Universal Display Corp (OLED) 2011 Q3 法說會逐字稿

Good day and welcome to the Universal Display corporation third quarter 2011 earnings call. (Operators Instructions).

At this time I would like to turn the conference over to Joe Hassett, please go ahead.

Thank you and good afternoon everyone. With us today are Steve Abramson President and Chief Executive Officer and Sid Rosenblatt Executive Vice President and Chief Financial Officer of Universal Display Corporation. Let me begin today by reminding you that this call is the property of Universal Display. Any redistribution, retransmission, or rebroadcast of this call in any form without the expressed 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 own Universal Display's website time sensitive information that is accurate only as of the date of the live webcast of this call November 8, 2011.

All statements in this conference 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's important to note that these statements are subject to risk and uncertainty that could cause Universal Displays 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 up date any of these statements. Now, I wouldlike to turn the call over to Steve Abramson President and CEO of Universal Display, please go ahead Steve.

Thank you, Joe, and welcome everyone listening on today's call and webcast. It's been extremely productive exciting and fruitful three months. Let's get right in it.

For the third quarter we reported positive net income of $6 million in earnings of $0.12 per dilute share. Earnings were driven by record quarterly revenues of $21.8 million. Our results this quarter clearly validate our business model of licensing intellectual property and selling proprietary materials with substantial margins that yield attractive returns for shareholders. We will go through all of our financials in more detail shortly.

This quarters result and a steady stream of exciting OLED displace and lighting marketing developments we have recently witnessed strong signals that we may have reached dawning of OLED era. Frankly, I couldn't put any better than Chimei Innolux one of our partners which in announcing their new AMOLED TRUE OLED high end mobile display technology said , quote the popularity of smart mobile devices has changed the way that consumers communicate and interact. In response to to greater demand for better user interfaces and image quality CMI has endevored to developed high end mobile device display technology that will satisfy consumers requirement. Of course no where are consumer requirements more evident than at Samsung, which recently announced it sold over 30 million OLED equipped Galaxy S and S2 smart phones. In fact for the third quarter Samsung surpassed apple in smart phone sales for the first time ever.

Samsung SMD currently represents the largest individual market for OLED technology and materials. With more OELD powered devices in commercial circulation than any other company. Consequently it is easy to understand why we are so pleased with our new Samsung OLED patent license supplemental OLED material purchase license agreements. These agreements provide us with both a stable base of recurring and increasing licensing revenue as well as the additional opportunity to participate in the growth of the OLED market through material sales. And while these agreements currently cover a red and green materials they can it be expanded to include blue once it is developed and be commercially qualifies.

The value of our new agreements with Samsung transcends simple financial benefits. With Samsung signing these agreements our OLED technologies and materials have been validate by the industry leader. This is a powerful message that we believe is strongly resonated throughout the OLED market. On a strategic level it sets a new foundation from which Universal Display can move forward and commence the next phase of our growth. While Samsung is the OLED display industry leader an increasing number of established and new participants are now focusing intently on the rapidly expanding OLED market.

Lately it seems that there are announcements about new OELD developments on an almost daily basis. Let me highlight some of the recent announcements that we think best illustrate the current status and the long term potential of the OLED market. In the smart phone market it has been reported that smart phone venders and original display manufacturers are evaluating samples of AUOs integrated touch AMOLED displays. The expectation is they will ramp the volume OLED display production in 2012. AUO has already launched a 4.3 inch AMOELD.

In addition there is 6-inch transparent AMOLED display has achieved a transparency rate of more than 35% and is ideal for cell phone and vehicle dash board use. At FPD international 2011 Chimei Innolux show cased their new AMOELD true OLED high end mobile device display technology. The3.5-inch and 3.0-inch high resolution AMOLED true OLED display technology utilizes a white OLED design with color filters. In the third quarter conference call Samsung said they were hoping to launch mobile phones with flexible OLED displace next year and that flexible OLED tablets and other portable devices will follow.

Nokia had demonstrated a similar device at the Nokia World with device being described as a quote Nokia kinetic device end quote with a flexible OLED display. On the new product front both the Samsung Galaxy Nexus with its 4.65-inch high definition super AMOLED displace and the Motorola Droid Razor featuring a 4.3-inch QHD super AMOLED display are expected to be released this month. It has also been reported the LG display is providing (Inaudible). displays to Nokia and starting AMOELD at their Gen 4.5 plan.

