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方正科技·研究框架：
显示面板周期 l 网络安全框架 l 摄像头框架 l ODM l 小米
OLED l 射频芯片 l RISC·V l 半导体设备 l 5G l 华为深度
半导体·深度系列：
闻泰科技l 韦尔股份 l 兆易创新 l卓胜微l 中微 l 三安
北方华创 l 汇顶科技 l 紫光 l 长电 l 圣邦 l 澜起 l 京东方
立讯 l 鹏鼎 l 领益 l 大族 l 传音 l 乐鑫 l 光峰 l 华兴 l 安集
计算机·深度系列：
纳思达l 南洋股份 l 安恒信息 l 神州数码 l 中国长城
中国软件 l 金山办公 l 用友网络 l 浪潮信息 l 恒生电子
WPS l 同花顺 l 卫宁健康 l 海康 l 大华 l 金山软件 l 工富
标题：UDC公司19Q4业绩交流会会议纪要
免责声明：本会议纪要由方正证券科技团队翻译/整理，可能存在与该公司官方公布的纪要原文/录音有不一致或不准确之处，请投资者以上市公司发布的纪要原文/录音为准。本会议纪要内容仅供投资者参考，不包含任何方正证券研究所的投资意见和建议，投资者需自行承担投资决策的风险。
会议时间：2020年2月20日
免责声明：本会议纪要由方正证券科技团队翻译/整理，可能存在与该公司官方公布的纪要原文/录音有不一致或不准确之处，请投资者以上市公司发布的纪要原文/录音为准。本会议纪要内容仅供投资者参考，不包含任何方正证券研究所的投资意见和建议，投资者需自行承担投资决策的风险。
感谢Darice，欢迎大家参加今天的电话会议。我们很高兴报告我们的第四季度和2019年业绩。我们可靠的财务业绩反映了我们和OLED行业的强劲增长势头。2019年收入为4.05亿美元。营业利润为1.58亿美元，净利润为1.38亿美元，合稀释后每股收益2.92美元。第四季度收入为1.02亿美元，营业利润为3400万美元，净利润为2600万美元，合稀释后每股收益0.56美元。
OLED在智能手机，电视和可穿戴设备中的持续扩散，以及早期进入IT和汽车市场的商业进展，正在推动OLED容量的投资和安装，这反过来又帮助我们在2019年实现了创纪录的业绩。经过一年的大量新增产能后，我们预计到2020年会出现一定的产能消化。
此外，与新型冠状病毒有关的不确定性也在不断发展。根据目前的估计，我们认为2020年的收入将在4.3亿美元至4.7亿美元之间。SID将在短期内提供更多详细信息。展望2021年及以后，随着新OLED产能的出现，新OLED产品的推出以及客户商业化计划的不断发展，我们预计将有可观的增长。
现在回首2019年，我们将继续巩固我们的领导地位和增长基础。我们宣布了新的合作伙伴关系协议，在韩国和香港建立了新的最先进的磷光OLED应用实验室和办事处，建立了我们的企业风险部门UDC Ventures，并实现了许多内部研发里程碑，包括完成了我们的三室OVJP试验系统。
此外，随着新的OLED产能的安装，新的OLED OEM和产品的推出，以及宣布革命性的外形尺寸产品（如三星Galaxy Fold，LG的可卷曲电视和联想的可折叠PC），OLED行业变得更加强大。所有这些推动了OLED显示器在消费电子市场中的继续采用。
在这一年中，我们宣布了与视欧光电科技（香港）和华星光电的新客户协议。我们还宣布了与默克（Merck KGaA）的技术合作。正如我们在8月份分享的那样，我们正在建立OLED材料合作伙伴关系网络，以帮助我们的客户并加快其设计步伐。我们与当地的材料公司建立了合作伙伴关系框架，以商业化与我们专有的磷光发光体互补的主机。我们宣布将于2019年与中国的EMT和韩国的LG Chem签订托管协议。
在研发方面，我们将继续增强我们在磷光材料和OLED技术方面的核心竞争力和开拓性工作。我们正在为新的和下一代的红色，绿色，黄色和主体投资许多战略性OLED材料和技术计划。关于蓝色，我们在商业磷光蓝色发射器系统正在进行的开发工作中继续取得卓越进展。
我们的有机蒸气喷射印刷OVJP技术在制造大面积OLED电视方面也取得了重大进展。昨晚在SID DisplayWeek上，我们展示了我们试验系统中的绿色PHOLED印刷面板，其早期寿命数据测量在LT95和5,000尼特下超过50,000小时。
正如我们在上个季度的电话会议上指出的那样，我们正在通过扩大本地技术支持来扩大我们在亚洲的业务，以满足客户不断增长的需求，其中包括在韩国和香港拥有最新PHOLED应用的新公司和实验室设施设备测试和制造中心。
在消费电子领域，明亮，美观，出色的OLED技术的采用不断增长。对于中小型显示器市场而言，可折叠手机的推出无疑是一个备受期待的且具有颠覆性的事件。2019年，从三星Galaxy Fold到华为Mate X或Royole FlexPai和摩托罗拉Razr，我们认为这些可折叠手机只是以前所预期在消费产品中的新格局。
可折叠产品的热门话题在上个月的拉斯维加斯CES上继续与IT制造商一起，他们现在将推出出色的薄包装技术，这将是第一款商业可折叠IT产品，预计将在2020年中期上市。今年。13.3英寸OLED显示器可以弯曲并折叠成平板电脑，笔记本电脑或迷你台式机的不同配置。戴尔展示了采用其Ori概念的柔性笔记本电脑，英特尔展示了称为Horseshoe Bend的可折叠PC概念，该概念可以在12英寸笔记本电脑和17.3英寸平板电脑之间交替使用。
在大型电视方面，LG除了展示了可卷曲电视之外，还展示了可弯曲的OLED电视原型。采用OLED的OEM数量和OLED产品的数量正在增加。随着终端市场的增长，面板制造商已经并且将继续投资于新的OLED生产能力，以支持不断增长的OEM客户群。这种需求动力推动了多年的OLED CapEx周期。
从2017年到2019年，装机容量显着增长，这主要得益于在中国的新投资，包括京东方在成都和绵阳的新Gen-6柔性生产线以及LG Displays在广州的第二家OLED电视工厂。展望未来三年，我们估计到2021年底的装机容量将比2019年底的装机容量增长约50％（以平方米为单位）。有了新的OLED OEM，新的OLED产品，新的OLED应用程序以及新的OLED投资，OLED行业的发展道路漫长。
让我们看一下OLED在2019年的渗透率。根据市场研究数据，在智能手机市场中，TAM或约14亿个可用市场中，约有4.85亿个是OLED的，大约三分之一。在IT中，在4.1亿个TAM中，约有400万个是OLED或仅占市场的1％，然后在2.4亿个TAM中，约有330万个电视是OLED，仅占市场的1.4％。除了在AR / VR可穿戴设备和汽车市场采用OLED之外，还引入了新的消费类应用，这些应用是利用OLED的顺应性，可弯曲性和可卷曲性设计的。
