​While the LCD display industry bemoans the fact that panel prices are at or near historic lows, some continue to push ahead with expansion plans.  One such project is a large Gen 8.6 LCD fab being developed by Tianma (000050.CH) in Xiamen, China where the company operates a smaller Gen 5 LCD fab and a Gen 6 flexible OLED fab.  The Xiamen project, when fully built-out will be the company’s largest fab at 120,000 sheets/month and is expected to cost ~5.15b US when completed, with production expected to begin in roughly 15 months.
SFA Engineering (056190.KS), a Korean company noted for their panel moving equipment, noted that they have just signed a contract with Tianma Xiamen to supply such tools to what we believe is the new fab, through the middle of December of this year.  The contract is for $111.6m US, which would represent ~9% of SFA’s sales last year, making it both a significant contract for SFA, and an indication that Tianma is continuing the fab’s construction at what seems to be a normal pace.  SFA indicated that its Chinese subsidiary had also received a contract from Tianma, but did not disclose the amount (Korean public company rules require disclosure while Chinese rules do not).
Over the years we have seen a number of instances when logic would indicate that it might be a period when the best plan was to slow or postpone LCD capacity expansion, yet panel producers continued to purchase equipment.  Much of this illogical behavior comes from the fact that government subsidies are an integral part of initial and ongoing financing for such projects, with fab  managers spending such subsidies under the thought that it might be reduced or taken away by ‘uneducated’ local officials at a later date.  There have been instances where we have seen millions of dollars of crated equipment sitting in storage for over a year, having been purchased under the ‘strike while the iron is hot’ scenario that seems to be the case here.  As the LCD display space has seen a return to pre-pandemic demand and pricing that is close to cash costs, one might think it best to slow capacity expansion and hope that demand will pick up enough to meet current supply, but when the government is looking over your shoulder as to how their money is being spent, you spend it.

​Yesterday we highlighted much of Samsung’s (005930.KS) TV line and potential new models to be released for the 2023 year.  However actual sets and pricing are not released until mid to late 2Q, so we went back to check on TV set pricing for Samsung’s Mini-LED and quantum dot TV sets now that the holidays are over, and it seems that Samsung agrees that the holiday discount period has ended.  Not only have prices increased, but Samsung is no longer offering a number of its 2021 Mini-LED/QD sets to consumers.  Many of these sets are still available from retailers or 3rd party sellers on Amazon (AMZN), but the 2021 8K Mini-LED/QD sets (900A/800A) and the 2021 4K Mini-LED/QD sets are no longer offered, other than a single 55” 4K Mini-LED/QD model that saw a 40% increase in price over the last 43 days since our previous check.  Samsung is still offering all of the quantum dot only TVs from 2021, as shown in the table below.
Samsung’s lines from last year are all still available but saw price increases between 0% and 120% from our last check, which was the day before Thanksgiving (2 days ahead of Black Friday).  Two models in the 2021 line (of those that were still available) were equal to or at their lowest price, while only 3 were at their lowest price from the 2022 line, and we not that the 98” versions in all lines do not seem to be offered since last October.  This could be relatively country local but given that the US is a strong ultra-large market, it seems unlikely.  One a composite basis, the 2021 Samsung Mini-LED/QD and QD only lines saw a 4.6% increase in price since pre-Thanksgiving and are down 26.1% from their original price, although we only include those that are still available.  The 2022 line, which remains fully available, saw a 17.4% composite price increase since 11/23/22 and is currently down 23.1% from initial pricing.  Samsung’s QD/OLED TV line, which currently consists of 55” and 65” models, saw a price increase of 5.9% since 11/23/22 and is currently down 34.5% from its initial pricing.
As we would expect, almost all of the 2021 and 2022 Mini-LED/QD and QD only line reached lows around Black Friday 2022 as TV set brands sacrificed margin to move inventory which had been piling up as inflation worries dragged down consumer spending.  While the price bounce back since Black Friday looks severe in some instances, for example Samsung’s 55” 4K Mini-LED/QD 95B series set jumped froma low of $1,000 on Black Friday to its current price of $2,200, that same set was selling for $2,200 in August of last year and began a downward spiral in September 2022 that led to the $1,000 holiday price.  This was the extreme, although the upper tier 4K Mini-LED/QD models, especially the smaller sized TVs, saw the biggest holiday discounts and very oversized snap-back pricing currently.  Samsung seems a bit lees inclined to offer more sustained discounts, as we expect inventory levels are more in line with demand and seasonality, but while internal TV set targets have been set for 2023, public acknowledgement of those tyargets has been withheld so far this year.  We expect most brands will struggle to maintain positive y/y unit volumes in the TV space and will be a bit more rational about plans for 2023 after the 2H debacle last year.

