​WeChat (700.HK) has always dealt with restrictions on what can be shown on the super popular live streaming app, as required by the Chinese government, but parent Tencent (700.HK) has now added another level of restrictions to its ‘do not do’ list which include some rather odd and some rather specific items that are now prohibited.  The typical Chinese government issues, such as leaking state secrets, promoting what it defines as terrorism, broadcasting news without government clearance, or even insulting government officials, look rather tame compared to the recent WeChat additions, which include fortune telling, videos that show the inside of nightclubs or foot massage parlors, coffins, tombstones, guessing the gender of a baby before birth, and eating any non-food items. 
Smoking, drinking, swearing, showing tattoos (no Hell’s Angels in China), skydiving, bungee jumping, free climbing, paragliding, parachuting are also banned, along with smashing cacti with bare hands.  There are many abns that specify clothing, such as female pants or skirts that are more than 2cm below the belly button, see-through items, flesh colored tights, fishnet stockings, suspenders, triangle or low rise shorts, although men are less restricted with the more general restrictions of ‘no going topless or appearing only in underwear’. 
There are some that are more obvious such as no simulated sex acts or revealing cleavage, but also included are no repeated squatting, seductive lip licking, or hip shaking, which will be a burden or Elvis impersonators on the Mainland, but among the strangest of all is the ban on nose-picking and wearing underpants on one’s head, which after searching on Google, we find is far more common than expected..  Penalties include being banned from the site and potential government penalties for more serious violations, which would likely be a bit more onerous than a site ban.  No comment…

Samsung’s (00530.KS) success in the smartphone market is well-known, however that does not mean that every shot the company takes in the smartphone space, and there are many, is a success.  In particular, Samsung’s January release of the Galaxy S21 flagship line, which consisted of three models, has not fared well so far this year and recent data for 1Q smartphone shipments and sales indicates that none of the Galaxy S21 models made it into the top 10 in terms of volume share, and all three combined registered only a 6% revenue share, while Apple’s iPhone 12 models (excluding the Mini) combined saw a 32% share of smartphone revenue in 1Q.  Samsung did have models that did make the top 10 in volume but they were all part of Samsung’s A Series of mid to low priced models, not the flagship line.
While this in itself is certainly problematic for Samsung, it is also challenging for many of Samsung’s component suppliers, particularly as 1Q tends to be among their strongest quarters.  A compilation of 1Q results from 15 of Samsung’s major South Korean smartphone component suppliers shows that only four companies showed a y/y increase in sales and operating profits.  Nine companies showed lower y/y sales, even when compared to last year’s COVID impacted 1st quarter and ten of the companies in the list saw reduced operating profits or continuing losses.  The effect of Samsung’s share decline in the high-end market are apparent to those suppliers who provide high-performance parts, while those who compete directly on prices saw some benefit.

​TCL (000100.CH), Chinastar (pvt), a TCL affiliate, and the Guangzhou municipal government signed a cooperation agreement concerning the development of a Gen 8.5 OLED printing production line recently, however the agreement specified no schedule and it seems that the original planning schedule, which was targeting production in 2024, has been delayed due to the outbreak of COVID-19 in Japan.  The $6.8b project, is in addition to TCL’s recent $187m investment in Japan’s JOLED (pvt) who has been cooperating with TCL/Chinastar toward the development of a large panel OLED printing process.  A number of TCL engineers are said to be in Japan to work with JOLED on their production line to verify the process, which has led to sample production of a 65” 8K display, however the COVID outbreak has slowed that development.
While overall even the production of an 8K 65” printed OLED sample is an interesting development, the production of such large panel printed OLED displays needs to be transferred to a mass production setting, which is at the core of the Guangzhou agreement.  However the lack of a timetable leaves a bit to be desired as to the current commitment of both parties, which is likely a function of the necessity to take the development of a mass production process further.  While the Chinese press indicates that China is “close” to mass production of printed OLED displays, if the TCL fab is to be the facility that spearheads that production, it might be a number of year before we see actual product.

