​According to sources in Korea, Samsung Display (pvt) has upped its targets for OLED notebook panel production by between 37.5% and 50% for this year as overall notebook demand has been higher than expected due to COVID-19 and the gaming market continues to demand higher quality displays, such as OLED.  As we noted last month, Samsung Display is undergoing a number of capacity shifts, particularly at a new OLED line (A4E) that seems to be ahead of schedule, while currently producing larger OLED panels at its A2 fab.  Given the potential for additional production and the notebook/gaming demand, SDC seems more comfortable with higher targets.
Samsung Display’s previous target for OLED notebook panels had been 4m units this year but based on its expected shipment schedule, which currently accounts for between 4.2m and 4.6m units, the company believes they will be able to push that to between 5.5m and 6m units.  These are aggressive targets although estimates that over 37% (y/y) more OLED notebook panels were shipped in 1Q, has likely given SDC a bit more confidence in the new targets, but OLED notebooks are still relatively new and while the premiums for OLED notebooks over LCDs are less than we would have expected at this relatively early stage in their development (see our 5/20/21 note for details), sell-through in 2H is the key to bringing shipments up to those targets.  The good news for notebook brands is that OLED notebooks represent less than 2% of units for most brands, while OLED notebook penetration for Asus (2357.TT) and Samsung Electronics (005930.KS) are expected higher than average this year, leaving lots of room to grow the category, with most estimates for OLED notebook unit volume below SDC’s new target.

Smartphones are handy gadgets and while the value of being connected 24/7 is debatable, such devices have become increasingly sophisticated over the last few years with multiple cameras that compete with SLRs,and TOF sensors that can map surroundings and give users the option to modify or add images to a video in real-time.  These are handy things to have if you are taking pictures for National Geographic or getting a good look at the QAnon Shaman, but the necessity for having five high quality cameras on your smartphone seems a bit over overkill for taking the usual selfie shots of your friends making goofy faces or of what you are having for dinner.

However a recent WIPO patent application made by Chinese smartphone brand Vivo (pvt), seems to take the camera concept even further by including a detachable camera drone that can lift off from the phone and is able to take pictures from angles not possible using a camera mounted on the phone. While the patent application suggests a number of variations including a 2nd camera on the ‘drone’ and a TOF type sensor, adding the capability for distance measurement and effects, along with proximity sensors to keep the drone from collisions with other flying objects, the details on how the drone is controlled or how data is stored or transferred are not quite available. 
However a lack of details has not kept some from producing a mock-up and video of such a product and projecting a 5cm x 5cm x 1cm size, allowing it to be completely hidden inside of the smartphone when not in use.  Of course no reference is made to where the phones electronics might have to go in order to create room for the drone, which, using a typical 6.8” smartphone, would take up ~20% of the space normally allocated to the phone’s innards, or how long the drone battery might last, but not to be a downer, here’s the rendering video: https://youtu.be/gK7nWwoAfRQ
This is really a device concept patent, which is presented to keep others from trying to use the ‘flying camera’ concept in a smartphone without a license from Vivo and will likely never see mass production for a number of reasons, primarily as we expect the market for such devices would be rather small.  However Vivo has shown a smartphone ‘concept phone’ that has a detachable camera, a progressive idea taken from those smartphones that have pop-up cameras, and smartphone brands are always looking for ways to garner media attention so we have learned never to say ‘never’ when it comes to smartphone features.  Looking forward to the days when we can zoom in on what the neighbors are having for dinner.

