Shares of Universal Display Corporation (NASDAQ: OLED) jumped as much as 10.4% early Friday, then settled to close up 3.2% after the OLED technologist announced new long-term OLED agreements with BOE Technology Group, China’s largest display maker. Under the agreements, Universal Display will provide phosphorescent OLED materials to BOE through its wholly owned UDC Ireland subsidiary.
With shares of Universal Display once again hovering near all-time highs, let’s a take a closer look at what this means for Universal Display investors going forward.
Image source: Universal Display.
The exact terms and duration of the new agreements weren’t disclosed. But this move is significant, as it’s reminiscent of Universal Display’s existing long-term license and material supply agreements with its two largest customers, Samsung and LG Display . It also builds on a years-long collaboration between UDC and BOE through previous extended valuation agreements , which tend to be shorter-term in nature and obviously less lucrative for Universal Display.
“We are extremely pleased to extend our strong partnership with BOE Technology and enter into these long-term agreements,” elaborated Universal Display CEO Steven Abramson. “BOE has paved extraordinary paths in the display market, fortified its position as a leading global manufacturer, and propelled China to be a major force in the Display landscape,” Abramson said.
Abramson added that BOE recently started mass production at China’s first Gen 6 flexible active matrix OLED (AMOLED) production line — a move that some industry watchers speculate could be aimed at helping BOE rival Samsung as a key OLED display supplier to Apple . The company also has another Gen 6 flexible AMOLED line set for production in 2019.
A(nother) sigh of relief
But perhaps most encouraging for Universal Display investors is that this agreement reinforces the strength of Universal Display’s patent portfolio.
To be sure, some bearish investors have questionably argued that there could be trouble ahead, as its deal with Samsung — which was signed in 2011 — is set to expire at the end of this year. Namely, they mused that Samsung may opt not to renew the deal going forward because the current agreement happens to coincide with the expiration of several of Universal Display’s more than 4,200 issued and pending patents.
Universal Display management, for its part, has insisted the timing is nothing more than coincidence. But it would be a massive loss, considering that the South Korean display leader will have paid Universal Display license fees of $90 million this year alone — more than a quarter of its total $320 million in expected 2017 sales.
Of course, LG Display helped alleviate those concerns in early 2015 when it signed its own deal with UDC, good through 2022. But adding BOE to the long-term mix should serve to further bolster the bullish case for Universal Display’s favorable client relationships, IP dominance, and the upcoming renewal of its Samsung agreement.
The bottom line
That’s not to say investors should expect an immediate revenue or earnings boost from BOE. It took several quarters before we began to see the fruits of the LG Display agreement, for example, partly as the terms dictated that LG Display pay running royalties on licensed products, with a one-quarter lag in revenue recognition.
But make no mistake: The new agreements with BOE are favorable for long-term Universal Display investors. And with the OLED industry still in its infancy, I think the market was right to bid Universal Display stock up today as a result.
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