Universal Display Corporation (NASDAQ:PANL)
Annual Meeting of Shareholders Conference Call
June 21, 2012 04:15 pm ET
….that’s why it’s scaling up there [shadow mask] technology that they are using for their smartphones, they are in the Galaxy Pads and the Galaxy Notes, and LG Display is using a white (inaudible) technology, conventional wisdom says the shadow mask approach may have better contrast resolution, what we call filter replace might be less expensive and both again would hold up in LCD TV and both of them should be less expensive to manufacture than LCD TV.
White lighting is starting to come around as well; not a lot of commercial production, but it’s only prototyping at this stage, prototyping around the world from a number of different companies, any (NYSEMKT:NHC) Lighting, Toshiba, Lumiotec, Panasonic, Idemitsu, Acuity and of course the UDC one world lightings. We see a number of people working in the lighting industry and we think that in the next few years we will start seeing that business taking off.
Our business model is one of combining intangible property, technology licensing with tangible property and in case for materials supply, we have developed quality revenue and quality earnings. In perseverance we spent 16 years, spending $225 million on research and development in this field. We have over 1,500 issued and pending patents worldwide, a 25% increase over last year. We have fundamental prototype issued throughout the world and on materials (inaudible) have been in commercial use since 2003 redoing device qualification.
Let me tell you a little bit about what an OLED is. OLED is a series of reactions formed between two conductors; glass made; we saw with a substrate, glass, plastic or metal foil. In plastic you need a thin film encapsulation guard of layers; you’ll see black and you’ll have purple; if you are on a purple because those are the business areas that we are focusing on. Then put an (inaudible) down, we have a whole injecting material, a whole transforming material and the emissions layers static material.
The emission layer that’s also purple and comprise a host and (inaudible) and the best analogy is on the chocolate milk, where the host is the milk and the chocolate is the derivative where you put a little bit of the chocolate and a little bit of the derivative and you mix it, and to the host over the milk and it creates chocolate milk. We initially saw just the emitters. We have over the last few years for each one host material as well. You have an EPL, a cathode, glass, plastic or thin film encapsulation again. You seal it up and you attach it to a power switch.
That is an OLED, it can't get much simpler. Now this entire area is called the organic stack; that entire area is 1/1000th the thickness of a human hair. But you see the new display and lighting elements are an OLED is basically as flat as the glass or plastic or metal foil that you put it on, makes it also to be flexible and transparent.
The market is really growing. This past year, this is display chart estimate, that’s $3.5 billion, more than double from 2010. What we are seeing with these markets projections are really interesting; you see in 2018 we are now projecting $34 billion. Six months ago if we look at the market projection, they would have been lower.
For the past year and a half we are seeing market projections increasing for OLED which is different than the first decade and a half that we are working in this field, because the first decade and a half we will be presenting the display numbers in every year and we change the dates on the chart and say in five years it will be a $3 billion market last year. Well it was a $3 billion market last year.
So you see the way this growth and we expect our company to grow with it. And if you look at our historical financial performance, our revenues have doubled over the last three years, essentially in line with the market. We are giving guidance of $90 million to $110 million for this year. We're very comfortable with that guidance and as I mentioned before, we made money last year, in the first time of our history and we intend to make much more money moving forward.
Very strong profitable structure; in the late 2010, and we draw close in 2011, so without cash and equivalents we are $46 million and that’s expanded to $74 million and the shareholders equity $342 million and no debt. So in part 30 years ago, A; always have backups, and B; no debt; and I am not going to say any jokes about Europe right now.
With multiple high growth markets, looking and exploiting lighting markets and each of these markets actually have slightly different pressure points. In the portable electronic market we have lower power consumption, lower power consumption is heavy, thanks Phosphorescence and OLED also looks better than an LCD; take the only experiment, any of the Galaxy smartphone, and you mix with best iPhone and tell me which one you like better. A vast majority of people are going to go with the OLED phone. There are LCDs and as always been other cost events
TV is slightly different because power consumption is lower on use, but using seamless and viewing is critical. So this means that 55 inch TV is probably one best to show you here, we got to show an (inaudible) and once you see OLED TV, you’re going to want one and the making price initially is high and that’s what happening in our business; that’s what’s happening with out technology. So with the high price then the virtue cycle begins; the demand is there, the demand increasing, the production continues, the prices go down and before you know, we sold 50 million smartphones and we expect to see the same thing in OLED TVs.
And lighting, OLED lighting; energy efficiency is big and the foam factor is big; it’s flat, it’s transparent, it’s flexible and (inaudible). So we are heart of the technology gigs; that’s really what the company is. We have a 110 employees, basic unit technical, increased employment staff by about 15% this year. We have a lot in Hong Kong over here and we are also within Korea, Japan and Taiwan. We work with a number of other material companies and we believe in collaboration. We a strategic partnering company. Most of we arrive and tie and ships, make the pie bigger than more to eat; fixture metal foil we subscribe to those (inaudible).
We are continuing to push the envelope in future OLED development. We now only have continued research relationship with Mark and his team for about 18 years, but we’re working with a number of other universities worldwide in US, in Asia and Europe until we push the envelope on the technology development of OLEDs because this industry is only just designed and we have very close relationships with our customers that allow real time feedback and mutual alignment of goals. I talked to you a little bit about our partners. We divide up in lighting and the way we work because we are a very flexible company in business relationships as well different customers have different needs in different times.
So we work basically in two ways, one is a patent portfolio license, the portfolio license and in supplying materials, we will basically wrap in the value of the royalties into the material that we supply from a license material supply. We are in display industry our big licensee or big strategic partnership is with Samsung, we have a license, portfolio license with a couple of exceptions that goes through the end of 2017. They pay out license fees every year that will increase.
This year they are paying us $30 million. They also have a minimum purchase commitment out in [memories], they exceeded that purchase commitment last year and trying to do so this year. But remember of displaying companies that were evolving license material supply in Taiwan AUO and Chimei Innolux, in Korea LG Display and in Japan Pioneer and Sony.
On the lighting side, we are working with a number of companies under license or cellular license with material supply and then also the Lumiotec, Panasonic Idemitsu, Pioneer and Seiko all of which are in Japan and on the lightings material supply both (inaudible) which is the equivalent of (inaudible) in Germany. LG, Samsung Korean major buyer who is setting up our facility in New York State and NHC player.
We are selling out as a patent holding company. Let me tell you a little bit about our patents. We are at the center of networks of strong patents for fundamental products with fast resolute, that's where everybody hears about, that’s where everybody talks about and that is what people are currently needing today.
We have a number of other very important and key patents and flexible always we were the first company to be able to approach small miles on roads and on a flexible registry. Encapsulation is by our single layer encapsulation technology, very important technology for the future.
We had some very important we provide architecture patents in the lighting. One thing in lighting just to touch back on those recent solar long time ago the industry called it and announced what you do is you start one and then start another shipping by transpiring [inverter] in order to get high brightness.
Our company always are (inaudible) what that means is a light with 360 degrees so even our materials should be up to 100% internal cause and efficiencies not all that's related to our (inaudible) which is all very key way to getting more about light transpire of the lighting product. Transparent optimization technologies and lastly (inaudible) technologies and I will talk to you a little bit later about that.
So remember the different patents. There are growing patents, there are different models of those patents and we have styled these patents all over the world. The 1,500 patents that you see are the number of patents issued and pending worldwide.
So we’ve got a worldwide patent metrics which as we were developing this patent metrics we said but we are successful there is a possibility that can competitors may come out after some of that patents. We have a number of patents in technology areas; we made them deep in those technology areas and make them broad by geographical state. As it turned out as the industry start taking off some of our competitors talked about our patents in Europe, Korean and Japan and we have designed this program with the anticipation that even if one or more of these specific patents were to be narrowed or even overturn in one jurisdiction, it would not affect the value of the business or the patent portfolio.
Because each jurisdiction looks at patents differently, one example is that one of our fundamental prospects and patents we call the organic and metal patent that patent was significantly narrowed in Japan, that same patent who draw the claims was this firm in Europe, that’s just the way the industry works. Our Samsung license agreement was signed after the decisions in Japan that the industry recognizes that this is simply the way the business is done.
Let's move to Phosphorescent OLED, they are into technologies now. Phosphorescent OLED enables greater energy efficiency. Now this chart looks different than last year’s chart, in the last year’s chart we saw LCDs at the highest point and then red light, it was lower than LCDs. Well, LCDs are making progress and in fact they have got their energy efficiency below just using our existing right material and now in order to compete really and really are going to be necessary to reduce the power consumption and increase power efficiency into the OLED industries. This is a very positive sign for our business. The ultimate RGB PHOLED will be a 61% aggregate reduction from our current performance.
The product line for our Universal PHOLED material, we offer a number of materials, but red is the one that's primarily – red emitter is one primarily used commercially, but we sell green commercially as well. For display we have red, green, yellow and light blue and then there is a white light and we also got display systems through red, green, yellow and light blue.
So while most of our commercial revenues today is coming from the red emitter, as you can see, we have significant room for the growth-- significant runway for our OLED, Phosphorescent OLED material business. But it is not just about Phosphorescent OLED, we also have our Universal Diode Technology. We talked about our single layer technology of the plastic. People want plastics because it is unbreakable. People want plastic because it is thinner. People want plastic because it is lighter and people want plastic because they have a different [flame] point. But the problem with plastic is it is permeable to oxygen and moisture.
So that oxygen and moisture (inaudible). So what you need is something that will contain the oxygen and moisture locked into the OLED. The traditional way of doing it is what's called a multi layer approach especially to try and improve enough roadblocks inside, so the oxygen and moisture will (inaudible) on to get there and nobody will share. But that’s very expensive, it's time consuming.
So of about some years ago, we're still working on a single layer of technology which is a dream of some people in the industry. Our team is driving that through the resource stage into that development stage and its looking like to have long promise, both for plastic substrates. Is that we're talking about as well as to encapsulate OLEDs and create the OLED. It's also very important.
We are working on next generation OLED 3D technologies, particularly in two areas. Traditionally, what people say is it needs to (inaudible).
The problem with that and one of the problem with that is that you have to drive this side or when you drive, the side in uniform and pixels actually have hundreds and thousands and millions of pixels you can (inaudible) line as long as it.
We are working on the material side of that. Our materials clearly regarding anybody else's materials in the industry for inkjet print or [Ritek] print. Clearly it's not race upon time, manufacturing that. But we're making sure that our materials will be useful for both the manufacturing technology vehicles.
But once we start with manufacturing agnostic except for OVJP or Organic Vapor Jet Printing. With this technology that invented, we just need to install them for the process. Now think about trying to print against it, the best model to structures and gas. So how you're going to do that? Well, I'll show you how to do that. In that R&D space, we're looking forward to booking that in the next phase. This is around the corner and this is a potential large-scale manufacturing project moving forward.
Talk to you a little about flexible displays, we mentioned (inaudible) in flexible displays. There is market in here that need all the attention. It's a new market. It's an emerging market. And once the market goes soft, it will take off big and will hit the curve and go very, very well. So the key is flexible OLEDs are getting a lot closer because they're unbreakable, they're lightweight and they're versatile in design elements.
In fact, Samsung is talking about watching flexible or plastic-based OLEDs this year, starting in phones. We have been working with LG Display on a prototype for the Department of Defense. On the lower left is the prototype of our wrist wearable display that provides real-time information to the soldier in the field. On the top is actually a V board display for pilots. Well, that's strange, you might say.
Although what I'm about to tell you is even stranger. Pilots when they're flying these kinds of planes, actually keep their (inaudible) on their knees to see where they're going, and there's some dial. But it's on the knees because they can't use a glass-based display because if they eject that glass can break and it can really hurt them. So the Air Force is very interested and need more plastic-based OLED displays and we've delivered that part to them.
And of course, you never forget the Universal Communication Device. When we first started talking about this, we were carrying around a number of different electronic devices. We were carrying around the pager. We were carrying around cell phone. We were carrying around the iPad. We were carrying around the PDA. We were carrying around the laptop. Well, finally they got it nailed.
We just tried around the smartphone except for one thing. You can't really read the screen. So all these technologies available with a smartphone but the screen you want is a very large screen. You want to be able to (inaudible) smartphone and have it rolled out soon and you'll no longer have to carry around your iPads or your laptops. You'll just have to roll out the screen.
When put this to people, I can't sometimes help get an idea how loud people laugh. And now, other companies are showing prototypes of a roll-out screen. So it's very, very safe. By the way, this device is patented. This product is patented. We have another new market; our comments with respect to the projections are equally applicable to lighting as they were to flexible display.
But lighting has the potential to be used and potential to be used for two principle reasons. One, new form factors, they're not bold, they're paneled. They don't include glass, or metal foil. And two, they're much more energy efficient than current technologies. So Thomas Edison, as well know, invented the light bulb, the incandescent bulb about 140 years ago. And bulbs have made some progress but they're still bulbs.
And now we're seeing incandescent bulbs being banned, because what Edison really invented was a heat generating device that gives off a little bit of light. An OLED is a light generating device that gives off a little bit of heat. Now just a story I've heard, I don't know if it's real or in, but there's a rumor going around that in Europe they are going to repackage the incandescent bulb and sell it as a heat-generating device with little caution stickers that says, caution, it may give off a little light.
Don't know whether that's real or not, we will find out. But OLEDs have a way of being a new form of artificial light. Light is actually a messenger of the universe, and I don't want to get too weird on you today. But if you ask that why should we be excited about OLED lighting, it's time be seen and to celebrate. It is a flame of light without volume. Give it any shape and form, calm and it is noble.
What is the distinction between the light source and a luminaire? (Inaudible) I hope that is calming to you. I hope it (inaudible). And that is all fabulous, and we want to make a lot of money out of it. And why should we do that? Because visual clutter. Lighting today, look at the ceiling here. It's all visual clutter. It reminds me of the CRTs from years ago. And what does the LCD -- what did flat panel do to the CRT?
OLED lighting because of its form factor has the power to duplicate that. Being a new prototype you've seen a thin glass-based prototype that we showed you. Dual mode, pretty thin and uses a desktop flexible OLED device, it seems like it's floating in air. It doesn't even need a power cord. Transpired device is using the electrode as design elements. And luminaire is using the special pack of OLED lights.
These are just some of the many ideas our designers are starting to come up with. It's not only the form factor. It's also the energy conservation argument. We all know about energy conservation. We may not know that lighting consumes 22% of the electricity generated in the U.S. That's $50 billion a year. Releases 150 million tons of carbon dioxide into the atmosphere.
Compact fluorescent, we have failed to stop and measure that and stop implying like mercury. Can't say why even it is necessary, which is the efficiency in moving forward. Solid state lighting is inorganic LEDs and organic LEDs. And we see those two technologies coexist because organic LEDs, OLEDs are a diffused light source. You can see those outlined in red in these two pictures.
LEDs on the other hand are very strong points source of light. You can see those outlined in blue. So we see the value of both of those working together, that's how we see the future of lighting. So as you see, we have a long-term OLED roadmap. After many years of being a start-up, we're now starting the growth phase of our company. There is a lot of runway space that we have.
Our company is only beginning to grow. We're now somewhere between (inaudible) part of this chart, moving to flexible and lightings. I'm very excited about the future of our company. To summarize, various OLED market drivers, a number of different markets, we're a leading (inaudible) materials supplier. We have worldwide patent portfolio. We work with almost all the major manufacturers for the long-term roadmap, and very attractive business model.
And with that, thank you very much.
[No Q&A session for this event]