Universal Display Is Getting Another Huge Deal Done

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.

Fool contributor Anders Bylund owns shares of Universal Display but holds no other position in any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Universal Display and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.


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Comments from our Foolish Readers

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  • Report this Comment On March 09, 2012, at 4:59 PM, Joeyslaptop wrote:

    Are you throwing AAPL in here as a buzz word? I don't think AAPL has much interest in OLED. AMOLED is even inferior in some aspects to AAPLs retina technology. Sadly for a lot of peeps who just barely bought an HD tv, their investment is running into what we call AAPL invoked risk and depreciation. Apple's iPad is beyond HD. If Apple used its retina technology on a 30-inch Apple-made display, it could conceivably blow your mind on resolution. How would you like displays measured in mega-pixels! Your display could sport videos in higher definition than the theater projectors!

  • Report this Comment On March 09, 2012, at 10:25 PM, TMFZahrim wrote:

    Joey, I'm afraid you're enjoying that Apple-flavored kool-aid a wee bit much. Today's workaday 1080p TVs already sport about 2 megapixels. The not-quite-iPad 3 doubles that, but the megapixels are already there. 1080p is right in line with the resolution in modern digital cinema projectors so yeah, anything higher will beat the theater.

    OLED brings other benefits than tight pixel counts such as low power draw, blacker blacks and whiter whites, better color saturation. In the long run, I don't see how Apple could stay away from those buzzwords, all perfectly in line with the company's design focus.

    Finally, Apple didn't invent the retina display. Samsung, AU Optronics, and LG Display are among the companies actually making the screens. Apple just places the orders and builds... sorry, orders the things to get built by third-party contractors. I'm sorry but I don't buy the argument that Apple is a great inovator that doesn't need anybody's help.

    Anders

  • Report this Comment On March 10, 2012, at 4:53 AM, lojikfool wrote:

    H Anders, counting chickens a bit on the timing, but better to give those shorts something to chew on

  • Report this Comment On March 10, 2012, at 4:55 AM, lojikfool wrote:

    Also, as for oled vs retina, there is no competition, this could be a problem for Apple as they will fall behind due to not being able to launch oled products as there is not yet enough supply, right!

  • Report this Comment On March 10, 2012, at 9:29 PM, Anto101 wrote:

    By placing the orders and gets third party contractors to build them Apple is certainly helping to expand the market. As a new innovation comes on board those who help to expand the demand are also helping to expand the demand.

  • Report this Comment On March 10, 2012, at 9:36 PM, Anto101 wrote:

    As a new innovation comes on board those who help expand the demand are also helping to grow the market at this crucial time.

  • Report this Comment On March 10, 2012, at 10:41 PM, TMFNewCow wrote:

    Joey,

    Apple is definitely at least interested in OLED technology. A few months back they filed a patent application entitled "Power Efficient Organic Light Emitting Diode Display."

    http://www.appleinsider.com/articles/11/11/03/apple_wants_to...

    You can't say Apple isn't at least interested. Apple files tons of patents that never bear fruit, so OLED iProducts may or may not ever see the light of day (the supply constraints don't help either). In terms of "interest," Apple is decidedly interested.

    -- Evan

  • Report this Comment On March 12, 2012, at 9:36 AM, SurrealSkiller wrote:

    Congratulation on yet another PANL pumping article carefully timed for option expiration week!

    The "huge deal" will expire in 3 months .The value of contract is about $0.7M - LG revenue for last year was 1.5M and this is 6 months contract

    Throw Apple name just to get additional speculations going on the hot heels of latest iPad launch. The new iPad doesn't have OLED display but it's the fools site , everything goes here.

    If the 0.7M contract is a "huge" deal for 1.8B company considering that they were negotiating that for already 3 months then situation look really desperate .

    The final contract with LG will be modeled from final contract with Samsung - you got it right. LG will not pay more just like Samsung's pay didn't increase with agreement. That's why company management provided the same guidance for 2012 as for 2011 .

    Japanese firms (Sony and Panasonic) is a whole different story as Universal Display patents were invalidated in Japan.

  • Report this Comment On March 12, 2012, at 2:07 PM, TMFSymington wrote:

    @SurrealSkiller: I think you're misunderstanding what was said here...Anders wasn't saying this 3 month contract extension was the "huge deal"...reread the article and you'll see he was merely saying this extension with LG is in-line what happened while Universal Display hammered out the details of their long-term deal with Samsung.

    Also, he didn't say Apple is using OLED...only that, "when the supply side grows large enough", they MIGHT use it (supported by TMFNewCow's comment above).

    Another point: It doesn't matter if the long-term contract currently doesn't "pay more" than the ones in place, as long as the revenue scales upward with the ramp up in sales. Note the Samsung contract provides revenue in two parts: 1.) License fees (for the right to use PANL's tech) and 2.) Material supply fees (just like it sounds.

    The license fees should remain static through the terms of the contract, while the material supply costs should rise along with the increased adoption of OLED devices. As long as the eventual long-term deal with LG mirrors this model (and I see no reason why it shouldn't), we should have nothing to complain about.

    Lastly, PANL has over 1200 patents (correct me if I'm wrong), and a measly 3 were invalidated in Japan...in addition, these three patents only relate to products CURRENTLY being sold in Japan, and the basic PHOLED patent (representing the core of their portfolio) is still intact through 2018. Really not a problem for the company, and is part of the game for a tech company with such a focus on I.P.

    So PLEASE do a little homework before you make blind assertions of supposed misinformation and "pumping". Also please feel free to correct me if you feel anything I wrote is inaccurate. We should all be held accountable for our words, even if we're generously allowed to hide behind an anonymous CAPS profile.

  • Report this Comment On November 09, 2012, at 12:15 PM, showmethemonet wrote:

    This looks pretty silly in November

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