​Samsung likes India.   The brand is 2nd only to Xiaomi (1810.HK) in share across the sub-continent, and Samsung has been doing at least some mobile phone component production in India since 1996.  In 2018 the company completed the 1st iteration of the world’s largest mobile phone assembly plant, which was completed in 2020, doubling its capacity.  However Samsung also like Vietnam, where it will be adding $920m to expand its production capacity there, where it produces ~60% of its ~300+m smartphones[1] that it ships each year, a larger share than in India, after shifting all of its smartphone assembly out of China over the last year.
However last year Samsung moved two smartphone production lines back to its factory in Gumi, South Korea, where it has testing facilities and production capabilities for the domestic Korean market.  This ‘reshoring’, as the company calls it, was in response to some of the stringent lockdowns implemented in Vietnam and India due to COVID-19 outbreaks, and was a way to make sure that such lockdowns do not affect the company’s overall smartphone assembly capacity, although it would seem to be creating at least some capacity that might be underutilized at times.
With the recently announced increase in spending in Vietnam, it seems that Samsung is indicating that it is now prepared for any COVID-19 or other potential production problems on a global basis, with additional capacity, albeit relatively small in Brazil and Indonesia and is still focused on using Vietnam’s assembly capabilities, cost structure, and tax incentives as its Southeast Asian manufacturing hub.  Samsung has no smartphone assembly facilities in the US, despite the size of the market and Samsung’s share, with most smartphone product for the US shipped from Vietnam.  Chinese brand Vivo (pvt) also announced a $467m US investment toward expanding its production capabilities in India, where with its sister brand Oppo (pvt) they hold a combined 32.3% share, which will allow it to both better serve the India market and export to nearby regions.


[1] Estimates vary considerably as to the unit volume from both the Vietnam and Indian plants, however they are the bulk of Samsung’s smartphone assembly capacity.

​Over the last few years we have mentioned PlayNitride (pvt) a Taiwan based company that has been developing Micro-LED display technology.  The company, among whose investors are Samsung, Lite-On (2301.TT), Applied Materials (AMAT), and AU Optronics (2409.TT), is expected to submit documents to the Taiwan Innovation Board, a subset of the Taiwan Stock Exchange that is designed to help small companies or start-ups obtain capital.  Among the listing requirements for the Innovation Board are undergoing pre-listing advisory guidance with an underwriter or registration as an emerging stock for 6 months and in business for two years or more.  Sales must be NT$150m or greater ($5.4m US) and the board must have 5 or more members, and the company and major shareholders are subject to lock-up for 6 months after the listing and can only sell an additional 25% of holdings every 6 months after that initial sale.
PlayNitride has developed, both internally and with partners, a number of Micro-LED display products, under the names PixeLED®, µ-PixeLED™, and PixeLED Matrix™, and has been showing prototypes, particularly those used for AR/VR applications and automotive HUD displays for a number of years at major trade shows.  We believe the company is part of Apple’s well-known ‘secret’ LED R&D center in Taiwan, along with AUO and Ennostar (3714.TT) that is researching micro-LED display technology for Apple.  PlayNitride has an R&D and pilot production line in Hsinchu and its building a second line for full scale production.  While PlayNitride is fabless, it has developed a proprietary wafer process, mass transfer technology (stamp), and LED repair process, all of which will help to move the technology into a production mode.  PlayNitride showcased a 37” modular display, a 7.6” transparent Micro-LED display, a 1.4” circular high-density (338 ppi) wearable Micro-LED display, and a 0.39” full color ultra-high resolution (1411ppi) Micro-LED display for AR applications at CES this year.  The listing is expected to be achieved by the end of 2022.
 