11月，三星显示器在台湾主办了一个针对IT应用的OLED论坛。三星向大约350位听众介绍了其中型OLED显示技术，其中包括笔记本电脑制造商HP，戴尔，联想和其他主要ODM（例如Compal [ph]，Quanta和Wistron），强调笔记本电脑和OLED显示器更薄，更轻，更薄。设计灵活，具有更高的对比度和更准确的色彩。
在2019年中，三星开始量产用于笔记本电脑的13.3英寸和15.6英寸OLED面板。自那时以来，已经有十几种笔记本电脑型号投入商业应用。今年，三星计划增加13.3英寸全高清型号，并将其产品系列扩展到中端IT市场。上周，三星推出了Galaxy Z Flip，其第二款可折叠手机和Galaxy S20系列，每个均配备OLED HDR Plus显示屏，并支持120 Hz刷新率。
在CES上，LG宣布推出包括48英寸型号在内的14款新OLED电视，这进一步推动了LG Display的电视发展势头，Vizio，Sharp和Xiaomi都有望在今年进入OLED电视市场。据估计，LGD将在2020年出货约550万至600万台OLED电视，高于2019年的约330万台。
在中国，京东方科技于七月在绵阳开设了第二家第六代OLED工厂。全面投产后，该柔性OLED晶圆厂每月将有48,000个基板。本月初，京东方重申其2020年OLED出货目标为4000万台，高于去年的2000万台。
天马也在本月初举行了电话会议，宣布其今年计划出货超过2,000万片OLED显示器的目标，而华星光电从去年年底开始扩大其第一代第六代柔性OLED面板厂的第一阶段，并计划继续提高产能今年。
在照明方面，尽管我们仍处于商业化的初期阶段，但我们相信OLED照明的优势包括高功率效率，新颖创新的外形，美丽的自然色彩和凉爽的工作温度，这些都是非常引人注目的。
在评论2020年指南之前，让我回顾一下我们的2019年结果。2019年是创纪录的一年。收入为4.05亿美元，同比增长64％，材料销售为2.43亿美元，同比增长59％，特许权使用费收入为1.5亿美元，同比增长86％。
根据ASC 605,2019年的收入将为4.28亿美元。2019年营业费用（不包括材料成本）为1.71亿美元，较2018年的1.37亿美元增长25％。营业利润为1.58亿美元，而2018年的营业利润为5700万美元，同比增长179％，这归因于我们强大的经营杠杆作用。净利润1.38亿美元或每股摊薄收益2.92美元，而2018年的净利润为5900万美元或每股摊薄收益1.24美元，同比增长135％。
根据ASC 605，营业利润将为1.81亿美元，净利润将为1.56亿美元，或摊薄后每股3.30美元。截至本年度末，我们的现金，现金等价物和短期投资为6.46亿美元，合稀释后每股现金13.74美元。
现在，继续第四季度业绩，2019年第四季度的收入比2018年第四季度的7000万美元增长了45％，达到1.02亿美元，比上一季度的9750万美元有所增长。根据ASC 605，第四季度收入为1.09亿美元。第四季度，我们的材料销售总额为6,100万美元，比去年同期的4,000万美元增长52％，比上一季度的5,200万美元增长17％。
绿色发射器的销售（包括我们的黄绿色发射器）为4,750万美元，比第三季度的4,020万美元增长了18％，比去年同期的2,790万美元增长了70％。第四季度红色发射器的销售额为1300万美元，比第三季度的1140万美元增长了14％，比去年同期的1180万美元增长了10％。
正如我们过去讨论的那样，材料的购买模式可能每季度不同。造成这种情况的一些因素可能包括：消费者产品需求周期，产能提升计划，生产装载率，设备配方，产品组合，材料订购模式，客户库存水平以及客户生产效率的提高。由于这些因素中的许多因素对我们的客户来说是移动变量，因此对我们来说也在变化。
在讨论第四季度的忠诚度和许可收入之前，我们想提醒您，根据ASC 606，无论何时开具账单，我们都会根据相应的OLED材料出货量确认特许权使用费和许可收入。2019年第四季度的会员费和许可费为3800万美元，较上年同期的2600万美元增长46％，但较上季度的4300万美元下降。
2019年第四季度Adesis收入为320万美元。相比之下，2019年第三季度为270万美元，2018年第四季度为440万美元。2019年第四季度的销售成本为1820万美元。相比之下，2019年第三季度为1,730万美元，2018年第四季度为1,830万美元。
OLED材料的销售成本为1,630万美元，转化为材料的毛利率为73.2％。相比之下，2019年第三季度为70.6％，同比可比季度的材料毛利率为63％。全年，我们的实质毛利率为72.7％，符合我们70％至75％的指导范围。
第四季度，不计销售成本的经营费用为4,900万美元，高于上一季度的3,940万美元和去年同期的3,650万美元。2019年第四季度的营业收入为3,450万美元。上一季度的营业收入为4,080万美元，而可比季度的营业收入为1,530万美元。根据ASC 605，第四季度营业收入为4180万美元。
2019年第四季度的净收入为2640万美元，合稀释后每股收益0.56美元。相比之下，上个季度为3,700万美元（合稀释后每股0.78美元），而去年同期为1,920万美元（合稀释后每股0.40美元）。根据ASC 605，我们的第四季度净收入应为3210万美元或每股摊薄收益0.68美元。
现在我们的展望是，我们预计2020年的收入将在4.3亿美元至4.7亿美元之间。我们相信，随着我们的一些客户将其材料采购模式从生产前的速度转换为更正常的运行速度，我们的2020年收入将受到产能消化的影响。正如我们在2017年和2019年看到的那样，当新产能上线时，我们相信正在购买更多材料。随着大规模生产的增加和客户效率的提高，以及装载率的标准化，我们相信材料的购买方式将与运行利用率更紧密地匹配。
此外，我们相信新型冠状病毒将影响OLED生态系统和消费电子行业，进而影响客户购买我们的OLED材料。根据我们今天所了解的情况，我们认为今年对我们的收入可能会产生大约4000万到5,000万美元的影响。
此外，由于在2019年第四季度与贸易有关的担忧，我们的一位中国客户要求运输一批排放者作为2020年的额外安全库存，其中包括在2020年第一季度到期的回报率。如果不执行这种退货率，我们将在2020年第一季度将其中最多2500万美元的收入确认为收入。
