Universal Display Corporation (OLED) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. This is Krish Sankar from Cowen. I'm the analyst covering Universal Display, which is our next company presenting. And we're fortunate enough to have Sid Rosenblatt, the CFO here, and many of you probably know Sid already. So Sid, thank you very much for your time. Really appreciate you attending our conference.

Well, thank you very much. We have been very close with Cowen for a lot of years. So we do appreciate your support also.

Awesome. Thank you very much Sid for those kind words.

So let me just start out. I had a bunch of questions. And if any of the investors on the line want to ask a question, you can use the dashboard or you can send me an e-mail too. So let me first start out. Recently, we saw like a few weeks ago, the Display Week conference took place. Samsung presented a paper using Universal Display's blue phosphorescent and emitter. And I believe in that paper, they also mentioned how the unique recipe could lead to a 3x increase in lifetime. So from your standpoint, I understand that is Samsung's data and it's customer-specific, but is that validation enough for blue to be adopted in a commercial setting? Or you think there is more work needs to be done?

Well, you are correct. It's a Samsung paper, and I can't comment on specifics, but we have stated that our blue does not meet commercial specifications as of today, and this is on our last earnings call. However, in talking about the paper, this is the same author that authored a paper last summer in August at Display Week, which is the first time that there was ever a mention that our customers were using our blue phosphorescent emitter. And after that paper was published, we then, on our earnings call, talked about the fact that, yes, we are shipping blue phosphorescent emitters on developmental basis, not commercial materials to a number of customers. And this paper is the same author. This paper talks more about host materials, but it does state that the open material or emitter that was used was Universal Display's. And it talked about increasing lifetime. Host materials and other materials in the OLED stack all impact lifetime. So when you introduce a new material and new emitter, you want to optimize the entire stack. So you want to optimize the host, you want to optimize the transport materials and the injection materials. So everything does have an impact on that. I can tell you, our customers, if they develop materials and the stack or get materials from other sources, and there's multiple sources for hosts and multiple sources for all of these can get much better results than we get in our labs in that we develop our own host because to be perfectly honest, lots of folks don't want to sell -- send this stuff. So we've developed our own materials, but we do see that customers because they're able to get 1 from column A, 1 from column B, they can optimize it much better, and it's their business to optimize the stack, it's our job to optimize the emitter. So the paper is -- it's a big plus because it's just -- it reiterates the fact that, as we said, we're making excellent progress and it believes that -- I think it says it can be commercialized soon. So it does -- there's lots of progress that's made across the board internally and externally.

All right. And then, Sid, you kind of -- you touched upon the lifetime. I think this paper effectively said that their recipe led to a 3x increase in lifetime to the blue emitter. Is that good enough from your view, like if you can get a 3x increase in blue lifetime, is that good enough to get it into like commercial application? Do you think there's still -- because of 3x, it's still probably the the bottleneck or the -- which can impact the lifetime of the overall?

Sure. One of the issues is in the paper, it talks about a 3x increase. It doesn't say what it's increasing from. So I honestly can't give you an answer to that. And what I can tell you is you need color, efficiency and lifetime. And when you get -- you have to have the right color, and you have to have lifetime that meet your specifications. Efficiency is something that you would like to have, whether it's candelas per Amp or voltage. Those are -- that's the 1 that's probably at the back of the line in terms of working on it. Without the right color and the right lifetime, you won't have it.

Got it. Got it. And the other thing also you said is like we talk about like the time to market or time to commercialization. And I remember, you had mentioned in the past that even if like the blue is available today, it's going to take like 9 to 12 months or so, to actually install it in a commercial fashion. Why does it take that long? And what are the barriers that you need to overcome for blue to get commercialized? If you have a working blue today?

