What happened

Shares of Universal Display (NASDAQ:OLED) surged higher on Friday, following Thursday evening's release of solid first-quarter results. As of 2:35 p.m. EDT, the stock had risen 13% above Thursday's closing prices.

So what

In the first quarter, the researcher of phosphorous organic light-emitting diode (OLED) technologies saw sales sliding 22% lower year over year, to land at $43.6 million. On the bottom line, GAAP (generally accepted accounting principles) earnings fell 41% to $0.13 per share. These results include a large impact from new accounting rules for long-term contracts and supplier agreements, known as ASC Topic 606. Running the first-quarter books under the old Topic 605 rules, sales would have increased 23% year over year to $68.2 million, and the bottom line would have shown earnings of $0.55 per diluted share.

It's unclear whether analysts had been counting on Universal Display adopting Topic 606 rules for this report, but their consensus estimates for the first quarter called for earnings of $0.13 per share on sales near $52 million.

A technician bends a bendable OLED display in a dark room.

Image source: Universal Display.

Now what

ASC 606 was not the only factor behind Universal Display's softening sales, as a struggling smartphone market and saturated component inventories across the electronics industry also factored in. But the new accounting rules are here to stay, moving a lot of contract-based sales into the category of deferred revenues, with cascading effects further down the income statement. Therefore, Universal Display lowered its full-year revenue guidance by 19%, even though management's view of the OLED display market remains optimistic.

The company's largest screen-manufacturing clients say that demand for OLED panels outstrips their ability to build them by about 30%. On top of that, the smartphone market is expected to pick up speed again in the second half of 2018, and Chinese device makers are planning to launch lots of devices with foldable OLED screens.

So Universal Display's business prospects are as healthy as ever, even if the headline-style financial data might suggest otherwise. Meanwhile, the stock is trading more than 50% below January's 52-week highs -- even after today's sudden surge. In my opinion, that's a steal.

Anders Bylund owns shares of Universal Display. The Motley Fool owns shares of and recommends Universal Display. The Motley Fool has a disclosure policy.