​Samsung Electronics (005930.KS) noted that sales of its Galaxy S21 series, released January 29, have been selling ~30% more than the previous year’s models, in South Korea.  As the home country of Samsung, we would expect nationalism to help early sales at home, but no mention of how the S21 series was doing in the other 60 countries where it has been released.  According to the company the basic S21 accounted for ~40% of sales, with the S21+ ~24% and the top-end S21 Ultra ~36%., with 30% of the phones being purchased directly from Samsung, double that of last year’s models, although only 40% were purchased in stores, with the remainder being bought on line.
Samsung noted that sales of the Galaxy Buds Pro wireless earphone sales were also double last year’s volume and that they expect a demand spike to occur with the S21 series between March and April, when 2 year contracts for previous models expire.  That said, while we don’t have data specific to South Korea, we noted yesterday that the share of those consumers holding their smartphones for 2.5 years or more rose last year in many countries according to a Kantar survey,  with Japan and China leading the pack with 36% and 34% respectively, with a y/y increase of 5.2% and 5.3%.  We expect given that South Korea is home territory for the Galaxy smartphone lines, the retention rate would likely be a bit lower, but we expect it still might be increasing as it gets progressively harder to add extraordinary features to new models and price becomes more of an issue.
To Samsung’s benefit, they did lower prices relative to last year, and the S21 Ultra has received positive reviews for some of its more progressive features, but the South Korean market is a bit biased toward Samsung, so we wait for data from other countries to see if that popularity carries through.  We note also that Samsung has been rumored to be expecting to ship 26m units of the Galaxy S21 this year, slightly above last year’s S20 series volume, which was considered a disappointment.  The S21 Ultra is expected to represent ~30% of sales, which was ahead of last year’s equivalent model share, and would seem to be a bit lower than actual sales in Korea.  If this holds true, it could push Samsung to maintain or increase the feature-set difference between the lower and upper models of the Galaxy S22 next year.

​Not to be confused with mini-LED or micro-LED, micro-OLED is as the name suggests, a technology that reduces the size of OLED pixels in order to squeeze more into a small space.  While they are similar to micro-LEDs in that they are both self-emissive, quite small, and neither use existing LCD technology, micro-OLED pixels are made of organic materials, similar to those used currently, while micro-LEDs are made of inorganic materials such as Gallium and Indium.  They further differ in that LEDs are produced primarily on sapphire substrates while OLED are typically produced on glass, plastic or metal.  In the case of micro-OLED, the substrate is a silicon wafer.
While micro-LED development is being carried out by a number of companies, much of the press related to micro-LEDs relates to Apple (AAPL) who has been developing both mini-LED and micro-LED technology at their ‘secret’ facility in Taiwan in conjunction with Ennostar (3714.TT), AU Optronics (2409.TT) and others.  While they are working toward commercializing micro-LED technology, it seems they are also working on developing micro-OLED technology, which has a target market in VR/AR applications.  Apple is said to be working with Taiwan Semi (TSM), whose obvious expertise in ultra-small structures on silicon would likely be the place to look for help in such development.  That relationship is expected to be focused on a 1” display that could be incorporated in a pair of glasses and uses a waveguide to project the micro-OLED image on the user’s eye, potentially the basis for a VR device from Apple, which has been rumored for some time.
At the same time, Chinese panel producer BOE (200725.CH) is also said to be developing micro-OLED technology through a JV with the Yunnan Provincial government that would also be for VR/AR applications and is expected to release at least a sample version in 2H this year.  Sunic Systems (171090.KS) has supplied BOE with the deposition equipment for the JV as part of a $2225m supply deal with BOE and has indicated that such equipment accounted for 50% of sales last year and is expected to account for 40% this year as Chinese panel producers move into more specialized OLED displays. 
However producing high resolution OLED displays using standard deposition tools is highly dependent on the masks that pattern OLED materials during the process.  These masks would have to have highly controlled tolerances to be able to place such small material points in such a small area.  While such tolerances are achievable, they are a function of the mask thickness, meaning the thinner the mask the higher the pixel count, however this creates a mask that is subject to deformation during the deposition process, which would cause pixel size and overlap issues that would compromise yield.  We expect step function increases in micro-OLED resolution over the next few years as those challenges are resolved with new materials and processes.
It might seem counter-intuitive that CE companies like Apple and BOE are developing parallel technologies that are, in theory, competing with each other, but given the early stage of technology development for both micro-OLED and micro-LED such parallel development is a hedge against either self-emissive technology hitting roadblocks that are either insurmountable or are commercially non-viable.  While Apple has rarely been a company to use bleeding edge technology, they have been using their vast financial resources to develop what might become generic technology in the future.  Such programs do not always produce positive results, but at worst the stopped clock rule will eventually kick in.  Once they have an edge in a particular technology, they can use their development partners to become mass producers and offset much of the risk while guaranteeing a high volume source.

