Everyone, welcome to day two of Citi's 2026 Global TMT Conference. My name is Atif Malik. I cover U.S. Semiconductors and semiconductor equipment stocks at Citi. It's my pleasure to welcome Brian Millard, Chief Financial Officer and Treasurer, and Darice Liu, a friendly neighborhood IR, Senior Director IR, Corporate Communications at Universal Display. I'll kick it off with my fireside chat questions first. If you have a question, you can raise your hand towards the end. We'll have the mic come to you, and you can ask your question. Welcome, Brian.
Thanks. Great to be here.
Brian, on the last earnings call, you said that the next growth phase is beginning to take shape, while also pointing to some near-term consumer electronic challenges in the market, which are very well understood, given the inflation in the smartphone, the PC market. What gives you the confidence that the industry's approaching a new growth phase?
Yeah, so before I go too far, just a quick safe harbor. I may make some forward-looking statements today as part of my remarks, and our actual results may differ from those. We'd encourage everyone to look at our SEC filings before making any investments in the company. The comment I made on the next phase of growth that's kicking off, we very much believe that. I think there's a number of proof points to that. As you noted this year, and the current environment with the memory situation is creating some near-term headwinds, specifically in the smartphone market, where it seems to be most impacting our business. But if you look to the next few years, there's a lot of capacity plans that our customers have.
Specifically, about two , three years ago, multiple customers of ours announced new capacity investments they were making in what we call Gen 8.6 capacity, which is high-capacity output specifically geared toward the IT market for tablets, laptops, and monitors. We have already seen this year, two of those four capacity investments come online with Samsung and BOE both turning on their fabs this summer for mass production for the first time. Visionox and TCL China Star Optoelectronics Technology both being underway with their construction plans for their Gen 8.6 facilities, which will be coming online in the next year or two. There is a lot of investment, not just in the IT market, but even recently, Samsung and LG Display have also highlighted investments that they are making in Gen 6 capacity for the smartphone market.
LG Display has also talked recently about some new manufacturing process technology they are investing in for OLED IT.
Specifically in the IT market, tablets, laptops, monitors, where we have only 5% penetration today of OLED, there is a lot of upside opportunity that the industry is preparing for with all these new capacity investments coming online.
In terms of from the demand perspective, you talked about seeing green shoots on the supply side from Samsung. In terms of the demand perspective, there is quite a bit of buzz around foldable phones from a launch phone maker. We will see what comes out today. From a demand perspective, what are the key demand drivers for the growth to accelerate in 2027?
Yeah, certainly, on the smartphone side, we do expect foldables as a growing form factor to be a really exciting trend, not just in 2027, but in the coming years. There is very much a belief that we have seen the foldable penetration increase nicely over the last few years. As more and more OEMs, you alluded to one possibly launching soon, and we think that very much in the coming years, that will become an increasingly popular form factor for consumers. The reason why that is beneficial for us is even on a unit-for-unit basis, if one is a foldable, that is an incremental opportunity for our business because of the size of those displays in a foldable product compared to a conventional non-foldable.
Typically being two to 2.5 times the quantity of surface area in those foldable products, and therefore more material of ours that's needed to produce those displays. In the IT segment, I think that's really where we see the most promise in the coming years, specifically off of the low 5% penetration rate that we have today and the capacity investments that I mentioned earlier. And those capacity investments, just those four Gen 8.6 fabs I mentioned, that's $20 billion of capital investment that our customers are putting into those four facilities. They're making those investments because they know their OEM customers need that capacity to realize their product roadmaps in the coming years. There's very strong conviction on the IT side. Additionally, automotive is a growing segment as well. Right now, only about 1% penetrated with OLED.
So, a nice low penetration currently in both IT and automotive, and a lot of focus from our customers and the OEM community on continuing to adopt OLED products into more and more IT and automotive offerings.
Brian, I caught a 1% automotive, 5% across IT. Smartphones, are we around 70% adoption right now?