继续考虑毛利率，虽然季度材料毛利率可能会随季度变化，但我们预计2020年整体材料毛利率将在70％至75％的范围内，与过去几年保持一致。
SG＆A，R＆D和专利成本的运营费用预计将总体上以每年10％到15％的幅度增长，这主要是由R＆D驱动的。我们预计有效税率约为19％，这是一个或几个基本点。
正如史蒂夫（Steve）先前提到的，我们预计OLED平方米容量的安装基础在未来两年内将增加约50％。作为OLED生态系统的关键推动者和合作伙伴，这些产能计划对我们意味着新的收入机会，并在未来几年总体上呈积极的增长轨迹。
最后，我们很高兴地宣布，董事会已批准增加Universal Display的现金股息。将于2020年3月31日向在2020年3月17日收市时登记在册的股东支付每股0.15美元的股利。股利的增加反映了对我们强劲的未来增长机会的信心，预计持续产生正现金流并承诺将资本返还给我们的股东。
不断增长的充满活力的OLED市场是光明的，作为重要的OLED创新合作伙伴，我们相信我们将继续处于有利位置，以参与即将到来的许多令人兴奋的机遇。我们正在扩展我们的全球团队，并扩大我们的核心竞争力，以推动我们的战略计划并提高我们的先发竞争力。
我们与客户紧密合作，为他们规划未来几年的新产品介绍，并基于我们25年的专业知识积累，并不断创新和开发使能的材料和技术，以支持我们的合作伙伴和行业。
随着OLED显示器在我们各种大小，中型和大型消费产品中的不断普及，以及将OLED推进中端市场的举动，我们看到了提供非凡且不断扩展的机会的环境。这包括基于顺应性，可折叠性和可卷曲塑料形状因数的新颖应用程序，这些应用程序有望改变消费电子行业。
最后，对于我们来说，2019年是增长的一年，也是OLED行业强劲的长期增长道路的基础设施的又一年强劲的投资和多元化的一年。我们正在为客户创造和增加价值，并通过创新的产品，服务和解决方案来巩固我们在行业中的领导地位。
UDC的全球团队是我们公司实力的核心。我想借此机会感谢我们每个员工在提升和塑造Universal Display的成就和进步方面所付出的努力，渴望，奉献和内心。
QA
Q：
很好，非常感谢。我的第一个问题是，您谈到冠状病毒爆发可能会对今年的收入产生4000万至5,000万美元的影响。那么，我可以理解为这是最大值和最小值吗？
你如何看待这方面的影响？是更多的供应问题，这意味着您在运往中国时遇到问题，还是更多地与供应链有关，还是更多地由需求驱动，如果是由需求驱动，您是否会在明年或明年晚些时候回来，还是大部分都消失了又不会回来？
A：
因此，让我首先谈谈冠状病毒，我们的想法是与所有受到冠状病毒直接和间接影响的人们在一起，在这一非常困难的时期，我们将得到支持，我们将为员工，合作伙伴，客户提供支持。我们一直在密切监视情况，包括当前潜在的生产，供应链和消费者购买方面的延迟。此外，我们一直在进行客户讨论，来自亚洲现场团队和行业同行的反馈。截止到今天，我们估计，到2020年，对我们业务的影响可能高达10％。
Q：
那么是更多的供应问题还是需求问题呢？以及这个需求问题，您认为这种需求会在今年晚些时候或明年再次出现吗？
A：
我们认为是供应链和需求。这就是所有这些问题，我们将不得不看看它是如何工作的。最终，我们认为需求在整个供应链中回升的可能性很小。但是我们无法预测时间。但是，将材料运送到中国没有问题。
Q：
我接下来的问题是看今年5G智能手机的增长情况，人们非常希望5G手机的出货量在2亿至3亿之间。根据到目前为止与您合作的客户，您能否与我们分享您在OLED的采用方面所看到的一切？我对您的评论特别感兴趣，OLED的采用是否也在中端市场加速了？谢谢。
A：
谢谢您，Sidney，这是我们很难回答的问题，因为我们确实不从事电话业务，但是我们与面板制造商合作，并且我们与他们紧密合作以确保我们可以为他们提供他们所需要的一切需要。因此，但实际上，我没有答案。我认为每个人都希望以高价获得5G的采用，但也将对今年的整体智能市场有所帮助。但是我不知道其他任何问题是否会影响到这一点。
Q：
我想只是跟进有关冠状病毒的第一个问题。您谈到了10％的影响，我很好奇您是如何得出该数字的？这是根据与客户的讨论，您所看到的和预计的利用率得出的结论，还是通过其他方式估计的？
A：
好吧，正如我说的，CJ，我们一直在密切监视局势，并研究生产和供应链的潜在延迟。我们尝试从我们的现场团队，客户以及已发布的信息中获取尽可能多的信息。因此，我们对今天的估计（最好的估计）将对本年度的业务产生约10％的影响。
Q：
我的第二个问题是，当您想到605、606时，我猜在那儿分为两个部分，一个是指南在2020年的605基础上所提出的建议，然后您的假设是否有重大变化，如预测的一部分，以得出您对2020年的预测？
A：
假设没有重大变化。我的意思是，我们实际上一直在进行监控。但是对于605指导，我们不再相信突破605是有意义的。正如您在过去的几个季度中所看到的那样，605和606之间的差异已最小化。因此，基于此，我们认为仅提供GAAP指导是最有意义的。
Q：
关于指导的问题。如果我看一下您为2020年提供的增量指引，它看起来比我们追溯到2017年的前几年更大。所以我只是想知道，这一数据还反映了您已经完成的某些项目吗？已经暗示要在中国包括该病毒，或者在更广泛的范围内还有其他因素在起作用吗？
A：
不，我认为涉及该病毒的不确定因素太多，很难预测到2020年该病毒将对我们产生的全部潜在影响。基于我们今天的了解，这是我们可以提出最好的预测。并有多种因素影响这一点。
Q：
如果您可以告诉逐步提高的销售，一般及行政管理费用，那有什么不寻常的地方吗？因为我认为第四季度销售，一般及行政管理的增长预期为10％左右，而且增长幅度显然更大。我只是想知道，是什么推动了这一点？
A：
是的，在第四季度，应计薪酬有所增加。但是，如果您只是看一下，请退后一步看一下2018年和2019年，您会发现平均运营支出增长在我们10％至15％的历史指导范围内。但是有时对于研发而言，事情会被推迟或推迟。这也还是在我们的范围之内，但显然第四季度比任何人预期的都要高。
Q：
好吧，再一次，展望2020年，我想您提到过，SG＆A的增长是10％，15％是真的吗？
A：
是的，我们认为是10％到15％。我们认为研发将是更大的增长，并将对此进行加权。但是是的，应该在这个范围内。
Q：
我想再谈谈您对与贸易有关的2500万美元收入的评论。如果客户行权，2020年收入指南中已包含2500万美元，还是没有？
A：
是的，对于有回报率的客户获得的2500万美元，我们最多可以识别2500万美元，而2500万美元在我们的2020年指导中。
Q：
而且您假设冠状病毒不会产生影响。因此，如果客户要行权，他们会消耗这一原料吗？
