Wednesday, November 6, 2013. According to data compiled by the OLED Association, OLED display shipments for mobile products experienced a 7% increase in the third quarter versus the second quarter. Universal Display Corp.’s (“UDC”; NASDAQ: OLED) material sales in the second quarter were $27.1 million that would result in earnings per share of $0.03, excluding the Samsung licensing fee. If UDC’s claims were accurate, UDC’s third quarter revenue should be at least $29 million, but this is far higher than all analyst estimates.
Historically analysts covering UDC have shown huge variances in their earnings estimates for UDC, and this has especially been the case for the second half of 2013. Taking out the expected Samsung license fee payment, analysts’ revenue estimates for the second half range from $35 million to $52 million, the highest estimate being nearly 50% greater than the lowest. The variance in EPS estimates is even higher at 500%.
This suggests that UDC is providing confusing and incomplete guidance. UDC earnings releases since UDC started reporting Samsung license fee revenue under the August 2011 contract have been dominated by UDC’s irregular disclosures and analyst’s confusion. Added to this concern are UDC’s irregular accounting policies. Today asensio.com published a report analyzing UDC’s formal written exchanges with the Securities and Exchange Commission concerning UDC’s accounting policies.
For the third quarter, all sell-side analysts, including the Goldman Sachs analyst, are estimating a decline in material sales from the second quarter, without providing any explanation for the decline versus the increase in actual OLED display unit sales.
UDC’s analysts’ are projecting sales declines for the third quarter despite the fact that OLED display shipments increased 7% in the third quarter over the second quarter 2013, according to data collected by the OLED Association. None of the analysts has articulated why they are projecting a sales decline, why they believe that material sales will fall, quarter-over-quarter, in a quarter where actual reported OLED display shipments increased. UDC’s analysts travel with the company management to road shows and host private and public investor meetings with UDC’s management, but failed to provide investors with information about the declining material sales that UDC had been experiencing for over the last year. The red emitter sales decline suggest that Samsung’s purported green emitter and host material purchases will quickly follow the same path and that green material sales will show the same drastic price and volume declines shown by UDC’s red emitter sales.
We think that analysts are hedging uncertainty about UDC’s results by lowering third quarter revenue forecasts. What will ultimately determine UDC’s value, however, are the results of patent challenges, especially the key patent case that will be decided after a November 21st hearing.
For supporting analysis, click here.