Universal Display Shows New Signs of Life During Q2

Shares of OLED screen technology patent holder Universal Display Corporation rose by double digits last week, after the company reported results for the second quarter of 2018.

While revenue and earnings plunged last quarter, the bigger headline was management’s upbeat attitude concerning the back half of the year. The company has been saying that things would soon improve after a bad start to 2018, and it looks like that promise is coming true.

It could have been worse

The first half of the year can be sleepy for tech manufacturing, but Universal Display’s management has been warning for several quarters that it would be an especially rough period for its financial results in 2018. That transpired, as the forecast slump in OLED screen manufacturing hit hard once again. Results were down across the board compared with a year ago, as materials sales and licensing revenue from patent sharing both struggled.

However, it was an improvement over the first quarter, which the company said was going to be the bottom of the trough. Plus, the numbers look worse than they actually are. As a result of accounting changes that went into effect this year, reported revenue was USD 17.5 million less than it would have been if the old standard had been used. On a like-for-like basis, revenue only declined 28 percent from a year ago, while adjusted earnings per share fell 45 percent.

Overall, it was a good report. Universal Display had promised that the first quarter was going to be the low point for sales, and given the sequential rise in revenue from USD 43.6 million in Q1 to USD 56.1 million this time around, it looks like that statement was true.

What we were really waiting for

What just happened to the business is important, but the future matters even more. Management reiterated that it expects further improvement in the second half of 2018, adding that 2019 is likely to be a meaningful year of growth. CFO Sidney Rosenblatt had this to say:

We believe that 2019 is poised to be a pivotal year for the OLED industry. With the multi-year OLED CapEx growth cycle of new production lines, the landscape of OLED capacity is expected to significantly widen. This, we believe, will drive broader adoption of OLEDs across the consumer electronics market, and fuel substantial growth in the OLED industry.

Universal Display maintained its full-year guidance for USD 280 million to USD 310 million in revenue. Given that sales totaled only USD 99.7 million year to date, this forecast implies a minimum 180 percent sequential increase in revenue for the second half of 2018 compared to the first half of the year. Additionally, Universal Display expects that its manufacturing partners will have increased their production capacity by 50 percent by year-end compared with 2017. If that happens, it would potentially set up 2019 for significant expansion in licensing and materials sales.

Premium smartphones like Apple’s iPhone X are driving the market right now, but OLED manufacturers like Samsung and LG Display are gearing up for other applications of the technology. Of note is the OLED TV market, where LG is the dominant player. LG expects to make 2.8 million OLED TVs this year, 4 million next year, and 10 million in 2020, according to Universal Display. That’s a lot of new screens in need of OLED materials, all to Universal Display’s benefit.

Further down the line, the company is optimistic about OLED end markets in automotive, wearables, and lighting. OLED’s moldable form factor application is making progress as well, opening up new uses for the technology in the future. For now, though, it looks like Universal Display has stopped the bleeding and is realizing resurgence in demand from the smartphone and TV markets. That bodes well for a rebound in the stock, after it imploded early this year.

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