Universal Display Corporation

Q4 2020 Earnings Conference Call

2/18/2021

spk04: Good day, ladies and gentlemen, and welcome to Universal Display's fourth quarter and full year earnings conference call. My name is Sherry, and I will be your conference moderator for today's call. If anyone should need operator assistance during the conference, please press star 1 on your telephone keypad. As a reminder, this conference call is being recorded for replay purposes. I would like to now turn the call over to Darius Liu, Director of Investor Relations. Please proceed.
spk03: Thank you and good afternoon, everyone. Welcome to Universal Display's fourth quarter earnings conference call. Joining me in the call today are Steve Alenson, President and Chief Executive Officer, and Sid Rosenbach, Executive Vice President and Chief Financial Officer. Before Steve begins, let me remind you that today's call is a property of Universal Display. Any redistribution, retransmission, or rebroadcast of any portion of this call in any form without the express written consent of Universal Display is strictly prohibited. Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, February 18th, 2021. During this call, we may make forward-looking statements based on current expectations. These statements are subject to a number of significant risks and uncertainties, and our actual results may differ prematurely. These recent uncertainties are discussed in the company's periodic reports followed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements. Now, I would like to turn the call over to Steve Abramson.
spk01: Thanks, Doris, and welcome to everyone on today's call. We are pleased to report our fourth quarter in 2020 results. 2020 revenues were $429 million, operating income was $158 million, and net income was $133 million, or $2.80 per diluted share. Fourth quarter revenues were $142 million, operating income was $66 million, and net income was $54 million, or $1.13 per diluted share. For 2021, we expect to see meaningful growth. Based upon current estimates and expectations of a global health crisis improving, we believe 2021 revenues will be in the range of $530 million to $560 million. Sid will provide further details shortly. Looking back on 2020, it was a year filled with innovation and advancements, flexibility and perseverance, diligence and safety, as well as challenges in this ongoing pandemic. As a company, we moved swiftly to safely adapt to rapidly changing conditions. We implemented measures to safeguard our employees while ensuring the safe and efficient operations of our facilities. We also quickly mobilized our business continuity plans to ensure our ability to continue our R&D programs and the manufacture and shipments of our universal full-edge materials to our customers. As a result of the tremendous and commendable agility and execution focus of everyone, at UDC and our manufacturing partner, PPG, we continue to build upon our first mover advantage in the OLED ecosystem and our position to emerge an even stronger company when this crisis ends. During the year, we announced long-term agreements with China Star Opto Electronics, the second largest panel maker in China, celebrated the 20-year anniversary of our strategic partnership with PPG, Establish OVJP Corporation to advance the commercialization of our groundbreaking OLED TV manufacturing technology. Expanding our community education initiatives with the establishment of the UDC Inc. Full-Ed Scholarship, which aims to support a graduating Ewing student pursuing a degree in the STEM field in our partnership with the Smith Family Foundation, with assists with community programs in Trenton, New Jersey. we were recognized by Fortune as one of the world's 100 fastest growing companies and by Newsweek as one of America's most responsible companies. From an R&D standpoint, we remain at the forefront of innovation. Our team of scientists and engineers are continually discovering, developing, and designing new emissive material systems and technologies and advancing our R&D roadmap with new milestone achievements. On the materials front, our portfolio of energy-efficient, high-performing phosphorescent materials continues to expand with next-generation reds, greens, yellows, and hosts to meet our customers' ever-demanding and ever-evolving specification needs of color point, efficiency, and lifetime. With respect to blue, we continue to make excellent progress in our ongoing development work for a commercial blue phosphorescent system. Regarding OVJT, We are making advancements with our organic vapor jet printing manufacturing technology for maskless, solventless, dry direct printing of large area OLED panels. With the formation of OVJP Corporation this past summer, the OVJP team is focused on scaling our novel technology platform into a commercial equipment system. OVJP Corporation's first milestone is to develop an alpha system, which is anticipated to be ready during 2022. And as we had noted last quarter, Nature published their paper titled Plasmonic Enhancement of Stability and Brightness in Organic Light-Emitting Devices, describing UDC's fundamental groundbreaking device architecture that may extend the lifetime and enhance the efficiency of OLED panels applicable to both displays and lighting applications. This work is part of our long-term R&D roadmap for continuing to enable the OLED ecosystem with leading-edge technologies and best-in-class materials. Looking to the OLED industry, the ecosystem continues to grow with new OLED capacity, new OLED products, and new OLED customers. Samsung Display's portfolio of OLED products continues to grow. SDC expects OLED smartphone adoption to increase