Universal Display Corporation (OLED) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. I'm Krish Sankar. I'm the TD Cowen analyst that covers Universal Display. And we are fortunate enough to have Brian Millard, the CFO here. Thank you very much for your time, Brian.

Thank you.

And as many of you know, Universal Display is the leading OLED materials provider in the world. So very fortunate enough. And I have a bunch of questions and also for the audience, if you have any questions, feel free to raise your hand. It's a little bit of an informal setup. Maybe I'll just start out with something very topical, like I think it's like probably like a month ago or actually a few weeks ago, Apple announced a new iPad Pro, which has tandem OLED structure. So can you talk a little bit about what it means for universal display? What does tandem OLED bring? How to think about the market size or opportunity for you?

Sure. And thanks, Krish. Thanks for having us. Before we get too deep, I just want to give a brief safe harbor. So we may make some forward-looking statements today in my remarks. Our actual results may differ from those forward-looking statements. So we would encourage everyone to review our SEC filings before investing in the company securities. So as you said, the announcement of a few weeks ago about a new tandem OLED product coming to market, very exciting. We think it's a very good step into the IT OLED adoption cycle that we expect over the next few years. The tandem structure, what that is, if you think about a device and there's currently a single emissive layer in many of the OLED products that are sold today, whether that's your smartphone or many of the laptops or tablets that have been in the market to date. The product that came to market a few weeks ago, the iPad Pro has a tandem OLED structure. And what that is, is having 2 emissive layers in the display. And the reason why you would want that would be, if you have a display like a laptop or a tablet like the iPad Pro, where maybe there's a white background that's on for much of the day because you're using Microsoft Outlook or Excel or other products with the white backgrounds, having 2 layers will allow for a longer lifetime of that material and of that display. And so that's the approach that was taken for the product that just came to market. We think it's very exciting from a UDC perspective, it's an incremental revenue opportunity for us because there's more material per square inch in a tandem structure than there is in a single layer, probably our current estimates are probably somewhere between 1.5 to 2x the quantity of material compared to a single layer, which is certainly great for our business. And that approach, we'll have to see how the next few years evolve and which OEMs decide to introduce tandem OLED into their products, but it seems to have a good bit of momentum in the IT space.

Got it. And then I mean, one other thing that the investor question has been, is the math as simple as I think the dollar content typically in smartphone has been $0.15 to $0.20 for Universal Display. If the screen size is 5x more, is it 5x that? And with the multiplier 1.5 to 2x, is that a way to think about the dollar content per tablet?

Yes, great question. I mean I think that scaling per square inch is probably the right way of thinking about it from a smartphone size to an IT product and then the tandem factor, that 1.5 to 2x on top of that is probably the right way of roughly sizing the opportunity for the market.

Got it. And I think you've spoken about this in the past. If you look at OLED penetration, if I remember the numbers right, I think it's like a little over 50% for smartphones, high single digits for like large panel TVs, low single digits for IT panels. And I guess now that iPad Pro, tandem, comes under the IT panel bucket, do you see the adoption rate accelerate in IT panels? Or do you think price is still an issue that is going to be still a steep curve to get there?

Yes. So taking each of those segments individually. So smartphones, as you said, were right now a little more than 50% penetrated. That's continued to increase. We think there's room for that to continue to grow. In the next few years, it's probably in the mid-single-digit growth in terms of continuing to grow off the base we are today. And that -- you've seen all the premium models globally have all the displays of smartphones. You've seen the mid-tier models continue to penetrate with OLED displays as well. And then the TV market being kind of the next key segment, currently around 3% penetrated. The last few years have been a little rough for the TV market broadly as well as the OLED TV market. Our customers are signaling that they expect solid growth this year off of OLED TVs compared to '23, and then the IT market is, as of the end of last year, around 2% penetration. And we think that the announcements made in the last few months certainly helped that. Many analysts estimate that by the end of the decade, we should be around 20% penetrated by 2030. So a significant amount of growth off of where we are today. In terms of adoption, there's a lot of momentum right now behind the IT OLED market. And some of that plans the OEMs have, plans that our customers have in terms of bringing additional capacity online to manufacture these IT displays. The biggest examples of that are Samsung Display, who's our largest customer. They've announced a new fab that they're bringing online in 2026. They're spending roughly $3 billion to build that line, and that's geared toward the IT market, and we'll have tandem capability, as we discussed earlier. BOE, who's our largest Chinese customer. They've also announced capacity. They're spending $9 billion to build that fab, and that's going to come online also in 2026 and have tandem capability. And then lastly, just yesterday, actually, Visionox, who is another key customer of ours in China. They announced an investment that they are planning to make in IT investment as well. So -- IT capacity as well. So there's a lot of industry forces that are kind of in motion in terms of additional capacity. And our customers are making those investments because they know that the OEMs are going to be wanting that capacity for adoption. I mean the OLED displays certainly are a premium offering compared to LCD. So there will be a cost associated with that. But I think what you've seen with some of the products that have recently been announced and come to market that have OLED displays is while it is a premium price compared to the prior LCD technology, it's not vastly a significant premium. And we think that because of the benefits it brings to the device and the OEMs, it's kind of a no-brainer to continue to differentiate your product offerings by introducing OLED displays.

And is it fair to assume that IT panel penetration as it increases from 2% or 3% to a higher number, would it be mostly tandem? Or do you think they can still be like spread between single layer and 2 layer or tandem OLED?