There's been similarly significant progress in a development of the OLED TV market. For instance AUO unveiled a 32-inch 3 millimeter wide full HD AMOLED TV with metal oxide backplane at FPD International 2011. While only a prototype, it shows OLED televisions are progressing toward commercialization. It has been reported that Samsung and LG display are gearing up to unveil 55-inch OLED television at CES 2012 event in Las Vegas. LG is reportedly focus OLED efforts on large screen sizes for TV.

As reported in EK Business Daily LG plans to invest $2.8 billion toward 8.5 Gen OLED TV mass production facility that is scheduled to come on line the second half the 2014. According to this report LG displays plans to start pilot production of 55-inch OLED TV panels in the second half of 2012 is still on track and LG expects to sell around 30,000 OLED TVs a month.

We have seen encouraging news coming out in the white OLED lighting area. This quarter we announce exciting new agreements with Pioneer Corporation and Pansonic (Inaudible). OLED Lightening Company both of which are developing OLED lighting products using our high efficient high performance universal technology materials. We will receive running royalties of the sale of products sold under our license agreements with these companies. We also have separately agreed to sell proprietary OLED materials to these companies for use in manufacturing licensed products. In addition we extended our OLED material supply and service agreement with PPG. Under our new agreement with PPG they will remain the exclusive manufacturer of our proprietary phosphorous OLED materials.

This ensures us of a ready supply of high quality materials to support our future growth. There are indications that commercial developments in lighting in the OLED lighting market any be accelerating. (Inaudible). Electronics has just announced plans to make OLED mainstream lighting technology by the end of 2012. They plan to do this by introducing thinner panels and driving pricing significantly lower. (Inaudible). latest OLED lighting panel Lumiblade plus is a fully phosphorescent panel that was developed by Konica Minolta a Universal display licensee. Meanwhile Konica Minolta has announced it commercialized OLED lightening panels with the worlds highest level using all phosphorous emitters. They started selling sample kits of what they are calling the Symfos line.

All of these announcements points to an OLED market that is quickly growing. We continue to invest across a broad front of technologies that we will believe will both sustain our leadership position encourage further market developments. For large format applications we are improving the efficiency of our P2OLED market led solution base and dry printing technologies. These include organic vapor jet printing or OVJP which is a printing method uses our high performance vacuum evaporation material. We continue to invest in flexible OLED technology development and we are making progress with our single layer encapsulation technology which has application to flexible OLEDS and other organic electronic products.

We were recently awarded SBIR contract by the department of energy to demonstrate further gains in the performance of large area phosphorescent organic light emitting device lighting panels to enhance thermal management technics. Under the program we will be using or energy efficient Universal [fola] technology materials to design and build large area white OLED lightening panels that generate far less heat than traditional OLEDS.

There have also been some developments in some legal proceedings relating to our patent. Regarding our US patent interference with Fujifilm we acquired Fujifilm patent application involved in the interference. We then requested adverse judgment be entered against their application effectively ending the interference. We think this is a appropriate business arrangement to end the interferences proceeding. Also late last week an oral hearing was held before the European patent office on our opposition against one of our fundamental phosphorescent OLED patents. The opposition was joined by a number of European companies.

The European patent office announced its decision at the hearing to maintain our patent with fundamental claims directed to OLEDS comprising phosphorescent organometallic iridium compounds. We expect the official minutes from the oral hearing will be published in the future and a written decision will follow. We are extremely pleased with this result. As you can see, we have had a number of positive events since the last conference call including favorable outcomes on the patent front a long term agreement with Samsung and a strong third quarter. With that I'll turn the call over to Sid who will take you through the financial results in more detail.

Thank you,Steve , and again thank you everyone for joining us on the call today. I will be reviewing the financial results for the third quarter as well as sharing some insights from the quarter. After that, we will open the call to take your questions.

Revenues for the third quarter total $21.8 million, a 208% increase over revenues of $7.1 million for the third quarter of 2010. This is by far the best quarterly revenue numbers in the Company's history. Commercial revenue was $9.9 million for the quarter increase of 248% over commercial revenues of $2.8 million for the third quarter of 2010.

Developmental revenue was $11.9 million for the quarter 182% increase over developmental revenue of $4.2 million for the third quarter of 2010. The growth in both commercial and developmental revenue for the quarter was driven primarily by higher chemical revenue which accounted for $3.5 million and $7.5 million of the increases respectively. Commercial revenue for the third quarter also benefited from a $3.6 million increase in royalty and license revenue primarily from Samsung mobile display.

Within commercial and developmental chemical revenues for the quarter are $2.9 million and $4.9 million respectively of revenue from host material sales. We believe that host material sales can enhance our phosphorous and emitter material sales business. However,the host business is a significantly more competitive than the phosphorescent emitter sales business. Consequently there is correspondingly more uncertainty regarding the long term prospects of our host material business.

As you know, one of our more significant events during the quarter was our entry into a new OLED patent and license supplemental material purchase agreement with Samsung. These agreements run through 2017 and replace our 2005 agreements with Samsung in their entirety. Under the new license agreement, Samsung is paying a fixed license fee payable installments that increase each year of the agreement. The installment amounts were determined through negotiations based on a number of factors including estimates of Samsung's OLED business growth as a percentage of published OLED market forecast, the use of red and green phosphorescent materials and Samsung products, and appropriate royalties rates relating to Samsung's practice under the license patents. For the quarter we received $3.2 million in license fees from Samsung under the new license agreement.

Under the new supplemental agreement, Samsung agreed to purchase a minimum dollar amount of phosphorescent materials for use in manufacture of licensed products subject to our ability to supply sufficient materials to meet their requirements. The minimum purchased amounts were determined through negotiations based on a number of factors including estimates of Samsung's OLED business growth as a percentage of published OLED market forecast and Samsung projected minimum usage of red and green phosphorescent emitter materials over the term of the agreement. As a result of our new arrangement with Samsung we are expecting phosphorescent emitter material sales to roughly scale with the growth of Samsung's business. This should enable us to participate directly in OLED market growth over the next several years.

Turning back to the numbers, total operating expenses for the quarter were $15.8 million up 45% from operating expenses $10.9 million for the third quarter of 2010. About $2.4 million or roughly half of the total increase is in the cost of materials. This reflects an increase in the quantity of materials that we produced and shipped during the quarter.

Research and development expenses for the third quarter were $6.1 million up marginally compared to R&D expenses of $5.8 million for the same period of 2010. R&D employee costs increased by $600,000 compared to the same quarter of last year due mainly to the hiring of new employees, increased salaries and stock compensation for certain executive officers. This increase was offset by $521,000 decrease in development cost under our PPG agreement, and $370,000 decrease in amortization as some acquired technology has been fully amortized.

Patent cost rose $1.9 million for the quarter compared to patent cost of $1.2 million for the same quarter in 2010. This reflects our defense of certain ongoing and newer patent challenges as well as the timing of maintenance costs associated with number of issued patents and patent applications. Patent costs for the quarter were consistent with our earlier comment that patent cost will likely be sustained or increased from historical quarterly levels due to the ongoing defense of our intellectual property.

(Inaudible). general administrative expenses for the quarter were $5 million up from SG&A expenses of $3.5 million for the same quarter of 2010. The increase in these cost primarily reflects our increased commercial activities including investments to expand our presence in southeast Asia personnel costs increased roughly $320,000 mainly due to increased salaries and stock compensations for certain executive officers as well as roughly $140,000 that we spent to support the growth of our southeast Asian offices. In addition we incurred approximately $310,000 in non-patent legal fees due in large part to our license negotiations and approximately $270,000 in increased international consulting fees.

Aside from the costs of materials which will naturally vary with the quantities of materials sold, the potential increase patent and legal expenses, we do not expect that we will need to significantly increase operating expenses to support the growth over the next year. For the quarter we reported operating income of $5.9 million a significant change from the $3.9 million operating loss for the same quarter in 2010. That's an almost $10 million improvement over the past 12 months.

The change in fair value of our outstanding stock purchase warrants resulted in $240,000 non cash gain for the quarter. Compared to a $3.4 million non cash loss for the nine-month period. In August 2011, all 214,000 remaining stock warrants were exercised. We won't be seeing any further accounting for these warrants in our financial statements.

In 2011 and 2010, withholding tax rate for royalties and license fees paid by Samsung was 16.5% for the quarter foreign income taxes were $566,000 were withheld in connection with these payments. We anticipate the amount of withholding taxes to increase as license fees received from Samsung increase in the future.