In the broad display market, China’s BOE (200725.CH) is the leader in LCD panel production, however in the OLED display space BOE has been playing catch-up with Samsung Display (pvt) and LG Display (LPL), particularly when it comes to producing iPhone displays for Apple.   As we have noted previously, BOE has been included in Apple’s iPhone display supplier list this year after a number of futile attempts at qualification in 2020 and 2021.  While SDC produces the most sophisticated (LTPO) displays, LG Display has been gaining favor with Apple and has seen increasing OLED display volumes last year and again this year, while BOE is just beginning to bring production volumes to scale.
That said, BOE has put out expectations of producing ~40m OLED units overall, with ~30m for the iPhone this year and some optimistic prognosticators have stated that BOE’s share could be as high as 20% (40m+) with Apple this year, although we see more reasonable estimates in the 14% to 16% range.  However it seems that BOE has already hit a stumbling block in that a shortage of display driver silicon, an item absolutely necessary for display production, could limit BOE’s small panel OLED production this month and next.  BOE’s display driver supplier, LX Semiconductor (108320.KS), formerly known as Silicon Works, that is part of LX Holdings (pvt), owned by LG Group (pvt), the holding company of LG Electronics (066570.KS) and LG Display (among others), has been unable to meet its production goals and has had to allocate silicon capacity.  Not surprisingly LG Display’s driver needs come before BOE’s and BOE is expected to fall short of its production goals for 1Q by ~3m units.
Whether the shortage will reduce the overall 1Q and possibly 2Q total unit volume for the iPhone is still a question, with driver inventory level at Samsung and LGD unknown, but it will put BOE in a difficult position, albeit not completely its fault, in its first year as a primary OLED display provider for the iPhone.  Much has been said about BOE’s potential to displace SDC and LGD in the iPhone display market in Chinese trade press once the final qualification process was completed last year, but BOE is still far from catching Samsung or LG Display, as SDC is producing iPhone displays using LTPO, a more versatile backplane that allows for a number of features in the top-tier of the iPhone line and LGD is expanding its production of both LTPS and LTPO production to accommodate Apple’s capacity demands, so while BOE is certainly a competitor, and a potential source of negotiating power for Apple, they still have a way to go before they will be on par with SDC and LGD, and this setback will do little to help that situation.

In the broad display market, China’s BOE (200725.CH) is the leader in LCD panel production, however in the OLED display space BOE has been playing catch-up with Samsung Display (pvt) and LG Display (LPL), particularly when it comes to producing iPhone displays for Apple.   As we have noted previously, BOE has been included in Apple’s iPhone display supplier list this year after a number of futile attempts at qualification in 2020 and 2021.  While SDC produces the most sophisticated (LTPO) displays, LG Display has been gaining favor with Apple and has seen increasing OLED display volumes last year and again this year, while BOE is just beginning to bring production volumes to scale.
That said, BOE has put out expectations of producing ~40m OLED units overall, with ~30m for the iPhone this year and some optimistic prognosticators have stated that BOE’s share could be as high as 20% (40m+) with Apple this year, although we see more reasonable estimates in the 14% to 16% range.  However it seems that BOE has already hit a stumbling block in that a shortage of display driver silicon, an item absolutely necessary for display production, could limit BOE’s small panel OLED production this month and next.  BOE’s display driver supplier, LX Semiconductor (108320.KS), formerly known as Silicon Works, that is part of LX Holdings (pvt), owned by LG Group (pvt), the holding company of LG Electronics (066570.KS) and LG Display (among others), has been unable to meet its production goals and has had to allocate silicon capacity.  Not surprisingly LG Display’s driver needs come before BOE’s and BOE is expected to fall short of its production goals for 1Q by ~3m units.
Whether the shortage will reduce the overall 1Q and possibly 2Q total unit volume for the iPhone is still a question, with driver inventory level at Samsung and LGD unknown, but it will put BOE in a difficult position, albeit not completely its fault, in its first year as a primary OLED display provider for the iPhone.  Much has been said about BOE’s potential to displace SDC and LGD in the iPhone display market in Chinese trade press once the final qualification process was completed last year, but BOE is still far from catching Samsung or LG Display, as SDC is producing iPhone displays using LTPO, a more versatile backplane that allows for a number of features in the top-tier of the iPhone line and LGD is expanding its production of both LTPS and LTPO production to accommodate Apple’s capacity demands, so while BOE is certainly a competitor, and a potential source of negotiating power for Apple, they still have a way to go before they will be on par with SDC and LGD, and this setback will do little to help that situation.

In January China shipped 33.02m mobile phones, down 1.1% m/m and down 17.7% y/y, with domestic brands making up 25.65m units, or 77.7% and smartphones making up 98.0% of the total, a share consistent with much of 2021.  26.3m of the mobile total were 5G phones, for a 79.6% share of the total, and 30 new models were released into the domestic Chinese market of which 50% were 5G.  Mobile phone Shipments in China have returned to pre-COVID-19 levels for the last four months and we expect a continuation of that trend for much of this year, seasonality aside. 
We expect the most significant mitigating factor will be component shortages that could limit shipments or push back model release dates, which leads us to forecast full year mobile phone shipments in China to be 381.24m units, up a relatively conservative 8.7% y/y.  We expect 5G phones to continue to grow share, reaching an average of 80.7% for the year, which would imply shipments of 307.67m 5G units this year, unit growth of 15.6% over 2021’s 266.2m 5G shipments on the Mainland.  While we expect there could be considerable play in all of our shipment estimates for China, we expect that on an overall basis 2022 will be a less volatile year than the last two.
We have noticed a trend that seems to be maintaining itself over the last few years and that is a decline in the share of the Chinese market by domestic brands as seen in Figure 6, which has declined (trendline) since 2019.  That said, there have been some monthly domestic brand share increases that have made such data look less valid, such as the peak in June ’21 of 95.9% domestic brand share, but we expect much of that has to do with the timing of domestic brand releases versus foreign brand release schedules.  Chinese brands certainly have the largest share of the domestic market, but the impact of trade sanctions against former share leader Huawei (pvt) by the US has reduced their share both globally and in China, and while domestic brands have picked up much of that slack, it has opened the door a bit wider for foreign brands such as Apple (AAPL) and Samsung (005930.KS).
 

