Shares of Universal Display (OLED 1.61%) are running higher once again following a solid mid-year 2023 update. The company, a key patent holder and material supplier for ultra-high-definition OLED screens, is still working through difficult economic conditions. However, its outlook for 2024 continues to strengthen thanks to a breakthrough in its materials development and an upcoming growth catalyst. Here's what investors need to know.
New blue is in the queue
Universal Display (UDC) reported solid Q2 2023 financials, with revenue growing 7% year over year to $147 million and net income up 20% to $49.7 million. It was also a solid sequential rise over the first quarter ($131 million revenue and $39.8 million net income), a further sign that consumer electronics demand is finally starting to rebound.
NASDAQ: OLED
Key Data Points
But what of this breakthrough? UDC has been talking for a really long time about blue phosphorescent organic light emitting diodes (PHOLED) to complement its current lineup of red, yellow, and green PHOLED emitters used in OLED smartphone, TV, and tablet displays. Blue is finally getting ready for commercialization. According to CEO Steven Abramson on the last earnings call:
With respect to blue, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system. We continue to believe that we are on track to introduce our all-phosphorescent RGB [red-green-blue] stack into the commercial market in 2024. We believe that the introduction of our full suite of red, green, and blue phosphorescent emissive materials will unlock a vast array of opportunities for higher energy efficiency and higher performance across a broad range of OLED applications.
UDC is now testing this new material -- which, when added to the red, yellow, and green PHOLED UDC already sells, will drive even more energy efficiency in devices with OLED screens. Management said a meager $2.4 million in blue PHOLED was sold in Q2. Nothing to write home about. Not yet.
UDC says blue will reduce average power consumption by another 24% lower than its current material lineup in 2023. Low power usage is a top selling point these days in high-end devices, not just in smartphones, where OLED is already quite common.
Universal Display's potential laptop catalyst
That brings us to the big catalyst that could propel UDC higher in 2024: laptops. Very few laptops and PC monitors currently use OLED screens, but that's starting to change as manufacturing technology improves. Abramson said on the call that "market research firm, Omdia, recently forecasted OLED tablet and laptop panel demand on an area basis could grow at a 34% [compound annual growth rate] by 2030."
More square footage of OLED screens means more material sales for UDC. And 2024 is expected to be the year a lot more PC and laptop screens get equipped with these power-efficient, ultra-high-definition displays. The semiconductor company's financials may look dull now, but next year could be shaping up to be a big one.
Of course, the market is getting a clearer picture of this and, thus, has already begun running up the price on Universal Display's stock. Shares trade for 37 times trailing-12-month earnings, or 32 times analysts' expectations for 2024 earnings. It's a premium price, but it's too early to say just how much growth Universal Display will generate next year. Suffice to say, this small semiconductor stock should be on your radar, though.