​The Chinese New Year/Spring Festival began last night, starting a week of celebration where ancestors are honored and families gather for a reunion diner.  This is typically a time when factory workers travel home and production in general slows, however this year will likely be different given the  COVID-19 pandemic, lessening the almost 3b trips that are usually made during this holiday.  We expect celebrations will still take place but with more viewing from home. 
Last year’s celebration was right around when the virus was acknowledged by the Chinese government and some cancelled plans for family gatherings, leading to a drop in alcoholic beverage sales and typical gift items, while fast foods such as noodles, and staples sold out quickly as many prepared to cook at home rather than travel.  Supermarkets in China saw a 12% decline in foot traffic while local markets saw an increase as they kept outside trips to a minimum and e-commerce sites saw an increase of 22% y/y.
We expect this year will be different again, as consumers have had considerable time to adjust to this new lifestyle.  We expect movie-going at cinemas, a ‘tradition’ during the holiday, will be weaker than in the years before 2020, with at-home media being the preferred venue this year, but the bigger question is really Chinese consumer sentiment, as this will determine the over spend, regardless of whether it is on line or in person.  From a y/y perspective, we believe sentiment will be better than last year, as the unknowns concerning the virus last year were many while this year physical and psychological adjustments have been going on over the past 12 months. 
That said, it is hard to judge how much ‘pre-buying’ has been done in the CE space, so we temper our expectations a bit, but all in we expect overall holiday sales to rise y/y and we expect production during the holidays to remain higher than usual, with many workers remaining at production sites rather than returning home.  We expect this is both due to the pandemic but also due to the fact that consumer electronics production globally has been hampered by both tight capacity and component shortages, leaving producers to use what is normally a very slow production period, to fill the gaps in customer orders.  As we have noted previously, in some CE segments workers have been offered bonuses and gifts to incentivize them to work during the holiday, which we expect will have a positive effect on production relative to the norm.

Again 2020 has proven to be an odd year for CE, with some segments seeing extraordinary growth and others seeing significant reductions.  One area that did not fare well was VR (Virtual Reality) where according to recent data, saw a 22.1% drop in global VR sales last year, along with a ~10% drop in shipments.  But have no fear, that same data source predicts that VR will find its legs again in 2021, almost clawing its way back to 2019 levels, with 25.5% growth projected for this year and high growth rates through 2024.  Based on the stay-at-home situation presented to consumers in 2020 one would have thought VR would have seen growth similar to gaming monitors, however it seems that the hardware portion of the VR equation faced availability shortages as other, perhaps more profitable hardware demand took precedence with suppliers.  While we find that a hard explanation to justify such a drop in sales, we do note that as 2020 developed those priorities became more obvious and meaningful throughout the supply chain.
Much optimism as to VR growth is the result of Facebook’s (FB) $299 pricetag for the Quest 2, which likely generates little or no profit to the company but is said to be priced right in the middle of an inflection point that consumer VR surveys indicate will spur unit volume.  Said to be part of Facebook’s long-term view of the VR market, the company is adding suppliers as the device begins circulation, but speculation about VR consumer price points has been around since early devices were released, with little justification.  All in we take any estimates relating to VR sales with a large grain of salt and expect that it will still take some time to get VR resolution high enough that even those with the weakest stomachs can handle such headsets.

