​If you own an LG (066590.KS) smartphone, the company’s announcement that they would be closing the mobile phone business by the end of July would be worrisome.  What if something goes wrong with my LG phone in August?  Do I still have to pay my purchase installments?  Will there be any more system updates?  These are all good questions that LG smartphone users might be asking, but it seems that LG will be taking care of such, both because they have a brand name to protect, which has already been a bit tarnished by the closure, but also because a number of regional laws require that they do not abandon their customers on August 1.
LG is promising to continue to provide updates for its Android devices for the next three years, at least for its premium models, while some budget models will only get two years of updates.  The LG Velvet phones (~$300 - $400) and the Wing, LG’s 2020 dual screen smartphone (~$1,000) will have OS support until the end of next year, as will all LG phones launched since 2019, which we estimate includes about 48 models.  South Korean LG customers will have things a bit better as customer service will be available to those customers for four years after the date of manufacture and LG will maintain its 120 service centers for its customer base.
While the bulk of the mobile operation will be closed in July, it seems that it will be years before LG can get out from under other expenses associated with its money-losing smartphone business including some of its mobile manufacturing operations which could remain until the end of this year.  We expect the Android updates are part of a long-term agreement with Google (GOOG), but it would seem that after the dust settles it might be better for the company to farm out the customer service and repair to a 3rd party rather than continue the expense.

​Just a few days ago we mentioned  “The Tags are Getting Close…” that Samsung was about to make available its UWB (Ultra-wide band) tags, having appeared on the B&H (pvt) website with an April 12 delivery date.  In that note we also indicated that Samsung’s obvious interest in getting their UWB tags out was based on its rivalry with Apple (AAPL) who had already included UWB in some of its devices and was rumored to be readying a product similar to Samsung’s. As it turns out Apple announced its “Find My” network yesterday, based on an updated app that allows 3rd party products to use the “Find My” network, with a few 3rd party products to be released next week.
The new app requires that 3rd party device designers adhere to a set of chipset specifications (not yet publicly disclosed) that Apple has developed, that will allow other devices to be located on the Apple network, just as those Apple products with UWB can be found by the app, and locked remotely until it can be recovered.  The network operates in a fashion similar to Samsung’s in that it can locate lost devices even if they are not connected to the internet, as Apple devices that are nearby can pinpoint the lost device’s location and notify the owner completely anonymously and without any user intervention of knowledge of the lost item’s location. 
The first 3rd party devices to be released next week are e-bikes, wireless earbuds (not Apple), and a smart tag that can be used on a number of devices or articles.  We expect the opening of the Apple network to increase UWB chipset volumes (when foundry capacity is available) and lower the price of such devices to a more reasonable level that would encourage their use.  While we expect Apple and others are pricing such devices as a percentage of the replacement cost, we see the absolute cost as the real incentive for widespread use. 

​China’s largest semiconductor fab SMIC (688981.CH), was feeling generous after a good year in 2020..  The company gave its CEO, a former R&D Director at Taiwan Semiconductor (TSM) a bit of a raise, more than quadrupling his salary  from 2019’s $341,000 to $1.53m, along with a ‘gift’ of $3.4m in SMIC stock, making him the company’s highest paid employee.  While SMIC recently received funding from the Shenzhen government to build a $2.5b foundry,  an outgrowth of both China’s desire to lessen its dependence on outside semiconductors and components and the global semiconductor shortage, the large salary increase at SMIC is an indication that China is ready to spend in order to attract the talent necessary to build out it semiconductor infrastructure. 
Despite grandiose plans for semiconductor capacity in past years, a number of projects were cancelled or abandon, not due to lack of funding, but more due to a lack of experienced mangers that could both coordinate construction and manage the potential operations.  China now seems a bit more willing not just to offer higher salaries to attract Japanese, Taiwanese, or Korean talent, but to make an obvious point of rewarding them when they perform well.  Nothing attracts talent like a big bonus.

