Universal Display Corporation (NASDAQ:PANL)
UBS Global Technology Conference
November 15, 2012 02:00 PM ET
Sidney Rosenblatt - CFO
Good afternoon everybody. Thanks for joining us for this afternoon session. We have with us Universal Display. From Universal Display we have the CFO, Sidney Rosenblatt. Sid will go over overview of Universal Display for about 25 minutes or so. And then we might take a couple of questions. There is a break-out session in the – one floor below, so where we can have our questions afterwards. Thank you.
Thank you very much and welcome everyone. This is Sidney Rosenblatt, CFO and being with the Company pretty much since it started. We are a technology licensing company. You’ve seen the Safe Harbor statements from everybody, probably presented today. As I said before, please read it, we do appreciate it. We pay our lawyers a lot of money to write this stuff and it will be nice if somebody reads it. So, we do appreciate that.
We’ve developed phosphorescent OLED technology. We have basic patents; it has been issued around the world and what we call PHOLED technology and in addition to that we make materials that go into organic light emitting displays. So we have two businesses. One is our licensing side and the other side is our material side and it is in the number of products. It is good for displays, lasers, light generating devices. So some of the things that you probably are familiar with are the Galaxy phones has our emissive material.
We have a long-term license agreement with Samsung through 2017. It’s in a number of other products that Samsung makes. Samsung Display Corporation is the largest supplier of OLED displays, pretty much about 90% of the industry today is Samsung Display Corporation. They actually sell them to some other companies, that’s in PlayStation Vita, the screen in that is an OLED screen, which has our technology. It’s in Toshiba Excite tablet and it’s been in a number of others and is expected to be in others as this industry grows.
Some of you may have seen the 55 inch OLED TVs that were demonstrated at CES last year. Samsung had one and LG had one. They were pretty spectacular in terms of the color and the picture quality. It was a 55 inch diagonal TV that was about a quarter of an inch deck. And each of them talked about introducing limited quantity products in the marketplace this year of which neither one has done. And each are talking about next year.
There are significant engineering challenges that need to be completed before either one can start high volume manufacturing and anything that they would have sold this year would haven’t really sold off of pilot lines. And they’re also talking about $8,000 to $10,000 a piece. So I think that was a deterrent. You can see a number of other companies actually around the world are working on OLED for lighting applications. OLEDs are very efficient light generators, they give off very little heat. So you can get a 100 to 125 to a 150 lumens per watt.
Now in the laboratory today using OLED light sources. We have worked with Acuity Brands and a number of other companies and we signed a number of license agreements. You can see on the right hand side, is a fixture using OLED panels which is a very thin device. And as I talk a little bit actually some other prototypes and some other lighting areas that make a lot of sense as we move forward. This market as one know that is probably for a niche markets a couple of years away. For general illumination we’re probably still talking about three to five years.
And I think I may have said that three to five years ago, to be perfectly honest. But it is really something that will come, but it will take some time. We have spend more than $225 million developing our technology. We have more than 2,700 patents issued in pending worldwide and actually go through the different countries and talk a little bit about our IP because there were some challenges, which have been dismissed by – in some countries and in some – there has been some decisions that have been reversed. We do have fundamental patents in phosphorescent OLED technology and I will talk a little bit about what the phosphorescent OLED is.
And we have patented materials that we make and sell. Our partner in this is PPG Industries. We don’t manufacture this, we use them as our manufacture, they exclusively make them for us. And all this actually a very simple device. It is layers of film that you put between two pieces of glass and then you put current to it, it lights up. And OLED emissive layer that part that actually lights up is 1,000 to thickness of a hair. And you then – like all visual displays it use red, green and blue dots and use a manufacturing process that will then deposit the red, green, and blue materials.
Our patterns cover a process that we call phosphorescent. Kodak Corporation invented OLED technology in 1982. Their basic patterns expired in 2007 and there is a lot of buzz words and I apologize for that. Just let the folks to know a lot about the industry, so these makes some sense for them.
Kodak invented the materials that laid off, so you put current into the molecule and that molecule then goes into an excited state, it creates energy and when it relaxes, it takes the energy as created and it comes out in the form of either light or heat. From the physics of the molecule, the Kodak molecules or what we call fluorescence 25% of the energy comes out of light, 75% comes out as heat. What our scientist were able to do in research that we funded at Princeton University back in 1997, is to figure out a process of converting that 75% that was wasted as heat into usable light. So we have what’s called 100% internal quantum efficiency or in English we use 75% less power to get the same amount of light out of the molecule.
