Universal Display rides ‘Apple effect’ - Taipei Times
Mon, Oct 02, 2017 - Page 15 News List

Universal Display rides ‘Apple effect’


Different colors flicker from screens using Universal Display Corp’s technology. The one investors see is green.

Its shares have more than doubled this year, adding US$3.4 billion in market value, as adoption of organic light-emitting diode (OLED) technology in Apple Inc’s iPhone X raised hopes for widespread use. OLED is an alternative to the liquid-crystal displays that are critical components in everything from televisions to smartwatches.

“There’s a huge opportunity ahead of them,” Scott Searle, an analyst who covers Universal Display for Benchmark Co in New York, said in an interview. “It’s still very early days.”

Snaring the world’s most valuable company as an end customer marked a major milestone for Universal Display’s 20-year quest to persuade electronics manufacturers to adopt OLED, which is thinner and more energy efficient than LCD, while offering better image quality. The bet looks to be paying off as the stock has risen the most this year in the 283-member S&P North American Technology Sector Index.

Universal Display has the highest price to sales ratio in that group and is trading at about 12 times 2019 sales estimates. The average for the index is three times.

“The Apple effect is very, very powerful,” Universal Display chief financial officer Sidney Rosenblatt said in an interview last month. “They need the technology because it is better.”

OLEDs are composed of thin films of organic molecules that create light with the application of electricity. Phosphorescent OLEDs — the red and green ones that Universal Display supplies — produce light through a mechanism that is more efficient than fluorescent OLEDs. Universal Display is working on blue phosphorescent emitters to enhance energy efficiency and make the technology even more appealing to panel manufacturers.

Samsung Electronics Co introduced the first full-color OLED screen in 2010 with its Samsung Galaxy S phone. The company is supplying OLED displays for the iPhone X and licenses some of the core technology from Universal Display, according to a person familiar with the matter. Apple will have to wait until at least 2019 to move beyond Samsung for significant alternative supplies of OLED screens for the iPhone, sources said last month.

LG Display Co, a long-time supplier of LCD displays used in the iPhone, has committed to invest about US$13 billion in OLED production lines through 2020.

While long-term investors in Universal Display have their sights on expanding OLED technology in television displays and vehicle consoles, analysts say production constraints are the biggest challenge.

More OLED production would mean more revenue for Ewing, New Jersey-based Universal Display, which licenses its patents and supplies materials used in manufacturing.

That could translate into as much as US$5 in adjusted earnings per share by 2020, he estimated. That is almost five times the profit Universal Display reported last year. Even so, Searle maintains a hold rating on the stock due to valuation and near-term capacity constraints.

Rob Stone, an analyst for Cowen & Co in Boston, expects a third of smartphones will have OLED displays this year, up from an estimated 26 percent last year.

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