As the largest TV set manufacturer, Samsung Electronics (005930.KS) tends to set the tone for the space each year, usually with announcements at the Consumer Electronics Show in Las Vegas, which begins tomorrow.  That said, many company pre-emp their booths at the show by pre-announcing a bit about what they are going to announce at the show, and Samsung has done so.  While much of the details will have to wait until the show is underway, Samsung did make available a few details as to how its TV line will look heading into 2023. 
We note that predictions for the TV space in 2023 are just beginning to be forecasted and a few targets are being bandied about, but after the tumultuous year the CE space faced in 2022, we and others seem a bit more cautious about making predictions this early in the year.  Excluding our own forecasts, which we have yet to make, the general tone for the TV set industry is looking flat to down slightly, and has the potential to fall below 200m units for the first time since 2017, but TV set brands are a confident lot, especially this early in the year, and are making plans to build up their consumer TV offerings as they do each year.
Samsung Electronics does have some problems in the TV set space, particularly when it comes to OLED TV, where fellow South Korean competitor LG Electronics (066570.KS) and its display LG Display (LPL) dominate the OLED TV space.  As Samsung Display (pvt) decided many years ago (2013 to be exact) that it was not economically feasible to produce OLED TVs using the same production methodology it used to produce OLED smartphone displays, it abandon the production of OLED TVs, eventually backing the use of quantum dots to enhance the company’s existing LCD TV technology.  Samsung Electronics championed QDs and adopted it across a wide swath of its LCD TV line over the years and has since added Mini-LED backlighting to its higher end models, but lacked a TV set that could compete directly with LG’s OLED TV set line, which has been gaining traction as LGD slowly added capacity.
This changed in 2020 when Samsung Display began developing production capabilities for an OLED TV of its own, but not using the same technology as used by LG.  LG Display’s OLED technology, known as WOLED, is based on a layer of yellow/green phosphorescent emitter material combined with a blue fluorescent emitter material.  These materials are coated on a TFT (Thin-film Transistor) backplane and covered with a color filter, essentially a sheet of red, green, and blue phosphor dots.  The white light created by the emitting material passes through the color filter, with each red, green, blue or ‘blank’ phosphor dot filtering out the remaining colors to produce red, green, blue, and white dots for each TV pixel, which each being controlled by the TFT structure below the emitting material.  One big drawback of this process is that using a color filter is a subtractive process, as, for example, the red phosphor in the color filter blocks the blue and green light that make up white light, which means the brightness of each pixel is severely reduced.  LG compensates by adding a transparent dot as part of each pixel, letting the unchanged white light through and adding to the pixel’s brightness, but while this helps the set’s overall brightness, it reduces the overall color intensity.
Samsung Display found that using a similar emitting structure, blue fluorescent and green phosphorescent emitters coated on a similar TFT backplane, instead of using a color filter, they could use quantum dots to convert what is blueish/green light to red, green and blue sub-pixels without much of the brightness and color loss.  Quantum dots, rather than filtering out colors, ‘shift’ the frequency of the light, so the red quantum dot took the blue/green light and shifted it to red, while the green and blue quantum dots shifted the light to those primary colors, with no need for a white sub-pixel.  The result is a TV with a more vibrant color palette, with the potential for a brighter set.
There has been a problem however, which is that LG Display has been producing WOLED TV displays for 10 years, while Samsung Display is still in what would be called relatively small scale production and that is a problem for Samsung Electronics, who needs more QD/OLED volume than SDC can produce if it is to have a significant place in the Samsung TV lineup.  Given that 2022 was really the first year of production for SDC’s QD/OLED display line, decisions as to building out new capacity needed to be based on consumer acceptance of the product, and while said displays and TVs received positive reviews, it was a terrible year for the TV set business and capacity increases were low priority.  Parent Samsung Electronics even went as far to bargain with rival LG Display over the purchase of millions of WOLED TV panels to fill out the 2022/2023 Samsung TV line, but negotiations did not resolve outstanding price issues and no agreement was made in 2022.
As Samsung Electronics begins to reveal its TV set plans for 2023, they have indicated that they will be expanding their QD/OLED TV set offerings by adding a 77” model to the existing 55” and 65” models[1] that were offered in 2022.  This was an inevitability, as premium size (>65”) TV sets continue to gain in popularity and tend to carry a higher premium than smaller sets, but indicates two things.  First, a bit more confidence in the technology by Samsung Electronics, who, at times, seemed less than enthusiastic about QD/OLED, and second, that Samsung Display has brought its yields up enough to be able to allocate some production time to 77” panels, which will likely have lower yields, and can still meet 55” and 65” QD/OLED goals, both of which are important to the decision to increase QD/OLED capacity in 2023.
In the first table below we show Samsung’s 2022 and potential 2023 TV line-up based on size.  77” models are expected to be added to the QD/OLED line and potentially the Micro-LED TV line, while there is some speculation that Samsung will add a number of ultra-large sizes to the Micro-LED line, although we expect there is currently little need for those sizes given their very high cost and the marginal sales of the ultra-large Micro-LED line overall.  One point that should be noted is that Samsung is now moving from Micro-LED TV modules based on PCB boards to TFT and Micro-LED placement on glass substrates. 
This new modality is considerably closer to the more typical TFT processes used in OLED and LCD TVs, and can reduce the cost of smaller sets, eventually putting them in a range more amenable to consumers.  We note also that Samsung has been reducing the size of each Micro-LED structure, enabling the higher resolutions needed for smaller consumer sets.  The 146” set that was shown in 2020 had a chip that was 125um x 225um which was reduced to 75um x 125um in 2021 for the 110” demo.  The 89” model is expected to have a chip size of 34um x 85um, which is a 69% area reduction in pixel size, although we note as Micro-LEDs get smaller it becomes more difficult to move them from die to substrate, so there is a trade-off as pixel size is reduced.
While the 2023 Samsung TV line does not have any major technology changes, at least at this pre-show point, it does show some progress on Samsung’s push toward Micro-LED, which remains a few years off for consumer TV products, and sets a decision point for QD/OLED.  QD/OLED capacity as it stands, is too small to be a true TV set price tier placeholder, so a decision as to whether to add capacity must be made soon.  Samsung continues to support quantum dot technology, which it has spread across almost all of its TV line, and can even be used as a simplified color conversion techniques for Micro-LED, but Samsung needs to compete with LG’s WOLED TV line, with the most likely candidate being QD/OLED, which would mean a more serious commitment to the technology at a time when capacity expansion projects are being postponed or eliminated.  Samsung has made such commitments during difficult times in the past, but the alternative would be to buy OLED TV panels from LG Display which leaves little product differentiation.  We expect Samsung to begin adding additional QD/OLED capacity before mid-year.


