​IoT is a broad term.  It ‘describes the network of physical objects – “things” or objects – that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet,” according to Wikipedia,  while Webster’s defines it as “the networking capability that allows information to be sent to and received from objects and devices (such as fixtures and kitchen appliances) using the Internet”.  However, as we open up these trillions of devices to each other, how safe is that data and how do those producing IoT devices regard its security?
A study done by OMDIA last year that included 170 industry leading developers of IoT devices polled the group concerning their focus on IoT security issues, and when asked whether security issues were the main obstacle to the adoption of IoT ~85% of respondents agreed and ~64% of IoT vendors said that end-to-end security is a short-term priority or is already included in the company’s development plans, with 26% saying it was a medium to long-term priority. 
That said, 10% of those polled did not included end-to-end IoT security as a priority at all, and while this was better than most other technology segments, such as 5G, where 21% did not have security as a priority or eSim developers where 41% said it was not a priority (e-Sims contain a device’s network connection information and account data), it opens the data collected on such devices to anyone looking to harvest it.  Taking the data a bit further, 41% saw end-to-end security as a longer-term objective, with another 14% either not sure where they stand or do not have ETE security on their radar at all.
If we look at IoT security from a developer’s standpoint, it is an extra cost burden, and one that they do not get paid for, especially as the consumer rarely expects to pay for security, but for those trying to implement IoT solutions, without an industry security standard, they are left with either implementing a home-grown solution that could become outmoded if the industry standardizes, or having no security solution.  Not only does this reduce their willingness to spend toward the IoT space, or even the 5G space, but reduces their focus on IoT security overall, which sets the scene for some sort of data issues that will publicize how insecure much of the IoT data that is being collected actually is.   Of course there are few who would want to know what items are reaching their expiration dates in your refrigerator, but there are those that want to gather your warranty information and other personal data that can circulate among IoT devices.  More data, less security is a bad combination, and the purpose of IoT is to pass data between devices.  It should be the highest priority.

After a board meeting today, LG Electronics (066570.KS) made the closing of its mobile business official, something that had been rumored about for months.  The decision, according to the company, will allow a focus on higher growth areas such as electric vehicle components, connected devices, smart homes, robotics, artificial intelligence, and BTB solutions.  The company will still provide support and software updates to customers ‘for a period of time which will vary by region’.  Details relating to employment will be made at the local level.  All in, the closure is expected to be completed by July 31, although existing inventory could remain available longer and production will continue through the end of May.  LGE’s JV with Canada’s automotive module supplier Magna International (MGA) is expected to begin in July.
After many quarters of losses (23 consecutive), it is not surprising that LGE is closing the mobile business.  The company has not been particularly successful in developing or marketing its mobile phones and while it has come up with some interesting mobile phone concepts over the years, most have not caught the attention of consumers, leaving LG’s share of mobile phone shipments below 5% since 2014 and over the last year at 2% or below.  While LG Display (LPL) will lose a customer, at between 5.5m and 7.3m units/q, they should be able to make up that loss as they increase their iPhone production share and develop other customers.
We expect LG Display realized the inevitable end to the LGE mobile business back in January when the company sent an e-mail to the company’s Mobile Communication division that was intended to ‘calm’ them in anticipation of the company’s announcement of its financial results near the end of the month as the financial results are usually followed by a review of the company’s plans and expectations for each segment.  The e-mail mentioned that mobile communication division employees, regardless of what decisions are made, will remain with the company ‘as a general rule’ and should not be anxious, although it certainly seems that management was about to make some changes to the division.  Discussions with Vingroup (VIC.VN) and Volkswagen (VOW.GR) did not prove fruitful.
BOE (200725.CH) and Tianma (000050.CH) were also suppliers of displays to LGE, but primarily through ODMs, which accounted for between 70% and 80% of LGE’s total smartphone shipments in recent quarters.  LGE is expected to compensate its suppliers for inventory assets and investment costs but to what degree is unknown.  The company says ‘we plan to cooperate sufficiently if there is a part to discuss with existing business partners,’ and the continuing production mentioned above is said to be to honor commitments made to suppliers.  Communications division staff will be transferred to other business units or affiliates.

