All right, good afternoon, everyone. I'm Krish Sankar. I'm the TD Cowen analyst that covers Universal Display, and we're fortunate enough to have Brian Miller, the CFO here. Thank you very much for your time, Brian.
Thank you.
And as-
My pleasure. 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, you know, I think it was, like, probably like a month ago, or actually a few weeks ago, Apple announced a new iPad Pro. Mm-hmm
... which has tandem OLED structure. So kind of, can you talk a little bit about what it means for Universal Display? What does tandem OLED bring? You know, how to think about the market size or opportunity for you?
Sure, and thanks, Krish, and thanks for having us. Before we get too deep, just want to give a brief, you know, 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's 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, you know, 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 two emissive layers in the display.
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 white backgrounds, having two 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 1.5-2 times the quantity of material compared to a single layer-
Mm
... which is, you know, certainly great for our business. And that approach, you know, 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, you know, I mean, one of the things that the investor question has been, is the math as simple as I think the dollar content typically in smartphone has been $0.15-$0.20 for a Universal Display. If the screen size is five times more, is it 5x that? And with the multiplier effect of 1.5-2, is that a way to think about the dollar content per, you know, tablet?
Yeah, great question. I mean, I think that scaling per square inch is probably the right way of thinking about it from, you know, a smartphone size to an IT product, and then the tandem factor, that 1.5-2x times 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 all the penetration, you know, 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 the iPad Pro tandem comes under, under that IT panel bucket, do you see the adoption rate accelerate in IT panels, or do you think price is still an issue, that it's gonna be still a steep curve to get there?
Yeah. So, taking each of those segments individually, so smartphones, as you said, we're 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, you know, mid-single digit growth, in terms of-
Mm
... 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, you know, continue to penetrate with OLED displays as well. And then the TV market being kind of the next, you know, key segment, currently around 3% penetrated. The last few years have been a little rough for the TV market, you know, broadly, as well as the OLED TV market. Our customers are signaling that they expect, you know, solid growth this year off of OLED TVs compared to 2023. And then the IT market is, you know, as of the end of last year, around 2% penetration, and we think that the announcements made in the last, you know, few months certainly helped that.
Many analysts estimate that, you know, 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, the IT OLED market, and some of that's, you know, 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-
Mm
... to build that line, and that's geared, you know, toward the IT market and will 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 gonna come online also in 2026 and have tandem capability. And then lastly, just yesterday, actually, Visionox, who's another-
Mm
... key customer of ours in China, they announced an investment that they're 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 gonna be wanting that capacity-
Mm
... for adoption. I mean, the OLED displays certainly are a premium offering compared to LCDs, 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 a vastly, you know, 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, you know, continue to differentiate your product offerings-
Mm
... by introducing OLED displays.
Yeah. And is it fair to assume that, IT panel penetration, as it increases from 2%-3% to a higher number, would it be mostly tandem, or do you think they can still be, like, spread between single layer and two layer or tandem OLED?
I think it's gonna continue to be a blend.
Mm.
I think there's, you know, tandem is new as it relates to IT. Historically, tandem, the architecture's really been used in automotive, because if you think about a vehicle and the life cycle of a vehicle, needing to have the displays have the appropriate lifetime has to date been the use case for tandem. But in the IT market, we think it's probably gonna continue to be a blend, and 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 toward tandem, and potentially there's, you know, 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, you know, 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, you know, the smartphone adoption rate for OLED was pretty good once Apple started using it, you know, in the, in the 2017. And then maybe with IT panels, it might improve after, like, the iPad Pro, but kind of like, you know, the adoption rate has been extremely slow on the TV side.
Mm-hmm. Yeah. Yeah, I think the TV market, the OLED TV market has. It did take a downturn in 2022 and 2023, and I think that was largely, you know, macro concerns and all that was weighing there on the global environment and how that was gonna play out. You know, now that we seem to have a little more certainty or some certainty on that, I think our customers are hoping there's more, you know, 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 number one factor and their only factor, currently, the LCD, you know, certainly is the way that they would go. But the premium visual experience of an OLED TV is, you know, 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.
Then also it seems like on the TV side, obviously LG is 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-OLED , like a bunch of these things. So do you have any view on where it all coalesces towards longer term, or you think it's too early to make that call in terms of technology?
I mean, we certainly think, I mean, if you, again, if you put next side by side an OLED TV next to a QLED, Mini-LED, LCD, whatever you might wanna call the various versions of LCD technology, you know, it's clearly a visual, a premium visual experience-
Mm
... the true blacks, the contrast ratio. We think it's, you know, very clear that OLED should win out. You know, to date, it's been challenging certainly, but we think that there's, you know, solid momentum, and we expect OLED TVs to have a significant market share going forward.
Got it. Let me—before I jump into Blue, kind of had one other question. I think you mentioned auto earlier. You're seeing like, you know, BYD, you know, Audi, like a bunch of them introduce, you know, auto car 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?
Yeah, it, it's a separate segment. It's one that, you know, 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, you know, 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, you know, have longer range or different battery options. And we think that that's a trend that's certainly gonna 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, you know, a lot of promise going forward.