In the middle of last month Samsung Electronics (005930.KS) applied for a patent for a ‘Display Device’, one of 9,407 under that name that Samsung has filed at the US Patent Office since 1976.  This patent shows a tablet, albeit one with a rather large edge, but what the design actually portrays is a tablet that folds.    This would be, if it were to become a product, the first foldable tablet from Samsung, although not the first to be shown by other brands.  The concept, which includes no ‘cover’ screen, as seen in most foldable smartphones, and has a camera (one) and flash built into the hinge, keeping the bezels very narrow.  In keeping with the ‘thinness’ paradigm, all buttons, connectors, and the speaker have been incorporated on the sides rather than on the display itself.
 Given that Samsung’s existing foldables open to 7.6”, a foldable tablet seems a bit moot unless the size of the opened device is considerably larger, perhaps 15” or more.  Since the tablet is not going to be placed in a pocket like a smartphone, the ‘folded’ dimension is less important than the utility of a 15”+ device.  Samsung has been rumored to be developing a foldable tablet, and this patent design seems to fit the bill for what would be a relatively simple device that would have the ability to push foldable display sizes more toward notebook or laptop sizes, while keeping costs relatively low   While the patent does not indicate a potential product, it does make sense from the perspective of filling out Samsung’s foldable line, which we still believe will eventually replace the Galaxy Note.  Maybe not this year, but despite Samsung’s denial, we think the Galaxy Note will either be eliminated or will migrate to a foldable device.

​No, we did not join Facebook (FB) with its data breech of over 500m users data (32m in the US), and we don’t keep any information about those who receive e-mails or client-based literature, or even those who visit our website, so you can relax, but we were curious as to whether our personal or company information had ever been part of one of the many large data breeches seen over the last few years.  A popular site havebeenpwned.com gives one the ability to check their e-mail accounts or phone numbers to see if they have appeared in any postings by those who have hacked into social media or other databases that contain customer information.
Just as an example, one personal e-mail account tested indicated that it was part of a massive posting of 80m unique e-mail addresses and passwords that had been compiled (illegally of course) from almost 3,000 data breeches, a breach of “Fly on the Wall’s” website that happened in 2017, and a number of other high volume security breaks that have happened over the last few years.  The good news is that almost all of the other personal e-mail addresses we tried were ‘clean’ and had not been posted as part of any security break-ins.
While the complexity of managing billions of pieces of information held by social media companies or similar databases is truly overwhelming, aside from password managers and the like, the best way to avoid becoming a statistic in the world of internet security breaches is to not leave your information on the site.  Yes it is a pain to have to re-enter your credit card every time you use an on-line banking app, but do you trust some group of yoyos in a windowless building to have made sure that no one is able to steal your account number and password?  Isn’t it enough that most site have much of your purchasing, viewing, and personal data saved ‘in order to provide a better user experience’ and social media sites have access (technically ‘own’) your pictures, posts, tweets, and tons of other information that they sell or use to ‘suggest’ things for you to purchase or look at?
Spend a few moments on the ‘Dark Web’ and you will forever use an alias and dummy e-mail accounts when on-line.   “I use a VPN,” is what we hear when we talk about security to most investors, but while the communication between you and the website you are visiting is encrypted, do you know anything about the servers on which your VPN stores its information about you, and from what we hear that new refrigerator of yours has been talking to other refrigerators about those late night snacks you’ve been having and the pint of Ben & Jerry’s Cherry Garcia you have stashed in the back of the freezer…

There has been no dearth of commentary on how the world has changed due to broad and local travel restrictions caused by COVID-19, but we always look to the data for hard facts.  A March 2021 consumer attitude survey[1] by PwC gave some measure of specifics from consumers and how they related to both shopping in general, and the potential changes that the pandemic has made on their shopping habits (Fig. 1).  


