Universal Display Corp (OLED) 2007 Q2 法說會逐字稿

Good afternoon. My name is Larry, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Universal Display Corporation Second Quarter Conference Call. (OPERATOR INSTRUCTIONS).

Thank you. It is now my pleasure to turn the floor over to your host, [Joe Covelli] for Universal Display Corporation. Sir, you may begin your conference.

Thank you, and good afternoon, everybody. With us today are Steve Abramson, President and Chief Operating Officer, and Sid Rosenblatt, Chief Financial Officer of Universal Display Corporation.

Let me start by reminding you that, today, this call is the property of Universal Display Corporation. Any redistribution, retransmission, rebroadcast of this call in any form without the express written consent of Universal Display is strictly prohibited. Further, as this call is being webcast live and will be made available for a period of time on Universal Display's website, this call contains time sensitive information that is accurate only as of the date of this live webcast, August 9, 2007.

All statements in this conference call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include, but are not limited to, statements regarding Universal Display's beliefs, expectations, hopes, or intentions regarding the future.

It is important to note that these statements are subject to risks and uncertainties that could cause Universal Display's actual results to differ from those projected. These risks and uncertainties are discussed in the Company's periodic reports filed with the SEC. Universal Display disclaims any obligation to update any forward-looking statements.

With that said, now I'd like to turn the call over to Steve Abramson, President of Universal Display. Please go ahead, Steve.

Thank you, Joe, and thank you to everyone for joining us for our Second Quarter 2007 Conference Call.

We have made a lot of progress over the last quarter, and there have been a number of interesting developments in the OLED industry since our last conference call.

I'd like to start with a discussion of Samsung SDI. As we have mentioned in these calls, it's difficult at this early stage of the industry to consistently predict revenue and product ramps of our customers. The most recent quarter with Samsung is an example of that.

We had two strong quarters with them, the fourth quarter of '06 and the first quarter of '07. The second quarter was not as strong, which is the principle reason for our reduced revenues. Steve will discuss the revenues in detail later.

At this point, Samsung SDI looks to be ramping up its commercial production of AMOLED displays in the second half of 2007, to fill orders and meet the market place demand from their global customer base. We understand that their major product focus is on displays with sizes up to 2.8 inches for various mobile applications.

You may recall that Samsung SDI's initial plant capacity is approximately 1.5 million cell phone size displays per month, which can be expanded to about 4.5 million cell phone size displays per month.

We also understand that Samsung SDI is making excellent progress in increasing yields, and industry sources indicate that the current yields are about 60% and improving. We are pleased with what we've heard lately about Samsung SDI's production schedule, and we're excited about AMOLED displays entering the market place in larger volumes.

Turning to other customers, we're happy to report that we signed two new commercial supply agreements during the second quarter. The first, the Chi Mei El Corporation, or CMEL, of Taiwan involves us providing our proprietary phosphorescent OLED materials and technology to CMEL for use in their manufacture of commercial active matrix OLED display products. CMEL is utilizing, again, a 3.5 facility with a monthly output capacity of approximately 500,000 cell phone size displays.

Industry sources indicate the current yields are approximately 60% on their 2-inch OLED panels, which they expect to improve to 80% by year-end. CMEL is also sampling 2.4 and 2.8-inch displays, and we expect them to incorporate our proprietary PHOLED materials into their AMOLED products by year-end.

Our second new commercial supply agreement is with LG Phillips LCD, or LPL, of Korea. The commercial supply agreement with LPL came on the heels of our joint exhibition with them of a flexible AMOLED display on metal foil at the recent Society for Information Display, SID, conference in Long Beach in May.

Similar to our CMEL agreement, the agreement with LPL calls for us to provide our proprietary phosphorescent OLED materials to LPL for the production of active matrix OLED displays. There have been published reports indicating that LPL may start commercial production of AMOLED displays by the end of the year.