​The Board of Directors has approved a plan to add 30,000 sheets/month of capacity to Hannstar’s (6116.TT) Gen 5.5 fab in Tainan, Taiwan.  The fab, which currently has capacity for 140,000 sheets/month is Hannstar’s only fab, which produces primarily small to medium panels for smartphones, tablets, automotive, and industrial applications.  While this is a relative small project considering the global scope of small panel LCD production, it is the first time Hannstar has added capacity since they began LCD production in 2005 and represents a 23.1% increase in capacity when completed.
The project is expected to cost a bit over $600m and will be self-funded, with construction beginning this month.  While no specific completion date has been given we expect the fab to be open in 1Q 2023 and given that the current lines are what could be classified as Gen 5.3 (a bit smaller than typical Gen 5.5), rather than the more typical Gen 6 that is used for most small panel OLED production.  Hannstar will likely see less competition for TFT tools than might be the case if competing directly with OLED TFT expansion demand.
Hannstar is primarily a small panel producer with an emphasis on displays 10” or below, but over the last 18 months the company has been able to increase its production of larger panels, with some falling out of the small panel category into what would be large panel production.  Hannstar has been increasing the number of products between 10” and 19”, although most are 15.6” or less, with automotive and industrial displays being the biggest application for such panels.  Hannstar is looking to increase its production of larger panels to reduce its dependence on smartphone applications, which have seen less growth than IT (10”+) applications over the last 18 months.  While Hannstar’s large panel revenue has varied from ~$33m/month to $17m/month this year, likely driven by specific order flow, the company believes it has the ability to expand its IT panel customer base and generate more revenue through this capacity expansion.
While we understand Hannstar’s desire to reduce its dependence on smartphones and feature phones, the overarching question remains as to whether the expansion in IT products seen as a result of COVID-19 will remain as robust as it has been, and given that the new capacity will not come on line until 2023, will Hannstar be able to fill the new fab at  that timeHannstar be able to fill the new capacity at that time?    OLED has been a growing part of the small panel display market and while much of OLED’s impact has been with smartphones, the penetration of OLED into IT products has been increasing rapidly, with Samsung and Apple as the drivers.  There will always be a market for LCD displays below 25”, as industrial displays do not always need the higher specifications that OLED displays would bring, but there are some very viable small/medium sized competitors and as can be seen by examining Japan Display, a former leader in the small panel display field, that is struggling to remain viable after its primary customer, Apple, shifted iPhone displays from LCD to OLED.  After 15 years of facing the ups and downs of the small panel space, Hannstar is taking on a higher risk profile than in the past.

​Japan Display (6740.JP) has agreed to sell its KOE Taiwan based automotive module business to Taiwan based Wistron (3231.TT) for $72.2m (tentative) in order to reduce its fixed cost burden.  Japan Display will continue its manufacturing relationship with Wistron, who has been the company’s mobile display module manufacturer for over 10 years, and through the sale will now outsource the manufacturing of its automotive and industrial display products, although the design and sales of those products will still be done by JDI.  We believe JDI’s automotive business represented ~25% of sales in fiscal (March) 2021, with the company’s expectations for that to increase to over 40% in fiscal 2022.  As we believe JDI’s automotive design and sales business will remain with the company, that goal still seems within reach.
Wistron is a top 5 EMS that was spun off from Acer (2353.TT) and will easily absorb the JDI module business, continuing JDI’s plans to reduce fixed costs under the company’s 2020 restructuring plan.  That plan included the sale of its Hakusan LCD production plant to Sharp () and an ‘unnamed’ JDI customer (assumed to be Apple (AAPL)) for $675m last October, in order to push the company toward positive operating results, which it has not seen since 2014.

We have been tracking Samsung’s (005930.KS) new line of Mini-LED/QD TVs closely, with the goal of understanding how accurately Samsung priced the sets when pricing was first announced in May.  As we have noted previously, Samsung began a series of price reductions within a week of the release and has continued that trend, at least until now.  As we also noted, LG Electronics (066570.KS) released pricing on its cadre of Mini-LED/QD sets last week, which we believe gave Samsung a reference point from which to adjust set pricing again.  
In the case of Samsung’s 8K Mini-LED/QD sets, prices have now increased since our last check on 6/25 for all models other than one, the largest (85”) high-end model, which was also the only 8K Mini-LED/QD model that had not seen any price reduction from its initial price.  We would expect that Samsung was holding out as long as possible on the initial price until it had a comparable from LG, which came out at $6,500, 27.8% lower than Samsung’s price.  While Samsung has raised prices on most other 8K/4K Mini-LED sets currently, they dropped the price on the top of the line 8K 85” Mini-LED/QD set by $1,500 to $7,500, but still $1,000 above LG’s equivalent.  The other sets in Samsung’s 8K line, which consists of two 75” and two 65” models, have all seen price increases between 3.4% and 18.2% since our last check.  Whether Samsung is adjusting set price due to higher costs or to narrow the price gap between its 8K and LG’s 8K models is an unanswered question, but the trend has certainly changed.

All but two models in Samsung’s 4K Mini-LED/QD line have also seen price increases, ranging from 3.7% to 23.1% from our last check, which is a bit surprising given that they were equal to or slightly lower than LG’s equivalent 4K sets.  This would indicate that Samsung is taking into consideration the cost of LCD panels, which continues to rise, and is passing on that cost to consumers.  We expect that mini-LED production costs have declined a bit over the last few months but we are still in the relatively early stages of Mini-LED production and competition,, which will keep price pressure on Mini-LED backlight prices going forward.
As we have noted, we were surprised that Samsung priced its 8K and 4K Mini-LED/QD sets as high as they did in May, but lower pricing from LGE seems to have helped to push them toward more reasonable pricing.  That said, a more direct analysis of the Mini-LED/QD line vs. more standard backlight/QD models is needed to determine how much of a premium Samsung has baked into the Mini-LED line.  That said, the series of price reductions that Samsung undertook was likely to pull in as many sold units as possible before the end of the 2nd quarter so the company could use that as a talking point going forward.  We doubt they will give much granularity as to sales of the Mini-LED/QD line in the 2Q conference call, but any detail will help to map out price elasticity of the Mini-LED product.

​Samsung Electronics (005930.KS) has been a beneficiary of the increased demand for semiconductors that has pushed the space into shortages and a bit of panic buying.  As the global leader in DRAM production, Samsung should see the results of the increases seen in DRAM pricing in its 2Q results, and while the company will not give details until the full conference call later this month, Samsung released its preliminary sales and operating profit estimate last night.  The company reported sales of 63t won ($55.4b US) against consensus estimates of ~60t won and operating profit of 12.5t won ($10.99b US) against consensus of 11.3t won, which puts sales down ~3.7% q/q but up 18.9% y/y and operating profit up 33% q/q and up 53.4% y/y.
While Samsung does not give detail when it releases preliminary numbers, the general consensus is that the quarter saw a one-time gain from a ‘take-or-pay’ deal with Apple (AAPL) of ~500b won ($439.7m US) and that much of the strength in the quarter came from semiconductors, where DRAM prices rose 26.7% in 2Q, after a 5.3% increase in 1Q, leading to an expected 22% increase in operating profit for the segment.  Expectations for smartphones are less sanguine, with shipments down substantially from 1Q as Galaxy S21 sales slowed, and while y/y comparisons for Samsung Display (pvt) will show the reduction in SDC’s large panel production, we expect display to see positive results as panel prices rose through the quarter, albeit less for small panels where Samsung shines.  Details later this month.

​LG Electronics (066570.KS) also reported 2Q preliminary results of 17.11t won ($15.05b US) and operating profit of 1.11t won ($967.4m US), up 48.4% and 65.5% y/y respectively but down 3.9% and 37% q/q after a record 1Q..  Both were in line with consensus estimates.   The continued strength at LGE is expected to have come from both the appliance business and the TV space, where increasing OLED TV sales and higher LCD TV prices have helped to narrow the gap between the two.  As the company has closed its mobile division, 2nd quarter results will see that as a discontinued operation and 1Q results will be adjusted to reflect same.  Details from the company later this month.