When you’re using these in mobile devices, you can extend the battery of the device because your display uses probably 70% of your power in your mobile device. And as we’re using our mobile devices, more and more have to look at information that number continues to grow. So it is very important that you develop a power efficient device. And OLED technology allows you to do that.
We make the emissive materials that go into the stack that we have red, green and blue and we also make materials that are called host materials. You combine our emissive material with a host to make that layer. And so it’s very different and in LCD, Liquid Crystal Displays, have a backlight, there is a great white light in the back and then that light then shines through your back plane And then it reflects of layers of liquid crystals were you can see the potential picture that you see.
We want an apples-to-apples basis, if you’re talking about manufacturing cost. OLEDs at comparable yields and volume should cross about 20% less to manufacturer, because it’s the simpler process and there is less in the (indiscernible] materials. There is no backlights and there is no layers of liquid crystals.
The market for any AMOLED technology or what we call active-matrix OLEDs. This is just play searches Q3 numbers. The 2012 is about $6.6 billion of which most of that is Samsung Display Corporation. That was just recently, in this one reduced from about $8.5 billion, which was estimated at the beginning of this year. The capacity growth in 2012 is not happened as fast as everyone anticipated in the beginning of the this year. But when you look at the out years they were actually growing the numbers in the out years because you can see the light blue is TV applications, where you start seeing 2014 and that’s really based probably about LG and Samsung and now it’s the capacity that they will have in 2014.
Today it is in mobile devices and it is in a number of the handheld devices and we – we’d believe over the years what were happened as you got TV applications. Power consumption is very important for mobile devices. For TVs the heat generation that is your issue. The larger and larger your display, the more current you put through it and a more heat you have to manage. And when you’re talking about OLED technology, you the (indiscernible) OLEDs are the faster they degrade. So that you do have to manage heat and by using phosphorescent, which uses – generates much less heat. It is key for TV applications, in addition to extending battery life.
We’ve got number of relationships around the world; we formed a company by funding research at Princeton in USC. We continue to fund research there, we’ve also now funded at Michigan and a number of universities around the world.
Pretty much we scaver the world, any place that they’re working on a emissive material technology with professors or students when it work on it. We will enter into relationships where we will fund it as long as we can get the intellectual properties that they develop. And we’ve been able to do that and then we also paid 3% of our royalty income to the universities as a Group, which then share. so they’re benefiting in number of ways, they’re getting the funding, they get – the professor is like having papers written, it like to be in the marketplace so that people know what they’re doing and universities and the professors get some of the revenue that we have.
We also worked with a number of chemical companies, because if you recall the picture o showed of an old lad, here is a number of other layers of film that go into the stack. And those layers are filmed on all by different chemical companies around the world. So we work with all the different chemical combination that we can provide our customers with a solution that is optimal. So that we get the best performance for our phosphorescent emitters and we combine that with the best materials from around the world.
As I said, we have a long-term license agreement with Samsung that run through 2017 is in two parts. It is a license, amount which are fixed and go up each year in 2012. It was a $30 - million payment that Samsung pays to us. It gets paid at the end of June, and the end of December. And based upon the accounting rules for license fees you can only record it when you actually are able to receive the cash or when the cash is due and payable. So you will see lumpy quarters from us, and Q2 and Q4 will always include the license fees from Samsung. And next year that number goes up and in the first quarter we will announce what that is, it’s confidential.
Second piece of it is the minimum material purchases and those minimums go up each year. One of the questions that we always get is did they meet their minimums. In 2011 they met their minimums on our conference call. We were asked a question that will they meet their minimums, and because the industry did not grow quite as fast we said that they may not meet their minimums this year. They still have time to do it, and we can then roll that into next year.
There are a number of clauses in the contract for protection. It’s not just that Samsung can say; we just don’t want to buy it, we’ll talk to you in 2017. They’ve agreed to purchase other phosphorescent emitters from us, and they’ve agreed not to buy phosphorescent emitters from anyone else that violates our patents. So there is protection in it.
We also work pretty closely with our partners and to be honest, I don’t want to say, you have to buy this, because if you do that your customers then the next time they have a chance to take advantage of you, let’s say they will. So, it makes sense for us to work with our customers and even if they don’t make the minimum this year, it is not by much.
We’ve got agreements with LG, AUO, Chimei, Pioneer and Sony. These are all short-term agreements. We are negotiating long-term agreements with the customers that are close to production. LG is probably the next one to produce it. We have our ongoing negotiations to enter into a long-term license agreement, royalty-bearing agreement with LG. And we’re also talking to AUO and others.