Our ongoing arrangement with Samsung SDI and the two new agreements with CMEL and LPL illustrate a rising interest in our PHOLED technology materials by major display manufacturers worldwide. As many of you may have seen, the active matrix OLED products already in the market, the iRiver multimedia player and the KDDI cell phone, are garnering rave reviews for their clarity, beautiful images, eye-pleasing video and power efficiency.

We believe this is only the beginning for AMOLED products, and the announcement by Nokia earlier this week is an additional indication of that trend. Nokia announced its Prism handset series that includes an OLED screen that can display 16 million colors. According to Nokia, the Prism 7900 handset will sell for approximately $400 Euros, and about $550, and the Prism 7500 will sell for about $210 Euros, about $300. They should be available in the third quarter of this year.

As you know, our strategic plan is to develop long-term relationships with display manufacturers and to build an OLED industry centered on our proprietary phosphorescent technology and materials. Our network of strategic partners also includes major chemical companies, with whom we've developed valuable relationships, such as Nippon Steel Chemical, Idemitsu Kosan, and Mitsubishi Chemical.

During the second quarter, we announced a new bright red PHOLED called RD39, and the results of combining this new material with Nippon Steel Chemical's commercial NS11 host material. Working with other chemical companies in this matter helps ensure their OLED technology and materials gain traction as a commercial standard. We look forward to announcing similar developments as the year progresses.

In addition to RD39, during the quarter, we also unveiled a second generation deep red emitter known as RD26. The two complementary materials are designed to meet a range of OLED manufacturers' chromaticity requirements. They also enable manufacturers to achieve ever-better display performance and manufacturing capability, as compared to earlier generations of materials.

At an annual meeting of shareholders in June, we unveiled advances in the lifetime of our red, green and blue PHOLED material. The previous year, red lifetime tripled to 350,000 hours, and green lifetime doubled to 250,000 hours, both with a 1,000 nits. Light blue lifetime tripled with a lifetime of 9,000 hours with 500 nits for our blue material having CIE coordinates of .16 .27.

Lifetime advances were not confined to our vacuum turbo evaporation material, but also included a solution processable into printable materials which we call P2OLEDs. These materials, which are currently under development, also saw dramatic improvements over the past year, with significant lifetime gains for all three colors. Red lifetime increased to 7,000 hours, and green lifetime to 18,000 hours, both with 1,000 nits. And the lifetime of our sky blue P2OLED material increased to 2,400 hours at 500 nits.

On the flexible display front, we enjoyed another successful SIB conference in May. As I mentioned, we jointly showcased a flexible, full color active matrix OLED display with LPL. This innovative prototype marked the world's first high resolution active matrix OLED built on flexible metal foil, using a more of a silicon backplane technology, significant because of its extremely thin light weight and rugged form factor, this prototype represents a major step towards a demonstration of the commercial viability of flexible OLED display products.

Last, but certainly not least, we also highlighted our progress in white lighting at SID by demonstrating a novel white OLED structure that exhibits an external quantum efficiency of 20%, corresponding to a luminous efficiency of 33 candelas per AM. With CIE coordinates of 23.39 and an operating lifetime exceeding 4,000 hours at 1,000 candelas per meter squared, this is believed to be the highest EQE ever reported for a single non-stacked white OLED device.

The OLED lighting market is an important area that we continue to work on. And this announcement is yet another step forward to making white OLED technology a commercial reality.

As we begin the second half of 2007, we are excited about the state of the OLED display industry, and the widespread interest in our proprietary phosphorescent OLED technology and materials. Some prospects on the horizon for Universal Display were good as we anticipate full scale commercial production to begin, and increasing numbers of commercial products that utilize our technologies and materials to enter the market place.

In addition, we continue to push the envelope to advance our technology, and pursue new agreements and relationships with key players in the OLED industry.

I'd like to segue from my presentation on business developments during the quarter to Sid's financial presentation by focusing on our strong financial position. As many of you are aware, during the second quarter, we fortified our cash position and strengthened our balance sheet by raising approximately $40 million.

By operating from a position of financial strength and with our strong intellectual property portfolio, we believe we are well prepared to realize significant value from our participation in the growth of the OLED industry. As growth of the industry accelerates over the next few years, there will likely be opportunities to benefit from industry consolidation and strengthen our market place position to ensure that we continue to be the premiere technology and licensing company in the OLED space, and increase shareholder value.

With that, I will turn the call over to Sid to review the quarterly financial and six-month financial results in more detail. Sid?

Thank you, Steve. And again, thank you everyone for joining us today.

First, I'm going to run through the basic revenues for the quarter and the first half of 2007. Then, I'll be reviewing the specific numbers and details behind our individual revenue components for the same time period, as well as other key financial data.

For purposes of this discussion, we have rounded the numbers. Of course, detailed numbers are available in both our earnings release and Form 10-Q filing. At the conclusion of my remarks, Steve and I will be happy to take your questions.

Revenues for the three months ended June 30, 2007, were approximately $2.3 million, compared to approximately $3 million for the second quarter of 2006. Revenues for the six-month period ended June 30, 2007, were $5.3 million compared to $6.3 million for the same period in 2006.

While we continue to experience a shift in our revenue mix as our technology is commercialized, we have and expect to continue to experience fluctuations in revenues as the market for OLED technology continues to develop. We expect display manufacturers to continue to incorporate our OLED technology and materials into their products.

Revenue components for the second quarter and first half of 2007 were as follows. Commercial chemical revenues were $230,00 for the second quarter, compared to $336,000 for the second quarter of 2006. For the six-month period, commercial chemical revenue was $1.5 million, compared to $730,000 for the comparable prior year period.

Commercial chemical revenue for the first half of 2007 was positively impacted by material shipments almost entirely to Samsung SDI, compared to 2006, which was mainly material shipments to AU Electronics.

As Steve discussed, we signed two new material supply agreements during the second quarter with LPL and CMEL. Those agreements are similar in structure to our agreement with AU Electronics, in that under the terms of the contracts, we will book revenue under both commercial chemical sales and license fees. A small portion of the revenue from CMEL under both commercial and chemical sales and licensees was booked during the second quarter.

As in the case of our new commercial technologies, predicting revenue on a quarter-to-quarter basis is difficult, as each manufacturer looks to ramp and refine its own OLED display production schedule.

Royalty and license fee revenue was $163,000 for the quarter, compared to $807,000 for the second quarter of last year. For the six-month period, royalty and license fee revenue was $291,000 versus $1.7 million in the comparable prior year period.

For the quarter ended June 30, 2007, royalty and license fee revenue included $31,000 of royalty income from Samsung SDI, for product sales in the first quarter of 2007, as well as license fees from Samsung SDI and DuPont Displays under our patent license agreements with them.

For the same period in 2006, royalty and license fee revenue was higher due to our commercial agreement with AU Electronics, from which we recorded commercial chemical sales and license fees with each shipment of materials. AU Electronics accounted for the bulk of our revenue in this area for the first half of 2006. As they have currently suspended their OLED production activities, they are not purchasing commercial materials from us at this time.

Technology development revenue totaled $250,000 for the second quarter of 2007, compared to $668,000 for the second quarter of last year. For the six-month period, technology development was $500,000 versus $1.4 million for the comparable period during the prior year.

The decrease in this area was mainly due to our completion of work on three agreements in 2006. Although we received a non-refundable payment for the continuation of work on one of these agreements, that payment is cradled against future amounts payable under a commercial license agreement, if one is executed. And so, it cannot be recognized as technology development revenue at this time. The payment is included in our deferred revenue on our balance sheet.

Development chemical revenue for the second quarter of 2007 was $367,000, up from $297,000 for the second quarter of 2006. For the six-month period, development chemical revenue was $576,000 versus $973,000 for the comparable period in the prior year.

The increase in revenue for the second quarter suggests additional activity and testing by potential commercial partners. The decrease in revenue for the six-month period reflects the transition of Samsung SDI from the development chemical sale to commercial chemical sales as they look to begin commercial deduction in the second half of 2007.

Contract research revenue totaled $1.3 million for the second quarter of 2007, compared to $902,000 for the second quarter of last year. For the six-month period, contract research revenue was $2.4 million versus $1.4 million for the comparable period during the prior year.

The growth in this area reflects additional activity under government contracts with the U.S. Department of Defense and Energy, and is a result of the timing of payments we received from these programs. I am happy to report that both the DOD and DOE continued to value our contributions to the development of OLED technologies in the emerging areas of flexible OLED displays and OLEDs for lighting. At the start of the third quarter, we signed two new small business innovation research Phase I grant, totaling $200,000 with the U.S. Department of Energy.

For the second quarter of 2007, we reported a net loss of $5.2 million, or $0.16 per diluted share, versus a net loss of $4.3 million, or $0.14 per diluted share, for the same quarter of 2006. The net loss for the six-month period was $9.8 million, or $0.30 per diluted share, compared to a net loss of $7.8 million, or $0.26 per diluted share, for the same six-month period in 2006.

The increase and loss was primarily attributable to a decline in revenues during the second quarter, as well as increased operating expenses, as compared to the same period of last year. Again, we believe that the revenue downturn for the quarter is not necessarily indicative of future revenues, and we believe that the second half of 2007 will show improvement in both revenues and net loss.

Operating expenses totaled $8.3 million for the second quarter of 2007 versus $7.9 million for the same period of 2006. For the six-month period, operating expenses were $16.5 million, compared to $15.1 million in the same period of last year.

These expense numbers are consistent with our expectations. And for the remainder of the year, operating expenses should stay in the $8.5 million range per quarter, barring any unforeseen circumstances. This range is based upon our current levels of research and development, staffing and operating expenses associated with our facility in Ewing, New Jersey.

Net cash used in operating activities was $6.9 million for the six months ended June 30, compared to $5.6 million for the same period in 2006. The increased cash usage was mainly attributable to a decrease in revenues and an increase in expenses during the first six months of 2007.

Our balance sheet remains strong, with cash, cash equivalents, short and long-term investments of approximately $84 million as of June 30, 2007, compared to approximately $49 million as of December 31, 2006.

The increase in our cash position reflects proceeds from our offering of 2.8 million shares of common stock at a price of $14.50 per share during the second quarter. We are pleased with our cash position right now, and believe that it will provide strong support for growth, general business initiatives and the protection of our patent portfolio.

With that, we'd like to open the lines up for questions at this time. Operator, would you please compile the question and answer roster, please?

(OPERATOR INSTRUCTIONS). Darice Liu, Maxim Group.

Good afternoon, guys. The Company has signed a handful of significant agreements. With all this investment (inaudible) ramping up, when do you anticipate that the inflection point of growth will materialize, so that the roughness of revenues begins to smooth out a bit?

We wish we had an answer for that, that we can say with confidence. We do believe that the second half of this year, it will start to smooth out into next year, once we have a few quarters under our belt with SDI and some of the others ramping production. We may be able to do that. But, I can't give you a specific answer as of when.

We're hoping the second half of this year, though, gives us a real indication of the ramp numbers we see, SDI and some of the others (inaudible) steady production, things should smooth out.

Fair enough. And I guess, in regards to one of your license agreements that you signed this past quarter with Chi Mei, a few weeks afterwards they also signed, I guess, a cross-license agreement with Kodak. What does that mean for you guys?

Well, Darice, as you know, Kodak has been involved in the OLED space for a long time as a technology developer and as a product user.

One of the things it means is, Chi Mei, we think is very serious about entering the OLED space. And so, they're ramping up their production. And we find it likely that people are going to be working with more than one technology developer after the industry progresses.

