Universal Display (NASDAQ: OLED) shareholders were left shaking their heads Monday after the stock plummeted as much as 12% during intraday trading. Shares recovered to a 4.3% loss by the end of the day.
The company didn't report earnings early; it's still all set to announce second-quarter results next Thursday, August 8. In fact, there were no new press releases on the OLED technologist's website this morning, and the silence on Universal Display's news feeds seemed absolutely deafening as the selling continued to accelerate.
So what happened?
In a word: Samsung.
Specifically, investors panicked after a Bloomberg report surfaced saying the Korean electronics giant was close to announcing a deal to acquire German OLED specialist Novaled AG.
In addition, Samsung also released its audited second-quarter earnings results this weekend, which showed the company's growth is slowing largely thanks to disappointing sales of its flagship Galaxy S4 smartphone.
Image Source: Samsung.
Of course, the Galaxy S4's massive 5-inch, full-HD AMOLED screen is powered by Universal Display's technology, and it's no mystery Samsung has long stood alone as Universal Display's single largest customer. In fact, according to Universal's most recent annual report, Samsung Display accounted for a whopping 68% of the company's total revenue in last year.
And considering Samsung's mobile devices currently represent the only technology segment to utilize OLED in any significant capacity to date, you can't blame Mr. Market for being skittish with regard to Universal Display's prospects going forward.
Here's the problem with that thinking
However, I think there are several reasons this train of thought is shortsighted, at best.
First, we need to remember Universal Display and Novaled have long worked in a jointly cooperative fashion with one another for nearly a decade to improve the efficiency of OLED materials, and in the process have continuously supplied complementary -- not competitive -- materials to larger electronics manufacturers like Samsung.
In fact, analysts from both Wedbush and Oppenheimer quickly chimed in this afternoon to say as much, helping the stock recover the majority of its losses to close down just above 4% for the day.
Curiously enough, for those of you keeping track, today's sell-off was also disturbingly similar to the 13% plunge Universal Display endured in February after another analyst voiced concerns that fellow OLED supplier Nippon Steel was also supplying green OLED materials to Samsung. Once again, however, and as I pointed out at the time, Nippon Steel was just another one of UDC's longtime partners and represents little threat to its leadership in the OLED market.
Second, with regard to Samsung's earnings report, it's also important to remember OLED is still in the very early stages of development and Samsung isn't the only game in town.
LG Display (NYSE: LPL), for example, announced back in April that it will dedicate more than 50% of its 2014 capital expenditures not only to improving its utilization of OLED technology in exciting new products -- including flexible and transparent displays -- but also to building out its infrastructure to support mass production of the OLED displays.
In addition, Samsung itself stated in its earnings release that one of its bright spots was "improved earnings led by OLED panel shipment growth for premium smartphones," so you can bet the company won't be abandoning the technology anytime soon. In fact, Samsung's release went on to state the company "expect[s] [OLED] smartphone panel demand growth to continue" as it expands "line-ups featuring various sizes and high resolution."
What's more, while mobile devices have largely been responsible for filling Universal Display's coffers so far, other technologies including large-screen OLED televisions from Samsung, LG, Sony, and Panasonic are finally beginning to make headway in consumer markets, so that should meaningfully contribute to revenue as economies of scale enable lower prices. In addition, over the next few years, Universal Display investors can also look forward to growth from increased adoption of new OLED lighting solutions, encapsulation tech, and any other incredible new OLED gadgets that might show up along the way.
As a result, I remain convinced Samsung's current weakness -- which could just as easily prove temporary, anyway -- has no significant long-term negative effects on Universal Display's business.
So don't panic, Universal Display shareholders: Your company is doing just fine.
