd like them to continue to go up. And there still are some COVID issues. But right now, based upon everything we know, we are comfortable with reinstating our guidance for the year at $385 million to $400 million. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [16] -------------------------------------------------------------------------------- Got it. And looking at the business that you generated out of China, if we put aside your large customer there. You're still showing very healthy year-over-year growth. And I assume part of that is also some of the TV capacity that's in place in China? Or are you -- you've seen some of the players in China starting to get more traction that you're working with? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [17] -------------------------------------------------------------------------------- It's a little of both. Obviously, LG, who has a factory in China when we enlist the location where it is, it is a Chinese factory. So that goes into when you go geographically, those numbers go into China. And we are seeing some strength across the board in China also, but that's probably the biggest factor. -------------------------------------------------------------------------------- James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [18] -------------------------------------------------------------------------------- Okay. And last question, just if I may, just on OpEx, anything we need to be mindful of as we think about Q4 operating expense? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [19] -------------------------------------------------------------------------------- No, I think we're still in line with the 10% to 15% that we talked about, and it's going to be weighted towards R&D. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question today is coming from the line of Sidney Ho from Deutsche Bank. -------------------------------------------------------------------------------- Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [21] -------------------------------------------------------------------------------- Only one question on your largest customer. The revenue was clearly up very nicely. But I'm a little surprised that it's still down year-over-year versus third quarter of last year, especially given the U.S. smartphone OEM is going all OLED this year. Do you have any insight as to why it's still down year-over-year or other than maybe timing of the launch? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [22] -------------------------------------------------------------------------------- I mean, I do think that the pandemic and the purchases in Q2 are really impacted the whole year, and we're still seeing that. -------------------------------------------------------------------------------- Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [23] -------------------------------------------------------------------------------- Okay. Maybe a couple of questions on the balance sheet. First of all, on the deferred revenue. Normally, when revenue is stronger than expected, I would have guessed deferred revenue would go down, but it actually went up this quarter. So just trying to understand the dynamics. And then another balance sheet item on the accounts receivable is quite a bit high this quarter, and we normally don't see that jump in Q3. Is that just indicative of the timing of shipments you're shipping later? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [24] -------------------------------------------------------------------------------- Well, I think it is, I'll answer your accounts receivable question first. Obviously, Q2 was very light, and Q3 was so much stronger, double it, you're going to see receivables grow. We believe that it's just normal course of operations, and there's no issues with these being behind or anything like that. So I don't see an issue with that. It really is a result of the strong sales that we had in the quarter. And deferred revenue continues to grow. And because they have multiple customers that contributed to that. So it is something that it's -- you're right. All of that deferred revenue on the balance sheet is eventually going to turn into revenue over the next few years. So it really just strengthens the next couple of years to show where we're going to continue to grow. -------------------------------------------------------------------------------- Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [25] -------------------------------------------------------------------------------- Got it. Maybe only one last for me. I have to ask about the blue emitters. Last quarter, you highlighted this Samsung paper. Curious if there's any new development you can share with us following that paper being published? -------------------------------------------------------------------------------- Steven V. Abramson, Universal Display Corporation - President, CEO & Director [26] -------------------------------------------------------------------------------- Well, well, we're encouraged by the continued progress that we're making on blue. But as we know, until we meet commercial specs, initial commercial specs, we're not going to provide any more details. But our confidence in it continues to grow due to the significant R&D progress that we are making, our recognized blue continues to be a work in progress. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Our next question is coming from Andrew Degasperi from Berenberg Capital Markets. -------------------------------------------------------------------------------- Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28] -------------------------------------------------------------------------------- I just had a quick one to follow-up to Brian's question earlier. Are you confident based on what you know now today that you will give a 2021 guidance? I know it might seem like an obvious question but given that we've seen the COVID-19 spikes, and I know that there might be a demand disruption potentially. Is there anything that could change that dynamic in the next few weeks? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [29] -------------------------------------------------------------------------------- Well, it's actually a very good question because right now, we think that we can see -- foresee what 2021 looks like, and we're working on putting together everything that we need to have. However, you are correct. I mean if the pandemic, and it's -- I honestly believe that the pandemic is the real issue here. If things continue and places that have closed down before, close down and production cannot continue -- our customers, then we may not be able to do that. But assuming that things stay stable, and we don't see any major catastrophes around the world. We -- right now, it is our intent to do it. -------------------------------------------------------------------------------- Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [30] -------------------------------------------------------------------------------- That's helpful. And just in terms of your number one customer, I'm not sure if you can share this with us, but I was wondering, has there been any change in terms of the recipe of the emissive material in the current line of smartphones versus last year? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [31] -------------------------------------------------------------------------------- To be honest, we really don't talk about what our customers' recipes are. So it's not a question that I can answer for you. We're pleased with the continued growth and where the market is going now. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Our next question today is coming from Shannon Cross from Cross Research. -------------------------------------------------------------------------------- Unidentified Analyst, [33] -------------------------------------------------------------------------------- This is Patrick Jackson on for Shannon. Just one question on how you're thinking about the OLED TV market after a few quarters of strong overall TV demand? And what pricing changes do you expect for new production or entrants in the OLED TV market over the next year? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [34] -------------------------------------------------------------------------------- In terms of the TV market, I mean, I think LG talked about 2021 being somewhere between 7 million and 8 million TVs. I think this year, the number is probably in the mid-4s with 19 OEMs, branding, OLED TVs. And as production continues to grow, we hope that pricing continues to come down to help the market grow, but that's not something that's in our control. But VIZIO moved into the market and VIZIO, historically, is a price leader for TVs. But we are very encouraged by the OLED TV market growth and still continue and will be rated the best TVs ever. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- Our next question is coming from Atif Malik from Citi. -------------------------------------------------------------------------------- Atif Malik, Citigroup Inc., Research Division - Director & Semiconductor Capital Equipment and Specialty Semiconductor Analyst [36] -------------------------------------------------------------------------------- I also have questions on the TV market. Sid, if you can help out what percentage of your material sales are TV-driven or exposed? And when do you expect TV material sales to cross over mobile? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [37] -------------------------------------------------------------------------------- I'm sorry, in terms of units, I mean, LG is our second largest customer, and it's based upon square meters of glass, we quote the entire substrate. So I think that in our Investor Relations report, you can see that once you get to 10 million or 11 million OLED TVs, that's equivalent to almost 700 million smartphone screens. So I mean, that's pretty much where the crossover would be. But it's a number of years away before you get to 10 million or 11 million OLED TVs. -------------------------------------------------------------------------------- Atif Malik, Citigroup Inc., Research Division - Director & Semiconductor Capital Equipment and Specialty Semiconductor Analyst [38] -------------------------------------------------------------------------------- Got it. And then Samsung, yesterday, talked about a delay in their LCD exit strategy because of work-from-home demand for LCD monitors and all that. Are you seeing an impact on capacity ramps for any of the OLED projects because of improved profitability on the LCD side? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [39] -------------------------------------------------------------------------------- No. I mean, to be perfectly honest, OLED growth is going to be driven, as was discussed a little bit earlier, by new products, mobile-sized products and 5G requirements for power so that you're going to have OLED screens in mobile devices. On the monitor front for OLEDs, there's only a few axle monitors out there and they're for gaming. It isn't -- I don't think that the monitor increase in sales because of work at home is going to impact the OLED business. Right now, the growth is in mobile sizes and TVs. -------------------------------------------------------------------------------- Atif Malik, Citigroup Inc., Research Division - Director & Semiconductor Capital Equipment and Specialty Semiconductor Analyst [40] -------------------------------------------------------------------------------- Great. And then lastly, China Star has announced an OLED TV fab in 2024, using RGB inkjet printing. What is your view in terms of China adopting technology like that? And what will affect -- how will it affect your (inaudible) sales? And