For the better part of the past two decades, skeptical display-industry watchers have trumpeted the downfall of organic LED (OLED) technology. OLED displays and lighting are now being used in billions of devices, from smartphones to laptops, cameras, TVs, and even vehicles.
Make no mistake: The day will eventually arrive when some superior technology usurps OLED, whether it's microLED, QLED, or some other incredible hybrid display. In the meantime, many investors have worried over the years that display makers could even produce their own OLED materials, replacing key phosphorescent OLED (PHOLED) materials supplier Universal Display(NASDAQ: OLED) in the process -- never mind that Universal Display's product portfolio is backed by over 6,000 issued and pending OLED patents. Still, if either of these scenarios unfold, perhaps then I'd be forced to sell the shares of Universal Display which I first bought in an IRA in 2010.
But if Universal Display's newest long-term agreement with China's BOE Technology Group is any indication, that day won't come anytime soon.
Why display manufacturers are sticking with OLED
Last week, Universal Display entered into a new long-term OLED material supply and licensing agreement with BOE. Exact terms weren't disclosed, but the deal strengthens a relationship between the two companies that goes back over a decade. It also comes just as Universal Display management recently told investors to prepare for a new wave of OLED-enabled products (more on that in a minute).
Incidentally, I wrote an article here at The Motley Fool almost a decade ago (July 2014) urging investors not to underestimate the effect of what was then an expanded evaluation agreement between Universal Display and BOE. Though BOE was already the largest LCD panel producer in China and a top-five display maker in the world at the time, it had also recently invested in a large-screen active matrix OLED (AMOLED) pilot manufacturing line at its Hefei-based 8.5-generation fabrication plant. Using that line, BOE had (then) recently showcased one of the earliest 55-inch OLED TV modules to come from a display maker other than Samsung Display or LG Display.
This raises one key point for investors: One of the most effective ways to determine where the display industry is headed is to look at where display manufacturers are allocating their capital. After all, when original equipment manufacturers (OEMs) have already poured billions of dollars into facilities designed to build a specific technology, it acts as a built-in incentive for those OEMs to stick with that technology for as long as possible to make the most of their investment.
The timing of this latest agreement is no coincidence. In conjunction with the Universal Display deal, BOE also announced plans last week to build a new 63 billion yuan ($8.84 billion) facility to manufacture OLED displays. The new plant will use advanced 8.6-generation technology to manufacture panels sized 2,620 mm by 2,290 mm (or approximately 103 inches by 90 inches), up from its current substrates measuring 1,500 mm by 1,850 mm.
These larger-sized OLED panels will significantly improve manufacturing efficiency for BOE, matching levels already achieved by market-leader Samsung Display (which stands tall as Universal Display's single largest customer), as they can be made into a larger number of screens to be used in devices such as laptops and tablets.
Samsung also recently announced plans to invest 4.1 trillion won ($3.15 billion) in its own 8.6-gen production facility, which is expected to start production in the first half of 2026. Samsung and Universal Display signed their latest long-term material supply and license agreement almost exactly a year ago. That agreement runs through the end of 2027, with an option to be extended for an additional two-year period.
On the "new adoption cycle" for OLED technology
BOE hasn't disclosed an exact timeframe for its recently announced OLED plant. But the facility is widely expected to begin operations within the next two or three years, or around the same time as Samsung's 8.6-gen plant.
That doesn't mean Universal Display's business will languish in the meantime. During their third-quarter 2023 earnings conference call last month, Universal Display management reiterated that they "believe a new OLED IT adoption cycle will begin next year."
To be sure, according to research forecasts from UBI, OLED shipments for tablet PCs, notebooks, and monitors should more than double from 7.9 million units in 2023 to 18.8 million units in 2024, then nearly double again to 31.3 million units by 2027. That rate would be good for compound annual growth of 41% over the next four years.
As the only OLED material supplier and licensor of OLED technology to every key display manufacturer -- and having already achieved sustained profitability and healthy cash flows in these early stages -- Universal Display remains perfectly positioned to capitalize on this growth over the next several years.
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Steve Symington has positions in Universal Display. The Motley Fool recommends Universal Display. The Motley Fool has a disclosure policy.