For the quarter, we have reported net income of $6 million or had $0.12 per dilute share compared to a net loss of $7.2 million or $0.19 per dilute share for same quarter of 2010. Loss of from the third quarter of 2010 included April previously mentioned 3.4 million non cash charge associated with the stock warrant liability.

For the quarter cash provided by operating activities was approximately $6 million compared to cash used in operating activities of over $2 million the same period in 2010. The year change was primarily attributable to a substantial improvement in our net loss excluding non cash items. Quickly looking at nine month results for the first three quarters of the years revenues were $42.6 million. Compared to revenues of $19.7 million for same period in 2010.

Commercial revenue for the first nine months of 2011 was $19.9 million compared to $6.6 million for the same period in 2010. Developmental revenue for the first nine months was $22.7 million compared to $13.1 million for the same period in 2010.

Operating income for the first three quarters was $2.1 million compared to an operating loss of $10 million for the same period in 2010. Our net loss was $2.6 million or $0.6 per diluted share for the first nine months of2011, compared to a net loss of $14.6 million or $0.39 per dilute share for the same period in 2010.

Results for the first nine months of this year and last year included 4.2 million and 5.2 million respectively of non cash losses on stock warrant liability. Our balance sheet remains strong with cash, cash equivalents, and short term investments of approximately $338 million as September 30. Much as this represents the proceeds from our $250 million equity offering earlier this year. In addition with the cash we are now generating from operations as Steve mentioned we are in the best financial position of the Company's history.

As the industry grows and now that our new arrangement with Samsung is in place, we have a little more visibility into our potential future financial performance. I don't want to overstate this as OLED industry is still at a stage where many variables can have material effect on the growth of the industry and on our future financial performance. With that very important qualification and effort to increase our transparency we are going to begin providing limited financial guidance.

We think that revenues for the fourth quarter of 2011 will be below revenues for third quarter due to seasonal factors. We see revenues for the full year of 2011 to be in the range of $58 million to $62 million. With the caveats I previously mentioned we also see our revenue range for 2012 to be between $90 million and $110 million. With that, I would like the operator to compile the Q&A list and Steve and I will be happy to take your provides.

Thank you. (Operator Instructions). Our first question comes from John Bright Avondale Partners.

Thank you. Good afternoon Sid, Steve.

Hi John.

Quite a bit of a debate going on, on the patent topic particularly in Europe at least most recently. Can you talk to us about anything that took place this that hearing that you know about that would give people doubt? There was some discussion around the iridium term maybe a question would be are there any existing competitive phosphorescent product that do not use iridium?

To answer that question iridium is the only phosphorescent material that has been commercialized as of now. I mean we as well as other people work on, non iridium materials but none of them have reached commercial stage.

Okay. Second question I want to ask.

Let me just add a little bit more color to that. What happened in the European patent decision was that we decided to cancel the claims related to [osmium] because we have a pending continuation application so we are going to include them in that. Very broad claims relating to iridium organometallic.

The second question I'm going to have is going to be around guidance for calendar 2012 $90 million to $110 million. Sid any characterisation that you would give us on how what the makeup of that guidance might look like, that revenue might look like.

It's difficult to really break it down piece by piece. As we have said, this is the first time we, we are doing it. We do have some knowledge of what we are going to receive in payments from Samsung, but none of those terms have been disclosed and we are looking at this and looking at the year and we think that the numbers are reasonable numbers for next year. As we move through the next few quarters and we are able to have more comfort in exactly what it is and the components are we may be able to give you a little more color, but we think that this is really as far as we can go at this time.

One clarification that doesn't include any new contracts that might be signed; is that correct.

That is based upon what we think 2012 will look like.

All right. Thank you.

I'll take our next question from Darice Liu with Brigantine Advisors.

Good afternoon guys. Just to follow up on the prior question. Since Samsung agreement is license agreement versus royalty how should we model the revenues will it be recognized on a quarterly basis, in line with the volumes or are we talking about lump sums of certain cues.

I'm sorry Darice, could you speak a little louder.

Oh, I wanted to follow up on the prior question regarding the Samsung revenues. The agreement that you signed is a license agreement versus a royalty agreement so I'm wondering how we should model the revenues will it be recognized on quarterly basis in line with the volume or are we talking about lump sums on certain cues.

