Q4 2021 Universal Display Corp Earnings Call
Good day, ladies and gentlemen, and welcome to you and therefore, so display corporation's fourth quarter and full year 'twenty 'twenty. One earnings conference call. My name is Sherry and I will be your conference moderator for today's call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require for require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded for replay purposes, I would now like to turn the call over to Darryl Lewis Senior director of Investor Relations. Please proceed.
Thank you and good afternoon, everyone. Welcome Gina reversal displays 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 today's call is a property of universal display any redistribution.
Retransmission or rebroadcast of any portion of this call in any form without the express 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 displays website. This call contains time sensitive information that is accurate only as of the date of the live webcast of this call February 23 2022.
During this call we may make forward looking statements based on 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 considering making any investments in the company securities.
Universal display disclaims any obligation to update any of these statements.
Now I'd like to turn the call over to Steve even person.
Thanks, Darren and welcome everyone on today's call.
We are pleased to report our fourth quarter and full year 2021 results.
'twenty one revenue was a record high of $554 million operating income was $228 million net.
Net income was $104 million or $3 87 per diluted share.
Fourth quarter revenue was $146 million operating income was $56 million.
Net income was $46 million or <unk> 96 cents per diluted share.
2022 we expect the OLED industry to continue to grow with further adoption across a broadening range of consumer products for micro displays for <unk> to <unk>.
More watches smartphones are the modem.
Foldable, notably.
Where we are seeing a significant increase in interest and product roadmap activity to bright beautiful brilliant Tvs.
Momentum in the OLED industry continues to grow and we expect to grow with these.
Based upon current estimates and expectations. We believe our 2022 revenues will be in the range of $625 million to $650 million Sid will provide further details shortly.
Looking back on 2021, we continue to build on our strong partnerships and advancing our innovation engine enhance our corporate culture and fortify our leadership position.
All of which bolsters, our first mover advantage in the OLED ecosystem and strengthens our runway of growth on.
On the customer partnership front, we extended our long term agreements with LG display visual arts technology in TMR microelectronics.
The global manufacturing front, we announced with our foundry partner remember 20 years TPG the establishment of a new manufacturing site in Shannon, Ireland with the production of our highly efficient high performing universal OLED materials.
With the proliferation of OLED is expected to grow for the foreseeable future. We are increasing our OLED emitter production capacity to meet our customers' increasing needs. This new site will also broaden and diversify our global manufacturing footprint.
2020, what was another year of continued recognition for the company were recognized by the financial times as one of the America's fastest growing companies in just a few weeks ago. We were named to Forbes list of America's Best Midsized companies.
Over two and a half decades, we are focused on cultivating and fostering a global culture that promotes inclusion embeddedness integrity and the imagination.
We're committed to advancing our efforts around sustainability innovation and continuous improvement.
During the year, we were named by Newsweek as one of America's most responsible companies for the second year in a row, where the silver ranging from corporate social responsibility from <unk>, a leading provider of business sustainability ratings and recognized again by the form of executive women as a champion aboard.
Diversity.
Additionally, we achieved ISO 45001 certification in 2021 and internationally recognized standards that emphasizes the continual improvement of an occupational health and safety management system.
This certification coupled with our other certifications of ISO 9001, ISO 14001, reinforces our corporate commitment towards best International practices.
On the research and development front, we remain at the forefront of energy efficient OLED solutions and best in class, enabling technologies, our team of scientists and engineers are continually imagining inventing and commercializing highly efficient and cost effective OLED material solutions and technologies, including.
Novel device architectures, as well as advancing our groundbreaking Uzi J P manufacturing platform.
On the <unk> J P front, we're making continued advancements with our Trailblazing manufacturing platform.
D J T team steadily progresses with constructing the key subsystems over half the system design, a potential partnership discussions are evolving and progressing well.
Well commercial system is still a few years away, we believe that Uzi J P will pave a path for high volume manufacturing of large area.
G B OLED TV panels and develop into a multibillion dollar market opportunity.
