​We remember when TV channels signed off at midnight.

We remember UHF.

We remember before VCRs, when you had to be ready to watch a show when it was being broadcast.
But our kids don’t remember any of that.  They only know cable or streaming and don’t really get the concept of broadcast TV, and while they take large screen TVs for granted, they are just as happy to watch a movie on a 6.5” smartphone screen.  OK, we are sounding like the old guy yelling at the neighborhood kids to get off the lawn, but the world of content viewing has changed quite a bit over the years.
Nielsen (NLSN) has been measuring consumers since the 1920’s and the company’s founder was the ‘inventor’ of market share calculations, an outgrowth of their data collection services, which started with radio and migrated to a variety of consumer goods and eventually television.  The company has recently begun to produce a new report called “The Gauge” that tracks TV screen time as it relates to both streaming and ‘linear’ (broadcast & cable) TV.  Given that many of our kids view TV through wireless or IP based services, we were surprised to find that streaming was not the largest viewing service, and data from the last two months indicates that m/m changes are quite small, despite a variety of influences like sports and seasonality.  Further, the competitive elements of the streaming segment itself are broken out in Fig. 3.
While the data Nielsen shows is not particularly granular, they did indicate that as the end of the seasonal broadcast season is May, June saw that segment decline, with that share picked up by both cable (sports) and streaming (new content), and while individual new streaming content titles themselves do not usually move the needle significantly, that new content does drive consumers to explore that particular content platform, which can lead to a bit of share gain.  Noted were Disney’s (DIS) “Loki” and “Raya & the Last Dragon”, which moved to Disney+ ‘free’, and Netflix (NFLX) released “Manifest” and “Sweettooth” that helped move them up a notch.    If Nielsen is kind enough to supply such data[1] on a monthly basis, we will track and post.


[1] All other TV includes AOT (ALL Other Tuning), VOD, Streaming through a cable set top box, Gaming, and other device (DVD Playback) use.   Streaming via cable box is included in the ‘All other’ group.  Streaming data comes from a subset of TV households in the National TV panel, while linear sources are based on viewing from the overall TV panel.  Hulu includes Hulu Live.  YouTube includes YouTube TV.

​With the Olympics about to start, the question of how much influence do events such as the Olympics or the FIFA World Cup have over TV sales.  Historically marketing in front of such events has been intense, with the objective of convincing consumers that their puny 42” TV is just too small for getting the full impact of such events, and an upgrade to an 86” 4K TV is the least that would influence friends to come over and watch.  We have seen data that takes both sides of the question, but have yet to be convinced that in the general scheme of things, such events can make an appreciable difference over the course of a year.  Overall economic factors seem to be a far more influence on TV sales, along with price, and with global TV shipments between 210m and 220m for the last 5 years, such major events don’t seem to move the needle.
As the Olympics are in Japan this year, we took a closer look at TV shipments in Japan, as the COVID-19 pandemic will be keeping spectators at home rather than in the stands, with the thought that perhaps that might actually stimulate TV sales, and while TV shipments in Japan in 1H were up 21.0% y/y, there is so little consistency in the y/y numbers going back 5 years that no conclusion can be drawn.  What the data did show however is that Japan TV shipments have been increasing over the last few years (Fig. 1), and May and June were both up 14.9% and 11.3% y/y respectively this year, but again there is little consistency in the historical data for those months.
While the trend is up for TV sales in Japan, the trend for OLED TV shipments has been even stronger, increasing from 14,000 in January 2019 to 74,000 in June of this year, representing a share increase from 4.4% at the start of the period (1/2019) to 14.1% in June of this year.  We note that Japan is a relatively small portion of global TV shipments, between 2.2% and 2.5% over the last few years, and with Japanese TV brands being favorites on the island, slow OLED adoption by traditional Japanese brands other than Sony (SNE) has hampered OLED adoption.  With LG Display’s (LPL) increased OLED TV panel capacity, we would expect OLED TV share in Japan to continue to increase as traditional Japanese TV brands are able to secure enough product to justify OLED advertising programs and set production.

