​It has not been lost to the press that Apple (AAPL) has been working toward moving more of its product line toward OLED displays, and all sorts of timelines for the iPad, Macbooks, and potentially other products’ OLED adoption have been bandied about.  Given that there are only a few potential OLED suppliers who are both qualified by Apple and can deliver the volumes necessary, much of the discussion around Apple’s transition has been concerning Samsung Display (pvt), LG Display, and China’s BOE (200725.CH).  With current production of OLED IT panels limited to Gen 6 OLED fabs, all three OLED producers (and some others) have indicated or hinted that they would be making investments in new capacity to support Apple’s transition, of course, without naming Apple itself as a customer.
In order to improve efficiency and volume, there has been considerable speculation that such new facilities would be Gen 8 RGB OLED fabs, which currently do not exist (LG Display has Gen 8 OLED fabs but they use a non-RGB process that is not viable for Apple’s specifications), so considerable R&D has been, and still has to be done to design the equipment necessary to make the transition to Gen 8 OLED production for Apple’s (and others’) IT products. 
Up until the beginning of this year, most predictions included Samsung Display starting construction on a Gen 8 RGB OLED fab this year, either converting an idle Gen 8 LCD fab or converting a Gen 6 line to Gen 8.  LG Display, while a bit less specific, has been expected to do the same, and BOE, has hinted that they will follow a similar path ‘as the market demands’, but the ever-shifting sands of the CE space have begun to cast askance at those plans and concomitant timelines.  The equipment needed to deposit OLED materials on the larger Gen 8 substrates takes considerable R&D to develop, and as we have noted previously, there are only a few companies with the expertise to develop such tools.  Sunic Systems (171090.KS) is working with LG Display, and at one time Samsung Display was working with ULVAC (6728.JP) on such tool development, but has since abandon that project, and is looking at the industry leader Canon-Tokki (7751.JP) as a potential Gen 8 deposition tool supplier.  However, Canon does not want to bear the cost of the tool’s development, as Gen 8 OLED adoption is still an unknown, and expects Samsung Display to pay for the development as a part of the tool price.
With the objective of reducing costs/m2, a boost to tool costs will eat away at the process BOM, and SDC has been hesitating to place the order with Canon, with a cut-off of the end of 2Q if it is to meet the goal of Gen 8 production for Apple in 2024.  But it seems not only has the cost of building out Gen 8 OLED capacity been an issue, but the trade press has taken Apple’s recent Mac sales declines as an omen that is adding additional hesitation to the Gen 8 OLED build-out for all potential participants.  We differ.
As with almost all CE products, the COVID-19 pandemic changed what was previously a relatively stable demand picture for Apple products.  Mobile devices saw some early positive momentum, but the need to communicate online became the driver for tablet, laptop, and PC sales that set volume records.  We look at the years between 2020 and 2022 as ‘aberrational’ in terms of demand and look to more normalized unit volumes as a better indicator of what we should expect going forward.  In the case of Apple, particularly the Apple Mac, a tool that is known for its use among content developers who require high quality displays, the logic holds that Apple would like to make the transition to OLED for its color purity, high contrast, and color gamut, but recent headlines from overseas are decrying the fact that Apple’s Mac sales are declining and adding to OLED panel producers’ hesitation concerning spending for Gen 8 RGB OLED fabs. 
However looking at Apple’s Mac sales going back to 2018, they average $6.35b per quarter, including the heady COVID years, which puts the last two quarters above the LTY average, despite the decline from 2022.  More specifically, Apple’s 2Q Mac sales of $7.168b, which seemed to trigger the recent press concerns, are only 1.14% lower than the average of all 2Q results since 2018, including those in the COVID years, and just looking at the pre-COVID years (2018 – 2020), 2023 2Q Mac sales are 28.7% higher than the average.
We expect SDC and LGD are most concerned about the cost of making the conversions to Gen 8 against other larger substrate transitions, rather than Apple’s near-term results, and if either company has been assuming that demand during COVID was ‘real’, we have misjudged both companies.  Spending the billions necessary to build out a Gen 8 OLED infrastructure for IT was a risky business before COVID, during COVID, and will be after COVID, but those decisions tend not to be made on near-term issues, as they are bets that will play out over many years.  SDC does have the cost issue to settle with Canon, especially as LGD has aligned with Sunic Systems, but we expect that has more to do with the timing of Samsung Display’s decision than the relative decline in Apple’s Mac sales over the last two quarters.

When it comes to telecommunications, South Korea is near the top of the list.  The country adopted 2G in 1996, a bit earlier than in the US, followed in 2003 by the adoption of 3G, and was the first country to adopt 4G in late 2009.  5G however, was more of a promise, and while South Korea was still among the earliest, it seems that expectations for 5G across the country have not been met.  When 5G was promoted, ahead of its official release in South Korea, both the government and the country’s three telcos set consumer anticipation with a number of promises for 5G that included speeds of 20x that of 4G, 10x lower latency, and 100x better access.  These were lofty goals, but coming from a country that has led the way for telecommunication progress, such were not impossible.
Moving ahead to the current day, the scorecard on those promises leaves a bit to be desired.  The average 5G download speed in South Korea (October ’22) is 896.1 Mbps, and to put that in perspective, it is 5.9x the average for 4G across the country.  The upload speed average is 93.16 Mbps, only 2.8x that for 4G.  4G latency in South Korea averages ~47ms, which would imply 5G should be under 5ms, which unfortunately is not the case, as it averages ~23ms, although that is a substantial improvement.  However things come apart a bit more when it comes to coverage, which is currently ~33.1%, a bit less than the 100x promised, although with over 99% of the country having 4G availability, the promised improvement was destined to fail from the start, and most of the 5G installations in South Korea are piggybacked on 4G infrastructure and are not standalone 5G installs.
One additional problem that faces the 5G promises made by South Korean telcos is that two of the three carrier in the country have already had their licenses for 28Ghz (mmWave) rescinded, and the third is expected to lose its license for mmWave by the end of the year.  As none of the telcos (nor the government itself) supporting mmWave, the speed boost that would come from averaging in mmWave does not look like it will happen anytime in the near future, which means the incremental speed improvements originally promised will likely not happen in the near-term (or mid-term).
While relative to US telcos, who are always in a ‘battle of promises’ that never quite materialize, South Korea’s reputation for telecommunication innovation would have suggested a better outcome thus far, and while the South Korean government was a willing participant in promising subscribers the pot of gold at the end of the rainbow, the South Korean Fair Trade Commission is considering penalizing the three telcos for violating the country’s advertising laws for not living up to their own expectations.

Taiwan panel producers saw sales in April decline modestly in April, with the exception of Hannstar (6116.TT), who saw a 5.3% increase m/m, although down 14.2% on a y/y basis.  Both AU Optronics (2409.TT) and Innolux (3481.TT) saw m/m declines in sales of 3.2% and 2.9% respectively, while April y/y results were down 8.2% and 17.5%.  We note that Hannstar is primarily a small panel LCD producer, although they saw a significant jump in their large panel sales, which are primarily IT panel sizes ranging from 10” to 15.6”, while AUO’s and Innolux’s large panel LCD production is more oriented toward TV panel sizes, with AUO at 86” and below while Innolux is in production of LCD panels as large as 100”.
After a bounce in March, following a very weak January and February, LCD sales from Taiwan producers seems to have tailed off a bit, after panel producers increased utilization rates, which had been unusually depressed through the 4th quarter of last year.  With consumer demand still weak, we expect the March improvement was just to fill inventory levels to seasonal norms, and the lack of follow-through in April seems to indicate the same.  That said, with TV panel prices having increased 7.7% in April, we would have expected a slight increase in overall panel sales, although AUO has reduced its exposure to the TV panel market from over 40% in early 2018 to ~14% currently. 35.7% in Innolux’s sales are from TV panels currently, while Hannstar has no exposure.
As we have stated previously, while there will be ups and downs relative to panel production this year, the industry has more LCD Tv panel capacity than it needs currently, so any sustainable rally in production would need to be demand based, and currently there seems to be little reason to expect same this early in the year.  If global economic conditions improve as the year develops, a better 2H is certainly possible, especially7 after the poor early 2023 results, but as can be seen in Figure 1 - Figure 4, the industry was not particularly seeing robust CE demand before the COVID-19 pandemic began.  All in, we continue to expect a modest recovery in LCD panel sales, with ‘modest’ the significant word, and the LCD TV panel capacity reductions expected from LG Display (LPL) have already been figured into the supply/demand equation.  Short of an end to the war in Ukraine, and a quick end to inflation, we expect only a seasonal lift going forward.

​New York Attorney General Letitia James proposed a bill that would, quoting the AG’s office, “…tighten regulations on the cryptocurrency industry to protect investors, consumers, and the broader economy.” The bill, which proposes “…the strongest and most comprehensive set of regulations on cryptocurrency in the nation, would increase transparency, eliminate conflicts of interest, and impose commonsense measures to protect investors, consistent with regulations imposed on other financial services.”
Some of the key bill points are:

• Industry companies must undergo Independent public audits, publish same, and provide investors with material information about issuers, including risks & conflicts-of-interest.
• Require cryptocurrency promoters to register and report their interest in any issuer whose cryptocurrency the promote.
• Digital asset brokers, marketplaces, investment advisors, and issuers would have to be licensed in New York before engaging in business.
• Cryptocurrency platforms would be required to reimburse customers who are victims of fraud or unauthorized asset transfer.
• Prohibit common ownership of crypto issuers, marketplaces, brokers, and investment advisers by preventing any participant from engaging in more than one of those activities.
• Prohibit crypto brokers and marketplaces from trading for their own accounts.
• Prohibiting marketplace investment advisers from keeping custody of customer funds
• Prohibiting brokers from borrowing or lending customer assets
• Ban the use of the term ‘stablecoin’ unless they are backed by US currency or high-quality liquid assets as defined in federal regulations.
• Prohibiting referrals from marketplaces to investment services for compensation
• The Ag would have the right to enforce violations with civil penalties of $10,000 per individual/violation or $100,000 per firm, including damages, restitution, penalties or to shut down businesses.

The bill will likely get modified (currently in draft form) as politician wrangle over the details, but almost all of the above (there are more) items are relatively simple, commonsense regulations that other asset classes already follow.  After the FTX and other crypto debacles, other than a bias against all government regulation, it is hard to come up with reasons to not regulate the cryptocurrency space, and while the attraction for some might have been the unregulated ‘wild west’ concept, hopefully there is a new sheriff in town, at least in NY.

ederico Capasso, a former Bell Labs (NOK) applied physicist who was one of the inventors of the quantum cascade laser, and now a Senior Research Fellow at Harvard, came up with the idea of using metasurfaces for flat optics in 2016 and has been leading research in this new field since, with over 70 US patents and over 500 peer-reviewed journals (not all on metasurfaces).  The idea of metasurfaces, or sub-wavelength thickness structures that are placed in a horizontal manner, is similar to that of more typical optical lenses that focus light using refraction, while metasurface optics use small nanostructures to scatter light and by capturing and changing a number of optical characteristics, including phase, polarization, and spectrum, can be used for a number of optical processes that are typically done with glass or similar medium.  The shape and patterning of these nanoobjects determines their optical characteristics, opening an almost infinite range of possible shapes, sizes, and materials for these lenses, which are typically in the range of 100nm thick, or 1/100,000 of the equivalent optical lens.

What makes metalenses important is that they are produced using photolithography or ALD (Atomic Layer Deposition), both of which are used in the manufacturer of semiconductors and a few years ago MIT scientists developed a computational technique that determined the optimal makeup and arrangement of metalens elements, enabling designers to meet specific optical parameters, reducing prototype and rework timelines.  As, in theory, the process by which the metrastructures scatter and re-emit the source light is !95% efficient, such lenses are thought to have an advantage over conventional glass lenses in terms of cost, size, weight, and performance.  Further a single refractive lens (glass) can project an undistorted image onto a curved surface, but in order to project on a flat surface, additional lenses are needed to eliminate the curvature distortion.  As much in the image sensor world is flat, only a single metalens is needed for a flat (2D) surface, such as in a smartphone, eliminating the need for the lens ‘bumps’ seen on most smartphones.
Companies like Imagia (pvt), NIL Technologies (pvt), and Metalenz (pvt) are developing applications that try to simplify the optical stacks used in a number of consumer electronics’ applications.  STMicro (STM) is using a metalens in its 6/22 release of a ToF (Time-of-flight) module, using Metalenz technology that is produced on STM’s silicon lines.   The device uses two metalenses that substitute for the more typical optical lenses and has a power consumption of 31.3% less than that of the optical version in continuous mode.