​Back in October of 2013, Samsung Display (pvt) and Corning (GLW) announced that Corning would be buying Samsung Display’s 43% stake in Samsung Corning Precision Materials, a joint venture between the two initiated in May of 1995 headquartered in Asan, South Korea where Samsung Display maintains a number of display fabs.  At the time Corning issued $1.9b face value converts to pay for the purchase and Samsung Display bought an additional $400m to bring its stake in Corning to ~7.4%.   Corning has announced that Samsung Display will be converting that paper to 115m shares of which Corning will repurchase 35m shares or about 4% of the outstanding, leaving Samsung Display with a ~9% stake in Corning., which they will retain until at least 2028.  The dividend rate on the convertible shares has been lower than that on regular shares, making the conversion lucrative to SDC.

March was a good month for 5G.  5G devices growth remained above trend line and smartphone unit volume returned to 15% m/m growth for the first time since October of last year.  While these are still relatively small changes, they are indicative of smartphone growth seen in China (see our note 3/18/21) recently, and we believe, a bit of optimism that the aggressive vaccine program in the US will allow a return to normalcy sometime in the near-future.
Aside from the global statistics, we looked at the 50 most popular smartphones released in 2021 to see how many were 5G enabled, and while this is not a strictly scientific study, it showed that 29 of the 50 (58%) were 5G enabled, while the remaining 21 (42%) were not.  Typically March is a strong month for Chinese smartphone shipments, averaging over 100% m/m growth over the past 5 years (76.9% if you take out last year’s 240.3% m/m growth during the pandemic), so it is not surprising that 5G smartphone growth was also strong, however we do not yet have March China smartphone shipment data so we cannot tell whether 5G shipments remained between 65% and 70% of the Chinese smartphone market.  If that rate increased, we can surmise that there has been a pickup in Chinese 5G smartphone shipment growth, which is our supposition.  If Chinese 5G smartphone shipments did not increase as a percentage, then we would surmise that the growth was outside of China, a more desirable outcome.  That data should become available within the next few days.

Its good to stay in touch and the internet has made that so easy that most folks don’t think at all about posting all sorts of information on social media.  Of course posting things like “Having a great time during our vacation in Europe” does make your home a target for those that might use that data for nefarious reasons, but every time you fill out a form, sign up for something, or even post, your data becomes part of a vast shopping mall of data that is being bought and sold by interested parties on a global basis.
Apple (AAPL) has recently changed its privacy policy on the App Store to now show the privacy label on available apps so the user can better understand what type of data the app will require.  pCloud, (pvt) a cloud service company took the data and put it in a table to better understand what data is being required and what is being shared with others.  According to most developers, the data is to ensure you have a ‘good experience’ or to ‘track how you interact in order to fix bugs and improve service,’ but that data is just as easily used to target ads, that can pop-up almost immediately after you have searched for an item,.  That search data is quickly passed to 3rd parties on almost half of all major applications and could range from no fee if it is used internally or by an affiliated company, or fee based if it is sold to outside 3rd parties.
There are many companies that just buy such data to allow it to be analyzed, eventually to find better ways to sell things to you online, with most people having no idea what is collected or who collects it.  The study showed that 80% of the apps use your data to market their own products in the app or for serving their ads on other sites, or to sell to others.  The list contains 14 categories of information that could be collected and the percentage of all data collected by the app. 

​Top 10 fabless IC supplier Realtek (2379.TT), has indicated to customers that their ‘possible future delivery period’ has been extended to 32 weeks or more, subject to modification.  Realtek is a supplier of ICs primarily for networking (Bluetooth, Wi-Fi, Ethernet) and media processors, along with various IoT controllers and is among the top 10 fabless semiconductor producers.  The letter to customers further indicates that after new orders are received, ‘the delivery date will not be arranged temporarily, and the possible delivery date and number of shipments will be notified within 12 weeks after the order is available’, which we take to mean that the company will give no delivery date until 12 weeks after they begin production on the specific item. 
This comes after Broadcom (AVGO) told customers that its lead times had extended to 50 weeks, with some products extending to more than one year, adding communication chips to the list of those in very short supply. As inventories are run down.  Fab resources are under such pressure that we expect only the largest customers are receiving product and likely even those are under allocation, leaving smaller customers to wait 6 months or longer for key components, delaying plans for new product.  We expect we have yet to see the true impact of the shortages as inventory levels have allowed semiconductor customers to continue to produce product, however limitations on product releases and new product development will be the result.
While we expect foundries to continue to run at full utilization for much of this year, we expect only the largest customers will be able to build enough semiconductor inventory to keep to ‘normal’ product release schedules.  If these shortages persist OEMs and assemblers will have to take on greater (and earlier) inventory to make sure they are able to meet production and assembly schedules for products due in 2H.

