​In our note of 01/26/2022, we mentioned that the Netherlands Authority for Consumers and Markets published an order requiring Apple (AAPL) to “adjust the unreasonable conditions in its App Store that apply to dating-app providers”, essentially forcing Apple to adjust the App Store policy to allow developers to offer alternative payment systems that give choices to subscribers, rather than forcing them to use the App Store system.  The ACM went further in that it required Apple to adjust the system within 60 days or it would be fined €5m per week, up to a maximum of €50m.  Apple did make some attempts to comply with the ruling while noting that they were being obligated to make such changes, although they have implemented nothing more than a form that allowed developers to express interest in using an alternative payment system, which does not seem to have assuaged the wrath of the ACM, especially as Apple only provides for a choice between in-house or external payment systems and not both as the law directs. 
Since then, the Dutch ATC has fined Apple 5m€ four times as of this week, as they consider Apple’s changes to be deficient, which still levies a 27% ‘tax’ payments on payments made outside of the App Store.  Apple claimed in mid-January that it had complied with the ACM’s wishes, although what they did was very limited, focused only on dating apps, and did not actually make any changes, only indicating that it would eventually.  Apple seems to have taken the tact that it is better to fight than give in in the Netherlands and is going to appeal the court decision that the ACM ruling is based on, alleging that any changes to the current system would pose a security risk to users, communities, economies, businesses, and families, a hard case to prove.  In the interim the ACM can continue to levy fines until the 50m€ cap is reached.

At the end of last year LG (003550.KS), parent of LG Electronics (005930.KS), LG Display (LPL), LG Chem (051910.KS), and a host of other subsidiaries, announced their “ultra-large” AI model (Exaone) that is said to have the ability to capture 300 billion variables, generating a higher level of language skills than other Ai systems.  As most human knowledge is contained in language, the current thinking is that developing more comprehensive, more efficient, and faster AI systems based on language will lead to a system that will come closer to the human characteristics that seem to be the goal of AI developers.  According to LG, Exaone, rather than searching through images based on the text surrounding them, this system creates new images based on the data it has examined, and can show and describe its creations in both Korean and English.
While perhaps not the application that many AI experts were counting on, LG has used the Exaone recently to answer a question, “What would it look like if there were flowers on Venus?”  While we are sure that is not the only question asked of this Ai system, which cost many millions in R&D and training costs, it seems a bit strange that this is the direction taken for Exaone, at least at this point, but Exaone not only came up with an answer (actually 3,000 answers) but has created ‘Tilda’, a virtual “environmentally-conscious fashion designer” to help us humans to understand what Exaone came up with. 
Tilda has collaborated with Korean fashion designer Park Youn-hee to create a Fall/Winter ready-to-wear clothing collection (200 outfits) “Greedilous by Tilda – Flowers on Venus”, that is being highlighted at the New York Fashion Week running through Wednesday.  Tilda supplied the ideas about patterns based on the question mentioned above and Park took those ideas and created the collection in 45 days, a process that typically takes many months.  Tilda sourced her ideas from the 250 million high resolution images and 600 billion textual data that was feed to the Exaone.  After fashion week Tilda is planning to launch an independent eco-friendly fashion brand to deliver her message about the environment through fashion.
Officials from the LG AI Research Institute state that “Within a year, you will be able to meet Tilda’s unique fashion products and art works that embody the philosophy of Tilda both online and offline”, and the institute plans on creating more expert AI ‘humans’ (their words) that help and cooperate with humans in various fields such as manufacturing, research, service, education, and finance.  We are also planning to venture into the Metaverse, where we can communicate with the Gen Z and take part in more creative processes.”
John McCarthy, a professor emeritus at Stanford, coined the term “Artificial Intelligence” in 1955 in a proposal for a 2 month, 10 person summer research conference, according to the college, and went on to invent LISP, an early programming language that is still used for AI today, and founded the MIT Artificial Intelligence Project and the Stanford Artificial Intelligence Lab.  While we don’t know for sure, we doubt John was thinking about how artificial intelligence could be used to create a stir at Fashion Week 2022, but we expect he would have liked to spend time speaking with Tilda once she stopped talking about how drip the new collection was and how jaboni the other designers were.

