Universal Panel (OLED) is one of the promising technologies that is likely a rule breaker. Organic LEDs are thin, flexible (and I think low power). OLED is a company that has “Multiple Possible Futures”. Its chart looks very good and its IBD numbers are strong with a 94 composite and the top rating in its group.
The stock is all happy now that there are rumors that Apple will use it in their phones (bad for GLW?).
I was worried when Samsung announced it was building its own OLED factory, but now that makes me feel like Apple must use OLEDs in their phones, and that likely means Universal Panel.
Multiple Possible Futures:
the curvy TVs you can already get at Costco, Best Buy, Amazon, etc.
phones.
MegaTVs- so imagine you want a giant LED TV for a concert or other large but temporary event. OLEDs can be made bigger than LEDs, will weigh less and can be rolled up for transport. For instance, we just bought a 98" LED for a Gov customer. We cannot fit it in our elevator, and a lot of places will have the same problem. Plus it weighs a ton, so the size rather than the technology becomes a limiting factor. But if it were rolled up like a rug, life becomes much easier. Even better if it is a 200 inch diagonal screen. Think about that giant thing in the Dallas Cowboy’s stadium.
a roll-up iPad like device where the brains are in a small box and you plug in the OLED of your choice and unroll it for the presentation.
airplane seats? training “domes” the air force uses to simulate sky, mounted on the ceiling above your bed.
I am sure that if this is a rule breaker there are 20 other future possibilities that have been discussed.
So, worth checking out, not in the spreadsheets yet.
Universal Display Corp (UDC)(Ticker: OLED) owns thousands of patents on Organic Light Emitting Diodes (OLED’s). Samsung & LG have signed long term licence agreements to use their tech in making smartphone screens and televisions. They are also required to buy many of the materials that go into these screens from UDC. About half UDC’s income is material sales and the other half is royalty payments.
Samsung used to be the only manufacturer in the game (with their Galaxy series smartphones using OLED screens), now a big part of their business is selling these screens to Chinese smartphone manufacturers, Microsoft (with their Lumina phones), Blackberry etc…
LG now are dominating the OLED TV game and quickly these screens are becoming cost competitive with LCD. They also manufacture the OLED screen for the Apple iWatch. Johnny Ive, (head of design at Apple) has stated he loves OLED screens and wants them in other Apple products.
Lighting is the other area of growth with the BMW M4 coming out with OLED tail lights and AUDI showing a concept car with an OLED dashboard. Also LG Chem are making desk lamps and other lighting panels. Mass adoption is still a ways off, but this certainly seems like the future of lighting.
Saul, seeing as how the price per share of OLED has risen over the last 10 years or so since it was a Rules Breaker recommendation initially, would you be a buyer of its shares at its current level?
Saul, seeing as how the price per share of OLED has risen over the last 10 years or so since it was a Rules Breaker recommendation initially, would you be a buyer of its shares at its current level?
Hi speedy,
The price it was in the past is irrelevant in deciding whether you want to buy it. Any good company you look at was (a lot) cheaper some time in the past. So what? You can’t go back and buy it then. The only decision is whether it’s a good buy now. (I don’t know as I haven’t studied it).
Saul
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A correction on my part. I said Samsung was building a plant, but it is LG (which you also mentioned).
LG announced on Friday that it is spending 1.84 trillion Korean Won (US $1.6 billion) to start construction on a new OLED panel plan in Korea, which is expected to begin display panel production in early 2018. The company says the initial investment is just the beginning, with total funding for the fully completed OLED plant to top 10 trillion KRW, or $8.67 billion.
Universal Panel (OLED) is one of the promising technologies that is likely a rule breaker. Organic LEDs are thin, flexible (and I think low power). OLED is a company that has “Multiple Possible Futures”. Its chart looks very good and its IBD numbers are strong with a 94 composite and the top rating in its group.
Hi Puddinhead, I’m taking your recommendations seriously and looked into the last four quarters of results for OLED.
Here’s what I got on Trailing Revenue:
Last four quarters: 39.4 + 58.1 + 31.2 + 56.2 = 184.9
Prev four quarters: 32.9 + 64.1 + 47.8 + 49.5 = 194.3
So revenue is basically down 5%. That doesn’t show any trend of growing revenue at all. (By the way, the reason that the 2nd and 4th quarter are so much larger than the first and third is that Samsung pays royalties just twice a year.)
So let’s look at trailing adjusted earnings:
Last four quarters: 13 + 41 + 04 + 28 = 86
Prev four quarters: 09 + 44 + 08 + 35 = 96
So earnings are down 10.4% year over year. And their stock price is over $53, and their PE is over 62, and that’s their adjusted PE. I’m afraid they are trading on hopes for the future. I don’t knock that, as sometimes hopes come through. Here it’s rumors (hopes?) that Apple will come on board, but I don’t like to buy companies with falling earnings and revenue, on hopes for the future, even though they may pan out wonderfully for those brave enough to buy them.
Puddinhead, I’m taking your recommendations seriously and looked into the last four quarters of results for OLED
Saul, thanks, that’s an honor, not sure it is one I deserve. I guess I have to be more selective now, don’t intend for to spend your time doing the real research on my “ideas”. My goal is to make a reasonable contribution every now and then.
Thanks a bunch on this one. I should have added a little more data from the start.
Hopefully my cambrex deep dive will post tonight if the wife doesn’t want to veg out with the TV.
LG announced on Friday that it is spending 1.84 trillion Korean Won (US $1.6 billion) to start construction on a new OLED panel plan in Korea, which is expected to begin display panel production in early 2018. The company says the initial investment is just the beginning, with total funding for the fully completed OLED plant to top 10 trillion KRW, or $8.67 billion.