Mini-LEDs continue to be a hot topic in the tech press, and while we have been talking about the technology since 2018, just the mention of Mini-LEDs seems to generate enthusiasm the likes of which we have rarely seen, and while mobile retail trading platforms and stock ‘news’ on Instagram (FB) have given us a new level of stock volatility in the US, it pales when compared to Chinese markets, particularly the  relatively new Sci-tech Innovation Board.  1H y/y comparisons are still relatively easy to make given the very weak results from many technology companies in 1Q ’20 and a slow start to a recovery in 2Q, so looking strictly at the comps individual investors might get the impression that we are living in a new ultra-high growth environment.
In China there are many companies associated with the production of LEDs or applications surrounding their use.  Some are large and some are small, and all have different performance characteristics according to their customer base and expertise, yet profit hungry investors seem to see little differentiation, jumping in at even the slightest hint that a company might be associated with mini-LEDs.  Take Longli Technology (300752.CH), a company that produces backlight modules.  The company’s stock dropped from 18.35 RMB to 13.35 RMB after it announced that its 6 month interim earnings would result in a loss as material costs rose and LED prices declined, a relatively typical reaction to a disappointing report, but only days later the stock jumped to 33 RMB and is up over 77% in the past month.
What caused this massive change in sentiment?  The company had mentioned on an interactive board that it had ‘achieved a breakthrough in R&D for Mini-LED automotive backlight technology’ and was delivering ‘partial small batches to customers’.  Even with little detail about the ‘breakthrough’, the idea that the company might have discovered something and could eventually be supplying its customer base, which to their credit encompasses a number of large Chinese panel manufacturers, was enough to add the name to the list of LED ‘concept’ stocks that had been on a tear on Chinese exchanges.  Jufei Optoelectronics (300303.CH) happen to mention that it’s automotive LED business had performed ‘outstandingly’ in the 2nd quarter, and a ‘breakthrough has been achieved among customers’ and the stock is up over 60% thus far this month.
There are many Chinese LED companies that did well in the quarter or 1st half, despite the relatively easy comparisons, but it seems that even the slightest mention of mini-LEDs is enough to instill blind faith into Chinese investors and drive stocks to emotional highs.  Much of what we read on such Chinese boards is very basic in nature and there seems to be only a smattering of understanding among individual investors as to the real prospects for mini-LEDs.  Given that they are public forums, the companies’ responses are carefully worded so as to titillate but reveal little, which seems to only encourage others to speculate further, although conjecture might be a better word.
 con·jec·ture  an opinion or conclusion formed on the basis of incomplete information, an unproven mathematical or scientific theorem, or  the suggestion or reconstruction of a reading of a text not present in the original source.

​Last month we noted that India had been again working toward attracting a leading LCD producer to build a fab in the country, offering considerable financial incentives, but has had little luck, making it the second attempt over the last few years to develop a display ecosystem in India.  It seems that the Indian government has also been doing the same with semiconductor companies, having instituted a more aggressive policy last year and taking EOI’s starting at the end of last year.  The EOI deadline however has been extended twice and local headlines have indicated that various global semiconductor producers have expressed interest in the plan (and incentives) but the 20 entities having submitted documentation, are mostly financial institutions or private equity firms rather than actual semiconductor producers.
Among the applicants are Foxconn (2354.TT), who has considerable assembly capacity in the country, but not semiconductor production expertise, and Next Orbit Ventures (pvt), an investor group based in Abu Dhabi, but large foundries are also evaluating incentive plans from the US, China, Taiwan, Japan Malaysia and Europe, many of which are more lucrative than the 25% incentive on capex that India is offering, and the Indian government’s highly bureaucratic path toward narrowing the field is a turn-off to foundries that are used to dealing directly with the most senior government officials.  The real problem however is that India has no real semiconductor ecosystem, which is an absolute necessity for the top semiconductor producers and while the Indian government believes they can ‘buy’ their way into the semiconductor business, that approach has failed in the past.
The semiconductor market in India is still small, less than 5% of the global total so the attraction of localized semiconductor production is not present, leaving the only real attraction for large semiconductor companies as India’s commitment to building out an infrastructure that would support a real semiconductor production campus, and while the top few foundries would not want to anger the Indian government with outright refusals, they would likely be more interested in what the Indian government plans to do to develop that infrastructure over the next few years than the incentives offered today.  India would likely be better served by attracting smaller producers using more mature processes in order to develop the suppliers and back-end providers that would eventually attract the primaries but the Indian government seems to be more interested in a big win than a longer term project.  With the increased demand for semiconductors, everyone wants a fab in their neighborhood, and producers will use that advantage to generate the best possible deals.  Taking a shot on a new and unproven country is likely not in the cards.

Zhengzhou is the capital of Henan Province and has a population of ~10m, over twice the population of LA, and receives an average of over 11” of rain during July and August, so the population is used to a bit of flooding now and then.  That said, a few extra days of rain have led to devastating flash floods that caused 12 deaths and led to over 500 people being trapped in subway tunnels in and around the city after flood defenses were overwhelmed and water filled the tunnels.  24” of rain fell on Tuesday, with almost 8” in one hour, causing roads to close, airport traffic to end, and more permanent damage to roads in some areas.
 
