It's that time again, Universal Display Corp. (NASDAQ:OLED) investors. Your favorite OLED specialist is due to announce first-quarter 2015 results on Thursday after the market close, and we've had plenty of new information to absorb since shares went dim after last quarter's mixed report.
Analysts, on average, expect Universal Display to achieve earnings of $0.01 per share on revenue of $32.2 million. But to truly understand what is driving those results, investors need to dig deeper. Here are three questions I'll have at the ready when Universal Display's earnings release hits the wires:
1. How much did LG Display contribute?
In January, Universal Display signed a fresh patent license and royalty agreement with LG Display (NYSE:LPL) that extends through the end of 2022. Under the deal, not only does Universal Display supply OLED materials to LG Display, but LG agreed to pay UDC license fees and running royalties on sales of its OLED-based products.
But last quarter, Universal Display also revealed its forecast included a one-quarter lag in earned royalties under the LG agreement, so anxious investors couldn't see exactly how the deal would flow through to UDC's top and bottom lines. Keeping in mind LG is notably still in the early stages of ramping production for its OLED televisions, shareholders should this quarter look for their first real peek at just how significant LG Display's contribution will be under its new contract.
2. Is Apple broadening OLED adoption?
Last month, Universal Display's flagship OLED technology finally found its way into Apple's (NASDAQ:AAPL) repertoire. Specifically, an iFixit teardown of the recently launched Apple Watch found it contains a flexible AMOLED display (likely procured through a previously rumored manufacturing contract with LG Display). To the contrary of initial worries at the Apple Watch unveiling last September, this confirmed that Apple's previously vague description of the device as having a "flexible Retina display" didn't mean LCD, as is the case with Apple's other iDevices.
Speaking of which, investors can't help but wonder whether Apple has plans to broaden its adoption of OLED in the future. Earlier this year, Japanese media reported Apple may have tasked both Innolux and longtime supplier Foxconn to construct a $2.6 billion OLED factory for small wearables and larger smartphone displays. That factory, the reports stated, was targeting a "2016 or 2017" time frame for production.
That's also not to mention more recent reports of a new 200-person team at notorious Apple frenemy Samsung -- Universal Display's single-largest customer and a longtime proponent of OLED -- that is said to focus exclusively on catering to Apple's display needs. According to Bloomberg, Samsung formed the group on April 1, 2015, the same day Samsung Display split its operations into two distinct business units to hone their respective focuses on LCD and OLED technologies.
Of course, Universal Display management likely won't spill the beans here. But they've been known to drop subtle hints in quarterly conference calls of what's to come: During Universal Display's first-quarter 2013 call almost exactly two years ago, CEO Steve Abramson raised my eyebrows when he mentioned in passing that Apple had recently filed a patent for a flexible AMOLED wrist-worn display.
3. Was initial 2015 guidance conservative?
Finally, I want to know whether Universal Display underpromised when it issued its first -- shall we say -- unique 2015 guidance in February.
Specifically, rather than issuing a traditional revenue guidance range last quarter, Universal Display took the interesting approach of setting the "base revenue forecast" for the year at $200 million, or below analysts' expectations at the time for 2015 revenue of $211.4 million. However, Universal Display also said that base came with with a "downside range" of 5%, and "upside potential" of 15%.
That technically resulted in a range of $190 million to $230 million, with the "base" of $200 million essentially expressing management's opinion that the upside is more likely to be hit. In part given strong early demand for Samsung's new flagship Galaxy S6 and S6 Edge smartphones, UDC shareholders would love nothing more than to hear that range was indeed conservative.
For reference, analysts' consensus estimates currently call for 2015 revenue and earnings of $211.85 million in revenue and $1.13 in earnings per share.
These questions certainly aren't an all-inclusive list. But collectively between guidance, Apple's plans, and LG Display's contribution, their answers should go a long way toward determining how the market reacts to Universal Display's upcoming results.