​BCDtek (pvt), aka Coreview, aka Shenzhen Xinshijia Semiconductor Technology, has announced $970m project to develop a 12” micro-OLED display line, likely in Shenzhen, China.  The company specializes in silicon-based OLED micro displays, currently producing 0.4” (1024x768), .06” (1280x1024), and 0.97” (1920x1080 micro displays for use in AR/VR and HUD systems and drivers for those products.  While the company does not specify how the project is being financed, BCDtek, which was formed in 2020, was originally funded by Advanced Micro Fabrication Equipment Company (688012.CH), one of China’s largest Semiconductor and LED tool vendors, that itself was funded by Sunic Systems (171090.CH), Qualcomm (QCOM), Goldman (GS), and a number of VCs.
We note that Jade Bird (pvt), Shanghai based producer of micro-LED displays and Micro-projectors has also bee building new capacity, and had recently capped a $92m project in Hefei that is expected to be able to produce 120m units/year when fully built out, which we expect will begin production in 1H ’23.  Jade Bird currently produces three mono-color 0.13” Micro-LED displays with a resolution of 640x480 with extreme high brightness @5,000ppi.
China has been very active in developing advanced display technology projects, with a number of ventures being funded both by the government, private industry (local and foreign) and VCs in China, going back a number of years.  The projects range from Micro-OLED production and driver facilities, to Micro-LED process development and small scale production lines, with secondary larger projects behind them.  China’s largest panel producer BOE (200725.CH) began investing in Micro-OLED back in 2017, developing a line with a $170m investment, and Olightek (pvt/state) and US based Kopin (KOPN) both contributed to the project.  Visionox (002387.CH) has a subsidiary that has a Micro-LED pilot line that began prototype production last year, showing a 300+ppi 1.84” sample this year, and TCL (000050.CH) announced a 2.02” VR oriented Micro-LED display and a TCL subsidiary released holographic waveguide based Micro-LED full color display late last year, and both eMagin (EMAN) and Kopin have been developing their own versions of Micro-OLED displays.
Samsung Display (pvt) and Samsung Electronics (005930.KS) have been particularly quiet about their Micro-LED and Micro-OLED plans outside of their TV and monitor applications, but we know that part of the development of SDC’s QD/OLED displays involves the potential development of nano-rods, Micro-LED structures that can be grouped into very small ‘clumps’ for high density Micro-LED displays along with quantum dots for color conversion, but as Samsung seems to have little interest in competing in the VR/AR world, at least at this point, but we find it hard to believe that SDC is not working toward producing a Micro-OLED high resolution, high brightness display for customers given its expertise in RGB OLED display production.  All in, while both Micro-OLED and Micro-LED display production is still in the early stages of development, particularly Micro-LED, China is certainly looking to become a major player in the space, we expect with the idea of creating at least an even playing field with South Korean, Taiwan, or Japanese display producers, and not having to spend years trying to catch up with other producers.  Capital, even in this more difficult environment, does not seem to be an issue, with the stumbling blocks more toward finding more standardized processing techniques than finding applications or financing.

​While quite far from the measures taken by the EU to codify the necessity of a universal charging standard, three US senators have penned a letter to Commerce Secretary Gina Raimondo, requesting that the US follow in the path of the EU and force all smartphone manufacturers to come to grips with a universal charging standard.  The letter, written by Ed Markey, Elizabeth Warren, and (surprise) Bernie Sanders, cites the CE industry’s failure to establish its own uniform charging standards and the resultant expense and frustration to consumers of having to purchase multiple charging devices and how that creates considerable electronic waste (53.6m metric tons in 2019.  The letter urges the US government to coordinate to form a comprehensive plan that will both protect consumers and the environment by addressing the lack of a common charging standard.

​negative connotations, but when applied to what are already highly speculative assets, the results can be both spectacular and disastrous, as the founding partners of Three Arrow Capital (pvt) discovered when they found themselves unable to meet margin calls last week, due to the rapidly falling values associated with the funds cryptocurrency investments, while Crypto lending firm Celsius (pvt) is asking customers to give it more time to stabilize liquidity, after halting withdrawals last week.  Taking the opposite tact, the President of El Salvador a country that adopted bitcoin as legal tender last year, despite a warning from the IMF, told investors to ‘stop looking at the graph and enjoy life”, although not mentioning how they were to do so given the rapid decline in the value of their crypto-assets.
There is little to say about the speculative aspects of cryptocurrency other than it was and remains a classic example of the greater fool theory, but we wonder where the next shoe will drop.  Actually we don’t wonder about that, as we believe the NFT market will eventually find itself wondering what is the real value of digital real estate?   Is it $1t as an 11/2021 study indicated, or is it a ‘collective obsession’ that plays out relatively quickly as its financial underpinnings face an undetermined future?  We would be careful chasing pictures of grinning monkeys or smiling stick figures because they are smiling as their authors quickly convert your crypto into cold hard cash and head for an extended vacation in Ibiza.  P.T Barnum said it well in “There’s a sucker born every minute”, although it’s been said many times before and since in other words.

