While smartphone shipments are mired in component shortages, logistical challenges, and increased silicon costs, 5G continues to grow, with all key metrics showing growth in March.  5G device growth was up 3.3% m/m (89.8% y/y), 5G form factors (the number of 5G device types) grew 4.3% m/m (9.1% y/y), and the number of 5G vendors (brands carrying 5G product) grew 2.7% (56.6% y/y) during the month, all staying above trend lines.  The number of 5G smartphones grew 5.3% m/m (92.9% y/y) after a slow February during the Chinese New Year holiday, and CPE devices grew 1.4% m/m (61.4% y/y). 
5G smartphone m/m growth seems to have settled into a ` 4% to 5% monthly increase level, which is consistent with the limited 5G monthly data we have already accumulated, and sub- 6 bands on a global basis seem to be the spectrum of choice for at least over 50% of 5G smartphones[1].  Typically, and again this only includes two years of data (3 starting in May) April should see higher 5G smartphone growth, although we expect much of that to be tempered by weakness in China due to COVID-19 lockdowns.  All in, despite the broad slowdown in smartphone sales, 5G continues to grow both in absolute numbers and as a percentage of smartphone sales.
 


[1] This includes only those 5G smartphones that we know are sub-6.  Mm-wave and those that do not specify are considered non-sub-6, which means the number for sub-6 is likely higher.

Next month the FCC will vote on new proposed rules that would require all gateway providers to adopt more stringent rules regarding SHAKEN/STIR, the FCC’s program to combat robocalls and ID spoofing.  Currently gateway providers, essentially those that provider software interfaces that allow carriers to ’speak’ with each other despite different protocols, have been exempt from SHAKEN/STIR rules.  These rules require carriers to confirm the validity of a caller ID at its origination point and compare it to a list of known IDs.  If valid, the carrier adds an encrypted certificate to the call header that includes the carrier’s identity and a ‘trust value’.  VoIP software on the receiving end then checks the authenticity of the message by decrypting the certificate using the provider’s public key. 
Small carriers were given an extended period to implement the SHAKEN/STIR rules, which was recently shortened to accelerate the program, however gateway providers were given certain exceptions which the current proposed rules would end.  Gateway carriers have been the mechanism by which spoofers and robocallers have been working around the SHAKEN/STIR rules already implemented by large carriers, using the un-blocked gateways to enter US carrier networks.  By closing this ‘hole’ the FCC is hoping to reduce the number of illegal calls made from foreign countries to US consumers, which total over 125m/day, with consumers losing a bit under $2b each year to this type of fraud.
The new rules, if passed, would put the onus on gateway providers to participate in blocking programs, investigations, and overall mitigation, along with taking responsibility for robocall campaigns that occur on their networks, and non-compliance would result in that gateway’s removal from the Robocall Mitigation Database and would cause other networks to block calls from that gateway.  While not yet at the rule stage, the FCC is also reviewing a similar proposal for intermediate carriers who might sit between networks, who are not yet part of the SHAKEN/STIR requirements.  While such rulemaking has been around for years, little has actually been done to increase US and foreign carrier responsibility for robocalling and spoofing, so any rules that focus the carriers on the fiscal impact of not policing such fraud is a benefit to consumers, but the wheels of progress grind exceedingly slow, especially when they are government rules, and while the FCC has sanctioned and fined an increasing number of Robocallers based in the US, most of the calls originate overseas, which .
The FCC is expecting that cease and desist rules to foreign carriers will be honored with the threat of blocking, but if there is money to be made through scammer fraud, it is going to be hard to slow the tide unless those rules are carried out, and that becomes not only a carrier issue but a political one which can complicate enforcement even further.  It is a tough problem but a necessary one to address but one that has become so out of control that many US consumers no longer answer their phones unless the CID is in their contact list.  That’s a sorry state for any country to be in, especially one with a relatively sophisticated telephony infrastructure.  

Samsung Display (pvt), the display production arm of parent Samsung Electronics (005930.KS), was part of a decision made back around 2013 not to pursue OLED technology for TVs.  SDC and Samsung Electronics were both convinced that the RGB OLED process, which patterns red, green, and blue OLED sub-pixels in each pixel, could not be adapted to the larger panel sizes necessary for TV displays.  LG Display (LPL) took a different view, and championed WOLED technology for its OLED TVs, which used layers of OLED material that were not patterned, and added a color filter to define the red, green, and blue ‘dots’ that made up each pixel.  While the WOLED process allowed for the production of large OLED panels, the color filter reduced the amount of light reaching the user, an issue that LCD technology proponents still cite today.
Samsung Display has gone on to become the preeminent RGB OLED display producer with what we believe to be a 70.5% share[1] of the small panel OLED display market, which itself has grown from ~7.5m units in 2014 to ~620m units last year, and while this represents ~50% of the overall mobile phone display market, RGB OLED displays have been primarily limited to smartphone, tablet, and watch displays.  In 2019[2] however, SDC began mass producing OLED panels for laptops which are now being used in a variety of models by popular laptop brands, and other small panel OLED producers are beginning to see this as an area where they might want to compete with SDC.  As is typical for Samsung, they are technologically the leader in the OLED laptop display space and continue to expand offerings, with 13 of the 15 OLED laptop display models that are available made by Samsung Display (2 from Everdisplay (688538.CH)) and they are also the leader in promoting the technology for laptops, which has led to its adoption by major laptop brands.
While Samsung Electronics produces both OLED and LCD based laptops, only Samsung Chromebooks use traditional LCD displays, with the entire Samsung laptop line based on OLED displays produced by SDC, and as such Samsung Display is happy to promote the concept and quality derived from using OLED rather than LCD in a laptop format.  SDC recently summarized those advantages in a series of pictures comparing images from both types of displays which have been translated and show below.  We note that the translations might be lacking occasionally, and SDC, while primarily accurate in its statements, has likely picked examples that do not reflect LCD technology in its best light, akin to the Nick Nolte arrest photo in Figure 1, but isn’t that what promotion is all about?  All in, while OLED displays for laptops are more expensive than LCD displays (the reason Samsung uses LCD for its Chromebook line), they do provide higher quality images that users will eventually demand, as they have for smartphones.  Its takes time for the industry to make the migration and we are still in the early stages where consumers have to be educated as to OLED display technology’s advantages, but it will happen in laptops, just as it did in smartphones.


[1] 2021 full year units volume

[2] Small quantities of OLED laptop displays were produced in the 3 years prior to 2019 but were not in mass production.

“estimate” – to roughly calculate or judge the value, number, quantity or extent of…  We try to maintain our own estimates whenever possible and in cases where that is not the case, we try to aggregate as many data sources into a more comprehensive model to mitigate outliers and inconsistencies.  That said, we also like to check our data against others, particularly in areas where there are relatively few data sources or the particular area is subject to excessive politicization or hype.  While small panel OLED production has become relatively commonplace in the display industry, most OLED display producers are less than open about production and sales data, leaving much open to speculation and potential enhancement.  Given that China is known for its ‘glorious’ representation of its technical prowess and its desire to dominate as many aspects in the technology space as possible, we are always a bit wary of statistics that proclaim China’s dominance (or pending dominance). 
CINNO Research (pvt), based in Shanghai, provides data on consumer electronics which is regularly picked up by Chinese technology rags.  In many cases the data is shaded (not by CINNO) to show China’s potential as a technology giant, so we decided to check our data against some of the promotional articles we see from China on a daily basis.  Here’s what we found:

​After reviewing both our data and the CINNO data, we notice that our data is actually more favorable to the idea that Chinese OLED display manufacturers are gaining ground against manufacturers from ‘other’ (meaning Samsung Display (pvt)) countries, and while our data does not go back as far as that of CINNO, we note that their earlier data (1H 2018 shows Samsung Display’s share at 93%, which would indicate that they have lost over 20% share over the last 2½ years.  That said, when the data is parsed on a quarterly basis Samsung Display’s share over time looks worse, declining from 93% in June of 2018 to 70.2% in March of this year, but even with the enormous growth rate seen by BOE (200725.CH) during the same time period (1868%), SDC still produces over 6 times the number of small panel OLED units than BOE.
While our data leans a bit more to the Chinese camp, we believe it will be quite a while before BOE and other Chinese small panel OLED producers will dominate the OLED business, despite the headlines in the Chinese tech press based on recent CINNO data, and we expect that despite the increased volumes shown for BOE, they are less profitable than SDC, given the advanced displays that SDC is able to produce, which would only be factored into sales values, not unit volume.  But the data does show that any display producer that stands still technologically might gain share during up cycles but will likely see profitability fall quickly during the down cycles, both of which are inevitable in the display space.
 

​We have noted a number of times that there has been considerable pressure on Apple to allow users and ‘unauthorized’ repair shops to repair Apple products, with Apple agreeing last year to give in to those demands.  As of yesterday users and just about anyone can download free repair manuals for a wide variety of Apple products, along with the ability to order tools and parts for such repairs.  We looked at one of the manuals (iPhone 13 Pro Max) to see if Apple was really being ‘user-friendly’ or if this was just a ploy to make things look so difficult that users would wind up at an authorized Apple repair unit, but we were pleasantly surprised at how comprehensive the manual was as to how to perform various repair functions.
There are some caveats, particularly the investment one musty make in tools, and by tools we mean Apple tools, as there are a considerable number of tools that are proprietary or are bundled with certain parts and most of the repairs are classified on general categories, such as ‘battery’, ‘camera’, ‘display’, ‘bottom speaker’, ‘SIM Tray”, and ‘Haptic Engine’ for the iPhone 13 Pro Max, but Apple does give a few price options that let users choose certain parts rather than re-buy the same tools for each repair.  As an example the full screen replacement bundle for the iPhone 13 Pro Max, which includes all tools, screws, and replacement adhesives for $311.96, while the same package without the screws and adhesive sell for $2.00 less, and Apple also gives a $33.60 credit if you return the broken screen for recycling.  Apple does allow renting a full tool kit to make a repair, but each model has its own kit, so unless you are fixing two phones of the same model, you cannot share the tool rental.
The parts provided by Apple are not cheap, which means unauthorized repair shops should give the option of using only Apple replacement parts or substitutes when possible, but at least such shops won’t be experimenting on your device when the attempt to repair it, given the availability of manuals.  All in, it seems that Apple has at least made an attempt to fulfill its promise to open the Apple product repair kimono and has begun to make it possible for some non-authorized product repairs, but given the cost of DIY Apple parts is the same as the cost using an authorized Apple Service Center unless you return the defective part, which means all products under warranty will still go to Apple for repair and many out-of-warranty units will do the same.  Right now Apple only offers parts for the iPhone 12 and iPhone 13, with other products and older models expected to follow.

