While we applaud those who can predict (or try to) the future of certain aspects of the CE space, we also keep track of those estimates and how they compare against reality.  In 2020 most of the estimates made in late 2019 turned out to be incorrect as did the adjustments to those estimates made in the early part of the year due to the effects of COVID-19.  That said, there are trends and as we have mentioned foldable displays are one that Samsung Electronics has been championing, both because its affiliate Samsung Display (pvt) is the leader in the space, and because such devices sell for premiums that have become progressively harder to glean from even top-tier smartphones.
Foldables are certainly attractive to consumers, who gain size without the inconvenience of having to tote a large device, but at a cost.  Whether this ultimately becomes a more standard display format depends on the progress that is made in producing foldable displays that remain viable as long as a more typical smartphone, and much of that depends on the hinge system and the materials the display is made of.  While some components can be separated inside the device, such as the battery and some PCBs, the display and its associated components have to be able to withstand at least 100,000 folds without showing signs of wear.
To this end, early foldable devices used a clear polyimide film as a cover to protect the display from dirt, scratches, and other potential abrasions, but the film itself was found to retain multiple folding creases which did not sit well with consumers.  Further, while the polyimide is said to be clear, it is not as optically clear as glass, the traditional cover glass used in many smartphones.  Polyimide certainly had some advantages, particularly its ability to withstand cracking and scratching, the nemeses of cover glass, but continuing developments in chemically strengthened glass have narrowed that advantage. 
Until recently, cover glass could not be made thin enough to act as a substitute for polyimide, especially when an essential requirement of foldable devices is for them to remain exceedingly thin, meaning the glass would have a tight fold ratio when the device was closed, however much R&D has been applied to the problem and the development of commercial UTG (Ultra-thin glass) has been the result.
A recent study in South Korea predicts that UTG will remain the choice for foldable device cover glass through 2025 and will have a share exceeding 75% through the period.  Polyimide will still be used, as it is ultimately less expensive than UTG, but will likely remain the choice in low-tier priced foldable devices.  All in, whether you believe that foldables are the wave of the future or not, UTG seems to have solved one of the early problems associated with foldable devices and as volumes improve, should see overall pricing decline, particularly given Samsung’s dominance in the foldable space and their early focus on UTG.  Should Apple (AAPL) adopt UTG when it revels its first foldable iPhone, the relegation of polyimide as a cover material to low-end phones would be sealed, and with Samsung a likely supplier, the odds are even greater.

Samsung (005930.KS) has indicated that it has sold one million units of its Galaxy S21 smartphone series in its home country of South Korea as of today.  The company reached this sales number in 57 days, about a month earlier than the previous Galaxy S20 (2020) series, although the Galaxy S10 (released in March 2019) sold 1m units in a record 47 days.  As the sales share leader in South Korea by a large margin (72% in 3Q ’20), Samsung’s success in its home country is based on its ability to create something new each year as the penetration rate for smartphones in South Korea is ~76.5%, just a bit below France (77.6%), Germany (77.9%), UK (78.9%) and the US (81.6%), which tops out the list, and last year’s model, the S20, was a bit of a disappointment.
We do note that Samsung has been offering a number of promotions including coupons for Samsung wearables worth ~$88 and a generous trade-in program as we deliniated in our 3/25/21 note and continues its “Galaxy-to-Go” program that allows potential buyers to rent a Galaxy S21 series phone for three days to try it out. That said, we expect the real reason that the Galaxy S21 series is doing better than last year’s model is due to pricing, which is shown below.  All three versions are $200 less than last year’s 5G models and have similar or better features, thus coupled with the discounts and incentives, represent a reasonable entry point for a new customer or replacement.  This indicates that features have become less important than price, a trend that was beginning to appear when COVID-19 became a serious issue, and now has taken center stage. While Samsung does still compete with South Korean smartphone producer LG Electronics, the verdict remains out as to whether LGE will continue to produce smartphones given its years of losses in that segment.

