COVID-19 is out of the news a bit as the Russian invasion of Ukraine takes precedence, but while mask mandates come off in the US and the new case rate declines after the spike seen earlier this year, China maintains a very strict lockdown policy toward COVID-19 outbreaks in order to keep the virus contained in the country of 1.448b people.  Major Chinese cities are particularly sensitive to outbreaks and Shenzhen is no exception, as the 6th largest city in China and has been given the name’ “China’s Silicon Valley” due to the large concentration of technology companies that have headquarters or operations in the city.  Huawei (pvt), Oppo (pvt), TCL (000100.CH), Tencent (700.HK), and ZTE (000063.CH) are all based in Shenzhen and Taiwan based Foxconn (2354.TT) has its 2nd largest manufacturing campus in the city.
On Monday the Shenzhen government imposed a one week lockdown across the city, shutting down production at plants for what is expected to be a week.  Many of the companies have instituted production shifting plans to compensate for such draconian COVID responses from local governments in China, but even well planned shifts to production facilities outside of the area or the country take a toll on production goals.  The good news is that the first quarter is usually the weakest for the CE space, which means there is time for any shortages that might occur to be made up before the busy 3rd quarter, but drilling down in the display space, there is one panel producer that would be exposed to such a shutdown more than any other and that is panel producer Chinastar (pvt).
Chinastar has five LCD lines in Shenzhen, which represents 75.5% of its current monthly LCD panel (m2 basis) output.  Tianma (000050.CH) also has a fab in Shenzhen but is only a small part of global LCD production while Chinastar’s Shenzhen fabs represent 36.9% of global monthly LCD panel output.  Assuming 7 days of shuttered production and a day on either side to bring lines up and down, that would represent ~10% of Chinastar’s 1Q Shenzhen production, or 3.69% of LCD capacity in 1Q as a worst case scenario.  While we expect the fabs are not completely shut down, but Chinastar only has a Gen 8.6 fab in Guangzhou and the one it purchased from Samsung Display (pvt) in Suzhou as alternatives, so it will be difficult for Chinastar to move much of its large panel production to other fabs outside of Shenzhen.
While looked at across the 2022 year, this will be a small bump in the road, however it could influence large panel pricing if panel buyers are caught short in the near-term.  Large panel prices have been declining but those declines have been slowing as large panel prices neared pre-pandemic lows and cash costs.  With Chinastar’s issue, there is the possibility of a bump in LCD large panel prices that would not be based on long-term demand and could give a false sense of a potential recovery in large panel prices.  We certainly don’t rule out a large panel price recovery this year, but it would have to be one based on real demand rather than one based on a short term perturbation in the LCD production cycle of a single city.   According to the Taiwan tech press, most of the Taiwanese companies operating in Shenzhen will see little effect from the lockdown, although we take much of that as a bit of nationalism toward China given they will not recognize Taiwan as a sovereign country.

​Mediatek (2454.TT) the 2nd largest company in Taiwan (market cap) and the largest producer of 4G and 5G chipsets (units) is preparing to list its Bluetooth chip subsidiary Dafa/Airoha (pvt) and is making the applications for listing on the TSE Emerging Market board, which is a prerequisite for listing on the TSE.  The company is expected to apply for full listing on the TSE after the necessary 6 months on the Emerging Market board, with its performance setting the tone for pricing on the TSE.  The listing is targeted toward attracting engineers and workers in the semiconductor space to Dafa, as competition from other semiconductor companies in Taiwan for talent has become quite fierce.  As bonuses are roughly evenly divided across all divisions at Mediatek, regardless of performance, the idea of an independent public company takes ‘sharing’ out of the bonus mix and opens the potential for higher rewards for performance.
Dafa provides Bluetooth devices to Sony (SNE), Apple (AAPL), Xiaomi (1810.HK) and JBL (pvt[1]) among others and a 10% stake in the company was sold to a group of VCs for NT$650/share, which was the largest semiconductor deal in the Taiwan VC world over the last few years.  Given 145m shares, the valuation for that transaction would be ~$3.3b US.  The Emerging Market listing is expected in May or June.