Well, the agreement has an annual fixed payment of which we get paid twice a year. And at this time it will be whatever that payment is for the year and since we have payments in the third quarter and the fourth quarter, it is what we received in the third quarter and the fourth quarter of this year. For next year it may be a little lumpy because we will account for it when we receive the payments which are the second quarter and fourth quarter unless it changes, but it will be straight line for the amount received in any given year.

Okay. And just a side question, have you received any of the retroactive revenues.

What we did is we signed a license agreement that goes from the beginning of 2011 through 2012 and through the negotiation process. We determined what the total amount would be which would include everything that we believe we would have been owed from the past and we were actually paid some royalties in the first part of the year based on the old agreement. So when we signed a fixed payment amount, we took everything into consideration.

Okay. In the past you have talked about increasing your (Inaudible). market organically and nonorganicically such as maybe expanding into other layers in the OLED stack such as the HIL or EPL, can you provide an update on that.

Well, as you saw from this quarter, we've started to work on host materials that's the first step in looking outside the emitter space.

The composition on the host material it's very similar to ETL and HIL, correct.

We wouldn't disclose that. I mean, no that would be can confidential.

But you are looking into expanding out the --

That is correct, we are looking, we are looking to expand our research development and materials business outside of emitters and to other aspects of the.

Okay. Fair enough. Thank you guys.

Thanks Darice.

Our next question comes from Hendi Susanto, Gabelli & Company

Congratulations on very strong quarter.

Thank you.

Thank Hendi.

My first question is do you have green (Inaudible). in your commercial (Inaudible). cells in your commercial cells in Q3 and could you also indicate whether gross margin of green (Inaudible). are similar to the red ones?

We do have green emitter materials in our commercial revenues for the quarter. We don't specifically break this down, but our emitter material margins are pretty much in line with each other.

Okay. And then the news Sony Playstation is using AMOLED display, would you be able to tell whether that display is based on phosphorescence AMOLED display technology similar to Samsung's.

We don't know yet. Has that been released?

Hendi, has that product been released?

I don't think so but I'm not a hundred percent sure.

After it's released we might be able to talk about it.

Okay. And I think based on my calculations, it seems that there, the increase in chemical revenue in development is like way higher than the commercial one. Could you give so color on that.

Well, as we said in there, there is about 4.9 million in the host in developmental revenue. So the big increase is on the host side.

On the host side. Okay. And then here is my simple understanding of the latest update on your European hearing. So the court is requiring you to remove any reference to other phosphorescent materials and then retain the iridium reference and my understanding is the only material is osmium and I want to clarify whether beside osmium there are other materials.

Well, Hendi, there are other materials. There's platinum for example osmium, iridium. And we have various patents in the US and around the world directed to those materials as well. What happened in the European patent office was we removed the osmium claims and we are going to refile them in a pending application.

Okay.

Now, we also have our first phosphorescent patent by the way was not the subject of any of these proceedings. Our basics phosphorescent patent which would cover however you get phosphorescence was not subject to this will European proceeding.

Thank you.

You're welcome.

Thanks and Hendi.

Next question comes from Jim Ricchiuti with Needham & Company.

Thanks. Good afternoon.

Hi Jim.

I was hoping to maybe get my arms around the revenue stream from Samsung in the quarter a little better. It appears, Samsung was approximately $ 9 million of revenue; is that correct.

I don't think we disclosed customer AB and C I don't think we specifically state that.

Okay. Well, the in terms of the license and royalty revenues that you received from Samsung in the quarter, is it $3.2 million approximately $3.2 million of license fees came under the agreement that began at the end of August, is that correct.

That's correct.

And there was another portion of that that earlier in the quarter that reflected the previous agreement.

In the prior quarter.

In the prior quarter. Okay. And is there also a development chemical component in there as well from Samsung.

We do sell Samsung developmental chemicals, that's correct.

Okay. Just switching fears for switching gears for a second you guys generated an operating margin of I guess around 27% in the quarter. How should we think about the operating leverage going forward with the revenue range that you are provided. It doesn't sound like you are assuming much of an increase in operating expenses but maybe there are some items, some line items within operating expense that we need to be mindful of.

