Universal Display Corporation

Good day, ladies and gentlemen, and welcome to Universal Display's second quarter 2021 earnings call. My name is Shari, and I will be your conference moderator for today's call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Darius Liu, Director of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Universal Display's second quarter earnings conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer, and Sid Rosenblatt, 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, August 5, 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 materially. These risks and uncertainties are discussed in the company's periodic report, followed with the SEC, and should be referenced by anyone considering making any investment 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.

Thanks, Darius, and welcome to everyone on today's call. We are pleased to report that revenue in the second quarter of 2021 was $129.7 million, operating profit was $49.9 million, and net income was $40.5 million, or 85 cents per diluted share. The widespread momentum of OLEDs across a broad range of consumer electronics markets is unmistakable. From wearables and smartphones to tablets, notebooks, and TVs to AR, VR, science, and automotive to the revolutionary world of plastic OLED that is redefining what a consumer product form factor can be. OLED adoption, which is still in its early innings, is advancing. Leading global consumer electronics OEMs have adopted OLED displays for watches and phones. And now there are numerous reports that their OLED adoption journey is widening. After OLED smartwatches and then OLED smartphones, they are now expected to broaden OLED adoption into new product segments, such as foldables and IT, with an initial focus on tablets. Speaking of form factor and IT, two tremendous and burgeoning OLED markets. At SID Display Week, which took place virtually shortly after our first quarter earnings call, form factor was a major theme from our customers. Samsung Display showcases S-Foldable, a multi-foldable device that looks like a trifold display. The display can be folded twice inside and outside and can be used as a smartphone when folded and as a tablet when completely unfurled. Samsung also showcased a slidable OLED panel that was designed to maintain a traditional smartphone's form factor while capable of being slid horizontally to expand the screen size for use cases like multitasking and videos. In addition, Samsung exhibited a supersized 17-inch foldable OLED display, which can be used as a tablet when folded in a 4-3 ratio and a PC monitor when unfolded. Also at SID Display Week, Samsung Display presented a paper titled Blue Phosphorescent Organic Light Emitting Diodes for Future Display. Their experimental blue work was performed using Universal Display Corporation phosphorescent dopant material. Samsung's paper discussed the continued progress and advancements in the development of a phosphorescent blue OLED to achieve commercial launch. For LG Display, one of the major highlights of the show was when its 65-inch rollable OLED TV won the Display of the Year award. According to LG, the product was recognized for its cutting-edge form factor that has not only shifted the paradigm of displays, but also continues to demonstrate OLED's infinite possibilities when it comes to its application across various important industries, including its use for automobiles and aircraft. BOE also showcased a flexible slideable display. BOE's 8-inch prototype panel that can expand and turn a mobile phone into a tablet and vice versa can sustain up to 200,000 phones. The NMOD demonstrated an 8.03-inch color filter-on-touch rollable OLED prototype at the virtual show. VisionOx exhibited a number of OLED form factors. including a 12.3-inch rollable scroll-like display, a 7.92-inch foldable wraparound display, as well as a bifold, trifold, and slidable display. And AU Optronics presented a 5.6-inch rollable dual-sided AMOLED display, which shows images on both sides of the display. On the OEM front, Samsung Electronics announced during their earnings call last week that it wants to mainstream the novel form factor of foldables and that it expects foldable phones to start contributing to its bottom line beginning in the second half of the year. Samsung is slated to launch its Galaxy Z Fold 3 and Galaxy Z Flip 3 next week. It is reportedly targeting shipment levels of 6 to 7 million units. which is up from the 2.5 million foldable smartphones the company shipped last year. It has also been reported that foldable OLED panel production for Google, Vivo, and Xiaomi will begin in the fourth quarter of this year. Ulstered by increasing new models, foldable smartphone shipments are expected to exceed over 10 million units in 2022. In the IT landscape, Samsung Display continues to lead OLED adoption. With over 10 new Samsung OLED notebook panel models expected this year, compared with five in 2020, OEMs, including Lenovo, Dell, and Xiaomi, are unveiling new notebooks with OLED displays. Samsung Display's largest customer for OLED notebook panels is reportedly Taiwan's ASUS. As a leader in the gaming