also if you can update on your revenue timing for OVJP. -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [41] -------------------------------------------------------------------------------- So just in terms of China Star's announcement, I mean, we believe that the future for printing is -- TVs is in OVJP. I mean we've worked for a number of years and experienced firsthand, how difficult it is to inkjet print using technology that exists today. So our OVJP technology is using the best of both worlds. It's vacuum deposition and printing technology so that we know that they both can work. So if our customer is going to work on something that they think works, that's fine. Our materials work with printed technology, but we really believe that the future of printing is really in OVJP. -------------------------------------------------------------------------------- Operator [42] -------------------------------------------------------------------------------- (Operator Instructions) Our next question is coming from Martin Yang from Oppenheimer. -------------------------------------------------------------------------------- Zhihua Yang, Oppenheimer & Co. Inc., Research Division - Associate [43] -------------------------------------------------------------------------------- So just a follow-up on OVJP. So can you maybe outline for us your -- the milestones we should be expecting as you move along with development and then commercialization of OVJP technology? -------------------------------------------------------------------------------- Steven V. Abramson, Universal Display Corporation - President, CEO & Director [44] -------------------------------------------------------------------------------- Well, as you guys may recall, this summer, we formed OVJP Corp. and hired Jeff Hawthorne as the CEO. He's been hiring people out on the West Coast to start the equipment design and build for the alpha system while we're continuing to work on the R&D and the device architecture back in Ewing. We think that probably commercialization is probably 3 -- probably still 3 to 5 years away, but we're very, very excited about the progress that we are making. -------------------------------------------------------------------------------- Zhihua Yang, Oppenheimer & Co. Inc., Research Division - Associate [45] -------------------------------------------------------------------------------- As a follow-on that, do you intend to design the equivalent all on your own? Or would you eventually choose an existing display semiconductor equipment partner to work with? -------------------------------------------------------------------------------- Steven V. Abramson, Universal Display Corporation - President, CEO & Director [46] -------------------------------------------------------------------------------- That's a very good question. Right now, we are exploring all of our commercialization options. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Our next question today is coming from Krish Sankar from Cowen. -------------------------------------------------------------------------------- Robert Bruce Mertens, Cowen and Company, LLC, Research Division - Research Associate [48] -------------------------------------------------------------------------------- This is Robert Mertens on behalf of Krish. Maybe just one last one, sorting back to the TV market. Just maybe what your views were in terms of the OLED penetration, maybe what was tracking today, and how you see that developing over the next year? And maybe just some puts and takes with competition in the premium TV market, whether it's quantum dots or other technologies? -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [49] -------------------------------------------------------------------------------- We're very excited about the TV market. And obviously, LG is the only OEM making the panel, but getting more and more OEMs who are badging them and continuing to get rave reviews. And to be honest, when you go to a Costco's or someplace like that, you can see that the prices are coming down. And I think that, that is just going to drive more adoption of OLED TVs because of the picture quality. It is -- when you walk in Costco's, they always have OLED TVs at the very front door, and the one that I go into has 77-inch TV there. So -- and everybody stops and stares at it. So I do think that it is obviously still at the premium end, but you can get 55-inch OLED TVS, I believe, for $1,200 now. So it is getting much more in line with, not just the upper cross premium, but just a premium end of the market. And it will continue to do that as new capacity, and the factory utilization goes up and they add [mine]. So I think that we're very excited about it. And I think the estimates for 2023, I think, going to -- or 2022, 2023, going to 10 million units, I think that's very achievable. -------------------------------------------------------------------------------- Robert Bruce Mertens, Cowen and Company, LLC, Research Division - Research Associate [50] -------------------------------------------------------------------------------- Congrats on the quarter. -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [51] -------------------------------------------------------------------------------- Thank you very much. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- This concludes the question-and-answer session. I'd like to turn the program back to Sid Rosenblatt for any additional or closing remarks. -------------------------------------------------------------------------------- Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [53] -------------------------------------------------------------------------------- Thank you all for joining the call tonight, and we wish you all to stay safe. Thank you. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Thank you. This concludes today's conference call. You may now disconnect.