[1] PwC Survey Metodology - For the first pulse in the series, we polled 8,738 consumers across 22 territories (Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, Indonesia, Japan, Malaysia, Middle East, Mexico, Netherlands, Philippines, Russia, Singapore, South Africa, South Korea, Spain, Thailand, the United States and Vietnam). The survey was translated into 16 languages and fielded in November 2021. The respondents were at least 18 years old and were required to have shopped online at least once in the previous year.

​As noted, the most obvious, or at least most spoken about change, has been the move to on-line shopping as opposed to in-store, however while the pandemic might have accelerated the pace at which this was occurring, we note that the trend has been in place for some time, with absolute sales for both venues seen in Fig. 2 and the rate of change seen in Fig. 3.

If we look at the very unusual growth rate of e-commerce in 2020 as an anomaly, the question remains as to what will happen after the effects of the pandemic are no longer a major influence on the attitudes of shoppers.  A few hints are provided when the data (mobile devices) is broken down by generation.  According to the survey, only 6% of the ‘Greatest Generation” (b. 1901 – 1925) were likely to use their smartphones to shop daily or weekly, while 11% of “Baby Boomers” (b. 1946 – 1964) were in a similar mode.  “Generation X” (b. 1965 – 1980) were (28%) likely to shop on their smartphones, but “millennials” (b. 1980 – 2000) were the leaders at 43%, while the rate was lower for “Gen Z” (b. 2000 - ?) at 35%. 
While the highest rate was from millennials, which was no surprise, we were a bit stumped by the lower rate for Gen Z, although that could be due to their relatively low earning power.  Missing from the data was “The Silent Generation” (b. 1925 – 1945), who, we assume were living up to their name and not answering any questions.  We added the percentage of the US population each generation represented in mid-2019 for reference.

Unfortunately the PwC survey is not specific to consumer electronics but it does show what consumers in each generational category expect to spend more on over the next six months.  While the data here is not as fine in terms of age groups, it does show 7 product spending categories and expectations for each.  The ‘Takeaway food” category is no surprise given the pandemic, nor was “Home Entertainment”, the closest to the consumer electronics space, but we were surprised that both “Eating in Restaurants/Bars”, “Travel”, and “Arts, Culture & Sporting Events” were as strong, although they seemed to be a focus of the younger generations.  What we could not figure out was why “home Entertainment” was low with Baby Boomers, who grew up in front of television sets.  We note that the Greatest/Silent Generation was not left out of the “Health & Beauty” category but they registered zero intent to spend in that venue over the next six months.

​[1] PwC Survey Methodology - For the first pulse in the series, we polled 8,738 consumers across 22 territories (Australia, Brazil, Canada, China, France, Germany, Hong Kong SAR, Indonesia, Japan, Malaysia, Middle East, Mexico, Netherlands, Philippines, Russia, Singapore, South Africa, South Korea, Spain, Thailand, the United States and Vietnam). The survey was translated into 16 languages and fielded in November 2021. The respondents were at least 18 years old and were required to have shopped online at least once in the previous year.

​Samsung Electronics gave its pre-release guidance last night of 65t won ($58.2b US) and operating income of 9.3t won ($8.32b US), up 5.6% q/q and 2.8% respectively and 17.5% and 44.2% y/y.  The consensus for operating income was between 8.75 and 9 billion won, so Samsung beat consensus even with the cost of the shutdown of the Austin semiconductor plant in Austin last month, with TV and smartphones showing strong results.  We see little unusual in the preliminary results as they were expected to be strong, although a bit stronger than expected as results from Samsung Display (pvt) and a number of other affiliates were likely quite strong as both display panels and component prices rose through the 1st quarter.  More details when the company reports full results later this month.
LG Electronics (066570.KS) indicated that it expects sales of 18.8t won ($16.8b US) and operating income of 1.51t won ($1.34b US), up 27.7% and 39.2% y/y respectively, and the best 1st quarter in the company’s history.  While no details were given, TV and appliances are thought to be the standouts in 1Q, while the mobile business posted its 24 consecutive quarterly loss.  As we have noted, that division will be closing as of July.  Again, further details when the company releases full results.