[1] SDC also produces a 34” QD/OLED display for monitors.

Magic Leap (pvt), the Florida based AR company that has been one of the most successful AR companies in terms of raising capital, has indicated that the Saudi Arabia Public Investment Fund ($620b as of 1Q ’22) has increased its stake in the company, now holding a controlling interest.  The deal, which consisted of $150m in convertible preferred and $300m in debt, and gives the fund the right to appoint 4 of the company’s 8 directors.  Magic Leap, which was founded in 2010 by Roby Abovitz, has raised over $3.5b through 28 investors, including Google (GOOG), Alibaba (BABA), Qualcomm (QCOM), AT&T (T) and a number of VCs, but went through some difficult times in 2020.  The company was forced to lay off ~1,000 employees (~50% of staff) when sales of its Magic Leap 1 AR headset, released that year failed to materialize as expected, and rumors that the company was looking for a buyer turned out to be untrue as the company went back to private investors for more capital.  The company then changed focus (most of the layoffs came from the consumer segment) to the enterprise market, and the founder and CEO gave up the reins to a new CEO in 2020.  Since then, he has relinquished his board seat to found a new company, Sun & Thunder (pvt), that creates Ai characters (“SynthBees”), a Metaverse engine, and “some really cool and creative things”, according to the company.
Magic Leap’s initial headset problem was price, and while the device (Magic Leap 1) was quite sophisticated, it cost ~$2,300, which was hard to justify in the consumer market in 2018.  Since then the company announced the Magic Leap 2 in January of 2021, but did not release the device until September 29 of this year.  While the new device itself costs ~$3,300 (~$5,000) for the complete package), and is the most expensive AR device released in 2022, it is designed to be used across a number of industry verticals where considerable software has been developed to integrate the device with existing applications such as IT tools, 3D modeling, training, collaboration, technical guidance, and metaverse creation.  The device has considerably more internal storage capacity than similar devices, a positive for quick responses to user needs, although the display uses LCoS (Liquid Crystal on Silicon), an LCD based technology that is rarely used in such devices, having been replaced by Micro-OLED or Micro-LED display technology.
The Saudi confidence in the company is a bit surprising considering their original investment, which we believe was made in March 2018 ($461m) has seen a number of ups and downs but given the pre-money valuation of Magic Leap of between $1.5b and $2b, they seem to be optimistic about the longer-term prospects for AR and Magic Leap itself.  If the Saudi’s do take four board seats, there will have to be some reshuffling, as those seats have been held by Alibaba, Qualcomm, and Google representatives, but with over $700m invested, the Saudi fund has the right to run the board.  All in, the Saudi Fund, which remains under the control of Mohammed bin Salman, the Crown Prince and Prime Minister of Saudi Arabia, has stakes in other tech companies (Uber (UBER), Capcom (9697.JP), etc) but also has made investments in a number of US politically linked companies, particularly those of Jared Kushner, triggering issues surrounding Kushner’s ongoing support for the Saudi government, despite human rights violations.  There has been little controversy over the existing Saudi investment in Magic Leap, but given the political climate, that could change quickly given the company’s status as a US unicorn.,

