Universal Display reported their financial results for Q3 2012. Revenues were $12.5 million (down from $21.8 million in Q3 2011). Net loss was $5.5 million (compared to a net income of $6.0 million in Q3 2011). UDC lowered their 2012 revenue forecast to be in the range of $80 to $82 million (previous expectations were $90 million to $110 million). This is obviously very disappointing, and UDC shares dropped about 40% after market (after falling 12% during the day).

So what went wrong?

The major setback from UDC's point of view is that Samsung Display did not adopt green emitter and host materials as expected. UDC still thinks SD will adopt green, probably early next year. Samsung is still using UDCs red PHOLED material, but they didn't add more production capacity and so red emitter sales are rather flat (although when compared to 2011, red emitter sales grew 89%) - and will probably continue to be so in the near future.

In addition the two other OLED producers which were expected to enter mass production in 2012, AUO and Innolux, kept delaying mass production. Of course both LGD and Samsung planned to start producing OLED TVs in mid 2012, but have now delayed this to early 2013. Finally, flexible displays were expected (from Samsung) in 2012, but this has been delayed, again, to 2013.



All of these issues and setbacks mean that the AMOLED market hasn't been growing for a while now, and we'll have to wait till 2013 for further capacity, new products (including TVs), more OLED makers and green adoption.

Regarding patents

UDC says that they received notice from their Japanese Council that the Japanese high court said they will reverse their prior decision to invalidate all the claims in patents '781 and '168 (the L2 MX patents). This is good news for UDC (although they always claimed those patents aren't crucial). The patent claims in Korea have also been dismissed when UDC signed the deal with Duksan Hi-Metal in September.

New business opportunities

During the conference call UDC's CEO Steve Abramson said that they are now looking into new OLED stack materials (the "commodity layers"). He said that the new IP acquired from Fujifilm gives us some freedom to operate in those layers.

It seems that the encapsulation technology is also advancing. Steve said that they are achieving "significant progress" with that technology. UDC are developing the business model, and are already in talks with a number of their partners. In fact, while discussing Samsung and LG's plastic-based flexible display program, he mentions that UDC believes that the future success of flexible displays will be aided by their technology, perhaps hinting that both LG and Samsung are evaluation UDC's encapsulation tech.

On the plus side

While this was a very bad quarter, it seems that most of the fault is timing - the OLED industry is seeing delays all over: OLED TV production, new capacity at Samsung, new OLED makers starting mass production, green adoption and flexible display production. But UDC is still positive that the OLED industry will exhibit strong growth from early 2013 onwards. In fact if we disregard green emitter and host sales, then red emitter sales grew 89% compared to Q3 2011.

Disclose: The writer of this post holds shares in UDC

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