Foxconn (2354.TT) has three factories in Zhengzhou, and while the company insists that there is no flooding in those locations, they do admit that some of the areas surrounding the factories have become impassable and emergency measures have been taken to maintain the safety of employees.  That said, the three factories account for roughly half of the assembly of iPhones, and while the factories themselves remain in operation, the ability to move materials and goods in and out of the plants is quite limited according to local press, increasing fears that there could be some delays in the iPhone 13 announcement or availability.  Some flights have been able to leave the Zhengzhou airport but most have been cancelled and some feeder roads have been damaged, but given the fact that it is still a bit early in the iPhone build cycle, unless the rain continues for many days, we expect the Apple iPhone release schedule will remain intact.

Since May when Samsung (005930.KS) released much of its Mini-LED/QD TV line, we have tracked model pricing.  This has given us insight into both the initial pricing and how that was received by consumers, and how Samsung has adjusted those prices to both try to stimulate sales and compete with offerings from other brands.  Earlier this month we posted what we thought were Samsung’s last round of price changes, which increased rather than decreased for the first time.  At that point we figured that Samsung had found a sweet spot for the Mini-LED/QD line and that prices would hold at that point at least for a while. 
We were wrong, and it looks like Samsung is still looking for the optimal price point for the line and has returned to reducing prices back to their lowest points, and some with first time discounts.   While this data is particular to Samsung TV pricing in the US, we expect a similar situation in other countries as Samsung searches for the right pricing.  We note that Samsung is now competing with LG Electronics (066570.KS) as we noted in our last update, and has always been competing with TCL (000100.CH), who was the first to offer Mini-TV sets, is on their 3rd iteration, and has been the low price leader in the space.
The pricing data reveals a number of points.

• 21 (63.6%) of the 33 models we track have seen discounts from their original price
• 16 (48.5%) of the 33 models we track are at their pricing low point, which implies 76.2% of those that have received a discount from their original price are at their low point.
• 1 (3.0%) of the 33 models we track is higher than its original price.
• All Mini-LED/QD models have received discounts.
• 11 (73.3%) of the 15 Mini-LED/QD models we track are at their lowest price points
• 5 (83.3%) of the 6 8K Mini-LED/QD models we track are at their lowest price points
• 6 (66.7%) of the 9 4K Mini-LED/QD models we track are at their lowest price points
• The average discount from original prices for the 8K Mini-LED/QD models is 14.3%
• The average discount from original prices for the 4K Mini-LED/QD models is 15.0%
• The average discount for models that are only 4K (no Mini-LED) are as follows:

            High-end  -0.7%
            Mid-price  -1.1%
            Low-price  -0.5%
 

• Among the Mini-LED/QD models discounts by size are as follows:

            85” -18.0%
            75” -14.9%
            65” -13.3%
            55” -14.6%
            50” -6.7%
Based on what we have seen so far, we expect the original Samsung Mini-LED/QD pricing premise was “Let’s start high and see what happens.”   Within a month of what was a relatively limited release in the US, Samsung began to discount selected models every two to three weeks.  While a few models saw price drop earlier this month, many that had been discounted, some a number of times, saw modest price increases.  This led us to the conclusion that Samsung had found a spot where volumes met their expectations and were testing the waters to see if they had any leeway to push Mini-LED/QD set prices up a bit.  We expect that the introduction of LG’s Mini-LED/QD line changed the picture, giving consumer a choice, which in both 8K and 4K Mini-LED/QD models was equal to or lower than Samsung’s models.
 
Logically, Samsung needs to better compete with LG’s offerings and therefore seems to have returned to discounting to find a more competitive level.  Given that the cost of the Mini-LED backlight modules is still a large variable given the relatively low unit volumes, we expect there is  considerable play in Mini-LED/QD set margins, allowing Samsung to continue to adjust pricing.  While we expect retailers are passing weekly sales data to Samsung, along with sales data from its own website, we are surprised that pricing has varied as much as it has, and when compared to Samsung’s recent QD only offerings, which have seen no discounting in most cases, and a single round of small discounts in others, the number of discounts in such a short period of time for the Mini-LED lines seem to indicate that Samsung is still chumming the waters until it gets a bigger bite.    