​In mid-January we noted that Samsung Electronics (005930.KS) was publicizing its entry into the smart tracking market, an area that began to garner interest when Apple (AAPL) began including UWB (Ultra-wide band) as a way to precisely pinpoint the location of devices in the iPhone 11, leading fans to await (still waiting) the official release of ‘Air Tags’, Apple twist on using the technology to keep track of possessions or find lost ones.  In the interim, a company called Tile (pvt) came out with such a device but uses Bluetooth which limits its accuracy, and then Samsung announced ‘SmartTags’ that would be the direct competitor to the Apple product, when it is released.
According to the original information from Samsung, you will be able to buy a ~1.5” device (.4” thick) that can be placed on any object that is easily lost..  Bluetooth is used to find items close by, but if the item is out of your Bluetooth range (like being in the grocery store parking lot) any Samsung Galaxy device (that has UWB) will ‘see’ the lost item and inform the ‘Galaxy Find Network’ which will tell you where the device is located.  Once you are close by, you can precisely find the device with UWB on your own device, even when the other Galaxy devices are offline, all done anonymously, without any user intervention.  
The tags that Samsung originally released were Bluetooth only, ($29.99) which sort of defeats the purpose of UWB, but we have seen the first indication that the UWB device will be released imminently given that B&H (pvt) is taking pre-orders ($39.99) with an expected delivery date of April 12 and the device appeared in FCC filings this week.  While the Bluetooth can find tagged objects up to ~400 feet away, using a Samsung Galaxy phone (with UWB and app) allows finding objects that are out of range by accessing the ‘Galaxy Find’ network that is embedded in Samsung Galaxy phones, even if they are off. 
This means that whenever a tagged lost object is I range of a Samsung phone (even if it is off), its location will be reported to the network.  In order to make finding tagged objects easier, by using the phones camera when near the tagged lost object, the actual objects location will be overlaid on the camera’s image, giving you its exact location, even if it is under a pile of leaves or behind a couch pillow.  With 5 month of (replaceable) battery life, the tags are an essential for those prone to losing things, or those that carry valuables.  While it has its limitations because of its size, it can even be used for pets, although microchips are a better alternative.

Universal Display (OLED), as the IP holder for a wide variety of OLED material and device patents, has renewed their license and material supply agreement with LG Display (LPL).  The new agreement will run for 5 years,, and while terms were not disclosed, previous agreements were based on a license/royalty fee on units shipped, which has been the standard agreement terms for all of UDC’s license and material agreements, other than with Samsung Display (pvt), who pays a quarterly fee rather than one based on unit volumes.  In years before ASC 606 Samsung’s license fees were easy to spot given they were paid twice yearly, while now they are prorated against material sales on a quarterly basis regardless of when received.
The previous long-term agreement with LG Display was to extend until 12/31/22 which makes the early extension a bit unusual, however given LG Display’s increased large panel OLED capacity, a result of the Guangzhou fab, and the company’s potential for further large panel OLED expansion, we expect the previous agreement, particularly on the material side, was looking a bit outdated.  The only caveat in the LG Display equation would be the potential closing of LG Electronics’ (066570.KS) mobile business, which would have an impact on LGD’s small panel OLED display sales, but we believe that LG Display’s improving supply relationship with Apple will compensate should that occur.
The resigning with LG Display is part of Universal Display’s long history of agreements with both collaborators and customers.  While key players are Samsung Display, LG Display, and BOE (200725.CH), there are few OLED display developers or producers that have not signed contracts with UDC.  Not all have proven as lucrative as those with the above, but they certainly cover a wide swath of display producers.  Those UDC agreements with OLED panel and lighting producers that have been made public since 2004 are listed below.  Those shaded red are key customers and those in italics are based on OLED lighting.:

​As we noted on February 5th, the South Korean government gave its approval of the sale of Samsung Display’s (pvt) Suzhou LCD fab to TCL (000100.CH).  As of the 29th of March, the TCL board gave final approval of the purchase and the transaction was completed.  The Suzhou fab is a gen 8.5 LCD line that has a stated capacity of 120,000 sheets/month, which translates to 360,000 65” TV units/month or 2.16m 32” TV panels (full utilization), along with a module production line that is able to process 3.5m units/month.  Along with the sale of a 100% share of the fab and a 60% share of the module plant, Samsung agreed to purchase a 12% stake in TCL’s display production affiliate, Chinastar (pvt), making it the company’s 2nd largest shareholder after TCL and adding considerably to the 5.02% stake it already had in Chinastar.