​China’s largest semiconductor fab SMIC (981.HK)  reported weaker 4Q results (-9.4% q/q, +16.9% y/y) , a result of lower wafer production as Huawei (pvt) reduced orders, a result of US sanctions, although the company expects 1Q results to be up between 7% and 9%.  Telling was the decrease in wafer revenue at the 14nm/28nm nodes, which declined from 14.6% in 3Q to 5.0% in 4Q, the drop in smartphone wafer revenue that decreased from 46.1% in 3Q to 36.7% in 4Q, and the drop in revenue share from China from 69.7% in 3Q to 27.7% in 4Q.
SMIC said it will continue to expand production capacity but said production will not be ready until 2H this year, and that the company has seen few customers change their relationship with the company due to the US sanctions.  All in it was a better than expected quarter given the Huaqwei situation with reasonable guidance.  More to come.

2020 might not have been a great year for many, at least from the perspective of the political arena, but it was a good year for 5G.   While 2019 say 5G as a buzz word and a topic for discussion in tech circles, 2020 saw 5G becoming established and recognized by consumers, and regardless of whether they understood what 5G really was or what it offered, they bought in.  Over 200m 5G smartphones were sold in 2020 (213m according to Gartner) vs. only 16.7m in 2019, so the uptrend was quite obvious despite a weak year for smartphone sales in general and a year that saw phone owners holding on to older models for longer than in the previous year by a noticeable amount.

By the end of 3Q last year there were 107 carriers in 47 markets providing 5G services, either mobile or FWA, and 135m 5G connections, so 4Q saw a jump of ~77m 5G users if the Gartner data is accurate (others expect up to 235m for last year’s final).  Predictions for this year are for over 500m units sold and by 2025 between 1.5b and 2b connections are predicted, with 90% of 2025 5G connections coming from either North America (218m of which 200m are in the US), Asia-Pacific (1.2b of which China is 800m) and Europe (233m).  In order to meet these goals, carriers are expected to spend ~$8.8t to build out 5G services.
Most 5G carriers have focused their attention on the mid-band spectrum (3.3Ghz – 3.8Ghz) as it offers a reasonable balance of coverage and speed, but both low bands and high bands will become essential to building out real 5G networks over the next few years.  MmWave (high band) can offer vast amounts of spectrum, high speed and low latency in locations where coverage is not an issue, while the low bands, with wide coverage, would be most effective for areas where populations are sparse, so we expect carriers to work toward diversifying their networks according to need, but to fully exploit the benefits of 5G, mmWave would provide the best possible performance experience.
That said, mmWave does have some issues that have not been faced by carriers previously.  mmWave signals travel relatively short distances and are easily blocked by simple physical structures, trees, and even glass and wood.  This makes mmWave less than ideal for carriers looking to cover as many new users as possible, but there are also a number of positive that make mmWave a longer-term solution for 5G.  As 5G traffic increases, low-band and mid-band spectrum will become crowded, and those looking for high speed applications will find that they might not be getting the performance originally intended for those frequency bands. 
Because mmWave has such a broad spectrum, it will become the place where such applications will migrate over time if they need the peak speed, lowest latency, and more efficient network usage, but from the carrier perspective, building out mmWave must be cost effective or there is no reason to focus on that band.  In the US, Verizon (VZ) has been a mmWave champion, looking to attract commercial customers to the service rather than the more typical mobile customers, but in order to maintain coverage, has also expanded its mid-band offerings, while most other US carriers have gone in the opposite direction, starting with low or mid-band, and moving slowly into mmWave.
On a global basis, according to GSM, as of 3Q 2020, new 5G spectrum had been assigned in 35 markets between 121 operators, with 27.6% in the low band, 52.3% in the mid-band, and 20.1% in the high band (mmWave),, with the US leading the global market in the use of mmWave.  The US FCC made that spectrum available to carriers earlier than most countries (1/1/2019) and has promoted its use, while China, with its vast area and user base, has been focused on mid-band.  That said, China is currently conducting trials for mmWave so it will be able to demonstrate it high band capabilities by the February 2022 start of the Winter Olympics to be held in Beijing.
Europe however has seen only two countries that have assigned mmWave spectrum with neither offering commercial mmWave service yet, but at least EU members are working toward developing a common set of technical conditions for mmWave to make it easily compatible across the region.  Among ideas for consideration are exempting small cell antennas from planning permission requirements in order to speed up deployment.  While Europe lags in mmWave commercial deployment, there are seven carriers that have launched commercial mmWave networks.

While the cost of mmWave propagation equipment is higher than that of mid and low band 5G, we expect that differential to decrease as mmWave deployments increase over the next few years.  That coupled with BOM improvements should make mmWave distribution a more lucrative proposition for carriers globally.  That said, the GSM Association, an industry organization that represents over 1,100 carriers and companies has run a series of scenarios under which they have calculated the TCO of deploying mmWave 5G services between 2020 and 2025.  Much of the data is in chart form so we summarized as much as possible in the table below.
According to the GSMA, in a dense urban environment, with mmWave overlaid on a mid-band 5G network, mmWave becomes profitable in China  when the 5G user share exceeds 10% and the carriers 5G share also exceeds 10%, while in Europe user share must exceed 25% for the network to be profitable.  The difference between the two locations is in China estimated traffic density is higher as is the population density, along with expectations of higher bandwidth in China.  This would indicate that using mmWave in conjunction with mid-band 5G in China would become profitable as soon as the mmWave band is made available to carriers, while in Europe profitability would be more dependent on maintaining high outdoor mobile traffic rates.
In the category of FWA (Fixed Wireless Access), where businesses or residences have an antenna that receives the mmWave 5G signal and brings it indoors to avoid signal blockage issues, much of the cost analysis of mmWave is based on data rates, and while 5G penetration rates needed in such a rural scenario would have to be at least 18% by 2025 under the low data rate scenario, even higher relative cost savings (~70%) could be calculated if penetration rates reached 50%, according to the data.
Understandably, the data provided by GSMA might be a bit biased toward the positive given the organization is an advocate for the industry, however the increasing level of data traffic forecasted over the next 5 years (3.6x the 2020 rate on a monthly basis) could push carriers to look for ways to keep from facing network bottlenecks during periods of peak demand, with mmWave as a viable overlay on a mid-band network.  We are less sure as to using mmWave in a rural environment because of the higher cost and lower coverage density required, but if the world really becomes as interconnected as some predict, mmWave would be a viable alternative in almost any situation eventually.

​According to documents released by the Shanghai Stock Exchange, a withdrawal application for the IPO and listing of Shenzhen Royole Technology Co (pvt). was submitted by the company and its sponsor, which was accepted by the exchange and terminated the audit review.  While no details were given for the withdrawal, we suspect the back and forth dialog between the STAR Audit committee and the company did not go well and the requirements for listing were too onerous for the company.
We note that on 12/31/20 we wrote about a few of the ‘risk factors’ in the Royole Prospectus, including low utilization rates, losses each year, and the expectation that the company was still in the market expansion phase and would require continued R&D leading to further losses.  Whether these details would have caused a lack of enthusiasm from potential investors is now a moot point, which could postpone the company’s capacity expansion plans, which included a $2.48b flexible OLED fab in Qindao, China, some of which is (was?) being financed by the Qingdao Science & Technology Bureau, the Qingdao Shanghe Demonstration Zone, the Quingdao Urban Construction Investment Group, and the Quingdao Caitong Group, all state or local government owned real estate developers and construction companies.  The company had previously raised $1.b through a series of financings and debt, which is likely a better route given the company’s current status.