On the materials front, our portfolio of leading edge energy efficient high performing phosphorescent materials continues to broaden with 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.
<unk> phosphorescent Blue Emissive system.
Given recent advancements we believe that we are on track to meet preliminary targets with our phosphorescent blue by year end, which should enable the introduction of our all phosphorescent RGB stack into the commercial market in 2024.
We believe that the commercial introduction of our full color and Mrs.
Unlock a vast array of opportunities for higher energy efficiency and higher performance across a broad range of applications.
On the online consumer market front from the introduction of its new Galaxy S 22, smartphones and Todd S. Eight plus an S. Eight ultra tablets two weeks ago to the success of its Foldable Galaxy Z series, where sales more than quadrupled year over year in 2021 to the unveiling of it.
Its hybrid QD OLED TV last month at CES, Samsung portfolio of OLED products continues to broaden and 2022 is expected to be another year of OLED product expansion.
LG display continues to ramp up its OLED TV production for 2022 LGD plans to increase its OLED TV shipments to almost 10 million units up from slightly under 8 million units in 2021.
Augmenting their growth will be the commercial introduction of its new 42 inch and 97 inch OLED TV panels on.
On the small and medium front LGD announced that it was investing in new Gen. Six OLED capacity as the company looks to expand its share in the smartphone automotive.
OLED markets.
Towards the end of 2021 Bowie began mass production of phase one and its third OLED fab in Chongqing, which is a design monthly output of 48000 flexible Gen six patents.
The OE has also been working closely with leases and at CES is Susan unveiled the world's first 17 three inch Foldable OLED laptops.
The product with some form factor versatility of being used as a PC monitor laptop or tablet using boe's flexible OLED panel.
Last week <unk> held a production commencement ceremony for its new Gen six flexible fab in Sherman.
Total investment of the project is approximately $7 $6 billion, which reportedly makes it the largest single high tech investment and shaman history.
This OLED plant is also designed for 48000 substrate starts per month.
China Star is in the midst of ramping its gen six flexible OLED capacity adds Wuhan plant.
After installing phase two and phase III equipment last year, China stores first OLED side now is a monthly installed capacity of 45000 substrate starts.
And vision Ox is new Gen six flexible OLED fab in Hefei has been fully ramp this capable of manufacturing 30000 plates per months.
The proliferation of OLED is still a young state and all of the penetration of the smartphone market reaches 50% were approximately 675 million units. We believe a significant new wave of capital investment plans for medium and large area OLED displays is beginning to form.
We're OLED penetration is only 2% in the it market and only 3% in the TV market today.
From an OLED capacity standpoint year end 2021 installed base of OLED square meter capacity increased by approximately 40% over year end 2019, there's a few installing timelines have shifted.
The multiyear capex cycle of the last six years has led to a sizable increase in the number of OLED fabs from less than a handful of manufacturing plants to approximately two dozen OLED fabs today.
Or an increase of Uber FIFO.
As we look out we're currently tracking about 10 expansion projects in Korea, and China for the coming 24 months.
We estimate that these new expansion phases will result in year end 2023 installed overcapacity as measured in square meters to increase by approximately 20% to 25% over year end 2021 .
As panel makers continue to invest in all of the expansion capacity, a new wave of medium and large area OLED investments is beginning to take shape driven.
Driven by an intensifying push from leading Oems for OLED products and increasing strength in the OLED TV market is significant new wave of Gen. Six and Gen. Eight five OLED capacity plans are reportedly in the works.
Last week, the FCC announced that there are 11 different gen. Eight five gen eight six OLED lives underdevelopment.
According to the market research firm I T. Fab spending is expected to increase every year from 2021 to 2025 and leave OLED spending in 2024 and 2025 all of this we believe translates into the continuation and expansion of the OLED industry's multiyear capex.
Cycle.
On the lighting front, while we were still in the early commercialization stage, we're seeing advances in OLED lighting for the automotive market.
Last month Olin work showcase its next generation high brightness and segmentation automotive OLED lighting at CES.