​The Metaverse is, if nothing else, the point at which the CE space generates the most current hype, with companies making sure to mention their connection to the Metaverse, however tenuous, at every public juncture, while investors seem to be willing to assume such massive growth that valuations become meaningless.  While crypto currencies have their own issues, much of the Metaverse hype is tied to crypto and NFTs, where the days of the Gold Rush, tulip mania, and the more recent dot.com bubbles look modest in comparison.  That said, does the hype continue into 2022 and beyond or does it slowly fade away as the reality of the Metaverse becomes more apparent? 
Since the Metaverse, in its real form is based on VR, while development of flashy Metaverse ‘universes’ will continue and tools to develop then get better, we believe the limitations imposed by VR headsets will bring the hype down to a more reasonable level with large stakeholders generating hope and hints of extraordinary and easy to come by wealth, while unit volumes remain the metric to watch.  In that regard, we note that Facebook’s (FB) Oculus VR headset line is without question the most popular VR headset, and has been for a number of years, accounting for between 73% and 78% of the VR market last year.  The next iteration for the Oculus line is expected to be the Quest Pro, wireless headset with eye tracking, face tracking, and a slew of extras such as local depth sensors that can map the user’s environment to the display or sense when someone enters their movement field and a ‘record’ function that captures a few seconds of VR data that can be played back before resuming the game.
The new Oculus headset is expected this year, and while component shortages and similar issues might push that toward the 2nd half or into 2023, the Metaverse hype machine will restart when the headset is released.  In the interim, the Metaverse publicity machines will shift a bit toward AR, where the Metaverse itself is not directly involved but could help to keep Metaverse momentum alive until the seminal Oculus event.  AR does have some direct and practical applications and as it does not exclude the user from reality, is a less immersive but more ‘natural’ (we use that term loosely) and easier to accomplish from a technical standpoint.  That said, nothing helps to move technology forward more quickly than the profit motive and while manufacturing and business applications for AR are the ones that will pay premiums for hardware and service, everyday AR applications that can give the user the ability to visually search will likely be the topic of focus for AR this year.  If and when a manufacturer can come up with a truly wearable AR ‘headset’ that can use eye tracking to pull up information on products as the user walks through everyday situations, the Metaverse will become secondary to the sales gathering potential for AR.  Maybe Apple (AAPL), Google (GOOG), Facebook, Xiaomi (1810.HK) or Vuzix (VUZI) will make that happen this year, but until then we will have to be content with reality.
We estimate Oculus headset shipments for 2020 and 2021 below.  More to come…

Global warming is a fact, despite what some say to the contrary, but heat has been a problem for the global population since time began, and only with the development of electricity could a way be found to reduce the temperature in homes and businesses to any significant degree.  In 1901 Willis Carrier built the first modern air conditioning system and by 1931 window-ledge AC units became a household want, despite their exorbitant cost ($416 then which is the equivalent of $8,295 today).  As the home air conditioning market developed, the refrigerant used to allow those units to cool everything from homes to food storage facilities, migrated from a number of toxic and/or flammable gases to the commonplace refrigerant known as R-22 or Freon. 
Little attention was given to the fact that the release of Freon, a hydrofluorocarbon, was detrimental to the ozone layer and some of the replacements that were touted as ‘non-ozone layer toxic’ turned out to be so but still had extremely high GWP (Global Warming Potential) with atmospheric lifetimes lasting for multiple decades.  As of 2020 Freon production was halted (mostly) and R-410A, known as Puron was the alternative refrigerant used in all residential A/C units produced however Puron also has a high GWP index and as of 2023, there will be another switch to R454B, known as Opteon, or R32 (No product name and today we noticed that LG Electronics (066570.KS) was advertising what it calls “Korea’s first eco-friendly refrigerant system air conditioner” starting next month
The new system, which uses R32 as a refrigerant, is cited as having a GWP that is only 30% of the previous refrigerants (meaning Puron) and uses 20% less overall refrigerant, all of which is true, but LG has been using R32 in Europe and India since 2018 as it was classified as a ‘weakly flammable material’ in Korean until the safety standard was changed in August of last year.  As of January 2023 Puron will be replaced with either R32 or R454B in many countries including the US so LG seems to be making a push to capture the ‘first mover’ share in Korea, but the rest of the world, or at least much of it has already made the soon-to-be-mandated change with many opting for R454B, such as Carrier (CARR) in the US.