​On Tuesday we noted that Samsung Display (pvt) had decided to undertake the conversion of its Gen 7 fab in Asan, South Korea from LCD to OLED as part of its overall plan to end production of large panel LCD displays.  The fab, known as L7-2, has been rumored to be the primary candidate for a technology change and some or all of the equipment has been offered for sale.  As we noted, a contract was let with YMC (155650.KS) through Samsung Construction & Trading (028260.KS), a major affiliate of the Samsung Group (pvt), that extended through July 20 ($18.5m) to open the fab floor space.  The project, which is expected to cost ~$1b, will create a 15,000 sheet/month OLED line with expansion capabilities to be decided later this year.
We noted earlier that we expect production to begin for phase 1 of the A4E project to be completed by 9/22, a bit earlier than our original; projection of 3/2023, but we are keeping that schedule as tentative, given issues surrounding equipment availability and logistics due to COVID-19 in Asia.  The phase 2 expansion, which we project will be completed between 9/23 and 3/24 is also tentative, but thus far adheres to the timetable set by the phase 1 conversion.
We have received conflicting information concerning whether Samsung will develop additional LTPS backplane capacity for A4E, with some indicating that the loss of LTPS capacity at Samsung’s A3 fab, which saw capacity conversion to LTPO backplane technology for Apple (AAPL), will be made up at A4E, while others point to less of a need for LTPS as LTPO becomes more popular. 
We still expect Samsung to continue to produce large panel displays from its Gen 8.5 fab L8-2, but believe SDC intends to convert its L8-1 fab to OLED, under a $2b fab for OLED IT products, meaning notebook and monitor displays.  As this line would be developed using RGB technology, similar to what Samsung currently uses for its small panel OLED production, the conversion would entail similar equipment to L7-2, however we expect the backplane will be IGZO, which could take a bit longer to stabilize than might be the case for other backplane technologies.  
While we have heard that SDC has also been shopping the equipment in L8-1, there is speculation that SDC will keep the fab’s Gen 8 configuration, which would be a first for the company’s OLED production.  That kind of decision would be based on the company’s expectations for the panel sizes it expects to be producing in the future, as substrate efficiency between Gen 6 and Gen 8.5 fabs can vary considerably as panel sizes increase.  With ample space for additional capacity in this conversion, SDC has the option of expanding Gen 8.5 or adding Gen 6 capacity in the future.
While these are ambitious plans for SDC, given the display industry’s optimistic view, spurred on by higher panel prices, it is to be expected that this feeds the capacity decision process.  While there is certainly competition to Samsung’s lead in small panel OLED production, they are still the leader and must maintain that lead by continuing to offer a wider variety of OLED products, as they are doing with OLED notebook and monitor panels and with foldable.  While we expect final decisions on SDC’s QD/OLED project have yet to be made, they continue to make the necessary capex plans to support their leadership position in what would now be called the small and medium sized OLED panel domain.