in 2021, with the expansion of 5G as well as further penetration into the mid-range market. Also in the small and medium OLED market, Samsung is ramping its efforts in IT. Early last month, Samsung announced its 2021 lineup of OLED laptop displays will include over 10 new models, with sizes ranging from 13.3 to 16 inches. Samsung is also forecasting a 500% increase in annual sales for its OLED IT panels this year. With the increased focus on the IT market, which has an estimated TAM of approximately 450 million units spread across laptops, tablets, and monitors, and only about 1% of the IT market being OLED, there are reports that Samsung is planning to build a new OLED production line for Notebook at its A45 in ASAP. This line is expected to have a production capacity of 30,000 substrates per month. For large area panels, Samsung Display is reportedly making progress with its QD OLED program and is expected to begin production of its QD OLED panels for TVs and possibly monitors in the second half of this year. LG Display continues to ramp up its OLED TV production. For 2021, LGD plans to increase its OLED TV shipments to 7 to 8 million units, up from around 4.5 million units in 2020. OEMs such as LG Electronics, Sony, Vizio, Skyworth, and more than a dozen others are fueling this tremendous growth. Bolstering LGD's shipment target growth is the expansion of its OLED TV portfolio. During CES, LG unveiled its new 42-inch and 83-inch OLED TV panels, augmenting its existing lineup of 48-, 55-, 65-, 77-, and 88-inch models. On the small and medium front, LGD's flexible OLED side ran at full utilization in the second half of 2020, which has been widely attributed to demand for their OLED smartphone panels. Additionally, LGD is focusing on the automotive market with its plastic OLED panels for applications including infotainment systems, dashboards, head-up displays, side mirror displays, and rear seat entertainment displays. LG Display also noted that it plans to roll out 20-inch and 30-inch OLED displays in the future, targeting the premium midsize panel market related to gaming, mobility, and IT. According to reports, BOE will use some of its capital raised for its third OLED fab in Songqing, which has a designed monthly output of 48,000 flexible Gen 6 panels. The first phase of Songqing is expected to commence by the end of this year. BOE is also planning to invest in an OLED micro-display plant in the southwestern Yunnan province for augmented and virtual reality displays. The construction of Tianma's $6.8 billion Gen 6 flexible FAB in Xiamen is reportedly progressing ahead of schedule. When this FAB is completed, it will have the capability of 48,000 substrate starts per month. In addition, Tianma is in the midst of ramping its Wulong capacity with an additional 15,000 substrate starts per month. China Star is expanding its Gen 6 flexible OLED capacity at its Wuhan plant, its first OLED fab that opens at the end of 2019. By the end of this year, China Star's fab is expected to have a monthly installed capacity of 48,000 substrate starts. EnvisionOx recently commemorated its new OLED module line in Guangzhou, with production expected to commence this month. Additionally, Visionox is working on ramping its new Gen 6 flexible OLED fab in Hefei, which will have the ability to manufacture 30,000 plates per month. The benefits of OLEDs continue to drive adoption across the consumer electronics landscape. From the wide color gamut and deep color saturation to the 180-degree viewing angle and true contrast ratio to response rates that are more than 10 times faster than LCDs, as well as form factor. Essentially comprised of film layers, OLEDs are inherently conformable, bendable, and rollable. To date, Samsung, Huawei, Royale, and Motorola have launched foldable smartphones. That list is expected to expand, with reports that OEMs, including Xiaomi, Oppo, Vivo, and Google, will jump on the foldable phone bandwagon this year. And at CES... LG Electronics unveiled the world's first rollable smartphone and announced that the product will launch later this year. Also at CES, TCL showcased a rollable smartphone prototype screen that can stretch from 6.7 inches to 7.8 inches. And during entries and earnings call, Samsung Display noted that it will develop rollable and slidable OLED displays. Another benefit is eye health. As some of you are aware, Blue light from electronics has been linked to problems like blurry vision, eye strain, dry eye, and even sleep disorders when people are excessively exposed to it. Last month, LG Display announced that its OLED display became the industry's first TV panel to win an accreditation from ICES, a U.S.-based eye protection certification agency. LGD's 65-inch OLED TV panel's portion of harmful blue light is only 34%. the lowest among TV panels and about half of that of LCD TV panels. And last year, Samsung Display unveiled an optimized OLED display for 5G smartphones that emits only 6.5% of harmful blue light and earned certification of eye care display from SGS, Societe Generale de Surveillance, a European eye protection certification agency. Samsung Display noted that its OLED products also have about 70% less harmful blue light emissions than most current LCD smartphone displays. On the lighting front, while we are still in the early commercialization stage, we believe that the benefits of OLED lighting, which include high power efficiency, novel and innovative form factors, beautiful natural colors, and cool operating temperatures are all quite compelling. We look forward to enjoying those benefits in our new conference rooms, which will have OLED lighting fixtures. On that note, let me turn the call over to Sid.
