Good morning. Welcome to the 27th Annual Needham Growth Conference. Our next presentation will be a fireside with the CFO of Universal Display, Brian Millard. My name is Jim Ricchiuti, Senior Equity Research Analyst at Needham. We also have in the audience Darice Liu, Senior Director of Investor Relations and Corporate Communications. Brian, welcome. Thanks for joining us today.
Thanks for having us.
Why don't we maybe touch a little bit on 2024 as much as we can, as we look at the year. And I should note, obviously, the UDC's full year numbers won't be released until later next month. But from an industry perspective, how would you characterize 2024 just from the standpoint of some notable developments in the industry?
Yeah. Well, thanks, Jim and Needham, for having us. Before I get too far, I just want to give a quick safe harbor statement that I may make some forward-looking statements today as part of my remarks. The actual results may differ materially from those forward-looking statements. We would encourage everyone to review our SEC filings before investing in the company. As it relates to 2024, the industry, a lot of really exciting developments in 2024, starting with smartphones. For the first time, smartphone OLED penetration in the smartphone market exceeded 50% early in the year in 2024. So that was a key milestone, seeing that significant threshold crossed. We continue to see a lot of opportunity in the years ahead in the smartphone market, just based on some of the mid-tier starting to be more penetrated.
All the premium models today have OLED displays in the smartphone market, but we're seeing increasingly the mid-tier and even some low-end models have OLED displays introduced, which is a key opportunity for us to continue to increase penetration well beyond the 50% mark there. In the IT market, we saw a lot of exciting growth. Apple introduced OLED displays into the iPad Pro series in 2024, so that was in Q2, and that continues to be an exciting market for us, which I'm sure we'll talk about today. IT is a key growth driver for UDC and the industry in the coming years, and then lastly, the TV market, we saw a return to growth in terms of number of units of OLED TVs sold in 2024 compared to a few years of a little bit of weakness preceding 2024, so a lot of key growth that we saw.
We're very excited also about opportunities in the years ahead here.
Good. That's a good overview. And maybe we can dig into some of that. Yeah, I think the question comes up occasionally from investors trying to understand where we are in terms of price parity, OLED versus LCD. And when we talk LCD, we should be talking about the premium segment of the market. But can you give us a sense as to where that is today?
Sure, so OLED display, and we're talking smartphone, I think probably primarily.
Right. That's right.
So on the smartphone side, OLED displays can vary quite widely. So if you're talking your ultra premium, high-end iPhones, et cetera, that can be approaching $70 per panel, thereabouts, based on a lot of the industry data that's out there. And then if you have a less featured model that is a rigid display, so it's going to be on a glass, not a flexible plastic OLED display, that could be somewhere in the $20 or slightly less than $20. So there's a pretty wide range there in terms of the OLED pricing. And on the LCD side, a premium LCD is probably closer to one of the lower-end OLED displays. But I think the benefits of OLED, the true blacks, the contrast ratios, the vividness of the color makes it a very clear sell to introduce OLED displays.
And that's why we've seen that penetration rate, even in the mid-tier and even some of the lower-end models. There was a model recently last year that was a Samsung model, I believe, priced very competitively, just more than $100, and it had an OLED display for that smartphone. So we've seen a wide variety of all the way up through the premium iPhones all the way down to some low-end models have OLEDs.
When we think about that increased penetration, to what extent is the capacity increases that we're seeing in places, not just some in Korea, but also certainly in China, going to drive some of that increased penetration of the market in the handset side?
Yeah. So on the smartphone side, we've seen there is significant existing embedded capacity in smartphone. And over the last few years, there's been varying degrees of utilization of that capacity. I think as we sit here today, there's fairly solid utilization. So our customers are quite happy, I think, with where they are right now. But there is an opportunity for a little bit more capacity to be added. But it's a little different than the IT market right now, which is significantly under capacity relative to the demand that we expect and the industry expects in the next few years. And that's where we've seen three of our large customers announce IT capacity in the coming years.
Whereas on the smartphone side, I think it's going to be adding a little bit of modifications to lines and those types of things to add the capacity that's needed because it's going to grow, but it's already at a significant embedded base. So the growth is not going to be quite at the rate that we expect in IT.