Approaching 70, yeah. So we're at 65% thereabouts today. And that's been nicely growing over the last few years. Certainly, all the premium models today have OLED displays in them, and more and more of the mid and low-end models are introducing OLED products as well. So, the price gap between OLED and LCD in the smartphone market has really narrowed, such that that's enabled the penetration rate of OLED to grow as well as it has in the last few years.
And just in terms of, I definitely see the adoption rate inching higher across these end markets. But in terms of the economics of OLED, particularly for IT and TV markets, where do we stand? In terms of a wider adoption of OLED across larger screen form factors.
Yeah. The price gap, I will speak first to TV. The price gap in TV has been one of the reasons why the penetration rate in TV has been pretty flat at 3% the last few years. Certainly, LG Display is our largest customer that is focused on the TV market, and increasing that, the number of units that they are selling is certainly a top priority for them, and we would benefit as well from that. They have recently, this year, launched an OLED SE model, which is a lower-cost OLED TV display that they are marketing to their OEM customers. The challenge in the TV market has been that the premium LCDs are good, the OLEDs are much better, but the price gap has been pretty wide between those two, such that price-conscious consumers have more tended toward the premium LCD versus the OLED.
But we are very hopeful that with more volume and more scale, that gap can narrow, and it has narrowed over the last few years. But it can further narrow and therefore drive greater units, which we will benefit from. In the IT market, these new high-capacity fabs, these Gen 8.6 fabs are much more efficient in terms of their production abilities, the efficiency of the cuts that our customers can do of the mother glass to produce those displays. So we are hopeful that can also make the economics between OLED and LCD more competitive. OLED is a premium product. It will continue to be that way, but it is also a premium offering because of the benefits it brings in true blacks and contrast ratios and refresh rates, which premium LCD just cannot quite compete in the way that OLED can.
All right. So incrementally, as we look into 2027, 2028, will smartphones be the biggest driver incrementally, and then IT and then TV? Is that the rank order you guys are thinking about?
I think from a square area perspective, we think IT is number one, and that is really industry consensus also just based on the new capacity coming online at multiple customers, as well as OEM product roadmaps to introduce more and more OLED products in the IT space. I think rank ordering them, I think it is IT. Automotive is a fast rate of growth, but off of a very small base today. Smartphones and TVs, that is kind of the rank ordering we put based on what we hear and see, as well as what folks that track the industry more broadly are expecting.
Okay, then just ranking order in terms of unit growth, adoption rate, the area, as well as new and increasing material, how should we rank those factors for future growth?
Yeah. I think certainly units and adoption rate kind of go hand in hand. I think on the smartphone side, I think units are expected to be flat-ish next year, maybe just modest growth, but hopefully more of that growth is coming from foldable, which would be a benefit for our business. In the IT space, off of a very low 5% penetration today, more and more units continuing to convert as more and more capacity comes online and OEMs continue to move that way. I think it is really units driving penetration. The overall market, I think in smartphone and IT is fairly static, but more and more of it is converting to OLED, which is driving growth for our business.
Brian, when we look at modeling your business, it is a complex function of utilization rates of existing fabs as well as new Gen 8.6 capacity additions. You talked about Samsung Display and BOE Technology Group. So when we think about the timing of these new fabs as well as existing utilization rates with existing fabs, at what rate will the revenues and at what point in time you will start to see the revenue acceleration from both these two factors?
Yeah. On the new capacity side, we've already started to see, both at Samsung and BOE, since they've turned on those fabs for mass production, we have some orders already from those fabs. However, they're not fully utilized this year, and certainly our customers want to continue to boost those utilization rates heading into 2027 and beyond. We very much believe they will based on what the OEM product roadmaps would indicate and the utilization of those fabs needing to support those product roadmaps. In terms of the existing capacity, I think right now what we're seeing is our customers who are more exposed to the mid and low-end segments of the market, specifically the smartphone market, are feeling the impacts of the memory environment more hardly this year. Our customers who are more playing in the premium space are not being as impacted.
