X

Universal Display stock surges on Q4 earnings beat and increased dividend

Shares of Universal Display Corporation (Nasdaq: OLED) surged 6% in the extended hours of trading after the company increased its dividend. The company’s board today has increased the dividend by 66% to $0.10 compared to $0.06 declared last quarter. The record date for the stock is set as March 15 and the dividend payment date is marked as March 29.

For the fourth quarter, earnings came in at $0.40 per share, which surpassed analyst estimates. Revenue was in line with estimates touching $70.1 million. It’s worth noting that the drop in the top line over prior year period was mainly due to the adoption of new accounting standards and pre-purchase of material inventory and weaker OLED panel sales due to slowing smartphone market.

Analysts were expecting Q4 earnings to decrease by 67% to $0.31 per share compared to last year. For the fourth quarter, revenue is expected to drop 39% touching $70.1 million due to softer demand for Organic Light Emitting Diodes (OLED) products.

Material Sales halved to $39.8 million while royalty and license fees dropped sharply to $25.8 million over last year. However, contract research services bucked the trend surging 89% to $4.3 million. The impact in the sales was attributed to the adoption of accounting rules and slowness in smartphone sales hurting OLED-product sales.

Related: All three iPhone models coming next year likely to have OLED screens

2019 Guidance

Universal Display expects revenue for 2019 to be between $325 million to $350 million. Analysts were forecasting 2019 revenue for the firm to be $341.9 million, which is nearly $8 million lesser than the higher-end range provided by the company.

Image courtesy: Andri Koolme, Flickr

Plateauing Smartphone Market

The OLED technology provider has been dependent on the increased adoption of OLED-based products in mobile phones, televisions and automotive markets. The smartphone market has been largely flat in the fourth quarter of 2018 primarily due to weaker demand for high-end phones from customers.

According to research firm Gartner, in the 4Q18, Samsung reported a 4.4% dip in sales and Apple’s iPhone saw a double-digit decline of 11.8% due to lack of innovation and higher prices acted a deterrent for users to replace their smartphones. In addition, the weak global macroeconomic situation and the ongoing trade war between the US and China would act as a headwind to the company.

Emerging OLED Markets

However, the company has been seeing increased adoption of the OLED display in the television market which is an encouraging sign for investors. When it comes to new avenues, Universal Display is seeing increased demand for its lighting products from the auto majors. As the usage of OLED-based lightning goes up with marquee brands like Audi, BMW, and Mercedes-Benz, it would bring in better diversification for the company’s top line which would be acting as a tailwind in the near term.

You may also like: Universal Display (OLED) Q3 2018 Earnings Transcript

Customer Concentration

Customer concentration has been one of the concerns for investors. Top four customers last quarter brought in 88% of revenue. It’s worth noting that Samsung Display brings in lion’s share of sales to the company followed by LG Display. Hence, any demand impact from Samsung and LG would have a direct impact on the Universal Display’s performance. Investors would like the OLED-technology provider to diversify its revenue stream in the impending future.

Optimistic Outlook

With increased usage of OLED-based products across various sectors, Universal Display is expected to benefit.  The company forecasts the OLED screen market to touch $40 billion by 2022. Even though Universal Display is gung ho about the future, emerging display technology like microLEDs could act as a roadblock if the customers prefer to move away from OLED to better alternatives like microLEDs. Hence shareholders need to take into account the inherent risks present with Universal Display.

The company’s stock price has decreased 23.8% in the last 12 months and in the first two months of 2019, it has lost 27% due to weak macros and muted demand for OLED products from its customers.

Follow our Google News edition to get the latest stock market, earnings, and financial news at your fingertips

Tags: iPhone
Related Post