Japanese OLED producer JOLED (pvt), a 2015 amalgamation of the OLED development divisions of Sony (SNE) and Panasonics (6752.JP) that was funded by Japan’s quasi-state funding organization (Innovation Network) and subsequent funding from Sumitomo Chemical (4005.JP), Denso (6902.JP), Screen Holdings (7735.JP), Nissha Co. (7915.JP), Toyota Tsusho (8015.JP) and Chinastar (pvt), has gone commercial.  By commercial we mean they are selling OED displays that have been produced in a mass production environment, rather than on an R&D or pilot line and what makes this more unique is that the OLED production line being used is not a typical vapor deposition line, where OLED materials are deposited on a substrate in a heated chamber through a fine metal mask, but using ink-jet technology developed by the company and its partners.
JOLED’s OLEDIO™ line of displays range from 10” to 32”, and while JOLED has been producing a 21.6” display used in medical monitors on a trial basis since 2019, the new line will be a full production mode and will start mass production with three 4K models ranging from 22”, 27” and 32”.  LG Electronics (066570.KS) is already using the 27” and 32” JOLED panels in its (Coming Soon) 2021 OLED monitor lineup, which is quite surprising considering it subsidiary LG Display (LPL) is the largest producer of OLED displays globally.  That said, LG Display is likely running close to full capacity on its OLED TV production lines and is not set up for panels smaller than 48”.  JOLED did provide a limited number of 21.6” IJP displays to Japanese monitor producer Eizo (6737.JP) from its pilot line in late 2019 but does not seem to be currently available.
The LG OLED monitors that use the JOLED displays cost $2,997 and $3,996, putting them at the high end of the monitor pricing spectrum, close to what are called ‘reference monitors’ that are used in video production for their ability to accurately reproduce colors, with these monitors covering 99% of the DCI-P3 standard  used by the US film industry.  The displays themselves are considered ‘bright’ at 540 nits (peak - typical LCD TVs are ~350 nits) but eventually will have to compare against mini-LED displays that can run up to 2,000 nits peak.
The most important part of the JOLED story is that they are using ink-jet printing to deposit the OLED emitting materials using an RGB patterning system, the same as used in OLED smartphones.  Since the patterning of OLED materials using standard deposition methods must be done through a fine metal mask to create individual colored sub-pixels, there are limitations as to the size of those masks, as despite the very rigid materials they are produced with, they begin to sag when they get too large. This causes the RGB process to be limited to relatively small panel sizes.  LG Display circumvents this problem by using a different method to make large OLED TVs, coating the entire panel surface with a combination of blue fluorescent emitter and yellow/green phosphorescent emitter, which produces a white light.  That light must pass through a color filter, similar to those used in LCD TVs, which reduces the brightness, as 2/3 of the white light must be filtered to produce a single red, green, or blue color dot.
Ink-jet printing however allows for the direct placement of ‘drops’ of a particular color emitter to be placed on the substrate and therefore does not use a color filter, with no limitation on size of the substrate.  That said, Ink-jet printing has its own issues, particularly that the OLED materials must be in solution in order to pass through the printing heads.  This can mean that the materials have to be refined or recreated to work with a solvent without limiting specifications, such as life time.  In order to place the droplets correctly, the substrate needs to be pre-treated to create ‘wells’ to hold the droplets until they cure, which adds cost and complexity to the process.  On an overall basis however, the ink-jet process should be a less expensive system for OLED deposition and JOLED certainly has been a pioneer and the first to actually commercialize the process.  If JOLED can prove that the process is commercially viable, they will have taken a large step toward the improvement of display technology, particularly large panel RGB OLED production.

​While Huawei (pvt) has been the focus of much of the US trade tension over the last year or so, the company has not been sitting still.  The company’s trade problems with the US have severely affected its smartphone business, which has been restricted from accessing the Google (GOOG) Play Store, Google Maps, or YouTube.  While this is less of a problem in China, it limits Huawei’s ability to sell smartphones in almost all other locations.
To that end, Huawei has been developing its own operating system which it hopes to use to replace Android in its own phones and those from other brands.  Huawei is expect to release the first non-Beta version of its Harmony OS before the end of 1H and possibly sooner, and has already enlisted over 300 3rd party partners but it will take years to develop the same following as Android or even Apple’s (AAPL) IoS.  Hauwei has set a goal of having more than 100m smartphones operating under the OS this year, along with another 100m from other brands.
While we have heard good things about the Harmony OS, less has to do with the OS itself and more to do with how many developers write to the platform.  Huawei is not charging a fee for access to the code so it will be essential ‘open source’ but without a vast group of developers, consumers will still be limited to local Chinese apps.    Huawei will certainly gain some momentum in China itself, which might be enough to convince off Mainland developers to port to Harmony, but it’s not going to be as easy task, with others, including Microsoft (MSFT) willing to acknowledge, having failed to conquer the mobile OS space.

