How to Profit From the OLED Explosion

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Have you seen the light yet? How about the big picture? Here, let me help -- it's all about OLED.

First, some background
Organic light-emitting diodes may sound like a meal you'd find at Woodstock '68, but they're more like glow-sticks on steroids. Spray chemicals on an appropriate backing material and you get highly efficient lighting panels or low-power digital displays.

Power efficiency is perhaps the biggest draw of this technology, given our quest to conserve energy, oil, and the environment while getting the most life out of our batteries. But don't forget about flexible screens, brilliant true color, and the ability to make these things on basically a juiced-up inkjet printer. It's hard not to get excited about OLEDs when they aim to eventually replace every single screen, light bulb, and fluorescent tube.

Then, the news
Technology analyst house iSuppli just updated its OLED analysis with fresh growth expectations. Today, you're not likely to see an OLED screen outside that ultra-thin, hyper-expensive Sony (NYSE: SNE  ) screen or some handsets like the Nokia (NYSE: NOK  ) 7900 Prism and some Kyocera (NYSE: KYO  ) models in Japan.

The total market for advanced active-matrix OLEDs in 2007 was a mere $67 million -- but iSuppli sees that sum skyrocketing to $293 million this year. It'll be a $1.2 billion market by 2012, mostly in handheld gadget screens, and more than $4.5 billion in 2014, when big-screen OLED televisions should be commonplace. If iSuppli is anywhere near correct on this call, it's 82% compound annual growth from 2007 to 2014. And that's just in high-end displays, no lighting or passive screens.

Taking advantage of the situation
So how do you invest in that hypergrowth? Sure, you could pick up some Sony stock -- but its OLED sales will eat into its LCD and plasma revenues. Same goes for the electronics retailers, and I wouldn't expect Best Buy (NYSE: BBY  ) to move its needle very far on OLED products.

No, the real opportunity lies with the companies that invent, improve, and sell the actual OLED technology. The key OLED patent holders are Eastman Kodak (NYSE: EK  ) , Sumitomo Chemical (after buying Cambridge Display), and Universal Display (Nasdaq: PANL  ) . Of these three, Universal has perhaps the smallest market share with only one major panel maker under license (Samsung SDI), but it is also the player with the most to win.

Kodak and Sumitomo each employ more than 24,000 people all over the world, and Kodak's $10.3 billion in trailing sales would hardly move if you add in a few hundred million dollars of new OLED license fees. Universal's payroll goes about 60 names deep, with about $11 million in trailing revenue. Give them just a small slice of this market when it goes mainstream, and you're looking at hypergrowth that would make Hansen Natural (Nasdaq: HANS  ) green with envy.

Finally, taking Foolish action
Before it's all said and done, the OLED market will grow, evolve, consolidate, and mature. iSuppli sees plenty of room for "future licensing, sharing, and trading of patents, as well as disputes and legal action." Kodak or some new giant entering this market might buy Universal Display for its patent portfolio alone, and if not, the pure-play research outfit is turning the corner into commercial success right about now.

Further Foolishness:

Our Rule Breakers team tapped Universal Display as a future superstar three years ago, and the stock is up a market-stomping 60% since then. But Universal's wild ride to real riches has only just begun on the back of a wholesale OLED revolution. Don't miss out on the real growth story.

Fool contributor Anders Bylund owns shares in Hansen and Universal Display, but holds no other position in any of the companies discussed here. Best Buy is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor pick. The Fool owns shares of Best Buy. You can check out Anders' holdings if you like, and Foolish disclosure is your guiding light in dark times.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 26, 2008, at 4:08 PM, ElmoScoggins wrote:

    Nice shooting there Tex, but OLED stories have been on the cusp for a long time. Not saying it's not going to happen, but it's certainly hasn't happened as fast as iSupply, DisplaySearch and others have predicted in past years. The science is getting to the point where it is becomming viable, but the mass production of OLED devices is still a bit away. Samsung SDI, while they have been producing small panels for a year or so, has had substantial yield problems, and recently had to go back to Samesung Electronics to 'partner up'. Smaller companies such as CMEL have done a better job at actually producing panels, but have yet to find buyers that are looking to incorporate these expensive devices in products. While Universal holds considerable IP, there are technology issues concerning the scaleability of their process. There are a number of other technologies (IP) in the OLED space that offer ways around those production stumbling blocks.

    Price is going to be the real driver here, as OLED devices have to compete with a highly developed LCD infrastructure. Yes, pure OLED devices will have no BLU and Color Filter, but the overall cost of the panel, given the relatively poor yields currently will slow the adoption down...of course LCD cost structure is also not standing still, keeping the competitive threat under control. Look back at how the OLED passive business has panned out, destined to be an also-ran technology because it was not cost effective. I am a big believer in OLED technology, particularly as it relates to the display space, but unless you are a long - term (and I mean long - term) investor, you want to be very careful when you buy into the hype.

  • Report this Comment On August 26, 2008, at 7:14 PM, WilldaFool wrote:

    Aside from noting that the Woodstock Festival was in 1969, not 1968, I want to ask for your insight on the potential of LED lighting in Ethernet PoE environments.

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