​Earlier this month we noted that China’s largest panel producer BOE (200725.CH) was said to be planning to orient the 3rd phase of its Gen 6 small panel OLED production line toward the production of IT panel products, looking to gain further traction with Apple (AAPL), with whom they have forged a relative new iPhone panel supplier relationship.  However recent South Korean trade press comments have indicated that the company is more interested in developing its ability to produce LTPO (Low-temperature Poly-Oxide) displays, a technology that Apple adopted last year for the iPhone 13 Pro.  The technology allows for a higher speed refresh rate (120 Hz.) and is key to the use of the variable refresh rate feature, which allows for the phone to adjust the refresh rate to the content type, which conserves battery life.
As we have noted previously, BOE entered Apple’s iPhone small panel OLED display supply chain after a protracted qualification examination and was able to supply between 15m and 16m flexible OLED displays for the iPhone 13 last year.  As part of the qualification process, BOE not only had to provide the quality that Apple required, but had to prove that they were able to produce the quantity necessary, meaning that their current yield was high enough to meet those requirements.  BOE had been producing the iPhone 13 displays at their B7 and B11 fabs, however the objective for the company is to shift production for the iPhone to its new fab (B12) in Chongqing, which began production on its phase 1 line, the first of three planned lines., late last year.  The second (phase 2) line is expected to go into operation during this year, although the date remains in question.  We would expected such sometime in 1H.
BOE has set a target of producing 40m to 50m iPhone panels this year, some of which will still be produced at the B11 fab, but with that higher target, it is necessary for BOE to also be able to produce LTPO flexible OLED displays, which would likely be produced at B12.  The issue however would be quantity, and comments from the media seem to indicate that while the second line at B12 will open this year, equipment for the 3rd line, which is expected to be producing LTPO displays, has yet to be ordered.  This will likely have little effect on the absolute number of units BOE produces for the iPhone this year, but will keep much of BOE’s production oriented toward those models that are not LTPO, meaning the lower end iPhone models. 
We expect BOE will have the opportunity to produce some LTPO displays for Apple this year, but they might be replacement screens, which is how the company began production for Apple initially.  That said, if BOE is able to procure the equipment for the 3rd B12 line and is able to begin production relatively early in 2023, we expect they will be able to become a primary supplier across the entire iPhone line in that year, challenging both Samsung Display (pvt), currently the primary LTPO display supplier for the iPhone, and LG Display (LPL), who has become a secondary LTPO supplier this year.  As to whether that 3rd line at B12 will be oriented toward smartphone production for Apple or whether it will be oriented toward OLED panels for IT is less of an issue as we expect BOE is orienting themselves toward also entering Apple’s iPad display supply chain in 2023, so the decision as to the B12 phase 3 line format would likely be based on how successful BOE is with LTPO production this year and next.

​Last week we noted that the use of realistic avatars or ‘virtual personalities’ was becoming more widespread, citing China’s Baidu (BIDU) push into the category with their Xiling platform and services offering, expanding past basic avatar creation and into the realm of virtual hosts, virtual idols, and brand spokespersons.  It seems that the trend is continuing as Taiwan’s HTC (2498.TT subsidiary Vive Studios (pvt), a well-known headset and content provider (Viveport), is launching a ‘virtual human’ business and has been recruiting AI experts, along with a former Chief Technology Officer from Boeing (BA), a company with considerable simulator experience.  Vive will base the development on their existing “Bit” platform that was developed in-house, but will extend it  to included “Volt”, proprietary VR animation IP that will allow for the development of realistic ‘virtual humans’.
Vive is targeting 10 to 15 characters, while keeping the development process relatively short and uncomplicated, and an investment in Vive from South Korea’s SK Telecom (SKM) last year is targeting such Metaverse related development, and the support of the company’s Vive Sync, a virtual meeting and collaboration space, an NFT art gallery, and a series of VR ‘experiences’, including VR based medical training, conservation, and other Metaverse worlds that highlight the company’s creation projects, hardware, or ability to operate with other hardware platforms.  With Vive VR headsets among the top rated headsets, usually in competition with Oculus (Facebook (FB)), the company’s virtual human project will be closely watched, although we expect it will be a bit more oriented toward virtual media than some that are being developed or used for more standard TV content, as noted in last week’s note.