Well, as we said we do have patent costs that will follow whatever it is we need to spend to ensure that our patents are protected from the expense side we don't see a lot of change in how we need to run our business from here. We will hire a few people, we are increasing our presence in Asia. As I said, I don't see the expense side having to go up significantly. It's areas that on material sales obviously that will -- as our materials business gross, we will obviously have higher, more costs associated with them, but the margins on the material we think will still be very significant as they have been in the past and so I don't really see a lot of areas that are going to go up. I mean the operating margin for this quarter, I haven't really looked at it that closely, but if we continue at the ramp, if we continue at this revenue rate and grow at this rate I think you can figure out where we will be.

Okay thanks very much.

Thanks Jim.

Next question comes from Jed Dorsheimer with Canaccord.

Hi thanks guys and congratulations on the results it's been a long time coming it's nice to see it finely pay off here.

Thanks Jed.

I guess first question, how did you do it in the host side. I mean the host materials are they covered under your patents. They don't seem to be. So you have actually done a great job building that business to a greater portion than your emitters. So I'm a little confused as to how that sort of came out of left field here.

Well, they are different materials and different patents on that level. And what we found was that it was important to work on some of the host materials in order to be able to sell our emitters because you need an emitter hose combination.

So the ramp in the host materials, are those going , are those going to the same company that is taking most of the emitters materials as well?

Well, they are going to our customers.

Is there a concentration or are some of the I guess companies that you are working with in more of a development capacity, are they trying to increase their efficiency by using some of your host materials or is it as you mentioned the combination of the dope verse host materials that you are seeing the benefit from.

Well it's a little bit of both. I mean we have those host materials out there in the market. There are other host materials that other people have as well because they it's a more competitive business. On the other hand, you would sale more host materials than emitter materials because you dope the emitters into the host.

Okay. Do you expect it to be this level going forward in terms of a split? Do you expect the host to grow at a faster rate than the dope materials, the dope/meter materials.

It's really too early to tell how fast the host business is going to grow.

When you've done an analysis and part of your minimum sales with or minimum material sales with your largest customer here, as you have done an analysis of the material sales or the bill materials of that stack, what percentage of the total market do you see the host in doped emitters.

I'm sorry, Jed, could you repeat that.

Sure, so if we look at the stack, right, we've got basically 7 different layers HDL, ETL, the host and dope materials. I'm curious as we look at that revenue build for the materials market, what percentage do you see is your opportunity between the host and doped materials that you are selling.

Well, I think the, I mean the whole organic materials piece of an OLED display is still a small portion of the whole OLED display.

But if we call the market say 300 million or 400 million, whatever the number is half a billion, do you see the host and dope materials being 50% of that market or do you see it sort of an even breakdown between the HTL, the HIL, the host, the doped, and the ETL.

(Inaudible). Their pricing on those other materials so it's really tough to answer your question.

Okay. In terms of the lawsuit just don't want to beat a dead horse here but do want a little bit of additional color looking forward to seeing the summary coming out here shortly, but it looks as if, what, 18 or 20 claims out of the 28 were fine in terms of scope focused on the iridium looks like you've got a new addendum to on the osmium. Is there anyone else that you know of in the market that you is selling platinum or doped material at this time or a host material using that composition.

The host doesn't play into this because this because these are really emitter materials and nobody is selling any of those materials commercially as far as we know.

Is there anyone selling it from a development perspective that you know of.

I couldn't speak to that. I really don't know.

I guess the reason that I'm asking is we look at the, we have limited details to go off of in terms of the Samsung what's been disclosed in terms of the 8 K with much of it blacked out. What it looks like and tell me if I'm reading this wrong that Samsung is unable to purchase materials or work with anyone that is selling materials that violates your IP. So I guess one of my questions is if based on the refinement of scope of these claims, if somebody did have a platinum doped material or a osmium doped material, based on the structure of that agreement with your largest custody would they be able to sell to Samsung without Samsung having to pay you a royalty or infringe on your IP.

I can't really comment on that question. What I will say is that we have broad phosphorescent patents that have been issued all over the world this patent in Europe was a organometallic patent and it relates directly to iridium and we are taking the fundamental patent claims relating to iridium taking the osmium piece of it and we have refiled it we are going to refile it as far as continuation claim. We have in the similar organometallic patents all over the world they cover not only iridium but platinum and osmium as well. So we continue to have a matrix of patents covering this entire space and we feel very good about the decision that was reached in the European patent office.

