UDC 3Q18 results and industry notes -5

02:24 02-Nov-18


Universal Display's conference call is not worth discussing overall, as management comments are always worthless and the entirety of the Q&A was spent in a fruitless attempt to get some clarity on management's opaque modeling under ASC 606, just as I predicted.  The one item that is noteworthy is that it sounded like analysts are finally figuring out that QDOLED televisions, when they come, probably won't use UDC's emitters.  Consequently, and unlike prior quarters, I'm not looking for meaningful recovery in OLED stock price.

Also, just like last quarter, a look at the Concentration of Risks from the 10-Q is of some interest:

 

% of Revenues for the three months ended

September 30,

 

 

% of Revenues for the nine months ended

September 30,

 

 

Accounts Receivable as of

 

Customer

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

September 30, 2018

 

A

 

50%

 

 

43%

 

 

36%

 

 

59%

 

 

$

11,788

 

B

 

19%

 

 

31%

 

 

35%

 

 

25%

 

 

$

10,869

 

C

 

10%

 

 

3%

 

 

9%

 

 

2%

 

 

$

3,372

 

D

 

9%

 

 

14%

 

 

8%

 

 

7%

 

 

$

11,758

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Country

 

2018

 

 

2017

 

 

2018

 

 

2017

 

South Korea

 

$

53,883

 

 

$

45,803

 

 

$

126,789

 

 

$

185,937

 

China

 

 

17,037

 

 

 

10,234

 

 

 

34,368

 

 

 

18,130

 

Japan

 

 

3,076

 

 

 

2,462

 

 

 

4,637

 

 

 

5,590

 

Other non-U.S. locations

 

 

457

 

 

 

597

 

 

 

2,078

 

 

 

2,132

 

Total non-U.S. locations

 

$

74,453

 

 

$

59,096

 

 

$

167,872

 

 

$

211,789

 

United States

 

 

3,097

 

 

 

2,587

 

 

 

9,399

 

 

 

7,973

 

Total revenue

 

$

77,550

 

 

$

61,683

 

 

$

177,271

 

 

$

219,762

 

We were told that Customer C (BOE) is the same and can see that a Customer D was added and is almost certainly from China.  By most accounts, BOE has become an industry powerhouse to rival Samsung, but either that is not translating to AMOLEDs or UDC is not deriving the same level of revenues, just as I feared.  This reinforces my caution on MX, below.

On 11/1/18 4:34 PM, Esekla wrote:

Universal Display Corp. has reported earnings for the third quarter:

  • EPS of 48 cents misses by 19 cents
  • on $77.6M in revenue, which misses by $14.1M
  • FY sales guidance lowered to $245+/-5M, which misses by $54M

OLED shares had made a sharp (over 20%) move up to $130 after Samsung turned in a strong report yesterday morning, partially due its AMOLED screen business.  They have already given back all those gains in after hours trading.  This report shows what I've been saying for a very long time now: That UDC management either knows little to nothing of its customers' plans, or misrepresents them.  Furthermore, it is wrong to conflate UDC with the entire industry or try to linearly extrapolate its business based on end user products.

Samsung does expect demand to continue in the short-term but the declining phone replacement rate in combination with anticipation of foldables leads me to keep my expectations tempered, especially as other attempts to revitalize the mobile market seem to be flopping.

For large screens, Samsung is expected to start trial production of QD-OLEDs next year, with production probably only really taking off as we go into 2021.  Innolux also formed a new mLED business unit and says that technology is the future, with AMOLED TVs limited to high end, even in the short term.  I believe that, based on the quality of current LED televisions and testing showing burn-in problems with AMOLEDs.  It will be interesting to see what actually gets done in Wisconsin, now that the honeymoon is over.  Production in China is continuing to expand, with Visionix starting on another 6G line, and the Chinese are also pursuing LED and quantum dot implementations.  I continue to think that all of these will follow AUO in pursuing the newer production techniques with alternate materials that I've warned about.

While we're on the topic of AMOLEDs, eMagin scheduled its third quarter report for the morning of November 8th today.  Average analyst estimates call for a loss of 3 cents per share on $7.1M in sales, with current quarter revenue rising to $8.7M.  I will check the report for signs of a quantifiable shift to mass production, but not write anything unless there are some.

A new wave of devices is coming.  The MagnaChip conference call lent weight to industry developments I've just covered by confirming its participation in microLED driver ICs, the tape out of a 28nm OLED driver for next year, and the opinion that foldables are the future, and may be closer than you think.  MagnaChip is also testing power products for electric cars, as well as the screens that both it and UDC benefit from.  Those opportunities explain why MagnaChip has hired a new Chief Strategy Officer, and I considered writing more about MX on the comment that the next wave of devices may require multiple driver chips and certainly best-in-class power profiles.  However, after looking at valuation, I decided against doing so while MX is over $7.50.  Even above $8, though, I see MX shares as safer and a better value than OLED.