Turning to Poland works automotive designers can take advantage of the unique characteristics of OLED tail lights, which include brightness and color uniformly lightweight ultra thin form factor.
On that note, let me turn the call over to Suez.
Thank you, Steve and again, thank you everyone for joining our call today, Let me review, our 2021 results before commenting on our 2022 guidance.
2021 revenues were a record $554 million up 29% year over year.
Material sales were $319 million up 39% year over year, and royalty and license revenues were $219 million up 18% year over year.
And a decent revenues were $16 million up 13% year over year.
2021 material gross margins were 67% and our overall gross margins were 79% for the year 2021 operating expense excluding cost of materials was $211 million up 13% year over year, where can.
<unk> to invest in multiple strategic growth initiatives, including next generation Red Green yellow and Blue Emissive materials, and OLED technologies R. O V J T manufacturing platform, our global infrastructure, including our new Shannon site and in.
Our people.
Our 2021 operating income was $228 million.
Up 45% year over year and translates into operating margins of 41%.
2021 net income was $184 million or $3.87 per diluted share.
Up 38% year over year.
We ended the year with $823 million in cash cash equivalents and short term and long term investments were $17.37 of cash per diluted share.
Now moving on to our fourth quarter results revenues for the fourth quarter of 2021 was a record high $146 $2 million.
Our total material sales were $85.8 million in the fourth quarter up 13% sequentially from last quarter $75.6 million and up 37% from the comparable year over year's quarter.
$62.5 million.
Green emitter sales in the fourth quarter of 2021 which include our yellow Green emitters were $66.7 million in the fourth quarter up 15% sequentially from the third quarter's $57.8 million.
And up 38% from the comparable year over year's quarter $48 $2 million.
Red emitter sales were $18 $9 million in the fourth quarter up 7% from the third quarter $17.7 million and up 32% from the comparable year over year's quarter $14.3 million.
As we have discussed in the past material buying patterns can vary quarter to quarter.
Some of the contributing factors include COVID-19, and supply chain issues.
As well as 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 variable.
<unk> for our customers. They are also moving variables for us.
Fourth quarter, 'twenty, 'twenty, one royalty and license fees were $56 million.
This compares to $63 $9 million in the third quarter of 2021 and $75 million in the fourth quarter of 2020.
Fourth quarter 2021 a thesis revenues were $4.5 million. This compares to $4 $1 million in the third quarter of 'twenty, 'twenty, one and $4 million into fourth quarter of 2020.
Cost of sales for the fourth quarter of 'twenty, 'twenty, one where $32.2 million translating into overall gross margins of 78%.
This compares to $31.5 million in gross margins of 78% in the third quarter of 2021 and $27 million in gross margins of 81% in the fourth quarter of 2020.
Cost of OLED material sales were $29 $2 million translating into material gross margins of 66%.
This compares to 62% in the third quarter of 2021 and comparable year over year's quarter material gross margins of 61%.
Fourth quarter 2021 operating expense excluding cost of sales was $57.5 million compared to last quarter's $54.4 million in the year over year's comparable quarter of $48.8 million.
Operating income was $56 $5 million in the fourth quarter of 2021 compared to last quarters $57.7 million and a year over year comparable quarters operating income of $65.8 million.
Operating margin was 39% in the fourth quarter of 2021 compared to 40% in the third quarter of 2021 and 46% in the fourth quarter of 2020.
Fourth quarter 2021 income tax rate was 19%.
Net income for the fourth quarter of 2021 was $45 $9 million or 96 cents per diluted share. This compares to last quarter's $46 $1 million or 97 cents per diluted share in the comparable year over years quarter $53.9 million or a <unk>.
<unk> 13 per diluted share.
Now onto our outlook.
2022 is expected to be another record revenue year, we expect our 2022 revenues to grow to be in the range of 625 million to $650 million.
We believed at the 2022 ratio of materials to royalty and license fees will be in a ballpark of 1.4 to one.
