Universal Display Corporation (UDC) - Page 19

Universal Display's CFO, Sidney Rosenblatt, participated in an investor conference (the 15th Annual Needham Growth Conference, January 15). This was an interesting presentation. Sidney confirmed that Samsung's next AMOLED products will include the company's green PHOLED material (and probably the host too), which will make them more efficient (by 25%). The new products will be released in Q1 or Q2 2013. According to reports, this will be the Full-HD 4.99" 440PPI display prototype shown at CES.

Regarding Samsung's flexible display program, Sidney says that Samsung is still using LTPS. The production process is too hot for the plastic substrate (it will melt) and so the LTPS transistors are deposited on glass and the glass is later delaminated. The encapsulation technology is Vitex's multi-layer technology which is very slow (the panel has to enter the evaporation chamber 6 times). All this means that plastic displays will be more expensive than glass ones.

As was reported before, Samsung has unveiled a 4.99" Full HD AMOLED panel (440PPI). This panel will go into production in Q1 2013, and will probably be used in their upcoming Galaxy S4 flagship phone:

Samsung managed to achieve such a high pixel density using a modified FMM technology. According to Anandtech, Samsung also adopted a new material that makes these AMOLEDs 25% more efficient. This means that Samsung finally adopted UDC's green PHOLED materials in the new panels.

Universal Display announced that they have extended their commercial supply agreement with LG Display - till October 31, 2013 (this agreement will automatically renew for additional twelve month periods, unless terminated). LGD is using UDC's PHOLED materials in AMOLED displays, and pay them for the chemical sales and a license fee (LGD has some small scale small-panel production, but their main OLED focus is on large panels for TVs).

UDC signed the original agreement with LGD (then LG.Philips) back in May 2007. In August 2011 they signed a long-term agreement with Samsung, and they probably will sign a similar with LG Display too, but LGD will most likely wait till they mass produce OLED panels (for their 55" OLED TVs).

In early 2012, Samsung said they aim to start mass production of plastic-based flexible OLEDs towards the end of 2012. But 2012 is almost over, and new reports suggest that Samsung delayed their plans to early 2013.

But is Samsung really that close to mass production? One of the major hurdles towards plastic based OLEDs is the encapsulation technology. Back in early 2012 Samsung said they will use Vitex' technology (which they bought in 2010) - but this technology is difficult to scale and is very slow. When Samsung delayed the launch to 2013, it was reported that the main issue indeed was the slow encapsulation (that, and low uniformity).

Universal Display announced it has awarded a $150,000 SBIR phase I program from the US DOE to develop low cost single layer outcoupling solution for OLED lighting. UDC says that to date no one has demonstrated an approach to achieve desired extraction efficiency targets in a thin form factor and cost-effective manner. UDC's solution has the potential to increase the light extraction by greater than a factor of two while being cost-effective and compatible with low-cost OLED manufacturing techniques.

UDC is also developing single-layer thin-film hybrid organic-inorganic encapsulation layer (they call this UniversalBarrier). Obviously these two technologies can be combined to create thin-film low-cost and efficient OLED lighting panels.

Universal Display has approved a $50 million share repurchase program over the next twelve month. The repurchases will be on the open market.

As of September 30 2012 UDC had about $239 in cash. In early 2011 the they raised $250 million. They said they are looking at IP acquisition and indeed in July 2012 UDC bought Fujifilm's OLED IP portfolio for $105 million. In September the company said it does not see any large acquisitions ahead. In addition, patent litigation has pretty much ended in Japan and in Korea

Universal Display reported their financial results for Q3 2012. Revenues were $12.5 million (down from $21.8 million in Q3 2011). Net loss was $5.5 million (compared to a net income of $6.0 million in Q3 2011). UDC lowered their 2012 revenue forecast to be in the range of $80 to $82 million (previous expectations were $90 million to $110 million). This is obviously very disappointing, and UDC shares dropped about 40% after market (after falling 12% during the day).

So what went wrong?

The major setback from UDC's point of view is that Samsung Display did not adopt green emitter and host materials as expected. UDC still thinks SD will adopt green, probably early next year. Samsung is still using UDCs red PHOLED material, but they didn't add more production capacity and so red emitter sales are rather flat (although when compared to 2011, red emitter sales grew 89%) - and will probably continue to be so in the near future.

Universal Display announced that it has contracted Duksan Hi-Metal to produce OLED host materials in Korea. The two companies have entered into a "master services agreement". The first initiative under the new agreement is to provide manufacturing services for "one of Universal Display’s host products for certain Korean customers". This is most likely a green host material for Samsung Display.

Samsung is already using UDC's green emitter and host materials in some OLED displays (the PSP Vita and the Motorola Droid RAZR smartphones) and is set to start using it in more products in the future with an aim to reduce the power consumption of its OLED displays. Having a green host manufacturer in Korea will enable UDC to lower the price of its material, and it's always good to have a 2nd supplier (all of UDC materials are currently produced by PPG Industries).

In the past few weeks several new digital cameras with OLED EVFs were announced: the Fujifilm X-E1, the panasonic GH3 and Sony's A99, NEX-6 and the RX-1. In the Sony cameras, the OLED microdisplays are made by Sony themselves. But who makes the other OLEDs used by Fujifilm and Panasonic?

The GH3's EVF has a microdisplay that sports 1,744k pixels - and that's all we know about it. Pocket-Lint claims that it sports an RGBB architecture (a second blue). This probably means that it is made by MicroOLED as we know they used this architecture (RGBB filters over white OLEDs) in their first-get WVGA OLED micodisplay, which fits the GH3 specification. UDC has also developed an RGBB architecture back in 2010, but it was a direct-emission design, so I don't think MicroOLED is using that design.

When Universal Display raised $250 million back in early 2011, they said they are looking at IP acquisition. Finally the company bought Fujifilm's OLED IP portfolio for $105 million in July 2012. During Deutsche Bank's dbAccess technology conference, UDC's CFO Sidney Rosenblatt revealed that when they raised the money they already had Fujifilm's portfolio in mind, and they didn't know what it would cost, so they raise $250 million.

Sidney further reveals that the company does not see any more large acquisitions ahead.