​LG Display (LPL) reported sales of 6.471t won ($5.1b US), down 26.5% q/q and down 6.0% y/y and operating profit of 38b won (~$30m US), considerably below the consensus of 182b won.  Gross margins were 12.6% against the previous quarter’s 14.9% and the recent peak of 20.8% in 2Q ’21, and operating margins were 0.6% against the previous quarter’s 5.4% and the recent peak of 34.0% in 2Q ’21.  Capacity remained essentially flat at 11.5m m2 while ASPs (m2 basis) declined 18.1% q/q and 10.3% y/y.  2Q guidance was generally for large and medium size panels to see price declines, more specifically down ~10% q/q on an area basis, as weak mobile continues into 2Q (‘seasonal’ in their words).  Area shipments however are expected to increase between 2% and 5%, primarily on large OLED TV shipments, which had been limited in 1Q by logistical bottlenecks.  For the same reason 1Q inventory levels were higher than normal as OLED TV panel stocks were slow to ship and the company built safety stocks.  On an overall basis LGD said they expect supply/demand uncertainty to continue through 1H but expect a better 2H on increased OLED TV panel sales and a more stable high-end IT product market.
LG Display indicated that the high-end OLED TV market grew 10% in 1Q, while the overall TV set market saw a 10% decline y/y, with OLED TV set growth of 40% y/y, although OLED TV panel shipments were lower than expected.  As noted above, LGD expects to see significant growth in OLED TV shipments in 2H and increasing profitability in the segment, although they were careful to add that the improvement would be on a ‘phase by phase basis.”  We expect that at least a part of that OLED TV panel enthusiasm is related to thepotential deal between LG Display and Samsung Electronics (005930.KS) that we have noted in the past, but also on increased consumer familiarity for OLED TV in general.  The company was a bit more vague toward expected improvements in their small panel OLED business, other than typical improving 2H seasonality, mentioning wearables, automotive, and more specifically ‘tandem OLED’ a technology that LGD is developing for Apple (AAPL).  As part of the longer-term OLED plan, the company will see increased capex this year as it continues to spend on additional small panel OLED capacity at its E3 Gen 6 OLED fab (primarily for Apple), which it says remains scheduled for 2024, although we believe they could begin mass production sooner.
Questions on whether the slower growth of OLED TV panel shipments in 1Q would affect the total for the year was answered with “looking at the trend from April (then) we see that the shipment of OLED is likely to pick up from the 2nd quarter and alongside it the profitability as well”, which we found a bit lacking.  As to the potential for changes in the company’s longer-term OLED plans, a boilerplate answer based on ‘the principles of profitability and growth’ would govern future investments.  When queried about the LCD display business, LGD admitted that they had expected Chinese competitors to be ‘more disciplined’ as to pricing, but with such a decline in the market, they have become more aggressive toward pricing.  The company is expecting to reduce the amount of generic LCD panels it produces to remain competitive, something a number of Taiwanese panel producers have done over a year ago, but the company also admitted that while it had expected B2C business to weaken as COVID was slowing, it had also expected B2B business to increase, which has been slower than expected.  While that remains the case, the company added that current levels for B2B are still higher than they were pre-COVID. 
The company was also asked about plans for its entry into the AR/VR display market but gave little information as to real plans, mostly citing the examination of the market and potential entry points and products, so nothing seems to be on the near-term horizon.  When probed a bit further on the company’s view of LCD cyclicality, they stated that the “COVID boom” pulled in considerable demand which will lead to negative growth this year and could be sustained.  They expect this to lead to a potential improving situation based on supply rather than demand, meaning more utilization cuts in the near term and the closing of older, less efficient fabs going forward.  It was not apparent whether they were speaking about LG Display's older LCD fabs or ones across the industry, but LGD does have Gen 5 fabs that were commissioned in the early 2000’s and are still operational that it could close or upgrade, although expecting Chinese panel producers to close older fabs might take a more sustained downturn.
All in, we expect LG Display’s call to be rather typical for panel producers this quarter, although they are lucky enough to have OLED as an offset to the LCD display weakness.  Once again panel producers seem to be shocked about the end of what was a partially artificial ‘boom’ in LCD display demand.  Some producers have the experience to know that building into the peak of a cycle is not the best idea, while others were moving away from LCD TV panel production before COVID-19 began.  That said, those more interested in gaining market share will now face the reality of low or no profitability as the industry faces a more normalized reality going forward.  Display is a cyclical industry so as Roseanne Roseannadanna said “It’s always something!”.

​42years ago a JV between IDG Communications (BX) and the Chinese Ministry of Industry & Information Technology created China Computerworld to educate the Chinese population about computer science and eventually became one of the top 10 newspapers on the Mainland, which is unusual in that it was always oriented toward the computer and information technology markets.  Due to COVID-19, the print version ended in June of 2021 but the JV maintained its website, social media accounts, and associated employees.  Unfortunately the staff has not been paid since February, with a number of employees filing labor arbitration cases against the JV, but it seems that the company has been sustaining large losses and has now declared that it will cease operations after borrowing capital to pay employee’s housing costs and medical insurance.  Whether the end of such a long-standing publication and the last ‘official’ US/China JV magazine is a function of COVID-19 or a sign of the times, it is sad to see it go after that many years of publication.