The Apple Watch 6 Series, released last September, costs anywhere from $400 to $900 depending on the case material, the case finish, and the band, but the cost to produce the watch itself, along with the assembly, testing, and packaging are a bit less.  Given the three case material choices, the nine case finish choices, and the six band types, along with special editions from Nike (NKE) and Hermes (RMS.FP), there are almost an infinite number of possible combinations to evaluate, but the folks at Counterpoint have done their best to breakdown what would be an almost generic Apple Watch 6 to give an idea of the BOM.
The most costly component category is processor/memory, which includes Apple’s S6 SIP (System in Package), Apple’s W3 wireless chip, which handles Wi-Fi, Bluetooth, and cellular, and SK Hynix’s (000660.KS) RAM and on-board memory.  The display, an LTPO based 1.78” OLED assumedly produced by LG Display (LPL) and is covered with Apple’s ION-X glass, which we believe is produced by Corning (GLW), but potentially strengthened by an outside source.  Apple also provides the option for a sapphire cover glass model, but in this case the BOM is for ION-X rather than the more expensive sapphire. 
The watch body also has options but in this study the body is a combination of aluminum and stainless steel, while the back is ceramic and sapphire.  The casing itself is the 2nd most costly category, which in this device is more costly than the display, which in most CE devices is the most expensive component category.  Since Apple promotes the sensor capabilities of the Apple Watch 6, which include the usual accelerometers and gyroscopes (movement and fall detection), barometers, altimeters, and compass (location?), the sensor category is substantial, and also includes well-promoted blood oxygen and heart-rate sensors.  The UWB (Ultra-wide Band) sensor, the key to Apple’s location tracking system however, is not part of the sensor category and adds to the processor/memory cost.
All in, the BOM for such a generic Apple Watch 6 is $136, leaving Apple and retailers considerable profit margin.  Given Apple’s dominant share (33.5% in 1Q ’21) and the strong y/y growth in the category (35% t/t), the higher cost of miniaturizing Apple Watch components seems to have little effect on profitability.  As we get closer to the usual Apple Watch release date (typically in September) there have been rumors of both additional sensors (Blood Glucose and or blood pressure) and extended battery life, and the potential for a micro-LED display, which has been rumored since late 2018, but regardless of the features, we expect Apple will maintain a similar BOM or at least margin, regardless of the feature set.

​Samsung is the leader in foldables, with a share of the market of between 80% and 87%, and as we have previously noted, is expecting to sell between 6 and 7m foldable units this year, up from a bit under 2.3m last year.  The Galaxy Z Fold 3, the assumed name for Samsung’s next iteration of the Fold 2 is said to be in production with a release date sometime in August.  The Z Fold 3 is expected to have a 7.6” foldable OLED display, the same as in the Fold 2, and a 6.2” cover screen, also the same as the previous version.  The chipset is an updated Qualcomm (QCOM) Snapdragon 888, produced on a 5um node, which compares against the previous Snapdragon 865 (7um+ node), and has a faster primary core, however, while the camera configuration is identical (front), the selfie camera on the Z3 is expected to be an under display unit that will make it invisible.
The Galaxy Z Flip 3, a compact foldable, is expected to begin production next week, but the release date remains unknown, although some are speculating that the price of the Flip 3 will be under $1,000, which would put it in line with other Samsung flagship smartphones, and while the phone itself could see a slight increase in screen size, the form factor is expected to remain the same.  Much will ride on the success of the new Z Flip (in theory, it should be called the Z Flip 2), as Samsung pushes the foldable concept to give it an increasing lead in the smartphone space.  They have set aggressive sales goals for foldable this year, but as long as durability becomes less of a question, the concept of ‘unfettered’ smartphone real estate will look increasingly attractive to consumers.  That said, we expect consumers will need to see pricing that is almost comparable to flagship smartphones in order for the foldable medium to be accepted as the norm.

On May 20 we listed Samsung Electronics’ (005930.KS) new TV line-up, or at least those that were 4K or higher resolution and were designed with quantum dots and/or mini-LEDs.  Only 6 days later, we noted that Samsung had already began discounting 10 of the new models and we note today that Samsung has continued to reduce prices on sets in those lines.  Again we find this surprising as it is early in the product cycle and most of these would be considered premium products, but China’s TCL (000100.CH) has been producing Mini-LED TVs for a number of years and is on their 3rd generation.  While they are not yet available in the US (older models are), they will certainly challenge Samsung as to price, and LG Electronics (066570.KS) will also be releasing a series of mini-LED/quantum dot TVs through the summer and the remainder of the year, all of which have been announced.
We note that in the previous set of discounts the focus was on 65” and 55” sets, while the most recent discounts were focused on 75” and 85” sets, although not exclusively.  LGE’s top-of-the-line 8K 86” Mini-LED/QD TV is priced at $8,000, $1,000 lower than Samsung’s, with the 75” model $2,000 lower (now $1,500) and the 65” model $1,500 (now $1,300) so Samsung’ pricing is certainly higher. The discounts averaged 7.2% in the previous tranche and in the current, 8.6%, with those that have been discounted twice averaging 11.1% from the initial price.
TCL, who has been producing Mini-LED TVs longer than either South Korean producer, does not yet sell this year’s mini-LED/QD TV in the US, but last year’s models, which list for $1,600 (75”), $1,100 (65”), and $800 (55”) are priced far lower than either competitor, and have attracted considerable attention with consumers.  A number of those sets are being offered at a premium on Amazon (AMZN) as they have been in short supply since their release last September.
The updated table with Samsung 2021 models and discounts is below and shows all of Samsung’s models for this year, with those that have just become discounted highlighted in red and those that were previously discounted but remain the same in blue, and those that have been discounted twice in yellow.