2022 overall gross margins are expected to be approximately 79% similar to the gross margins of 2021.
Regarding material gross margins with the increasing complexity of our next generation materials growing development material pipeline and higher iridium costs, we expect our 2022 material gross margins to be in the 65% to 70% range.
2022 operating margins are expected to be in the range of 40% to 45%.
Operating expenses of SG&A, R&D and patent costs in the aggregate are expected to increase by 10% to 15% year over year with R&D estimated to be up 15% to 20% year over year, and SG&A expected to be up 5% to 10% year over year.
We expect the effective tax rate to be approximately 19%.
And lastly, we.
We are pleased to announce that the board of directors has approved an increase in universal displays quarterly cash dividend.
A dividend payment of <unk> 30 per share will be paid on March 31, 2022 to stockholders of record as of the close of business on March 17th 2022, the dividend increase reflects the confidence in our robust future growth opportunities expected continued positive cash flow Gen.
<unk> and commitment to return capital to our shareholders.
With that I will turn the call back to Steve.
Thanks says.
Leveraging our 25 plus years of vision innovation and reality Universal display Corporation continues to be a leading pioneer in the OLED industry.
The invention of phosphorescent OLED technology to the continuous discovery development and delivery of next generation OLED materials and technologies to advancing our groundbreaking proprietary Ob J P platform, two spearheading the efficiency and lifetime performance breakthrough of our plasmonic Poland architecture.
We have constructed and fortify a leadership group blueprint of innovation agility and growth.
Our multifaceted strategic approach and game changing R&D initiatives shape and strengthened our roadmap of enabling our customers and the OLED industry growing our business expanding our market opportunities reinforcing our global intellectual property framework and amplify our value proposition.
The OLED ecosystem.
Our growth story is still in its early chapters and is expected to be further fueled by new OLED products, new OLED spending and new OLED capacity. We believe that we are well positioned to continue to participate in the industry's growth due to the strength of our existing industry leading product offerings.
And from future commercial opportunities presented by our phosphorescent Blue and Ob J P platform, both of which are expected to be substantial and significant.
And bind with their global partnerships and global scale. We are excited for the extraordinary and tremendous opportunities ahead for the company.
I would like 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. Thank.
Thank you and have faith in.
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Our first question is from Brian Lee with Goldman Sachs. Please proceed with your question.
Hey, guys. Good afternoon, thanks for taking the questions.
Yeah, maybe first off just with the the.
The new disclosure and commentary around blue wanted to dig into that a bit.
I know in the past with with Green commercialization I think that happened back in late 2013, and 14, you had seen revenue on that new material and developmental.
Pick up quite a bit before the material was actually designed into a commercial product. So in that context, how should we be thinking about below given your new commentary will will there be any notable revenue in 2023, and then in terms of commercialization timing in 2024.
That to mean, you're designed into a product in 2020 or just kind of if you can give us a little bit more of the detail behind.
The way Youre thinking about the ramp over the next couple of years.
So Brian the way we're looking at is where we were actually currently selling some phosphorescent blue materials now in development.
We would expect it to pick up a little bit, but not move the needle until we get to the commercial till we get to the commercial level. Today's announcement it was really a significant advance.
The announcement on the advances we had been making on our a blue phosphorescent material system and we can see that we're on track to hit target.
Target specifications by by the end by the end of this year.
We're continuing to work with our customers and we expect that the commercial blue will be in the market in 2024.
Yeah.
That's great. Thanks, Thanks, Steve for that color and I know in the past you talked about the blue.
Material as a system so having both the meter as well as the host is that still kind of the plan as you think about.
The advancements you just made in that end of 2022 specs target in 2020 for commercialization.
Yeah. Our R&D teams are working on all the phosphorescent Blue system, which consists of emitter hosts system.
That's what we're focusing on focusing.
Okay Fair enough and then maybe one last one and I'll pass it on again on below.
With respect to commercialization there I know you said that multiple times in the past and Samsung your largest customer it doesn't have a portfolio license it would mean.
They don't have access to blue under the current contractual agreement so with this year being the final year of their contract are.
Are you anticipating that they just for a new.
Two year extension that they have the option for or are you anticipating that you will.
<unk> already been talking about incorporating more of a portfolio license agreement now that you have kind of line of sight for having glu ready within the next couple of years, just wondering what what's your thought processes around blue as it relates to your largest customer and their contractual situation.
Well, Brian as you know we've been working with Samsung for 20 years through a lot of a lot of development advancements.
Both both of those parties both of our parties and we expect to continue to be working with them.
Over the next two long time as well, but exactly how that's going to take place we'll have to see as we move forward into the future.
Alright, thanks for the color I'll pass it on I appreciate it.
Yes.
Our next question is from.
With Evercore ISI. Please proceed with your question yes.
Yes. Good afternoon. Thank you for taking the question I guess first question just to follow up on you've talked about excellent progress for multiple quarters now, but clearly there is a change statement here. So can you be perhaps more specifics on what the recent advancements.
I've been in and what are the key milestones that you're focused on as we proceed through 2022.
Sure well some of them I can talk about obviously a lot of them are confidential.
But we've been making advancements of the excellent progress line on color point lifetime and efficiency of our phosphorescent Blue Emissive system recently, we've seen not only the continual improvements that we've been making but some step level advances, that's giving us additional confidence.
Hitting the targets.
And as part of that any milestones that we should be aware of internally in terms of the 2022.
Positive outcome.
Well, while we clearly have an internal milestones I think we're going to keep that internal for the Sunday.
Alright, it was worth a try.
Tim.
[laughter].
Can you speak to the the revenue outlook for 2022.
You pre 606, you had $39 million of deferred revenues, you exited 2021 with the $157 million.
It would seem obvious to me that the majority of that I would think would be tied to your largest customer.
The fixed royalty therefore deferred revenue should be a real tailwind to you in 2022, So I guess it.
Is that the case, what kind of assumptions are you, making there and then as part of that.
If you were to see an extension of the agreement with Samsung by two years, how would that cause changes in your deferred revenue assumptions.
Thanks C. J you know as we've noted in the past you know as we get closer to the end of customer agreement terms, we recognize more of the customers deferred revenue boost upon our expectations and we've always expected to have more at the end of the contract and at the beginning of the contract.
But I can tell you that.
Our largest customer is no longer in the majority of our deferred revenue, we get we think theres a number of customers that are in there.
In addition to that.
It is something that or.
Our expectations are that near that.
We will use the deferred revenue over the life of the agreement so each of the customers agreements are different lifetime, if we enter into a new one we'll have to see what exactly that is when it occurs what impact that will or will not have.
Thank you.
Thanks C J.
Our next question is from Jim Ricchiuti with Needham and company. Please proceed.
Thanks, guys. Good afternoon, I know, putting together the annual guidance is a little.
A little bit of art.
Maybe less science, but if I think about.
The way you're guiding for the year the moderation in growth.
In the context of more foldable.
More.
LG producing.
Any more OLED TV units the I T market I'm. Just wondering are you are you being a little bit more cautious with respect perhaps to the core handset market.
Well to be honest, Jim These are our best estimates for the year as we've noted in the past here, we look at this every quarter.
But you know just to add.
If you look at the overall market.
And according to the.
The overall market, we expect to grow with the market and according to Omnia marker research. The OLED market is expected to grow by approximately 50%.
$246 billion from 'twenty to 'twenty to 2022 .
If you look at our 2022 revenue guidance are estimated.
'twenty 'twenty to 2022 revenue growth is expected to be in line with the market growth with that market growth rate.
Got it okay, and just as a follow up.
You talked a little bit more about the.
Obi J P and.
I'm wondering if there are there any milestones that we need to be thinking about.
This year, whether it's in the first half I mean, you talked about alpha tool and in the discussions.
I assume that you are having some discussions with the.
With equivalent companies, but just in general Uh Huh.
