Things to consider if you are an OLED investor

OLED is the ticker for Universal Display Corp. It is also short for organic light emitting diode. I will refer to the company as UDC from hereon.

UDC stock is a good investment recently, returning 22.45% (1 year), 20% (ytd), and 27% (3 month). Most of the price increase was driven series of news reports about new capacity for OLED display. In simplistic terms, UDC supplies certain raw materials (highly protected by patents) to OLED display makers. Also in simplistic terms, it is kind of similar to liquid crystal. The idea is that more OLED display capacity investment, which leads to more production and application of OLED display, which lead to more sales of UDC's materials. Also there is rumor floating around that iPhone will use OLED in 2017/2018, which obviously adds substantial unit shipment assumption to global OLED display demand.

So far, unlike equipment makers that benefit the first from capacity investments (look at AMAT and COHR), UDC has not yet benefited from such aggressive capacity investment - the potential demand has not yet showed up in its results. The stock is trading at 40x forward PE, a multiple that reflects investors' expectation for high growth. The bull case, again, is that mobile devices (including Apple's iPhone) will use OLED display to replace the incumbent technology, LCD. Being the largest smartphone maker and only OLED smartphone display maker (3rd party research firm IHS said Samsung has over 97% in 1Q16 of the smartphone OLED market), Samsung has already been using OLED display for all of its flagship smartphone models and more and more mid and low range phones.

Despite capacity investments for OLED display among non-Samsung panel makers, Samsung will remain the dominant supplier in the next three years. This is what I see as the biggest risk to the bull argument. Are non-Samsung OEMs, those smartphone makers that are supposed to contribute to the much wider adoption of OLED display, are hesitant to use OLED given supplier risk. And Samsung as a smartphone maker has right incentive to leverage its monopoly on OLED display to differentiate its phones from its competitors'. Samsung can disrupt competitors' launch and ramp-up schedule with intentional tightening of panel supply (that happened to Huawei's Ascend P1 back in early 2012). Samsung can also limit the supply highest quality OLED display to its own phones.

A recent "incident" perfectly illustrates the second scenario, that Samsung is supply interior quality OLED display to its customers:

OnePlus is a hot, albeit small, Chinese smartphone OEM. There are plenty of rumors as well as business bureau registration document that show OnePlus is in fact an affiliate of Oppo, but that is a topic for another time. In short, OnePlus makes high spec, low price phones that enjoy a very strong following among the more sophisticated Android users globally. Its first flagship, OnePlus 1, was a sensational success, shipping in millions (very impressive for a "start-up"). Its second flagship OnePlus 2 was not as successful. And this month, OnePlus 3 (OP3) was released, and it comes with an OLED display.

The reviews of OP3 is universally positive (theVerge, TechRadar, CNET, Engadget) across tech websites, with the exception of one website, AnandTech, which is known for its more in-depth and sophisticated approach to gadgets reviews. And AnandTech has some criticism of OP3's display that are largely based on 1) poorer resolution due to pentile pixel arrangement, and 2) inaccurate color. AnandTech summarized the display performance as follows:

Regardless of what path led to the OnePlus 3's current display, the end result is that the poor display calibration ruins the phone for me, because the screen is just unpleasant to look at. If display accuracy doesn’t matter at all to you it may be possible to overlook it, but for anyone who cares even the slightest bit the issues with the OnePlus 3’s display will be too severe to live with.

If everything stops here, it would have been just a forgettable story about how a young Chinese smartphone start-up made a poor choice over display for its flagship of the year. But a young co-founder of OnePlus, Carl Pei, did not take the criticism lightly and unleashed a rant on Reddit,

 I'm sick and tired of sentiment like this. It may not seem so, but for a product company -- it's insulting.

It started with the OnePlus One, people trying to find explanations and faults that could have led to its reasonable price. People were complaining about screen variance (visible and common for LCDs, search for "iPhone yellow blue screen" images), vibration motor, and cheaper NAND, etc. Looking for any explanation, and quick to jump on bandwagons and to conclusions.
With our relationships in the supply chain, we know the BOM (bill of materials) of all other flagships. Out of all the devices that the OnePlus 3 gets compared to, it is one of, if not the most expensive to make. Do you think the price delta between a 2K AMOLED and a 1080p AMOLED is huge? It's a product decision, and spec by spec is not how to judge a product. The OnePlus 3 uses latest generation AMOLED made to our specifications by Samsung. The vast majority of our users, and reviewers love Optic AMOLED. It is NOT tuned to sRGB, and was never meant to be. sRGB tuning is a niche requirement and is not the right choice for the vast majority of smartphone users. Why do you think it's hidden under developer settings on the 6P? For those who need it, we've taken note, and have added it to the next OTA.

Two things jumped out at me from Carl's rant: 1) he calls "sRGB tuning a niche requirement and is not the right choice for the vast majority of smartphone users" - this is a bizarre mistake, almost all online content are coded to sRGB color space, it is the default choice for all smartphone users - as co-founder of a smartphone company Carl should have known better; 2) he said "OP3 uses latest gen AMOLED made to our spec by Samsung" - there is a clear difference between a much acclaimed display Samsung uses in its flagship S6 and S7 (see third party review here) and the one in OP3. It seems clear to me that given the different, either OnePlus asks Samsung to make a low quality display for OP3 (hence "our specification") or Samsung fucked OP by giving them a lower quality one.

Btw, I have an OnePlus X with AMOLED display, and that display is such an eye sour - overly saturated colors, low brightness levels....but hey, plenty of people find that pleasing.

The whole Reddit thread is fun to read: link; the gist of the thread is that Carl Pei's argument got torn apart of tech-savvy Redditors and more problems with OP3 and OnePlus were exposed. Enjoy!

Full rant here: