​OK, we admit it…years ago we believed that RFID (Radio-frequency Identification) would become a big thing, with the price of tags falling rapidly and just about every retail product tagged.  Scanners were just being incorporated in smartphones at the time and the logic behind or conclusion was reasonable if not a bit enthusiastic. As RFID tags themselves are typically passive devices requiring no internal power source, they are ideal for tracking goods over an extended period of time, with each tag storing item data in non-volatile memory.  When the tags are interrogated by a scanner an internal antenna transmits the information to the scanner and can be read by the user and since each tag has its own identification number, a user can identify individual tag data even if the scanner activates a number of tags nearby.  Active tags, which must contain a battery, can periodically transmit the data without being scanned.

• The obvious uses for RFID tags are to prevent shrinkage in a retail environment and to control inventory, but bar codes, which require only a printer and scanner are a cheap alternative that has offset much of the need for RFID.  It is still a large market, with estimates of $10b+ last year and $17b to $18b by 2026, but the growth expectations for the RFID have been too optimistic many times before.  That said, there has been one strong proponent of the technology for many years, Wal-Mart (WMT), who adopted the technology years ago and upgraded to UHD RFID,  for its retail apparel products in 2020.  The company cites dramatically improved inventory management, which they say equates to a better in-store and online experience for customers and has now asked its suppliers to place Gen 2 UHF RFID tags on products in the following categories in addition to retail apparel and footwear:

 

• Kitchen & Dining
• Home Décor
• Bath & Shower
• Bedding
• Furniture & Luggage
• Closet & Organization
• Toys
• Electronics
• Wireless Products
• Sporting Goods
• Tires
• Batteries

Wal-Mart’s push to incorporate UHF RFID in other segments is expected to encourage other retailers to take steps to broaden the use of RFID takes in retail, as ~70% of all tags are used in just the apparel and footwear sectors, but once again expectations that reader prices will decline, making RFID available to consumers, carries much weight in longer-term market estimates.  While some cite the adoption of NFC (Near-field communication) in smartphones, which require the user to be within 4” of the source, while UHF RFID passive devices can be read up to ~50 feet.  Since we were wrong before, we will wait a bit before we call the second coming of RFID, but at least Wal-Mart is still in the picture and that is a big plus for the technology.
 

Smartphone brands always seem to be deadlocked in a battle for share supremacy.  Whether it is units shipped, sell-in, sell-through, units in use, or some other metric, there is always a “Mad Libs”-like headline proclaiming “…and so (Brand A) has now overtaken (Brand B) to become the best-selling smartphone in the (Country) during (Period)…”, only to find that during the next month, quarter, or year, another brand fills the top spot.  Production targets are also a watchword of smartphone brands, with usually grandiose projections being made for the following year during the Thanksgiving/Christmas holidays, which tend to be more a projection of what the brands would like to ship in an ideal environment, rather than what they believe the upcoming environment might support.  But those projections also give smartphone suppliers a broad picture of ‘demand’, and help them adjust their production and capex spending for the upcoming year.
Sources for smartphone data vary considerably, and in many cases do not agree with each other, which is why when we use outside smartphone data we average as many sources together as possible, and while this sometimes keeps our share totals from exactly hitting 100%, it does reduce the influence of outliers and those that include or exclude certain items that other might or might not.  That said, Table 1 shows that the most popular selling phone models are the iPhone 13, released in September of last year and two budget Samsung (005930.KS) phones, one from last year and one from late 2020, a bit surprising, although Apple (AAPL) tends to be in the top 5 every year.

