Investing in OLED Technology: Massive Potential Goes Beyond Just Smartphones

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Eastman Kodak (KODK) made headlines recently as their stock rocketed 1,481% from 2.10 on July 24 to $33.20 at the market close on July 29 (3 trading days!). The shares have since settled back down to a 6 “handle” and everyone has yet another thing to tell their grandchildren about when recounting the year that was 2020.

Why are we talking about Kodak in a piece about OLED technology?

Well, while we were fumbling through high school in the ’80s, scientists at Kodak were busy science-ing, and in 1987, published their findings in a paper titled “Organic Electroluminescent Diodes” and proceeded to begin licensing their new technology to companies like LG, Chi-Mei El Corporation and others. In December 2009, Kodak sold its OLED business to LG for $100 million and the trickle of OLED products that began in the early 2010s is now torrential as the display technology is increasingly adopted by the smartphone market. We’re not alone in waiting for Apple (AAPL) to debut its latest iPhone models if only to see how many adopt OLED technology.

Medium to longer-term, the display technology is expected to replicate the adoption that was had with light-emitting diodes, which started in mobile and smartphones and went on to penetrate the automotive and other interior lighting and eventually the general illumination markets. To give you a sense as to the long-term opportunity for the OLED market, in 2019 the global LED lighting market size was $67.6 billion according to data published by Prescient Strategic Intelligence.

A quick primer on display technologies

In today’s increasingly connected world, the display is the medium in which we increasingly digest digital content. There are different user experiences between the competing technologies of LCD/LED, Plasma, and OLED including brightness, viewing angles, motion blur (or lack of it), burn-in, and the ever-elusive “whitest whites and blackest blacks.” The big difference has to do with how images are generated on each screen. LCD, LED and Plasma screens are all either back- or side-lit which can lead to issues in any of the areas mentioned above and of course require a physically larger form factor to house all the electronics and lights.

The magic of OLED displays is that each diode (the “D” in OLED) is essentially a multi-hued “light bulb” that provides its own illumination, no extra light is needed. On their own, OLED displays are easier to manufacture, with less environmental impact. When you account for the fact that an OLED screen doesn’t necessarily need a back or frame and that technology has advanced to the point where flexible screens are now a reality, the applications for this technology go way beyond smartphone screens and monitors. To wit:

  • Glass meeting room walls that frost at the flip of a switch? Try that with your old 50” plasma screen TV.
  • Refrigerators that let you look through the door to see what’s inside your fridge without opening that door? OLED technology in action.
  • Computer keyboards where each key is its own screen and infinitely customizable. Instant language switch over? No problem.
  • Companies are even using OLED screens as the basis for interior lighting source as illumination starts to move away from LED-based light sources for something softer yet still energy efficient.

The days of households having 2 or 3 (!) televisions seem quaint by today’s standards. Between multiple televisions, multiple computer desktop monitors, laptops, smartphones, smartwatches, and various appliances, screens have truly become ubiquitous. 

A look at the OLED food chain

Looking at the entire OLED market, it is estimated to be a roughly $19.3 billion market in 2020 and expectations are for it to grow at a 10.8% CAGR to $39.6B by 2027 as the technology adoption proliferates. When we look at the companies that are positioned to both drive and benefit from this growth, Universal Display (OLED) immediately comes to mind as they not only have a robust chemical offering but also have strong licensing revenue streams from their industry-leading intellectual property (IP) portfolio. Yes, that is rather similar to the Qualcomm (QCOM) business model.

Another name that ties into Universal Display’s story is PPG Industries (PPG) as Universal acts as an exclusive reseller of patented Phosphorescent Organic Light Emitting Diode (PHOLED) material, which is more energy-efficient than fluorescent-based diodes as well as substrate materials produced by PPG.

In terms of the manufacturing OLED displays, data from market research firm Stone Partners show Samsung Display, a unit of Samsung Electronics (SSNLF), held more than 90% of the market in the March 2020 quarter. Interestingly, Samsung said it will stop making LCD panels by the end of 2020 because they are becoming "unprofitable." Also, LG Display Co Ltd said earlier this year that it will halt domestic production of LCD TV panels by the end of 2020 as it likely looks to focus on its OLED display and TV business.

Ticking down the supply chain, companies that manufacture equipment to make the OLED display include Canon (CAJ), Applied Materials (AMAT), and Nikon (NINOY). According to a UBI Research annual equipment market track report for 2020, the OLED manufacturing equipment market is expected to reach $9.51 billion in 2020, up more than 14% from $8.31 billion in 2019.

As the OLED industry continues to mature and moves down the cost curve, companies like Apple, Sony (SNE), LG, Huawei, and others that currently utilize the technology in smartphones, displays, wearables, cameras, and other applications will reap the benefits of more favorable pricing while that same pricing opens up new applications in markets beyond consumer electronics. As device manufacturers find increasingly ingenious ways to incorporate OLED technology into their products, it will give momentum to the virtuous cycle of product innovation begetting increased demand. 

The bottom line is once again display technology is in transition. OLED screens are increasingly replacing LED, LCD, and plasma screens in existing products. Near-term the volume application will likely remain with smartphones, but as industry capacity grows and prices fall, the technology will take share of the global display and lighting market. That being said, as this technology becomes more refined, the sheer number of use cases represent a significant amount of “unknown unknowns” and significant upside surprise potential going forward.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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