That's nice to have that capacity already embedded in our customers, such that when the demand shows up, we don't need to wait for a new factory to be built and new tools to be fabricated. The capacity's already there to support the demand when it comes back as the memory environment continues to evolve.
Can you provide us an update on competing technologies like Mini LED, Micro LED and other display technologies advancement? Where does Universal Display retain its strongest competitive advantage?
Yeah. Mini LED is really a form of LCD. We bucket that within the LCD category. It's been out there, and OLED has continued to take more and more share from Mini LED in a variety of different form factors, specifically TV and IT. Micro LED is an emerging technology that many companies, including some very large OEMs, have made significant investments in Micro LED over the last decade plus. There's, over the last few years been, I'd say, a little bit of air taken out of the balloon of Micro LED as some folks have shifted and deprioritized their investment in that space, further solidifying OLED as really the display technology of today and into the future.
The cost effectiveness of OLED display manufacturing is one of the key benefits, especially compared to Micro LED, which is a very complex manufacturing process to create those displays, especially at the sizes where we play the most, the small and mid-size like smartphones and IT products. We believe some of the news announcements over the last few years really solidify that OLED has a strong foothold in the display industry, and that is going to continue to be the case. Now, don't get me wrong, there are a lot of Micro LED companies that are investing heavily in Micro LED, but we believe that the places that they will be successful are not really our core business with the small, mid, and large.
All right. Let us talk about the blue adoption. Versus a year ago, where has phosphorescent blue made the most progress? Is it on efficiency, lifetime, manufacturability, and where do we stand on customer qualification?
Yeah. For those of you who may not be familiar with our core business, we sell red and green phosphorescent emitters today, which emit the light in OLED displays. We have been working for many, many years on phosphorescent blue to bring that to market, and the benefit of our material is really energy efficiency. You put an electrical current to our material, 100% of that electricity is converted into light. There is no wasted heat in the process of converting energy into our product. Phosphorescent blue is a very challenging material to develop because of the wavelength being very narrow, it having some physical properties that can cause its lifetime to be challenging. And lifetime is really the key factor that we in the industry have been continuing to try and boost, is the lifetime of our phosphorescent material.
We have made great strides over the last few years, including over the last year. We recently, this May, at a technical conference in California, one of our researchers who is really leading our efforts on blue, presented a paper there and talked about the benefits that we have realized over the last few years, and they are a 13x increase in the lifetime of our material over the last few years and a 3x increase in the energy efficiency. We have been able to make a lot of great improvements which have enabled our customers to improve their development efforts of products using our phosphorescent blue. Specifically, LG Display, a little more than a year ago, they first showcased a product at a conference that was produced using our phosphorescent blue material.
They highlighted that there was a 15% increase in the energy efficiency of that product compared to one that still had the fluorescent incumbent material in it. They've re-showed that at a number of different trade shows since that date. They also had noted they fabricated that on a mass production line that they use for commercial products, and it was performing at commercial levels. All that is to say, we believe that we've proven the feasibility of our material in a commercial system, and we have customer proof points to back that up. However, it's not yet in a device for consumers in the market, and that's what we're continuing to work to support our customers in their development, so that can enable an OEM to incorporate it into a product for the market. We are very happy and confident on the path that we're on.
We're just not moving down that path as fast as we had expected, but continue to be very confident that it will be commercialized. It's just a matter of timing.
All right. Brian, I'm just curious, in this environment where because of the component cost inflation, the unit forecasts are getting pressured, are your customers kind of accelerating the adoption and the qualification of phosphorescent blue, or does it push out their timing because of the market demand?
Yeah. I think our customers are technology innovators and leaders, and so they very much take the long-term view toward their roadmaps and their R&D. We haven't really seen anything significantly change as a result of the memory environment. I think everybody continues to want to produce the best possible products, whether that's going to be commercialized in the next six months or however many years. There's a lot of belief that continuing to innovate is critical for their businesses.
