Credit: S elfies, video streaming, photo sharing, web browsing, you name it -- they're the visuals that smartphones and other devices are called on to deliver on-screen displays these days.
If visuals are king when it comes to the device world, then it's no surprise that liquid crystal displays, or LCDs, are giving way to brighter, sharper, more power-efficient organic light-emitting diode, or OLED, screens.
That paints a pretty picture forUniversal Display ( OLED ), which sells OLED material and licenses technology to display manufacturers for smartphones and other products.
Universal's main customers are South Korea's Samsung Display andLG Display ( LPL ), the two dominant high-volume manufacturers of OLED displays for commercial products now shipping. Its products are used in such products as Samsung's Galaxy series; TVs, lighting products, and other uses.
But if that's not enough OLED power in the making, watch out. Analysts sayApple ( AAPL ) likely will join the party as a major customer for OLED technology, for use in iPhones in 2018 and possibly starting in some cases as early as 2017.
"What it would mean to us is a lot more phones would have our technology in it," Universal Chief Financial Officer Sidney Rosenblatt told Investor's Business Daily.
Apple's iPhones currently use high-end LCD technology. Apple declined to comment.
"If Apple jumps from one technology to another, there is no question that is going to cause a big market share shift," said Rob Stone, an analyst at Cowen & Co. He added Universal Display's smartphone-tied sales would likely double or triple. He estimates Universal's smartphone-related revenue in 2015 likely reached around $150 million.
"We expect OLED displays to take market share from LCD displays," Stone said.
'It' Technology
Though still viewed in early days, OLED is the new "it" technology of the smartphone set and beyond. Colors look deeper and sharper, and the technology allows for slimmer, lighter and flexible forms. Plus, it uses less power, important for keeping batteries from running low sooner than users would like.
All this means that New Jersey-based Universal Display -- founded in 1994 with more than 3,000 patents under its belt after years of research and development in the OLED field -- is having its due. The company's revenue has more than doubled in the last few years, to around $200 million. Meanwhile, per-share earnings since 2011 -- the first year it logged a profit -- have grown 71% on a compounded average annual rate.
Growing Share
OLED technology was used in 18% of total smartphone displays worldwide and 14% of all mobile phones in the third quarter of 2015, according to researcher IHS. IHS forecasts OLED technology will be in 20% of total mobile phones in 2018 and over 25% in 2020.
"This is not considering Apple's possible OLED adoption in iPhones in 2018," said David Hsieh, senior director of Display for IHS, in an email to Investor's Business Daily. "If Apple does adopt OLED, then the OLED penetration in smartphone displays will soar higher than this forecast."
Universal Display isn't the only company to provide materials for the several thin layers of film at the heart of an OLED display. But it has patents that cover the most power-efficient kind of OLED technology, which is called phosphorescent OLED, or PHOLED for short.
Too Much Waste
Conventional OLED technology uses what is called fluorescent technology, invented by Kodak in the early 1980s. But only 25% of the energy from that process came out as light. The rest was wasted as heat.
"Our engineers and scientists developed phosphorescent technology to take the 75% of wasted energy as heat and convert it to usable light," Rosenblatt said. "Our intellectual property covers the architecture and materials around (PHOLEDs). All OLED (displays) use our phosphorescent emitters."
Or at least the better performing ones do. Stone says high-performing OLED displays cannot be made without Universal Display's technology and intellectual property.
"You can make an OLED display that doesn't use their technology but it won't be very efficient. Universal Display has no real competition," he said.
Cost Issues
Supply and costs have until recently limited OLED adoption rates, Stone says.
"But what's changed recently is that Samsung has been supplying not only its own Samsung-branded products like the Galaxy smartphones but lots of other manufacturers of smartphones," he said.
That includes a number of Chinese phone makers. Motorola Droid and Google phones also use OLED technology. Samsung indicated recently that in mobile phones, OLED prices are becoming competitive with LCDs. OLED displays are increasingly showing up in products down the price spectrum, from premium to mid-range smartphones, Stone says.
"Within the smartphone market, OLED displays are going mainstream," he said.
LG Display and Samsung Display, according to South Korean news reports, are investing $12.8 billion to increase plant capacity to handle iPhones' transition to OLED displays.
"For Apple, it's a question of the available capacity," Stone said, adding that he has verified that Apple is indeed seeking new plant capacity to convert to OLED displays. "At the moment, there is not enough OLED display capacity to supply the others using it and Apple."
Apple does use OLED technology in the Apple Watch. But because the small display doesn't require much OLED material and unit sales are relatively light, OLED volumes from it barely register for Universal Display.
"The impact of smart watches on display industry revenue is small but it did send the signal that Apple was willing to use OLED technology," Stone said.
Samsung accounted for 56% of Universal Display's revenue in the first nine months of 2015, while LG Display made up 29% over that time, Rosenblatt says.
High Margins From Patents
Besides revenue from selling materials, Universal gets royalties on each LG product sold using its technology. But it gets a more lucrative fixed fee from Samsung. That fee has risen about $10 million a year over the last four years to $60 million in 2015, Rosenblatt says.
"Patent licensing is high margin. Raw materials are used in small quantities but they sell for a high price per kilogram, so the margins are fairly high," Stone said.
Revenue from TV sales, now small, could soon add up. LG Display sells OLED panels to parent LG Electronics, which is ramping up production of LG-branded OLED TVs. LG also sells the panels to Panasonic, which plans to sell OLED TVs as well; and Skyworth, a Chinese TV manufacturer.
"The TV market penetration for OLED is tiny," Stone said. "As volume goes up and costs come down, why wouldn't everyone want the one with the best picture?"
Universal Display's technology also is used in lighting products, including fixtures fromAcuity Brands ( AYI ).
And OLED materials are starting to show up in autos, for dashboard displays, entertainment systems and taillights.
"We will continue to see the proliferation of OLEDs," Rosenblatt said. "As the OLED market continues to grow, our revenue will continue to grow."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