Okay. And before we go into some of the more emerging areas, including IT, I wanted to, and you touched on TVs. And that's been an area that's been, yeah, frankly, a little bit disappointing for the industry. And you noted that we did see at least the projections in 2024 being an up year. I don't know what the data exactly looks like, but it looks like just under 7 million OLED TVs. So the question, I guess, around, it's still clearly an important market, just given the amount of material, emitter material used on an OLED TV versus a handset. But talk to us about what has happened in the market that gives you the confidence that this is going to be more than just a niche product.
Yeah. I think, as you said, certainly the last few years, there's been some down years in 2024 being an up year in terms of the OLED TV market. I think it's important also to think about the TV market in the broader context of total TVs. And I think that's also been a little bit depressed where the total, including LCDs and all models that are out there. So there's been a little bit of weakness there that I think has fallen also into the OLED segment. OLEDs continue to be a premium offering, right? So it is a premium price point. It's also a premium quality of display. So they routinely win the best awards, OLED displays in terms of picture quality and other benefits that the consumers value. Like I said earlier, the true blacks. So if you're watching a movie, you get the night scene.
The OLED display is certainly a premium product in that context. As it relates to kind of what it takes to continue to see growth there, I think that there's a number of things. One, our customers need to have more capacity put through their existing manufacturing network to be able to have better flexibility on pricing. So that's one aspect. As well as, some of our customers have had. LG Display specifically has had white OLED TV manufacturing for a number of years now. Some of those fabs are approaching the end of their depreciable life. Once they no longer have the burden of the depreciation, our belief is that gives them more flexibility as well in terms of how they price those products. So there's a number of things in the next few years that we expect to benefit that.
However, a lot of the analysts that follow the industry still only expect kind of low to mid single-digit growth of OLED TVs in the next few years. So it's a key growth driver. It's one that, from our perspective and the things we can influence, it's how do we give the best materials possible to our customers and enable them to fuel the industry. And we continue to do that and work very closely with LG Display being our number one customer who's playing in the TV space.
Can you talk to the impact of the QD-OLED technology coming in and Samsung bringing that product to market?
Yeah. So Samsung, about two years ago, a little more than two years ago, introduced a QD-OLED, which is quantum dots and OLEDs in combination in their display. And that's continued to gain some momentum. Still small units, I think one to 1.2 million units thereabouts. So of the 7 million that you mentioned, that's kind of the contribution of the QD-OLED, the balance being white OLED that's sold by LG Display. But we see all the OLED TVs that are in market as being a growth opportunity for us.
Can you say whether the economics differ much, whether it's a white OLED versus quantum Dot OLED? For UDC.
Yeah. The only thing I can comment in that regard is the white OLED is a significant amount of our material because it's yellows, greens, and reds that they use from us to produce that display. In the case of the QD-OLED, that's primarily a blue that's used. And that's a fluorescent blue that's used today because we haven't yet commercialized our phosphorescent blue. So just on that balance, our contribution is probably greater on the white OLED side, at this point.
But there is clearly a revenue stream on the licensing and royalty side.
Well, yes. Yeah. Our license is providing access to our full patents too.
Obviously, we're going to talk about blue.
Yes.
Because that's a big question that investors have. But before we do that, why don't we just touch a little bit on, as it relates to some of the changes that you've made in pursuing the TV market, and earlier last year, you talked about what you were doing with OVJP and moving that development work from Silicon Valley to Asia. Talk a little bit about that and what drove that decision, how we should think about the printing aspect as you pursue that aspect of the TV market.
Yeah. No, great question. And a little bit of background on what OVJP is for those that may not be familiar. So OVJP is a dry printing process that's been developed in-house by UDC. And it's focused on large areas, so TV-sized displays and being able to have the same architecture in that size of display as you have in a smartphone, which is RGB or red, green, and blue, side-by-side printing. So we have print heads that deposit the material onto the substrate using a dry inert gas. And we've been scaling up that technology for a number of years. In 2020, we set up a subsidiary in Silicon Valley to take the equipment to the next level.
