Advanced Energy Industries, Inc. (NASDAQ:AEIS) is a maker of OLED gears and it already counts Applied Materials, Inc. (NASDAQ:AMAT) among its customers. But the business could soon boom for AEIS as Apple Inc. (NASDAQ:AAPL) replaces LCD screens with OLED displays in iPhones. The downside for AEIS, according to analysts, is that the company might not be able to keep up with strong demand because OLED is currently only a small portion of its semiconductor business.
According to Needham analysts, OLED could just be 25% of Advanced Energy’s semiconductor business. If that is true, it means the OLED business accounted for about $17.4 million of the company’s total sales of $103 million.
The Apple opportunity
There are speculations that Apple is planning to abandon LCD displays for OLED displays in future iPhones beginning with the 2017 iPhone 8. OLED displays are favored over other display technology because they consume less power and render better color saturation. For Apple, the shift to OLED is also expected to allow the company to catch up with the competition such as Samsung and to continue producing slimmer handsets.
Apple’s display order is believed to be a multibillion dollar business and there is a fair chance Advanced Energy could get a share of that market.
As a manufacturer of OLED gears, Advanced Energy is expected to ride Apple’s OLED wave through OLED manufacturers such as Applied Materials and MKS Instruments, Inc. (NASDAQ:MKSI). Applied Materials’ flat panel display businesses generate sales of about $700 million in F2Q2016.
Because of the potential to ride Apple’s OLED wave, Needham analyst Y. Edwin Mok recently sweetened his performance targets for Advanced Energy Industries, Inc. (NASDAQ:AEIS). The analyst predicts that AEIS will generate revenue of $436 million in 2016 and $475 million in 2017. Wall Street on the average is predicting 2016 revenue of $434 million and 2017 revenue of $459 million. Mok’s 2016 EPS estimate of $2.55 for AEIS is also a dime better than the consensus estimate.