Alienware (DELL) is the first monitor producer to use the soon-to-be-released QD-OLED panels produced by Samsung Display (pvt), in this case the 34” panels that will be produced along with 55” and 65” panels that will appear in the Sony (SNE) Bravia A95K series announced at CES, and (hopefully) parent Samsung’s (005930.KS) line of QD-OLED TVs later this year.  As Alienware has revealed pricing for the 34” QD-OLED monitor, we compared a few similar sized monitors to give some idea as the price of this new technology and how it relates to what is already available.  We note that comparing monitors is a difficult task as the number of variables can be large but we tried to show both older and newer models and how they compare along with higher and lower priced models in the table below.
We do note that the first OLED monitor, the Dell (DELL) IP3017Q was quite expensive when released, which is not unusual for an initial foray into a new technology, however the soon-to-be-released Alienware AW3423DW, while expensive as far as monitors go, is certainly not the most expensive, which is a bit surprising.  While the basic technologies, OLED and quantum dots are both used by a number of panel manufacturers, combining the two in a way that takes advantage of the positive aspects of both materials leads to new manufacturing processes that should keep costs high, especially in the early stages of production., so the fact that the Alienware monitor is not priced higher goes toward Samsung Display’s ability to maintain a reasonable cost structure from the onset of production, or at least that is what we would hope, as they also could be pricing the displays at or even below cost in order to garner interest from new customers for the technology.
Both Sony and Dell have committed to QD-OLED so there is certainly demand for the technology as a way to generate premium products, but a lack of enthusiasm from Samsung Electronics seems to have kept others in a more look-and-see mode before jumping on board.  Samsung, as the largest TV set brand, does have a vested interest in maintaining a broad line of TV technologies, with Micro-LED, Mini-LED/Quantum Dot, Quantum Dot Enhanced LCD TV, and LCD TV all part of the mix, so there are certainly pricing and tier considerations that Samsung must consider, but it will be hard for Samsung Electronics not to release at least a line of QD-OLED TVs in order to compete with rival Sony if reviews are positive, as we expect they will be, especially if prices for such sets are reasonable, as the Alienware monitor seems to indicate. 

​[1] Screen Refresh (Hz) – Time it takes for the entire screen to be repainted
[1] Display Response Time (msec) – The time it takes for pixels to shift from black to white to black, essentially how fast the display can switch colors.
[1] Typical Brightness (nits) – Average display brightness
[1] sRGB is a color space measurement that shows the percentage of that color space that the display covers.  The higher the better.

​AU Optronics (2409.TT), is the 4th largest LCD panel producer globally and has taken a different path than many of its competitors over the company’s more than 25 year history.  While in the early years AUO built capacity in Taiwan, purchased capacity in Singapore, and eventually expanded into China, the company has done relatively little in terms of expanding production capacity over the last 5 or 6 years, a period when Chinese panel producers have expanded LCD capacity rapidly while South Korean panel producers have gone in another direction, reducing LCD capacity and focusing on OLED production. 
We have noted recently that AUO has decided to expand capacity at their Kunshan, China Gen 6 fab by 28.6% this year, but has remained more focused on upgrading its older fabs than constructing new ones.  That is going to change over the next few years as the company has announced it will be acquiring land and developing power and engineering capabilities for a new fab in Taiwan.  The capex budget for this project will be NT$5b ($180.3m US) this year, and will increase to NT$28b ($1.01b US) as the project develops, with the equipment purchases likely to begin in 2023, pushing the overall project cost to between $3.6b and $5.4b.  Based on those expectations, we expect the new fab will be built in at least three phases, with the first completed in 2025, and the additional phases being built out over an additional 2 – 3 years.
AUO did not give additional details about the fab other than it is expected to be a Gen 8.5 or Gen 8.6 fab and that it will be focused on IT panel production, but owing to AUO’s conservative nature as to capacity expansion, we would expect the full build out might take many years and potentially change a bit over time.  The land and infrastructure construction is just a start for what will become another major fab for AUO, and will eventually add to their automotive and premium IT panel production capabilities.  AUO however has shied away from OLED panel production and has become more focused on LEDs as an advanced display source, so there is the possibility that phase 2 or 3 of the new fab might have a different production orientation when it is built out, although for now, the orientation would still be LCD..  