The data in Figure 1 however shows that in most recent quarters, Samsung is the overall global share leader, although that tends to change to Apple in 4Q when the latest iPhone version is released.  More telling is Figure 2, which shows the top 5 smartphone brands by usage, more a reference to the number of active smartphones for the top brands.  That data shows that both Samsung and Apple garner roughly the same usage share, and Huawei (pvt), who has fallen off the top smartphone tables since the US trade sanctions curtailed their smartphone business, is still number 4 when it comes to models currently being used by subscribers.
In recent quarters it has become a challenge for smartphone brands to differentiate themselves from each other, focusing on a particular feature to try to set them apart.  Screen size and resolution was a big feature attraction, but pocket size tends to keep that limited now, and multiple cameras were in vogue a year or so ago, with the current de riguer being phones that have the cameras built into the display, removing those unsightly ‘notches’ that seem to annoy smartphone aficionados.  At least for the time being Samsung seems to have taken the size feature to a new level with their popular foldable smartphone line, with other brands pushing hard to come up with a better foldable mousetrap, an Apple sitting somewhere on the foldable horizon, waiting for the category to stabilize before taking the plunge. 
But with each new model year it seems progressively more difficult for smartphone brands to come up with features that make it easy for users to justify replacing a relative young smartphone and 5G has done little to push that envelope as 5G modems and antennae costs are relatively low.  Gaming features, such as high refresh rates and extended battery life have helped a bit, but the smartphone market overall is getting a bit long in the tooth and needs some impetus to grow.  Perhaps software would be the way in which brands could attract users to upgrade, but that would entail smartphone brands making fewer modifications to Android, giving developers and easier time to ensure compatibility across brand hardware, but what it really comes down to is smartphones need new applications that make them more than just displays.  Some suggest medical applications as a game changing application, and the FDA seems more open to health tracking applications recently, so blood pressure, heart rate, ecg, and blood glucose monitoring could be just what the smartphone market needs to start an upgrade cycle, but few brands seem to be interested in marketing themselves as ‘health conscious’ rather than ‘faster to view YouTube videos’.  Maybe another year of little or no growth might convince them to look for a killer application rather than cameras that rival professional SLRs.

​We have noted that a number of popular TV brands have released relatively extensive Mini-LED TV lines this year as the technology becomes more widespread, but we have also seen a number of monitors also entering the market, with the most recent entry from China’s HKC (248.HK).  The HKC entry is a rather small (27”) UHD (2560x1440) display that has a typical brightbess of 550 nits and a 165Hz refresh rate, but sells for ~$600, quite a bit above non-Mini-LED monitors with simialr specifications that sell between $200 - $275.  HKC has not given much more detail as to the number of zones or other specifications that would help to compare it to other monitors, but considering this is their first entry into the Mini-LED monitor market, our expectations are low.
Samsung has also added to its Mini-LED montor line with a 32” model that will be available in early June.  This model has 1,196 zones, 4K resolution, a 240 Hz refresh rate, and a 2,000 nit peak brightness (1000R curve), but will sell for ~$1,500, above the $300 to $800 prices for similar non-Mini-LED monitors (although there are a number of non-Mini-Led gaming monitors that sell for more).  The new Samsung Mini-LED monitor is a step down from the company’s original 49” Mini-Led monitor previously released which has 2,048 zones and similar specifications, but sells for $2,500.  While Mini-LED backlights are still more expensive to produce than tradional full array backlight systems, the premiums for such monitors remain high, but we expect the number of potential brands entering both the Mini-LED monitor and TV market this year and next to increase rapidly and for the number of Mini-LED backlight suppliers to increase even more quickly.  We expect major brands will still collect premiums for Mini-LED TVs and monitors this year, but we expect the competition to increase substantially next year, which means Mini-Led BLU prices will fall and such premiums will get harder to justify.  Since Mini-LED backlights give a short in the arm to LCD panel manufactuers, we expect much of the promotion for same will come from Chinese panel producers and OEMs in 2023 as they will need to add alue to commodity panels during another year of oversupply.

​Over the last few days various sites have speculated that Taiwanese panel producers AU Optronics (2409.TT) and Innolux (3481.TT) would merge to create an LCD powerhouse that could compete with Chinese panel producers, such as BOE (200725.CH) and Chinastar (pvt).   Given the poor performance seen by LCD panel producers in April and a continuation of same for the 2nd quarter, we expect drawing such conclusions would be a way for some to refocus the declining profitability of the display space toward such combinations that would give promise to a new order, but it seems that neither company was interested in the idea and Innolux went as far as to appeal to the media not to publish false reports that would mislead the public.  AUO indicated that the transformation it has made over the last few years, moving from commodity panel  production to more specialized displays, and branching out into Mini-LED and Micro-LED technology, have performed well and are creating value, so a merger would only be viable if it were synergistic to that goal.
The problem with such a merger is the capacity that both parties already have and how that plays into today’s market.  Both AUO and Innolux have significant Gen 5 and Gen 6 capacity, which is ideal for IT panel production, but combined lave less Gen 8 capacity than China’s leading TV panel producer BOE, which is essential for efficient TV panel production.  Both also have a number of Gen 4 and Gen 5 fabs, which are relatively old and therefore inefficient by current standards.  We note that AUO has recently indicated that it is planning to build a new Gen 8.5 LCD fab and has expanded capacity at its fab in Kunshan, the first capacity expansion project that the company has made in many years, and Innolux has stated it will not build any new LCD capacity but will upgrade existing LCD lines.  With the continuing downturn in LCD panel pricing, we expect such plans are less prone to be rushed and the result of combining existing assets would likely also be less crucial.