​While metalenses sound game-changing, and they are to a degree, they have two flaws.  The first is that they are small.  Achromatic lenses, meaning that the color remains the same through all parts of the lens, is relatively easy to do with glass, essentially making the lens thicker as it gets larger.  Metalenses are achromatic when small (few hundred microns), but have color aberrations as they get larger, which limits them to very small applications.  There have been positive lab results using a large number of such lenses to stich together a wide-angle image, but with no commercial application yet.  The efficiency of metalenses is the 2nd flaw, and while such is over 80%, meaning 80% of the light that enters the metalens is ’converted’, Fresnel lenses (plastic on glass) and pure glass lenses are higher, and as noted below, this can be an important factor in some applications.
One area of particular interest is VR, where complex optics add considerable weight and bulk to headsets.  Flat metalenses can be less than 1mm thick and are rectangular, which matches the format of most digital image sensors.  With pixel pitch below 10um, such lenses allow pixel or even sub-pixel beam steering and can replace optics that require a number of lenses or steering mechanisms.  Since VR displays are small, typically 1” or less, the size issue is less of a factor, but efficiency is more so, as the clarity of the image in VR is key, but considerable research continues and as better materials and patterns are found, there is considerable hope that higher efficiencies can become available, with a recent lab process having 94% efficiency, albeit not in a commercial setting.  The use of DUV (Deep Ultraviolet) patterning has led to higher efficiencies but work still needs to be done to move those results from the lab to commercialization.
All in, if metalens research is able to conquer a few limitations, they open a whole new world for AR/VR and a host of other applications that rely on physical optics.  Glass manufacturers and optical component companies do not have to worry about their business yet, as metalenses are still primarily a highly specialized field that has potential but no guarantee that it can be competitive with 3-dimensional optics, but every ounce of weight that can be removed from a VR headset will make them more compatible with the general public and metalenses are trying to fill that bill.

Ultra-high-resolution displays are difficult to make, but necessary for VR headsets to avoid what is called the ‘screen-door effect’ that comes from being able to see the spaces between pixels.  As VR displays are extremely close to the user’s eyes, screen pixel density (pixels/inch) becomes a major factor in the quality of the image, and the desire for ultra-high-resolution displays.  The problem is that the more pixels you try to squeeze into a small space, the smaller and closer together they have to be.  RGB OLED displays are produced by placing three (red, green, and blue) sub-pixels together to form a pixel, with each color being deposited through a metal mask, essentially a screen with very small holes.  While the mask material is particularly rigid, the more holes you cut in a sheet, the more flexible the mask becomes, and if the mask is even the slightest bit warped at any point, the display will not function correctly while making the mask thicker will cause ‘shadows’ that will misplace pixels and make the display unusable. 
 
These issues and more limit the pixel density of current VR displays and even a small amount of ‘screen-door’ can contribute to rapid fatigue for users, so display manufacturers continue to push the limits of display technology to move VR ahead.  As display technology moves forward, techniques for rendering images become more sophisticated, and higher display refresh rates that reduce motion blur, are now up to 120 times/second.  However the computing power needed to refresh the screen more frequently will drain the battery faster than a slower refresh rate, and that can be problematic for VR headset users.  Adding to the problem is that higher resolution displays inherently require more processing (more pixels) power for shading, artifact detection and removal, and a host of other functions, all of which require increased computing power.
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Some VR device manufacturers have come up with a solution taken from the human eye.  In the human eye, the retina, the portion of the eye that contains light sensitive receptors, ~7m cones and ~75m to 150m rods.  The cones respond to bright light and resolve color information, while the rods respond to low light with less color accuracy, which is why you see less color definition in low-light situations.  The rods and cones are not spread across the retina evenly, with a small (0.5mm) area, known as the fovea, covered only with cones that are packed tightly together, making it the point in the eye with the highest visual acuity.  As the eye focuses on an object, it uses that specialized region to provide the best possible image information to the brain, while the periphery is less detailed.  

