This just in: Universal Display (Nasdaq: PANL ) is hammering out a long-term deal with second-largest customer LG Display (NYSE: LPL ) . Today, the company announced a short-term contract extension with LG that simply stretches out the recently expired agreement until June 30.
OK, maybe that's not a big shock, but there's new evidence pointing in a long-term direction. This extension is consistent with how Universal Display landed a six-year contract with largest client Samsung: The old deal was extended several times while the companies polished up the final long-term agreement. LG has already laid out some pretty ambitious plans in the OLED display space, including big-screen TV sets and a bigger OLED presence in LG's smartphone lineup.
The final LG contract should look very similar to the template set by Samsung, replacing a straight-up royalty rate with a combination of flat license fees plus a lucrative materials supply clause. Some analysts don't like this structure at all, but I believe it's a best-of-both-worlds combination of rock-steady technology fees and scalable materials shipments.
When that Samsung contract was announced, Universal's shares jumped more than 30% overnight. Given LG's smaller stature in the OLED landscape, I don't expect quite that big a reaction when the final rubber stamp hits the LG contract, but it's a very important deal nonetheless.
With the two largest OLED panel makers setting the stage for the rest of the industry, smaller players and even entirely new customers should find it easier to jump into the OLED market. I'm thinking that Sony (NYSE: SNE ) and Panasonic (NYSE: PC ) would be first in line to start up fresh OLED production lines. Both already have working relationships with Universal Display, and both are big names in consumer technology. And when the supply side grows large enough, even Apple could be able to find enough OLED screens to use that technology in upcoming versions of the iPhone, iPad, and the unannounced but widely anticipated TV sets.
There's nothing quite like staking out a land claim while market is still growing explosively under your feet.
Universal Display is a tremendous play on the mobile market in the short term and even wider avenues in the hazy distance. It's hardly the only top-notch smartphone bet, of course. Check out these three hidden winners of the iPhone, iPad, and Android revolution, for example.