​According to comments by a Foxconn (2354.TT) manager, the company plant in Zhengzhou, known as “iPhone City” has worked its way back to ~90% of its peak capacity, or so says local state media.  As we have previous noted, the factory was faced with both worker protests and a rapid loss of workers as the country’s leadership remained steadfast in its COVID-19 lockdown policies last year.  Foxconn has been offering pay and bonus incentives to draw back workers or hire new ones, but until the government loosened lockdown policies, the factory remained underutilized and large customers, particularly Apple (AAPL), faced shortages as production slowed.
 
November sales for Foxconn were down 11%, with the Zhengzhou plant and while that is important to the company, the production numbers from that plant contributed ~60% of the import/export flow for the entire Henan province and ~80% of the same for the capital city of Zhengzhou, with half of the province’s import/export value being from mobile phones during the 1st three quarters of 2022.  That said, the December number from Foxconn will prove out whether the return to near full production rings true, as state media tends to paint a rosy picture, but the Chairman of Foxconn did tell employees in his New Year address that 2022 was a challenging year but warned that 2023 “…may see a more difficult and challenging path…”

As PR heats up for the upcoming CES show (Jan. 5), Samsung Display (pvt) will show a demo of a hybrid foldable/slideable display device to potential customers.  The display which looks like a smartphone with an 8” diagonal (assuming a 9:16 aspect ratio), which would have ~27.8 in2 of display space, and could unfold to a 10” diagonal, which would increase the display space to ~50 in2, and then would be able to slide a rolled up display to give a diagonal of 12.5”, which would give ~72.2 in2 of display space.  The display will be capable of expanding from smartphone size to that of a tablet and to laptop size, or a ~264% increase in area by our calculations. 
 
While there is no assurance that such a display will be used in a device in the near future, Samsung Electronics (005930.KS) has indicated that it will be expanding its foldable line in 2023 and 2024 to include new formats.  The only difficulty we foresee with such a consumer device would be product placement as it could be construed as a replacement for all three current devices, and could cannibalize existing or future individual category device sales.  That said, a device such as this, especially a 2nd generation device where inevitable initial issues could be addressed, would be a big step forward for the mobile CE space.
 

The Australian Retailers Association and Westpac (WBC.ASX) have indicated that the holiday period down under was a success and was the biggest holiday season on record and certainly above expectations, and while Australia represents less than 1% of the global retail market, we are encouraged to find any countries where retail spending is seeing an upturn.  Unfortunately the Australian statistics do not break out consumer electronics, but perhaps we at the least be somewhat encouraged that 2023 will not be another disastrous year for the CE space.  Not that we want to take anything away from positive statistics, but we have to also note that Australia has seen its CPI increase by 6.9% over the 12 months ending in October, so the retail sales do get a boost from that, but the estimates for the holiday season (11/1 – 12/26) were for $64b, which would have been down~6.8% y/y.