​China’s BOE has had a difficult time with Apple (AAPL), having been rejected a number of times by the company as a supplier of OLED displays for the iPhone 13.  BOE failed the approval process a number of times and was finally given permission to produce limited quantities of OLED displays, starting with replacement screens for those phones returned to Apple for repair, and eventually progressing to larger quantities for actual iPhone 13 production.  BOE ran into trouble however when it was discovered that the company had modified TFT circuitry traces without the prior approval of Apple, which resulted in a halt to much of the supply agreement between the two companies in February/March.
While there has been considerable speculation as to the status of the relationship, particularly as production for the iPhone 14 is about to begin later this month or in July, BOE has been working toward reestablishing itself in the good graces of Apple to regain standing as a display supplier for the iPhone 13 and iPhone 14, which are by in large produced by South Korean rivals Samsung Display and LG Display (LPL).  We believe they have been re-approved for the iPhone 13 and are back in production, but according to local South Korean press, must undergo a new approval process for the iPhone 14, which is said to be underway at Apple.  If BOE wins approval, they are expected to be producing the OLED displays for the iPhone 14 basic model, which is based on LTPS backplane technology, as opposed to LTPO that is used on the higher end models.  Depending on the time it takes, and the success of the evaluation, BOE would be a few weeks behind SDC and LGD in terms of production, but we expect the company will do whatever it takes to meet the volume goals needed by Apple in order to maintain what is a rather fragile relationship currently.

Samsung Electronics has been wrestling with smartphone inventory issues, with ~18.5% of the company’s recently revised smartphone shipment targets already in distributor’s hands, considerably above the standard 10% to 12% usually held.  Much of the inventory is the Galaxy A series (2022 models range in price from ~$182 - $525), which has sold poorly this year, which Samsung Display had been producing aggressively early this year before parent Samsung Electronics lowered their shipment target from 310m units to between 270m and 280m.
But the increase in inflation and overall uncertainty over the war in Ukraine has made consumers even more careful about spending and the TV space has also not been spared from similar inventory issues and target cuts.  While it is not surprising that the bulk of the shipment reductions would be LCD based, given its dominant share of the set market, both Mini-LED and OLED TVs are expected to see continued growth this year of what is expected to be a 270m to 280m unit market.  Unfortunately, the malaise that has set over the TV market since the end of 1Q continues to extend and estimates for both of those TV set growth products are beginning to decline.
Most recently OMDIA reduced its expectations for Samsung’s Mini-LED TV shipment target from between 3m and 3.5m to just 3m and while the category is still seeing massive growth (8.3m units this year up from 1.9m last year), trimming the more aggressive targets seems the case recently, although the growth in the category is still massive.  Mini-LED is also applicable to IT products, typically monitors and laptops, where shipments are expected to grow by 45.5% this year to 20.8m units but only by 3% in 2023, leading to a decline in Mini-LED IT shipments in 2024 and 2025, under the scenario that despite Apple’s increased use of Mini-LED going forward, the company will shift to OLED in those later years.

​This week Samsung’s (005930.KS) Vice-Chairman and empire heir Lee Jae-yong visited with Peter Wennink, the CEO of ASML (ASML) in the Netherlands to discuss the future of semiconductor technology, market prospects, and the supply of EUV equipment, according to tech press, but it is also said that the trip had another purpose and that was to secure the purchase of an extra EUV tool, above the orders originally set for this year.  With ASML as the only supplier of the EUV tools needed for semiconductor production at or below 7nm, Samsung’s ability to grow its chip business in order to catch up to leader Taiwan Semiconductor (TSM), is dependent on ASML, who has scheduled 51 such tools to be built this year. 
Currently Samsung has been scheduled to receive 18 such tools while TSM is to receive 22, leaving 11 for other customers, so the trip from Korea to the Netherlands is said to also have been made to secure another EUV tool from ASML to help Samsung grow a bit more than originally planned.  Samsung purchased a 3% stake in ASML in 2012 for $280.8m, which is worth ~$3.4b today, but Intel (INTC) and TSM also own stakes in the company (15% and 5% respectively), so being a stakeholder in ASML likely had little influence.  That said, a visit from the heir to the Samsung fortune and the company’s 2nd largest customer does hold some sway.  Whether it was enough to grab another $150m tool remains to be seen, but we expect it was more whether ASML can up the total number of units it produces this year, as we expect all of the other 11 units to be produced were already on order from other customers.

