What: Shares of Universal Display Corporation (NASDAQ:OLED) rose as much as 12% Friday after LG Display (NYSE:LPL) -- currently its second-largest customer behind only Samsung -- provided an encouraging update on its OLED-centric plans.
So what: First, you might recall going into last quarter's report from Universal Display, a major point of concern was LG Display's decision to reduce it's OLED TV sales forecast to between 400,000 and 500,000 units in 2015 (down from 600,000 previously), and to roughly one million units in 2016 (down from 1.5 million). However, after Universal Display handily exceeded expectations on both revenue and earnings for Q3, management clarified that the reduction in units was primarily a result of a shift in consumer demand away from 55-inch OLED TVs, and toward larger 65-inch and 75-inch models. This, in turn, meant LG Display's unit reduction would have very little impact on Universal Display's expected OLED emitter material sales to the company.
LG Display reiterated as much during its own earnings conference call on Thursday evening, confirming around 400,000 OLED TV units shipped in 2015, with around 50% sold in the fourth quarter alone. And in 2016, LG Display continues to target one million OLED TV units, with around 40% expected to be 65-inch and larger models, and the remaining 60% comprised of 55-inch OLED TVs.
But arguably even more exciting are LG Display's longer-term OLED plans. Though LG Display is still finalizing expected capital expenditures for 2017, for example, management estimates that total CapEx in 2017 should be around 25 trillion Korean won (or around $20.75 billion), of which "50% or potentially 60% will be in the OLED side." That includes one recently announced plant conversion from LCD to OLED that will cost just under 1 trillion Korean won, is slated to ramp in the second half of 2017, and will increase LG display's OLED TV manufacturing capacity 79%, or from 34,000 plates per month to 59,000.
Now what: Universal Display should be set to report its own fourth-quarter 2015 results late next week, and I'll be surprised if UDC management doesn't add its own perspective on how LG Display's plans will positively affect long-term growth. But given this encouraging peek in the meantime, I can't blame the market for bidding up shares of Universal Display today.