"Light up, light up
As if you have a choice"
-- "Run," by Snow Patrol
OLED technology expert Universal Display (Nasdaq: PANL) sure lit up the Big Board in 2010 with a 141% gain, but 2011 has been a different story. Despite OLED screens hitting the mainstream in smartphones mainly from Samsung and management nailing down some important long-term contracts, Universal Display has traded mainly sideways this year.
Will 2012 be a return to investable glory days, or another frustrating year of low returns? Let's find out.
The wheelhouse
Universal is, first and foremost, a play on high-end digital display screens. At the moment, OLED screens are found in select smartphones, but LG Display (NYSE: LPL) and others plan to start making big-screen TV sets with this technology in 2012.
That's a game changer because of the large areas of TV screens -- one big-screen set is equivalent to 100 or more decently sized smartphone screens. Under the reworked Samsung agreement, Universal Display gets paid a flat fee for the right to use its technologies -- plus exclusive rights to sell actual materials. That two-part deal structure keeps Universal attached to industry growth and also sets a floor of guaranteed revenue.
Other screen builders should follow Samsung's lead and latch on to this deal structure. I'm thinking about Sharp and the screen manufacturing venture created from the former LCD divisions of Sony (NYSE: SNE), Toshiba, and Hitachi (NYSE: HIT). These are the current titans of screen-wrangling, and they had all better jump aboard the OLED bandwagon before it leaves the building. Panasonic is already getting started.
More fuel in the tank
Signing more license and materials contracts is the most important growth driver for 2012, but hardly the only one.
For example, competing OLED technologies formerly under patent from Eastman Kodak (NYSE: EK) now in LG Display's grasp still provide the green and blue elements of today's OLED screens while Universal Display's more efficient technology does the red pixels.
Samsung now uses green Universal Display materials too, the company is making headway in extending the lifetime of the blue stuff, and Universal is even expanding into the so-called host layer of the OLED film. The company could multiply its income per square inch of OLED panel many times over by making this work. There are no promises that 2012 will see commercial-grade blue materials, but it's a distinct possibility.
But wait -- there's more!
And all of that is just the fairly traditional screen market. OLED materials are also jonesing to replace lightbulbs and fluorescent tubes in tight competition with the LED solutions you'd get from Cree (Nasdaq: CREE). Then there are flexible displays, transparent screens, and a whole 'nother level of innovation to explore.
Universal Display has only scratched the surface of what OLED can do -- both technologically and financially. 2012 will see a dramatic jump in sales, and big earnings will become normal rather than the novelty that they are today.
Before the year is up, we might even see the first OLED-equipped Apple gadget, either in the iPhone or iPod product lines. Samsung and others may get their production capacities up to that level of mass-market appeal by mid-year.
Universal Display shares need to catch up to a full year of business gains with little share price movement, making it a terrific value at the moment. That stock chart should light up next year.
It's far from the only exciting technology play for your portfolio, though. There are plenty of great tech investments on the market today -- check out three other smartphone ideas for 2012 right here.
