It's that time again, Universal Display Corporation (NASDAQ:OLED) shareholders!
Next Thursday, your favorite OLED technologist reports fourth-quarter earnings after the market close, so you need to start thinking about what to expect.
Last time around, Universal Display shocked analysts with stronger-than-expected material sales, which grew 176% year over year to a record $30.3 million, and translated to a surprise $0.12-per-share profit. By comparison, analysts were looking for a $0.04-per-share loss in a quarter that didn't include UDC's twice-per-year, $20 million license payment from Samsung.
This time, Universal Display's fourth-quarter results will reflect that payment, so analysts want to see Q4 earnings of $0.34 per share on revenue of $46.92 million.
But it pays to dig deeper to understand how Universal Display's underlying business is really doing. So, what else should you be watching?
Full-year 2014 guidance
First, Universal Display management has already promised to provide full-year 2014 revenue guidance next week, so you can bet we'll be taking notes.
Analysts, on average, see total 2014 revenue increasing roughly 40% year over year to $199.39 million -- that is, assuming UDC matches its 2013 expectations for sales of $144.07 million.
And we already know material sales won't need to pick up all the slack since the Samsung license payments are set to increase every calendar year. It's unclear by exactly how much at this point, but depending on whether those increases are based on a flat amount or a percentage, the full-year total payment should be either $50 million or $53.3 million.
That leaves between $146 million and $150 million to be derived from Universal Display's short-term license deals and material sales, good for a year-over-year increase of 40% to 44%. This may not sound like much given UDC's stellar material sales growth in Q4 -- mostly driven by strong sales volume growth of green emitter and host materials -- but keep in mind, recent reports suggest Samsung is "only" expected to increase its already massive OLED production capacity this year by 33%.
Meanwhile, LG Display (NYSE:LPL) is also planning to ramp up large OLED panel production at a new Gen 8 facility over the next few months, which will serve to support what LG has described as a "rapid shift" to OLED televisions over the next few years.
Updates on a new long-term deal
With this in mind, I'd also love to hear any new details surrounding Universal Display's contract negotiations with LG Display.
Just last week, UDC CFO Sid Rosenblatt confirmed that the folks at LG "know what their material pricing will be once they sign a long-term license agreement," and that "there is an economic point where it makes sense for them to sign a long-term license."
Rosenblatt then elaborated:
We are very comfortable selling them under our material supply agreement because we build a license fee into your materials. ... But once their volume gets to a certain point somebody there says it will be cheaper if we pay a license fee and we get the material at this price. And that, to be honest, is when this will occur.
If that's true, it runs contrary to bearish analysts' assertions that LG Display could be delaying a long-term deal to buy time until UDC's key patents expire. Instead, it appears LG Display simply doesn't have the production volume required for such an agreement to make sense... yet.
But that also doesn't mean Universal Display investors wouldn't love to lock in LG Display as a customer for more than six months at a time. Even if that means LG would be paying lower prices for higher volumes, it would serve as a huge piece of validation and rebut bearish investors' patent weakness arguments.
Anything on Cupertino
Speaking of validation, I'll also be keeping my eyes peeled for any hints from Universal Display on its technology's inclusion in a certain wearable product from Apple (NASDAQ:AAPL).
Specifically, just last month, Apple was rumored to have signed an exclusive deal with LG Display as the sole supplier of small, flexible OLED screens for an iWatch with a late-2014 launch.
And you might recall during last May's first-quarter conference call, Universal Display CEO Steve Abramson curiously pointed out that Apple had just filed a patent for a flexible OLED wrist-worn display.
They've been relatively quiet on the topic since then, but I know I wouldn't be alone in appreciating any new hints.