And you've also, you know, another smaller market as it relates to automotive is the taillight business. So there's, you know, automotive taillights that have OLED displays. Mercedes, BMW, Audi, and others have those, and we think that's a really, you know, interesting approach to use going forward as well, which is really more of, you know, a visual thing in terms of, you know, how you make the car, you know, look-
Mm
... look interesting on the road.
Got it. Then it's like switching gears to Blue, just talk a little bit about where we are in that commercial, you know, adoption or commercial roadmap for Blue, and what are the next milestones we should look out for from your end?
... Yeah, 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, you know, very strong progress over, you know, the last few years, and continue to believe that this year we'll have the commercial specs achieved. That will then enable our customers, you know, 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, and once we, you know, have those commercial specs as achieved, as I said, then that'll 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.
Hmm.
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. We believe it has applicability across smartphones, IT, and televisions. So we need to see exactly how things play out, you know, in the future, but there will be an adoption curve. It's just a matter of, you know, how steep it is, and you know, which products go first in terms of adopting blue.
Does it cannibalize any of your existing material sales when you go to, you know, the phosphorescent blue?
No cannibalization. So today we sell phosphorescent red and green material, so if you were to look at your smartphone or other, you know, 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 fluorescent 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, for us.
Got it. Got it. And how to think about the revenue? I think in the past, you've mentioned something about think of blue like the green emitter. So is there a way to think about the revenue opportunity or how to think about pricing?
Yep, good question. So the quantity of blue and green in a device is very similar. And the quantity of green to red is 2:1.
Hmm.
So if you think of, from a ratio perspective in a future device, you would have, you know, two blue, two green, one 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, you know, how those evolve over time.
So on that point, you know, my understanding was that whether it was LG or BOE, the other customers, ex-Samsung, blue was already built into the contracts. Samsung is the only one without the blue built in. Is that true? How to think about Samsung's blue adoption, and, for the non-Samsung customers, if there's no pricing set, what is part of the contract where blue is already included?
Yeah, great question. So, you're correct that our customers, other than Samsung, their license or royalty agreements already include, encompass our IP around blue. Samsung's agreement expressly excludes our blue IP, and none of our customers, including Samsung, have material pricing for blue. So we really need to, with every single customer, negotiate a material pricing agreement and the pricing associated with various volumes of blue material, and then as it relates to Samsung, there's a licensing discussion to have as well.
Got it. Are some of the commercial adoption, you know, like, as are all the customers looking at blue this year, or is it more like one or two looking at it, and eventually that'll like fan out to multiple customers?
Yeah, nearly all of our large customers-
Uh-
... have been purchasing development quantity of our blue material.
Got it. Got it. Then maybe on, you know, when I look at your CapEx to sales, you know, it's kind of crept up the last year or so. Maybe it's because of Shannon. How to think about it longer term, given that you have Shannon facility, you have blue, and, you know, how does it all work together?
Yeah. Yeah, so in 2023, we had a few one-time events in CapEx that drove the higher level that we saw last year. So the first being we actually purchased the Shannon facility itself. We-
Hmm
... had been leasing it prior to that point. So in Q3 of last year, we purchased the facility. That was around $13 million. And then we also spent about $9 million to acquire a site in Korea that we had previously leased as well. So collectively, those two were, you know, $22 million of CapEx last year. And so if you take that off, we're kind of more or less in the zone that we've been over the last few years in the high 30s. And as we look over the next few years, we certainly do have initial investments we want to make in Shannon.
We're also doing an evaluation of our Asia footprint generally to make sure we're supporting our customers in the best possible way over there from a, you know, R&D perspective and, you know, application centers, what have you. And then lastly, we've been doing a multi-year renovation of our campus in New Jersey that's nearing its end in the next 12 months. So, there's a few kind of puts and takes there, but, the last year was certainly elevated due to some of those factors that I mentioned.
Got it. And, you know, I understand, like, Shannon. You probably there's like a de-risking thing, which is so, like, this is just tied to PPG. Do the customers decide where they want it from, or does it matter whether the red or green comes from Shannon or Pittsburgh? It should be basically exactly the same, or can you, like, split between customers?
Yeah, so acquiring the Shannon site, as you said, was very key in terms of diversifying our supply chain, making sure we have more redundancy, you know, in our manufacturing network. PPG, who's our long-term manufacturing partner, they do operate the Shannon site for us-
Mm.
So, their people are really on the ground operating the plant on our behalf. In terms of customer supply, you know, we manufacture. We continue to manufacture in the U.S. as well as in Shannon, so some of it's a customer decision, but we're also continuing to make sure that our customers understand the benefit of having dual sources of supply and making sure that we're able to leverage the site to a greater degree. On the customer side, there are certain, you know, changes, you know, change evaluations they have to do as they receive material from a new plant, but we've been working with all of our customers on going through that process.
Got it. And then, you know, talking about operating leverage, and you always had a very strong like, you know, margin profile, and it's been roughly like 40%. Should that stay the same? Do you think it gets better with blue, or how to think about that?
