Universal Display (NASDAQ:OLED) currently relies heavily on Samsung Display. In 2013, UDC generated $146.6 million in revenues. SDC's license fee was $40 million, and it is estimated that SDC material sales were about $85 million. So Samsung (OTC:SSNLF) is responsible for about 85% of UDC's revenue in 2013. Having one large customer is obviously not good for business, and it seems to be a major pressure on the stock price.
UDC's second largest customer is LG Display (NYSE:LPL). LGD currently produces flexible OLEDs in a relatively small Gen-4.5 (730x920 mm substrates) pilot line with a monthly capacity of 6,000 substrates. This is insignificant in terms of material sales for UDC compared to SDC with their current capacity of 140,000 Gen-5.5 (1300x1500 mm) substrates each month (about 67 times larger than LGD's flexible OLED line). Even Samsung flexible OLED line has more capacity than LGD's one (8,000 monthly Gen-5.5 substrates). LGD plans to double their flexible OLED capacity by the end of 2014, and the company is also thinking about a Gen-6 flexible OLED line.
But LG Display's OLED TV plans are much more interesting. LG is ready to start producing panels in their Gen-8 M2 fab in Paju. This fab's initial capacity is 26,000 monthly substrates (each 2160x2400 mm in size) - in addition to the company's current 8,000 monthly substrate capacity on the pilot line. That's over half of SDC's current capacity.
This means that in 2015, LGD will be UDC's 2nd key customer (LGD is using a different architecture with white OLEDs, and it's still not known what kind of materials they buy exactly from UDC).
When Samsung signed their long-term license agreement with UDC (August 2011), they had about half the AMOLED capacity they have today. This means that when the M2 fab will run in full capacity (26,000 monthly substrates), LGD will need to buy more materials from UDC compared to Samsung when they signed the agreement in 2011. So it makes sense they will want to sign a long-term agreement at that stage.
But LGD is not alone, and I expect more new players will start mass producing OLEDs in the short term - all using UDC's PHOLED technology and materials.
First up is China's Everdisplay (EDO). The company recently confirmed they are planning to start mass production of 5", 5.5" and 6" HD AMOLED panels by the end of 2014. Everdisplay is constructing a Gen-4.5 fab with an initial monthly capacity of 15,000 substrates.
Another important Chinese player is BOE Display. The company recently expanded their evaluation agreement with UDC. It is expected that BOE will start producing AMOLEDs in their upcoming Gen-5.5 fab in Ordos. This fab will have a monthly capacity of 55,000 substrates (it will be used to produce both LTPS-LCDs and AMOLEDs, and it is not clear what the capacity allocated to AMOLEDs will be). BOE also operates a pilot Gen-8 AMOLED fab in Hefei for OLED TV panels, but mass production at that fab will begin later on.
Next, we have Konica Minolta (OTCPK:KNCAY), the first company to attempt OLED lighting mass production. By the end of 2014, KM will operate a roll-to-roll fab that will produce one million flexible OLED lighting panels each month (each with an area that's equivalent to a 5" display panel). KM signed a license agreement with UDC back in 2008.
I fully expect other major OLED lighting companies (mainly Philips (NYSE:PHG) and LG Chem (OTC:LGCLF)) to announce mass production plans soon. Both LGC and Philips will not let Konica Minolta take over their market after they invested millions of dollars in technology and marketing in past years. LG Chem has been using UDC's PHOLEDs for years, and Philips recently signed an evaluation agreement with UDC - and as always it is expected that efficient OLED panels will have to adopt phosphorescent emitters.
Of course, Samsung is also expected to increase its AMOLED production capacity, as the company wants to push AMOLEDs to mid-tier phones, tablets and wearables. In addition, SDC's license fees goes up every year (in 2014 it will be $50 million). This is great news for UDC of course. While UDC will have more than a few key customers in the next year, Samsung Display will probably remain the most important one for at least a year.
Disclosure: The author is long OLED. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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