[1] JBL is owned by Harman International, who is owned by Samsung.

5G is all the rage.  Faster service and more bandwidth are the calling cards of 5G advertisements, along with the coverage maps that tout coverage across much of the US, but as we have noted in the past, much of the 5G coverage that is offered to consumers is piggybacked on 4G infrastructure and is of the sub6 variety, the ugly stepsister of 5G.  The problem with 5G is that as the frequencies get higher, which improves speed and bandwidth, the distance a 5G signal can travel decreases, and less distance means more base stations to keep customers from losing the 5G signal.  As each base station is a cost to carriers, the need to tradeoff between speed and cost has kept much 5G capacity in the low to mid sub6 spectrum.
While 5G even at these frequencies is a step up from 4G (in most cases), it does not exploit the true nature of 5G as an improvement in technology and sets the bar on the low side of what 5G can really do.  Then there is mmWave, the princess of 5G, with all the speed and bandwidth that the technology can promise, but there is a catch, and it’s the same one that plagues 5G technology only more so.  MMWave 5G signals, which operate between 24.25 GHz and 43.5 GHz, are even more susceptible to the distance characteristics mentioned above and need to be retransmitted every few hundred meters, making the service far too expensive for a carrier mobile network.  That said, there are many applications that would benefit from mmWave and are situated where the necessity for multiple base stations would not be burdensome.
Stadiums are such a situation where mmWave 5G can be easy adapted to provide ultra-high speed capabilities that stadium goers can use to view camera angles that they might be far from or detail that might not be available on a large LED display.  Businesses however would be the true beneficiaries of mmWave 5G, as the ability of a factory where sensors are on a mmWave 5G network to process real-time information across a large production line, would be vastly improved both in speed of data collection and bandwidth available using mmWAve 5G and the concept of relatively limited transmission spread works toward keeping that information secure.  All in mmWave 5G, while not yet viable for a large mobile network, is perfect for specific instances where speed, low latency, and bandwidth are most important and coverage is not the key factor.
One problem however is that mmWave frequencies need to be assigned to carriers and many countries are still in the throes of figuring out how to deal with sub6 5G frequencies, so mmWave is still in its infancy across the globe, but some countries have recognized the value in allocating mmWave spectrum, allowing carriers to work through the mechanics of making viable use cases for the technology, some more than others.  We have put together a list of those countries that have assigned mmWave frequencies or are in test/trial mode.  While the list contains all countries that meet those criteria, we have arranged them in order of the level of assignment, meaning how much of the mmWave spectrum has been assigned.  Surprisingly South Korea is absent from the list as is the Netherlands, where politics have been more of a determining factor than the prospects for expanding 5G service.  The UAE is the only country that has assigned all mmWave capacity to date.

We have noted recently that Samsung Display (pvt) has had differing opinions about an OLED technology called ‘tandem’ or ‘dual stack’ structure.  In typical smartphone OLED displays the OLED materials, particularly the emissive OLED materials are arranged in layers between an anode and a cathode, with three (Red, Green, Blue) sub-pixels making up a single pixel that can display millions of colors by varying the mix of the three.  The key process for producing OLED displays is deposition where the materials are heated in a vacuum until they vaporize and then settle on a substrate after passing through a mask that patterns them into sub-pixel ‘dots’.  In an OLED display a backplane of thin-film transistors (TFT) control each subpixel by providing a ‘push’ that causes the materials to produce light and create a full color image.
OLED materials are relatively complex and are continually being developed to increase their efficiency and light output, but said materials have some limitations such as a point at which applying more ‘push’ does not generate more light and can degrade the materials more quickly.  This limits OLED display ‘brightness’ relative to non-emissive displays that use a backlight to generate brightness, which has led some to criticize OLED display technology as ‘not bright enough’.  While new OLED materials continue to push those limitations, a number of OLED panel producers have been developing a new OLED structure that places two OLED stacks on top of each other, creating a brighter display, but there has been some controversy among suppliers as to whether this approach is a viable one for OLED displays.
