Universal Display Corporation (OLED) Earnings Call Transcript & Summary

And I think we've also seen the price of OLED TVs from a consumer perspective come down pretty significantly in recent years, which is putting it within reach of a lot more customers. So I think as people look at, okay, my TV just burn out and ready for a new one, let's go to Best Buy or any other consumer retailer and see what's out there. I think that the OLED is much more appealing and within-reach option than it was years ago.

We're also seeing more introductions on -- for IT applications. What are you seeing in that market? Is that -- is some of the news we've even seen in the automotive market? If we combine that, does that have the potential to move the needle? I mean these are larger displays than mobile devices, if you aggregate these newer applications?

Yes, absolutely, especially -- I mean looking at TVs alone, right, if you can increase penetration from the 2% to 3% today to, let's just say, 10%, that's a significant increase in the square meters that are being used relative to 8% increase in, say, smartphones, just based on display size alone. So I think that we can achieve that. If we can achieve that penetration, that's a huge increase in terms of the size of displays that are using OLEDs and have a great benefit for us.

Have you -- you guys have a pretty good window on what's happening for -- and certainly on IT side. What's your sense in terms of the newer -- how many new OLED monitors we're seeing whether they're monitors or tablets? Are we at a stage now where that's becoming an increasingly important marketing feature?

I think you're starting to see drips and drives in there now. I mean the IT market is about 2%, which includes all of that, but you're seeing some additional capacity build. So starting around 2024, we think you're going to start seeing that move up fairly significantly.

Okay. So '24, I mean if we think about blue and some of these markets...

'24, there's so much more.

But that's also a segue for what we're hearing at this conference and what we're reading in the paper is that again, clearly, there's signs of weakness, some softness in consumer electronics. And I don't think some of us and myself included, necessarily appreciated even the impact of the lower utilization at the Shannon facility. Walk us through some of that impact.

Sure. Yes, certainly. So Shannon in Ireland, we, in early '21, secured this site for increased -- additional manufacturing capacity. It's a 16-acre campus, has a lot of great capability there and was really key for looking at where the industry is going, where we knew our manufacturing footprint needed to grow to meet that demand. And so securing the facility was key. We brought on the initial phase of it middle of last year, middle of '22. And with that, it's been underutilized to date just based on where current demand is, based on the macro factors as well as us needing to continue to kind of ramp up from there. So it's right now about $1 million of overhead cost per month that we're incurring that's due to underutilization of that facility. That said, we fully know that we need that facility to secure our growth plans going forward and having it as part of our networks are really key capabilities. So we're confident in the years ahead as we produce additional material there and can achieve the -- absorb that overhead into a greater number of units that will be able to increase margins.

Is that -- is there a way to think about what we need to see in terms of quarterly revenues to see that play out where it's not? It's not a drag or it actually fulfill some of your prior expectations when you guys first made that decision?

Yes. We're not in a position to put an exact revenue target to it, but I think it's just a matter of increasing volumes of material sales. We are being really disciplined in how we look at bringing additional phases of that manufacturing site online. So we brought on an initial phase. We're obviously looking at bringing additional phases on over the years ahead, but are making sure we're not getting ahead of ourselves and doing that too soon and incurring additional costs greater -- sooner than we need to.

And were there any considerations with respect to blue as you thought about that?

We do. Shannon is a site where we would expect to be able to produce our blue products. So that is -- having that additional capability and capacity is key.

Okay. The other side of this equation is, as we think about capacity adds, and clearly, with some of the news we're hearing in terms of demand, there's the risk that some of the capacity that we were anticipating could slide to the right. And again, if we look at past cycles, how much give and take as they've been in initial capacity expectations for some of the display makers, whether in China or additional capacity in Korea? How is the macro environment influenced what has happened in the past? And is there anything that we can take away in this current environment that might give us some clue as to what capacity plans could look like?

Yes. I mean I think it's reasonable to assume that everybody is looking at their investment plans more carefully now than they might have a few years back just based on the current situation. So -- but we don't think there's going to be a significant pullback. We still know that 2024, there's going to be a significant investment needed to achieve the additional IT market being tablets, laptops and monitors that we know are going to adopt OLEDs. So we know there's additional manufacturing capacity needed to achieve the growth plans that a lot of the OEMs have for OLEDs and additional adoption of OLEDs. It's just a matter of, is there a slight shift? So we're -- we'll provide quarterly updates on that as we go forward through the year, but reasonable to assume that there might be a little bit of a shift on that.

Yes. Correct me if I'm wrong, normally, just sometime is it with your Q4 results that you typically give some sense on that? Don't...

