Corning (GLW) officially opened its 2nd Gen 10.5 glass substrate facility in China, and its 6th class facility in the country.  The plant, which is located in Wuhan, is co-located with BOE’s (200725.CH) Gen 10.5 fab to allow for direct carriage of the substrates to the production facility without intermediate transport.  The sheets that are produced at Corning and processed at BOE are 2,940mm x 3,370mm, which is 9.9078m2 or 106.65 ft2, which makes them extremely efficient when producing large size LCD TV panels as shown in the table below.  Corning has been supplying Gen 10.5 substrate samples to the BOE Wuhan fab since January and completed its finishing operations last July.  Corning’s other Gen 10.5 substrate plant in Hefei has been supplying BOE’s other Gen 10.5 fab since its opening in 2Q ’18.

The BOE fab, which is known as B13/17 was officially opened in September of 2019 but has been slow to develop mass production scale due to the COVID-19 outbreak, which closed the plant in February ‘20 for about a month.  While the plant was able to reopen relatively quickly, many workers were either unable to or unwilling to return to what was the hotbed of the pandemic, which further slowed the production ramp.  The fab, which has a fully built-out stated capacity of 120,000 sheets/month is capable of producing 2.88m 65” TVs per quarter (in theory, at 100% utilization and yield), although such a rate would entail the buildout of an additional phase 2 line, which we expect to be put into operation in 2Q next year.
 

Taiwan based Tyntek (2426.TT) has announced it will raise prices between 10% and 15% for orders that it is carrying on its books this quarter.  The company is running its 5” production line at full utilization and expects to start production on its new 6” line in July.  While such a price hike is not unusual given the inventory building that IT display backlight producers have been doing to insure supply.  What makes this price hike a bit unusual is that it is the 2nd increase that Tyntek has put in place this year, having instituted a 5% to 10% hike in the 1st quarter.  Tyntek produces both LEDs and Silicon sensors and through a subsidiary, produces high brightness LED products and drivers for the automotive space and has been seeing progressively higher sales since the pandemic began last year.
Taiwan based Pegatron (4938.TT), a well-known OEM/ODM for a number of highly visible CE producers has reduced its forecast for shipment growth in 2nd quarter from 25% to 30% to 5% to 10% due to a worsening shortage of components and semiconductors, while Asustek (2357.TT) seems to want it both ways, citing a positive view on order visibility for PCs through the end of this year with sales growth of 5% to 10% in 2Q, but also sees the shortage worsening.  Asustek cited audio codec chips as a new problem for supply and indicated that it has accepted recent price increases for components and will make price adjustments itself to compensate.,  The company did raise concerns that overbooking was an issue behind the rising shortages and was making it difficult to understand real demand, but while the intellectualizing over price increases continues, there is still considerable competition among semiconductor fab customers, particularly automotive customers, that are pushing prices progressively higher.
More specifically, notebook prices in China and most other regions have been rising quickly, with high-end Huawei (pvt) models up 9.4% in 1Q,  both ACER (ACER) and Asustek up between 5% and 10% for most models, and Lenovo (992.HK) increasing prices on some models by as much as 20%.  With 2Q the peak season for educational bidding, notebook demand is expected to be up 10% q/q, assuming component availability, however as noted above, limitations as to components and silicon could push that timeframe out by another month.  Hopefully IT device producers don’t begin to strip down features on new models to offset large price increases during the ‘back-to-school season in the fall, although there is a chance that notebook demand could be reduced a bit once the educational contract season ends.  Many of those contracts were signed last year before prices increased and vaccination programs in the US were found to be successful enough to allow a return to in-person schooling this year.