A：
我们相信这种材料它将在2020年消费，这是我们的假设。
Q：
如果他们不行使选择权，那么我们应该以每年2500万作为指导吗？
A：
如果他们行使选择权并退还该期权，我们将减少该指引，但我们确实相信，即使他们退回了该年内的期权，他们也可能会在2020年内购买足够的期权以弥补该期权，因为我们确实认为客户将在2020年需要此材料。
Q：
伙计们明白了。感谢所有的细节。我对2019年至2021年50％的产能或已安装的产能增加进行了跟进，请您帮助我们了解韩国和中国等地域的产能增长将如何发挥作用，以及与2017到2019期间有什么不同？
A:
我认为2017年至2019年期间实际上超过了50％。在这种情况下，它在韩国和中国之间。我的意思是，在某种程度上，我无法为您详细介绍该信息，因为我们直接从客户那里获得了我无法透露的信息。但是请您查看发布的信息，但是我们认为这主要是由中国和韩国推动的，并且将在后端加载。与今年相比，大概是明年。
Q：
去年，您提到过，由于中国贸易战的问题，您的一位客户实际上积累了库存。我很好奇，现在就整个病毒情况而言，您是否认为可能存在这样一种情况，即许多供应链之外的客户倾向于积累库存，因为他们已经经历了这一次并且不想再经历一次？
A：
我认为这是两个独立的问题。首先，除了所描述的来自贸易问题的2500万美元外，我们没有看到任何库存积压。我认为目前人们正在关注冠状病毒以及如何恢复正常，但是我不认为这是与库存相关的构建问题。
Q：
我想你们曾经谈论过OLED的采用，我想你们今年谈论的大概是6亿部智能手机。我很好奇，进展如何？对于这种病毒，整个智能手机市场的看法是否发生了变化，并且其中很大一部分来自您的一个中国大客户？
A：
是的，我的意思是，这些数字来自IHS，我认为其中许多数字来自485，我认为今年为6亿。我的意思是，现在-特别是在不断变化的动态环境中，我不确定这些数字是否会满足。这些数字是在与冠状病毒和中国生产放缓相关的所有问题之前提出的。因此，我想您已经从许多智能手机OEM那里听到，他们看到第一季度和第二季度都很疲软。
Q：
但是，您为该病毒假设的4,000万美元会产生或产生10％的影响，是您所获得的25％的净收入。因此，换句话说，如果你之前没有考虑病毒，会不会在前瞻指引中多考虑了4,000万美元。
A：
这2500万美元在我们今年的指导中。正如我们所说，该客户希望购买安全库存以解决贸易问题。冠状病毒就是我们认为的问题，然后在线上消化了一些容量，但是，根据我们今天的估计，这种影响将达到4000万到5000万美元，但这是两个独立的项目，一个是贸易战，一个是冠状病毒。
Q:
本季度的材料收入比上一季度增长了近20％，但是特许权使用费和许可减少了约占10％。您知道吗，其中很多与客户组合有关，但是您能否带我们逐步了解这些差异趋势的动态变化呢？
A:
是的，我的意思是，当我们谈论许可证和特许权使用费时，根据客户组合的不同，许可费和特许权使用费在1.5到2之间。因此，在这种情况下，但我不能告诉您–我无法给您更多信息。但是你是对的。它基于第四季度的客户组合。
Q:
我很好奇，您从合作伙伴那里得到的交流水平如何？因为我知道我已经与Apple和其他人进行过交谈，所以对关于当前中国正在发生的事情有很多问题。所以我很好奇您与他们交谈的频率。然后，我想您已经解决了，中国公司的冠状病毒情况。您认为您的合作伙伴库存水平在哪里？他们在某种程度上处于标准化水平，或者存在其他人在年底时比您预期的要多？谢谢，
A:
我们每天都在与客户，现场团队进行交谈。因此，我们每天都在获取更新或通信。就像您想象的那样，这是一个动态且不断变化的情况。但是，我们正在竭尽全力以获取实时更新，并了解中国各个方面的情况。关于第二个问题，我们认为第四季度的材料量在正常范围内。
Q：
首先是容量消化问题。我想知道您是否可以给我们一些指引一下主要是面向电视还是面向小型面板？你是否关于与东道主合作伙伴取得更新的进展，并且在这种进展下生产的产品是否正在被你的合作伙伴所销售？
A：
是的，我们全面看到了它。我们从小型，中型和大型OLED生产（都具有一定的产能）中看到了这一点，这正在经历一个消化期。因此，尽管我们已经全面了解了它，但我认为它与具体项目无关，只要有新功能出现在在线新设施上，我们就知道它是如何工作的。关于您对主机的第二个问题，我们已经与许多主机公司合作。我们将继续与他们合作。但是截至目前，我们还没有领先。
Q：
好的，我想确保我了解这种关系，你们之间没有销售关系，这是您与生产商的关系嘛？
A：
对的。我们与他们合作，他们将实际制造和销售该产品。我们不会成为该过程的一部分。
Darice Liu
Thank you, and good afternoon, everyone. Welcome to Universal Display's fourth quarter earnings conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Sid Rosenblatt, Executive Vice President and Chief Financial Officer.
Before Steve begins, let me remind you that today's call is the property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the expressed written consent of Universal Display is strictly prohibited.
Further, 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 the live webcast of this call, February 20, 2020.
During this call, we may make forward-looking statements based on the current expectations. These statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone concerning making any investments in the company’s securities. Universal Display disclaims any obligation to update any of these statements.
