Now is the Perfect Time to Buy Universal Display Corporation

Steve is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A few weeks ago, my lips involuntarily curled upward when I stumbled upon a clip from the "Lightning Round" segment of Jim Cramer's show, "Mad Money."  In it, a viewer called to ask Cramer's opinion of Universal Display (NASDAQ: OLED).  Before the caller had finished spelling "P - A - N - L", Cramer began to sigh and breathlessly rambled, "Oh man.  Nah, not a fave.  Not a fave.  This is, uh, I gotta tell ya...Flat Panel display infrastructure is so competitive.  Look, I'm wary of it!  I'm wary of the stock."

Apart from the fact his statement gave us virtually no useful information on Universal Display, it's hard to criticize Mr. Cramer for being "wary."

After all, it's been nearly a year since Universal Display reported its first truly profitable quarter (without the help of those old outstanding warrants), and a quick look at the company's one year chart shows enough pops and plunges to sour even the hardiest of appetites for risk.  I can imagine the collective groans from Fool.com's 10% Promise team now: "Universal Display again? Can't we just skip it this time?"

The company’s shares are currently at the bottom of one of its roller coaster dips, down over 20% this month on no significant news.

So what gives?

Unfortunately, Samsung is the first and only company so far to buy any meaningful amount of OLED materials from Universal Display.  While it certainly doesn't hurt that Samsung has sold millions upon millions of phones with gorgeous OLED displays, these phones are currently the only significant source of revenue filling Universal Display’s coffers.

Strange as it sounds, Universal Display's current reliance on mobile is the very reason why now is the perfect time to buy the stock.  You see, new customers are arriving in droves as the advantages of using OLED tech become clear; as Sid Rosenblatt, Executive Vice President and CFO of Universal Display, noted during the company’s Q2 2012 Conference Call, the number of customers who have purchased OLED materials has increased 40% in the last year alone.

Phone displays are just the beginning

These new customers are planning to use OLED for much more than just cell phones.

Likely the most imminent appearance of new of OLED devices will be the first 55" OLED televisions from Samsung and LG.  With no motion blur and a near infinite contrast ratio, these sets have been hailed as the most lifelike displays ever made.  As for physical depth, LG's 55" model measures a mind-boggling 4mm thin and weighs just 12.5 pounds.  While Universal Display executives remain cautious in describing when we might see any meaningful increase in revenue from OLED TV sales, they have stated that both LG and Samsung hope to have the first models available by Christmas this year. 

With an expected price tag around $9000, though, don't expect to see them flying off the shelves at first.  However, when economies of scale allow the price to come down (remember the $15,000 plasma televisions from Pioneer in 2002?), expect Universal Display’s material sales volume to increase substantially along with TV unit sales.

If the thin form factor and superior display specifications aren't enough, did you know OLED screens can also be flexibletransparent, and unbreakable?  Universal Display isn't the only company preparing for increased adoption of bendy, see-through devices, either; earlier this year Corning (NYSE: GLW) launched its flexible Willow Glass, and in just the last few months a number of viable options arose for flexible batteries.

In related news, the South Korean government recently chose LG to spearhead an effort to produce a 60" flexible, transparent television by 2017.  With the pending Q4 launch of Samsung's recently-branded "Youm" flexible OLED displays, we can be sure LG is itching to showcase a tangible product even earlier.  In either case, Universal Display is the benefactor.

Light the way

Jaw-dropping displays aside, perhaps the most under-appreciated use for OLED technology is its potential for lighting applications.  It's only a matter of time before a suitable replacement is chosen for energy-wasting incandescent and fluorescent bulbs.  In the near future, it seems apparent that the replacement will come from non-organic LED specialists like CREE (NASDAQ: CREE), whose lighting technology is further down the development curve than any other company’s.

As Universal Display CEO Steve Abramson readily admits, OLED lighting is still in its infancy and the company has "[...] a number of license agreements with lighting companies who are frankly still in the development phase."  Because OLED lighting is still young, the panels are currently expensive and still require efficiency improvements.  Universal Display, however, continues to doggedly pursue these improvements amidst frequent recognition from the U.S. Department of Energy.  As the technology matures, it will be hard to resist the large-area diffuse, beautiful light source offered by OLED, along with its seemingly-endless automotive and architectural applications.  Down the road, expect OLED panels to give traditional LED bulbs a run for the money.

As Universal's indirect partner General Electric so eloquenty inquires, "What if the light bulb of the future wasn't a light bulb at all?"

Interested in Additional Analysis?

With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand new premium research report on Corning, a Fool analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy, and receive a full year of updates as key events unfold.


symie5 owns shares of Universal Display. The Motley Fool owns shares of General Electric Company, Corning, and Universal Display. Motley Fool newsletter services recommend Corning and Universal Display . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure