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Manuel P. Asensio
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I am the founder of Asensio & Company, Inc. and asensio.com a noted activist short-selling organization that has successfully advocated against more than 52 companies that we believed to be misleading investors. The New York Times labeled asensio.com's work "something radical and... More
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  • Goldman Has Substantial Clean Up Job Do To On Their Universal Display Report. 0 comments
    Sep 10, 2013 5:12 PM | about stocks: OLED

    We attribute the movement in Universal Display Corporation (NASDAQ: OLED) shares on September 5th to a report put out by Brian Lee at Goldman Sachs, who suggested that UDC may raise its FY13 guidance based on new Samsung product launches. But this is completely out of line with statements that UDC management made to investors and to Mr. Lee himself during UDC's last quarterly earnings call on August 8th.

    UDC claimed they didn't know what specific products their materials were being used for. They didn't know whether green emitter and host materials sales would remain at the current pace. They didn't know what the ratio of red vs. green emitter or emitter vs. host sales would be going forward. They didn't know if the second quarter sales represented a non-recurring inventory buildup. And they couldn't give a specific explanation as to why red emitter sales have dramatically failed to keep pace with Samsung's unit sales of products that purportedly use UDC materials, while green emitter have supposedly ramped up.

    Mr. Lee's note relied on undisclosed "channel checks." Channel checks normally mean calls to distributors and retailers to discuss inventory levels, sales and pricing, Mr. Lee doesn't explain why a distributor would know about minute details of no significance to them, much less does he explain how they would know more than UDC itself.

    Even as many other sell-side analysts have vacillated in their recommendations on UDC shares, Goldman, which managed UDC's secondary offering, has remained unwaveringly bullish on UDC. We believe that UDC management's inability to give a clear view of their business is enough to undermine hypothetical estimates from undisclosed third parties regarding Samsung material purchases. And this should be evident from management's statements below, with what we see as a constant reiteration of 'we don't know.'

    Here are some excerpts from UDC's second quarter earnings conference call, emphasis added:

    Q - Brian K. Lee:… it does sound like visibility has improved. You mentioned specifically the first phone to use both red and green has been the driver of growth this quarter, and it's been now for three and a half months. Can you provide any color on the second half, how many other devices you might be expecting to use both red and green?

    A - Sidney D. Rosenblatt: Well, it's difficult for us to talk for our customer. We believe that Samsung Display Corporation, our customer, will continue to buy these materials for their devices. We don't really have visibility into what the end product is that Samsung Electronics puts them in. But we right now based upon, as I said, discussions with our customer, we're comfortable at the top end.

    [...]

    Q - Susie Min: ...how we should be thinking about the mix between red and green going forward… just given if utilization yields is improving for some of your customers, how that might impact the way we should think about the mix of your material sales?

    A - Steven V. Abramson: Well, it's still very early stage and for red - for green for commercial production, our product mix is shifting. We continue to change as - it continues to change as we add new materials, and it's - even though we've seen - they've been using red for about four years, so we've pretty much have seen the efficiencies through - in red. They're at the early - they're at the beginning of the ramp in terms of efficiencies for green. We really don't know. As we've said, it's only been a few months that we've been selling it. We probably will have a better feel for what the efficiency ramp is over the next two quarters. Whether they continue - whether the efficiency ramp is steep or not steep, we really don't know. They are different materials; they're deposited differently; they have different results. So I don't think you can take from one and translate it directly to the other.

    [...]

    A - Sidney D. Rosenblatt: I think your question is what's the ratio between green and green host materials?...And it is still a little bit early for us to predict in terms of what the specific ratio is. I mean, you can see, in terms of dollars, green emitters were higher dollars than the host materials. And the host materials, as you're well aware, that we do sell them to Nippon Steel Chemical who then sells it to - they actually do some - they blend it with some of their materials, and they sell it to Samsung themselves. So, the ratio has been a little bit it fluctuates and I think we'll probably have to have at least two more quarters of high volume manufacturing, including red and green, before I could really give you an answer to that question.

    [...]

    Q - John F. Bright: But inventory in generally related and your hesitancy to get more aggressive on your guidance is probably because they're picking up, they're building their inventory and you don't want to get ahead of them on forecasts.

    A - Steven V. Abramson: They could be buying materials for their pipeline too, or we just don't know.

    And here is what UDC told Goldman's Brian Lee at the Goldman Sachs Technology & Internet Conference on Feb. 13, 2013:

    Q - Brian K. Lee:…There's been a lot of speculation about the green materials being featured prominently in next flagship Galaxy phone for Samsung. To the extent that you can, can you give us any kind of commentary around your visibility there?

    A - Sidney D. Rosenblatt: All I really can do is quote Rob Stone from Cowen, who in his report last week talked about Galaxy IV having UDC's green material in it because he said that it was stated to have - be 25% more power efficient. There was a report out that was from Duksan Hi-Metal that talked about it....

    Disclosure: I am short OLED.

    Stocks: OLED
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