Universal Display (NASDAQ:OLED) will release its quarterly report on Thursday, and investors have gotten a bit more nervous about the maker of organic light-emitting diode products and its future prospects. Universal Display is expected to post a modest loss this quarter, but the real question is whether the company can capitalize on the problems that have plagued conventional LED-maker Cree (NASDAQ:CREE). If not, then Universal Display could see the same share-price decline that crushed Cree's stock last month.

LEDs have become a must-have for consumer electronics of all sizes, ranging from tiny smartphones to huge big-screen televisions. But LEDs require backlight, which increases power consumption. By contrast, organic LEDs can produce light without backlight, helping to conserve battery life for mobile devices and reduce electricity demand for larger displays. With huge potential for future growth, can Universal Display ride the OLED revolution to success? Let's take an early look at what's been happening with Universal Display over the past quarter and what we're likely to see in its report.

Stats on Universal Display

Analyst EPS Estimate

($0.04)

Year-Ago EPS

($0.12)

Revenue Estimate

$21.75 million

Change From Year-Ago Revenue

74%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Should you worry about Universal Display's expected loss this quarter?
In recent months, analysts have lost a bit of confidence about Universal Display's earnings prospects, doubling their loss projections for the third quarter and cutting 2013 and 2014 full-year estimates by about 10%. The stock has climbed 8% since early August but has also given up much more substantial gains in the interim.

Universal Display gave investors plenty to be excited about early on, with its second-quarter results featuring a 65% year-over-year increase in revenue that boosted net income by 40%. Better-than-expected licensing revenue from major partner Samsung Display helped Universal Display's overall results, but materials sales also doubled, pointing toward the increasing adoption of OLED technology into more products.

But Universal Display also generated some controversy during the quarter. In September, a well-known short-seller panned the stock, arguing that some of the company's essential intellectual property could be vulnerable to attack on grounds of patent invalidity. Then, early last month, an analyst downgrade sent the stock skidding once again, as it pointed to looming patent expirations about four years from now that could allow competitors to catch up quickly with Universal Display.

One big problem that Universal Display faces is that expectations for growth are high. That's what hit Cree's stock when the company released its quarterly results, with shares crashing 17% on weaker guidance for the coming quarter even though it came close to matching expectations with its backward-looking results.

Still, the potential for Universal Display to revolutionize the display market remains strong. During the quarter, LG Display (NYSE:LPL) and Samsung released curved large-screen televisions, taking advantage of the flexible nature of OLED technology. Samsung's Galaxy Round smartphone also uses the technology, and while prices remain high at this point, increased mass adoption could make them more accessible and boost Universal Display's profits in the process.

In the Universal Display earnings report, be prepared for licensing revenue from last quarter to disappear, as major client Samsung only makes semiannual payments. Nevertheless, Universal Display will need to show its ability to work through the same challenges that have hit Cree if it wants to get its stock moving more sharply higher.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Universal Display. The Motley Fool owns shares of Universal Display. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.