​Despite the reductions in forecasts for OLED unit volume this year, in the wake of rising inflation and China’s strict COVID p[policies, it seems that if you want to build out your OLED display business, you still have access to capital, and in this case it is not coming from the Chinese government.  LG Display (LPL) has announced that it has received $1b in funding for the expansion of its small panel OLED assembly manufacturing facilities in Vietnam, a part of its expansion plans that will facilitate a greater product flow to Apple (AAPL) and includes the expansion of small panel production lines at its plant in Paju, South Korea, a $2.5b project overall.  Funding, by way of long-term loans, was provided by Australia & New Zealand Banking Group (ANZ.AU), HSBC (HSBC), Citibank (C), and Caixa Bank (CABA.SM), with guarantees by the Korea Eximbank (state), Korea Export Insurance Corp. (state). 
 LG Display currently provides both LTPS and LTPO OLED panels to Apple for the iPhone 14 series, but faces competition from leader Samsung Display (pvt) and more recently from China’s BOE (200725.CH), who entered the iPhone supply chain last year after a number of failed attempts.  Since then BOE has been said to have been awarded a share of the iPhone 14 LTPS display production but more recently has been said to have been put on hiatus from Apple’s OLED supplier list after the company allegedly made changes to a display design without consulting Apple.  LGD is also looking to secure a place as a supplier of larger OLED displays to Apple and is developing production capabilities to that end as Apple is expected to continue to move its display procurement from LCD to OLED over the next few years.

Semiconductor prices have been rising as capacity constrained fabs are forced to allocate resources to high volume profitable customers, but as inflation dampens demand, the question is whether the industry will continue to have the bargaining power to continue to increase chip prices for the remainder of the year and into 2023.  Throughout the development of the global semiconductor industry, the majority of material suppliers have been able to maintain a stable supply chain and reasonable profitability, but the global macro-economic situation in which we currently live continues to spread higher cost and disruptions in areas that rarely see market perturbations, and those ‘pockets of problems’ are and will likely continue to be a thorn in the side of the semiconductor industry.
Semiconductor material suppliers seem to all be in agreement that the industry has become so interrelated that almost no one is immune to being affected by bottlenecks or escalating costs. A simple illustration (Figure 3)  given by a chemical company executive illustrates how the price of crude oil, which has risen by more than 70% since last June, affects the production of EIPA (Electronic-grade Isopropyl Alcohol), which is used to clean wafers and tools during the semiconductor production process.  Aside from the increased cost of crude, the increased cost of processes that require heat (gas), and the cost of transportation, is the cost of building a new plant to add purification processing, which is now at least 20% to 30% than it was one or two years ago, according to the company representative.
Considering that there are hundreds of gases, liquids, and metals used in the manufacture of semiconductors, the cost of refining these materials, many of whom have only a few sources, continues to rise with energy prices and have increased far beyond what might be considered ‘normal’, and all of those costs make it more expensive to produce semiconductors, in addition to the cost of more expensive single digit node tools, and while semiconductor manufacturers have been enjoying the ability to run fabs at full or near full capacity, even with the price increases seen thus far, the tentacles of material cost price increases continue to take hold of almost every aspect of semiconductor production, which will impact fab margins unless they are able to pass on those increases, which will become increasingly difficult as demand slows.
All in, it is logical to expect semiconductor producers to see lower margins going forward as the vast chain of materials necessary for chip production continue to see higher prices, but we expect that demand will weaken enough by the beginning of 2023 that material prices will stabilize, which will begin to depressurize semiconductor pricing in 1Q ’23.  While COVID-19 and China’s strict policies toward the virus are still a factor to a degree, we see the war in Ukraine as the biggest risk factor to a more stabilized semiconductor material market in 1Q ’23.  If that conflict continues or escalates, any price stability could be pushed out and 1H 2023 will see more of what we have seen in recent months or an even greater reduction in demand, a prospect that will make it even harder for semiconductor fabs to raise prices to meet higher costs, a prospect we would see as quite disastrous to the industry.  More likely the scenario will far somewhere in between, but even that prospect still carries considerable risk.