LG Display (LPL) is the only OLED display supplier to have the production capabilities to produce such tandem OLED displays and uses them for automotive displays that must meet strict brightness specifications, however Apple is looking to incorporate such an OLED solution in products in order to quell potential brightness issues in a number of its products, particularly tablets and laptops.  As Apple’s largest OLED display supplier is Samsung Display, SDC was charged with developing a dual-stack OLED 11.9” display for a potential iPad product but said project was cancelled in 3Q last year, reportedly as SDC could not find a way to produce such a display economically given the additional process steps and process modifications needed for the new structure.  However, as we recently noted, SDC decided to get back into ‘Dual Stack’ development, likely as China’s BOE (200725.CH) has indicated that it is modifying some of its OLED capacity to produce dual-stack displays.
But all is not rosy even for BOE, who has recently become a 3rd supplier of OLED displays to Apple after an arduous qualification process., as there is another aspect to Apple’s desire to implement a tandem stack OLED structure in future products, and that is the backplane that controls the OLED pixels.  There are two competing control structures that are used in OLED displays, LTPS (Low Temperature Polysilicon) and LTPO (Low Temperature Poly-Oxide), with the former the most common.  LTPO however is Apple’s choice for its premium iPhones and will likely push to expand LTPO’s use across more products as it requires less power, improving battery life in mobile devices.  Samsung Display has been Apple’s primary LTPO OLED display supplier, with LGD beginning to compete in that arena, but BOE does not have sufficient LTPO capacity to provide a dual stack device using LTPO in the quantities needed by Apple. 
According to South Korean trade press, BOE was in talks to supply a tandem OLED display to Chinese smartphone brand Honor (pvt) but rejected the brand’s request for that device to also incorporate LTPO under the theory that while the dual-stack structure could reduce the power consumption of the device by 30%, the application of an LTPO backplane would not add enough additional power savings to make it worthwhile to produce.    On the surface that seems plausible however given BOE’s lesser experience with LTPO production we expect the allocation of resources to building out their LTPO production and their dual stack initiative might have proved to be a bit more than BOE was willing to take on, particularly as the dual stack structure requires two deposition lines instead of one or a 50% reduction in capacity if the same deposition line is used for both stacks.
Apple is certainly a demanding partner to display producers but with unit volumes at or near the top of the industry and a willingness to pay a premium for cutting edge technology, the company represents a massive source of revenue over time, albeit not without risk and/or cost.  If Samsung Display was willing to change their mind about a dual stack structure, likely at Apple’s behest, than we expect BOE might also decide that the opportunity is too lucrative to miss sometime in the near future, especially as Samsung Display is not the leader in tandem OLED structure production, as they are in most other OLED display production modalities.  We are still in the early stages of this horserace.

As we have noted in the past, while Taiwan represents ~27.6% (4Q ’21) of large panel display industry revenue, the three Taiwanese panel producers are required to report monthly sales figures while panel producers in other regions and countries typically report those figures quarterly.  This gives a bit of granularity to shorter-term trends in the display space and justifies tracking those results.  We note however that February is an odd month for panel producers generally, as the month is short and contains the Chinese New Year holiday, which is a time when factories run at low levels as workers travel home for the holiday.  As a result February seasonality sales and shipment data varies considerably between producers, as AU Optronics’ (2409.TT) 5 year average m/m February sales are down 0.9% while Innolux’s (3481.TT) February average is down 13.5%.  We believe looking at the chart trends is a better way to see how Taiwan panel producers are performing during the early months of the year as seen below.  We note that AU Optronics reports only total sales while Innolux and Hannstar (6116.TT) report sales and shipments.