We generally give some updates on the capacity growth. We'll give some updates in February, and then we usually do them in 2-year increments. And as you recall, we do our capacity growth. And then some -- this has been since the beginning, some things move forward, some things move back. They don't move it backwards, but they move forward more slowly than the other one. Sometimes they accelerate. And that's all dependent on the individual customers, what they're seeing coming down the pike. So we'll talk about that, I guess, in February.

Okay. And then maybe just on the topic again, of larger area displays. Let's talk about what's been happening on OVJP. Maybe for folks in the audience, just go through what that entails, what it potentially could mean for the company longer term?

Brian, do you want to try?

Sure. Yes, so OVJP is a printing technology that the company developed a number of years ago. We continue to scale up that manufacturing -- that process and manufacturing. We're currently at Gen-4 substrate size that our project really involves direct printing onto a substrate as opposed to a deposition method of printing, which would enable large substrate red, green and blue side-by-side printing. So we've currently done a proof of concept of the Gen-4 size. We're looking at scaling up to Gen-6, and ultimately, we need and want to partner with one or more of our customers as well as equipment manufacturers to get a pilot line on to a customer floor and continue to identify additional improvements and enhancements to it from there. But the ability or the potential for it is huge to be able to print red, green and blue side by side for a very large substrate, which has been a challenge for a number of companies to date.

Just to give some additional background. Before Brian joined the company, inkjet printing or printing large area TVs was always the Holy Grail. Remember, back then, there were some companies that no longer exist, that was their stick. What we said when we looked at the inkjet printing was, it was never going to be able -- to be technically effective because of the solvent you'd never be able to get the performance. So we took our materials, and we said, okay, let's see if we can drive print materials. And we all remember from high school physics that when you have gas molecules, they bounce around, and you can't figure out how to get them to stick. And we figured out how to get them to stick. And then -- so we did it on Gen-6 -- 6-inch tool, and then we said, actually during the pandemic, hey, this is doing good, we should accelerate. We formed a subsidiary in Silicon Valley to move it up. Now we're using Gen-4 substrates. The key is to be able to create a brighter display because you won't need color filters or quantum dots and be side by side. So it could be more cost effective so that you can expand the TV market. And then we would make money from selling more materials into the market as well as getting some piece of the action from the sale of equipment off.

What kind of interest are you getting from some of the equipment companies? Or is this -- what's going to drive this? Is it going to be the display maker that -- which is the equipment...

I'm thinking it's probably going to be the display makers. They're the ones who want to make the TVs and TVs are really important, and there aren't that many display makers. So it's -- we're talking to all the people, talking to the major equipment manufacturers as well as the display makers. But this is really a way for display makers to get into that TV market in a different way with a cost-effective technology. It is a few years out. I mean we've been -- it's going to happen in the future company for a long time, and now it's happened for the last 10 years. OVJP is still going to take a few years.

Any milestones that we need to look for that we should be looking for?

I think one of the next milestone is going to be some type of partnership on OVJP.

Okay.

And -- I'm sorry, partnerships on OVJP and their technical approaches, technical advances. So what we announced last fall was that we're able to print not only the emissive layers, but we're able to print a prime layer as well. So we're able to print more than one layer. The goal is to print all the organic layers, for example. And we're able to print the emissive layers with essentially the same performance that we have in our standard VTE. So the technology is moving forward. We're talking to the business people, and we'll keep on -- keep you abreast as it happens.

Okay. This is probably, Brian, a question for you just recently joined and assumed the title of CFO. What are your impressions that you could share with us, at least in terms of how we might think about capital deployment and company has in the past done some M&A, right? How could we -- buybacks, what's the range of options? And how should be talking about it?

Yes. Yes. No, good question. So yes, I joined about 4 months ago. I've been very happy over the last 4 months with the quality of the organization, the people. Clearly, we're in a great spot and have a great technology and materials and a lot of bright future ahead with blue and some of the other things we just talked about over the last about a bit of time here. On capital deployment, we certainly -- we have a significant cash balance approaching $850 million. We are always looking at the market for M&A opportunities and ways to invest and grow the business, whether that's internal R&D, acquiring businesses, patent portfolios, what have you. We also established a few years ago UDC Ventures, which is a small VC within the company, and we have made some investments in the early-stage companies, which enables us to participate in kind of the broader ecosystem and see what's out there in some adjacent areas of interest to us. So we'll continue to identify ways to do that. And then in terms of returning capital to shareholders, we do have a dividend program in place, which we've continued to increase annually over the last few years. And we do think about buybacks. We meet regularly with the Board and management and discuss that. But to date and for the foreseeable future, we continue to feel like the dividend program is the best way to return capital.

Perfect. I think we're going to wind it up there and let you guys get on to your next meetings. Appreciate it. Thank you.

Thank you, Jim.