​Estimating panel price m/m increases has been a crapshoot for the last few months, with actual increases surpassing even some of the wildest expectations.  Over the last few weeks things have become even more complicated with substrate glass, polarizers, display driver, and a variety of other semiconductor related shortages.  While these might limit display output in terms of units, it has the opposite effect on panel prices, giving rise to further panel price increases, in this case tangentially related to demand.  Based on the evolving nature of the semiconductor issue, a boost in more ‘traditional’ demand from industrial display consumers, and perhaps a slight easing of COVID-19 related demand, we expect the net result to be an increase in monitor panel prices of between 3.5% and 5%, a 3% to 3.7% increase in notebook panel prices, and a 3% to 5% increase in TV panel prices.
In our estimation, if one were to remove any vestiges of component shortages, we would expect less of an increase in all three categories, and perhaps the beginning of a less frenetic stance from panel buyers, but reality bites and the shortages remain for now.  Interestingly we have noticed a few comments from panel producers or assemblers indicating their concern over double or triple ordering, which has been swept under the rug until recently, with panel producers and semiconductor foundries enjoying the high utilization rates, but concern is one thing and changing the system is another, so we expect few will do anything to address the problem until it is no longer a problem.

​Micro-LED technology, or the use of ultra-small self-emitting RGB LEDs is a developing concept.  Much of what has been publicized by display or LED manufacturers or packagers has been for use in large, modular, and very expensive displays, although Samsung Electronics (005930.KS) has released a 110” micro-LED TV that sells for ~$152,000.  Much of the cost has to do with the placement of the 24,883,200 micro-LEDs, which because of their small size (~.002”) must be transferred carefully and quickly from (hopefully) a singulated wafer to a new substrate.
We have indicated in various notes the ways in which companies are trying to make this happen in a cost effective way, and we continue to have on-going conversations with industry participants about the progress on transfer techniques and similar micro-LED issues, but a recent conversation with a potential supplier of micro-LED displays, who is still in the development stage, gives some indication as to how difficult the transfer issue actually is.  This potential supplier is able to move 1,000 chips/second which comes to 3.6m per hour.  Given that there are 24.88m chips in a 4K TV, at that rate it would take ~6.9 hours to complete the transfer.  Considering that a Gen 8.5 LCD fab (15,000 sheets/month) can produce 2 65” large panel displays/minute, it is easy to see why the cost to produce micro-LED TVs is high.
That said, the same conversation also revealed another important metric.  The yield on that micro-LED panel is 98.9%, which sounds great, given it is only a bit lower than the 99% yield the company generates on mini-LED products.  However when one does the math, a 98.9% yield on a display with 24.883m LEDs means that 273,716 LEDs will not work, and the time and expense of repairing or replacing those micro-LEDs must also be included in the cost calculation.  When the display was tested, the non-working LEDs were entered into a ‘map’ that tells the repair tool which micro-LEDs need to be removed and replaced, but instead of being able to make such removals and replacements at 1000 units/second, the tool must find each non-working LED on the map and individually replace it, which happens at a much slower speed, which again has to be taken into consideration when calculating the potential cost of manufacturing micro-LED displays.
While tool vendors and manufacturers ponder such questions and find ways to speed up the process and increase the yield, the display industry marches on, so with even the best manufacturers, despite the announcements and publicity, are still a bit away from competing with existing display technologies with micro-LEDs.  It will eventually happen, and will represent a challenge to premium display technologies, whatever they are at the time, but we expect it will take a bit of time for micro-LED technology to be adopted by large panel display manufacturers.  “Don’t rush the process.  Good things take time” (unknown)

As details are still being negotiated, there are no hard and fast definitions for the American Jobs Plan proposed by the President, so much will remain in flux until a definitive deal is hammered out, but we took a look at the proposal, or at least what the White House calls ‘The Fact Sheet’ to see how the proposal might affect the consumer electronics industry. 
On an overall basis we see three general areas that will have an effect on CE in the US:

• “High Speed Broadband to all, including the 35% of rural Americans who lack access to broadband at minimally acceptable speeds”
• “Require that goods and materials are made in America and shipped under US flagged and US crewed vessels”
• “Reward investment at home, stop profit shifting, and ensure other nations won’t gain a competitive edge by serving as tax havens”

Under these three headings, and a few sub-headings, we point to the following:
The plan for providing high speed broadband to 100% of the population through near-term subsidies is a great idea, but one that will be difficult to wean from, and we already question what ‘minimally acceptable speeds’ would actually be.  Does this mean 5G for everyone, 4G for everyone, or just a way to get to the internet, and further embedded in the text is the idea that as this broadband infrastructure is being placed, it has to also be ‘futureproof’, a concept that we find hard to understand given how quickly wireless and FWA have been changing over the past few years.
We are certainly not against a plan to open broadband up to the entire US, however subsidies encourage capacity but not profitability, and without profitability there is little incentive for public companies to spend in those regions.  In good economic times the subsidies will allow carriers to spend where they get the most profit and in bad economic times the subsidies will hide how cyclical or unprofitable broadband can be in some regions, and we note that the Chinese government has been using subsidies to grow and prop up the Mainland display industry for years to help to hide its cyclicality., So before the government calls such broadband subsidies near-term, they should assume that they will be nearly permanent, or find another way to finance the infrastructure needed to bring those less profitable areas into the broadband fold.
In terms of requiring that goods and materials are made in America, well we have spoken about this numerous times, and we believe that if the US were to be its own supplier for all goods and materials, the prices we pay for most CE items would be appreciably higher.  De-globalization is a political issue to us, not an economic one, and assuming that the US can produce all that it needs is a bit naïve, although politically positive at the moment.  The cost of producing the myriad of goods and materials that US industry and consumers need would be staggering and take decades to develop, and while there are certainly areas where the US could at least gain some traction, to us the idea is not to have the top share in every material, component, or product, but to have the best, which fosters worldwide demand.  That concept has worked quite well for Apple (AAPL), who produces only a small percentage of the components that go into their products, which generate among the highest premiums in the CE space.  While it is foolish for us to expect that politics be removed from the global supply chain equation, thinking we can do all things more profitably than everyone else seems a bit unrealistic.
The last area of focus is taxes, and this is the most complicated of all.  Companies look to return as much as possible to shareholders (and of course, management bonuses), and taxes are technically a fixed cost of doing business in a particular market.  The objective of all accounting firms is to find ways to reduce statutory tax rates through all possible legal means, and tax havens and offshoring are certainly a part of that.  If the ability to use those ‘advantages’ are removed through changes in the tax laws, it will have a bottom line impact on many US companies that use countries like the Cayman Islands, Bermuda, Lichtenstein, and Ireland to shelter foreign income.  These countries will not just decide to give up such practices and will work with companies to find other ways to offset potential tax savings relatively quickly, and expecting other countries to agree to a corporate minimum tax while you are promoting a more de-globalized economy seems to be pulling a string at both ends.
That said, using tax incentives, especially after a higher corporate tax rate is initiated, to specifically target R&D spending in the US is a subsidy that does not have to be budgeted and face political agendas.  If such tax ‘incentives’ are structured to specifically target areas that need development, such as renewable energy or leading edge technology, they would be far more effective than subsidies mentioned above.  None of this is easy stuff, and regardless of any compromises and changes that are made, unless the specifics are well thought out, highly defined, and well-coordinated between government agencies,  the effect will be muted and lots of dollars will be spent will relatively little impact.  If we are going to spend $2t, let’s get something tangible for it and stop spending time and money on trying to beat down any other country that might hint that they could do something better than the US.  The best way to prove them wrong is not to stop them from doing whatever it is, but to do it better.  Stop your bellyaching and get to work!