Last night your iPhone stopped working.  It goes on but the screen is a series of lines that jump around in no discernable pattern.  Now cut off from social media you borrow your girlfriend’s phone to find the closest repair shop and head into town to get it fixed.  When you get there a guy with a pair of microscope-like glasses comes out of the back room at takes a quick look at your phone.  “Can’t help you chief, that’s an iPhone.  You have to take it to Apple.”  You ask him where the closest Apple repair store might be and get, “Don’t know boss, you might try looking it up on your iPhone,” laughs and walks back to the ‘private’ area in the back.
Apple does not let just anybody work on iPhones, and along with a number of prominent farm equipment companies, game console companies, and a host of others, it can be near impossible to get certain items repaired without using a company repair location.  This was even the case for car repairs until 2013 when Massachusetts passed a ‘right-to-repair’ law that was eventually adopted by car manufacturers, who had been allowing only their own repair shops access to diagnostic and similar tools.
There have been some improvements, such as Apple’s reversal of a very unpopular mandate that stated that any DIY repairs would void the warranty, although that still left the user to order the parts and hope that they were able to make the repair themselves.  However, if you are not that handy and actually need to bring your iPhone to an Apple store for repair, it might not be as easy as you think.  While California has 54 Apple retail stores and New York 22, Alaska,  Arkansas, Delaware, Idaho, Iowa, Kansas, Maine, Mississippi, , Nebraska, New Mexico, and Rhode Island, have but one in the state, and six states have none, so visiting an Apple store to get your iPhone looked at could be a bit of a haul.
Apple does offer various replace or repair functions that would require no transportation, but under relatively strict rules that allow them to make all decisions as to under what venue the repairs are made , and of course, there is a bit of a delay with most,  in that if you don’t still have the original box you will have to wait until Apple sends you one with a shipping label, at which point you take the phone to your local UPS or Fedex store, ship it to Apple, wait for the notice about the cost to repair, authorize the repair, and wait for the repaired phone to be returned.  Apple has for years insisted that the limited repair options are to protect the consumer from repairs done by inexperienced repair personnel or from inferior parts, which is a valid point, however, since you have already paid Apple for the phone, shouldn’t it be your decision as to where and who repairs your iPhone?
If President Biden gets his way, that could be the case, as word that the White House is preparing an executive order that will mandate the FTC to draft new legislation that will ‘give consumers the right to repair or use independents’ to repair products.  While the legislation is aimed toward companies like Caterpillar (CAT) or Deere (DE) that tacitly force farmers to use company repair depots by limiting diagnostic tools (they say its not true but surveys disagree) or companies like Nintendo (7974.JP) that do not supply certain parts (joysticks, etc.) to outside repair shops, it is expected that the legislation will also mention phones, which will potentially be the first ‘right-to-repair’ mandate supported by a President.
Should such an executive order be signed, it would be in addition to state-by-state rules, most of which have little real influence over the industry, but we can be assured that Apple and others will be spending lots of dollars lobbying to keep any potential congressional legislation from limiting their repair monopoly, with potential scare tactics that have been used in the past, such as citing claims that it could be easier for criminals to perform cyber-attacks if unauthorized repairs are made, although no proof of such a claim has ever been given.  In the long run it’s a losing battle for companies that limit repair options, but even with the potential for a rallying cry behind and EO, it’s not going to be an easy encounter, so for the time being pack those sandwiches and thermos, because the trip from Spokane to Boise is 6 ½ hours..

Coming out of the worst part of the global COVID-19 pandemic has not been easy and not nearly as predictable as most thought.  What was thought to be the peak in global cases early this year and the quick decline that followed was the hope that the global population needed to gain some perspective on how long the disease related social restrictions might last, however a 2nd ramp up that peaked in late April seems to have validated the concept of ‘waves’, which led some to the expectation that additional waves are possible and likely.  The initial ramp toward the first wave was met with hard restrictions on travel and social distancing that changed the way  the global population interacted and set a tone for what has been described as a new social order, while the 2nd wave seems to have been less restrictive, with more push to return to a more ‘normal’ social structure.  Having spent many years looking at cyclicality across a number of industries, we see the rise and fall of this disease as cycles and expect the pattern to continue.