On the lighting side we’ve have actually signed quite a few license agreements that are royalty-bearing with Lumiotec and Pioneer, Showa Denko, Konica Minolta. As you see a lot of them are in Japan. And Japan actually was one of the first countries working on OLED technologies and they had large programs in the 90s and early 2000s, but to be honest they lead the entire industry from the display side, moved to Korea and Taiwan.
The barriers to entry in OLED lighting, the CapEx to get started is much lower, because you don’t have backplanes or transistors and you don’t have movable shadow mask. So the manufacturing process is simple. So, I think you’re looking at this and saying; we may be able to capitalize on the R&D that we did a number of years ago. And so we’ve signed a number of agreements with them and we work with some other companies, but this is still early.
Some folks say; okay, UDC has basic phosphorescent patents and our basic patent that I talked about the invention to Princeton is 2017 in the U.S, 2018 around the world. And then we have another very broad architecture patent that is organometallic complexes which is 2019 around the world. That’s all UDC has and when that ends our licensing business ends and that is not the case.
We have multiple areas that we have architecture patents in Encapsulation Technologies and Stacked OLEDs and Flexible OLEDs making on plastic and in addition we just acquired a significant sized portfolio from FUJIFILMs up 1255 patents of which half of them are architecture related. So we expect our licensing business to continue pass 2019, pass 2020. It may be a different type of licensing business, but we expect it to continue.
Our patent portfolio, this is just before the FUJIFILM acquisition. We’ve got very bright coverage in the U.S, in Korea, in Europe, in Taiwan and Korea. There had been some challenges, non in the U.S. We’ve had some -- we’ve had three challenges in Europe of which we’ve won one. It’s being appealed by the other side. The second one, a part of the patent was invalidated. A part of it was upheld. We are challenging it. They are also appealing it.
The part that we own was the important part for us, and there is still one patent that hasn’t even had a hearing yet, that’s being challenged. All of which are being challenged by the same group in Europe who is -- they will end-up being manufacturers of OLED lighting products. So, one way of negotiating is you can challenge people’s patents.
In Korea we just entered to a relationship with Duksan Hi-Metal to make – to finish the manufacturing process of some of our hose materials. They had challenged six of our patents in Korea, all of which have been dropped as part of the arrangements for them to make some of our materials for us. And recently in the last week we had a decision in Japan that upheld or actually overturned a lower court decision to invalidate two of our patents. It was upheld and it was sent back to the court to re-examine based upon the parameters that the higher court said they needed to look at. And we pretty much expect those patents to be validated.
So, there had been a number of questions over the past couple of years regarding our IP around the world. And most of those issues have gone away and we have always said that we never thought anyone patent or two patents around the world would impact our ability to get license fees around the world.
And in addition to that we just acquired from FUJIFILM as I said 1255 patents and of which 90% of those patents are -- have less than 10 years. So, they are very young portfolio. There are some parts to it that are very important, particularly on the material side working on multiple colors and patents in the blue area as well as some other materials in the OLED stack. This is a portfolio that we’ve had our eye on for quite some time.
As I said power efficiency is the key. This chart I’ve actually had in my presentation for a number of years. And if you go back a few years you would see what an AMLCD looks like and it was 500 mW or 600 mW of power. So, that OLEDs then were significantly lower. AMLCDs have gotten better and better and more power efficient and we have to get better and better. So if you, today if you just look at this, it looks like just using a red material which is all in Samsung’s devices that actually uses a little more power than the most power efficient AMLCD which is an LED, LCD.
When you add greener material though and then blue and some architecture designs, we can get this almost down to 180 mW of power which is significant improvement over today. And LCD technology is really -- it's been around for 35 years. So, [will set the] end of its life in terms of its -- when they make improvements, they make small improvements. OLED is really at the beginning of that process, and we will be able to make more and more improvements.
Our materials, one of the issues early on in OLED technology was the materials. Actually it didn’t last very long, they’re very similar to old cathode ray tube where after a number of years, your TV set chosen – wasn’t quite as bright as it used to be. It still worked, but it wasn’t quite as bright. So, that really has to do with the lifetime of the materials.
When we first started the company, we had a dot that lit up under our microscope for 10 seconds. We now have materials that last for 100s and 100s of 1000s of hours to half life. So there’s been significant improvement in red and green and even our blue materials, but we do not have a commercial blue material that meets the specifications for our customers at this time.