MLCCs (Multi-layer Ceramic Capacitors) are tiny things, ranging from as small as 1/4mm to as large as ¾” and while the price varies across the hundreds of MLCC types and sizes, they typically sell for pennies.  With ~70% of MLCC demand coming from consumer electronics products, tracking inventory, shipment, and pricing levels can give anecdotal insight into the CE space, and given their use in a wide variety of other industries, particularly automotive, MLCC metrics can point to medium and long-term trends in those industries, and with a relatively small number of manufacturers and a typically conservative viewpoint toward capacity expansion, MLCCs are reliable indicators of the health of the global electronics market.
MLCC unit count in various CE & Automotive products:

• Laptops – 400 – 800 units
• Smartphone – 200 – 1000
• LCD TV – 500 – 800
• Gas Engine Vehicles - ~5,500
• EVs - ~12,500
• ADAS - ~15,000
• Autonomous Vehicles - ~17,500

 
That said, electrode and termination materials in MLCCs are Nickel, Copper, Tin, and Palladium, and while very small amounts are used in all but the high voltage MLCCs used in EVs, the fact that over 1 trillion MLCCs are produced yearly, makes raw material price swings quite significant, with the cost to produce MLCCs representing ~75% of industry sales.  However, given that MLCCs have the lowest cost structure for all capacitors, they represent the highest profitability levels for capacitor producers.
Early this year many CE companies had an optimistic view of 2022 product prospects, much of which was based on the demand levels for a number of CE products due to COVID-19 in 2021, but there were a number of red flags underlying that optimism, particularly the deterioration in LCD TV panel prices, which began in July of last year.  While this was specific to a particular CE segment, leaving IT (monitor, notebook, and tablet) prices to continue rising, if foreshadowed the more general decline in panel prices seen in recent months, despite the insistence of most panel producers that the weakness was limited to only TVs.  Concerns about semiconductor supply shortages coupled with this optimistic view, caused CE companies to overestimate demand and build component and product inventory based on 2021 results and 1Q ’22 results, which were still being driven by the optimistic 2022 targets.
Now that reality has set in and targets are being lowered, we see component demand weakening and prices following which heads us back to MLCCs.  Taiwan-based Trendforce is now estimating that MLCCs will see 2Q prices decline by 3% to 5% and by 2% to 4% in 3Q, citing the continuing decline in TV panel prices as an indicator, along with the continuing weakness in smartphones, which include both LCD and OLED.  While those quarterly price reductions will likely do little to affect the long-term growth trendline for MLCCs seen in Figure 2, it will serve as a cautionary note toward plans for MLCC capacity expansion, with most of the large suppliers having been through at least one over-expansion cycle. 
Around July of 2021 there were thoughts that MLCC’s were heading into a shortage situation and some manufacturers were beginning to plan capacity increases, especially for automotive oriented MLCCs, but the industry as a whole does not seem to have fallen into the pattern of over expanding into the demand inflection point, which gives us reason to maintain a positive long-term view of MLCC growth, despite the near-term weakness.  For component suppliers MLCCs are still one of the best places to be and will continue to see application growth over the long-term.

​Amazon (AMZN) and Cartier (CFR.SIX) have filed a suit against both a company selling items on Amazon and an influencer who helped to promote the products, for selling jewelry and accessories that illegally carried the Cartier trademark.  The suit, filed in the US District Court of the Western District of Washington, alleges that a Chinese entity known as YFXF (Amazon Selling Account name) and a number of ‘John Does’ sold counterfeit products on the Amazon site that bore the Cartier logo, without any license from owner.  In 2017 Amazon opened the Amazon Brand Registry, a free service to any right’s owner that has a government-registered trademark (even those without an Amazon relationship) that uses machine learning to allow brands to search and report potentially infringing products using image-search software.  With more than 700,000 brands in the program Amazon states that those brands are finding and reporting 99% fewer suspected infringements than before joining.
Amazon also employs a system by which every brand in a second service known as Transparency, applies a 2D code to every product they manufacturer, which allows the company, customers, and law enforcement to identify the authenticity of any enrolled branded product.  By the end of 2021 23,000 brands were participating which covered 750m product units, and an additional service, known as Project Zero, allows enrollees to directly take down counterfeit products on Amazon stores.   Amazon and Cartier have verified that the items were counterfeit and therefore violate the terms of the selling agreement that was signed by YFXF.  The suit asks the court to require that the defendants provide an accounting for all amounts due to Cartier and pay such fees including damages, attorney fees, and interest.  Unfortunately, the owner of the Chinese entity known as YFXF has not been named in the suit, along with 10 unnamed defendants, who were involved with or worked for the offending company, all of whom are living in China, which might make it difficult to gain access to the company records, but we have to give Amazon credit for trying, even though we know it was to prove to Cartier that it takes its legitimate sellers seriously.