We did that and achieved a number of milestones over the last few years in terms of the size of display that we print on, the uniformity of that printing process, as well as many other attributes. We, in the last year or so, had all of our customers, major customers, come through our operation in Silicon Valley and take a look at what we had developed. There was a significant amount of interest in the technology. Everyone universally was saying, "Wow, this is interesting. We really like this." However, the investment dollars right now are focused on the IT segment for reasons that we've talked about and will talk about. And so there wasn't really a capacity to invest in OVJP at this point in time. We still think it's a very promising technology. We didn't think it was worth kind of fully shutting the operation down.
However, we do believe that there's an opportunity for OVJP also to be looked at in other contexts. So are there things in life sciences? Are there things in semiconductor manufacturing or otherwise that this technology could be relevant? We're doing a search for a new leader of that business. We identified someone who is based in Singapore, has had his whole career in the equipment manufacturing industry in Singapore. There's a number of companies based over there. We did decide to close down our Santa Clara site in California and establish a site in Singapore under Chandran's leadership to look at. Principally, while the TV market continues to be an interesting one, are there other things that we should be assessing in terms of evaluating the R&D against over the next few years to see if there's opportunities elsewhere?
We're very excited about what those might be.
Good. Let's turn to IT. An important validation, as you pointed out, from Apple transitioning the iPad to OLED screens. One of the issues, obviously, though, has been industry-wide tablet sales in general have been, I think, slower than expected in 2024. How's the company viewing the opportunity, not just in the tablet market, but one of the areas I think that caught some people by surprise was the increased interest in OLED displays going into laptops and monitors, mainly for gaming applications. And maybe you could talk to the broader IT opportunity.
Yeah. Yeah. So the three key segments that we think about in IT are tablets, laptops, and monitors. And so taking each of those individually, there's been for a number of years tablets in market with OLED displays. I think Samsung's had one for a number of years. There's a few other brands that have announced OLED displays or have introduced OLED displays into their tablets over the last few years. As you said, and I said earlier, Apple introducing into the iPad Pro is clearly a key signal for the readiness of the technology for that application. On the laptop side, it's kind of more broad than just the gaming thing, right? There's corporate use of laptops that have OLED displays. Dell's announced recently a number of laptops that have OLED displays included in them in the last year.
We expect many other brands in the coming years to also introduce them into laptop models, and then gaming is one where it's been primarily, sorry, monitors are one where it's been primarily the gaming use where a lot of folks that are big into playing games really like the true blacks, the visual benefits of the OLED display, and so that's where we've seen a number of our customers introduce OLED gaming monitors, so we see growth across all three of those segments in the next few years. I think probably in terms of number of units and square area, the most significant opportunity that we see right now is in the tablet and notebook side because there's a number of OEMs that their product roadmaps in the coming years based on the information from the industry.
We believe there's plans to introduce OLEDs across a growing number of IT products.
Was there anything at CES that was notable in terms of what was shown?
There were a few foldable and slidable models that were pretty neat that our team saw at CES, so that was really the biggest thing, and those were exclusively geared for IT, so when you think about whether that's a foldable tablet or a laptop that has the ability to have the screen expand to a larger size, those were really the key things that we saw, but there was a number of interesting OLED products, but a lot of the focus seemed to be on the IT market.
Okay. The other application that has come up over the past one to two years is automotive. And yeah, we're talking about small quantities, but there certainly are. There's the lighting application, which is something you guys have talked about, but we are seeing OLED displays on certain cockpit displays. Talk to the automotive and how the company sees that.
Yeah. So automotive is, as you said, an interesting opportunity. Still quite small. I mean, there's only 90 million cars sold globally, a new vehicle sold globally each year. So when you think about right now, we're probably around 1% or slightly less than 1% of penetration right now with OLED. That's, as you said, cockpit displays. We've seen a number of specifically EV models seems to be where OLEDs have gained a lot of traction from the display side. And then even on taillights, Audi has introduced OLED taillights across a number of their vehicles, Mercedes, BMW as well. So there's a number of premium models, even non-EVs that have introduced OLEDs into the taillights. And then the cockpit seems to be primarily an EV opportunity.