​The Chinese government has taken a more aggressive stance on trademark requests containing ‘Yuán yǔzhòu’, loosely translated in Mandarin to ‘Metaverse’.  The National Intellectual Property Administration has been denying registration requests from a number of large and small Chinese companies that have included the words to prevent trademark ‘squatting’, where ‘first-to-file’ country trademark systems allow early filers the trademark use, rather than those who have a legitimate claim.  The Chinese government has seen a rush toward registrations trademarking Metaverse inclusive names as the hype around the Metaverse in China continues and is looking to promote only those that have a some technical capability to develop the technology, particularly AI and blockchain, although even those averring their commitment to the Metaverse, such as Netease (NTES), Alibaba (BABA), and Tencent (700.HK), have been rejected or are still under review, with trademark names such as ‘Ali Metaverse’ or ‘Metaapp’.

​The Fed on Crypto
The Fed has issued a paper entitled “Money and Payments: The US Dollar in the Age of Digital Transformation” which begins a discussion between the Federal Reserve and stakeholders concerning central bank digital currencies (CBDC), defining same as ‘a digital liability of a central bank that is widely available to the general public’, however the Fed is careful to state that the paper does not signal that the Fed will make any imminent decisions about the appropriateness of issuing a US CBDC. Citing the advent of private sector financial products such as digital wallets, mobile payment apps, and assets such as cryptocurrencies and stablecoins, the Fed has been studying the potential benefits and risks of issuing a CBDC.
The basic criteria that the Fed considers when evaluating such an issuance are:

• provide benefits to households, businesses, and the overall economy that exceed any costs and risks;
• yield such benefits more effectively than alternative methods;
• complement, rather than replace, current forms of money and methods for providing financial services;
• protect consumer privacy;
• protect against criminal activity; 
• have broad support from key stakeholders

While the Fed extols the virtues of the US payment system, it does cite the fact that while the number has been decreasing over the last ten years, 5.4% of the US households do not have a bank account and ~20% of bank account holders still rely on costly financial services such as money orders, check-cashing services, and payday loans.  Cross border payments also face high fees, slow settlement, and limited access in a number of countries, which the Fed estimates represents 5.41% of the notional value of the transactions, with the concept that digital currencies might be able to reduce those costs.
The Fed seemed to favor stablecoins in the paper, as an alternative to other cryptocurrencies, as they are linked to financial assets, while other cryptocurrencies are mined, creating an unlimited supply with significant energy consumption.  Currently most cryptocurrency exchanges do not charge a fee for stablecoin conversions, while they do for most other cryptocurrencies, making them attractive to novice traders, however regulations and accounting rules for stablecoins are still in early stages and the Fed was cautious about a number of risks including destabilization runs and concentration of power in regard to stablecoins, urging Congress to enact legislation that would ensure that stablecoin payment arrangements were made under a federal regulatory framework.
That said, the Fed sees a CBDC as a way to open digital payments, such as those made through Fed systems to banks, available to the public, although they note that as a direct liability of the Federal Reserve a CBDC would not need deposit insurance to garner the trust of the general public, making it “the safest digital asset available to the general public, with no associated credit or liquidity risk.”  Further, “While no decisions have been made on whether to pursue a CBDC, analysis to date suggests that a potential US CBDC, if one were to be created, would best serve the needs of the United States by being privacy protected, intermediated, widely transferrable and identity verified”, which sounds quite a bit like a tacit endorsement.
As to how the Fed sees the use of CBDC on a daily basis, they aver that all CBDC transactions would need to be final and completed in real time, allowing users to make payments to one another using a risk-free asset. “Individuals, businesses, and governments could potentially use a CBDC to make basic purchases of goods and services or pay bills, and governments could use a CBDC to collect taxes or make benefit payments directly to citizens. Additionally, a CBDC could potentially be programmed to, for example, deliver payments at certain times.”  However, they also see such a product as one that could level the playing field for private sector firms of all sizes, helping smaller firms that do not have the resources to issue their own safe and secure private assets.
As the paper delves further into what a CBDC might do to help the US financial systems it seems more obvious that the Fed is both looking for a way to enter the ‘cryptocurrency’ market without the risks and volatility that most such currencies contain, and is looking down the road to the eventuality of a cashless society, albeit one where Federally directed monetary policy would be influenced by CBDC reserve demand, making it an even more complex structure to manage from a fiscal perspective.  There are mentions of privacy, since the use of intermediaries would be needed as the Fed would not be offering CBDC accounts to the general public, and safeguards to prevent financial crimes, but the Fed seems to be edging toward coming up with a plan that would allow it to gain a level of control over the cryptocurrency ‘wild west’ that exists today, which certainly needs ‘corralling’, especially when one looks at the list of cryptocurrencies that trade at least $1 in daily volume.  There are 8,347 cryptocurrencies in that list and many more that trade less than $1 volume/day, so the field is ripe for some sort of regulation and/or central system that would make it stable, while helping to bring the Fed into the 21st century.  The Fed is open to comments until May… .