In the case of AU Optronics and Innolux, sales have fallen to levels at or below February 2021.  Both panel producers generate considerable revenue from TV panel sales (generally between 30% and 35%) with the remainder from IT products (notebooks, monitors, tablets) and small panel (smartphone, watches) sales.  As large panel prices have declined steadily since last July, the effect has been obvious on sales, but only within the last 2 – 3 months have panel prices for IT products begun to decline.  Those panel products had helped to offset the decline in TV panel prices until recently and now have begun to pressure overall sales as those panel prices weaken.  As this trend has continued through February, first quarter results are likely to be under pressure, although the declines in TV panel prices have slowed somewhat as IT panel price decreases increased.  As panel producers spent much of last year shifting production away from TV panels and toward IT panel production, this makes the industry more sensitive to IT panel price declines.  Hannstar is primarily involved in producing small panels so the effect of TV and IT panel price declines is less obvious however component shortages and weak demand for smartphones has also affected Hannstar’s monthly sales trends this year.

​Mini-LED backlights give longevity to LCD displays in that they allow LCD technology to better compete with OLED displays.  While Mini-LED technology is an outgrowth of conventional LED backlight technology, by making LEDs smaller and squeezing more into a display, the contrast of an LCD display can be improved while reducing fast motion artifacts (smear or trails) and halos.  Given the vast investments made in LCD production capacity over the last 15+ years, any technology that can extend the life of those assets is one championed by panel producers.  From a CE brand perspective the higher price of OLED displays on a m2 basis, keeps some mid-to lower price point products out of the OLED display sphere and focused on less expensive LCD display panels, but at the same time those products must compete with OLED and other emerging display technologies to stay relevant. 
Mini-LED backlights do just that by improving LCD display specifications, especially when paired with quantum dots, so aside from the enthusiasm for Mini-LEDs from LED producers, brand interest in Mini-LEDs is increasing as the supply chain for Mini-LED components and modules expands.  LED producers are happy to see a path toward a more upscale market, especially as generic LED production processes are relatively easily scaled to Mini-LEDs, and brands see this as another level of differentiation and premium pricing.  Samsung Electronics (005930.KS), LG Electronics (066570.KS), TCL (000100.CH), Sony (SNE), and Hisense (600060.CH) have all adopted the technology for their TV lines, and Apple (AAPL) has been using Mini-LEDs for a number of products, from the Apple Watch to the MacBook line and in the company’s XDR Monitor.
It is not secret that Apple has been working with a number of partners toward the continuing development of Mini-LED technology, but also with a bent toward developing Micro-LED displays, which are both a major step forward in display technology and one that would eventually compete with OLED and even LCD itself.  That said, Apple continues to work with partner Epistar (3714.TT) toward further development of Mini-LEDs and is supplied by Epistar, OSRAM (AMS.SW) and Sanan (600703.CH) from their products.  Sanan seems to have had some issues (IP) that have made product qualification more difficult, however Epistar has been both a development partner and LED supplier to Apple for a number of years.
To that end, Epistar is expanding its Mini-LED capacity in Taiwan and China, although speculation on the extent of that expansion seems to be somewhat unreliable. Late last year expectations were that Epistar would be expanding capacity by 50% in 2022, and while that seemed a bit optimistic, we noted last year that Epistar was seeing strong demand starting in 2Q, roughly the same time Apple was beginning volume production for the MacBook Pro.  The company did add Mini-LED production capacity late last year, so some of the 50% increase expected for this year might have been pulled forward, but we note that Epistar is at least going forward with capacity expansion plans this year of 25%, from ~15m in2 to ~18.8m in2, or 1.2m 4” equivalents to 1.5m. 