VR designers have taken this cue from the human eye and used it to maximize the systems computing power on rendering exactly what you are focused on, while reducing the rendering quality for the edges of the image, and reducing the overall power requirements of the system  In theory this should work exactly as the human eye does, which rations the ‘brain power’ needed for things on the edges of your vision, but the human eye can do one thing that is absolutely necessary to make this concept work, and that is movement.  The human eye optical system moves eye focusing structures, constantly refocusing whatever you are looking at on that most sensitive portion of the retina, the fovea, but VR displays are static, which makes it impossible for the system to reduce processing in areas where you are not focused, as it does not know where you are looking at any given time.

​Not to be stymied, VR headset engineers came up with the idea of eye-tracking, by which using cameras , sensors, and infrared light sources to capture eye motion by reflecting a non-visible light source on the eye’s cornea and lenses, or in some cases the blood vessels of the eye.  This location information is fed to the system which then is able to lower the computing power needed to process the image outside of the user’s actual gaze, and as the user’s focus changes the system responds by shifting the ‘processing focus’.  Neural networks and Ai algorithms are also being developed that will ‘learn’ from the user’s movements and help the system to predict where the user’s gaze might move next to improve the system response time. 
While only a few VR systems use the concept of ‘foveated rendering’ combined with eye-tracking to improve VR performance, eye-tracking is becoming more the norm in the latest crop of VR headsets, which paves the way for the use of foveated rendering as a more common feature over the next few years.  Approximately 30.8% of VR headsets that have been or are scheduled for release this year will have eye-tracking and 62.5% of those already incorporate foveated rendering systems.  As eye-tracking becomes more common we would expect the technology to be adopted by most, if not all, mid to upper tier VR headsets, improving battery life or allowing for additional processing that will image quality.  As ultra-high-resolution displays push toward higher resolutions, such rendering systems will become even more important to VR designers who have to contend with the balance between battery power and the weight of a VR headset,
 

As artificial intelligence continues to appear in the headlines, both positive and negative, there is one group that is certainly benefiting from the publicity.  Companies, Associations, and universities are hiring lobbyists to make their views known to the federal government.  Over 120 public and private entities lobbied the government in the 1st quarter of this year, with 158 doing the same for all of last year and 30 in 2017.  The more obvious companies that have a major stake in the technology, such as Amazon (AMZN), IBM (IBM), Microsoft (MSFT), and Nvidia (NVDA), were joined by the American Bar Association, the Consumer Technology Association, the Recording Industry Association, and the Screen Actors Guild/AFTRA, along with Carnegie Mellon University, Case Western Reserve University, Harvard University, Southern Methodist University, and Washington State University, in making their opinions known to the government, and, of course, a number of pure AI companies themselves.
 
A number of large companies suddenly realized that they were behind in the ‘AI race’ and have announced plans and projects to find ways to integrate cognitive AI into their platforms, with Microsoft leading the way with plans to integrate ChatGPT into Bing search.  A number of these companies cut Ai project staffing at the end of last year as the technology space  contracted, especially those Ai projects relating to Ai ethics, are now planning to build Ai project staffing to maintain an active level of competition with their peers., while the US Chamber of Commerce, the largest lobbying organization in the US, spent ~$19m in 1Q, including establishing a taskforce on AI in the House Committee on Financial Services, implementing the National Artificial Intelligence Act of 2020 (primarily ‘studies’ and standards research), and began drafting bills relating to automated vehicles.  At least three major insurance companies lobbied for congressional efforts to better understand the commercial use of AI, and a number of universities lobbied to support the Army AI Center and distributed AI applications for defense, as they likely get funded as part of the center’s project budget.
 