And we also have a number of other technologies, barrier load technologies; I’m actually sort of running out of time. So, I’m going to flip through some of these. But there are Next Generation Printing Technologies. We have patents in these. We worked with customers, we’ve worked with Seiko Epson and a number of others over the years, so if and when you can use different manufacturing process for OLED we do have materials and we have architecture that can be used.
Flexible displays, actually Samsung talked about making flexible displays at the end of this year and they’ve just said it’ll probably be in the first half of next year. The first generation flexible display actually will not flex, it will be an unbreakable display, but it will be conformable. It’s made on plastic, and this is some of the demos from Samsung, and it says products in 2012 you can extend out until 2013 and there today.
We actually deliver a number of products to the government. We make wrist-mounted units and we make these on stainless steel foil as opposed to plastic. This is a program that we have with DARPA really as a proof of concept; work with LG and with L-3 on this. And eventually actually this is our founders goal is to make a device that you can keep in your pocket, pull it out, turn it on, send and receive information, light-weight, unbreakable, your portable communication device.
As I said the OLED lighting business is one that right now we’re making 6 inch diagonal panels as prototypes, and it’s been in a number of different prototypes. And we do think that solid-state lighting is the future. Obviously they’re going to incandescent bulbs are being banned. You’ve got complex for resins which is really not the solution, and you’ve got LEDs which are point sources.
And they’ve had to convert that into essentially light bulbs. And I think all of that well over the next five years This is from Acuity Brands that talk about OLEDs. Right now in your luminaries that you have in your ceiling that have florescent tubes in it. Most of the cost is in the metal. With an OLED most of the cost is actually going to be in the display -- in the light source itself with very little metal. And as you can see, this is a picture of some of the ceilings that Acuity would like to replace with OLED technology.
It really is very important because electricity to generate light uses a significant amount of the energy in the U.S. and around the world, and they’re very compatible with LEDs. Everyone says Oh; the LED guys aren’t worried that you’re going to replace them. I don’t think OLEDs are going to replace LED. LEDs are point sources, high-intensity point sources.
OLEDs are diffused light. Most of you have conference rooms that have fluorescent tubes and hi-hats and you can just see that the LED technology would work very well and the hi-hats and the OLED technology will replace your diffuse light source. So, these are just other prototypes of it.
Our high revenues from 2009 through 2011 grew from $50 million to $61 million. We made money last year. On a nine-month to nine-month revenue, our revenues continue to grow from 2010, 2011 and to 2012. We have had lumpy quarters. We just had one. But overall so far for this year we will make money. But you can see in 2012 in the first quarter we lost this money. Second quarter we made, because I had the Samsung payment in it. And then in Q3 we lost the money. And in Q4 we will make money.
We’ve given guidance for the year, which was reduced from $90 million to $110 million. We‘ve reduced it in the call last week from $80 million to $82 million, literally based upon the fact that the industry in Q2 and Q3 was flat and the adoption is from our new technologies we believe is going to move into early next year. We’ve got quite a bit of cash in the bank. We’ve got $238 million. We announced a share buy-back program where we committed $50 million to buy-back shares over the next 12 months.
So that is something that was just approved by our Board and this will go in place shortly. So we will reduce our number of shares. We believe that that’s the best use of our capital right now. We do not have any large IP targets or things like that, that we think we need to catch for. We are cash flow positive this year. We expect to continue to be there, and looking at it the Board felt that that would be the best use of our cash today as opposed to down the road.
So in summary what you’re seeing is the OLED technology long-term roadmap going from mobile devices, to TVs, to lighting to different types of technology whether it’s on plastic or whether it’s on stainless steel foil, all of these now are energy efficient and can give you the benefits of OLED technology which gives you high contrast ratio, a 180 degree viewing angle and very inherent fast-switching all of which for LCDs require money and technology to do that are done inherently with OLED technology.
And if any of you have seen the Galaxy products or seen some of their demos of the OLED TVs at CES and their other places, they’re pretty spectacular. So, it is just starting, and like any other technology that is new it will not happen as fast as all of us believe. But, there is a lot of capacity coming online and there’s a lot of folks that are really moving forward.
So, with that actually I’d like to thank you very much and if anybody wants this presentation, if you give me your card, I will send it to you and it will be on our website. So thank you for your attention.
Thanks, Sid. We are out of time. We might take one question, if not we will just go to the one floor below and the room is Broadway, Broadway Conference room. We will have a break-out session there. Thank you.
Yeah. Thank you
[No Q&A session for this Event]
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