The consumer electronics space is a tricky one as there is no definition as to what is actually included in the term ‘consumer electronics’.  In recent years appliances, which now include far more electronics than in years past as they become ‘smart’ (or ‘smarter’), have been included in the caption by some, while others are ‘purists’ including more typical devices such as smartphones, laptops, monitors, TVs, and the like, while others go further and include all semiconductors and other components that go into such products.  Since we have no self-imposed restrictions, we include what we believe has interest and merit as a product, or part of a product and in many cases the technology behind it.
The CE space has grown ~2.5% on average over the last 10 years, with some ups and downs.  According to Statista, the only year in the past 10 with negative growth was 2020 (down 2.2% y/y) and the year with the greatest growth was 2018 (up6.0%), and even with the unusual circumstances seen this year, growth is projected to be ~4.3%, again using what we would call generic data.  That said, we think the positive view that many of the publication that we read are espousing currently will change and overall expectations for this year and potentially for 2022 will change.  Obviously much will depend on COVID-19, the effectiveness of vaccine administration programs, and a general global understanding of how impactful such a infection can be over an extended period, but we are just beginning to see some signs that panic buying in the component space and almost irrational inventory building is giving way to somewhat more rational behavior.
These are hard points to come by, but the fact that some in the CE space are even hinting that they are beginning to reevaluate the mindset that has pushed the CE space into the crosshairs of politicians and journalists who decry the failings of an industry that is typically considered important only during the holidays, is now among the more important metrics for understanding how the global economy will perform. This year and next. 
Recent anecdotal hints and comments in what are normally standard-bearers for a positive view of the CE space, such as Samsung Display’s (pvt) ‘re-decision’ to sell its remaining large panel LCD capacity, and even comments in the normally super positive Digitimes that indicate Taiwan IC design houses are seeing a slowing of orders from monitor customers, along with a variety of other subtle indications, all start to add up to what we expect will be a non-typical year for the CE space.  That said, we do not expect the bottom to fall out of the CE space, as those who have been on component allocation will begin to see some of those orders filled and consumer level stock-outs will appear on shelves (virtual or otherwise) once again, but as we have said in the past, price increases, such as we have been seeing this year, do affect consumer demand, and coupled with the lessening effects of the COVID-19 virus in a number of the more mature economies across the globe, the unusual driving forces that have pushed the CE space into it current state seem to be moderating a bit. 
We assume that if we notice it, the captains of industry in consumer electronics are also noticing and raising questions about the sanguine prospects that many have been proposing for the remainder of the year.  While those producing in the areas that have been stimulated by the lifestyle changes that the pandemic has caused over the last 15 months, will likely resist the notion that a gradual return to pre-pandemic demand levels is a possibility (the ‘it’s different this time’ crowd), financials will be the ultimate determinant.  Any hint that orders are slowing, anecdotal or not, even if producers knew that customers have been double ordering, would indicate that perhaps the music has stopped or slowed and a fear of being the ‘goose’ could set in.  It’s never obvious when a change starts, but once it gets going its hard to imagine why it wasn’t noticed when it started…JOHO

All primary 5G indicators remained above trend lines in April and 5G smartphone offerings continued to accelerate, particularly since the beginning of the year, along with the number of overall 5G devices available.  We note also that we have added a new form factor this month, in-vehicle routers/hotspots, etc. which have begun to appear in new vehicles.  5G smartphones are still the dominant share of the total device count and have increased device share almost 3% since the end of the year, with the FWA (Fixed Wireless Access)/CPE (Customer Premises Equipment) category increasing in units from 26 at the end of last year to 37 presently, although its share of total form factors, 2nd only to smartphones, declined by 1.4%.  All in a strong month for the 5G ecosystem, despite any shortages that might have appeared, which thus far, have had little effect on the spread of the technology across CE and related devices.