Wi-Fi is confusing.  In the ‘old’ days, Wi-Fi versions were called ‘802.11’ followed by a letter, which was usually shortened to just the letter, such as Wi-Fib or Wi-Fin.  However, since the specifications for Wi-Fi are developed by engineers, there were lots of ‘in-between’ Wi-Fi specifications that kept Wi-Fi designations from being sequential.  The Wi-Fi Alliance, the organization responsible for such specifications decided to convert those older designations into a simple form as shown below, hopefully simplifying things for consumers, who have had to deal with trying to understand the compatibility between their router and their smartphone when the router says “compatible with 802.11 a,b,g,n” and their phone says “Wi-Fi 802.11 a/b/g/n/ac).  Unfortunately things are still a bit opaque as the current version of Wi-Fi is 802.116e, which doesn’t have a new and simple designation, making the name changeover a bit messy, but don’t worry because Wi-Fi chip supplier Mediatek (2454.TT) has just shown a demo of its new Wi-Fi 7 chip, which it expects to release in 2023, cutting short the life of Wi-Fi 6e.
The good news is that specifications for Wi-Fi 7 are almost completed, which means that we should start to see such demos from other Wi-Fi chip suppliers later this year, paving the way for release next year and widespread use in 2024.  Not only does this simplify the Wi-Fi nomenclature, but the specifications for Wi-Fi 7 are considerably better than those for Wi-Fi 6e, and will allow for data speeds up to 46Gbps, which would mean you could download a 25Gb Blu-ray movie file in a few seconds, and AR/VR headset Wi-Fi connections will be able to take advantage of those higher connection speeds[1].
Bu wait, there is more…  Aside from the faster connection speed, Wi-Fi 7 will provide for the use of 16 antennae, twice that of Wi-Fi 6, which means a router should be able to handle more devices with less bandwidth (speed) sharing and interruptions, with the possibility that final specifications will allow for all three frequency bands to be used by such devices at the same time, further helping any bandwidth contention, all of which could put Wi-Fi speeds ahead or wired connections for the first time.
All in, Wi-Fi 6/6e will have a shorter life than originally expected, as Wi-Fi 7 is moving quickly toward commercialization.  While still two years out for the mass market, the incremental change will reduce some of the limitations that home VR systems face today, and while there are still many mountains to climb before users will no longer have to spend all of their time in the real world, its one less brick in the wall.


[1] Connection Speeds are theoretical as actual connection speeds will be lower.
 

Foldable devices are here and continue to become more commonplace, with Samsung Electronics (013570.KS) leading the charge.  Using foldables as the high-end tier in its smartphone lineup and having direct access to the leader in foldable OLED display panel production, Samsung Display (pvt), it is easy to see why Samsung has taken the reins on this device type and pushed it into the forefront of the smartphone world, especially given the premium pricing the category maintains.  But there are worries in the industry that premium pricing for foldable smartphones is already beginning to decline and some fear that the premium will be quickly washed away as competitors, particularly those in China, begin to fill out the category.
Not to take things at face value, we decided to check to see whether foldable smartphone pricing had moved significantly over the last year or so by looking at pricing on Amazon (AMZN), although we are limited to Samsung’s line in most cases as most Chinese brands are not offered on Amazon.  In each case we tried to find the lowest priced model (least memory in most cases) and an unlocked phone (no carrier) as the representative for that brand.  We do note that currently Wal-Mart (WMT) is offering the Galaxy Z Fold 3 5G for $1,500 and the Galaxy Z Flip 3 5G for $800, both at discounts to the current price on Amazon, but both are limited time deals and not permanent prices.
Based on the data below, there has been relative little change in foldable smartphone prices, with the low point for most being during the November and December holiday season, with only the almost two year old Galaxy Z Flip seeing a substantial price drop.  The most recent releases from Samsung, the Z Fold 3 5G and the Z Flip 5G are down 11.1% and 7.0% from their original prices, but are still considerably above their lows set in December of 2021.  While we have seen recent headlines stating that “Foldable smartphone prices are falling rapidly”, at least for now, the data disagrees.

