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.
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