This OLED Expert Will Shock the Street Again

When Austin Powers woke from a 30-year freeze in 1997, he was confused by CD players and microwave ovens. I wonder how he'd react to a modern smartphone.

That might be a good subject for a YouTube parody (a medium which also would bewilder our British hero) but we modern investors have a different problem: How should we invest in the smartphone and tablet boom?

We'll get some new clues to that question tonight when Universal Display (Nasdaq: PANL  ) reports first-quarter earnings. The developer of organic light-emitting diode, or OLED, technology plays an increasingly important part in the rock opera of mobile computing.

Analysts expect Universal to turn a $0.04 net profit per share on sales of roughly $16.4 million. That would be up from a $0.08 loss per share on $9.6 million in revenue a year ago -- a drastic improvement. But the consensus earnings target has moved downward recently: The estimate was $0.05 per share last week and $0.11 three months ago.

Notably, Piper Jaffray reduced its earnings target to $0.02 per share with a sell rating on the stock, noting that Apple's (Nasdaq: AAPL  ) Retina displays and generally improved LCD panels undercut the need for fancy OLED screens. Apple doesn't use OLED technology in the iPad, iPhone, or iPod product lines; Piper apparently feels that no new technology for mobile computing can truly take off without Cupertino's support.

But then Universal has had a history of shocking the Street, ever since the company turned the corner into profitability two quarters ago. The Street seems to have trouble parsing the new license and materials contract with chief customer Samsung. The straight-up license fee doesn't scale with unit volumes, which scares some investors. Universal gets out of that potential trap by charging Samsung by the pound for OLED materials, manufactured by chemicals giant PPG Industries (NYSE: PPG  ) under an exclusive license and resold to OLED panel builders at a very generous markup.

So the stage is set for another surprise to the upside. Samsung has emerged as a big-volume smartphone shipper, actually beating Apple in global smartphone sales nowadays. Sammy loves to slap OLED screens into its high-end handsets. Both LG Display (NYSE: LPL  ) and AU Optronics (NYSE: AUO  ) are ramping up large-scale OLED manufacturing this year in preparation for big-screen OLED TV sets, and Universal should see some materials revenue from that effort in the first quarter. I think analysts are missing at least some of the exploding opportunity here.

You know what else would mystify Austin Powers? This emerging technology our analysts think could end the "Made in China" era for good. Find out what this breakthrough is, and how you can invest in the trend, by taking a look at our special report, yours free for a limited time.

Fool contributor Anders Bylund owns shares in Universal Display but holds no other position in any of the companies mentioned. He is taller than Austin Powers. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Universal Display and Apple. Motley Fool newsletter services have recommended buying shares of Universal Display and Apple, as well as creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (13) | Recommend This Article (8)

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 May 09, 2012, at 4:29 PM, bsimpsen wrote:

    Oops.

  • Report this Comment On May 09, 2012, at 4:44 PM, jsh21dsh wrote:

    Another Rule Breaker turned retirement breaker

  • Report this Comment On May 09, 2012, at 4:49 PM, UsefulIdiot1 wrote:

    Ouch. Still believe in this company though. Adding to my position tomorrow with this stock on sale. Will gain traction in the next year.

  • Report this Comment On May 09, 2012, at 4:56 PM, popeye2012 wrote:

    you are absolutely right! -20% on reported LOSS!

  • Report this Comment On May 09, 2012, at 5:12 PM, daldred wrote:

    I'm sure you don't need to hear it from me to know how badly MF blew it with Universal Display; nevertheless, it will make me feel better to remind you that YOU REALLY BLEW IT. Wasnt this one of your first recommendations for Mötley Fool One? Just asking. Not a particularly sterling beginning.

  • Report this Comment On May 09, 2012, at 5:13 PM, louchecannon wrote:

    The MF sure on a roll this earning's season. Any MAKO believers still out there? Glad I dumped my ZIP and WPRT. Great calls guys!

  • Report this Comment On May 09, 2012, at 5:15 PM, louchecannon wrote:

    LOL!!!

    on MF One too? been plastering my inbox with invites to join. won't be joining any more MF groups, that's for sure.

    and not done dropping yet. be down 30 before you know it

  • Report this Comment On May 09, 2012, at 6:14 PM, deasystems wrote:

    The author wrote, "Samsung has emerged as a big-volume smartphone shipper, actually beating Apple in global smartphone sales nowadays."

    Not according to iSuppli. Apple still has the top unit volume.

    Perhaps someday, Samsung will actually reveal its unit sales and people can stop guessing. In the meantime, organizations like Gartner and NPD can give Samsung some incentive to do so by lowballing their estimates.

  • Report this Comment On May 09, 2012, at 7:33 PM, bkmfcc wrote:

    PANL, MELI, RAX, MAKO, CLNE, WPRT, NVDA, and AAPL (at 600). I didn't expect them all to be winners, but I didn't expect them all to be losers either. And the final insult? I paid for this advice!

  • Report this Comment On May 10, 2012, at 8:02 AM, TMFZahrim wrote:

    @deasystems, fair enough -- since Samsung isn't talking, this depends on your sources. Further discussion here:

    http://tech.fortune.cnn.com/tag/isuppli/

    To those who panic over this drop, stay tuned and stay Foolish. I made the classic mistake of taking analyst numbers rather than doing my own math and ended up looking silly for this quarter. The Street consensus appears to have modeled Samsung's license payments in a straight-line fashion but the payments actually only apply to the 2nd and 4th quarters. I'm waiting to see analysts discussing this, but modeling as equal quarterly payments would add $7.5 million of revenue to land at $20.5 million pro forma. And keep in mind that management is sticking to its $90M-$100M full-year revenue guidance.

    Full article on the report is coming, but the quick takeaway here is simple: This is a short-term speed bump on a long-term highway.

    And @bkmfcc, that applies to most of the recent drops you listed. Fool newsletters generally give advice that works out in the long run, not get-rich-quick schemes. If anything, I see buy-in opportunities on PANL, MAKO, and NVDA here. Just my 2 pennies.

    Anders

  • Report this Comment On May 10, 2012, at 11:44 AM, TMFSymington wrote:

    @Anders, I agree wholeheartedly. The folks who haven't bothered to look into the nitty gritty of both PANL and MAKO's reports were left to rely on the negative outward appearances.

    At first glance, I was negatively "shock[ed]" by PANL's report minutes after it was released, only to dig deeper and realize this isn't really that big of a deal (even decided to dust off the keyboard last night to elaborate in my old CAPS blog : http://caps.fool.com/Blogs/ouch-why-i-still-believe-in/73360....

    For the record, after I did the same homework digging through MAKO's report, I used its dip this week to more than double my position.

    Oh, and I'm a proud NVDA shareholder as well...we'll see what happens with their earnings report tomorrow morrning @ 6:00AM, right?

    I'm still relatively young, and like to think I'm relatively patient. In any case, I'm a net buyer of stocks in the future, so I love being able to take advantage of an emotional market.

  • Report this Comment On May 10, 2012, at 12:36 PM, TMFSymington wrote:
  • Report this Comment On May 11, 2012, at 6:14 AM, TMFZahrim wrote:

    The full analysis of PANL's report is now available right here:

    http://www.fool.com/investing/general/2012/05/10/universal-d...

    Anders

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