Universal Display Shows Why 2019 Will Be a Big Year for OLED Displays

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OLED display patent holder and supplier Universal Display (NASDAQ: OLED) recently put the wraps on a tough 2018 during which its share price got cut in half. Progress on the next generation of display tech took a breather last year as display makers worked through excess supply, and retooled their manufacturing processes to be able to increase production later.

Since the start of 2019, though, Universal Display has been on the rebound, and that could continue; its latest quarterly report offered evidence that the industry's recent pain had paved the way for more upside.

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2018 wasn't as bad as it looked

The fourth quarter ended down again compared to the year prior, with revenues and earnings falling 39% and 42%, respectively. That compounded with earlier declines, leaving the company's full-year totals off sharply from all-time highs.

However, as has been noted throughout 2018, the newly adopted ASC 606 accounting standards were a significant factor in those reported declines. Factoring out revenue recognition changes, sales would have been $79 million higher, and just 3% off of the 2017 total. Earnings per share would have been a massive $1.53 higher, good for a 27% increase over 2017.

In short, Universal shouldn't take all of the blame for its declining metrics. However, it was still an off year for display manufacturers as the industry geared up to build more of the OLED screens that are slowly replacing LED screens in many devices. CEO Steve Abramson said the OLED industry is expected to hit $30 billion worldwide this year, up from an estimated $25 billion in 2018. That should mean a resumption of growth for Universal, as it's the sole supplier for much of the tech and material used to manufacture the cutting-edge displays.

2019 is off to a good start

Premium smartphones like the Apple iPhone X and the Samsung Galaxy models were among the first consumer tech products to use OLED screens. Then LG Electronics followed suit with its big-screen OLED TVs. The company says is manufactured 2.9 million OLED TVs last year, and wants to boost that annual figure to 10 million by 2021.

There should be significant growth this year in other areas, though. Laptops with OLED displays are arriving, and the tech is being used in automotive infotainment system displays as well as lots of new smartphone and TV models. Universal has also inked new agreements with Samsung. Given that Samsung's the biggest display maker in the world, getting it on board to bring OLEDs to devices beyond phones is a big deal for Universal.

As a result, management is forecasting 2019 revenues in the $325 million to $350 million range (which would equate to $395 million to $420 million under the old revenue recognition standard). Either way, it should amount to a big gain from 2018's dismal looking numbers, and top the high-water mark set in 2017.

Some new OLED materials the company has been developing to increase screen longevity have higher costs, so gross profit margins are expected to trend slightly lower toward 70%; but with sales expected to notch a big annualized increase, that shouldn't matter. Universal Display is back in growth mode.

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Nicholas Rossolillo and his clients own shares of Apple and Universal Display. The Motley Fool owns shares of and recommends Apple and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.