I think it's going to continue to be a blend. I think there's -- tandem is new as it relates to IT. Historically, tandem, their architecture has really been used in automotive because if you think about a vehicle and the life cycle of the vehicle, needing to have the displays, how the appropriate lifetime has to date been the use case for tandem. But in the IT market, we think it's probably going to continue to be a blend. It may be a situation where if you have a use case for an IT product like a laptop where, again, the white pixels are on for much of the day, that may lend itself more towards tandem and potentially, there's other use cases for single layer to continue to carry on. So probably a blend going forward.

Got it. Got it. And then maybe on the TV side of the market, last year, it seems like TV units were down. There's excess inventory and that's kind of always been symptomatic of the TV market over time. So how do you see that evolving? Because if you look at history, the smartphone adoption rate for OLED is pretty good. Once Apple started using it in 2017, and then maybe with IT panels, it would improve after like the iPad Pro, but kind of like the adoption rate has been extremely slow on the TV side.

Yes. I think the TV market, the OLED TV market has -- did take a downturn in '22 and '23. I think that was largely macro concerns and all that was weighing there on the global environment and how that was going to play out. Now that we seem to have a little more certainty or some certainty on that, I think our customers are hoping there's more momentum behind consumers continuing to trade up for a premium display offering. In the TV market, there's obviously some cyclical things around sporting events and otherwise that are occurring this year that should provide some benefit as well. And you've seen the price gap between an LCD and an OLED TV continue to narrow. But if you have a consumer who's incredibly price conscious, that's their #1 factor and the only factor currently, the LCD certainly is the way that they would go. But the premium visual experience of an OLED TV is undisputed when you compare side-by-side with an LCD. So that price gap, we would expect to continue to close as our customers can put more volume through their facilities, produce at a more cost-efficient manner and consumers can hopefully continue to realize the benefits of OLED that all those factors in combination should continue to improve.

And then also, it seems like on the TV side, obviously, LG, it's kind of all in on OLED. But if you look at like Samsung or somebody else, it seems very fragmented, there's OLED, there's mini-LED, QD-LED, a bunch of these things. So do you have any view on where it all coalesces towards longer term? Or do you think it's too early to make that call in terms of technology?

We certainly think, I mean, if you -- again, if you put next side-by-side and OLED TV next to a QLED, mini-LED, LCD, whatever you want to call the various versions of LCD technology, it's clearly a visual -- a premium visual experience, the true blacks, the contrast ratio. We think it's very clear that OLED [ should ] went out. To date, it's been challenging, certainly, but we think that there's solid momentum and we expect OLED TVs to have a significant market share going forward.

Got it. And then before I jump into blue, I kind of had one other question. I think you mentioned auto earlier. You've seen like in a BYD, Audi, like a bunch of them introduce auto models with OLED screens. So kind of curious, how do you size the auto opportunity? Or is that comes under the IT panel bucket? Or how to think about that?

Yes. It's a separate segment. It's one that, as you said, has a lot of momentum, especially for EVs. What you've seen is a lot of the EV manufacturers and as well as Audi's EVs, Mini Cooper, there's BYD and others who have announced OLED displays being used in vehicles because of the energy efficiency of OLED displays. So you can consume less power and therefore, have longer range or different battery options. And we think that that's a trend that's certainly going to continue going forward. So we measure it as a separate segment. It's one that, from a unit and square inch perspective, is still relatively small in terms of our business, but one that we think has a lot of promise going forward. And you've also -- another smaller market as it relates to automotive is the tail light business. So there's automotive tail lights that are -- have OLED displays, Mercedes, BMW, Audi and others have those. And we think that's a really interesting approach to use going forward as well, which is really more of a visual thing in terms of how you make the car look interesting on the road.

Got it. Then switching gears to blue. Can you just talk a little bit about where we are in that commercial adoption or commercial road map for blue? And what are the next milestones we should look out from your end?

Yes. So our phosphorescent blue material that we've been developing for many years, we believe that this year, we will have the commercial specs achieved. And so we've made very strong progress over the last few years and continue to believe that this year, we'll have the commercial specs achieved that will then enable our customers to determine how they choose to introduce it into -- to the OEMs and ultimately into products that are sold commercially to consumers. But we're very focused on hitting those commercial specs this year. Again, very pleased with the progress that we've made. And once we have those commercial specs achieved, as I said, then that will enable the customers to determine what to do with it. But the energy efficiency benefits of phosphorescent blue compared to the fluorescent blue that's used today are very significant. We estimate a 25% increase in the energy efficiency of the display. And that's huge because that unlocks a lot of opportunities for our customers as well as the OEMs in terms of how they leverage that energy efficiency in the display. And we believe it has applicability across smartphones, IT and televisions. And so we need to see exactly how things play out in the future. But there will be an adoption curve. It's just a matter of how steep it is and which products go first in terms of adopting blue.

And does it cannibalize any of your existing material sales when you go to the phosphorescent blue?

No cannibalization. So today, we sell phosphorescent red and green materials. So if you were to look at your smartphone or other IT device, let's say, under a microscope, you'd see red, green and blue pixels side-by-side. Currently, the blue material is a florescent blue, which is a less energy-efficient material. And so -- and we don't sell fluorescent blue. So it's entirely an additive new revenue stream for us.

Got it. Got it. And how to think about the revenue? I think in the past, you mentioned something about think of blue like the green emitters. So is there a way to think about the revenue opportunity or how do you think about pricing?

Yes. Good question. So the quantity of blue and green in the device is very similar and the quantity of green to red is 2:1. So if you think of from a ratio perspective in a future device, you would have 2 blue, 2 green, 1 red in terms of the ratio of materials. The price of blue, we've not set with any of our customers at this point. We will continue to have discussions on that as we approach commercialization. But we believe there's a premium price associated with blue. That's been the way we've been approaching the conversations. And now it's just a matter of determining how those evolve over time.