Now, I’d like to turn the call over to Steve Abramson.
Steven Abramson
Thanks Darice, and welcome to everyone on today's call. We are pleased to report our fourth quarter and 2019 results. Our solid financial results reflect our and the OLED industry's strong growth momentum. 2019 revenues were $405 million. Operating income was $158 million and net income was $138 million or $2.92 per diluted share. Fourth quarter revenue were $102 million, operating income was $34 million, and net income was $26 million or $0.56 per diluted share.
The continued proliferation of OLEDs in smartphones, TVs and wearables, as well early commercial headway into the IT and automotive markets is fueling OLED capacity investments and installs, which in turn helped us to achieve record results across the board in 2019. As we look to 2020, after a year of significant capacity additions, we expect to see some capacity digestion.
In addition, there are evolving uncertainties related to the novel coronavirus. Based on current estimates we believe 2020 revenues will be in the range of $430 million to $470 million. Sid will provide further details shortly. As we look to 2021 and beyond, as new OLED capacity comes on line, new OLED products are launched, and progress continues with our customers' commercialization plans, we expect meaningful growth.
Now looking back to 2019, we continue to build on our leadership position and foundation for growth. We announced new partnership agreements, constructed new state-of-the-art phosphorescent OLED application labs and offices in Korea and Hong Kong, established UDC Ventures, our corporate venture arm, and achieved a number of internal R&D milestones, including completing the installation of our three-chamber OVJP pilot system.
In addition, the OLED industry grew more robust as new OLED capacity was installed, new OLED OEMs and products were introduced, and revolutionary form factor products like the Samsung Galaxy Fold, LG’s rollable TV and Lenovo’s foldable PC were announced. All of this drove the continued adoption of OLED displays in the consumer electronics market.
During the year we announced new customer agreements with Seeya Technology and China Star Optoelectronics. We also announced a technical collaboration with Merck KGaA. And as we shared in August we are establishing a network of OLED material partnerships to help enable our customers and accelerate their design pace. We have a partnership frameworks is collaborating with local material companies to commercialize hosts that are complementary to our proprietary phosphorescent emitters. We announced hosted partnership agreements with EMT in China and LG Chem in Korea in 2019.
In research and development, we continue to build on our core competencies and pioneering work in phosphorescent materials and OLED technologies. We are investing in a number of strategic OLED material and technology programs for new and next generation reds, greens, yellows and hosts. With respect to blue, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emitter system.
We have also made significant progress with our Organic Vapor Jet Printing, OVJP technology for the manufacture of large area OLED TVs. At SID DisplayWeek last night we showcased our green PHOLED printed panels from our pilot system with early lifetime data measures at over 50,000 hours at LT95 and 1,000 nits.
As we noted on last quarter's conference call, we are expanding our footprint in Asia to meet our customers' growing needs with increased local technical support, including new corporate and laboratory facilities in Korea and Hong Kong with state-of-the-art PHOLED application centers for device testing and fabrication.
In the consumer electronics landscape, the adoption of bright, beautiful, brilliant OLED technology continues to grow. The introduction of foldables was undoubtedly a highly anticipated and game changing event for the small and medium display markets in 2019. From the Samsung Galaxy Fold to the Huawei Mate X or Royole FlexPai and Motorola Razr, these foldable phones we believe are just a previous of what's to come in this new landscape of consumer products.
The hot topic of foldables continued at last month's CES in Las Vegas with IT makers, who are now going to launch a thin pack excellent fold which is expected to be the first commercial foldable IT product and that is slated to be available in the middle of this year. The 13.3 inch OLED display can bend and fold into different configurations of a tablet, laptop, or as a mini desktop. Dell showcased the flexible laptop with its Ori concept and Intel showcased the foldable PC concept called the Horseshoe Bend which can alternate between a 12 inch laptop and a 17.3 inch tablet.
On the large TV front, LG showcased a bendable OLED TV prototype in addition to their rollable TVs. The number of OEMs adopting OLEDs and the number of OLED products are increasing. With its end market growth, panel makers have and continue to invest in new OLED capacity to support their growing OEM customer base. This demand momentum is fueling a multiyear OLED CapEx cycle.
From 2017 to 2019 install capacity grew significantly, primarily driven by new investments in China, including BOE's new Gen-6 flexible lines in Chengdu and Mianyang and LG Displays second OLED TV facility in Guangzhou. As we look to the next three years we estimate that install capacity at the end of 2021 will grow by approximately 50% over the install capacity at the end of 2019 as measured in square meters. With new OLED OEMs, new OLED products, new OLED applications, and new OLED investments, the OLED industry has a long runway of growth.
Let's take a look at OLED penetration in 2019. Based on market research figures, in the smartphone market approximately 485 million units out of a TAM or total available market of 1.4 billion units were OLED were about one-third of the market. In IT approximately 4 million units out of a TAM of 410 million units were OLED or only about 1% of the market and then TVs approximately 3.3 million units out of a TAM of 240 million units were OLED are only about 1.4% of the market. This is in addition to OLED adoption in the AR/VR wearables and automotive markets as well as the introduction of new consumer applications that are being designed utilizing the conformable, bendable and rollable benefits of OLEDs.
In November, Samsung Display hosted an OLED Forum in Taiwan for IT applications. Samsung presented its midsized OLED display technology to an audience of approximately 350, including laptop makers HP, Dell, Lenovo, and other major ODMs such as Compal [ph], Quanta and Wistron, highlighting that laptops and OLED displays are thinner, lighter and more flexible in design with higher contrast ratios and more accurate colors.
In mid-2019, Samsung began mass production of 13.3 inch and 15.6 inch OLED panels for laptops. Since then, over a dozen laptop models have been commercially launched. This year Samsung plans to add 13.3-inch full HD model and expand its product lineup into the midrange IT market. And last week Samsung unveiled the Galaxy Z Flip, its second foldable phone and its Galaxy S20 Series each with an OLED HDR Plus display and supports 120 Hz refresh rate.
At CES, LG announced 14 new OLED TVs including a 48-inch model, adding to LG Display's TV momentum, Vizio, Sharp and Xiaomi are all expected to enter the OLED TV market this year. It is estimated that LGD will ship around 5.5 million to 6 million OLED TVs in 2020, up from approximately 3.3 million units in 2019.
And in China, BOE Technology opened its second Gen-6 OLED plant in Mianyang in July. When fully ramped this flexible OLED fab will have 48,000 substrate starts per month. Earlier this month, BOE reaffirmed its 2020 OLED shipment target of 40 million units up from last year's 20 million units.
