Just after releasing knockout first-quarter 2019 results, OLED display patent holder and materials seller Universal Display (NASDAQ:OLED) announced the creation of a new business segment: UDC Ventures. OLED displays have found their way into wearable devices and quite a few smartphone models the past few years, and the TV industry is quickly ramping up its use of OLED as well. Newer to the scene are laptops and tablets that make use of the screen type, and myriad other devices (like lighting and auto displays) are just in the beginning stages of utilizing OLED versus the older LED technology.
With OLED on its way to becoming the de facto display type, Universal Display's creation of a new investment arm makes sense. Nurturing the use of its bread-and-butter moneymaker means not just a possible equity stake in new businesses, but more sales of the base materials that make it all possible in the first place and a place at the table when the winds of change shift again in the future.
What is UDC Ventures?
OLED technology isn't new, but it's in the early innings of adoption. Developing the display so that it was ready for commercialization was the first order of business, and now it's all about increasing the efficiency and longevity of the displays, the materials used to make them, and the manufacturing process. To that end, UDC has been hard at work on developing blue emitters for displays, as well as improved red, yellow, and green emitters for displays and general lighting use. A new manufacturing process called Organic Vapor Jet Printing is also being developed and demonstrated to manufacturers.
All these advancements will help UDC maintain its dominance in the industry and increase sales in the years ahead, especially as OLED continues to gain traction in the marketplace. But why the need for UDC Ventures? The new investment division will focus on all things OLED and display technology -- from research and development projects and early electronics prototypes to established companies that are selling product.
Here's a summary of the new business taken from Universal Display's announcement: "UDC Ventures is focused on investing in trends that can impact the technology landscape similar to how OLED technology has impacted the broader display market. Importantly, UDC Ventures provides the opportunity for its portfolio companies to partner with Universal Display Corporation and its platform of global experts in the fields of IP licensing, materials development and manufacturing and its broad relationships with technology leaders."
It's all about supply
For now, UDC Ventures' focus on the nascent OLED industry could help further develop the industry overall. As the market for OLED panels increases, the sale of the base materials (like the phosphorescent organic compounds needed to make the displays themselves) will continue to become an increasingly more important part of the business. In the first quarter of 2019, material sales were 62% of the whole pie with gross profit of 76.2%.
Thus, when manufacturers come knocking for supply, UDC will deliver; and any way the company can help foster that trend will be beneficial to it and its investors. Beyond that, though, Universal Display is wise to start investing in other disruptive ideas and technologies now. OLED is making headway on the incumbent LED standard at the moment, but times change. So to avoid becoming a one-trick pony, it's best to plant the seeds of disruption in one's own garden rather than wait around for someone else to do so.
Simply put, UDC Ventures accomplishes two priorities: It helps Universal Display promote the industry it derives all its revenue from now, and helps the company begin exploring other options for growth later on down the road. With operations generating net profit of $31.5 million in the first quarter -- an astounding 35.8% profit margin -- it makes sense to put that windfall to work.