Universal Display Is the Gift That Keeps on Giving
Aug 9th 2012 5:21PM
Updated Aug 9th 2012 5:26PM
Shares of Universal Display (NAS: PANL) made a huge move in Thursday's action. The reason? Last night's second-quarter report provided plenty of kindle for this fire.
Coming into the report, I mused that the OLED technology researcher should beat Wall Street's revenue estimates on the back of strong smartphone sales by core partner Samsung. The company did exactly that, but not as drastically as I might have expected: The reported $30.0 million in sales was a 166% year-over-year jump that landed just $1 million ahead of analyst targets.
On the bottom line, the year-ago loss of $0.03 per share turned into $0.23 of net income per share. That was actually a penny below analyst targets.
Investor were more than willing to forgive the earnings miss, though. Management boosted the upper end of its revenue guidance range from $100 million to $110 million, keeping the baseline steady at $90 million. Accelerating growth is the keyword that sets Universal investors' hearts a-thumping, so there's the key to today's price jump.
But wait -- there's more!
CEO Steve Abramson also used the earnings call to shed some more detail on several recent moves.
The $105 million purchase of more than 1,200 OLED patents from Fujifilm served two purposes. For one, Fujifilm's patents tend to be younger than Universal's. In fact, about half of the innovations involved still have their patent applications pending. That's how this deal extends the useful lifetime of the overall portfolio.
The $4 million investment in OLED manufacturing expert Plextronics also plays into this part of Universal's strategy. Over time, Plextronics hopes to make inkjet-printing techniques reliable and cost effective for OLED manufacturing purposes, which in turn would make big-screen OLED televisions more cost competitive with today's leading LCD technologies.
Furthermore, Fuji put a lot of work into practical issues like efficient OLED manufacturing and extended pixel lifetimes. These patents can be licensed to Universal's cutomers right away. The other half expands on Universal's own work in OLED materials, and might translate into new business over time as the company extends its reach into multiple layers of onion-like OLED displays.
Oh, and don't expect a massive $105 million expense on upcoming income statements: The cash payment has already been filed against cash flows, but Universal likes to amortize patent deals like the Fujifilm buy over 10 years. Hence, the impact on earnings will come in small, manageable portions over the next decade.
What's coming up next?
Abramson took the time to gloat a little about Samsung's Galaxy S3 smartphone outselling the Apple (NAS: AAPL) iPhone at the moment. OLED screens now make up 20% of all small- and medium-sized digital displays, a market that includes the low-end LCD displays found in today's feature phones. Samsung has even come up with a OLED screen design that rivals Apple's vaunted Retina displays in terms of detail, and this one relies on a bog-standard manufacturing method that should speed its arrival on store shelves.
He also pointed to big-screen TV sets slated for the holiday shopping season out of both Sammy and LG Display (NYS: LPL) . Abramson warns us to dial down sales expectations in this market, given that manufacturing methods for large sheets of OLED materials are relatively immature and very expensive. This is more of a long-term catalyst for Universal than an instant millionaire-maker.
Walk away with your head held high
This report did absolutely nothing to undermine my enthusiasm for Universal Display's rapid growth. Keep in mind that current results really only cover one-third of the materials used in modern OLED displays. Samsung and friends only use the red materials here while blue and green come from other providers like Sumitomo Chemical's Cambridge Display unit.
But Samsung is already preparing to introduce Universal's green pixels in upcoming products, and nearly all of the company's research today goes into making blue emitters more reliable and commercially valuable. It's only a matter of time before that nut is cracked, potentially tripling Universal's revenue contribution per screen sold.
My bullish CAPScall on Universal Display is one of the strongest score machines in my virtual portfolio. It's also among the biggest money-makers among my real-world holdings. And I still don't think it's too late to invest in this stock if you're a latecomer to this exciting growth story.
Universal Display is a solid play on smartphone and tablet growth with a free call option on large TV screens a couple of years down the road. Speaking of TVs coming down the road, there are plenty of rumors that Apple might unveil one in the near future. While it may be some time before we find out, our senior technology analyst thinks Apple is a great buy today. So if you're an investor with a hankering for mobile computing, make sure to check out our brand-new premium report on Apple.
The article Universal Display Is the Gift That Keeps on Giving originally appeared on Fool.com.Fool contributor Anders Bylund owns shares in Universal Display but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Universal Display and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Universal Display. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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