So, they have a cross-license agreement, though. And that -- so much it would taper the agreement you have with them?

No, I'm sorry, Darice. No, they are different agreements. The agreement that we have with Chi Mei is a materials supply agreement.

So, we provide to them our phosphorescent materials and technology. They pay for the materials. And included in those payments are a license fee for the technology involved in those materials. So, there's no cross-license agreement involved. So, to that extent, it's different than the Kodak Chi Mei relationship.

Okay. And then, when you look at this market, we're seeing more talk about commercial OLED products materializing. We saw the Nokia Prisms on Monday unveiled. With all this coming about, are you seeing more interest from potential licensees trying to get into a space as soon as possible? Or is there still some people sitting on the sidelines?

Over the past -- probably since the beginning of the year, we've seen a renewed and aggressive interest in a number of our partners, in trying to get into the space as soon as possible, as well as some interest from some other people that have been sitting on the sidelines for a while.

While, at the same time, since there's a number of people looking at the space, not everybody has moved in rapidly, but we did detect a renewed interest over the past year.

Thank you, guys.

Thank you, Darice.

Jed Dorsheimer, Canaccord Adams.

Hi, guys. This is actually [Josh Barrabo] for Jed.

Just looking at these numbers for the last couple of quarters, it appeared that Samsun SDI was starting to ramp nicely. And then, we look at these, it sort of fell off of the table quite a bit. And I know that we should expect some lumpiness. I was just hoping you could provide just a little extra color on some of the trends that happened this quarter, and what we can expect going forward.

We believe that their purchases of materials in the fourth quarter and first quarter, they were just starting to set their production line and, whenever you start anything new, there's a lot of starts and stops.

And we believe that they were also building inventory up. And it was probably a lot of waste initially. The amounts of materials that they ordering based upon what we believe that they would be producing was really, probably, not in proportion to what they should have been using.

We believe that, though, in the second half of the year, now that they are starting to ramp up, we will see numbers go back up from where they were in this quarter. But, I don't really know exactly what they will be. But, it appears, pretty much from all of us, that the first couple of quarters of purchases were really just getting their machinery set up and running it, and trying to make sure that their manufacturing process was ready to roll.

And in this second quarter, there also appears that they tear machines down, get ready for mass production, once they've ran it for about three months or six months, to get a feel for how it works, and retool and reset things to get ready for their mass production when they start running 24/7.

Okay. And just to make sure I understand the licensing structure correctly, they pay you on a quarter-lag, give or take, and it's on percentage of the actual display sold? Is that how I understand it?

Well, it's a percentage of the ASP of the display module sold. That's correct.

So, if you're saying that they were sort of building inventory, wasting a lot of materials in this quarter, next quarter when we see you recognize that licensing fee, it actually shouldn't be too much different than previously because they are still selling the same amount of product. It's just they're wasting less. They're becoming more efficient. Is that a correct assumption?

I'm not so sure what the correct answer is. They also could have built, in the first quarter, inventory which, when they knew they were going to tear the machines down, that they were then shipping in the second quarter, that we will see the results in the next report. I really don't know the answer to your question.

Okay. And you mentioned the Nokia. Have you confirmed, or have they confirmed, has someone confirmed that you are in that phone? Or are you just mentioning that because you know they'll be using an OLED display regardless of whose materials that are in it?

We mentioned that principally because it was recently in the news as an OLED display with 16 million colors. Other than what the Nokia announcement, there's been no other public announcements about who or what is in that phone.

Okay, that's good for now. I'll pass it on. Thanks.

Thanks.

Jim Ricchiuti, Lehman & Company.

Hi, thank you. Well, if we look at the Nokia phone as an example, I mean, do you view this as a validation of the technology? And do you see it as maybe some of the resistance that potential end customers have had up until this point, using OLED screens, that there's now more confidence, that the manufacturers will be able to ramp capacity?

