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Why Universal Display Corporation Shares Lit Up Today

By Steve Symington - Jan 26, 2015 at 12:42PM

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Universal Display jumped nearly 20% after announcing a long-term agreement with LG Display. Here's what investors need to know.

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What's happening? 
Shares of Universal Display (OLED -0.74%) jumped more than 20% early Monday after the OLED technologist announced a long-term patent license and supplemental purchase agreement with LG Display (LPL -1.74%)

Why it's happening 
Investors have long expected the two companies to sign such an agreement, which is similar to the 6.5-year deal Universal Display signed with Samsung Display in mid-2011. But Universal Display management also recently noted that the terms would only make economic sense for LG Display once it reached a certain level of OLED material purchase volumes, at which point it would be cheaper for the company to finally move away from its successive short-term license extensions.

LG Display has obviously reached those volumes. In addition to Universal Display supplying phosphorescent OLED materials to LG Display for use in its licensed products, LG Display has also agreed to pay Universal Display license fees and running royalties on sales of those products.

Perhaps most notable is that LG Display's agreement runs through Dec. 31, 2022. This effectively refutes bearish speculation that the 2017 conclusion of the Samsung agreement was arranged to coincide with the expiration of several key Universal Display patents.

Today's announcement did not provide specific figures on those ongoing license fees or royalty payments, so you can bet we'll be listening closely for more details when Universal Display reports fourth-quarter results next month.

Steve Symington owns shares of Universal Display. The Motley Fool recommends Universal Display. The Motley Fool owns shares of Universal Display. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Universal Display Corporation Stock Quote
Universal Display Corporation
OLED
$125.22 (-0.74%) $0.93
LG Display Stock Quote
LG Display
LPL
$6.23 (-1.74%) $0.11

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