Universal Display Corp Oppenheimer 29th Annual Technology, Internet & Communications Conference

Welcome. Thank you, Martin. Before we start, I'm supposed to say this.

I may make some forward-looking statements in my remarks today. Our actual results may differ from those forward-looking statements, and we encourage anyone investing in the company to review our filings with the SEC. We pay our lawyers a lot of money to make sure I say that. I've said that, and I checked that box. Back to you, Martin. Thanks, Steve.

That's a good question, and I think part of it is we could hold two almost contradictory thoughts in our heads at the same time, short term and long term. I think it reinforces the difference between what's happening today and because, as an industry, we need to plan for the future, where the industry sees opportunities in the coming years. Smartphone demand has clearly become more cautious, driven in part by higher component costs. But the investments that we're seeing now are multi-billion, multi-year commitments to grow the OLED industry, and those decisions aren't based on a couple of quarters of demand. What it tells us is that our customers continue to believe OLED adoption has a long runway ahead. It's only been 15 years. Look back 15 years, OLED had virtually no presence in smartphones.

If it was a billion-dollar industry, you are being a little heavy on that one. Today, OLED penetration in smartphones is around 65%. The industry is over a $50 billion industry, and this shows how significantly adoption can evolve over time. From an OLED industry, we believe we are still in the early innings of several other markets, smartphones being the first one, but OLED penetration in IT remains relatively low, about 5%. There is still significant opportunity across notebooks, laptops, and monitors, as well as automotive, which is roughly 1% of the market today. We have smartwatches, we have TVs, and the new Gen 8.6 capacity is being built because panel makers believe OLED presence in those markets, particularly I think in IT, will be meaningfully larger in the future than it is today.

While the smartphone market is having some softness right now for a number of reasons, the capacity investments, we believe, are really a vote of confidence in the long-term growth of OLEDs.

The memory price issue is also one of the near-term softness. On pricing pressures, you have known us for a while, this industry is always dealing with various forms of pricing pressures. It is always give me more for less. That is not unusual. But we have not seen anything from our perspective out of the ordinary from a pricing standpoint. Our royalty and licensing structure, together with our long-term agreements, helps provide our company a degree of stability, even as the broader environment will fluctuate. But what we have seen is primarily an impact on unit demand, particularly in the mid-range and entry-level smartphone segments where pricing pressures are more sensitive. Higher memory and component costs can also affect affordability and purchasing decisions. That seems to be, I mean, it is early terms, but that seems to be where we have seen the most noticeable impact.

Beyond that, we generally don't comment on specific customer product decisions or roadmaps.

Well, I'll start and hope that the recovery doesn't slip, but we'll get to that in a minute. Historically, in our industry, the second half of the year has tended to be stronger than the first half, and we entered this year expecting that pattern to hold. You have major OEM product launches, new smartphone introductions, expanding OLED IT deployments, and also the benefit of holiday-related consumer electronic spending in the second half of the year. So that's traditionally a seasonality approach. What gives us confidence is that, as I mentioned, a number of those product and adoption cycles are naturally weighted towards the second half of the year. Looks like there may be some exciting products coming out. We also expect revenue growth across customer segments compared to the first half. The bear case, well, it doesn't happen. Product launches may not happen, perform as expected.

They may get delayed. Consumer demand may get softer for longer, or the macro uncertainty could weigh on spending. On the other side, the bull case would be those things don't happen, but product launches are better than expected. Demand improves, the macro's better. The upside could be greater than the amount we're currently forecasting. In some respects, the industry mantra is, "Hope for the best, plan for the worst," and see how it plays out. It's uncertain times right now.