​Without question the semiconductor foundry business is under pressure, and while much of the consternation in the press had been over whether China was attempting to unseat the US as the primary semiconductor superpower in the next few years, those issues have now faded away and been replaced with questions concerning the near-term constraints that the industry faces.   As demand for digital products increased during COVID-19 foundries have been hard pressed to meet demand and have been allocating resources to large customers or those willing to pay a premium for capacity, but the fear that CE brands will not be able to capitalize on this ‘new demand cycle’ has caused buyers to anticipate potential semiconductor shortfalls or allocations from foundries, with the results being orders that overstate what is actually needed.
Underlying this issue remains the demand cycle, which remains in question as to its sustainability.  As the global (or at least the US population) becomes vaccinated and faces decreased workplace restrictions, does the demand for the ‘stay-at-home’ CE products that stimulated this supply crisis begin to ebb?  If so, where will it leave the semiconductor industry and the CE space generally, and how will the industry deal with such potential change?  As we have noted previously, we have looked carefully at the display pace and mapped out a number of scenarios that might be applicable over the next few months, at least on the demand side, but things are just beginning to change in the semiconductor space, which could potentially complicate things further over the next few years.
Taiwan Semiconductor (TSM) the world’s largest foundry, has indicated that not only will it spend between $25B and $28B to add capacity this year, against last year’s spend of $17.2B, but it has authorized a spend of $100B total over the next three years, including what potentially will become a GigaFab complex in Arizona.  This comes after Intel (INTC) has indicated that it will be spending $20B to build out its capacity, primarily two fabs in Arizona, and Samsung (005930.KS) also indicating that it will spend $116B over the next 10 years for the same purpose although .    UMC (UMC) and other smaller foundries have also increased spending plans for new capacity projects, but nothing compares to the new commitment from TSM.
We believe TSM’s largest customer is Apple (AAPL), with 25% of sales in 2020 from ‘Customer A’ and 23% in the previous year with Huawei’s (pvt) HiSilicon (pvt) a likely ‘Customer B’, the only two that are singled out as 10% or greater customers, but TSM provides foundry services for Qualcomm (QCOM), NVIDIA (NVDA), Broadcom (AVGO), AMD (AMD), and Mediatek (2454.TT), all of whom we believe represent 5%+ customers, and over 400 other smaller customers.  Samsung is a bit more limited in its customer base, given it uses ~60% of its semiconductor capacity internally, and has less 5nm/7nm capacity than TSM, who derived 41.2% of its revenue from just those two nodes last year, up from 26.9% in 2019.
Given the rapid rise in demand for 5nm/7nm nodes, and the initiation of the 3nm node by TSM next year, we expect much of the new capacity to be added will be under 10nm, however once the spending has been initiated for such large and complex fab projects, it would be difficult and quite expensive to change those plans, at least for the established projects.  It seems now that the mindset of foundry operators has changed to the point of becoming convinced that the demand seen over the last year is the ‘norm’ and will continue, and to serve that demand additional capacity must be built, rather than running at 100% utilization and raising prices (TSM has also indicated that it will not be offering typical discounts for maturing products to its customers in 2022 in order to help finance the increase in Capex).
So, it seems to us that we are entering a new ‘higher risk’ semiconductor cycle, that could play out very favorably over the next few years if demand remains consistent with the ‘new normal’ or quite unfavorably if CE demand returns to pre-pandemic levels and growth.  It’s a game that CE suppliers have to play, while we get to arm-chair quarterback, but whatever the outcome, much will depend on how the global COVID-19 pandemic plays out in China, the US, India, and much of Europe over the next 12 months and much of that will depend on the vaccination rate, and that is still in the early stages as the data in the table below shows.