​LG Display (LPL) is the de facto leader in the production of OLED TV displays and has been so since Samsun Display decided to opt out of large panel OLED display production in 2015.  LGD has large panel OLED production fabs in Paju, Korea and more recently in Guangzhou, China and has continued to add production capacity as it increases it OLED TV panel targets each year.  While parent LG Electronics (066570.KS) is their biggest customer, LGD has expanded its customer base to include over a dozen TV brands, with more added each quarter.  LG Display is expect to ship between 7m and 8m OLED TV display units this year, up from over 4m last year as the Guangzhou fab reaches full capacity and increases yields.
That said, we have noted that as LGD adds customers their existing capacity continues to tighten with sales more likely limited by capacity than demand.  To that end, when LG Display built the large panel OLED fab in Guangzhou, while it built two 30,000 sheet/month lines, it not only left physical room for expansion but also installed equipment for oxide back plane capacity in excess of what was them current production levels.  That equipment is installed, and along with a shorted tact time on key deposition tools will allow the fab to increase production capacity from 60,000 sheets/month to 90,000 sheets/month, increasing the company’s ability to meet expanding customer demand.
What makes this expansion unique is that the cost will be minimal as new deposition tools are not expected to be required and much of the TFT line is in place, albeit not operational.  We question when depreciation on the TFT line might begin based on Korean tax law, but the important fact is that LGD will incur little expense and considerable revenue from the capacity expansion, which is said to be starting in July.  The original plan for the fab was for the expansion to begin last July, but a delay in the plant’s original start-up and the effects of COVID-19 have pushed the expansion out by one year.  As LGD has been producing at the Guangzhou fab for a bit under two year, we expect the new line to come up quickly, especially as much of the equipment is either already in production or has been fully integrated to the fab, so we have little change to our LGD capacity timeline, which assumed a June capacity expansion, and while size mix will still be a factor in total unit volume this year, we expect the new capacity will help LGD to meet its unit volume goals this year, and will benefit key suppliers, particularly Universal Display (OLED) who both sells OLED materials to LGD but also receives a royalty based on the unit price of displays leaving the LGD fab.

The most popular Samsung (005930.KS) smartphone last year was the Galaxy A51, a mid-priced (~$400) phone that was released on December 16 in 2019, with a 5G version released in April of last year (~$500).  The higher-tier, Galaxy A71 ($550) was released in January of last year with its 5G version ($600) released in April 2020.  Samsung has announced this year’s 4G versions and one 5G version of those two popular Samsung phones, but there are some issues regarding when they will be released globally, with the A72 5G version rumored but officially unannounced.
The A52 5G is available in the US and some parts of Europe and while it is expected to be released in Korea next month, no hard date has been released to Korean retailers from Samsung as of yet.  While some believe that Samsung is staggering the release of all A Series smartphones this year to maximize sales, some Samsung suppliers are indicating that a shortage of application processors designed by Qualcomm (QCOM) are causing delays in the release schedule for both the A52 and A72 smartphones. 
Those application processors, while designed by Qualcomm, are actually produced by Samsung using an 8nm process.  Qualcomm’s CEO recently indicated he thought the semiconductor shortage would last through the end of this year and Samsung’s CEO stated that there was a serious imbalance in supply and demand of chips.  Given the shutdown of Samsung’s Austin fab, we expect that all of Samsung’s remaining fabs in Korea are operating as close to full capacity as possible tomake up for the capacity issue in Austin, but it looks like it is not enough to meet even Samsung’s own demand.

After an unusually strong January and March, smartphone shipments in China settled back to a more ‘normalized’ pace, similar to rates seen through much of last year’s 2nd half, but returned to negative m/m and y/y comparisons of -23.8% and -34.1% respectively.  While 5G smartphone shipments also declined 22.2% m/m they were still up 31.1% y/y and represented 77.8% of shipments for the month, the highest share rate seen since last June.   We note that while 1Q shipments in China were strong in both absolute and relative terms, last year’s 1Q was unnatural to say the least, so we look more at the average y/y decline in 2H last year, which was -23.0%, very similar to the y/y decline in April of this year. 
While the smartphone industry in China had high hopes for 2021 in terms of a return to growth, it seems that while certainly better than last year thus far, the industry is still facing growth issues this year.  While it won’t be seen in Chinese shipment numbers, Chinese smartphone brands will be feeling the effects of both component shortages and the massive COVID-19 outbreak in India, where Chinese brands hold considerable sway.

Yesterday we made a reference to Yangtze Memory Technologies’ (600345.CH) effort to identify and replace foreign components to reduce its dependence on off-Mainland sources.  While the company is publicly denying that it has set up a special task force to replace US suppliers and is committed to becoming part of the global semiconductor value chain, the response to US sanctions against Huawei (pvt) and other Chinese companies alleged to be associated with the Chinese military has been both obvious and well-documented.   The use of EDA software developed in the US is widespread in China and is a source of concern for Chinese design companies, as are parts sourced in the US or produced with US tools, and while a public exhortation of plans to reduce dependence of US based semiconductor tools, components, or software only serves to incite additional ire in the US, you don’t need a weatherman to know which way the wind blows (“Subterranean Homesick Blues” – Bob Dylan – 1965 https://open.spotify.com/album/1lPoRKSgZHQAYXxzBsOQ7v?highlight=spotify:track:6k9DUKMJpWvu6eFG3O64Lg).