Is your view this is going to be widely adopted across smartphones and IT and everywhere, or will foldables or something, tablets will be the first form factor?
It has applicability across all form factors. Phosphorescent blue, any OLED display currently has fluorescent blue. By substituting that fluorescent with our phosphorescent, you can increase the energy up to 25%. That would be kind of the rough max that we would expect. That is very compelling as more and more devices have advanced computing and AI and a lot of power-consuming features added to them. Being able to make the display more energy efficient is a key feature that the industry is going after. It has applicability across all. I think the initial use case is probably in some battery-powered device, whether that is a smartphone, a tablet, or a wearable product or the like. We need to wait and see, but our customers are evaluating it across multiple applications.
Can you remind us about the dollar content opportunity on the phosphorescent blue as it layers on top of the red and green?
Yes. We have been very consistent in our view, as we have had conversations over the last few years with customers on pricing of our blue material, that it is a premium price compared to our red and green pricing today. I think that is well understood by our customers in the industry. That said, we are certainly not going to price it at a level where it is going to hinder adoption. It is a reasonable premium, but one that we think will reward us appropriately for the investment that we have made over many years in this development.
All right. Since transitioning OVJP into the broader UVJP platform in Singapore, what progress have you made and what milestones should investors watch for commercialization?
Yeah. So, a little bit of background for those not familiar with what UVJP is. We first started this technology and brought it into the company about 20 years ago. The initial focus was really on how do you make large area TV sized OLED displays using a dry printing process, which would make it more efficient manufacturing and could therefore help unit growth in the OLED TV market. We had a team in California that was focusing on the R&D efforts for the TV application. They made a lot of great progress, and about two years ago, it became clear to us that there was a whole other market for this technology that we really hadn't pursued, which is using it in potential semiconductor packaging contexts, some battery manufacturing, some life sciences and drug delivery applications. So we set up a team in Singapore.
They've been up and running for more than a year now, and they're really looking at these other non-display opportunities for the technology. We continue to very much believe that the TV opportunity for UVJP is very real. But right now, our customers are really geared toward investment in the IT market, just given the legs that that has for them in the coming years. But we're pursuing these alternative markets. We've had some good early engagement with potential customers and are seeing some good early signs of progress on the R&D front out of the team in Singapore.
Great. Then you announced OLEDX at IMID 2026 as a new architecture designed to redirect light that is normally trapped inside an OLED. In plain words, what is OLEDX and how does it work and what are the benefits?
Yeah. OLEDX, we announced, as you said, last month at a Korean display conference. What it is I mentioned earlier that 100% of the electrical current that's put to our material converts to light. However, not all that light can get out of the display in your current smartphone or tablet that you may be using that's OLED. OLEDX is working to how do you extract more of that light out of the display? The way OLEDX does that is by applying a film on top of the display with nanoparticles that would extract more of that light out of the display. As I said, we announced it last month. We've had a really good engagement from customers and also the OEM community and interest in the technology.
It is a platform, an architectural platform that continues to further bolster the value of our licensing portfolio. There's also a number of different ways which OLEDX can be leveraged. One is in the IT space specifically, they're trying to go for off-angle viewing. If I'm looking at your laptop and I'm looking at it at an angle, how do I see the same image that you're seeing looking at it straight on? What OLEDX can do by enabling that light extraction is enable the off-angle viewing to be very consistent with the straight-on view. That's one potential use of OLEDX.
The other is by arranging the nanoparticles in a different configuration, you can also enable greater light extraction just for straight-on viewing, like in a smartphone application where the user is looking at it straight on, and that can significantly boost the energy efficiency of the display up to 2x. There's a number of different ways which our customers and the OEM community would be able to leverage this technology for the benefit of their displays and products.