While it cannot be assumed that all of the new Epistar capacity will be allocated to Apple, we expect they have communicated longer-term plans and Epistar has responded.  All in, the expansion likely signals Apple’s continuing ‘investment’ in Mini-LED technology and the potential for new Mini-LED products, and solidifies some of the speculation as to additional products either this year or next.  While this says nothing as to Apple’s feel toward other display technologies, as each product category has its particular needs and specifications, it does give the Mini-LED supply chain a ‘warm’ feeling knowing that Apple, Samsung, LG, and TCL are all expanding the use of Mini-LEDs, and while suppliers are more will to take capacity risk, Epistar’s expansion seems to point the Mini-LED industry in the right direction.

​The highly publicized rise of “Crypto Kings”, those now billionaires who came up with the idea that the world needed a new form of currency, that operates through the blockchain, making it ‘immune’ from governmental regulations and interference, have been the poster children for the new world of virtual entrepreneurship that has begun to attract attention from global governments that are trying to both understand and find a way to regulate these unregulated markets.  Names like Binance (pvt), Coinbase (COIN), FTX (), and Kraken (pvt) register billions of dollar volume each day in cryto-trading and have made billionaires of their owners, but while budding tycoons moon over posters of these new crypto-kings, things are not always as they seem.
Aside from China’s vocal denigration of crypro-currency and outright bans on mining, and the mostly embarrassing questions asked by politicians during Congressional hearing and testimony, regulators in many countries are trying to get a handle on the legalities of crypto as it opens a whole new world of fraud to those who invest.  Higher level discussions about whether crypto exchanges should limit transactions with evil-doers have been ongoing, but have been pushed into the headlines as financial sanctions against Russia have supposedly pushed oligarchs to convert the falling Ruble into crypto, with many exchanges citing the ‘libertarianistic’ basis for crypto as a reason not to exclude such customers.  But setting those aside, crypto is such a fertile ground for fraud that it begs for regulation by its very nature.
Here’s what we mean…
On March 3 the US District Court of the Eastern District of New York handed down an indictment against Dwayne Golden (Florida), Gregory Aggesen (New York), Marquis Egerton (North Carolina), William White (Pennsylvania) and a redacted defendant, along with EmpowerCoin and ECoinPlus, two entities that were operating between April 2017 and July 2017, and Jet-Coin, which operated between May 2017 and August 2017.  The Grand Jury indictment states that during those periods thousands of investors were induced to invest in these companies under the false promises that the investors assets would be invested in Bitcoin, that Bitcoin would be traded by these companies on behalf of the investors, and that investors would earn large returns as a result of that trading activity.  In truth the assets were used to repay other investors or simply stolen by the defendants, with the companies collapsing shortly after receiving the investor’s assets, without any trading activity.
The websites for these companies were nearly identical and guaranteed large returns that would be credited to customer accounts on a daily basis, with the defendants writing the advertising copy, contracting internet services, and writing the software to upload the content and maintain the sites.  Investors were encouraged to invest cash or Bitcoin, in some cases by a promoter, by sending it to a different Bitcoin address.  Some investors initially received small payments said to be ‘interest’, other investors soon realized they were not receiving returns and made complaints to the companies.  The defendants changed the name of the company to ECoinPlus in June, 2017 and relaunched, with the updated promise that they were no longer able to promise daily returns but would instead promise a 1% daily return and that their investments would no longer double in two months but would take six months instead.
When investors were still unable to see returns and complained to the company, they were told there were technical difficulties and that the sites had been hacked, but the defendants again tried to relaunch the sites, even after using the investor capital for their own use.  What is most astounding, is the fact that during the period between May 2017 and July 2017 the companies collected ~$21.7m from investors, that’s a rate of ~$236k/day (the final total was actually close to $40m) from investors that obviously did little or no due diligence, but to make matters worse, as the companies began to collapse the defendants began discussions as to what to do if the FBI caught wind of the ‘issues’.  Those discussions continued until February 2018 when the FTC filed a civil complaint and a subpoena from one of the defendants concerning Jet-Coin at which point the defendants erased information from a laptop which it them provided to the FTC in New York and provided statements to an attorney containing falsehoods that were designed to obstruct any investigation.  The lies were effective enough to convince the FTC not to depose the defendants and the case was settled and closed in November 2019. 