Sure. I'm not debating in terms of you've got a great patent portfolio. I think it would be helpful at some point in time you might have able to clarify given that Samsung looks like it makes up more than 90% of your sales to be able to without a doubt state that the refinement would not allow anyone to sell materials by bypassing, just given your business model. That might be helpful. And then just as a follow-up and my last question then I'll jump back in the queue. Sid gross margins on the materials, looks like as you transition from a development to sort of running those costs through the P&L about 75% or 76%, is that roughly the range on a go forward basis that we should look at the material sales versus the much higher royalty sales of 97%.

Well, it is because of the host business is a lower margin business than the emitter business.

Okay. I'll jump back in the cue and congratulations on the great results, guys.

Thanks Jed.

Thank you.

Our next question comes from [James Semideth] with Cowen and Company.

Good evening what is it that is seasonal about your sales that would cause the fourth quarter, I understand the third quarter was fantastic, but what is it that's now injecting seasonality in your sales stream.

Historically the fourth quarter chemical sales has always been a little lower than the prior quarters. I think it is that the customers are buying materials as they ramp up to get product out in the holiday season and then when it gets to the December time frame things sort of slow down. So historical that is what has happened which is what we think will happen again.

Okay. What is it, what factors could cause you to be toward the lower end or the higher end of your guidance for 2012.

It just depends on our customers whether they ramp up during this period and are buying more materials and depending whether they continue to build product for the first quarter of next year as opposed to the seasonal piece of it. The only reason we would do that as I said for the past couple of years even though the quarters have been significantly lower, there's always been the commercial chemical sales have always and development chemical sales in the fourth quarter has historical been lower than the prior quarters.

Right but the Samsung revenue stream is known we don't know it , but you know it , right.

The Samsung license piece is known, that is correct. The material purchasers purchases are not known.

Understood. Okay. Is there a significant difference between the gross margins that you earn on development chemicals versus commercial chemicals.

There is a different pricing structure between developmental chemicals sand commercial chemicals but we do have pretty high margins on both.

And the big difference is whether it's a host or an emitter, right.

The margin on the host materials and the margin on the emitter business are different. The host materials is much more competitive and much higher volume business.

Okay. And just final one, what is the status of the contract with AUO -- I'm sorry, yeah, with AUO.

AUO we have agreement that we have renewed for six months at the June of June through December 31st and we are talking to all of our customers now.

Okay thank you.

Thank you.

Our next question comes from Srinivasan Sundararajan with Oppenheimer.

Hi my first question is on specifically on China, it's known that China is not the best place for in closing patrons so OLED capacity ramps, how do you propose to make sure that you get your due revenues.

That is a very good question and we are studying closely. We do not have an answer yet at this time.

Okay. Would you going forward in the future like perhaps give us some indication of the area of OLED that has been deposited or used in, so that we can get maybe you don't need to break it out in terms of your sales, but perhaps in terms of OLED that has been out putted, would be able to do that?

That is something that we would not really have the data on, guys like display search and some of the other analyst firms that follow the industry into square inches and go through product-by-product is where that information would be. I mean we really do sell materials by the kilograms to our customers when they order it and we don't have nor should we have the information of what it goes into.

Okay. I think my other question is if you look at the ramp of OLED TVs that's going to be dependent on coming up with a cheaper process because it looks like it's going to be expensive. So would that cause you any problems in your post 2012 outlook?

Oh, I'm not sure I actually agree with your hypothesis. It's very possible that the existing technologies people are working on once they get them to high volumes could be very cost effective in making OLED market led.

Okay. One more question. Do you use any rare earth andralites in your chemicals?

No.

No. Okay. And lastly, I think you might want to clarify that when people talk about osmium and other elements basically this would be at the center of organometallic complexes and those complexes are themselves predictable, so just the name osmium doesn't mean anything if you haven't paid in on the particular chemical farm so that some (Inaudible). item for example that could be I think that is something that you might want to clarify and let the LMS know really.

That is a good point. Thank you very much.

Our next question comes from Andrew Abrams with Avian Securities.

Hi, guys, most of my questions have been answered, but let me hit you with one or two. The host material are we talking about customer A in that regard or are we talking about some of the other customer base that you might have.