We believe that to be the case. I think Nokia is trying to be in the forefront of technology, and the power efficiency of phosphorescent OLED displays is key.

And a few years ago, Nokia was late in putting color displays in their cell phones and actually lost significant market share. And I think they are back to being the leader, and I think it is very good for the industry that they're putting it into their phones.

Sid, if we use this again as an example, the phone, I guess, is going to be formally launched the end of September quarter.

Hypothetically, if this were using your technology, the manufacturer, the supplier of the screens would have to be ramping this quarter. And that would suggest that you would see revenues in the September quarter. Is that correct?

We would see materials being shipped in this third quarter. And if it was sold in the third quarter, we would have a revenue report that we would have to report at year-end because it's a quarter-lag, when we get the royalty reports.

Okay. Looking again at the market, as you see where these screens, these displays are targeting, what do you see as the biggest factor that a potential end user, in deciding whether to go with an LCD or an OLED, I mean, is there still concern about yields? Is it more an issue with price relative to LCDs, or is lifetime an issue for certain customers? And again, I'm referring more to the smaller displays for portable devices.

I don't believe lifetime is an issue. I mean, the High River OLED display on their website talks about 50,000 hours of lifetime, which is, obviously, more than a product is going to last.

I think, initially, the manufacturers that will go to include this are looking at how much capacity there is because, again, Samsung SDI is really the first mass production facility. I think when they're confident, which I suspect Nokia is, that they are going to be able to get all the supply that they need. They're going to jump in.

I really see the manufacturers looking at this as giving them -- the content providers complain about the resolution of displays and power because, if you're going to use your display more, your device is going to eat up the battery. And by getting an OLED display, you get a much better looking screen and, using phosphorescent materials, you get an extended battery life.

So, I think there will be some pricing issues. The manufacturers want to, obviously, get a premium for these, and I suspect they will for a while. But, at some point, these are commodity products, and they're going to have to come closer to what the LCDs are.

Okay. And then, lastly, just you had a pretty decent quarter from the standpoint of contract research revenue, it's fairly stable. Is that something we can continue to look at over the next couple of quarters, that kind of level of revenue?

I think in the past we've talked about $4.5 million for the year. I still think that that's probably a good number. It could be a little bit higher than that.

These contracts, some of them are fixed price, some of them are cost plus, and the revenue is a little bit lumpy in these because some things, you get all the revenue when you're deliverable, and others are payments through the period. So, I think the number of $4.5 million, maybe a little bit more for the year, is still a good number.

Okay. And any change we should really be mindful of, in terms of your operating expense, either R&D or G&A, over the next couple of quarters?

No, I think as I said an $8.5 million expense number for the next couple of quarters is really in line with what we're thinking here.

Okay, thanks a lot.

Thanks, Jim.

Thanks, Jim.

(OPERATOR INSTRUCTIONS). Bennett Notman, Davenport & Company.

Good afternoon, gentlemen. Could you talk a little bit about whatever visibility you may have into the CMEL and the LPL ramps, if you think that they'll be getting into any sort of volume by the end of the year, and sort of what you can say about that? I know it's hard to comment on your customers' actions, but if you could comment on those to whatever degree you can?

Sure, Bennett. From what we understand, CMEL is sampling small area displays right now. And they're looking to begin the ramp towards their volume production. The capacity of that plant is about 500,000 cell phone size displays per year. The velocity of the ramp is going to depend upon the reaction of the customers and their yields. And they're doing some excellent work in improving their yields.

There's probably a little bit less visibility into LCL's production ramp. They have announced that they should be shipping product by the end of the year, but they haven't talked about what sets of quantities they have in their manufacturing plants.

So, when you speak to CMEL being at 500,000 units capacity, that's with an existing facility, then? They should be able to get there fairly quickly if they decide to sort of open up the flood gates?

That's correct. If the yield's up, that's the design capacity of the facility.

And are there any further licensing arrangements that you need to complete with either one of these two companies before they go to full volume production? Or is everything sort of done in terms of you guys being tied into them?

