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In Q218, UDC Material Sales Don’t Keep Up with Shipment Growth
August 13, 2018

 
UDC reported 2ndquarter results based on the adoption of accounting standard, ASC 606. Revenues for the second quarter of 2018 were $56.1 m, down 45.3% Y/Y from Q217 revenue of $102.5 without the impact of ASC 606, second quarter revenues would have been $73.6 million, down only 28.2%.  UDCmaintained their previous yearly guidance of $280m to $310m despite expected growth in 2Q18 of 43.5% in smartphone panel shipments and 45.4% in TV panel shipments over 1H18.
 

1. Material Sales– Material sales, were $36.8 m down 20.1% Y/Y, even as smartphone shipments rose 5.6% Y/Y from 94.1m in Q217 to 99.4m in Q218 and TV panel shipments rose 84% to over 700K. Red emitters sales, used for both small/medium and large displays had sales of $10.9m down 20.4% Y/Y but up 36.3% sequentially. Green and Yellow/Green emitter sales were $25.7m, up 14.6% Y/Y and up 45.5% sequentially.  UDC offered no explanation for the differing growth rates between red and green, nor were they asked any questions about it.

 

1. Inventory--While SDC significantly over-ordered emitter materials in 4Q with the expectation that Apple would maintain 1Q demand levels agreed upon in 3Q/4Q 2017.  As Apple cut supply chain orders, SDC had to work down that excess emitter material in 1Q, accounting for much of the significant material sales shortfall at UDC last quarter.  UDC believes that SDC has eliminated any excess emitter material and is now back to ordering on an as-needed basis.  UDC claims it maintains a large inventory of emitter materials, which would make it difficult to use company WIP and finished goods as an indicator of upcoming sales, but SDC’s overall OLED utilization rates indicate the increasing use of UDC emitter material through the end of this year irrespective of UDC’s inventory levels.   

 

1. Customer Segmentation– UDC’s top three customer make up 86% of sales on average (2 year), and with both Samsung Display and LG Display in the top 3, South Korea makes up ~83% of sales by region.  China has become an increasing portion of total sales since last year, and is expected to grow as a number of Chinese display producers build out their OLED capacity.  While Visionox shipper the most smartphone displays of any Chinese panel maker in 1H18, BOE was certainly a significant portion of the $8.4m in regional China sales. Tianmawas UDC’s 3rdlargest customer in 2Q, representing ~$5m in sales as they move there Gen 6 flexible OLED fab in Wuhan, China into mass production.  

 
Given the release of 2 OLED iPhones, the Galaxy Note 9, the expected early release of the Galaxy S10, the continued growth of TV panels and what appears to be a significant reduction in material inventory by Samsung, the 2ndhalf should be much stronger than the 1 half as Smartphone panels are expected to grow from 195m to 280m and TV panels could increase from 1.1m to 1.6m.