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​As we noted previously, there has been a a bit of backlash from a large group of researchers and academics concerning the rapid pace at which AI systems are being developed, with an emphasis on the ethical use of such software, with some of the more extreme groups pushing for an investigation into OpenAI, the developer of ChatGPT, citing GPT-4 as ‘biased, deceptive, and a risk to privacy and public safety”, while lobbying for ‘algorithmic transparency’, as comments by IBM that they would be replacing 7,800 workers with Ai systems over the next few years sparked news organizations to create headlines like: “AI could replace equivalent of 300 million jobs – report” (BBC – 3/28/23), ChatGPT: the 10 jobs Most at Risk of Being Replaced by AI (business Insider- 4/9/23), or “How AI is Replacing Jobs 2023: A Look at the Statistics (Gitnux Blog – 3/23/23) that cited “AI is estimated to replace 85m jobs by 2025, but 97m new jobs will be created due to AI”, sort of a bad news/good news headline that would likely incite almost any labor-related organization, and send publicity seeking Congress men and women into a media frenzy.
It is obviously quite important that the government understands the Ai industry and the impact it can and will have on society and US economics, but we fear it will become both the media calling card and a path to screen time for politicians, and then fade away when a new hot button issue takes its place, just like the Metaverse did last year.  AI, particularly the ethics and legalities of AI are extremely complex issues and the odds are that politicians are not going to spend a lot of time on them unless it affects them directly, perhaps when it affects a large campaign donor.  Lobbyists are trying to push their client’s agendas to politicians now that the public has been made aware that they now have another ‘fear’ to consider, without the positive balance that shows what AI is able to do for society.  But eye-catching headlines are not usually made from “AI Could Help to Cure Cancer” over “AI Will Take Your Job Soon”.  At best, we can expect the government to form more committees to study the problem when we could use AI to end Gerrymandering by balancing population districts, polling constituents to find out how they feel about a variety of topics, or dig through local, state, and federal budgets to look for fraud, overspending, or projects that benefit only a small portion of the electorate, the sort of things politicians are supposed to do.  Perhaps the better headline would be, “Politicians to be Replaced by AI by 2028”.

Quick, what is the password for your wi-fi router?  If you know the answer, you are either working for your carrier or you are using the same password for the router as you are for other applications.  If the later is the case, don’t feel bad, as a recent survey by Specops Software (pvt) indicated that 29.03% of respondents use the same password for every application and 34.4% only change their password when they forget the old one, while the average person in 2020 was managing ~100 passwords.  Passwords are obviously a pain, but remain, at least, the frontline of defense against hackers who are trolling for information or looking to steal assets outright.
Simple password entry has given way to 2-step authentication, where when you try to log into an application or account, you are required to enter an ID and a security code that is sent to you, usually on a mobile device.  Once that code is entered on the application you must still enter your password to gain access.  This prevents hackers who have stolen your password from access your data without a secondary device to confirm identity, but you still have to remember the password for each application  There are password managers that help with managing a multitude of passwords by using a master password that gives access to the password manager, or you can do what many others do, jot them down on pieces of paper or in a ‘secret list’ that no one should be able to find.  Of course, pieces of paper are easily lost and a paper list of passwords is an accident waiting to happen, so many keep such lists on devices, in the hope that no one will recognize what they are.
The good news is that steps are being taken to simplify the authentication process in ways that will free you from the burden of remembering, changing, and keeping track of passwords for all of your devices with what is called a passkey.  Google (GOOG) has implemented passkey use when logging into your Google account, also letting you still use passwords, and as of May 3, you can use passkeys to log into Google websites. Apple, Microsoft (MSFT), PayPal (PYPL), eBay (EBAY), and a long list of others are developing or implementing passkey authentication for their applications, with Apple having already built it into the latest version of IoS, so .  By using passkeys you no longer have to remember strings of numbers and characters (Is it a capital V or a small v?) or your 4th child’s birthday, but you do need to have your phone, tablet, or computer nearby, as the passkey system needs to communicate with your device in order to verify your identity.
Passkeys use public-key cryptography to authenticate your access to websites when you register on a site.  At that time the system generates a public and private key, with the public key being stored on the site’s web server as it has no value to a hacker by itself.  The private key remains on your device and when you try to log in to an application it sends a ‘challenge’ to your device.  As the public and private keys have a mathematical relationship, the private key completes the challenge and ‘signs’ a response to the server, identifying you, and the server retains only the public key and still does not know your private key, even though you have been identified.    Your device, however, also checks, via master password, fingerprint, or biometrics, that you are the correct person that the private key will identify, as a safeguard in case your device is lost or stolen.  At no time is any sensitive data exchanged between your device and the server, as does when using standard passwords, making passkeys more secure.
Hackers cannot guess a passkey, or can you accidentally reuse a passkey on another site, and because they are unique to each site, tricks that send you to look-alike sites to collect your password will not work.  That said, because they are unique to each site, you need to set them up each time you open a new account or join a new site, and as the private key still resides on your personal device, care must be taken not to lose the device, although if that were to happen, a hacker would need to know your master password, or find some way to beat your biometrics, which certainly lowers your risk against a hacker figuring out that you only change two numbers in your password across all of your applications.
It will be a while before passkeys become ubiquitous, but with a number of the largest CE companies taking steps to implement the concept across multiple applications, the momentum will build, and standards organizations, such as the FIDO (Fast Identity Online) alliance, are working to set standards that will hopefully make it unnecessary for iOS users and Android users to have different passkeys for the same application.  At that point you would be able to throw away your secret lists and scraps of paper and no longer worry that you haven’t changed your WEP key password in 5 years, letting your next-doors entire family piggyback on your Wi-Fi. 