How should we think about some of these milestones this year or is this something that we should be thinking about more and.
More meaningful milestones in 2023.
So Jim right now we're looking at on the development side, we're creating these tests to test to prove in the viability of a V. J P. Four for large area manufacturing and will serve as the building blocks for the office system. So those are the those are the that's a focus on the technical side.
During during 2022 on the commercial side, we're continuing our conversations with both potential equipment.
Suppliers and partners as well as customers and.
The those those types of development and commercial activities are what we're looking at in 2022.
Steve is there more interest from from the equipment companies. There's a lot of interest there is a lot of interest.
We've been doing this on a relatively small scale fix this six to eight inch small scale that we've been doing it we're now scaling up to a much larger size and by showing people that Obi J P.
As.
Really good at the larger sizes, we think that that type of proof of concept is going to generate a lot of excitement.
Got it thanks a lot.
Our next question is from Krish <unk> with Cowen and company. Please proceed.
Yeah, I think my two questions I had two of them first one on the full year revenue guidance.
I understand you might not be constrained by their customers might be supply constrained.
Liquidate guidance for the full year of revenue, where do you think the risk is more on the smartphone side. The PD large pellet side for you.
Thanks for the question.
When we look at our guidance, we look at all the components and we'd look up you know all of the information that we get from our customers based upon their estimates and we look at market data.
You know there clearly have been some headwinds and they still related to component shortages and I think theres still some COVID-19 issue. So you know.
I think that those are some of the areas that you still have risk I mean, you're still here.
Our customer LG talking about 10 million Tvs in 2022 up from about just under $8 million in 'twenty 'twenty. One. So you know we do look at all the pieces, but there still are some risks I think in the system today.
Got it fair enough and then just a follow up on.
Blue kind of like a two part question one is on the blue side.
Should we assume that when it gets commercial in 2020, Florida market is mainly for smartphone.
Large panel and the second part of the question is that.
How do you think about Blue do you think it actually the places red.
Is that the incremental opportunity and how to think about pricing for blue relative to that injury.
The first part of your question.
The smartphone.
Yeah.
Our customers have a wide variety of end uses that they want to do to use blue one so we really cant predict which ones are which customers are going to use it it's going to be valuable across the board.
And we're looking at as the Blue opportunity is additive to Red and Green. So we're looking to replace basically replace a fluorescent blue that's currently in use.
With our phosphorescent blue system.
Got it and any thoughts on pricing.
As we get closer well, we'll figure out what the pricing is going to be.
Thanks, Steve.
Thank you.
Our next question is from Sidney Ho with Deutsche Bank. Please proceed with your question.
Hi, This is Jeff Rand on for Seth.
You gave an update on your expected square meter growth.
Oh when installation over the next two years, which represents a slowdown versus about 40% in each of the last two years <unk> seen an opportunity for this growth to reaccelerate with the introduction of O P. J P. In the next few years.
Thank you I think that when we talk about the growth over the next two years. We are also hearing that there is a lot of chatter regarding the I T capex cycle and a lot of that really is looking at the end of 'twenty twenty-three into 'twenty 'twenty four.
So you know.
I do think that that the I T. Saka I think we've heard that something like 10 or 11 I think its these comments Chris.
Facilities that we're going to be put in place during that period and right now we're only at 2% of the market. So we look at that as a very good opportunity for OLED them for us.
Great. Thank you and as my follow up with the.
The situation with Russia, and Ukraine escalating are there any risks to your business or your customers business that you're monitoring right now.
I I mean to be perfectly honest I am not sure I have an answer for that I do think that you know clearly it's a risk for the world. So.
For us there's nothing specific about that that would impact us theres no raw materials coming from either of those two countries that would affect.
<unk>.
Great. Thank you.
Thank you.
Our next question is from Martin Yang with Oppenheimer and company. Please proceed.
Hi, Good afternoon. Thank you for taking my question. My first question is on Blue do you think your blue I'll apply similarly to any applications that car to use.
Fluorescent blue.