While we are on the subject of the Metaverse, the South Korean government has come up with a roadmap for establishing the country as having the 5th largest global Metaverse market share by 2026.  The government announced the “Metaverse New Industry Leading Strategy” which details 24 ‘tasks’ that it sees necessary for the development of the Metaverse and South Korea’s place globally, including the training of 40,000 Metaverse experts, the creation of a Metaverse Academy (180 students to start), two Graduate Schools, and the ‘fostering’ of 220 specialized companies to fulfill the task list, which the government has divided into 10 categories below (not our translation).
The Metaverse hub, currently located in Pangyo Techno Valley, South Korea’s answer to Silicon Valley, will expand to across the country, along with the creation of a number of demonstration facilities and all will operate under mandated “Metaverse Ethical Principals”, a self-regulatory norm with guidelines that prevent damage to consumers, sexual exploitation, disseminating harmful information, checking information on digital goods, and guaranteeing the consumer’s right to withdraw subscriptions to services.
While we are certainly mindful as to how focused the South Korean technology mindset is, we expect things might not be as easy as laid out below.  Since much of the Metaverse depends on the hardware needed to place the user in a virtual world, we expect much of the early development will still be oriented to a 2D world view.  That said, the US government is still trying to figure out what it is that Facebook (FB) does and how their algorithms affect mental health so we have to give credit to the South Korean government for trying to plan ahead while our lawmakers are still stuck on whether we should negotiate drug prices under Medicare…

1. Metaverse Life                                        Implement major urban centers as “Digital Mirror Worlds”; Connect virtual and real experiences and realize everyday life.
2. Metaverse Tourism                               Tourist attractions, museums; Implementation of ritual purchase activities & travel or watch local festivals vividly.
3. Metaverse Culture & Art                      Ultra-realistic virtual performances, competitions and large audiences; Artistic activities and works, such as 2 way communication.
4. Metaverse Training                               Immersive training, multilateral engagement discussions in virtual classrooms; Help users create, trade, and leverage educational content.
5. Metaverse Medical                                Digital therapeutics using the Metaverse; Non-face group; Addiction treatment, rehabilitation guidance.
6. Metaverse Media                                   Avatars that synchronize with reality, such as movement, expressions, etc; Ongoing virtual broadcasting and realistic OTT services.
7. Metaverse Creation                Easy and comfortable Metaverse service for ordinary users; Ownership of the results of development.  Implement a virtual world where the reward system works.
8. Metaverse Manufacturing                  Production manufacturing process equipment virtualization and work efficiency; Optimize, increase productivity, improve quality, and manage safety.
9. Metaverse Office                                   Online office environment access, video conferencing, data sharing; Provide a realistic office environment where you can perform your work.
10. Metaverse Government                              Government and local administration and complaint services; education; 