​The last year has been both a difficult one and a good one for Samsung Display’s (pvt) large panel LCD business.  A radical decision to end all large panel LCD production by the end of last year, made during a period of falling LCD panel prices, was postponed as panel prices began to rise after 1Q last year.  Samsung Display did however sell its Suzhou, China fab to TCL(000100.CH)/Chinastar (pvt) for $1.08b US, and took a 12.3% stake in Chinastar to ensure access to production volumes, but kept its remaining large panel fabs in South Korea in operation as panel prices continued to rise.
It seems however, that Samsung Display is sticking to its original plans with Samsung Electronics affiliate Samsung C&T (012260.KS) representing SDC in the sale of two additional Samsung Display large panel fabs.  The two fabs that are said to be on the block are SDC’s Gen 7.5 fab known as L7-2 and L8-2-1, part of SDC’s Gen 8.5 line in Asan.  The lines have been in mass production mode since 2008 and 2010 respectively and while currently running much smaller amounts, had peak production in their prime of 90,000 and 100,000 sheets/month.   If both fabs are sold it would end SDC’s large panel production, leaving only fabs dedicated to small panel and QD/OLED production.
As both lines are relatively old, we expect it might be rather difficult for SDC to find a buyer that was willing to ship the fab to another location and upgrade the equipment, but the price will likely be the determining factor.  As both lines are used for panel production between 20” and 86”, but perform more efficiently at sizes more suited to IT displays and TV displays in the 55” category, a buyer would likely be purchasing same to enhance their IT panel production capabilities, which is currently a market that faces a capacity shortage, which makes this an ideal time for such a sale.  That said, it will also leave SDC more at risk to the success of its QD/OLED panel project and it small panel flexible OLED business, where it dominates the industry.
While the sale will include all production equipment, all production information will be removed and no IP will be involved in the sale, which should be of little concern for any LCD producing entity, but might lessen the value to provincial or local Chinese governments, who see the purchase of an already producing fab as an easy and quick way to enter the display market, which looks far more attractive to outside entities than it did a year ago.  The Chinese government however has instituted policies over the last year to afford itself more control over the purchase of what would be 2nd hand LCD production fabs.  This additional control gives the central government a larger call in the supply/demand balance that is currently working in the Chinese display industry’s favor and is justified by the government bailouts of a number of Chinese LCD production fabs over the last few years, particularly when panel prices are in decline.

Intel (INTC) is getting the band back together, really restarting its foundry and contract chip production business.  Money is not an issue or is talent for Intel, but building out a supply chain is a more daunting task as it involves negotiations that lead to financial commitments and living up to those requirements.  One area that Intel needs to develop is in the packaging space, as raw semiconductors need to be connected to PCB boards, a process that has become exceedingly more complex as processors and other semiconductor devices grow larger.
It seems that Intel has already approached one of its packaging suppliers, Samsung Electro-Mechanics (009150.KS) and is in discussions about investing what is expected to be hundreds of millions of dollars in FC-BGA, a connection technology used in high pin count devices such as server and PC CPUs.  However it does not seem that the two have reached an agreement of financial considerations, despite Intel offering to invest its own money first.  There are only a few FC-BGA suppliers of note, which limits Intel’s potential choices, with some assuming the company has already had discussions with its two larger FC-BGA suppliers Japan’s Ibiden (4062.JP) and Shinko Electric (6967.JP) but no agreement has been announced. 
While Samsung EM is a smaller supplier to Intel than Ibeden and Shinko, there are other smaller players that could potentially expand capacity over time, such as Daeduck Electronics (353200.KS) and LG Innotek (011070.KS) in Korea, Nanya (2408.TT) and Unimicron (3037.TT) in Taiwan, and AT&S (ATS.AV) in Austria, but competing against the Japanese and potentially Samsung EM, whose largest customer is parent Samsung Electronics (005930.KS) could prove difficult.  Negotiations with Intel have continued since March.