​As we noted previously, TV brand Vizio (VZIO) began trading yesterday, offering 12.25m shares at $21/share, with a shoe of 1.837m.  The stock took a bit of a fall on its first day of trading, dropping a bit over 9% to $19.10.  If we remember correctly, the original offer was for 15.1m shares @ between $21 and $23, so even with the shoe, the deal size was reduced, with $257.25m being raised initially rather than the $332m original ‘expected’.
Revenue estimates we have seen range from $2.15b to $2.19b for this year and $0.13 proforma, with next year sales estimates ranging from $2.175b to $2.249b and $0.19.   Gross margins look between 11.5% and 11.7% this year and between 14.8% and 14.9% next year as high margin advertising and license revenue has an increasing effect.  2023 revenue estimates range from $2.35b to $2.46b and eps of $0.43 with GMs getting close to 15%, but at more than 2 ½ years out, we put little faith in estimates for the TV space.  We have no stake in Vizio but we do own two Vizio TVs, which have been trouble free.

​Cancel culture in the US is a nagging problem with a relatively small number of ‘influencers’ driving social media onslaughts against everything from past presidents to Dr. Seuss, but in China, things get a bit more ‘cancelly’.  Take H&M (HMB.SS), the Swedish clothing retailer whose position over the use of cotton produced under forced labor by Xinjiang producers seems to have struck a nerve with a more ‘robust’ cancel culture orientation on the Mainland.  A number of Chinese technology companies have actually removed all references to H&M from applications, particularly the popular ride-hailing app Didi Chuxing, (pvt) where the app no longer recognized H&M store locations as valid addresses.  Baidu (BIDU) and Tencent (700.HK) maps no longer show H&M stores on their maps and purchases of H&M products on leading e-commerce platforms are blocked.
The ultimate ‘cancellation’ however came when H&M store employees placed an order with the country’s largest demand delivery service Meituan (3690.HK) and had it denied.  H&M still has somewhat of an online presence in China on WeChat and Weibo (WB) but Tencent removed two Burberry (BRBY.LN) (another target) skins from Honor of Kings, a popular online game, just days after announcing a deal with the company to promote its outfits on its games.  It looks like China has a better idea as to what ‘cancel culture’ means than we do.  Then again, state controlled media does have a bit of an effect….
 

LG Electronics (066570.KS) the brand leader in OLED TV has revealed pricing and availability for a number of the new models it is releasing this year.  While availability is less of a question, the price of LG’s OLED offerings is an important topic given that they compete with traditional LCD TVs, quantum dot enhanced LCD TVs, Mini-LED TVs, and potentially QD/OLED TVs next year.  One of the biggest selling points for traditional LCD and QD LCD TVs is the high cost of OLED TVs, which both LG and its semi-captive supplier LG Display (LPL) have been working toward reducing.  LGD’s Guangzhou OLED fab is now completed and  the company’s other large panel OLED fabs are operating in both regular and MMG mode, which allows for more efficient panel production, so the company should be able to pass those savings on to LGE and eventually to customers.
In that regard, we compare the just revealed pricing for LGE’s new OLED TV models against last year’s models, not from a feature set perspective but from an absolute price perspective.  We assume that the feature set of current models is as good as or better than last year’s models and we show initial price rather than current price for comparison.  We have highlighted the models where price reductions have occurred.  

We note that by upgrading LGD’s Gen 8.5 large panel fabs to MMG, 77” OLED TV panel substrate efficiency is increased from ~59% to ~83% and 65” OLED TV panel production substrate efficiency is increased from ~64% to ~91%, which can make a considerable difference to the cost of the panels.  That, combined with a lessened need to change production sizes on a per line basis, and the overall component and material savings from the overall higher volume, give LG a bit more room to be competitive this year.  The table below shows the initial price reductions for those models indicated in red above.  Given the increased substrate efficiencies of the MMG process, it can be seen that the biggest price improvements are focused around 65” and 77” OLED TV models.  Again, while other efficiencies and continuing production experience helps to lower OLED TV panel prices, the reductions in 65” and 77” models are quite telling.