​There has been some stir in the Korean trade press about LG Display’s (LPL) plans to expand it small panel OLED capacity which we found a bit odd considering the company announced plans to do so back in August of 2021.  In our 8/17/21 note, we outlined what we expected from the $2.8b project that LG Display had indicated that would be implemented over the next 2 ½ years.  LGD did not give much detail on the plan, which could include both a greenfield fab or capacity expansion at the company’s Gen 6 OLED fabs in Paju and Gumi, with the latter being the more logical path. 
Our take at the time was for a 10,000 sheet/month expansion at E6, which had already been discussed by the company, being boosted to 15,000 sheets/month, and an additional 15,000 sheet expansion in Paju, which could change to 30,000 sheets/month as the company’s business with Apple (AAPL) improved.  The current iteration, as noted in the Korean trade press, is that LG Display is ordering as many as eight ‘exposure machines’ at a cost of over 10b won ($8.4m US), indicating that LG Display is moving ahead with its expansion plans and could double its Gen 6 capacity by 2024.
Headlines aside, LG Display has two competitors in the Apple small panel OLED display supply chain, Samsung Display (pvt) and BOE (200725.CH), with SDC the leading supplier and BOE the new entrant.  SDC continues to push toward adding technology to its existing capacity, such as LTPO (Low-Temperature Poly-Oxide), that Apple desires, while BOE is adding Gen 6 OLED capacity at a rapid rate, expecting to complete its 3rd Gen 6 small panel OLED fab this year.  While BOE is likely going to supply Apple with less sophisticated LTPS OLED panels, LGD is in that middle ground, supplying some LTPS and LTPO this year.  In order for LGD to compete with both SDC and BOE, they have little choice but to expand small panel capacity, not as much for the 2022 year, but for 2023 and 2024 when BOE could represent not only a capacity competitor but a technology competitor.
The surprise to us is that, if the trade press holds true, that it took 6 months for LGD to finalize its plans while BOE continues its expansion and SDC converts more capacity to LTPO.    Negotiations with Apple over 2023 and 2024 supply contracts and the possibility of LGD expanding its small panel OLED relationship with Apple to larger displays (tablets, laptops) could have slowed actual capital deployment, but LGD has little choice but to expand capacity if it wants to remain a competitive small panel OLED display supplier to Apple.  We do note that LGD did have to face the issue of parent LG Electronics’ (066570.KS) termination of its smartphone business, and the weakening of Huawei’s (pvt) smartphone business, but BOE is certainly moving ahead with the idea that they can be a serious contender, so there is little room for a more refined decision process.  We expect LGD made at least verbal commitments for key expansion equipment in 4Q last year as part of its expanding commitment to Apple, making the recent fury over LGD’s expansion a less important event.

As the Metaverse (or at least the word ‘Metaverse’) worms its way into corporate speak, we try to separate the corporate desire to seem hip from what might have some basis in reality, and that is not an easy task when the word ‘Metaverse’ remains above popular search requests on Google (GOOG) since December.  Some companies seem to have quickly taken to the Metaverse, at least at the public level, and the potential (retailing, entertainment, training, etc.) is a bit more obvious for some, others continue to stretch for ways to include the concept in their corporate branding.  According to a recent Harvard Business Review article written by Ernst & Young, “…brands focusing on younger demographics, for example, probably don’t have the luxury of sitting out the Metaverse for long” increasing the fear that CMOs have of being ‘left out of something’ even though they might not quite have an understanding of what they are being left out of.  The inclusion of such phrases like ‘spectacular potential’, ‘stickier’, and ‘seamless transition’ make the concept seem like it is an absolute necessity for marketing people, regardless of the state of the concept or the ‘reality’ of what it might bring to the corporate image.
We call to mind a media platform known as ‘Second Life’, created by Liden Lab (pvt) back in 1999.  The platform was best known as a place where users could post content to a 3D world, and by 2013 had ~1m users or ‘residents’ as they are called by the company.  The site is game-like but is more of a social and commerce platform, using its own cryptocurrency that allows users to purchase property (virtual), shop, or just participate in group activities.  While the site is still said to have 800k to 900k users, growth has been non-existent for some years and has never developed into the once-expected ‘virtual life’ we all are told we desire, perhaps due to the monthly fee that must be paid to maintain residency, but adding 3D to such 2D content is really what Metaverse proselytizers hope will make it a global sensation that will change the way in which we live and experience life.