Everything's done in terms of us being able to supply our proprietary phosphorescent materials into their production line.

Okay. And then, could you talk at all about the qualification of your green material with SDI or anybody else?

Well, we've made some significant progress over the last year with our green material. We are going through the qualification process with a number of manufacturers. We're making good progress. There's some fluorescent greens out there, and we're competing against them to get some product width.

Okay. And then, could you comment at all about the acquisition of Cambridge Display and sort of your take on what that means for the market, in general?

Yes, we believe that the acquisition of CET by Sumitomo is additional evidence of the strength of the OLED market and the potential of OLED technology.

And I would like to quote [Barris] who puts up that, "This transaction translates into a win/win situation for both IP players. Not only does it add credibility to the prospect of the OLED industry, but it widens the customer landscape for Universal Display as Sumitomo, according to checks, is likely to limit the number of P-lead players and licensees to just a handful of potential joint venture partners."

So, we think that it's a positive for everybody. I mean, clearly, we are continuing to move forward, and small molecule technology is entering the market place today. And it's a plus.

Okay. And how much visibility do you guys have into what the Nokias of the world are doing? And I don't know if you can tell us sort of this one phone is a one-off in terms of what Nokia's saying. Would you view this as sort of them having a first of what you would expect to be a series of phones, or they'll going to include OLED displays? Or what can you say about them or anybody else in terms of what their product plans are?

The OLED industry is somewhat of a small industry, but our policy continues to be our partners and the customers of our partners need to be the ones who make the announcement about their product plans and opportunities. And so, we really can't comment on what Nokia's plans might be.

Okay. And then, the last question from me. In terms of -- I think we've sort of established that CMEL is fairly, or could get to some sort of volume. Is there anyone else that could be able to get to volume quickly, or do we need to just sort of have a 9 to 12-month lag time as guys build-out fabs and add capacity near term? Or is it possible that alternatives versus other than SDI and CMEL, may emerge in the next six months?

Well, I can tell you there's a number of people that are working on OLED technology that are somewhat under the radar screen, but we can't comment on any specific people unless they have public statements.

Thank you.

You're welcome.

Andrew Abrams, Avian Securities.

Hi, guys, just a quick question or two. On the SDI contract, there's a delay on the royalty side, 60, 90 days. On the chemical sales, there's no delay. You're an absolute. When they buy, you record. Is that correct?

That is correct.

Okay. And in any of the licenses that you have out now, is the solution-based product built into that license, or is that a separate license agreement that you have to sign?

Right now, our agreements are just related to vacuum thermal evaporation.

So, you have not signed any solution-based product licenses yet, or--?

--I'm sorry. We had a license agreement with DuPont Display--.

--Oh, okay--.

--For solution processing.

So, DuPont is your licensee in that regard? Okay.

For solution processing products.

Got it, okay. Thank you very much.

You're welcome.

Hugh Mai, First Albany Capital.

Publicly available resources regarding use at the Samsung SDI facility, like recently?

Hugh, we didn't catch the beginning of that--.

--(Inaudible) first part of your question was lost.

Oh, my apologies. No, I guess I'm just asking about the yields at the Samsung facility, if you've seen anything, like, publicly available?

What we're seeing publicly is it's about 60%.

I guess that they improved during the recent quarter?

It has been improving, yes, and it's expected to continue to improve.

Oh, okay. And I was wondering if you would be able to speculate as to how long it would take, let's just say, Samsung SDI to input yields, so that the price differential between an OLED and an LCD would reach, I guess, peri or within a reasonable premium, maybe 20%, 30%, instead of, I guess, 100% right now?

It's difficult for us to predict what our customers are going to charge for the product. I believe that, in the beginning, they're going to try to get as much as they can for it because the manufacturing process is really very young. 60% yields is probably not enough for anyone to make much money.