In the US (2020) Christmas is the biggest spending holiday, generating ~84% of yearly retail sales, with Labor Day a distant 2nd at 3.66%, but that does not preclude retailers from offering financial inducements to encourage shoppers during lesser holidays, especially when demand has been weak in previous months and inventories are high.  With Memorial Day coming up on Monday, retailers, both brick & mortar and on-line, are beginning to offer discounts to grab some attention and stimulate CE sales.  We went back to Samsung’s (005930.KS) Mini-LED/QD TV line to see if there have been significant price changes in both the older 2021 line and the new 2022 line.
For reference Samsung introduced its 8K/4K Mini-LED/Quantum Dot TV line in May of last year, offering two categories of 8K Mini-LED/QD TVs, two categories of Mini-LED/QD 4K TVs, and three lines of Quantum Dot only TVs, for a total of 35 different models.  This year they updated those lines and brought the model count down to 33, eliminating some models that had very similar features, but continued to sell much of the 2021 line along with the newer 2022 models.
 As we have been collecting pricing data on the 2021 line since its release, the latest round of discounts has now brought the price of last year’s Mini-LED/QD and QD only line down from 29.2% early this month (from original price last May) to down 34.2% currently, although only 24 of the 35 models were at their lowest price point, down from 27 earlier this month.  8K Mini-LED/QD sets have declined the most since last year, down 41.7%, while 4K Mini-LED/QD sets have declined 39.9% over the last year, with QD only sets down 28.1% in the aggregate.
Since the Samsung 2022 Mini-LED/QD line was released in April today’s readings are the first to show discounting from those original prices, with an overall decline of 7.0% from initial April pricing, andthat includes one model set (4K Mini-LED/QD) that was just released.  8K Mini-LED/QD sets declined 8.1%, while 4K Mini-LED/QD sets declined 5.3%, and QD only sets dropped 8.3%.  In order to illustrate the price path of the 2021 models and the staring points of the equivalent 2022 models we have the price charts for the various models below.  W note that while the 2021 timeline is accurate, we have added the 2022 models as if they followed the same 2021 timeline to see how they track against last year’s price reductions and starting points, with the 2022 models represented as dotted lines. 
In most cases the 2022 line initial prices were lower than those in 2021, with the average 2022 starting price for the entire line 6.7% below the initial price of the 2021 line, which would portend interim and holiday pricing for the 2022 line below that of last year.  LCD TV panel prices have certainly come down on a y/y basis and we expect Mini-LED backlight arrays have also been reduced in price as new suppliers enter the market, but other components, raw materials, and transport costs have increased, offsetting some of those panel and backlight price declines.  Chinese brand TCL (000100.CH), the first TV brand to offer Mini-LED TV sets, has just released their 2022 (4th generation) Mini-LED/QD set line, which is priced considerably below the Samsung line, which would likely account for Samsung’s first round of price cuts (see Table 1 ), although Samsung considers its TV line to have more sophisticated features and a higher quality than Chinese brands and therefore deserving of a premium.  Consumers will determine if that is true for this line….

May display panel pricing was worse than expected, but more significant is the forecast for June, which is typically the strongest m/m gain for the year and potentially the beginning of the holiday build season.  Given there are a number of unusual circumstances surrounding the CE space and the display industry, particularly the COVID lockdowns in China that have disrupted the supply chain and slowed Chinese CE demand, however as we noted last week, Chinese LCD panel producers have made relatively minor adjustments to their utilization rates and have therefore been pushed to keep lowering prices in order to attract customers.  Inventories remain relatively high in the channel for most display products but it seems that industry expectations remain fixed on a demand recovery in 3Q.  There will be some new device production increases in July as Apple (AAPL) and others prepare products for the holidays but initial orders generally are modest as brands have already lowered targets and China’s lockdown policy continues to pressure the production and assembly supply chain.
A can be seen in the tables below, TV panel prices fell far more than we expected, putting the aggregate TV panel price at the lowest point seen in the last 5 years and down 58.8% from the high reached in June of last year.  Aggregate IT panel prices are now down 34.9% from the high reached in August 2021 and only 8.6% from the 5 year low seen in November 2017.  April industry panel shipment data saw large panel revenue decline 13.6% m/m and is now down 25.9% y/y, with all categories showing lower shipments on y/y basis other than monitors which saw a severe shipment decline last year in 1Q and 2Q.  While China’s share of overall large panel revenue increased to 51.8% in April, China’s large panel producers saw revenue decline 9.5% m/m and decline 24.1% y/y, while Japan (Sharp (6753.JP)) saw the only increase in large panel sales.  We break out major large panel producers in Table 3, which shows the severity of the revenue decline in April.  We note that Samsung Display (pvt) is in the process of closing its last large panel LCD fab, so the decline in that case is exaggerated and Panda (pvt) sold two of its fabs to BOE (200725.CH) last year, making the y/y comparison less relevant.