Avatars can be fun.  Wandering through games or social media as a cartoon character or an incarnation of what you would like to be (or be seen as) is as easy as spending a few minutes using one of the hundreds of free cartoon avatar creator tools, or spending hours developing a quasi-realistic avatar based on a photo of yourself or others.  Many avatars ae specific to the game or platform, although the more sophisticated avatar development platforms work toward making avatars that are platform agnostic, but in most cases avatars are still a bit cartoonish and react with relatively limited physical mechanics and facial expressions.
Back in 1972 the game Maze War was developed by three high school students who were participating in a NASA work/study program to help visualize fluid dynamics for spacecraft.  The project morphed into the development of what is considered the world’s first 1st person shooter game, which could be played over ARPANET, the precursor to the internet, and contained the world’s first avatar as seen in Figure 2.   Game avatars continued to progress but GIFs began to surface in the 1990’s when internet chat became a reality, and typical 100x100 pixel avatars were used to represent the ‘chatter’, with game avatars moving toward more customization, while other games took a more cartoonish track, such as the Nintendo () Mario series.
That said, avatars have progressed considerably and as noted above, can take on some decidedly human characteristics as more sophisticated shading and lighting become possible to the average user, but when it comes down to it, avatars are obviously not people and are limited by the number of variable characteristics available to the avatar and the ability of software to manipulate those characteristics in a way that emulates a human form.  Given that the face has over 24 individual muscles on each side, the possibility for creating human facial expressions is a daunting task, and while computing power continues to increase, much of human emotion resides in facial expressions, which could involve any number, if not all, of those muscles.  Not only would they need to move realistically, but they also need to mimic speech, which would also include gestures and movements that are both subtle and must be realistic or they will contribute to the feeling that the avatar is not real.
We have noted that animators have been able to define human expressions in terms of muscle movements and have been able to translate that into animated characters (https://youtu.be/sCCRBg-byGM)  but mapping facial expressions against the complexities of speech is a far more complex task.  In our note we showed the use of ultra-realistic animations being used to either mimic existing newscasters or the creation of ‘new’ TV reporters that are astoundingly real and ‘read’ copy in real time, inclusive of facial expressions and body movements that make them hard to tell apart from their human counterparts.   
Of course, there is the ‘deepfake’ crowd, that uses this technology to foment distrust by using social or political figures while overlaying speech that was never uttered, a very disturbing trend during a period when we can easily see the effects of misinformation across the internet, but even more disturbing was a recent article in Scientific American that is based on a survey and article recently published in The Proceedings of the National Academy of Sciences that concluded that AI synthesized faces are indistinguishable from real faces and are considered more trustworthy than real faces. The article describes the use of GANs (Generative Adversarial Networks) that use two neural networks, a discriminator and a generator to synthesize an image of a fictitious person.
The generator starts the process with a random group of pixels and with each iteration the discriminator takes that image and compares it to its database of real faces.  If the generators face is different from the database images, which it is early on, the discriminator penalizes the generator which keeps trying until the discriminators says the ‘new’ face looks like the ones in its database.  This takes many iterations but the result is a face that has the characteristics of those in the database, albeit not exactly the same as any one in particular.  Such systems are used to fill in parts of photographs or art where damage has caused deterioration, to create virtual fashion models that require no photographer or the bevy of service people that are needed in real life, or to develop realistic avatars for games, and are used in broadcast to read copy.
However the study goes further pitting 315 participants against a roster of 128 faces as to whether they were real or fake.  The average accuracy found was 48.2%, close to the 50% level that would express a ‘chance’ choice, with the images in Figure 5 showing those that were chosen as the most and least accurately, and a second test after participants were made aware of rendering artifacts (visual hints) and general feedback, saw an improvement in accuracy, but still close to the 50% ‘chance’ level.  Taking the experiment further, the study had 223 participants rate the ‘trustworthyness’ of the faces on a scale of 1 to 7, with the results showing that the synthetic faces scored 7.7% higher than the real faces and women’s faces were 13.3% more trustworthy than men’s.  The reasoning being that the synthetic faces were more toward the ‘norm’ than the real faces and therefore more trustworthy.
While the data generated by the study was oriented toward generating consistent data, it certainly points out the potential for the use of synthetic images and to cause confusion and distrust.  Avatars are fun and in most cases are obviously representations of characters or humans that are exaggerated,  but as the development of systems that can create realistic images and speech that are almost impossible for the average person to identify as fake, the potential for misuse increases.  There are systems that can identify deep fakes but relative to the amount of content that is downloaded to the internet, they can only make a small dent, and the eventual expansion to the Metaverse will add to that potential content on a global scale. 
We have no problem with the technology being used for creating realistic imagery and even ‘human-like’ figures, but it is necessary for those synthetics to be identified to the public as such or the eventual end will be the complete distrust of the public as to what it sees, other than on a physical basis.  If you think fake Facebook accounts that spread misinformation are a scourge now just think of what it would be like to have images of political figures spouting words never spoken during a political campaign or global political leaders pushing aggressive agendas that have nothing to do with politics or detente.  In 1971 when the Dramatics  released “Whatcha See is Whatcha Get” it was true, but that ship has sailed.  If you don’t think so, go to this website and watch some of the demo videos, which were made with software on a smartphone.