That said, during each of these cycles, the effects of the virus on global social culture was profound and changed the way vast numbers of people performed their jobs.  The quarantines that were a result of the rising side of each cycle forced many to work in isolation, generating significant demand for CE products that either made such work possible, such as laptops and PCs, or provided entertainment during those periods when what would have been more normal social interaction would have been restricted.  While part of the global workforce huddled in their homes and wore PJs during Zoom meetings, those that provided the necessary equipment to allow that change in social culture continued to work.  At the onset of the first wave, not all workers were able or wanted to expose themselves to a factory environment and staff shortages led to component shortages that began to spread across the CE space, but even when the first wave subsided, businesses saw this social change as something more permanent, rather than something that was a result of a ‘forced’ situation.
Buyers were given strict orders to make sure that components were available so demand could be met and cost became secondary and even though the first wave quickly trended down, the CE supply chain did not deviate from its objective of amassing inventory to fill the needs of this new, less mobile population.  This proved correct as the second wave hit, and even with factory staffing closer to normal levels, components remained in short supply, particularly in those industries that have a high new capacity cost.  As the second wave began to ebb, mangers were now convinced that the concept of inventory at all cost was correct and component shortages continued triggering more price increases.
But now, something has changed.  Rather than the gleeful enthusiasm that has been the watchword of many in the CE supply chain and the daily talk of product delivery dates in 2022, we hear more that ‘while prices will rise in 3Q, the rate of increase will be lower’, or ‘we expect component shortages to ease in 2H’, or even a bit of hesitancy to build inventory as we head toward the holiday season.  These are anecdotal points, and not shared by every point in the CE supply chain, but for the first time since last year, we see some businesses beginning to question the need to continue to pay up for components.
Whether this is a natural course of events for a cyclical industry or whether just a pause in a very intense cycle is hard to tell, and not everyone echoes these thoughts.  Some continue to whistle past the graveyard and believe that this unusual circumstance is the new norm, while others are at least working with a bit more caution than in past quarters, especially those that have seen a leveling off of consumer demand, such as in the TV or smartphone markets.  But regardless of the reasoning, we have noticed the change, which we would categorize as an attitude more reflective of reality, rather than one that has been akin to sprinting without knowing how far away the finish line is.
Don’t get us wrong.  We do not think that the CE supply chain has abandon all hope and is awaiting the next rise of Aion (who is the Greek god of cyclicality or unbounded time, Alec), but caution and a conservative approach has not been in the CE dialect for about a year, and with the first few bits of restraint beginning to appear, we thought it notable.  The only thing that worries us has been the lack of the usual, ‘but this time it’s different’ that usually comes right before a down cycle, but perhaps we just didn’t hear it.