It sounds nifty, but I don't know if I want anyone to be looking at my laptop.
There's a way that our customers can solve that, too. There's recently been some. Actually at some displays conferences this summer, there were customers showing specifically in automotive, where you don't maybe want the passenger seeing everything the driver's seeing or vice versa. If the passenger's watching a TV show, the driver shouldn't be able to see that, and our customers have been able to produce some displays that enable the off angle to not happen as well. It just depends on what you're going for, how our customers can design it.
Great. Understand it's early. What is the likely path and timeline from lab results to customer evaluation, qualification, commercialization?
Yeah, it's still early days. We're less than a month into having announced this, so we're having good engagement with customers and starting to do technical discussions and getting into the details of R&D with them. Based on the level of interest that we've seen, we're very happy with where things are headed. Now it's a matter of working with our customers to sort out the details of how do we take the R&D down the path to commercialization. It's a little early to answer all those questions. They're very important questions. We just don't yet have all the details figured out on the exact path to commercialization, but it's still a few years off at this point, just based on the fact that it's early days in the R&D effort.
Right. A question on kind of competition. What trends are you seeing in China in terms of OLED adoption? Are you seeing any domestic material suppliers to scale OLED?
Yeah, I think certainly we've seen over the last few years, a heightened competitive environment in China. The Chinese government, and there's local pressures there that are trying to localize elements of the supply chain. That's not unique to our industry. That's really across the market there. We continue to be the leader, and we will continue to have the dominant position of that market. We supply all of our customers with our technology. We also have a vast portfolio of more than 7,000 patents that are global in nature, that are critical to commercializing OLED technology on a global scale. We've also made a lot of investments in the Chinese market. We've recently opened a new applications lab, a tech and innovation center in Chengdu that is located very close to BOE's R&D center, to support the development of our customers in the Chinese market.
We've added additional people to our team there. We brought on a new GM of our Chinese operations last year as well. China's a critical market for us. We very much believe we'll continue to have the commanding share of that market, and it's one that we're continuing to compete in and believe we'll have the upper hand.
All right. Let's talk about the model. You expect the material margins to return closer to recent historical norms. What gives you the confidence in that normalization?
Yeah. Material gross margins, and we guide really to total gross margins as a company. We guided to 74%-76% total gross margins this year. For the first six months, we were a little north of 75%. So, tracking very much in line with our original guidance that we had set for the year. On the material side, we did have a few anomalies in the second quarter and the first half that resulted in a lower material gross margin in the first half. We do believe that will increase in the second half due to product mix and customer mix factors, which will be different in the second half of the year. So, I very much believe that looking at total gross margins is a much more useful way of assessing our profitability.
Really because when we sit down to negotiate our customer contracts, we are negotiating the whole thing, both the licensing and the materials on a combined basis. Looking at the total pie is really the best way of looking at our profitability.
Good. Brian Millard, the capital allocation, how is your strategy evolving from dividend over time to share repurchase?
Yeah. We historically have returned capital, well, stepping back from returning capital to shareholders, on capital allocation overall, certainly, investing in the business is first and foremost, whether that is organic investment in R&D, or inorganic opportunities that we see, whether that is patent portfolio acquisitions, which we have historically done, or other opportunities that may come about that might make strategic sense for us to pursue. On the capital return side, we have historically returned capital through our dividend program. We have had it in place for approaching 10 years now. We have long had a capital allocation and return program. We have increased it annually. Recently, in the last year or so, we have also started buying back stock. We believe it is a good use of the company's capital to be doing so.
We also have the flexibility with more than $800 million in cash on our balance sheet, to be doing both of those things and have the right balanced approach to both.
Any update on your manufacturing footprint, and whether it is in Ireland and what is the plan?