spk07: Thank you, Steve. And again, thank you everyone for joining our call today. Let me review our 2020 results before commenting on our 2021 guidance. 2020 revenues were $429 million, up 6% year over year. Material sales were $230 million, down 6% year over year, and royalty and license revenues were $185 million, up 23% year over year. 2020 operating expense, excluding costs of materials, was $186 million, up 8% from $171 million in 2019. Operating income was $158 million in both 2020 and 2019. 2020 net income was $133 million or $2.80 per diluted share compared to 2019 net income of $138 million or $2.92 per diluted share. We ended the year with $730 million in cash, cash equivalents and short-term investments for $15.45 of cash per diluted share. Now, moving on to our fourth quarter results. Revenue for the fourth quarter of 2020 was a record $141.5 million, up 21% from last quarter's $117.1 million, and up 39% from fourth quarter 2019's revenue of $101.7 million. Our total material sales were $62.5 million in the fourth quarter, down 9% sequentially from last quarter's $68.7 million, and up 3% from the comparable year-over-year's quarter, $60.8 million. Green emitter sales, which include our yellow-green emitters, were $48.2 million, down 9% sequentially from the third quarters, $52.9 million, and up 1% from the comparable year-over-years quarter, $47.5 million. Red emitter sales were $14.3 million in the fourth quarter, down 6% from the third quarter, $15.2 million, and up 10% from the comparable year-over-years quarter, $13 million. As we have discussed in the past, Material buying patterns can vary quarter to quarter. Some of the contributing factors include COVID-19 issues, as well as consumer product demand cycles, capacity ramp schedules, production loading rates, device recipes, product mix, material ordering patterns, customer inventory levels, and customer production efficiency gains. Since a number of these factors are moving variables for our customers, they are also moving variables for us. Fourth quarter 2020 royalty and license fees were $75 million, up 68% from the third quarter of 2020, $44.6 million, and up 99% from the comparable year-over-years quarter of $37.8 million. The increase was due to the strength of our customer sales of royalty-bearing OLED-licensed products in the latter half of 2020. In addition, there was an ASC606 cumulative catch-up that was recognized in the fourth quarter due to the impact of the pandemic. Fourth quarter 2020 ADESIS revenues were $4 million. This compares to $3.8 million in the third quarter of 2020 and $3.2 million in the fourth quarter of 2019. Cost of sales for the fourth quarter 2020 were $27 million. This compares to $23.4 million in the third quarter of 2020 and $18.2 million in the fourth quarter of 2019. Cost of OLA material sales were $24.6 million translating into material gross margins of 61%. This compares to 70% in the third quarter of 2020 and the comparable year-over-year quarters material gross margins of 73%. For the year, our material gross margins were 67%. A primary driver of our material gross margins is product mix. As OLA demand continues to grow, our developmental materials pipeline is also growing, and that has impacted our total material gross margins. As we invent and develop next-generation phosphorescent emitters, they are increasingly more complex and, as a result, have higher initial costs. With the expected continued growth and complexity of our phosphorescent materials portfolio and increase in raw material costs, we estimate that our average annual material gross margins will be in the range of 65% to 70% going forward. Fourth quarter operating expense, excluding costs of sales, was $48.8 million, up from last quarter's $45.3 million, and essentially flat from the comparable year-over-year's quarter of $49 million. Operating income was $65.8 million in the fourth quarter of 2020. This compares to last quarter's $48.4 million and the year-over-year comparable year's quarter, $34.5 million. Net income for the first quarter of 2020 was $53.9 million, or $1.13 per diluted share. This compares to last quarter's $40.5 million, or 85 cents per diluted share, and a comparable year-over-year's quarter of $26.4 million, or 56 cents per diluted share. Now to our outlook. We expect 2021 revenues to be in the range of $530 million to $560 million. We believe the 2021 ratio of material to royalty license revenues will be in the ballpark of 1.5 to 1. Moving along to margins. we expect our 2021 material gross margins to be in the 65% to 70% range. Our annual overall gross margins for the year are expected to be approximately 80%. 