Clearly this, that you pointed out, is part of the enthusiasm, as I guess everyone has to pay royalties to OLED. But it isn’t even PLANNED to be completed until 2018, and plants often aren’t finished on time.
As I read more about it, OLED is a bit of a patent troll. They have bought or somehow gotten control of all the patents, so anyone who wants to use this system has to pay them royalties. (I guess that if anyone finds a way to bypass their patents, or to a better system, their entire business could disappear overnight, but that’s just a guess).
Saul - I think you are right about the price / performance valuation on OLED.
I have followed them for over a decade as I have also been investing in LEDs. I have been in and out of OLED in that time.
My view is that whilst this has always been considered as a classic rule breaker with the potential to disrupt traditional display technology and lighting with a licensing and royalty model OLED carries notorious levels of risk, uncertainty and instability.
Yes they have a disruptive offering and a high margin business model but:
They always face patent challenge uncertainty (patent challenges in Europe and potential customer competition)
They have a massive concentration of customer business (Samsung and LG)
Business levels that are not a consistent growth story but rise and fall fairly significantly
Technology limitations across lighting quality, endurance and production processes
The share price is volatile and sometimes prices in hopes but not fears at times of high and low fundamental performance.
Right now the price does not account for underlying growth stagnation or the above challenges but does price in the hopes that Apple will sign them up.
This is not the right risk/reward entry point for me. There is too much gambling and uncertainty involved that might pay off or might not.
As Saul would say there are better places for your money where growth is a given and the risks are known.
with a licensing and royalty model OLED carries notorious levels of risk, uncertainty and instability.
Doesn’t qualcomm make a ton of money by licensing their IP?
They have a massive concentration of customer business (Samsung and LG)
True, but if they have cornered the OLED-IP market, don’t they get money from everyone? LG and Samsung are huge. Sony, Vizio, Toshiba probably next in line.
Here is a recent deal at Costco, OLED going mainstream. When I bought my 50 inch LCD from Costco years ago it was about $2k, now I can get this. Bazinga!
$200 Cash Card via Mail
LG 55" Class (55.3" Diag.) 1080p Smart 3D Curved OLED TV 55EG9100
LG 55" Class (55.3" Diag.) 1080p Smart 3D Curved OLED TV 55EG9100
Features: OLED TV for Perfect Black, Built-in WiFi with Full Web Browser, Quad Core Processor, Pencil Thin Design, Receive a $200 Costco Cash Card* See Below For Details
Not saying OLED should be bought on 1YPEG (given the follow on research), but it is interesting for other reasons for other people.
I have to admit, in spite of my earlier very skeptical comments, that the more I study this company the more I’m intrigued and tempted to take a tiny position… but all this with Apple isn’t supposed to happen before 2018…and this plant the Korean company is building won’t be finished until 2018…we’re talking 10 to 12 quarters from now…and, as I understand it now, Universal Display doesn’t get a royalty from Samsung depending on how many whats-its it sells, it’s a fixed license fee each year, so even if usage explodes that fee stays the same… it does go up each year though…Oh well. There’s no clear right answer.
One other consideration, right now what these huge companies are paying to Universal Display is an insignificant crumb to them. But if OLED takes off and if the stakes are much higher and this becomes more of a big deal, what if they decide to evade or fight the patents. They could throw 100x the legal expenses at it that Universal could. They could conceivably bankrupt OLED… with legal expenses…Just saying
Think of it this way: World sales of OLED devices goes up twenty times, a huge adoption, but Samsung and the Korean company say “We’re only going to pay you double the license fee. Take it or leave it and we’ll meet you in court.”
Of course, that’s an exaggeration, and if sales were up twenty times they might be willing to pay them three times the licensing fee, but you see what I mean.
Another consideration is that the comparison is a moving target. E.g., I well remember thinking that plasma displays would obviously displace CRTs but year after year after year went by with plasma relegated to special requirements like ruggedised displays while CRTs got better and cheaper every year so there was never a cross over point where the market switched. Now, I guess, many years later they have a niche in television displays, but never the takeover of the market which once seemed “inevitable” since not only did the old technology keep improving and getting cheaper, but eventually new technologies came along to cloud the picture.
Samsung has lost smartphone market share to Apple at the top end and Chinese manufacturers on the low end.
To OLED’s benefit, Samsung are now selling their OLED screens to these Chinese phone companies this should start showing up in OLED earnings in their next report
Patent Concerns and Payment agreements
While the license agreement with Samsung is fixed per year with a $10million per year escalation, they are required by patent and a signed 5 year contract to buy OLED emitter material from Universal Display. So as the volumes increase the material sales benefit OLED.
Universal Display is constantly improving the efficiency and scope of their OLED’s (starting with red emitters, they have added green and hope to produce blue sometime soon) adding green emitter material improved the efficiency of the screens by 30%. These new materials are all covered by patents and Samsung has never tried to violate any of these agreements despite forking over $100m in payments to Universal Display in 2015.
Your concern over the factories only being ready in 2018
There are a number of other factories and supply lines that will come online in 2016 and 2017. That huge factory investment by LG tied to the rumored Apple desire for OLED iPhones is the biggest of a number, not the only one.
“According to IHS, 79 million AMOLED displays shipped in Q3 2015 - which is a new record high. The revenues from those OLEDs reached $3.29 billion - also a record high. Q3 2015 shipments doubled that of Q3 2014, and rose 35% over Q2 2015.”