In a move that is not surprising, it seems that Samsung Display (pvt) has begun the conversion of its Asan Gen 7 fab to OLED.  While the company was asked by parent Samsung Electronics (005930.KS) late last year to keep some large panel production in service, despite it plans to end all large panel LCD production in South Korea, this fab, known as L7-2 has been rumored to be SDC’s next conversion project for some time, and despite the steadily increasing price of large LCD panels over the last year, the company halted production at the fab at the end of March.
Korean construction company YMC (155650.KS) signed a contract for the dismantlement of LCD equipment with Samsung Construction & Trading (028260.KS), a major affiliate of the Samsung Group (pvt).  The contract was signed on April 1 and was to extend through July 31, although it was recently shortened to July 20, but increased in size from $15.7m to $18.5m.  On 5/11/21 we noted that Samsung was taking bids on the equipment in L7-2, and possibly L8-2-1, which certainly seems the case given the relatively short length of the removal contract.
The L7-2 line has been in production since 2008 and had a peak stated capacity of 180,000 Gen 7 sheets/month will be converted into a Gen 6 OLED fab for what is expected to be ~$2.7b US, similar to the conversion cost of L7-1 line that was converted from LCD to OLED in 2017.  The new fab is expected to add 30,000 sheets/month to SDC’s small panel OLED capacity when completed, although we believe there will be room for additional capacity that could be added at a later date if necessary, as SDC has ample backplane capacity at other fabs and will not need to add to that at A4E. 
 As we had planned for the L7-2 closing at year-end, this will reduce SDC’s large panel output by 1.08m 65” units this year, although we expect Samsung Electronics has been sourcing from alternative suppliers and will see little change to their supply chain.  What this does do is move up the road map for SDC’s A4E fab which we had projected to begin operation in March 2023.  We move that up to September of 2022 (Phase 1) and phase 2 completion from 9/23 to 3/23, giving Samsung Display additional capacity for flexible and foldable OLED production.  We make the assumption that SDC will continue to produce large panel displays at the L8 fab until the end of this year

​On 10-16-20 we mentioned that Samsung Electro-Mechanics (009150.KS) had agreed to sell its Wi-Fi module business to Chemtronics (089010.KS), after selling its wireless charging business to Chemtronics earlier last year. The Wi-Fi business at SEMCO has been working under very low margins (~1% - 2%) and therefore fell under SEMCO’s guidelines of selling any business that did not generate substantial margins, such as the camera module line.  That said, there had been some question about the value of the division, which we believe was set at $130m by SEMCO but was likely closer to $95m when the agreement was signed.
It seems that Chemtronics has decided to cancel the deal, which SEMCO agreed to, also returning the purchase deposit.  While details of the cancellation were not made public, Chemtronics indicated that “Fast changes in the Wi-Fi module market” were the cause for the cancellation, although Chemtronic’s expectations that they would be able to bring Wi-Fi module margins to over 10% were likely more of a factor, with a change in Samsung Electronics’ plans probably the root cause of reduced expectations.  SEMCO’s return of the CHemtronics deposit would seem to indicate there was more than just a change in the overall Wi-Fi market, and something more internal to Samsung Electronics, who would have been Chemtronics primary customer.