India is the 2nd largest market for smartphones and hosts assembly and component manufacturing for Samsung (005930.KS), Apple, Xiaomi (1810.HK), Vivo (pvt), Oppo (pvt), and others, but the country does not have any capability for producing LCD or OLED displays themselves.  The Indian government has sponsored various incentive programs over the last few years to attract producers to produce displays locally but most panel manufacturers are wary of building a new fab without the specialized infrastructure needed to support such an endeavor.  Such display complexes in Taiwan, South Korea, Japan and China are built around component supplier manufacturers, some of which are situated adjacent to the display facility to reduce transportation issues, and while India does have a plentiful supply of workers for assembly and similar processes, the country lacks both the supporting infrastructure (including reliable power and water) and the skilled talent to operate and maintain display fabs.
Display projects are expensive ($3b to $b typically for OLED) and require considerable government support both logistically and financially, to become a reality, and we have seen a number of display projects in China come and go over the last decade because of a lack of management and operating expertise, even with the support of the government, so when we read that a company with no experience in the display industry is ‘looking to sign an MOU with one Indian state within the next few weeks’ concerning such a project.  The company is Rajesh Exports (RJEX.IN), a Bangalore based company that is, according to the company, the largest processor of gold globally and the world’s lowest cost gold jewelers producer.  The company, also investing in the EV market (no experience there either), is looking to take advantage of the Indian government’s semiconductor incentives through a subsidiary Elest (pvt) in order to gain access to the potential financial funding, but will also fund through ‘internal accruals’, along with private equity infusions after the first year, with the project taking between 6 and 7 years.
So far there are 5 companies who have applied to access the government funding, committing a total of $20.5b, with one company having signed an agreement under the semiconductor and display portion of the incentives, ISMC Digital Fab (pvt) based in Mumbai, for a $3b plant, while other participants continue to look for deals with Indian state governments.  There is no doubt that India is a growing market for CE products and one that can support considerable assembly and board level production, but we are less sure that display projects are currently a viable alternative to China, Taiwan, Korea, or Japan, especially as the need for expertise in OLED displays manufacturing continues to grow.  Not saying it can’t happen, but most of the major display manufacturers have passed on the idea, which leaves the territory open to others, regardless of their experience.  Even with considerable government funding we give such display projects a relatively low chance of success and remind investors that Foxconn (2354.TT), the world’s largest assembler of CE products and the largest assembler in India, still has a mostly empty campus in Wisconsin that was going to be the first LCD fab in the US…still waiting on that one.

Yeolight (pvt), a Chinese OLED display producer that specializes in OLED lighting has begun construction of a new Gen 4.5 OLED lighting production fab in Huaibei City, Anhui Province after receiving environmental impact approval.  The fab, which broke ground on May 20, is expected to cost a bit over $300m US.  Yeolight was spun off from Chinese OLED producer Visionozx (002387.CH) in 2015.  Visionox also spun off its PMOLED (passive matrix) business, now called Qingyue (pvt) in March of last year, along with its 2 Gen 2 8,000 sheet/month PMOLED fabs.  We have yet to see a completion date for the Yeolight fab, although we expect between 14 and 20 months to complete and begin mass production.  The new fab, when completed, is expected to be able to produce 7m OLED panels, although the size was not specified.
While OLED lighting is the most adaptive of all lighting products, the cost to produce such products remains high and has not proven to be a mass marketable product.  A number of companies are involved but LG Display closed its OLED lighting fab in 2019, while a number of other manufacturing companies, both in and outside of the display space, have tried to find ways to commercialize the production process.  OLEDWorks (pvt), Kaneka (4118.JP), Konica Minolta (4902.JP), and Lumiotec (7717.JP) ae among those producing various quantities of OLED lighting panels.  Should Yeolight build out this fab to capacity, it will be a significant contributor to OLED lighting unit volume. As long as a strong customer base can be found.
 