Tianma also held a call earlier this month announcing its target to ship over 20 million OLED displays this year, and China Star began ramping the first phase of its first Gen-6 flexible OLED fab at the end of last year and plans to continue ramping capacity this year.
On the lighting front, while we are still in the early commercialization stage, we believe that the benefits of OLED lighting, which include high power efficiency, novel and innovative form factors, beautiful natural colors and cool operating temperatures are all quite compelling.
On that note, let me turn the call over to Sid.
Sidney Rosenblatt
Thank you, Steve and again thank you everyone for joining our call today. Let me review our 2019 results before commenting on our 2020 guidance. 2019 was a year of record results. Revenues were $405 million up 64% year-over-year, material sales were $243 million up 59% year-over-year, and royalty and license revenues were $150 million up 86% year-over-year.
Under ASC 605, 2019 revenues would have been $428 million. 2019 operating expense excluding cost of materials was $171 million up 25% from $137 million in 2018. Operating income was $158 million compared to operating income of $57 million in 2018 up 179% year-over-year as a result of our strong operating leverage. Net income was $138 million or $2.92 per diluted share compared to net income of $59 million or $1.24 per diluted share in 2018 up 135% year-over-year.
Under ASC 605, operating income would have been $181 million and net income would have been $156 million or $3.30 per diluted share. We ended the year with $646 million in cash, cash equivalents and short-term investments or $13.74 of cash per diluted share.
Now, moving on to fourth quarter results, revenues for the fourth quarter of 2019 increased 45% year-over-year to $102 million from fourth quarter 2018 revenues of $70 million and up from last quarter's $97.5 million. Under ASC 605, fourth quarter revenues would have been $109 million. Our total material sales were $61 million in the fourth quarter up 52% from the comparable year-over-year's quarter of $40 million and up 17% sequentially from last quarter's $52 million.
Green emitter sales, which include our yellow-green emitters, were $47.5 million up 18% sequentially from third quarter's $40.2 million and up 70% from the comparable year-over-year's quarter of $27.9 million. Red emitter sales were $13 million in the fourth quarter up 14% from the third quarter's $11.4 million and up 10% from the comparable year-over-year's quarter of $11.8 million.
As we have discussed in the past, material buying patterns can vary quarter to quarter. Some of the contributing factors to this can include, consumer product demand cycles, capacity ramp schedules, production loading rates, device recipes, product mix, material ordering patterns, customer inventory levels, and customer production efficiency gains. Since a number of these factors are moving variables for our customers they are also moving variables for us.
Before we discuss Q4 loyalty and license revenues, we want to remind you that under ASC 606, irrespective of when billings occur, we will recognize royalty and license revenues in proportion to corresponding OLED material shipments. Fourth quarter 2019 loyalty and license fees were $38 million up 46% from the comparable year-over-year's quarter of $26 million but down from last quarter's $43 million.
Fourth quarter 2019 Adesis revenues were $3.2 million. This compares to $2.7 million in the third quarter of 2019 and $4.4 million in the fourth quarter of 2018. Cost of sales for the fourth quarter of 2019 were $18.2 million. This compares to $17.3 million in the third quarter of 2019 and $18.3 million in the fourth quarter of 2018.
Cost of OLED material sales were $16.3 million translating into material gross margins of 73.2%. This compares to 70.6% in the third quarter of 2019 and the comparable year-over-year's quarter material gross margins of 63%. For the year, our material gross margins were 72.7% in line with our guidance range of 70% to 75%.
Fourth quarter, operating [ph] expense, excluding costs of sales was $49 million, up from last quarter's $39.4 million, and from the comparable year-over-year's quarter of $36.5 million. Operating income was $34.5 million for the fourth quarter of 2019. This compares to last quarter’s $40.8 million and the year-over-year comparables quarter's $15.3 million. Under ASC 605, fourth quarter operating income would have been $41.8 million.
Net income for the fourth quarter 2019 was $26.4 million or $0.56 per diluted share. This compares to last quarter’s $37 million or $0.78 per diluted share, and the comparable year-over-year's quarter of $19.2 million or $0.40 per diluted share. Under ASC 605, our fourth quarter net income would have been $32.1 million or $0.68 per diluted share.
Now to our outlook, we expect 2020 revenues to be in the range of $430 million to $470 million. We believe our 2020 revenues will be impacted by capacity digestion, as some of our customers transition their material purchasing patterns from pre-production rates to more normalized run rates. As we saw in 2017, and in 2019 when new capacity comes online, we believe more materials are purchased proceeding. And as mass production ramps and customers get more efficient, and loading rates become more normalized, we then believe material purchasing patterns will more closely match to running utilization rates.
Additionally, we believe that the novel coronavirus will impact the OLED ecosystem and the consumer electronics industry and in turn impact customer purchases of our OLED materials. Based on what we know today, we believe there could be up to an estimated $40 million to $50 million impact to our revenues this year.
In addition, due to trade related concerns in the fourth quarter of 2019, one of our Chinese customers requested a shipment of emitters as additional safety stock for 2020, which includes a rate of return that expires in the first quarter of 2020. To the extent such rate of return is not exercised we will recognize up to $25 million of these shipments as revenues in the first quarter of 2020.
Moving along to gross margins, while quarterly material gross margins can vary quarter-to-quarter, we expect our overall 2020 material gross margins to be in the 70% to 75% range, which is consistent with the past few years.
Operating expenses of SG&A, R&D and patent costs are expected to increase in the aggregate in a range of 10% to 15% year-over-year, driven primarily by R&D. We expect the effective tax rate to be approximately 19% give or take a few basis points.
As Steve mentioned earlier, we expect the installed base of OLED square meter capacity to increase by approximately 50% over the next two years. As a key enabler and partner in the OLED ecosystem, these capacity plans mean new revenue opportunities for us, and overall, a positive growth trajectory for the years to come.
And lastly, we are pleased to announce that the Board of Directors has approved an increase in Universal Display's cash dividends. A dividend payment of $0.15 per share will be paid on March 31, 2020 to stockholders of record as of the close of business on March 17, 2020. The dividend increase reflects the confidence in our robust future growth opportunities, expected continued positive cash flow generation and commitment to return capital to our shareholders.
With that, I will turn the call back to Steve.