​Facebook (FB), aka Meta, did a nice thing, they broke out the yearly revenue and operating income for Reality Labs, the division of Facebook that has been developing and selling the Quest line of VR headsets, along with content and associated software.  The Oculus brand, starting with the Oculus Rift DK1 in 2013 and continuing through the Oculus Quest 2 released in 2020, is known as the best-selling VR headset, primarily due to its low price and reasonable specifications.  There are much higher quality VR headsets that touch upon newer technology and more competitive specs, but for what comes down to ~$400 the Oculus headsets have been hard to beat.
Facebook has seen big increases in its Reality Lab sales over the last three years, with a 127.3% increase in 2020 and a 99.6% increase last year, but at the same time seeing a 47.1% increase in operating income in 2020 and a 53.9% increase in same last year.  So Facebook is losing lots of money to maintain marjet share in the headset game, or is there another reason why the company continues to sell headsets at what is below cost?  Given that Facebook is one if not the biggest proponent of the Metaverse, a system that will feed it tons more data about users than they already garner, they are encouraging the global population to adopt VR as the means to  what they would like to be the new social platform.  Rather than compete with other headset producers who must look closely at profitability, Facebook has the ability to continue to lose money while seeding the VR market and will likely continue to do so until they either find that the Metaverse is not developing at expected, or they can really sell high quality headsets at such prices, which, at best, will take a few more years.
While we expect that little will change in Facebook’s attitude toward VR headsets in the near term, given the current interest in the space, we continue to look at the VR space and the Metaverse as both fertile ground for the hyperbole that technology marketing thrives on, the ability to capitalize on that hyperbole, and a lack of overall consumer demand until the technology takes at least another leap forward.  All in it is fertile ground for examination, which we continue to do, but the little glimpse into Facebook’s VR losses gives us even more fodder for taking the VR space apart.  More to come.
 

​On 02/07/22 we noted that China’s BOE (200725.CH) was the responsible party for the massive LED display that served as the opening venue for the Winter Olympics.  While we were correct to a degree, it turns out that BOE was not the only party involved in the development and construction of the display, and the other primary supplier, China’s Leyard (300296.CH) took umbrage at the assumption we, and many other made that BOE was totally responsible for the LED displays, likely given the massive BOE promotion signs placed around the stadium.

As it turns out Leyard was responsible for 7,000 m2 of the 11,500 m2 stadium floor display (yellow portion in Figure 1), while BOE was responsible for 4,500 m2 (gray semicircles), and Leyard was 100% responsible for the 700m2 ‘ice cube’, 1200 m2 ‘ice waterfall’, and the two North and South Standing screens, for ~70% of the venue’s primary display area, and also provided the broadcast control system.  As previously noted both companies worked under the China Aerospace Corporation (state).  

All three Taiwan based panel producers saw revenue decline on a m/m basis, with both Innolux (3481.TT) and Hannstar (6116.TT) seeing y/y declines, while AU Optronics (2409.TT) saw a 4.5% increase.  For reference, AUO’s typical[1] January sales decline is 10.8% m/m.  That said, AUO saw both a m/m and y/y decline in area shipped, likely a reflection of the lower utilization rates seen by many LCD panel producers as demand slows and panel prices decline.  Innolux saw sales declines on both a m/m and y/y basis and while large panel shipments were up 2.4% m/m, they were down 1.1% y/y along with a steeper m/m and y/y decline in small panel shipments.  While increased large panel shipments might have offset some of the impact of declines in large panel prices, Innolux also saw a substantial drop in small panel shipments, both on a m/m and y/y basis.  Small panel production is less meaningful in terms of fab usage (m2), however small panels are usually more profitable on an m2 basis, so we expect the lower small panel shipment volume will be a contributor to lower margins for 1Q if such declines continue.  Hannstar is primarily a small panel producer, so we put less weight on the large drop seen in their large panel business, which is primarily IT products, but it does give some indication as to the demand level for such products, which has been weakening as COVID-19 restrictions have been reduced.
All in January results for Taiwan based panel producers seem to be in line with our expectations, which are based on our outlook that panel prices for both TV and IT panels will continue to decline in 1Q.  While 1Q guidance from panel producers is a bit more optimistic than we might expect, with the concept that panel pricing will stabilize during 1Q, that has not been the case thus far, and we would expect that if February results continue to be weak, which we expect will be the case, the hope that panel prices will stabilize will likely be pushed out to 2Q and panel producers will likely have to lower utilization rates again in order to slow the decline in panel prices. 


[1] 5 year average (2017 – 2021)
 

Samsung Electronics (005930.KS), through its Harman subsidiary, has announced the purchase of Munich based Apostera (pvt), a 5 year old company that develops automotive HUD (Heads-Up Display) products with a focus on AR (augmented Reality), essentially providing an AR overlay in front of the driver indicating directional and maneuvering information.  A number of Apostera’s key employees have worked for Harman in the past. 
Harman, which Samsung acquired in 2017, has just come off its best year, with a number of wins for its ‘user experience’ platforms, such as those in the Mercedes EQS, and has incorporated Samsung’s 5G technology in a number of its products it has developed for other premium brands.  The price of the acquisition was not revealed.
https://apostera.com/PP_web.mp4
​