2021 operating margins are expected to be approximately 40% to 45%. Operating expenses of SG&A, R&D, and patent costs in the aggregate are expected to increase in the range of 20 to 25 percent year over year, with R&D up about 25 percent and SG&A up about 15 percent. Increased spending in 2021 includes a significant investment in OVJP development. We expect the effective tax rate to be approximately 19 percent, give or take a few basis points. As Steve mentioned earlier, we expect meaningful growth this year. This is being driven by new OLED capacity, which translates into new OLED revenue opportunities for us. As we reiterated last quarter, we expect the installed base of OLED capacity to increase by approximately 50% at the end of this year over the installed capacity base at the end of 2019 as measured in square meters. And lastly, we are pleased to announce that the Board of Directors has approved an increase in Universal Display's cash dividend. A dividend payment of 20 cents per share will be paid on March 31st, 2021 to stockholders of record as of the close of business on March 16th, 2021. The dividend increase reflects the confidence in our robust future growth opportunities, expected continued positive cash flow generation, and commitment to return capital to our shareholders. With that, I will turn the call back to Steve.
spk01: Thanks, Sid. Our outlook for 2021 reflects another year of strong growth and performance, while also continuing to invest in near-term and long-term opportunities to fortify our leadership position well into the future. It's a long and vast runway of forecasted growth in the Olin industry, and therefore for us, we are investing in our people, our infrastructure, and our innovation to advance our first mover advantage and to further enable our customers in the OLED ecosystem. We have and continue to strategically increase our headcount around the world to meet the growing long-term needs of the company and our customers. In Asia, a recently expanded footprint and increased local technical support, including new corporate and laboratory facilities in Korea and Hong Kong, with state of the art full and application centers for device fabrication and testing have played a critical role during the pandemic for on the ground customer support in the U S we are renovating two buildings across the street from our current site to accommodate our growth and are expected to move into the new expanded site this year. We plan to retrofit our existing site into a dedicated R and D innovation center regarding innovation. In addition to expanding our core competencies in all our technologies and materials, we're seeing strong interest from customers and potential partners for our OBJP technology. We are ramping our OBJP efforts in Silicon Valley to scale our novel manufacturing platform, with the first milestone being Alpha System in 2022. In closing, I would like to take this opportunity to thank each of our employees for their drive, desire, dedication, and heart. elevating and shaping universal displays, accomplishments, and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth, delivering cutting-edge technologies and materials for the industry, for our customers, and for our shareholders. And with that, operator, let's start the Q&A.
spk04: Thank you, Mr. Abramson. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Brian Lee with Goldman Sachs. Thank you. You may proceed.
spk12: Hey, guys. Thanks for taking the questions. Kudos on the nice end to the year here. Maybe just, I know you're going to get a bunch of questions on this, so I'll get it out of the way here. Sid, on the ASC 606 catch-up you saw in the quarter, can you quantify that to any degree? And then maybe importantly also, what actually triggered it, if you could elaborate a little bit so we understand what happened there. And then related to that, is it one customer? Is it several customers in question as to why that got triggered? And then Is there the potential it comes up again in 4Q of 2021 or 2022 ahead of the contracts with some of your big Korean customers coming to a close on their terms?
spk07: Thank you, Brian. And obviously there was a lot of questions in that one question, but I do know that the focus is on ASC 606. Our fourth quarter revenues came in higher than expected due to increased strength in the latter half of the quarter from our Korean customers. And obviously, in addition, $17 million of cumulative catch-up from ASC 606 adjustments due to the pandemic contribute to our fourth quarter revenues. As part of our ASC 606 review at the end of 2020, we look into COVID-19 impact onto our business and the OLED market forecast. With the reduction in 2020 and 2021 market forecasts, we are now estimating lower material shipments in our ASE 606 estimates. This then results in higher license and royalty fees per material shipment. This is what was reflected in the cumulative catch-up adjustment of $17 million in 2020. Most of it was recognized in the fourth quarter. Realistically, it was the COVID-19 issues that caused this catch-up in the fourth quarter. And if things continue along an expected path, then we should not see these large catch-ups again unless there is something that causes a major hiccup in either the market estimates or our sales compared to our estimated sales. So that was a long-winded answer, but I hope it helped.
