UDC at Goldman - 2/11/15
Exceptionally informative, best one yet!!!!
- LG royalty is based on a percentage of the ASP of the display module LG sells. There is also a material supply agreement with LG, they are not disclosing any details on the supply agreement.
- Highlighted there is a 16 1/2% withholding tax on Samsung's license fee, but since the LG agreement was signed with UDC Ireland, there are no withholding tax implications.
- Gross margins - Expects GM's for emitters to remain in the 70%-80% range, they do not expect any impact to their materials GM profile as a result of the LG agreement.
- Near term impact of the LG agreement - Royalties will be paid on a quarterly basis using sales from the prior quarter, so there will be a one quarter lag, similar to the original Samsung agreement from 2005-2011. As an example, royalties for the current quarter(Q1) will be reported in Q2. They still expect the run rate for LG revenue to grow in 2015 vs. 2014, even though there will be some lag in Q1, but they don't expect the lag to be material.
- As stated in prior conferences, LG uses a yellow/green PHOLED along with a blue fluorescent emitter in their TV's, 2 emitters to create white. For mobile, they have 2 gen 4.5 lines using RGB, wearables are also RGB, all of them use red PHOLED only, it is the same recipe LG has been using for several years. They are sampling green emitter and host for their next gen. He believes LG will adopt green for their next gen due to the power efficiency.
- Re-iterated UDC is the only supplier of PHOLED emitters in the industry.
- Sumitomo agreement - Said it was an acknowledgement on Sumitomo's part that to make lighting products you need the power efficiency of PHOLED and that requires UDC's technology. UDC has always said if you were going to use phosp. polymers you would need a UDC license and this proves it. The agreement is for lighting only. As a result of the agreement, all of Sumitomo's patent oppositions have been withdrawn. The duration of the agreement is for all current and pending patents, Sid said it was a minimum of 20 years.
- Sid fully expects Samsung to sign another license agreement to extend beyond the current one that expires in 2017.
- LG capacity - Highlighted their announcement yesterday that they are adding 20K/mo more 8G substrates in Q4 on top of the current 14K/mo 8G substrates for TV's. They also have 14K 4.5G substrates/mo capacity for mobile/wearables.
- Samsung capacity - Jokingly said Samsung announced their OLED capacity plans yesterday knowing Sid was presenting today. Sid said the $3.6B announcement would increase their mobile/medium size capacity by more than double in 5.25" equiv's over the next 3 years. He said in addition to that, Samsung will be bringing A3 online in Q2, a Gen6 fab for flexibles and wearables.
- Foxconn/Innolux - expects new mobile capacity to come online in 2016.
- Discussed China at length, said they are working with many different companies there. Said any company that has an OLED program, whether R&D, Production, whatever, they are working with UDC. They will do business with all the OLED players in China and they expect to be paid.
- Discussed Samsung's move into the mid-range mobile market with OLED, both internally and as a merchant supplier. Believes a lot of the new capacity is targeted to the mid-range market. Said the material set for the mid-range products is using the M4/M5 backplane that has been out there for awhile. I took this to mean some of the mid-range products will be using older recipes that only use red, but the opportunity will exist to move this class to green over time just as the high-end did.
- Discussed lighting, said it was past the research phase and in the development phase, what they need to go to the large scale production phase is a commitment to new capacity from one or more participants. He highlighted the architectural advantages of PHOLED in power consumption, transparency, and flexibility. Considers LG Chem the leader and the most likely candidate to go to the next level.
- Talked about the slowdown at Samsung that started in mid-2014, believes they are exiting that phase and moving to capacity, hence the announcement of the new capacity yesterday. Also mentioned again the A3 fab will be coming online soon.
- Believes the new 4K 55" OLED from LG will be priced around $3500, still much higher than high-end 4K 55" LCD's that are around $2000, but closing the gap.
- Discussed green host at the end, said they are not designed into the M6 backplane at Samsung, and said they KNOW the host material being used in M6 is being sold at a negative margin.
- Believes the main improvements in cost structure for OLEDs will be due to improvements in yield, believes the material content and cost in the emissive layer is not significant, it won't be a source of price pressure for UDC.