Well, today, the devices and all OLED devices today use fluorescent emitters. And the fluorescent emitter is not as efficient as phosphorescence in that phosphorescence only, you need to put 25% of the current in to get the same amount of life out. So these are driven by their transistors and the transistors are designed to put a certain amount of current into each pixel. So you have to modify the transistor. So essentially, you have to modify the backplane. And so you would redesign it. Now customers on different generation products will do that anyway. So if you go from a Galaxy 10 to an 11 or 12 or 21, whichever, they may modify their backplane anyway. Because they're putting in new designs or putting in new features. You can't just substitute a phosphorescent emitter for a fluorescent emitter. So that's really where the time will be. It isn't overnight, all the devices that are being made today with fluorescent emitters can have phosphorescent emitters in them. So you can't do that. So when we introduced our green emitter in 2013, by the time we went through that process and got into the market, it was a 9 to 12 month process. Can it be a little less or can it be a little longer that's really the manufacturer's questions, not ours, because we don't deal with backplanes.

Got it. Got it. Very helpful. And just 1 final question on blue before we move to others. Is it fair to assume that if and when it gets commercialized, it's probably going to be installed in mobile devices first. And what would need to happen to get it into large panel substrates? Do you need like something like OVGP or OVJP or -- so is it true that mobile probably gets the first intro and you need further development for large panel?

Well, I can't say specifically which will because, again, it's up to our customers. But I can tell you that we are sampling this to all of our large customers. And some of the -- obviously, we have a large customer that makes TVs. And most folks look at it and think that it needs to go into mobile devices first because battery life. And larger displays use more power, the displays are getting larger, batteries need to be more efficient by adding a blue phosphorescent emitter. When we added green, Samsung stated they got a 25% increase in battery life. And we expect something along those lines. I don't know specifically because we don't have it today. You also need it for TVs, even though it's not battery related and your TV is plugged into the wall. For large area displays, heat management is a very important part of your cost. And if you can incorporate a blue phosphorescent emitter in a large area of display, you may be able to reduce your bill of materials and managing the heat. So it isn't automatically assumed it's going to be 1 versus the other, it's which of our customers are going to put the time and effort into developing what it is they need so that they can put it into it. So we've got customers that -- have multiple customers that are making mobile devices and TVs and folks working on TVs. I know 1 of the questions is -- that we get is Samsung's quantum dot blue OLED TV since it's a blue OLED using quantum dot materials to down convert red and green. Today, if it was going to be produced, it's fluorescence because that's what meets specifications. But again, if you can introduce a phosphorescent emitter, you can then reduce your design and you can save money in your bill of material. So it really depends on our customers. I think they're all racing to get everything they can do but they are waiting for us to get an emitter that meets their specs.

Got it. Got it. Super helpful, Sid. And then just moving on, obviously, you had the earnings call, like a few weeks ago, really strong numbers from the March quarter. And if you try to do the math, it seems like BOE, 1 of your large customers is probably half the size of Samsung. And 1 of the questions that I've gotten from investors is that they worry about that scale because the argument is BOE was half in the sales of Samsung, but their output is not anywhere close to that. So once BOEs yields start improving, is there a risk that the sales to you or your sales to them is going to slow down dramatically?

Well, there's a couple of answers to that. One, the customers say, which is BOE, historically has had lumpy sales. They -- 1.5 years ago, they had some prepurchases. We don't believe there's any prepurchases in Q1. But they historically have been lumpy based upon how -- we look at it as lumpy, they look at it as their purchasing patterns. And it really depends on when they want to buy and what their inventory philosophy is and when their purchase department buys things and when they don't buy things. We also know that when you're starting up and you're seeding tools and you're in early stages, and they're actually opening their third facility, but they're not selling or reporting selling huge volumes compared to Samsung. You do have some inefficiencies in your manufacturing process. And as you learn more, you tweak the recipes, and we do know that from when you first start to when you're at a really steady run rate, you're probably more efficient. We're not concerned about that because we want them to be efficient. We want them to make as much money as they can. Obviously, we want to sell material, but we want them to be efficient, we don't want them to waste material. We believe that it will be more than made up in the volumes because they're going to build their fourth facility. And each of those facilities will be 48,000 substrate starts a month of Gen 6 size glass on plastic. And when you add all that up, they would actually have almost the same flexible display capacity that Samsung has today. So it's a significant amount of capacity that they're going to put on.

Got it. Got it. Super helpful. Then just wanted to get your view on the technology side. Obviously, Apple introduced a mini-LED iPad, then there's people talk about micro LED down the road. Mean how do you look at those alternative technologies? Are they attacking a different segment of the market versus OLED? Or do you think eventually, all these technologies can peacefully coexist together?