spk12: No, that clarifies a bit. I think you've been clear about that in the past, that barring a shift in kind of the outlook, you wouldn't necessarily see these big catch-ups. So that's good to understand. Maybe on mix of revenue, I know you said $17 million of ASC-606 catch-up in Q4. That's helpful in terms of the additional veto. But When I look at Samsung revenue, it was up a lot in Q4 versus Q3. I know they did well with some of the product cycle stuff in the back half, and I assume they're part of the catch-up, but can you give us a sense if that revenue for them on the material side was higher in Q4 versus Q3, about the same or lower? Just trying to understand how much of that big bump in Samsung was the catch-up versus just... organic materials revenue growth.
spk07: Yeah, to be honest, Brian, the 606 amount, you know, it's multiple customers, and it's every material, and it is, you know, between materials and license fees, and we really don't break it out between one versus the other, but it was stronger for them in that quarter.
spk12: Okay. helpful. And maybe last one, I'll pass it on here. With respect to the gross margins, I think you had said 80% gross margin inclusive of a thesis in 2021. That's the guidance here. So if I look at the 65 to 70, and then I assume some contribution for a thesis, it seems like a thesis has been running at a pretty high gross margin, call it 35, 40. the past three quarters or so, is that the right range to get you to the 80 blended for, you know, for 21? Just trying to understand the moving pieces and the margins, just given the blend there.
spk07: Yeah, the overall 80% margin, you know, obviously applies to our licensees and royalties and And I can include the thesis. And the thesis is margins have been consistently getting better. So it's all built into that to get to the 80% that we expect moving forward.
spk12: Okay, fair enough. I'll pass it on. Thanks, guys.
spk07: Thank you, Brian.
spk04: Our next question is from Krish Sankar with Cowan & Company. Please proceed.
spk02: Hi, this is Robert Mertens on behalf of Krish. First, congrats on the quarter, and thanks for taking my questions. One of your large TV customers has spoken out about ramping the number of units this year relative to last year. How should we think about the demand quarterly and how that might impact your revenues for the year? And then I have one follow-up.
spk07: Sure. Well, we're happy to take your question. And the second half, we believe, will be better than the first half, particularly talking about TV applications, in that you have holiday buildup. But LG has talked about going from 4.5 million to 7 to 8 million units in 2021. we're very excited about that because we think all the TVs are great. They've been rated the best TV ever, uh, continue to be. So we're very, we're very pleased with that and we'll do everything we can to support our customer.
spk02: Great. Thank you. And then, um, as you look at the ramp at some of your Chinese, um, customers, have you seen more localization efforts? Um, you know, is there any, sort of developing competition within China for Ola materials or new developments with local customers there to work with different materials, just sort of how the landscape there has been developing?
spk07: We're working, obviously, with a number of Chinese manufacturers and the Chinese manufacturers that, you know, we're very happy that, We continue to do that, and China is the second largest revenue region, and it's a huge opportunity for us. So we work with all the major Chinese panel manufacturers, and we're very excited no matter what category it's growing in.
spk02: Okay. Thank you. That's all from me. I'll pass it to the next person. Thank you.
spk04: Our next question is from Jim Rashidi with Needham & Company. Please proceed.
spk08: Hi. Excuse me. Good afternoon. If the customer breakdown that I have is correct, and it may not be, it looks like there was a fairly large increase in revenues from the from your second customer on the TV side in Korea, LG. And I'm just wondering, is there any color you could provide on that, whether it's, you know, potentially their scale-up that has been going on in China or just any kind of timing issues around some of the either material sales or as it relates to when you recognize the license revenue?
spk07: Well, yeah, it depends. It's clearly LG noted on their conference call that their second FAB is up and running. And that was, we've seen a big increase, obviously, in Q4 with customer B. So OLED sales were very strong in the quarter. But I think it was across the board.