Ultimately it will be you know the way the way the blue is going to work in the initial.
Like everything the initial first product will be the product that meets our basic needs and then it will continue to improve but there is interest across the board because of the energy efficiency.
The.
Additional brightness the lower panel temperature as well as a lot of other lower things that can use lower power consumption for him yeah, and just to add Martin as we've talked about in the past.
When do you have a new nuc material using phosphorescence. It does require a redesign of the back plane. So as things start adopting our blue they will start obsoleting older generations, but it will take some time to get adopted across the board.
A follow up on that do you have.
Any information all of which.
<unk> design will be the easiest to change to implement your blue.
To be honest, we're not back plane people, we know they they they change back claim designs quite a bit.
Every other generation products. So it's something that's in the normal course of business for the Oems, but that's not our business.
Got it.
My final question is on your.
Our installed capacity estimates by the end of 'twenty three.
Would you be able to separate how much our capacity is devoted to it.
Are we really just give you and we look at everything but as we stated and as it was in Steves comments era theirs Gen eight five and Gen eight six.
Office technology for I T is really the bulk of it and it's you know mainly I T and Tvs.
The Capex that's growing.
Is predominantly not for smartphones.
Got it thank you.
Thank you.
As a reminder, it is star one on your telephone keypad, if he would like to ask a question. Our next question is from <unk> Malik from Citi. Please proceed with your question.
Yes. Thanks for taking my question first a quick clarification.
<unk> in your prepared remarks, you talked about blue hitting some targets specification by the end of this year is that specification your internal specification.
My specification.
That's actually a good question, we're calling it a development specification.
Kind of understand what the market is looking for and so we've developed our own internal specifications for that and it's the same specification we've been using for for quite some time.
Okay and then the second one for sale on the gross margin.
What are you assuming for the raw material costs, maybe a medium for the gross margin this year because last year the gross margins were.
I think a little bit.
No that 80%.
The goal.
Yeah. So just talk about what do you see any part.
Puts and takes in the gross margin this year.
Well as you know, we expect our gross margins to be in the 65% to 70% range.
We do believe that there are some costs.
And without breaking down what is what you know we have developmental materials that go into gross margins, we've talked about iridium going into gross margins into our costs and other component. So we really don't break it down but they are they are the areas that are impacting our gross margins and we expect it to be in this year.
Two to impacted.
Great. Thank you.
Our next question is a follow up from Krish Shankar with Cowen and company. Please proceed.
Yes, hi, thanks for taking my follow up.
Just had a quick.
Matt a question for you as we look at the back of the envelope looking at the midpoint of the revenue guidance.
The ratio of materials like the one four to one seems like.
The license revenue is going to grow faster than the materials. This year compared to the opposite last year, a is that correct and if so why is that the case.
Well, we don't break down break it out, but we'd give you some guidance of one four and it really depends on each of the customers because when we go through the accounting for this we look at each contract.
And some of the customers as we've talked about have fixed license fees and some of them have royalties and some have a combination but what you do is estimate how much youre going to sell over the life.
And so it just really depends on the ratio of one customer to another customer what the end result will be they they they are different for each customer.
Got it got it all right. Thank you very much.
Thank you.
Our next question is from Andrew Abrams with supply chain market Research. Please proceed.
Hey, guys. Just one quick question on the emitter side was there anything on either green or red that was different than normal meaning.
Typical expansion or a typical capacity increases meaning is there somebody who was accumulating.
Or anything that might have been out of line with either what you guys had expected or what we might consider normal.
Thanks, Andy I don't think I don't think there's anything at a normal I think you're tracking your leading tier whether was there any body.
Buying safety stock or buying excess, but I don't think there's anything.
That that occurred.
As you know at year end.
Great. Okay. Thank you I appreciate it.
Thank you.
Thank you. This concludes the question and answer session I would like to turn the program back over to Sid Rosenblatt for any additional or closing remarks.
Thank you all for joining the call Tonight. We appreciate your interest and hope you have a good night. Thank you.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Yes.
Okay.