Sad ending for the investors? Not yet, as in June of last year the FBI served the lead defendant with a subpoena for all records relating to the three companies and in July one of the defendants made ‘materially false and misleading statements that were passed to the US Attorney’s Office in New York’s Eastern District, resulting in the Grand Jury indictment consisting of 11 counts including Conspiracy to Commit Wire Fraud, Wire Fraud, Money Laundering, Tampering with Evidence, and obstruction of Justice, all of which would lead to up to 20 years in prison if the defendants are convicted, along with forfeiture of any assets (good luck with that).  Of course, the defendants will have their day(s) in court to prove their innocence.
While not to the investors involved, this was a small case, with others, such as the September 2021 “BitConnect” fraud case (SEC) where $2b was raised (unregistered securities) by promoters promising returns as high as 40%/month along with ‘commissions’ to investors who brought in new investors (the result being the seizure of $56m in crypto) and a host of others, not only in the US.  The point here is that the promotion of cryptocurrencies by companies, celebrities, and paid promoters, leads potential investors to believe that the risks involved are minimal, being blinded by the ‘potential’ for massive gains.  As in every investment there is a risk/reward profile that can hopefully be determined by a careful examination of the assets involved and the history of transactions around the asset, but when it comes to cryptocurrecy, due to the nature of the blockchain, there is little transparency and in many cases no history.  While investors are supposed to understand the risks involved in making investments, individual investors rarely have the time or inclination to do such due diligence and rely on promoters to be truthful.  While we are not big fans of regulators in general, cryptocurrency scams will make Ponzi schemer Madoff look like an amateur unless regulations particular to the asset are devised.  There are so many ways to use cryptocurrencies for illegal purposes that it is almost mandatory that evildoers gravitate toward anything crypto.  

Over the last few years we have noted some of the more extreme changes in CE material pricing and given the new geopolitical environment we are currently in, we thought it important to take a quick look at the pricing of a few of the more important metals used in CE products.  The Russian-Ukraine war has obviously caused spikes in many commodities, some of which have been facing increases due to COVID-19 and the supply chain issues it has caused, but while the three shown below have seen big price increases due to the recent hostilities in Europe, two of the three have already begun to subside and while they will likely take time to stabilize as US and European sanctions against Russia continue, the spot price extremes will likely dissipate. 
That said, the increased tension could leave the previous increases intact and set a higher average until real demand begins to return to more historic levels, which we would have expected around mid-year 2022 for many CE products before the hostilities.  We expect safety stocking will continue to keep price momentum upward until some real signs of a cease-fire or negotiations are seen, but the glass half full view says if this had happened in the 3rd quarter of this year when production begins for the holidays, it could have been much worse.

Samsung Electronics (005930.KS) has revealed pricing on some of its 2022 Mini-LED/QD TVs.  While these prices might vary between countries, the prices we have seen are for the US.  While we have tracked Samsung’s Mini-LED/QD line pricing throughout the year and noted an overall decline of 27% across the line yesterday, we were surprised that pricing for most of the 2022 Mini-LED/QD models are the same as last year’s initial pricing, having hoped that Samsung realized that perhaps 2022 might be a year when they lowered initial pricing to be more competitive.  There are some mitigating circumstances, such as the continuing component shortages, however LCD TV panel prices have declined significantly since last year and we would expect the cost of Mini-LED backlights to also have declined as capacity expands.
Obviously our view differs from that of Samsung, who is likely more concerned that the Mini-LED/QD line is well-positioned and will not interfere with sales of its other TV products and less concerned with developing the Mini-LED/QD market.  That said, if the starting point for the new line is the same as last year, we would expect the discounting that we have seen for the 2021 models to be repeated with this year’s models.  While we need to fill in a few more gaps for 2022 model pricing and expect new size categories for some models, the pricing trend for Samsung’s Mini-LED/QD line looks to be about the same as last year.