spk08: Okay, and Sid, is there any way to, I think you may have mentioned it just in response to the last question, just with respect to how we should think about seasonality of the TV-related revenue. Is that changing more, you know, becoming more heavily concentrated in the back end than it has been in the past?
spk07: Well, you know, this year it was, and I think that obviously TV sales are weighted towards the holiday season, and I think it could be that this year it was also impacted by a lot of people being home around the world and buying new TVs. I don't have a specific answer for you, but it does appear that there is, you know, our second half of the year from last year and this year has been historically better.
spk08: And the final question now, I'll jump back in the queue, is I think you gave some information as to the increased investment as it relates to OVJP. Is besides getting that alpha unit going, and I think you talked about 22, and I'm not sure if you gave any further color as to when, Are there any milestones we should be paying attention to as it relates to OVJP in 21? Or is it going to be fairly quiet until we start getting more concrete information with respect to this alpha system?
spk00: Jim, I think the next big milestone is the alpha system. I mean, we're hiring the teams right now in California. We're improving the technology. But the big milestone I think you guys will be looking for will be the alpha system sometime in 2022.
spk08: Okay. And, Lord, just if I could slip one more in, just with respect to the increase in R&D, that being one of the big factors, is there any – where you could talk to some of the other R&D initiatives as it relates to, you know, as it relates to blue. Is that being stepped up in your plans for 21 as well, more so than, say, in 2020?
spk07: Well, we are doing a number of things, which obviously would include work on Blue, which, you know, is one of our major efforts. OBJP is another one. But we're continuing to work on new and next-generation materials because, as we stated, we're having more and more customers. Each one of our customers has more and more specific needs and we are continuing to do everything we can to meet our customers' needs across the board. And they are different. So the more customers we have, the more materials we're going to develop and the more time we're going to spend on R&D to ensure that we support them.
spk08: Thanks a lot.
spk07: Thank you.
spk04: Our next question is from Matthew Prisco with Evercore ISI. Please proceed.
spk10: Hey, guys. I just want to kick off. Maybe you could talk about some of the assumptions around the new calendar 21 top line guide, specifically how are you thinking about growth in mobile relative to TVs, and how should we be thinking about revenues from the IT market as old penetration kind of pushes across all verticals now?
spk07: Well, thanks for the question. In terms of new guidance, I mean, we do think that we're going to see some recovery in 2021, over 2020. And as I think we noted on our prepared remarks, we're talking about Samsung having 10 new IT products, and that market is really small. But smartphones and TVs will still be the driver for us. IT is 450 million units, but it's really very small. So when you talk about the growth, it is something that we're in the very early stages of, but it is a huge opportunity for us when you're talking about a TAM of 450 million units.
spk10: And then how should we think about growth in smartphones relative to TV next year for UNC revenues?
spk07: Yeah, all of them are built into, you know, where we think we're going to grow. Obviously, we talked about LG growing, and I think the smartphone market is going to grow.
spk10: Got it. Okay, and then just as a quick follow-up, it seems like domestic China sales, so once you back out, LG's gone down spend. We're down pretty meaningfully quarter over quarter. Is that some type of inventory burn that's continuing or a Huawei dynamic or something else we should be thinking about?
spk07: Well, as you can see, that, you know, customer C is down significantly. And they have, that customer historically has been lumpy. I don't think it's anything specific from one quarter to the other. It's difficult. But they historically have been one of our lumpiest customers.
spk08: Okay, thanks. Thank you.
spk04: As a reminder, there's Star 1 on your telephone keypad if you would like to ask a question. Our next question is from Shannon Crust with Crust Research. You may proceed.
spk13: Hi, this is Patrick Jackson. I'm for Shannon. I first wanted to ask what dynamics you're seeing in terms of OLED penetration in the low and mid-range smartphone market as retail demand grows. And you mentioned LG Display showed its ability to increase some capacity in China. But I was wondering if there's any other near-term catalysts that you see contributing to increased share specifically in that market. Thank you.
spk07: I think that a number of our – well, thank you for the question. I think, you know, Samsung mentioned on their call that, You know, they are penetrating the mid-range and have talked about this for a while, and there are a number of mid-range phones that are in the marketplace. I think it's expected to increase this year because when you need to make the market grow and, you know, the premium end of the smartphone market is pretty much all OLED. So you're going to see more and more penetration into the mid-range, and there's even some low-end ones.