We have had manufacturing in the U.S., longstanding manufacturing in Ohio and Pennsylvania at PPG facilities. PPG has been our manufacturing partner for more than 25 years now. We, a few years ago, set up manufacturing in Ireland as well. The site in Ireland we actually own ourselves, but PPG operates that plant on our behalf. I would say currently we are roughly 50/50, maybe it is 45/55 between the two plants in terms of our output and manufacturing. We are leveraging Shannon, our Irish facility, to a greater degree, especially to serve our Chinese customers. It continues to be a key asset for us to have as part of our network. Both sites will remain critical parts of our operation going forward.
We always look when we are introducing a new product to which customers it is going to go to, and therefore where is the optimum place for us to manufacture, both from a logistics perspective as well as cost and other factors.
Great. Let me see if there is a question in the audience. Question? All right, we will move on. Brian, we talked about gross margins. On the operating margin side, is there a kind of a number in terms of operating leverage that you guys are working towards? Any kind of pointers you can give on how to think about operating margins relative to the top line?
Yeah. Our guidance this year was 34%-37% for operating margins. We've been north of that the last few years. I think it's important to, if you step down the P&L and take each of the items individually, specifically on the R&D side, when we sit down to do our planning process each year, we're really looking in R&D at what do we need to be doing that's going to benefit us three, five years from now. It's hard, especially in a year like 2026, where you have the memory environment that's hitting the smartphone market, therefore impacting us. It would be very shortsighted of us to be cutting R&D or not investing there because that's really how do we continue to maintain the strong position that we have for years to come.
So, where we are continuing to focus on is cost optimization on the COGS side of things and how do we continue to source our materials in the most cost-effective way. We've also, over the last few years, been very opportunistic in taking advantage of bulk purchases for some raw materials that we know we're going to need for many years. We don't have a specific target on the operating margin side, but I'd just say we manage every single line on the P&L to a very tight degree to make sure that we're optimizing the business while also making the investments where we need to benefit us in the long run.
Then on the smartphone demand, and I cover Qualcomm, and they're talking about their smartphone demand recovering in the December quarter, and they're using QTL sales across Chinese customers as a kind of lead indicator. I was just curious, when you guys do your work in terms of understanding the drivers of the smartphone market, are you generally just kind of defaulting to IDC, Gartner, and third-party expectations, or you're watching the inventory at your customers as some sort of a lead indicator in terms of when it becomes too lean and then you'll see a snapback?
Yeah. We have teams that are local to our customers, that meet regularly with our customers to talk about forecasting and expectations for the coming three, six, 12 months to understand what we should expect from a forecast perspective. So our first line of forecasting is really that, and what are we hearing from our customers? How does that compare with what we're hearing from other suppliers in the supply chain of what their intelligence is and what they're expecting? Kind of calibrating all that, which rolls up to the corporate level. We also look at across the customers, is there a consistency or inconsistency? And does that make sense based on what we know to be the case for each of them? We then look at third-party industry data. What do the various folks that track the display industry expect?
There's three or four of them that we really monitor on a close basis, on an ongoing monthly, weekly basis, and making sure that there's consistency or, if there's inconsistency, digging in to understand why, and then rolling all that up to the corporate level. We rely on a combination of customer intelligence, our teams in the field and what they're hearing on the ground, and then calibrating that against industry data.
Okay. Any change on your thinking of providing a full-year outlook? I know you guys do in January, and it's helpful. But given the market dynamics these days, with the cost inflation having an impact on units, are you guys thinking differently about providing the full-year guide?
I don't think so. We've provided annual guidance for key metric, real revenue and other key metrics for many, many years now. I don't see us certainly not pulling back on that. The challenge in our business is a lot of people would love quarterly guidance or more. That's just very challenging based on the fluctuations that we see, especially when you have six major customers. You can have small changes here and there that can, at the beginning or end of a quarter, change things one direction or another. So it's harder to predict on a quarterly basis. But on an annual basis, we continue to believe it's important to give annual guidance.
Great. We'll wrap it up here. Thank you, Brian, for coming to the Citi conference.
Thank you. Appreciate you having us.