The ongoing battle between II-VI (IIVI) and Lumentum (LITE) for Coherent (COHR) looks like it is winding down with II-VI the potential winner, at least as of yesterday.  Coherent management seems to have agreed to the last set of terms proposed by II-VI which values the company at $282/share, below the last offer of $287.5m from Lumentum, who will receive a $217.6 termination fee.   The original bid from Lumentum was $226/share. There are some caveats however, with Coherent paying $108.8m to II-VI if they accept another offer, II-VI paying COHR $337.7m if the deal fails to close, and II-VI paying $500m to COHR if the Chinese government fails to approved the merger for anti-trust reasons, with a closing date of 12/31/21 at the latest.
As part of the deal two Coherent executives will be added to the board and one executive from Bain Capital (pvt) will also be added, as they are providing at least $1.5b in equity financing (additional equity financing available), with JP Morgan (JPM) providing $5.4b in debt financing. Coherent shareholders will own ~18% of the merged company stock when the $6.9b deal closes.   
According to II-VI, the deal will generate $250m in run-rate synergies within 3 years, with $150m coming from supply chain management and $100m from OPEX efficiencies, with the company citing its September 2019 deal for Finisar (pvt) and a reduction in net leverage from almost 4x to less than 1x in roughly a year, with the $150m in synergies expected from that deal now expected in 24 months instead of 36 months, and the total Finisar synergy estimate now at $200m over 3 years.  II-VI indicates that it has already achieved $110m in Finisar run-rate savings as of the end of last year.
Further, according to II-VI, the combined company will have a $25b combined available market, and will see its revenue climb from 2.9b (12/31/2020) to $4.1b with the combined company having a more diversified revenue base, albeit in some highly cyclical businesses.  Lumentum shareholders seemed relieved with the stock climbing 8.5% after the announcement of the accepted II-VI offer.

​China’s largest LCD panel producer BOE (200725.CH) has officially announced its intent to expand the capacity of its Gen 10.5 LCD fab in Wuhan.  The $3.77b US project will add an additional 25,000 sheets/month to the fabs current 90,000 sheet/month stated capacity.  The project will be funded by existing BOE shareholders, who in this case are government funded partnerships and local city level development organizations.
The additional capacity, in our view, was not unexpected although our original expectations, when the initial construction project was funded, was for the phase 2 project to begin production in 1H of this year.  Delays due to COVID-19 and panel price declines seen early last year have pushed the phase 2 project back a year to 18 months.  This is a positive for Corning (GLW), whose co-located Gen 10.5 glass plant is the primary source of substrate material for the fab, with much of the Corning capacity being funded under similar circumstances to BOE’s funding sources.  While we push out our BOE model a bit, the additional capacity will keep BOE ahead of local rival Chinastar (pvt), who has been building out its Gen 10.5 LCD capacity. 

We have been seeing a great deal of advertising in the trade press concerning ‘the best prices ever on Samsung (005930.KS) Smartphones’, and as with TVs, we were curious as to the validity of such claims.  Samsung does have a large number of smartphone models that tend to be broken down into three tiers, so we went to our data sources to see if we could get some understanding as to why there was so much ‘discounting’ and exactly how much.  The data for smartphones is as complex as that for TVs, with an almost infinite number of variations ranging from local/international editions (which are very different), memory, and even color, all of which can influence price, and just pulling current prices from the Samsung site doesn’t really give an indication of the day-to-day pricing that consumers face.  In this case our data comes from Amazon (AMZN) and a variety of 3rd Party sources and is far more realistic than the list price Samsung offers.
Of the top 25 Samsung models (2020/2021), we were able to get accurate data on nine models.  In some cases new smartphones did not have Amazon pricing data or even Samsung pricing, and there were some instances where Amazon ‘best’ pricing was higher than prices from other vendors, even on Amazon (excluding shipping). But in general the data indicated that overall prices on high-tier Samsung smartphones are trending down (Fig.2), mid-tier smartphone pricing is mixed (Fig. 3), and Low-tier smartphone pricing is flat to down slightly.  As to whether there is really any substantial discounting, other than unusual models or very limited “only 1 left” offers, the average price reduction from early March prices to current prices was -4.1% and including one-offs was only -5.2%.  This would indicate that the discounting is no more than what would be normal to move certain inventory models and is not an ‘across-the-board’ reduction in Samsung smartphone pricing.
We do note that Samsung does offer discounts on various models if the buyer has a trade-in and/or selects a new carrier plan, and can be substantial if the trade-in phone is a relatively new high-end model.  Samsung offers up to $700 for high-end models and even $550 for same with a cracked screen but trade-in prices go down quickly if your phone is older than 2020.  For example the Note 20 is worth $700 while the previous year’s model, the Note 10 is worth $550 and the Note 9, $350, and they need to be in tip-top condition or they can be excluded or further reduced in value.
Since we have accumulated the data, we will take another reading next month after Samsung’s new models begin to take hold, to see if that has any effect on existing model prices.  Small panel display pricing has been the least affected by COVID-19 demand changes, especially relative to TV panel prices but component shortages might increase smartphone panel prices more aggressively, at least for new models going forward.  Until we see new data, Caveat Emptor.