Universal Display (OLED) reported 1Q results of $130.467m in sales, 4% below consensus, down 22.8% q/q and down 13.3% y/y.  EPS was $0.83, slightly above consensus of $0.82, down 38.8% q/q and down 20.8% y/y.  While the numbers look poor compared to last quarter and last year, given the weak results seen from a number of consumer electronics companies who are UDC customers, there was considerable apprehension that UDC’s results and/or guidance could have been worse.  Most significant was the fact that UDC management did not change the full-year guidance that was given during the 4Q ’22 call.  We summarize that guidance below, along with how the 1Q results mesh with that guidance:

On a more general basis management reiterated their view that 2H will be better than 1H, which they believe is confirmed by conversations with major customers.  This has been the mantra for most CE companies, citing typical seasonality, new model releases, or a more generally improving economy, but we can only point to one or two realistic demand changes that will have an effect on 2H.  One would be the release of the iPhone 15 family, which will drive OLED display production starting in late July or early August, and the other a more general build toward the 4Q holiday season.  While the magnitude of the initial iPhone display orders from Apple (AAPL) will be based on their demand outlook toward consumer spending and their confidence in the feature set of the 15 series, the holiday build for most CE companies will be based more on inventory levels going into 3Q and an overall view of demand.
From the perspective of UDC, the 5-year average ratio between 2H and 1H is 1.22:1.  This includes two unusual years where the 1st half was unusually weak, resulting in a high 2H ratio.  When looking at an 8-year average, excluding those two years (2020 and 2018), the average is 1.1:1.  UDC gave no guidance for the 2nd quarter, so we would expect material sales to improve between 7.5% and 9% q/q and the royalty/license ration to also improve to 1.38.  If we put a 1.14:1 ratio on the 2nd half, it implies full-year sales of ~$572m, a bit below the mid-point of guidance.  However this leaves a considerable burden on 2H results, and that remains worrisome, especially after expectations for a ‘recovery’ across the CE space in 4Q and 1Q this year did not materialize.
That said, those with a longer-term perspective should understand that Samsung Display (pvt) has already committed to a large spending plan to upgrade a number of OLED lines to Gen 8 production for IT products, which will begin in 2024.  LG Display (LPL) and BOE (200725.CH) will also upgrade either existing small panel OLED lines or build out new Gen 8 OLED capacity in order to compete with SDC, which will drive additional OLED adoption.  That said, while the industry might be painting a rosy picture of the trend toward larger size OLED displays, adoption in IT devices will take time.  Apple’s OLED timeline for its more IT oriented products will likely set the tone for adoption, so new fabs will likely start out at low utilization rates and the industry will likely take some time before the cost is low enough that OLED in IT becomes commonplace.  UDC is certainly the beneficiary of that change, but it will not be a straight line, and as the small panel OLED display business matures macroeconomics will have an increasing effect on OLED material usage.  Calling 2023 a ‘transition year’ sounds a bit like a cop-out, but with only a few markers to go on so far this year, full-year results are highly speculative.  Additional details upon request.