Steven Abramson
Thanks Sid. The growing and dynamic OLED market is bright and as a key OLED innovations partner we believe we continue to be well positioned to participate in the many exciting opportunities that lie ahead. We are expanding our global team and broadening our core competencies to fuel our strategic initiatives and increase our first mover competitive edge.
We are working closely with our customers as they map out their new product introductions for the coming years and are building on the breadth of our 25 years of experience in knowhow and continually innovating and developing enabling materials and technologies to support our partners and the industry.
With the ongoing proliferation of OLED displays across our broad array of small, medium and large consumer products, and the move to advance OLEDs into the midrange market, we see an environment that offers extraordinary and expanding opportunities. This includes novel applications based on conformable, foldable, and rollable plastic form factors which are poised to transform the consumer electronics industry.
In closing, 2019 was a year of growth for us and another year of strong investment and diversification in the infrastructure of the OLED industry's robust long-term growth path. We are creating and adding value for our customers and strengthening our leadership position in the industry through innovative products, services, and solutions.
At the core of our company strength is a global team here at UDC. I would like to take this opportunity to thank each of our employees for their drive, desire, dedication, and heart, in elevating and shaping Universal Displays accomplishments and advancements.
We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth, and delivering cutting edge technologies and materials for the industry, for our customers, and for our shareholders.
And with that, operator, let's start the Q&A.
Question-and-Answer Session
Sidney Ho
Great, thank you very much. My first question is, you talked about coronavirus outbreak could have a revenue impact of up to $40 million to $50 million this year. So is that correct that you take both the top-end and the bottom-end of your guidance down by that amount? That's my first part.
But just to follow up on that, how would you characterize this impact? Is it more a supply issue, meaning you have problems shipping to the China or it is more about the supply chain or is it more demand driven, and if it is demand driven do you see that coming back later in the year or next year, or is it mostly gone and will not come back?
Steven Abramson
Thanks Sidney, that's a lot of questions. So, let me first regarding the coronavirus, our thoughts are with all the people that are being affected directly and indirectly by the coronavirus and we will be support and we are supporting our employees, partners, customers during this very difficult time. And we have been closely monitoring the situation including current potential delays in production, the supply chain and consumer purchases. In addition, we've had ongoing customer discussions, feedback from the field teams in Asia, and industry peers. And as of today, we estimate it could be potentially up to 10% impact of our business in 2020.
Sidney Ho
Great and just to repeat the second part of the question, is that more a supply issue or a demand issue and this demand issue, do you think that will come back later this year or maybe next year?
Sidney Rosenblat
What we think Sidney is supply chain and demand. So it's all of those issues, and we're going to have to see how it works out. Ultimately, we think it's highly unlikely that demand will work its way back through the supply chain. But we can't predict the timing of that.
Steven Abramson
But we've had no issue shipping material to China Sydney.
Sidney Ho
Okay, great. My following question is looking at the 5G Smartphone ramp this year, there is a pretty good expectation that the 5G phones will ship somewhere around between 200 million and 300 million. Based on the customers you're working with so far, can you share with us what you've seen in terms of OLED adoption? I'm particularly interested in your comments whether that OLED adoption has accelerated in the mid-range segment as well? Thanks.
Steven Abramson
Thank you, that Sidney, that's a difficult question for us to answer since we really are not in the phone business, but we work with the panel makers, and we've worked closely with them to ensure that we can provide them with everything they need. So but I really, I don't have an answer for you. I think everybody anticipates 5G adoption at the premium price, but will also help the overall smart market this year. But I don't know whether any of these other issues are going to impact that.
Sidney Ho
Okay, great. Thank you.
Steven Abramson
Thank you.
C.J. Muse
Yes, good afternoon. Thank you for taking the question. I guess just to follow up on the first question around the coronavirus. You talked about 10% impact, I am just curious how you derive that number? Is that bottoms up based on kind of discussing with customers and what you're seeing and projecting for utilization rates or is there something else that kind of sets into that estimate?
Steven Abramson
Well, CJ, as I said, we've been closely monitoring the situation and looking at potential delays from production and supply chain. We try to get as much information as we can from our field team and from our customers and from published information. So our estimates that we have today, the best we can estimate it, will have about a 10% impact on our business for the year.
C.J. Muse
Okay, thank you.
Steven Abramson
I'm sorry. Yes?
C.J. Muse
Great. And I guess as my second question, as you think about the 605, 606, I guess to two parts there, you know, one what does the guide suggest on a 605 basis for 2020 and then were there any major changes in your assumptions as part of forecasting to derive the forecasts that you've given us for 2020? Thank you.
Steven Abramson
There have been no major assumption changes. I mean, we've been actually constantly monitoring. But for 605 guidance, we no longer believe that's meaningful, the breakout 605. As you've seen in the past few quarters, the delta between 605 and 606 has minimized. And so based upon that, we think that just giving GAAP guidance makes the most sense.
C.J. Muse
Okay, thank you.
Steven Abramson
Thank you.
James Ricchiuti
Hi, thanks good afternoon. Again, a question about the guidance. If I look at the delta that you're providing for 2020, it looks wider than we've seen in prior years going back to 2017. So I'm just wondering, is that wider range also reflecting some of the items you've already alluded to including the virus in China or are there some other factors that play in the wider range?
Steven Abramson
No, I think that there are so many uncertainties involving the virus, it's difficult to forecast the full potential impact of it's going to have on us in 2020. You know, based upon what we know today, we think that is the best forecast that we can come up with. And there is multiple factors that impact that.
James Ricchiuti
Okay. And then if you could maybe walk us through the increase in SG&A, was there anything unusual there? Because I thought the expectations were for an increase of 10% or so in SG&A in Q4, and obviously a much bigger increase. I'm just wondering, what drove that?
Steven Abramson
Yes, in Q4, there were some higher than anticipated compensation accruals. However, if you just look - take a step back and look at 2018 and 2019, and you look at the average OpEx growth that is within our historical guide of 10% to 15%. But sometimes for R&D things get pushed back or things get pulled in. So it is in our range, but clearly Q4 was probably higher than anyone anticipated.
James Ricchiuti
Okay, and again, looking out over into 2020, the increase is - I think you alluded to, is that true of SG&A that type of 10%, 15% increase?
Steven Abramson
Yes, we think it's 10% to 15%. We think that R&D will be the larger increase and it'll be weighted towards that. But yes, it should be in the range.
James Ricchiuti
Okay, thanks a lot.
Steven Abramson
Thank you.
Mehdi Hosseini
Yes, thanks for taking my question. I want to go back to your comment about the $25 million revenue comment related to the trade concern. If the customer were to exercise is that $25 million already embedded in the 2020 revenue guide or without the additional?
