Universal Displays Its Potential

Shares in Universal Display (Nasdaq: PANL  ) rose more than 30% yesterday after the company announced Samsung SDI signed a license agreement for its next-generation OLED (organic light-emitting diode) display technology.

Very brief lesson: OLEDs offer technical and viewing benefits over LCDs by emitting light when exposed to an electrical current. Unlike LCDs, they don't need a backlight, so they can be thinner. They can be viewed from a wider angle and consume less power than LCDs.

Universal is a pioneer in the development of small-molecule OLED display technology, a technique that has produced a stable of display technologies, including transparent OLEDs (TOLED), flexible OLEDs (FOLED), and phosphorescent OLEDs (PHOLED), that last of which promise cost savings in reduced power consumption, longer lifetimes, and less heat buildup.

Universal is not alone in such small-molecule OLED development. Eastman Kodak (NYSE: EK  ) invented the original concept and has licensed its patents to various display manufacturers. But Universal is ahead of the pack with its proprietary technologies.

OLEDs are being used predominantly in mobile phones, though MP3 players increasingly are using them to replace LCDs as the preferred display technology. They threaten eventually to replace LCDs in both large and small displays. It is for these reasons major LCD makers such as LG Electronics and SDI's bigger brother, Samsung Electronics (Nasdaq: SSNJF  ) , both recently reported huge losses on their LCD divisions, reporting 86% and 52% declines in net profit, respectively.

Room to run
As you might expect with an emerging development company, Universal lost money in 2004 -- $17 million, but that includes $16 million spent in R&D. That will be money well spent if royalties start to accrue. Even with yesterday's jump, Universal shares are still 50% off their 52-week high, which bodes well for potential investors.

The OLED market is in its infancy, but it's growing fast. According to iSuppli, a leader in electronic industry research, the market rose 63% in 2004 to notch sales of $400 million from 30 million panels sold, and it's widely forecast to continue at least doubling in size for the next three years. That is Rule Breaker-type growth, and it's why we featured OLED display technology in our "Nanotech Universe" column in a recent issue of the Rule Breakers newsletter. At that time, we were leaning toward Cambridge Display Technology (Nasdaq: OLED  ) as being ahead of the commercial curve. Cambridge produces a competing polymer (large-molecule) P-OLED technology.

With this news, Universal's patented phosphorescent OLEDs become the preferred choice for Samsung SDI, the current market leader in OLED display supply, with 44% of the market in 2004. Interestingly, Samsung is working with Cambridge to develop the P-OLED technology, so this battle is far from over, and it's likely that both technologies will find commercial markets.

The Rule Breakers newsletter service is specifically looking for disruptive technologies such as OLEDs. Why not take a free trial and see where else we are looking in nanotechnology, biotechnology, and early adopters for the next big thing?

Carl Wherrett owns shares in both Universal Display and Cambridge Display Technology, but not in any other companies mentioned above. John Yelovich owns none of the above. The Motley Fool has a disclosure policy.


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