But it's one that we see as a growing market, but still based on the relatively small number of units relative to smartphones and IT products and TVs. It's one that we focus on, and all of our customers or many of our customers are focused on automotive development efforts right now. And we're supporting them in that work.
Okay. So let's move to the topic that I think most people want to hear an update on. And what can you say, maybe bring us up to date on what you have said about blue and the blue emissive material that you're working on?
Yeah, so today we have commercialized red and green phosphorescent material, and the key benefit of our phosphorescent material compared to the alternative, which is fluorescent material, is really energy efficiency, so our material has 100% internal efficiency, whereas fluorescent material has around 25% energy efficiency, so when you think about the addition of phosphorescent blue in substitution of fluorescent blue today, that's expected to increase the energy efficiency of that display by about 25%, so when you think about how OEMs would benefit from that, there's a significant benefit, especially with new products coming to market with AI features and otherwise, that leveraging that energy efficiency for other power-consuming features is a key opportunity. In terms of our development of a phosphorescent blue, we've been at this work for a number of years.
In 2022, we did announce that we expected in 2024 to have commercial performance of our material. We did adjust expectations back in August of 2024 to state that we felt we needed more time beyond 2024 to achieve the commercial performance. We continue to be very pleased with the progress that we're making. If you look at where our material is today relative to where it was quarters or years ago, vast improvements, and we're working very closely with our customers on those development efforts, so continue to believe it's a matter of when and not if the product is commercialized. We just need more time beyond now to hit those milestones.
Just correct me if I'm wrong on this, but I thought in one of the calls, the when not if was characterized in months versus years.
Yes. And that's still the case. We believe it's a delay of months and not years beyond 2024. So we're still working very closely. And this is a very complex development, as you can imagine. And once you get to the final stages of something as complicated as this, that can be where some of the most challenging things pop up. And that's really where we sit today. But the confidence in the project has not wavered whatsoever. This is really just a matter of needing more time to work closely with our customers to bring it to market.
Okay. Can you help us understand? So let's say we come into the next week, we hear an announcement from UDC that you've hit the commercial performance milestones that you wanted. How quickly does the phosphorescent emitter material? How quickly could it be incorporated in the manufacturing operations of your customers?
Yeah. So we don't believe there's any significant CapEx involved in introducing blue. So this is not like they need to go do a lot of work to add new equipment to the manufacturing line. This should be relatively straightforward. Obviously, there's always normal course engineering work and those types of things that need to go on introducing new material. That's true also on the red and green side. So it's something that our customers go through routinely when they introduce new recipes is making slight modifications to their manufacturing process. As it relates to the adoption curve, it's really hard to predict at this point because it's a matter of achieving commercial performance. Our customers then working with OEMs in terms of what does it get introduced to, what's the volume of that model that they're introducing it into.
And also amongst the customer base, we're working with substantially all of our customers on blue development projects at this point. Are they all at the same pace, right? Are there some that are further ahead or further behind? And I think that's something that once we get to the commercial performance mark, each of our customers is going to have to assess kind of their status relative to others and how they introduce it to OEMs.
Okay.
Ultimately, there's significant interest in this material across our customer base, across the OEM community. This is something that's going to be very significant for the industry to have this additional energy efficiency. But how exactly it gets introduced, what the slope of that adoption curve is, is a little hard to predict right now. And our focus is on getting to the commercial performance.
Clearly, it makes sense that it would vary by customer and potentially by the type of device that that display is going to go into. Is there anything that we may have learned from, and it's going back a number of years, but the commercialization of the green phosphorescent material? There was only one manufacturer.
Yeah. It was a little bit of a different situation.
Yeah. It was a different situation, but it was fairly quick. It was a few quarters, right, in terms of getting that material introduced once the commercial performance was hit. So it was fairly significant. But as you said, one customer, the industry was at a very different level of maturity then than it is today. Certainly, the OEM interest at that point was also quite different because there weren't, it hadn't been, OLEDs had not been introduced into many products. And it was really just smartphones at that point. So we're at a different spot. And I think the key thing from our perspective is continue to be very happy with our development, continue to believe it's a matter of when and not if it gets commercialized, significant interest across the customer base.