Over the last few years we have noted the difficulties in producing micro-LED displays.  Based on structures that are only a few microns in diameter, Micro-LED displays are both complex and costly, yet represent one avenue for the display space that could become the de facto standard a few years down the road.  We have spent much time trying to understand the techniques used to transfer Micro-LEDs from wafers to their final resting places in displays, but a portion of the difficulties involved in tha task of moving millions of such small devices from one location to another rest in the fact that not all of the Micro-LEDs on each wafer meet specifications, or in the extreme, might not work at all.
The only way such transfer systems can avoid moving lower quality or defective Micro-LEDs is to test each die while it is still on the wafer.  Creating a ‘wafer map’ of a 6” die for Mini-LEDs (200um) would entail examining over 100,000 die, and those LEDs are an order of magnitude larger than the target size for high resolution Micro-LED displays, so the testing has to be both rapid and accurate as any defective die that is transferred to the final substrate must be repaired at a cost far exceeding the cost to produce.  But testing does not stop there as each Micro-LED must also be classified as to a number of optical characteristics, particularly color and brightness, as mixing Micro-LEDs with different color characteristics or brightness will result in a display with uneven characteristics, which would be unacceptable to consumers.
In order to test such almost microscopic devices, very small ‘probes’ that contact each Micro-LED’s connection pads to activate it must be moved across the die, and the resulting light emission must be evaluated by a number of sensors that characterize the metrics of each die.   Such a ‘wafer map’ is shown below, which shows how each die varies as to a number of characteristics, particularly wavelength, which would refer to ‘color’.  LED test systems can use either PL (Photoluminescence) or EL (Electrical) stimulation to stimulate the Micro-LEDs to produce light , but an Israeli company, InZiv (pvt), who has just raised $10m from BlueRed Partners (pvt), a Singapore-based VC and OurCrowd (pvt) a VC platform in Israel that allows individuals to access venture investments.  The attraction of InZiv is their tool, Omnipix 2.0, which combines both PL and EL testing processes and is able to test dies down to 1um, giving very accurate data on each die.  Once that data is fed to a transfer device, only Micro-LEDs that meet specifications will be transferred, avoiding costly and time consuming repairs.
All in, while practical Micro-LED displays are still  a few years away, considerable R&D and progress is being made toward solving some of the more complex production issues, and there is little hesitation toward capital investments in companies that look like they might have an interim solution to such problems.  Last week South Korean based QMC (pvt) released a Mini-LED transfer tool that is said to have 30% better performance that Chinese competitors, while Kulicke & Soffa (KLIC) has dominated Apple’s (AAPL) Mini-LED business with its Katalyst and Luminex transfer/bonding tools, which are progressing from die transfer to multitask tools that would simplify the many steps required for Mini-LED and Micro-LED production.
https://youtu.be/zSY_qxsr5xI
 

