Universal Display Corporation (UDC) is expected to have a soft first half of the year and a stronger, meaning better, second half of the year. UDC is likely to have revenues that track around 2021 levels. The company has been growing steadily and has excellent margins and IP, but this is going to be a blip year. On the plus side, UDC has acquired a patent portfolio from a German company, Merck, which should strengthen its emitter pattern portfolio and provide its development team with resources to develop future patterns. Merck will also leverage UDC’s products to create new business opportunities through its own channels. The cost of the portfolio was $66 million.
In the first quarter, UDC recognized “a couple hundred thousand dollars” in sales of blue emitter material, which was equivalent to sales from all of 2022. The company expects to supply commercial quantities of blue emitter material in 2024. There doesn’t seem to be much that surprised UDC this quarter. The company expected demand to be down, maybe not as much as happened, but still not unexpected. Nothing much to see here.
Maybe not. UDC isn’t recession-proof: it sells patented materials essential to the production of a growing technology, i.e., OLEDs. But, it’s not immune to the fate of the its customers. Its customers, only 44% of them being outside of the big two, Samsung and LG, are anticipated to be launching products furiously in the second half of the year to make up for a soft first half.
That’s all artificial demand generation.
This is when you take a deep breath and ask yourself, do consumers and businesses know that they really want these new products? Will an iPhone 15 really disrupt the macroeconomic models of the world and bring about a spending spree?
If there was any measure of confidence in a second-half uptick in business, then we would see significantly higher projections for the second quarter of 2023 and a buildup of inventories. That is not remotely close to what is happening right now. Adjust your expectations accordingly.
UDC’s Q1’23 Financial Results
Universal Display Corporation reported Q1’23 financial results, with total revenue at $130.5 million, compared to $150.5 million in Q1’22. The decrease in revenue was primarily due to lower unit material volume for both material sales and royalty & license fees. Gross margin decreased to 75% in Q1’23 from 78% in Q1’22. Operating income was $45.4 million in Q1’23, compared to $62.3 million in Q1’22. Net income for Q1’23 was $39.8 million, compared to $50.0 million in Q1’22.
| UDC Financials | Q1’23 | Q1’22 |
|---|---|---|
| Total Revenue | $130.5 million | $150.5 million |
| Material Sales Revenue | $70.2 million | $86.7 million |
| Royalty & License Fees | $55.2 million | $59.8 million |
| Contract Research Services | $5.1 million | $4.0 million |
| Cost of Material Sales | $29.5 million | $29.9 million |
| Gross Margin | 75% | 78% |
| Operating Income | $45.4 million | $62.3 million |
| Net Income | $39.8 million | $50.0 million |
The company reaffirms its previous revenue guidance for 2023, expecting revenue to be in the range of $550 million to $600 million. The company has also acquired the Phosphorescent OLED Emitter Intellectual Property (IP) assets of Merck KGaA, Darmstadt, Germany. The portfolio includes over 550 issued and pending patents worldwide in 172 patent families. Additionally, UDC and Merck KGaA have entered into a new multi-year collaboration agreement related to UDC’s green and yellow phosphorescent emitters and Merck KGaA’s transport and host materials for creating advanced PHOLED stacks. This strategic acquisition and partnership aim to strengthen UDC’s position in the OLED ecosystem and accelerate the growth of both companies’ OLED businesses.
| UDC Financials | 2020 | 2021 | 2022 |
| Total Revenue | $428.9 million | $553.5 million | $616.6 million |
| Material Sales Revenue | $229.7 million | $318.6 million | $331.1 million |
| Royalty & License Fees | $185.1 million | $219.0 million | $267.1 million |
| Contract Research Services | $14.1 million | $15.9 million | $18.4 million |
| Net Income | $133.4 million | $184.2 million | $210.1 million |
