Polymer organic light-emitting diode (there's a mouthful for you) researcher Cambridge Display (NASDAQ:OLED) reports its Q3 2006 earnings tomorrow morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Four analysts watch Cambridge Display, splitting their votes evenly between buy and hold.
  • Revenues. On average, they predict a 61% drop in quarterly sales to $2.6 million.
  • Earnings. Yet the firm's quarterly loss is expected to shrink to $0.29 per share.

What management says:
With the exception of one exceedingly cryptic SEC filing back in September, Cambridge Display has told investors precious little of interest this quarter. In that filing, management "informed" us (at the risk of overstating the case) that it has signed a patent license deal involving "light-emitting polymer devices" with a "major Japanese manufacturer of consumer electronic equipment." The company envisions payment of royalties on sales, plus an up-front fee, half of which is to be paid by Sept. 30 (i.e., it will appear in tomorrow's results), with 40% more payable on April Fool's Day, 2007 (hmm), and the balance on Dec. 1, 2008. As for who's paying, and how much, Cambridge Display isn't saying.

What management does:
Fair warning: The numbers that follow are pretty ugly. Cambridge Display remains essentially a research and development shop, so don't expect to see a lot of positive profit margins any time soon. What you do want to see is a trend toward expanding gross margins and shrinking operating and net losses. After five straight quarters of declining rolling gross margins, we saw the first sign of expansion last quarter. Meanwhile, despite increasing investment in R&D, the negativity of Cambridge's operating and net margins continues to shrink. While profits remain a distant dream for this company, at least it's headed in the right direction.

Margins %

6/05

9/05

12/05

3/06

6/06

Gross

80.7

69.9

46.2

45.2

47.4

Op.

(224.4)

(167.7)

(159.9)

(159.8)

(158.6)

Net

(209.8)

(159.9)

(76.4)

(72.7)

(62.8)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Getting back to that mysterious license deal, an investor can be forgiven for worrying when a company announces something -- yet keeps essentially all the details secret. But considering the facts (such as we know them) of the deal, I think there's little to worry about here. Organic light-emitting diodes (OLEDs) are, after all, a pretty cutting-edge technology -- exactly the kind of disruptive technological advances that we seek to invest in at Motley Fool Rule Breakers, which has, in fact, put its money on Cambridge competitor Universal Display (NASDAQ:PANL).

Considering the nature of the technology, and its threat to existing businesses focusing on more conventional cathode ray tube, LCD, DLP, and plasma technology, I think it entirely understandable that whoever is allying with Cambridge might want to keep the partnership a secret. Secret both from its competitors, whom the mystery licensee might like to surprise with a rule-breaking product one day, and from current business partners who might be less than thrilled to learn they're becoming obsolete. What I would like to see, and what we hope to learn tomorrow, is exactly how big this deal is. Stay tuned.

Competitors:

  • AU Optronics (NYSE:AUO)
  • Eastman Kodak (NYSE:EK)
  • LG.Philips LCD (NYSE:LPL)

What did we expect to see at Cambridge last quarter, and what did we get? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above.