Universal Display rises after Apple rumored to cancel competitor’s project

Shares of Universal Display (OLED) are trading higher on Thursday morning after ams OSRAM (AMSSY) said that “a cornerstone project underpinning its microLED strategy” got unexpectedly cancelled. Oppenheimer believes that to be the 8-inch LED facility dedicated to Apple’s (AAPL) microLED display development and sees the news putting an end to investor concerns over microLED as a legitimate challenger to Universal Display’s technology in mobile consumer devices.

MICROLED PROJECT CANCELLATION: Shares of ams OSRAM fell over 40% on Thursday after the electronics company cancelled a major microLED project, which should create an impairment charge in the range of EUR 600M and EUR 900M for the first quarter. With that said, the company is cutting its revenue growth target and refusing to commit to a 2026 adjusted operating profit margin of about 15%.

APPLE’S EXIT: Commenting on the announcement that “a cornerstone project underpinning its microLED strategy” got cancelled, Oppenheimer said it believes ams OSRAM’s cornerstone project is the 8-inch LED facility dedicated to Apple’s microLED display development. Oppenheimer’s industry check indicates that Apple laid off its entire microLED team as of February 27. It marks the end of Apple’s ten-year journey to commercialize microLED display, after it acquired LuxVue in 2014. The firm believes this will put an end to investor concerns over microLED as a legitimate challenger to Universal Display’s technology in mobile consumer devices.

Oppenheimer views Apple’s exit as the biggest blow to microLED technology’s commercialization effort, as the firm believes no other hardware OEMs have devoted as much financial capital, human resources, and time as Apple on commercializing microLED. If Apple cannot do it, few others can, Oppenheimer argues. Overall, the firm sees microLED technology’s setback likely further accelerating broad based adoption of OLED display across consumer devices. It views Universal Display as the best pureplay company to benefit from such a secular trend. Oppenheimer has an Outperform rating on Universal’s shares with a price target of $200.

WHAT’S NOTABLE: Last month, Citi downgraded Universal Display to Neutral from Buy with a price target of $180, up from $161, citing valuation for the downgrade. The firm said at the time that it continued to view 2024 as a pivotal year for Universal Display with the development of Apple’s OLED iPad Pro models potentially opening the door for a faster OLED IT market penetration from its current 2%-3% levels. That said, Citi believes the risk/reward on the stock looks balanced and the valuation appears full.

PRICE ACTION: In Thursday morning trading, shares of Universal Display have gained about 4% to $175.65.