​Spain’s Organizacion de Consumidores y Usuarios has contacted Apple (AAPL) concerning claims that Apple is slowing down performance of the iPhone 12 to encourage users to upgrade to the yet-to-be-released iPhone 13.  While this is not the first time Apple has been accused of slowing down older phones, it seems the organization is asking for compensation for iPhone 12, iPhone 11, iPhone 8, and iPhone XS users that have allegedly seem slower operation and poor battery life since upgrading to iOS 14.5.  The OCU claims that iOS 14.5, 14.51 and 14.6 updates have “significantly damaged consumer devices”, slowing down performance, and causing the battery to run out faster, and cited class action suits in Belgium, Spain, Italy, and Portugal in reference to the iPhone 6 as a point to Apple’s obsolescence practices.
A number of other European organizations have joined the OCU chorus, some of which are the parties in the earlier iPhone 6 lawsuit, which came after three years of waiting for Apple to respond to its request for consumer compensation, but it is hard to ‘prove’ that Apple has intentionally caused its older devices to perform more poorly when most software updates, which  usually add functionality to newer phones, can cause older phones, with older hardware, to perform at less than original speeds.  Smartphone batteries also degrade over time, reducing their ability to provide the higher power spikes needed for newer functions, making it hard to isolate whether an OS upgrade has intentional negative connotations for older iPhone models.
That said, Apple did a bad thing in 2017 when it neglected to mention to consumers that a small app called ‘Powerd’ it downloaded to existing iPhones, to act as a fail-safe for older lithium-ion batteries that could cause the phones to randomly shut down in order to protect components.  The app did as it was intended by slowing the processor to compensate for the weaker battery, but once it was discovered, it lit a fire under those who had suspected that Apple had been building in ‘planned obsolescence’ for many years.   While Apple’s intent was to end complaints that older iPhones had been randomly shutting down with considerable battery power still showing, they neglected telling their user base about the app and suffered the poor marketing experience of ‘batterygate’. 
Apple wound up paying $140m in fines and settlements in the US, $5m in France and Italy, and $500m in Canada, although none of the lawsuits resulted in the conclusion that Apple had intentionally harmed consumers, just that it did not tell them it was doing something that might affect performance.  Again, the burden of proof will be on the accusers, who believe Apple has already begun its plan to push older model iPhone users to the next generation of iPhones due out later this year., and while thus far these consumer organizations have only contacted Apple with their demands, the objective will likely be to bring action against the company if it does not respond to such demands for compensation.  It’s a hard case to prove, and a complex one to explain to a judge and jury, but we know the real winners in a conflict like this, the lawyers, who took a $93m chunk of that $500m settlement back in the day.

In terms of overall semiconductor wafer capacity, Taiwan is the leader and has been for many years (Fig. 1), although Korea is a close second.  Based on Fig. 2, it looks like capacity has remained fairly static over the last three years, although we believe that the data depicted in Fig. 2 is a bit deceptive.  If we break down the regional growth rates for each region from 2018 tom 2020, it looks anything but static, with the overall industry wafer capacity growing 10.1% during the period and all regions showing positive wafer capacity growth.  The table below gives a better understanding of wafer capacity growth on a regional basis, with almost all of the growth coming from China, up 34.9% over the period.  Without China global capacity growth would have been 6.6%.

Going one step further, while the revenue growth rates for a number of Chinese semiconductor companies are above the industry capacity growth rate, sustaining those growth rates means both continued funding from either the government or China’s capital markets, as the US seems to be on a course to limit their exposure to US financial markets, and an increasing share of the global market , with the latter being the most problematic.  As the cost of producing products in China continues to increase and other Southeast Asian countries offer similar or greater incentives, it becomes more difficult for China to attract attention in the global markets.  While those global companies that have production bases in China will look toward local semiconductor suppliers when possible, China needs to be a semiconductor producer on par with other leaders and that has yet to happen.
When looking at China’s semiconductor producers, only one has a global share over 1%, and that company, HiSilicon (pvt) is an affiliate of Huawei (pvt), a prime target of US trade sanctions against China., keeping it essentially out of the global market.  While most of the other larger semiconductor suppliers in China do not fall under the US trade sanction guidelines, they need to maintain very high growth rates to push China’s overall global revenue share further, while others outside of China are doing the same.  There are those that expect China to displace Korea in the number 2 spot within the next 4 years, and while there is certainly growth in China’s semiconductor market and its global reach, we are in the midst of a semiconductor ‘up’ cycle, which has helped to move China’s semiconductor industry a bit faster than what might be normal.  What happens after this cycle is over could push out China’s ability to capture revenue share, despite increasing wafer capacity, and make that target a bit harder to reach, and as a few Chinese semiconductor companies have found out over the last few years, throwing money at a problem does not always result in success.