​LCD panel pricing is a nearly a perfect casebook example of supply and demand.  There are a finite number of LCD panel suppliers and in most cases fab output is a definable metric based on project development plans and updates, but the metrics get a bit more nuanced when factoring in utilization, essentially the rate at which the fab’s full capacity is being used.  The current balance, excluding utilization, is oversupply and has been since mid-2021 as demand for large panel LCD displays began to wane.  There have been some hints that LCD panel producers have lowered utilization rates, but there is a difference in what that means to various panel producers, particularly Chinese LCD panel producers.
Obviously LCD panel producers want to run display fabs at utilization rates in the low to mid 90’s at all times, but as prices for panels fall to cash cost levels it becomes a decision between the effect on margins of lowering utilization or producing a portion of total product at a loss.  Keeping longer-term customers happy is a big part of that decision and absorbing the loss from money losing production is a part of ‘customer service’, albeit a painful one.  The alternative of lowering utilization is also not a pleasant one, as idle capacity means equipment must still be maintained with no income offset and recalibration and restart yield issues will follow when the tools are returned to full production.
But there is another factor involved in those choices and that is ‘face’, and by face we mean not seeming like your company is no longer in the ‘growth mode’, which is how much of the Chinese display industry sees itself.  With LCD capacity expansion projects still in place with a number of Chinese display producers (although some are quietly being pushed back), funding and operating subsidies from provincial or local governments is essential, and those funding sources must be maintained at any cost, with the company’s ‘status’ a big factor in maintaining those relationships.  While producing for customers at a loss is certainly not an enviable position to be in, the Chinese manufacturing mindset is a bit different than in the US where most producers would walk away from money-losing business regardless of the circumstance.  Chinese producers do not want to reduce staff (a distinct negative for government funding sources who answer to the Central government) and would likely find it easier to explain away losses that don’t involve raising the unemployment level than those a result of lowering utilization rates while building a new multi-billion dollar fab.
What this means is that Chinese panel producers are relatively slow to lower utilization rates and when they do it is done in relatively small increments.  This is in contrast to South Korean suppliers who have made far more substantial cuts currently and in past cycles, in order to get closer to a supply/demand balance.  This has kept overall LCD panel utilization rates high during the recent decline in LCD panel prices that began last June and is still a problem currently, and part of the reason that panel prices have declined from peak to cash costs in just over a half year.  Overall utilization rates for Gen 8 LCD fabs fell by only 1.3%, including more substantial cuts made by LG Display, between March and April, with both Chinese brands and panel producers assuming that seasonal production increases in 3Q will be enough to balance supply and demand at current utilization rates.  While it might be more effective to have cut utilization more drastically early this year, panel producers were using that same expectation for 2Q, which obviously was not the case.  Yes, the global situation changed in 2Q, and that was hard to predict, but hoping that each progressive quarter will bail out the industry is just putting off accepting some of the more negative scenarios that should guide those decisions.

​The same South Korean trade publication that we noted in our 5/4/2022 note was hinting that BOE (200725.CH) was in the Apple penalty box over changes made to circuit design without Apple’s permission, is back with similar speculation that BOE’s display production participation in the iPhone 14 could be reduced or eliminated, even after BOE officials visited Apple’s headquarters to plead their case.  A number of scenarios are presented in the most recent article by the South Korean media source, the most extreme being that BOE’s 30m unit OLED display order (6.1” panels) would be given to Samsung Display (pvt) (20m) and LG Display (LPL) (10m), who are already expected to be producing the iPhone 14 Pro and Pro Max displays in late June or early July, and that BOE would be limited to producing legacy iPhone (12 & 13) OLED displays for the remainder of this year, likely a total of 20m units, 10m of which have already been produced.  Less aggressive scenarios push back BOE’s iPhone 14 OLED display production until early next year and limit it to 10m units, assuming that they are fully reinstated by Apple by the end of this year.
As we noted previously, BOE struggled during 2021 to pass the stringent qualification requirements that Apple imposes on its OLED display producers and was given legacy OLED replacement screens initially as a test to make sure the company was able to meet yield goals.  This was then advanced to producing actual iPhone 13 and 1`4 OLED displays when BOE finally was able to qualify production, but within a relatively short time the story of BOE’s design change seemed to indicate that BOE was in the penalty box with Apple and had been suspended from further production, leading to a drop off in BOE’s flexible OLED unit volumes in February and March (unconfirmed). 
Given the source for this most recent speculation is South Korean, where both SDC and LGD reside, and that the Chinese trade press has made innumerable statements about how BOE’s inclusion in the Apple OLED display supply chain marks the end of South Korea’s domination of the OLED business, we are reticent to take it at face value until the data becomes available.  It would be surprising for a panel producer to make a change in design, even for a legacy product without getting approval or qualification from the customer, especially Apple, but it is certainly possible that such a change was made and is now causing BOE to bear the consequences.  Any negative scenario will hold back BOE from becoming a primary supplier, as can be seen from the years it took for LG Display to gain full OLED display qualification at Apple after it failed to meet production quotas back in 2019.