Well, we are peacefully coexisting today with LCDs. LCDs are the market. And OLED mobile devices, we have 30-some percent of the market of the smartphone market. The rest is LCDs. When you go to a TV market of 240 million to 260 million units, there is going to be 7 million to 8 million OLED TVs sold, we're at 3% or 4% of the market. And for IT, it's even less. So the display market is LCDs today. They have made multiple improvements in LCDs over the years. It's very mature technology. It used to be CCFL backlights, and then they went to side lights and LEDs. Now they're going to many LEDs it is just another technology improvement to liquid crystal displays. It is not its own technology. It's just making LCDs better and more costly, to be perfectly honest. There is 80 LCD fabs in the world. They're not going to go away overnight, and they are going to be the competition for foreseeable future. Micro LEDs are something different. Micro LEDs, we've heard about micro LEDs that Apple was going to put them in their Apple watch, I guess, in 2015 because they bought a company called LuxVue in Taiwan and going to put OLEDs out of business. Well, they haven't had a micro LED Apple watch yet. And the folks that are in the business, say, it's a number of years away. These are self emissive LEDs and you put red, green and blue. So it is a competition to OLEDS. But I think pretty much the industry feels it's for very small and very large when and if it can be commercialized. You can buy a Samsung micro-LED 120 inch, I think, TV for $150,000. So it's available, not really available, but it is its own technology. We've heard about it for a number of years. This -- it's a huge business. They still make E Ink. They make e-readers. Electronic ink was going to be -- takeaway the entire display industry. And obviously, it doesn't, but it does have a niche. I mean e-readers have a niche, and they still sell them. So it isn't that it's 1 player, 1 technology that fits all sizes. The nice part about OLEDs has always been when you compare it to technologies like a plasma, which were only for large areas, and you have other ones that were only for small areas, LCDs go from very small to very large. It's 1 reason why they really are dominating the business and have -- that's how they grow up. That's what OLEDs can do. OLEDs can go from sub-displays on phones to 88-inch TVs today. So it is very similar, and it will, I believe, have the similar path of growth and the benefits of OLEDs in that they're thin and lightweight, very power efficient, give you million-to-one plus contrast ratio rated the best TVs ever. I think that's why OLEDs are going to continue to grow.

Got it. Got it. Very interesting. And the other thing, Sid, is there's been some renewed talks of unfoldable displays for smartphones. And are you seeing demand from these customers yet? And how to think about the opportunity set for Universal Display? Like when you go to foldable, is it as simple as just doubling your revenue per smartphone because you're adding another additional screen? Or how should we think about that opportunity for you?

Well, a foldable to us, doesn't matter. If it's made on plastic or glass, it's essentially the same recipe. The nice thing, as you said, is per product, such as the Galaxy Fold, I mean you have a screen here and then you have here. So you have a lot more square inches of glass that you're going to cover with our materials. From a personal standpoint, I think foldables are the technology that really makes OLEDs shine. I believe that this is technology that's going to be the future. This is the first version of it. It's bulky, it's heavy. It's great. Every time I open it up, people ask me what is that. So it is -- I think this will be the technology of the future. And it's -- I don't carry a tablet because I can do everything I want on this because it's big enough. And the next-generation is even a little larger. So I personally think that it really is the future of mobile communications.

Got it. Got it. Very interesting. And then looking on the large panel side, obviously, 1 of your large TV customers have spoken about more OLED TV units this year relative to last year or 2020. So how should we think of that demand and how it will impact the linearity of your revenues this year?

Well, LG, as I said, is the only manufacturer of commercial OLED panels. So they have 19 OEMs at brand OLED TVs. They are -- we've been working with them. We've just extended our agreement with them because they see this industry growing, and they want to ensure that as we do, that they have a supply of material and we price our materials for the length of the contract so that they know just what their cost structure is going to look like for existing materials. And we think that it will continue to grow. They're talking about 7 million to 8 million units this year and then continuing on after that. I think they're looking at adding additional capacities, rumors that they're talking about adding capacity. Nothing has been announced at this point. They did add, I think, 30,000 substrates recently to Guangzhou in China.