Universal Display (OLED 114.70, +13.55, +13.40%) is trading nicely higher today,
which is a welcome change for investors who have seen the stock fall from a
high of $209 in January to close yesterday around $101.
The company specializes in what's known as organic light emitting diode (OLED) technology for the display and lighting industries. It licenses its technology to makers of TVs and consumer electronic devices such as smartphones, tablets, handheld consoles, and cameras. OLED technology produces a higher quality picture than can be achieved with LCDs. Utilization of OLED technology enables product manufacturers to incorporate more vibrant colors, thinner screens, and lower power consumption into their designs.
A proliferation of OLED products has become available in recent years, including laptops; OLED wearables, such as the Apple Watch Series 3; smartphones, including new Samsung Galaxy models; virtual reality and augmented reality OLED headsets, such as the Oculus Rift and HTC Vive; and new OLED TVs. Also, last year's iPhone X was Apple's first OLED phone, and there has been speculation that Apple will expand the use of OLED in other phones.
To explain the stock trading action in recent years: 2017 was a record year for revenue for the company thanks to a multitude of new agreements and new OLED consumer electronic product launches. The company also approximately doubled its production capabilities at PPG Industries manufacturing facilities. With that said, after an extraordinary 18 months of new capacity installs, OLED had suspected that industry capacity growth would take a bit of a breather in 2018 while panel makers build the framework for the next wave of high volume OLED production, which is expected to ramp in 2019.
Fast forward to 2018: Demand has been weaker than expected for available OLED products. Also, in March 2018, a Bloomberg article reported that Apple (AAPL) is designing and producing its own MicroLED display prototypes. Apple is always tight-lipped about its technological developments, so it's not entirely, reliably clear what they are up to. However, a nice tailwind for the stock in 2017 came from investors hoping that Apple would expand its OLED phone lineup beyond just the iPhone X to all of its phones in 2018 or 2019. But now it's less clear what Apple will do, and this has impacted OLED's stock price in recent months.
Turning to the Q2 results, EPS fell to $0.23 from $0.99 in the prior year period. However, that was still better than market expectations. Revenue fell 45.2% year/year to $56.2 mln. Part of that big revenue decline was the result of OLED switching to a new accounting standard (ASC 606). However, even with that noted, the decline was still sizeable. The good news is that analysts had been expecting an even bigger decline, so the loss managed to surpass market expectations. In addition to the Q2 upside, investors are happy to see OLED reaffirm prior full year guidance at $280-310 mln. Investors had been bracing for another potential guide down, as was issued in Q1. So, to reaffirm, today’s maintained guidance is being seen as a positive development.
Everyone wants to know what we can expect from OLED in 2H18 and 2019. The company says that in Q2, it saw material sales improving off what the company believed to be a Q1 ‘bottom' for material shipments. Looking ahead, and anticipating new OLED product launches from leading OEMs around the world, the company continues to expect an additional pick-up in orders and revenue in 2H18.
Looking a bit further out to 2019, OLED continues to anticipate that the year will bring meaningful growth. OLED believes that 2019 is poised to be a pivotal year for the OLED industry, likely to feature a significant widening in the landscape of OLED capacity thanks to the culmination of the multi-year OLED cap-ex growth cycle of new production lines. This should drive broader adoption of OLEDs across the consumer electronics market and fuel substantial growth in the OLED industry.
Additionally, the company expects that the long-awaited introduction of the world's first foldable OLED product next year will pave the cutting-edge and innovative form factor path. OLED sees its technology, with conformable, foldable, and rollable designs on the horizon, as being a disruptive and exciting force in the future.
The big drop in the stock in 1H18 has attracted the attention of some value shoppers. In fact, some were probably hoping for another sell-off on this report. There is pretty wide consensus that OLED technology is the wave of the future, and it's already starting to become more mainstream in TVs and high-end smart phones. The foldable phone, which is expected to debut in 2019, should create a lot of excitement for OLED generally. It will also be interesting to see what Apple's plans are for OLED technology when they announce their new iPhones this fall, as such announcements tend to produce noteworthy ripple effects on supplier stocks. For example, the only time stock that the stock has traded above a $110 level since March was a brief spike in late May on the day that reports, later cautioned away, circulated rumoring that Apple had chosen OLED screens for upcoming iPhones. Today, on the perceived strength of the second quarter earnings report and its outlook, the stock has attained four-month highs.
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