Yeah, so, the guide this year on operating margins is 35%-40%, which is, you know, we've been hovering around 40% or slightly higher than that in some of the last few years. And as we look forward, there's, you know, can't give you a long-term guide other than, you know, on blue, we're certainly pricing at a level where we think, you know, we should have... continue to maintain very strong margins, and potentially improve upon them. You know, we obviously have COGS factors as well that we need to evaluate around blue as well as our red and green materials, just to make sure that, you know, as certain raw inputs, you know, become more expensive, that we can manage those.
As well as to the, you know, we have a tailwind in the sense that, as we can put more volume through our existing manufacturing footprint, we have operating leverage there as well. So a number of pluses and minuses, but we're, you know, very focused on making sure that we can keep margins at the highest possible level.
You know, it also brings another question. You know, you have, like, an amazing balance sheet, like, no debt, a lot of cash, very profitable, give a good dividend. How to think about, you know, the use of cash? Because historically, when I look at how you operated, it's always been build versus buy approach, not no real M&A per se. So I'm just kind of curious how to think about use of cash, capital allocation, and things like that.
Yeah. So, so certainly number one is growing the business, right? How can we invest and how can we grow? And some of the, as you said, many of those investments in our company's history have been internal R&D, and that's gonna continue to be the case, and making sure that we're going after the opportunities that we see in front of our team, and making sure that as we think about, you know, even early-stage scientific areas, well, let's allocate a few people to that-
Mm
... and see what that can do. And so that's going to continue to be, you know, a focus of ours going forward. We have done, you know, I'll call it, acquired various patent portfolios over the years. Our most recent one was last year when we acquired Merck's patent portfolio.
Mm.
$66 million price tag associated with that transaction. We'll continue to look for opportunities to bolster our IP portfolio, through external sources when we can find those opportunities. We're open to, you know, potential other M&A. You know, company acquisitions has just not been something to date that we've really done, but having the capital and the business to be able to pursue those when they come about, is also a value of the management team and the board. Then lastly, we do value returning capital. As you said, we have-
Mm
... a dividend program that we've annually increased since we instituted it, and we, you know, expecting, you know, aspire to continue to increase that going forward. We do evaluate periodically, you know, buybacks and whether that's the right approach, but to date, it's not been the preferred method of returning capital.
Got it. You know, if you look a few years ago, the two major R&D programs you had was Blue and OVJP. Blue is kind of coming to like, you know, that goalpost of commercialization. What about OVJP?
Yeah, OVJP, we've made a ton of progress since we set up our subsidiary in California in 2020. They've continued to scale up the size of the equipment. We're currently at Gen Four size equipment. Just two weeks ago at SID Display Week-
Mm
... in San Jose, we did showcase an 8K display that we were able to manufacture using our OVJP system, so that was the most recent, you know, technical announcement that we've had on OVJP. And a lot of technical work to continue to move forward. And also, we're engaging with customers and partners and folks in the industry to make sure that, you know, they understand the value OVJP brings to the table, and we can continue to see how we move this project forward.
Is that really, like, the early adopter would be the large panels? Is that fair to assume, it's like the TVs or?
Exactly, yeah. So OVJP is really geared toward TV-sized displays, based on the PPI zone that we're able to achieve. So the 8K was 160 PPI that we were able to print at, that we displayed two weeks ago. And we think that's really the zone that we're targeting, is really TV. Not to say it could never go for IT, but currently, we believe it's most applicable for TV-sized displays.
Got it. Let me just pause to see if there's any questions from the audience. Then maybe, we're kind of running close on time, but I just had one other final question, Brian. You know, it's kind of very obvious now that, you know, you heard from like companies like Osram, that, you know, Apple kind of stopped micro-LED development. That, I guess, to me, is a good news for Universal Display, because there is always kind of like a overhang, like a potential competing technology. But it seems like there's still a lot of Taiwanese companies that are still pursuing the micro-LED approach, even though Apple is not. So I'm kind of curious, from your vantage point, how do you see micro-LED evolving, even though Apple is not there? Who's, like, the big, you know, fish in the game, but there are still some Taiwanese...
Which other technologies do you think are, you know, true competitors? Because people thought two years ago Mini-LED, but it looks like Mini-LED is not really cost-competitive with OLED, so is there any way to think about Micro-LED ex-Apple and who else?
Yeah, I mean, as you said, there's still companies focusing on micro-LED technology. I think, you know, our team has long believed that OLEDs are the display technology of the future, and I think the news of the last few months, you know, kind of really reaffirms that. We always keep our eye on the landscape, but we continue to feel like there's a really strong pathway ahead of us for OLEDs, and OLEDs continue to improve. You know, each year, the OLED displays that are out there on the market, the materials that we sell to our customers continue to improve. And so we think there's a long room for OLED to continue to grow and expand.
Got it, got it. All right, I think we're out of time. Thank you very much, Brian. Really appreciate-
Thank you
... your time and-
Thanks, Krish.
Thank you.