And we think that all leads to a significant growth opportunity for us in the coming years.
And maybe just to go back to those early days, was there anything that we should remember in terms of the premium pricing that you achieved with green that we should be thinking about as it relates to when the time comes and we see a commercial blue product from UDC?
Yeah, so on pricing, I'll speak firstly to our red and green pricing, and then we can talk about blue, so on the red and green side, I mean, our pricing has held up very significantly and substantially over the last decade plus since we first introduced our material. The reason we've had slight pricing pressure is really because of volume, so our contracts with our customers all have volume pricing dynamics where the more they buy of a certain material, the better price per unit they receive, which is standard in buying anything, and for that reason, as we've seen the industry grow and our customers buying significantly more quantity of material from us, there has been on a per unit basis a little bit of decline, but absent those volume pricing dynamics, we're quite happy with where the pricing is stayed on red and green.
On the blue side, we have no commercial pricing with any of our customers on blue, so it's something that we need to reach agreement with each of our customers at the right time what that pricing is. And for all of our customers, that's pricing on the material itself. In the case of Samsung, they're our only customer that does not currently have a license to the IP that we have around blue, and so for Samsung, we also need to negotiate a license agreement for blue as well as a material supply agreement. We've shared initial perspectives with our customers on blue pricing. It's well understood there's a premium associated with blue for reasons, obviously, the investment we've made and needing to make sure we have the right proper return on that investment.
Also, it's going to be a little more costly to manufacture initially than our red and green. So there's an acknowledgment, I think, that there's a premium price. It's just a matter of negotiating how much that premium is. And we'll get into those conversations and finalize those conversations closer to the commercialization point.
I mean, is it reasonable to assume that just given the demand from the customer, from the display manufacturers for commercial blue, that there may not necessarily be an extended negotiation process? Again, how do we think about it? You hit commercial spec, and then you begin negotiating. You're saying on the one hand, there's real strong demand for the product. Is there any way to think about that? And again, I don't know if green plays into what the history was of that, if that has any bearing?
Yeah. I think that we certainly believe we have a strong position in the conversations on pricing. However, we obviously want to make sure that we price it at a level where it also enables introduction. So there's that balance and where's that line of enabling introduction of the material not being unreasonable in your pricing structure, but also making sure our pricing reflects the investment we've made and the return that we believe is appropriate on that investment.
Okay. Competition. We occasionally hear about new competition in emissive materials. And oftentimes, it's from universities or early-stage companies. We also hear China. How much of a competitive threat is there from other players? And again, including those in China. Talk to us about that.
Yeah. So over the years, I mean, rewind 10-plus years, there's been companies competing with UDC or trying to develop competitive materials for many, many years now. It's not a new thing. It certainly has increased in terms of the intensity as the industry has grown, more players have entered. If you look at our team of phosphorescent OLED scientists and researchers, we have the largest team working on phosphorescent emissive materials in the world. We have more than 6,000 patents covering phosphorescent OLED technologies as well as other adjacent areas that are relevant to our business. We have long-standing customer relationships. Our customers want access to UDC's researchers, UDC's team, UDC's development efforts, as well as wanting access to blue and other things that we have in development beyond blue. So maintaining those strong relations with our customers is something that we believe is fundamental.
We're focused on how do we support our customers, how do we acknowledge the competitive environment, but not let it distract us from doing the work we need to do to make sure we're supporting our customers to the greatest degree possible. We're also evaluating what do we need to do to do that. We have a significant presence in Asia. We have a team in China, sizable team in China. We plan to grow that team in 2025. We are planning to open a new site in China to support our customers locally, an application lab where they can come do joint experimentation with us.
So there's a significant focus on our part of how do we acknowledge our strong position, try and minimize the noise to some extent, but also make sure that we're doing as much as we can to keep our customers happy with our progress.
But would you characterize it more as noise in terms of the competitive threat? Or do you? Yeah, I guess what I'm asking is, do you view it competitive threat if there is a significant competitive threat? Any differently than in years past? Or is this just more standard, smaller firms trying to get a foothold in this market?
