How much money does Universal Display Corporation really make?

Universal Display Corporation announced its financial results for the third quarter of 2011 in the past week. This is the first release of financial information that Universal Display Corporation has made since it signed a new agreement with Samsung Mobile Display. Dolcera presents an analysis of the announcement and the events surrounding it.

Universal Display Corporation reports its revenues in two segments: commercial revenue and developmental revenue. Commercial revenue relates to the incorporation of the company’s OLED technologies and materials into its customers’ commercial products, and includes commercial chemical revenue, royalty and license revenues, and commercialization assistance revenue. Developmental revenue related to OLED technology and material development and evaluation activities for which the company is paid, and includes contract research revenue, development chemicalrevenue and technology development revenue. Here, we mainly look at the commercial revenue of Universal Display Corporation.

Commercial revenue is reported in three parts: commercial chemical revenue, royalty revenue and license fees. In the results of third quarter of 2011, the revenue from royalty and license fees have been reported together. Unfortunately, since the past two years, Universal Display Corporation has been reporting only the change in revenues in each of these categories instead of the actual revenue figures. Some financial results announcements in the past have failed to provide quarterly information at all, instead providing information for the past 9 months or the past year as a whole.

Using historical financial results, we have reconstructed the commercial revenue earned by Universal Display Corporation in the three categories. The following table shows the quarterly commercial revenue by category in the past 5 years:

Quarter

Total
Commercial Revenue

Commercial
Chemical Revenue

Royalty
Revenue

License
Fees

Q1 ‘07

$1,440,900

$1,313,000

$0

$127,900

Q2 ‘07

$392,926

$229,631

$31,395

$131,900

Q3 ‘07

$1,368,201

$1,185,050

$16,051

$167,100

Q4 ‘07

$1,226,021

$871,996

$13,871

$340,154

Q1 ‘08

$1,555,065

$985,560

$267,565

$301,940

Q2 ‘08

$1,395,487

$938,330

$176,447

$228,570

Q3 ‘08

$1,324,924

$1,025,000

$148,261

$151,663

Q4 ‘08

$1,355,282

$803,000

$204,565

$232,959

Q1 ‘09

$1,369,137

$686,165

$278,179

$237,895

Q2 ‘09

$1,239,056

$569,600

$257,959

$244,600

Q3 ‘09

$1,621,416

$808,200

$401,718

$244,600

Q4 ‘09

$1,888,490

$705,900

$623,699

$367,676

Q1 ‘10

$1,830,147

$728,400

$565,877

$344,655

Q2 ‘10

$1,951,892

$841,170

$591,523

$327,984

Q3 ‘10

$2,836,587

$1,642,600

$810,017

$244,600

Q4 ‘10

$4,511,121

$2,527,500

$1,503,647

$177,532

Q1 ‘11

$4,744,075

$1,864,485

$1,796,705

$871,965

Q2 ‘11

$5,278,704

$2,402,130

$1,753,685

$911,970

Q3′11

$9,881,553

$5,107,213

$4,615,245

Source: Company filings

As expected, the revenues have shown a huge jump in the last quarter. Much of this can be attributed to the new agreement between Universal Display Corporation and Samsung Mobile Display. This agreement runs till 2017.  For the first time, Universal Display Corporation has explicitly mentioned the exact revenue it has received from Samsung Mobile Display from license fees. The company has received $3,246,315 from Samsung Mobile Display under its license agreement so far.

Apart from licensing fees, the agreement also increases the commercial chemical sales of Universal Display Corporation. Under the 2005 agreement, the company was the supplier of red PHOLED materials to Samsung Display Corporation. With the August 2011 agreement, Universal Display Corporation now supplies both red and green PHOLED materials to Samsung Display Corporation. Prior to August, Samsung Display Corporation sourced green PHOLED materials from Duksan, a Korea based company. There are no competing manufacturers of red and green PHOLED materials. The new agreement effectively doubles the per unit chemical sales of Universal Display Corporation.

In the following section we calculate the revenue that Universal Display Corporation receives from each display unit sold. All calculations have been performed using publically available data.

In the third quarter of 2010, 413.20 million mobile phone display units were shipped amounting to total revenue of $ 3,380 million. AMOLED display panels had a revenue share of 10.7% of the mobile display market. This results in the AMOLED mobile display panel revenue to be $ 361.66 million. The volume of AMOLED displays was 13.5 million units. In the AMOLED display market, Samsung Mobile Display had a market share of 98.3%. Thus, Samsung Mobile Display sold 13.27 million AMOLED display units and revenue from AMOLED displays units was $ 355.51 million. (Source: DisplaySearch)

Universal Display Corporation announces in all its filings that Samsung Mobile Display is the chief source for all of its commercial revenue. We consider that Samsung Mobile Display is solely responsible for all of Universal Display Corporation’s commercial revenue. The assumption is reasonable given that the period under study is the third quarter of 2010 when Samsung Mobile Display was the only major customer of Universal Display Corporation.

Universal Display Corporation’s royalty revenue for the fourth quarter of 2010 was $ 1,503,647 million. The royalty revenue is considered from the fourth quarter as royalty is paid by Samsung Mobile Display for goods sold in the previous quarter. As calculated earlier, Samsung Mobile Display’s third quarter 2010 revenue from sale of AMOLED display panels was $ 361.66 million. The royalty rate for the agreement between Universal Display Corporation and Samsung Mobile Display thus works out to be 0.423%.

The total number of AMOLED display units sold by Samsung Mobile Display in the third quarter of 2010 was 13.27 million. The royalty received by Universal Display Corporation for these units was $ 1,503,647 million. Thus, the royalty revenue per unit is $0.1133. The chemical sales revenue of Universal Display Corporation for the third quarter of 2010 was $1,642,600. Thus, the chemical sales revenue per unit is $0.1238. The key assumption in this case that the PHOLED material inventory levels of Samsung Mobile Display did not significantly change during the period.

The total revenue that Universal Display Corporation received from sale of each mobile display unit is $0.2371. It is to be noted that the period considered in this analysis is the third quarter of 2010 which is prior to the signing of the new agreement between Universal Display Corporation and Samsung Mobile Display. The August 2011 agreement doubles the chemical sales revenue per unit of AMOLED display panel sold for Universal Display Corporation. Thus, Universal Display Corporation receives $0.3609 for each AMOLED mobile display sold.

The above scrutiny only covers a part of an exhaustive industry analysis. For a detailed analysis of the subject matter, write to us at: info@dolcera.com

Written by: Kunal Krishna

Kunal is a Senior Business Research Analyst at Dolcera with expertise in cleantech and emerging technologies

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