But such trivialities do not seem to stop companies from pushing ahead with programs to develop their own Metaverses, or at least are talking about doing so.  Retailers, particularly high-end retailers, have certainly latched on to the concept with Gucci’s (KER.FP) ‘Vault’, Dolce & Gabbana’s (pvt) NFT Collection, and Ralph Lauren’s (RL) partnership with Zepeto (035420.KS), along with even more logical Metaverse candidates, dating apps Bumble (BMBL) and Tinder (MTCH).  Even more ready to enter the Metaverse are Warner Music (WMG) and Sony Music (SNE), who are already offering virtual concerts that allow users to choose which songs the artist plays (for them) and have made acquisitions that open the door to ways in which they can sell music or music merchandise using NFTs.  But when it really comes down to who might benefit the most from adopting the Metaverse as a platform, company’s like Disney (DIS) are near the top of the list.
At a low level there is “Disney Magic Moments”, Disney content for “My Disney Experience”, which is just another way the company tries to maintain connection with their guests using digital content showing everything from behind-the-scenes looks behind the gates to how to master the recipe of favorite Disney character, but that isn’t really the Metaverse as we see it, just regular marketing.  However the Head of Digital & Technology for Disney Parks has been quite vocal on the Metaverse, and while some of the concepts seem to be only minor changes to existing 2D internet based content, Disney has gone much further.
The company has recently been granted a patent for a “Virtual World Simulator”, a system that tracks physical park visitors through their smartphones and fixed cameras, and is able to project 3D virtual images, such as characters, animals, or inanimate objects onto real-world venues without the use of AR or VR glasses.  Under this system, some of the virtual simulations would be automated, perhaps during a ride or other venue, but in other cases the system can be controlled by a human that can observe the situation and project a virtual character on an ad hoc basis.  Taken to the extreme, one might be walking toward the “Expedition Everest” ride when a Sherpa Guide is suddenly walking along side you and describing how cold it is up near the top and how thin the air is. 

​Disney goes further with the Metaverse, waxing poetically, stating “We deployed several digital tools to help our cast members transform the transactional elements of their work into meaningful interactions with our guests. New capabilities like AR-driven training helped with that transformation.  As we look to the future, connected park experiences that transcend the physical and digital barrier and unlock new layers of storytelling are a very exciting focus of ours. We call this concept the “theme park metaverse” – this is where physical and digital worlds converge, with wearables, smartphones and digital access points immersing the guests in the Metaverse experiences.  They are unique to you, but are also social and connected. They are constantly changing so there is always something new to discover.” 
Even big-box giant Wal-Mart (WMT) does not want to be left out of the Metaverse, going as far as reviving a four-year old product introduction video showing how virtual shopping might be envisioned, but Wal-Mart has also been at work filing Trademark applications for goods and services as “Provision of an online marketplace for buyers and sellers of downloadable digital goods authenticated by non-fungible tokens (NFTs)” and “Providing an interactive website and computer application software for virtual reality game services”, etc.  While this is just a trademark, it does show that even Wal-Mart is looking to create its own crypto-currency and one day be selling you heavily discounted digital art work or virtual ‘wine-in-a-box’ for your virtual diner party.
Of course much of what Disney says is corporate speak and the development of a Virtual World Simulator is likely relatively far off, so for the time being we will still have to settle for AR/VR headsets for our Metaverse experiences, but at a corporate level the Metaverse is fodder for endless marketing meetings, considerable M&A, and innumerable questions from potential investors.  With Second Life in mind, while we try to sense the Metaverse roadmap nuances that seem to change daily, we are careful not to overestimate its potential, both in the near-term and the long-term, and temper any of the more flowery rhetoric about this ‘new world’ with some old-world pragmatism.

German auto-parts manufacturer Continental AG (CON.GR) has announced (again, originally rumored in November 2021) that it has received an order from an ‘unknown global manufacturer’ for automotive OLED displays that is said to total ~1b€ ($1.135b US currently).  The deal calls for the displays to begin production in 2023, so we won’t be hearing about an OLED producer’s spiking orders this year, but perhaps some mention of capacity expansion given the size of the order and the longer-term nature of the automotive product cycle.  Given that OLED displays have a particular advantage over LCD displays when viewed off-axis, they have become a strong contender for dashboard displays particularly as production capacity has been increasing during the last few years.
As noted, the company letting the order was no given, however if we had to make a stab at who it might be, we would opt for Mercedes (DAI.GR), whose MBUX (Mercedes Benz User Experience) display announced last July is a dual display that was developed in conjunction with LG Display (LPL) that is connected with a single glass panel, eerily similar to the Continental announcement.  While we cannot confirm that Mercedes or LGD are the source of the order and display production, as the old Magic 8 Ball says, “Signs point to yes”.