​AU Optronics (2409.TT) reported 1Q sales of NT$81.5b (~$2.77b US), down 12.4% q/q and down 1.7% y/y, Gross margins declined from 18.9% in 4Q (28.7% at peak in 2Q ’21) as did net margin, which was 6.3%, down from 12.7% in the December quarter and down from 14.3% in 1Q ’21.  None of this is surprising given the state of the display space, as we have noted previously.  2nd quarter guidance for AU Optronics  reflects some of the impact of the Russian invasion of Ukraine and Chinese COVID-19 lockdowns, but the company cautioned that the impact may not be fully reflected in the forecasts, which are for area shipments to be down by low single digits q/q after a 7% decline in 1Q.  Blended ASP (m2 basis) is expected to be down by mid to high single digits, after declining 6.3% ((m2 basis) in 1Q.
AUO management indicated that aside from the continuing shortages that most panel producers have been facing, transportation issues for both raw materials and finished product continue to make predicting 2Q more difficult than usual.  Chinese COVID-19 lockdowns have also affected the company’s production fabs in Suzhou and Kunshan, where some operations have been limited or suspended due to the lockdowns, although overall inventory levels have been increasing to higher than normal levels as demand weakened during the quarter and brands lowered panel purchase targets.
We believe while AUO’s quarter is indicative of the difficulties facing panel producers currently, they have been able to mitigate some of the impact by having shifted production goals to more premium products and away from generic panel production, where competition from Chinese panel producers is fierce.  These niche products have helped stabilize AUO’s results for the last quarters but as with all panel producers overall demand will drive both pricing and profitability, so AUO’s results this year and next will be slightly less driven by the global macro environment than some, but will need an improving environment to achieve y/y sales and income growth.

​Corning (GLW) reported a strong first quarter with GAAP sales of $3.68b, above consensus of $3.55b, and non-GAAP EPS of $0.54, also above consensus of $0.49.  The company guided to a range of $3.7b to $3.9b (consensus $3.69b) for 2Q, with core EPS between $0.54 and $0.59 (consensus $0.55) for 2Q.  Full year guidance was given at >$15b (consensus $15.04b), with core EPS growing at high single digits and core EPS a bit faster than sales.  On a general basis, the quarter’s strength came from price increases the company instituted to cover increased raw material and logistics costs and continued strength in the optical communications segment, as demand from carriers for 5G and HPC continued.
Our focus tends to be on the display side of Corning’s businesses, which includes traditional display glass and specialty materials (Gorilla Glass, etc.).  The display glass segment posted sales of $959m, up 1.8% q/q and up 11.1% y/y, with net income of $236m, down 6.3% q/q but up 10.8% y/y..  Display segment net margins were 24.6%, a bit lower than we expected but not out of line with typical years.  Glass prices rose slightly in the quarter, and as we have noted in the past, this is an unusual occurrence, as glass prices typically tend to decline.  The display glass market is one with few suppliers and high barriers to entry, which has allowed Corning and other producers to maintain stable glass pricing over the last few years.  With glass demand driven by average panel size increases and increased panel capacity, the environment for display glass has been ideal.
Corning has ‘share’ agreements with most of its customers, which gives them access to a percentage of Corning’s output for the quarter or year, but pricing is adjusted on a quarterly basis.  It has been difficult for Corning to renegotiate pricing most recently, not because of customer resistance to higher glass prices, but more to be able to renegotiate fast enough to cover the increased costs of raw materials and transportation.  We would expect to see at least another quarter or two of display glass price increases as Corning catches up to increased costs, especially in transport as Corning’s inventory levels have been low, pushing them to use more expensive air transport to meet demand deadlines.  With expectations of low display fab utilization, Corning will continue to run glass production at levels that allow it to build inventory, which will help to maintain margins, especially in light of continued glass price stability or increases, but display glass sales need both increasing volumes and average panel size increases to maintain growth.  We expect that weakening demand for TV and notebook demand will begin to make y/y cmparisons a bit more difficult in 2H, and while that does not change our broader view of the display glass segment, it does temper our enthusiasm a bit, even after a strong quarter.
All in, Corning performed quite well in the quarter and will likely do so again in 2Q, and strength in the optical segment will likely offset even a small amount of weakness in the display space.  Specialty materials, which saw sales increase 9.3% y/y saw net income decline by 17.6% as the segment invested in new product development, which has been the driver for the segment for the last few years.  Smartphone demand remains somewhat stagnant, but Corning continues to develop products that lead to higher content/device, which is the ultimate driver for the segment and automotive Gorilla Glass and similar products are finally coming to fruition.  While there are certainly product areas where there are risks for Corning, it seems to be the definitive defensive play when large cap hardware technology companies are under pressure.