notebook market, OLED's strengths, including wider color gamut, high contrast ratio, and fast response times, are appealing to Asus' customer base. According to reports, Samsung Display recently increased its 2021 shipment target for notebook OLED panels by approximately 45%, from 4 million units to the range of 5.5 to 6 million units. We are also seeing other panel makers enter the nascent OLED IT market. LG Display is currently offering 13.4-inch OLED panels to Lenovo, and there are reports that BOE Technology and others may begin shipping OLED notebook panels in 2022. This is in addition to a myriad of reports on increasing OLED tablet activity for leading OEMs. We believe that the ongoing transition to OLED in the small and medium markets is prompting the need for new OLED capacity. Very recently, it was reported that Samsung Display plans to spend $2.6 billion in OLED backplane capacity, and LG Display plans to spend approximately $4 billion for additional Gen 6 OLED capacity. Additionally, BOE is expected to begin ramping OLED capacity at its third Gen 6 fab, B12, in Chongqing in the fourth quarter of this year. On the TV front, LG Electronics released its 83-inch OLED TV model during the quarter. This is the latest addition to LG's OLED TV lineup, which currently consists of 48, 55, 65, 77, and 88 inches. LG commented that as people spend more time at home these days, demand for ultra-large TVs to view streaming content and play games is on the rise. The global market for OLED TVs is expected to nearly double this year. And last week, LG Display announced that with additional capacity in its Guangzhou plant, it is targeting 10 million OLED TV units in 2022, up from this year's target of 7 to 8 million units. And according to reports, Samsung is now expected to launch their hybrid QD OLED TVs next year. The company is reportedly developing 55-inch and 65-inch QD OLED TVs for a market launch in the first half of 2022, with a larger 70-inch model to be offered at a later date. The report also suggests that Samsung may showcase its first QD OLED TVs at CES in January 2022. In gaming, Samsung Display announced in mid-May that its OLED panels receive the Gaming Performance Certification from SGS. According to SGS's test results, Samsung Display's new OLED offers 1.5 times better blur length than conventional LCD, which can be attributed to OLED's very wide range of contrast and fast response rates. This is important in gaming. as long blur lengths can degrade image quality in fast-paced video games. Also in OLED gaming news, Nintendo confirmed last month that it adopted OLED for the first time in its new Switch. In OLED lighting, an interesting study was published in Nature.com's Scientific Reports by researchers from the University of Tsukuba in Japan that compared the effects of LEDs and OLEDs on physiological changes that occur during sleep. The researchers measured energy expenditure, core body temperature, fat oxidation, and melatonin levels during sleep. When comparing LED to OLED light exposure, they found that OLED lighting may benefit your sleep and possibly even help one lose weight. Extended exposure to LED lighting before sleep seemed to negatively affect health. The researchers pointed out that the reason may be blue light. One of the many benefits of OLED is that OLED devices emit less harmful blue light compared to LED devices. We believe that the runway of growth for the OLED market, and therefore for us, is long and vast. As a result, we are investing in our people, our infrastructure, and in our innovation to advance our first mover advantage and to further enable our customers and the OLED ecosystem. On infrastructure, we are expanding our global footprint. This includes expanding our Ewing, New Jersey campus, as well as expanding emitter production capacity with our new site in Shannon, Ireland. which is being designed with the flexibility of manufacturing a range of our emissive materials, including red, green, yellow, and blue phosphorescent emitters. On the R&D front, we are fortifying and fueling our innovation engine. As panel makers' customers' roadmaps expand and product specs of color gamut, efficiency, and lifetime continue to broaden, demand for next-generation materials and novel technologies continues to increase. Our R&D team, in their relentless pursuit for cutting-edge, energy-efficient, and cost-effective solutions, are discovering, designing, and developing new emissive materials and technologies, including new reds, greens, yellows, and hosts. With respect to blue, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system. As you are aware, our target is to deliver an all-phosphorescent RGB stack, which will further enable higher energy efficiency and high performance for OLED applications across the consumer landscape. Organic vapor jet printing is our novel manufacturing process for maskless, solventless, dry direct printing of full-color OLEDs. We believe that OBJP has the potential to revolutionize the manufacturing of OLED TV panels. OBJP Corporation's first major milestone will be an alpha system build in 2022. On that note, let me turn the call over to Sid.