We have noted a number of times some of the issues that surround the use of tagging devices, such as Apple’s (AAPL) Air Tags and Samsung’s Galaxy Smart Tag, as the industry struggles with questions about the security of such devices and how they can be used for nefarious purposes, particularly as unidentified tracking devices.  While this has been an issue since such tagging devices have been in use, until more recent versions, which are small enough to be easily hidden, such security issues were more of a cloak and dagger scenario than one where they might be used to steal cars or track the whereabouts of a cheating spouse. 
Apple has taken much of the heat about tag security since the release of Air Tags in April of last year and there has been a considerable number of stories circulating about how Air Tags have helped find important items or confused folks wandering in parking lots on the positive side or how they have been used to steal cars or stalk unsuspecting folks on the negative side.  The good news is that Apple;’s entry into the market has pushed the industry toward better understanding of how the devices and infrastructure can be made safer and recently Apple has responded further with plans for helping users be aware of the potential for Air Tag misuse.
Apple will be enhancing Air Tags and the “Find My” network, although no specific date has been given as to implementation, but while some of the improvements are relatively weak boilerplate legal warnings about misusing the devices, there are a few that are noteworthy.  Later this year Apple will introduce what it calls ‘precision finding’, where a user who receives an alert about an unknown Air Tag can get information about the direction and distance of that tag to the user, and as the user moves, he/she can use the camera of their iPhone to pinpoint the offending tag through visual, haptic, and audio feedback.
Existing iPhone users currently get an “Unknown Accessory Detected” message when an Air Pod or 3rd party ‘Find My’ accessory is moving with them, however this does not identify the device itself unless it is an Air Pod and can cause concern, even if it is an Apple device left nearby.  The new system updates will identify all Air Pods and changes the sound emitted by an ‘unknown’ Air Tag from a beep after 3 days to one that will begin after only hours, along with a phone alert, so if a device has been secretly planted, it will begin beeping far sooner than in the past, alerting the ‘stalkee’ that something is amiss, rather than days later.
Some of the changes, and there are others, will likely demand a firmware update while others could be built into upcoming iOS releases but we give Apple credit in that they are working toward making improvements in tag security rapidly, despite the fact that the Air Pods themselves were originally designed to be more secure than others, at least when they were released.
A few more notes on UWB (Ultra-wide Band) tags here:
12/06/21             Air Tags – A New Application?     
8/5/21                  Air Tag Tussle
4/2/21                  The Tags are Getting Close
1/18/21 ​                Lost in the Leaves

Remember Seymour Cray, the guy that built the CDC 6600 in the mid-1960’s, a ‘popular’ supercomputer that outperformed IBM’s (IBM) 7030, the leader at the time, by a significant margin.  He eventually formed Cray Computer, which he led until his death in a car accident.  But Cray and others who had an undying aspiration to create faster supercomputers laid the groundwork for larger and faster machines that now make those early machines look like car radios.  That said, statistics about supercomputers are bandied about among the AI cognoscenti, but have little relevance to the average global citizen, unless they can equate said machines to something practical, like a game.
Enter Deep Blue (aka Deep Thought) an IBM creation that was the first supercomputer to win against a human player, beating world champion Gary Kasparov in a match in 1996 and then Watson, who beat Jeopardy master Ken Jennings in 2011.  Since then there have been innumerable face offs between humans and computers, with the most recent being a device specifically designed to play the Sony (SNE) Playstaion based game Gran Turismo named Sophy, whose AI algos and training based on collecting data from over 1,000 Playstation 4 consoles, has given it the ability to “…learn an integrated control policy that combines exceptional speed with impressive tactics” according to the company, with Sony adding “In addition, we construct a reward function that enables the agent to be competitive while adhering to racing’s important, but underspecified, sportsmanship rules.”
Sophy has beaten four of the world’s best Gran Turismo drivers in direct contests, proving here computational worth, but without the crushing psychological blow to her opponents that the obvious superiority of the computer could normally bring.  Sophy has a heart, which seemed to spark a flame in the minds of her opponents, a crowd bored after defeating player after player for years, opening them up to a new challenge in a game that already requires considerable skill in balancing judgement against physical constraints.  Sony built in ‘penalties’ to Sophy’s algorithms that keep her from colliding with others to push them off the track, in other words (Sony’s words) “…to embody the subtle nuances of human character.”
So if you have a young one who sits in front of a screen with a controller in his/her hand for hours at a time, perhaps they will learn a bit of humanity if Sony builds a bit of Sophy into the next Gran Turismo iteration., or perhaps they will quickly learn that the only way they can beat such an emotional machine is to let loose more of that ‘killer instinct’ that is a prized commodity in many cirles and drive Sophy off the road.  If it turns out that Little Bobby or Susie is able to defeat Sophy by bending those ‘sportsmanship-like rules’ a bit, perhaps Sony should add back a little of that killer instinct to Sophy II, although a kinder, gentler AI could be a good thing, sort of a C3PO without all the issues.  It’s a strange world we live in…