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OLED patent holder and patent supplier Universal display (NASDAQ: OLED) recently ended a difficult 2018 during which its share price was halved. Progress in the next generation of display technologies took a break last year as screen manufacturers were working on oversupply and changing their manufacturing processes to increase production more. later.
Since the beginning of 2019, however, Universal Display is on the rebound and this could continue. its latest quarterly report indicated that recent industry challenges had opened the door to new opportunities.
2018 was not as bad as it appeared there
The fourth quarter saw a further decline from the previous year, with revenues and profits down 39% and 42%, respectively. This was compounded by previous declines, leaving the company's results for the entire year down sharply from all-time highs.
|
Metric |
2018 |
2017 |
YOY Change |
|---|---|---|---|
|
Total revenue |
$ 247 million |
$ 336 million |
(26%) |
|
Total gross margin |
78.4% |
83.7% |
(5.3 p.p.) |
|
OLED hardware sales |
$ 153 million |
$ 200 million |
(24%) |
|
Gross profit margin of physical sales |
71.6% |
75.4% |
(3.8 p.p.) |
|
Operating profit margin |
$ 56.7 million |
$ 146 million |
(61%) |
|
Earnings per share |
$ 1.24 |
$ 2.18 |
(43%) |
Data source: Universal Display. YOY = from one year to the next. p.p. = percentage point.
However, as noted throughout 2018, the recently adopted ASC 606 accounting standards have been an important factor in the reported declines. Taking into account changes in revenue recognition, sales would have been $ 79 million higher, barely 3% of the total in 2017. Earnings per share would have been a massive increase of $ 1.53, good for a 27% increase over 2017.
In short, Universal should not be held responsible for the decline in its statistics. However, display manufacturers were still not there, as the industry prepared to build more OLED displays that are gradually replacing LED displays in many devices. Steve Abramson, CEO, said the OLED industry is expected to reach $ 30 billion worldwide this year, up from $ 25 billion in 2018. This should mean a resumption of growth for Universal, which is the only supplier of most technologies and the manufacture of advanced displays.
An OLED TV from LG Electronics. Source of the image: LG Electronics.
2019 is a good start
Premium smartphones like the Apple iPhone X and the Samsung Galaxy models were among the first consumer products to use OLED displays. then LG Electronics followed suit with its large-screen OLED TVs. The company claims to have manufactured 2.9 million OLED TVs last year and wants to increase this figure to 10 million per year in 2021.
However, there should be significant growth this year in other areas. Laptops with OLED screens arrive and the technology is used in displays of automotive infotainment systems, as well as in many new models of smartphones and televisions. Universal has also signed new agreements with Samsung. Since Samsung is the world's largest screen maker, it's very important for Universal to be able to integrate OLEDs into devices other than phones.
As a result, management expects 2019 revenues ranging from $ 325 to $ 350 million (which would be equivalent to $ 395 to $ 420 million under the old revenue recognition standard). Whatever the case may be, this should represent a considerable gain over the bleak 2018 figures and exceed the high water mark set in 2017.
Some new OLED materials developed by the company to increase the longevity of the screen have higher costs, so gross profit margins should tend to fall slightly to 70%; but as sales are expected to post a strong annualized increase, this should not matter. Universal Display is back in growth mode.
Nicholas Rossolillo and his clients own shares in Apple and Universal Display. Motley Fool owns stocks and recommends Apple and Universal Display. The Motley Fool offers the following options: Long Calls from $ 150 to January 2020 for Apple and short calls from $ 155 to January 2020 on Apple. Motley Fool has a disclosure policy.
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