I think it's certainly increased in terms of the intensity. And I think that we are very mindful of who's out there and exactly what they're bringing to market and what they're proposing to our customers. And our focus is on how do we make sure that our customers understand, continue to acknowledge the value UDC provides, and how do we continue to give them the best technologies so that we maintain our strong position.
Okay. Maybe just a quick question because the question's coming up in so many of the presentations this week in the conference. Just how do we think about tariffs, trade policies? Maybe walk us through some scenarios just as it related to the last go-round. Was it an impact on UDC at all?
Yeah. So it's certainly the geopolitical environment, something we do spend a lot of time focusing on, making sure we're keeping tabs on all that's potentially going on with new administration and potential challenges there. It's something that we've actively in the last few years planned for, not just because of the current environment, but just generally we wanted to make sure we had a more diversified supply chain. So we set up non-U.S. manufacturing a few years ago. We've continued to look at also our sourcing of materials and making sure there's diversity in the sourcing of our materials. So it's an area we focus on closely. We believe we're well prepared for anything that might come. Obviously, you don't know what you don't know, but we believe that everything that we can see or plan for, we've properly addressed.
Okay. You touched on this earlier, just the capacity and much of the capacity that's been coming online and will be coming online is geared toward IT. But is there any way to talk about the overall capacity picture as it relates to 2026? Or is this more a 2027 driver? Because you have different display companies investing at different times.
Yep. Yeah. So the three key announcements that have been made in terms of IT capacity for OLED is Samsung announced almost two years ago, actually, they announced their investment in a new fab for OLED IT. That's about a $3 billion investment they're making. BOE announced shortly thereafter that they were making a roughly $8 billion investment in a fab for OLED IT. And then most recently, Visionox, another Chinese customer of ours, announced a capacity investment they're making of $8 billion-$9 billion. So if you add all those three up, you're at roughly $20 billion of investment for the IT market. I think those fabs will likely come online in the order they were announced. So you would expect probably Samsung's, then BOE's, then Visionox, just based on when each of them got started and placed equipment orders.
And I think the most recent information that we've received is it's probably 2026 is when the first fab comes online for mass production. And then 2027, around 2027 is probably when Visionox's comes online.
Okay. Great. So lastly, just on capital allocation, the company has done some M&A, and it's been mainly patents, patent portfolios, but not exclusively. You bought a contract research organization a few years back. Has the appetite to do M&A changed at all? And particularly as you think even about different applications of the technology.
Yeah. We certainly do view M&A, and there is an appetite for M&A. I think the challenge is what's the right strategic acquisition, what's the value, and finding that right mix is something that we're very focused on. We have, over the last few years, set up a venture arm where we've made a number of investments in early-stage companies. It's possible that something in that portfolio in the future could be something we might be interested in. And that's a way of also keeping our finger on the pulse of what's going on in the industry, not just display, but even areas that are adjacent to display. And so that's been one way in which we're keeping an eye out for potential M&A opportunities. And so we are interested in growing the business principally, right? And so how do we do that?
M&A we do view as a potential angle and avenue for doing that.
Just on the venture investments, not a lot of attention gets paid to it. Have you said how many companies you've invested in?
It's in the 6-10 range, and they're about still a few million here and there that we've made, but a lot of interesting technology and some things that we're quite excited about that are in that portfolio, some of which are public and have been announced and others that are not.
Okay. Any that you want to highlight?
Not at this point. I think there's a lot. There's a portfolio that our teams were either on the board or have board advisor positions on these companies, and we have a team that's focused on managing those investments and looking for more and a lot of interesting technology in that group.
And the other, remind us, the cash position at the end of Q3 was?
Yeah, around $900 million. So a significant cash position, one that we do want to return capital to shareholders. We've had a dividend program in place for a number of years. And increasing the dividend is also something that we plan to do going forward as well. And so that's been our primary method of returning capital. And also having the dry powder on our balance sheet where if an opportunity does come up and we do want to acquire a business or a patent portfolio or we need capital for other reasons, we don't need to go to the markets to find it. We already have it. So that's been a priority of the board and management team.
Okay. We're winding it down. If there's any questions from the audience, I think, Brian, you'd be willing to take a few. Anybody?
Yep.