spk13: Thank you. I also wanted to ask about your outlook in material sales through 2021. Are there any changes in the key drivers you see in the medium term?
spk07: No, I think that in terms of obviously we don't break out between license fees and material sales, but we do expect growth across the board, whether it's in smartphones and IT and on TVs. We do think that the ratio will go back to about 1.5 to 1 of license fees to royalties.
spk04: Okay, and our next question is from Martin Yang with Oppenheimer and Company.
spk06: Hi. Thank you for taking my question. My first question is, can you maybe provide us with an update on your long-term capacity outlook in the next couple years?
spk07: Well, as we have done in the past, we talk about install base, and we've talked about the install base from the end of We've actually done it since 15 to 17, 17 to 19. And now we're talking about 19, the end of 19 to the end of 21. And the installed base capacity based upon square meters growing by 50%. And we do believe that. So we really only go that far. So right now we think that is intact in terms of installed capacity. However, as we've discussed in the past, we don't start seeing any revenue until whatever installed base is actually turned on.
spk06: Got it. Okay. And the next question is on your host material development. I know it's not a meaningful source of revenue, but is host material a more meaningful revenue contributor in 2021? Is that more tied to whether or not that's tied to your Chinese customers?
spk07: We've talked about having some partnerships on development of hosts, and we are continuing to work with a number of our partners. However, as of now, we have not had any wins, and so there's really nothing to talk about. And I mean, hosts would not be a big part of our business for 2021.
spk06: Got it. Thanks. I'll jump back to the Q&A. Thanks, Mark.
spk04: Our next question is from Andrew DeGasperi with Berenberg Capital Markets. Please proceed.
spk09: Hi. Thanks for taking my question. Just on one, in terms of what we've been hearing and with some of the OEMs out there that the chip shortage out there? Could that impact some of the production across the board? Are you hearing the same thing on the display industry, or is this still relatively untouched?
spk07: We've obviously heard about the same, the chip shortages, and right now we have not heard anything from our customers or even from market data that talked about the chip shortage impacting smartphones at this point, or TVs.
spk09: That's helpful. And then secondly, on the gross margin for materials, I think you mentioned that there's going to be higher costs tied to Ola development. Are these just the recipes for your red and green at this stage, or would if, in fact, you do ship some blue along the way, would that signal a hit to gross margin as well?
spk07: Well, the gross margin hit is based upon developmental materials. And as we have stated, developmental materials, before they become commercial, are more expensive. But this includes all of our colors. This is not just one specific color. This is red, green, yellows, and blues. So developmental materials are ones that we're just either scaling up or working on to see whether eventually we will scale them up. And they are more expensive to make.
spk09: Got it. Thank you. Thank you.
spk04: As a reminder to Star 1 on your telephone keypad, if you would like to ask a question, we do have a follow-up question from Christian Carr with Cowan & Company. Please proceed. Thank you.
spk11: Yeah. Hi, thanks for taking the question. And Sid, I just want to follow up, you know, Actron, you know, spoke about OVPD, you know, phase two qualification a couple of months ago. And then your OVJP seems like it's still like a year or two away. I'm just wondering, like, you know, as some of your main customers look at OVPD and even arguably mini micro LED, is the window for industrialization of OVJP technology closing?
spk07: OVPD and OVJP technology are very different technologies. Our OVJP technology is a massless drive printing process. So it is very different than the technology that we licensed to Extron 20 years ago. So they are very different.
spk11: So you don't think that has any impact on OVJP opportunity down the road?
spk07: We do not.
spk11: Can I just ask one quick follow-up? I don't know if this question came up earlier. You know, what is your view on, you know, all the mini and micro LED technologies people are talking about? Do you think, you know, those technologies can peacefully coexist with OLED? Or do you think they could potentially replace OLED down the road?
spk07: Well, I think micro LED technology is really still, it's very early stage. and you know with any new technologies there's still a number of unanswered questions when you deal with particularly micro leds it we've heard it for a long time we do know that samsung did launch a 110 inch micro led tv which reportedly has a price tag of 156 000 so It is very early and I don't think the jury knows what the answer is going to be. Thank you very much. Thank you.
spk04: This does conclude our question and answer session. I would like to turn the conference back over to Sid for closing comments.
spk07: Thank you all very much for joining our call tonight. And we wish you all a good evening and please stay safe and sane. Thank you.
spk04: Thank you. This does conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.
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