​Huawei (pvt) founder and CEO Ren Zhengfei indicated during an interview that while Huawei might sell some of its 5G technology, it would sell its mobile phone business, regardless of the pressure that has been placed on the company by the US government.  In the interview he stated that ‘terminals’ are the company’s stock and trade, meaning any device that connects people and things together, with mobile phones only one part of that business, and while he also indicated that Huawei will not expand its business areas,  using the ‘terminal’ definition allows the company to expand into different end markets.
While there has been speculation that Huawei would sell its entire mobile phone business, especially after selling the Honor brand recently, this is basically the same message that the company has been promoting since the conflicts with the US began.    That said, as the US restriction grew more stringent and the effects became more pronounced, it became more difficult for Huawei to secure a number of key semiconductor components.  When asked about that situation Zengfei stated that they would not give up on globalization, assumedly a reference to his view that semiconductors, in general, could be supplied by a variety of sources, including those in China, where Huawei owns HiSilicon (pvt), a fabless semiconductor supplier.  His feeling was that even with the sanctions, global customers will come to China to buy semiconductors in the future.
While an optimistic view, we expect that some of that general semiconductor positivity is based on the hope that during the next four years the US will relax some of the restrictions placed on Huawei by the previous administration.  Few thought that China would be able to dominate the LED or display industries in the relatively short amount of time it took them, and while semiconductors are based on far more complex processes, China is dogged in its pursuit of semiconductor competency.   The Chinese government, more at the provincial and city level, seems quite willing to finance such projects, and while some will wind up as unfulfilled reams, China always seems to be the dog with the hold on one’s trouser leg, with no way of prying it off with losing some of the material.  We are not as sure as Mr. Zhegfei that such will happen soon, but we do expect it will happen.  JOHO.

Sensors are a big business, and not just in smartphones, where they get a considerable amount of press.  Sensors for automotive applications were a big draw in 2020 as sensor feature sets in automotive applications are becoming an even greater selling point than hardware and are slowly migrating drivers to more autonomous driving systems.    Many sensor companies are expanding, and while capacity takes time to build and perfect, buying capacity, especially when it broader]ns a company’s reach, is a much faster way of creating momentum in the sensor space.  2020 was certainly a year when acquisitions in the sensor space were being made, and we list a few here to show how companies both in the space and wishing to be in the space have become.  We note that while China is certainly known as a buyer in the sensor space, not all of the acquirers here are Chinese, although on a general basis, China has been the most active in terms of sensor related acquisitions recently.

​Back in the early 1980’s the International Telecommunications Union began R&D on developing specifications for 3G standards that allowed for a maximum data rate of 42Mb/sec, compared to 144kb/sec provided by 2G..  After 15 years of work, the first 3G network was launched in Japan in 1998, but reliability issues and limited coverage kept 3G from becoming a reality until the early 2000’s, with networks in Europe, Korea, and the US, and by 2007 there were 200m 3G subscribers, or 15.8% of all global wireless subscribers.  By 2011 3G penetration rates were peaking as 4G networks took hold, and while 2G networks, a slower and older technology remained mostly intact, 3G networks began to be shut down.
Verizon (VZ), one of the earliest 3G providers, announced in 2016 that it planned to shutter its 3G network on the last day of 2019 after halting new 3G activations in July of 2018.  That timetable was confirmed again at the beginning of 2019 but in July 2019 the company indicated that it would push the 3G shutdown from the end of 2019 to the end of 2020.  Earlier this year a Verizon representative indicated that the 3G network was still in operation and there was no plan as to when it would be shut down stating that they are ‘working with customers to migrate them to 4G networks and to make sure we continue to care for them.”  That said, the company has now indicated that it will shut down the 3G network by January 1, 2023.