But, I really can't answer how quickly it is. I mean, it's been reported that they can get to 4.5 million displays by the middle of next year. I suspect once they get to those levels, you're talking about 50 million displays a year, that's probably enough where they will be able to get the economies of scale and have some ability to reduce their prices. But, I really don't have any answers for you that I can give you right now.

Okay, got it. All right, thank you very much, guys.

Thank you.

Jim Ricchiuti, Lehman & Company.

Hi. Just with respect to the three players in the market that are either in for debt commercial production or ramping production, are there some issues with respect to yields that is somewhat universal to these three players, or do each of them face their own individual challenges in the way they're approaching production?

Well, I think the yield issue for a long time was on a backplane side. And I'd also suspect that there probably are some challenges. But, I think the VTE process and the movable [shatter mist] process is one that they've been working with for a long time, and should be something that is able to have yields move up.

On Samsung's passive matrix OLED displays, they've talked about an excess of 90% yields on that technology. So, I believe it's more on the backplane side that they still have to deal with.

Okay. And Sid, I think you touched on this a little bit. But, we are seeing a fair amount of activity in terms of companies looking to introduce OLED displays. How would you characterize the activity that you're seeing and some of the potential customers you've been talking to?

What I'm trying to get a sense is in the last couple of months, have you seen a big upsurge in activity? If you can give us some feel for how the licensing pipeline looks. I know these agreements are hard to nail down. They take a long time. But, it does seem like something has changed here in the market where we might be seeing some more activity.

As Steve said earlier, for the past six months, this year we've seen increased activity, obviously, with SDI moving forward. There's a number of other -- CMEL, LPL. And there are a few others that are looking at this technology and moving in. We have seen increased activity.

I think everybody is really still looking at SDI as the bell-weather for this industry right now. But, I think others are going to start to jump in. And once Nokia's product hits into the market place and consumers start to see it, I think you will continued activity.

And just a final question, Steve, you guys have talked, I think, in the past about potentially looking at acquisitions where it makes sense. Is there anything that you can say on that front, anything out there that you are potentially looking at? And can you give us any kind of sense if you were looking at acquisitions, what types of acquisitions you might be looking at?

Well, we would look for acquisitions which would have a complementary IP portfolio, or acquisitions that could help us accelerate the market introduction of OLED technology, or be able to increase our revenue base. While, of course, we get a lot of things crossing our desk, there's nothing specific that we're focusing on right this second.

Okay, thank you.

Thank you, Jim.

You're welcome.

Jed Dorsheimer, Canaccord Adams.

Hi, just a couple of follow-ups. Do you have any idea of the timing between the sale of the commercial chemicals to an actual rollout of the finished product? Not the display, but the actual, let's say, for instance, let's call it the Nokia phone, when that hits the stores to the time that you sell the chemicals to a display manufacturer.

It's difficult for us to say because the product hasn't hit the stores, and we're shipping materials at this time.

Um-hmm, okay. So, let me stop you there. How about the iRiver product? Do you have an idea what that sort of timing is?

Well, we were shipping materials in the fourth quarter of last year.

Um-hmm.

And the iRiver product came out, I believe, in January or February of 2007.

Okay. So, 60, 90 days is probably--.

--Probably makes some sense.

Okay.

It's hard to answer that because I don't know exactly when stuff was shipped.

Okay, that's fine. And just, finally, you mentioned the potential capacity and yield of Chi Mei. Have you any estimates or have you heard any estimates from LG Phillips on capacity and potential yield?

Yes, there's really not been any published reports about that.

Okay, all right. Well, thanks, guys.

Thank you.

Thanks, Josh.

And I'll now turn the floor back over to management for any closing remarks.

We would like to thank you all for participating. And again, if you have any additional follow-up questions, feel free to contact us directly, and we'd be happy to answer them. With that, we'd like to say goodnight. Thank you.

Yes, thank you very much.

This concludes today's Universal Display Corporation conference call. You may now disconnect, and have a wonderful day.