Steven Abramson
Yes, regarding that $25 million that is at a customer that has a rate of return, that we would recognize up to $25 million, that 25 million is in our guidance for 2020.
Mehdi Hosseini
Okay, all right. And you're assuming that the coronavirus will not have an impact. So if the customer were to exercise they will be consuming this material?
Steven Abramson
Well, it would be - we believe that this material is our assumption that it will be consumed during 2020.
Mehdi Hosseini
Okay, and then just, I apologize for coming back to this. If they do not exercise the option,then are we supposed to take 25 million as of the year in guide?
Steven Abramson
If they exercise the option and return it, then we would reduce it, but we honestly believe that even if they returned it that during the year they would probably buy enough of it to make up for it during the year because we do believe that the customer will need this material for 2020.
Mehdi Hosseini
Guys got it. Thanks for all the detail. And I have one follow up on the 50% capacity or installed capacity increase from 2019 to 2021. Can you please help us understand how that capacity growth is going to play out by geography like Korea versus China and how is that different than the 2017 through 2019 period?
Steven Abramson
The 2017 to 2019 period was actually in excess I believe of the 50%. And for this case, it is between Korea and China. And I mean, to some extent, I can't really break it down for you because we got information directly from customers that I can't disclose. But you look at published information and hope, you know, is that who is doing stuff, but we think it is primarily going to be driven by China and Korea, and it will be back-end loaded. It's probably mostly in next year versus this year.
Mehdi Hosseini
Thank you so much.
Krish Sankar
Yes, hi, thanks for taking my question. I have two of them, Steve, last year, you had mentioned that because of the China trade war issues, one of your customers actually built up inventory. I'm kind of curious, now with the whole virus situation, do you think there could be a situation where many of your customers out of the supply chain tends to build up inventory because they have kind of gone through this lesson and did not want to go through it again? And then I have a follow up.
Steven Abramson
I think they are two separate issues. First, we're not seeing any buildup of inventory other than the $25 million that were had described, which is from the trade issues. I think right now people are focusing on the coronavirus and how to get back to normal at this point, but I don't think that's an inventory related build issue.
Krish Sankar
Got it, and then as a follow either for Steve you said, I think you guys have spoken about OLED adoption in the past and I think you have spoken about probably like 600 million units this year, smartphone units. I'm kind of curious, how is that progressing? Has that view changed for the overall smartphone market with the virus and given that a large part of it was going to come from one of your large China customer?
Steven Abramson
Yes, I mean, those numbers are from IHS, and I think a lot of these numbers going from 485, I think the 600 million for this year. I mean, it is - right now particularly with the dynamic environment that is going on, I am not so sure that those numbers will be met. And these numbers were put up before all of the issues that relate to coronavirus and production slowdowns in China. So, I think you've heard from a number of smartphone OEMs that they're seeing a soft first and second quarter.
Krish Sankar
All right. Thank you very much.
Steven Abramson
Thank you
Brian Lee
Hey, guys, thanks for taking the questions. Sorry. I hopped in late, so I may be repeating some questions here, apologies in advance. But the $40 million give or take impact 10% that you're assuming for the virus, is that net of the 25 you're getting, which was, I guess a pull forward, if you will, from that customer who was concerned about the virus impact?So, said another way, if the virus situation wasn't something you had to navigate in your guidance, in setting guidance, would your guidance have been $40 million higher versus what you're reporting today or would it have been 40 net of the 25?
Steven Abramson
Yes, Brian there are two separate items obviously, and the $25 million is in our guidance for this year. This was a customer, as we stated, that wanted to buy safety stock for trade issues. And the coronavirus is where we think that - and then there is some digestion in capacity coming online, but that potential is up to $40 million to $50 million is our best estimate today of what the impact it will have, but they are two separate items.
Brian Lee
Got you. Okay. Okay, fair enough. And then just on the quarter itself, if I look at the results, I'm not sure if you walk through this dynamic a little bit, but the materials revenue was up almost 20% sequentially in the quarter, but royalty and licensing was down sequentially about 10%. Can you, I know a lot of this has to do with customer mix, but can you kind of walk us through the dynamics there why those diverging trends?
Steven Abramson
Yes, I mean, as we talked about the licenses and royalties is anywhere from 1.5 to 2 depending on customer mix. So in this case, but I can't tell you – I can't give you a lot more information. But you are correct. It is based upon customer mix in the fourth quarter.
Brian Lee
Okay. Fair enough. Thanks a lot guys.
Steven Abramson
Thank you.
Our next question is from Shannon Cross with Cross Research. Please proceed.
Shannon Cross
Thank you very much for taking my question. I'm curious, what level of communication are you getting from your partners? Because I know I've talked to Apple and others and I'm like, there's a lot of questions out there as regards to what's going on over in China right now. So I'm just curious as to how often you speak with them. And then also, just I think you've addressed it, but I just want to clarify, going into the coronavirus situation net of the Chinese company that bought extra. Where do you think your partner inventory levels were at? Where they in sort of normalized levels or did anybody else have more than you would have anticipated at the end of the year? Thank you,
Steven Abramson
Shannon, so we were talking to our customers, our field team on a daily basis. So we're getting updates or communications on a daily basis. As you would imagine, it's a dynamic and evolving situation. But we're doing our best to try to get real time updates and see what's happening in the various aspects in China. Regarding the second questions, we believe that material volumes were within the norm in the fourth quarter.
Shannon Cross
Thank you very much.
Steven Abramson
Thank you.
Unidentified Analyst
Hi, guys, thanks for taking the questions. First on the capacity digestion issue. I was wondering if you could give us a little focus on whether that's more TV oriented or small panel oriented? And also, if you could give an update on your progress with your host partners, has material been developed under that relationship and is it being sold by your partners currently?
Steven Abramson
Yes, we saw it across the board. We saw it both from small, medium and large OLED production, some capacity, which is going through a digestion period. So I don't think it's related one item specifically, though we've seen it across the board, that any time there's new capacity comes online new facilities, we know how that works. Regarding your second question with hosts, we have been working with a number of host companies. We are continuing to work with them. But as of this time, we have no design wins.
Unidentified Analyst
Okay, and just so I make sure I understand how that relationship works, there is no sales that will work through you, these are relationships with your host producers?
Steven Abramson
That is correct. We work with them, and they will actually make and sell it when they get a design win. We will not be part of that process.
Unidentified Analyst
Got you. Thanks very much.
Steven Abramson
Thank you.