We are selling them broadly.

Yeah, we are selling it to a number of different companies.

Okay. And the breakdown of 2012 I am thrilled that you are giving it to us and I'm going to press you further. Can you give us an idea of commercial and developmental. Can you kind of lead us in that kind of split?

As I said, we've looked at the internal projects for the year and we are comfortable with the range. The one thing over the years that we have learned is what we think falls into one category falls into a different category. I think over time if we can, we will give you more information, but I can't give you any more than I've said at this time.

Okay. And lastly on the green material, you said that it's now in the commercial numbers. Is it still a major percentage of the developmental numbers or has that changed.

It is still in developmental numbers. A big piece supplemental chemical number was the host material, but the green is still, of the remaindered we talked about being 4.9 million out of the 10 million. The remaindered is red and green materials.

Got it tapped lastly, concerning the green material maybe you could just talk a little bit about your A customer. Are they now using that material on a commercial basis or are they still in evaluation?

If it's in the commercial category it means it's going into a product.

Our last question comes from with Safa Rashtchy Piper Jaffray

Thanks for taking my question. Two questions. I just wanted to point out what, are there any other technologies that you think are very compelling to deposit OLED other than evaporation, please, and what is the recently Dupont in the backdrop of announced in (Inaudible). technology I would like to find out given your relationship with Dupont are you going to be benefited in the event that that technologies comes to fruition and then I have a follow up.

To answer your question back in (Inaudible). is the way all OLED are made today. People have been working on ink jet printing technologies which Dupont has one and we are working on our materials set to insure that if any of those technologies manufacturing technologies are successful our materials will apply to them. A third manufacturing technology that we have been working on still in the development stage is something called organic vapor jet printing which is a printing technology without a solvent basically using a carrier gas. And your second question was Dupont. Dupont has license agreement from us to manufacture ink jet printed displays. And we know that they have been working on a manufacturing technology. We don't know anything more than what was issued in the press release. But is that technology successful I suspect our material will apply to it.

Okay. The second question I have is a follow up is on the blue material I know it's a little bit far out, but how should we think of the introduction of blue material is that 2012 event would it impact revenues in 2012 or is it probably an 2013 event at this time?

We are still working for the development for ink blue for displays. Now light blue we are selling light blue for lighting now and we are selling a full phosphorescent system which is the red, green and light blue to create a warm white. But for displays and deep blue we really can't predict when that will come, the development will be completed and it will be ready to go commercial.

We will take our next question from Darice Liu with Brigantine Advisors.

Hi, guys I had a follow up question regarding materials actually the solution process able materials are you guys making any progress with that is there any developmental agreements using those materials yet.

Well, we are making progress with it and we are working with a number of customers on it.

Is there any time line to when that will be commercialized.

I don't think so because it's not just our materials it also relates to the manufacturing equipment as well. So there are a number of moving parts in terms of when, whether that technology will ever be commercial.

Okay. So but you are working with -- are you working with both the display guys, the lighting guys, and the manufacturing guys?

Yeah, we work with a number of people in the industry Darice.

Okay, thanks guys.

Our next question comes from Naomi Kumagai Macquarie Research.

Hi thanks for taking my question including hosts side of the business your emitter sales didn't grow much from last quarter and you expect chemical sales to drop this quarter. At the same time Samsung has been ramping news (Inaudible). second half this year. Any reason why your emitter business doesn't grow proportionally.

Well, our emitter business for the quarter has grown and so I guess it, and Samsung when they purchase our emitters, they are being much more efficient in their manufacturing process. We understand that and we have said as they scale up and put new equipment in, it is much more efficient but our emitter business has grown.

Okay. Thank you. That's it.

Thank you.

Our next question comes from Srinivas Anantha with Oppenheimer.

Hi, sorry this is not a question just a request, that for the next conference call if you could limit the analyst to one question and one follow-up then probably it might go a lot smoother without anybody particularly dominating it just a request.

We appreciate that and we did ask them to do that but we will make sure that we to that as we do it next time.

Thank you.

We appreciate that.

Thank you.

It appears there are no further questions at this time. I would like to turn the conference back over to Mr. Abramson for any additional closing remarks.

We would like to thank everybody for their support and have a good evening. Thank you very much.

That concludes today's conference. Thank you for your participation .