​The government of India will impose a 30% tax on income derived from cryptocurrencies and other digital assets as noted by the Minister of Finance earlier this month, which was taken by crypto investors as a tacit approval of crypto and NFTs, despite the fact that it put such income in India’s highest tax bracket and excluded crypto losses from offsetting other income.  Given that the Indian government was considering barring cryptocurrencies altogether last November, it seemed the least draconian of the possible outcomes.  With an estimated 15m to 20m crypto investors in India holding crypto ‘assets’ of ~$5.37b (unofficial), the idea that the government was developing a taxation system for crypto seemed to some that the government was at least recognizing the legitimacy of cryptocurrencies, or at least that is what the CEO of ZebPay (pvt), a cryptocurrency exchange, said, “Thirty percent tax on income from virtual digital assets, while high, is a positive step as it legitimizes crypto and hints at an optimistic sentiment towards further acceptance of crypto and NFTs”, albeit a bit biased.  Tax accountants were a bit less optimistic, estimating that such a tax would really amount to ~42% including surcharges and fees.
That said India’s Central Bank has voiced concerns over the instability of cryptocurrencies and a number of banks cut ties with crypto companies, but the Indian government also indicated that the Central Bank will introduce a cryptocurrency during the next financial year (2023?) using blockchain and other technology.  But late last week the head of the Reserve Bank of India stated that “Private cryptocurrency is a huge threat to macro-economic stability and financial stability...investors should keep this in mind that they are investing at their own risk, and these cryptocurrencies have no underlying (value) - not even a tulip”, referring to the Dutch tulip mania that gripped investors in in the early 1630’s until its collapse in 1637.  This seems to be the mantra of many governments, including the US, where stern warnings about the risks of cryptocurrencies are given but fear that the government will lose revenue or be seen as ‘technically outmoded’ push them toward issuing some sort of government sponsored cryptocurrency as we noted on 01/21/22. It’s a very complicated issue that is hampered by both a lack of understanding and greed.  Back to the gold standard?

Xiaomi (1810.HK) is a diverse company, although best known for its line of smartphones which they becan marketing in 2011.  Since then the company has expanded rapidly through very aggressive marketing and has become the 3rd largest smartphone vendor globally, but Xiaomi has also entered a number of other markets including TV sets and a number of other consumer electronics items, but last year the company decided that it was also to enter the electric vehicle market by investing $10b US over a ten year period, so it is no surprise that the company has been using its Hubei Changjiang Industrial Investment Fund to invest in a slew of companies in both the automotive space directly and the semiconductor space as a source of silicon products needed for both the automotive side and the CE side of the company. 
Last year the fund, which is also funded by the Wuhan government, made investments in 42 companies, far above the few investments the fund made since its establishment in 2017, with two in 2017, two in 2018, five in 2019 and 41 in 2020. Among the investments are 24 semiconductor companies, 11 new energy vehicle companies, and a number of photovoltaic and AI companies, with only 3 investments in companies related to the smartphone business.  So far this year the fund has already made 3 new investments in Si Tan Technology (pvt), Foote Technology (pvt) and Chengxin Semiconductor (pvt).
Below is the list of companies the fund invested in last year.  We apologize for the few that did not translate or were translated incorrectly but you get the idea; Xiaomi is making investments in its future.