OLED TV set sales are growing and estimates for the number of OLED TV sets and panels have been increasing.  There has been much said about why expectations are increasing for OLED TV sets and panels this year, but it is all based on math.  We make the assumption that demand for OLED TV panels is, and has been for most periods, is sufficient to utilize 100% of the panels that are produced, with LG Display (LPL) being the de facto leader in the space.  Estimates for OLED TV set shipments in 2020 are ~3.65m units, and while we have seen set estimates for this year increase from 5.8m to 6.1m this year, does the math add up?
Based on our estimate for capacity growth at LG Display this year, which we set at 50.3%, that would push LGD’s panel capacity from last year’s 3.65m to 5.485m this year, so where do the other 615,000 sets come from based on external estimates?  Some of that comes from higher yield, which LGD is able to achieve just from building experience, particularly at the company’s newest OLED TV fab in Guangzhou, China, but that would not likely account for all of the increase, so we have to look elsewhere. 
Typically LGD had offered OLED TV panel sizes of 55”, 65”, and 77”, but began offering 48” panels late last year and now also offers 42” panels, and by using a production process called MMG (Multi-mode glass) not only can LGD increase substrate efficiency, but can produce 48” panels at the same time as larger sizes.  Given that smaller panel sizes should be able to produce less expensive TVs, it is logical to expect that once the smaller sizes are made widely available OLED TV set manufacturers will see higher unit volumes as the smaller sets become more popular.  There is an offset however, which is the increasing average size of OLED TVs, which is helped by a generally lower price as LGD’s production become more efficient, but the table below shows that for each smaller panel size LGD should be able to produce ~30% more units.
Of course fabs don’t run according to such tables as the number of units cut from a particular size substrate does not equate to 100% efficiency, nor does the fab completely dictate the size of units being made available to customers, but there is some give and play between what the fab ‘wants’ to produce to be more profitable, and what the customer believes they can sell most profitably.  However by adjusting the mix between larger and smaller sizes the number of units can be changed significantly, with (even without MMG) two less 77” panels produced allows for eight 48” panels to be produced, making up what would be ~50,000 panels each month this year to reach updated estimates.  We are not saying that LGD is making such a change, but pointing out how sensitive the panel mix is to unit volumes and how easily relatively small changes can influence volumes. 
While the math behind panel estimates is relatively simple and tends to be primarily based on capacity, as long as demand remains at or above capacity the math holds true, and in the case of OLED TV panels, while they sell at a premium to LCD TV panels, the rapid increases seen in LCD TV panels has narrowed the gap, which should give OLED TV demand a continuing boost, along with the smaller and less costly offerings.  Smaller panels bigger unit numbers. 

​FWA or Fixed Wireless Access has been promoted as a viable way for areas that have little or no access to copper, coax, or fiber services, but this stepchild of hard-wired connectivity is beginning to come out of its shell and is now being examined, deployed, and promoted as not just a fix for areas where wired service is poor or non-existent, but as a stand-alone service that can replace those hard-wired services.  Both 4G (LTE) and 5G are part of those offerings, and both residential and commercial customers are now being pursued by operators that are promoting FWA as the main connection point to a home or business, rather than an alternative to other broadband technologies or to none at all.
According to GSA there are over 460 operators globally that are investing in, acquiring licenses, developing pilot projects, or deploying FWA services, with 436 operators in 171 countries offering FWA services, or over half of all operators with commercial 4G or 5G networks.  To be realistic, most (429 in 169 countries) are offering FWA using LTE (4G), however 63 operators are also offering 5G FWA, up from 44 at the end of last year.  Europe has the most 5G FWA offerings (and also the most LTE FWA, with Eastern Europe alone having 41 4G/5G operators that are offering FWA, which is the same number as  all of North America, and when adding all four regions of Europe, the total is 134 operators, while Asia (all regions) sees only 54 FWA operators, a surprisingly low number.
One area where things get a bit hazy for FWA however is service cost.  Most FWA service plans are based on volume, for both 4G and 5G, but more recently, services based on speed have been gaining some momentum., although this is more common with 5G services, increasing at ~ 30% over the last six months according to GSA, but many offer ‘unlimited’ usage to attract customers.  Unfortunately many of these service plans do contain limitations, usually by limiting speed after a volume threshold is reached, but there are still 92 operators offering truly unlimited 4G services and 18 offering 5G services with no caps or limitations, although not surprisingly the number of 5G unlimited plans has decreased over the last six months while the number of unlimited 4G plans has increased.
Another hazy area for FWA is speed.  As noted there are both 4G and 5G FWA networks, with inherently different speeds, but there is little clarity when it comes to what actual FWA network performance will look like to the end user.  Given the number of factors that might come into play concerning parameters that might affect overall network speed for both 4G and 5G, there is a bit of leeway here, but just for 4G FWA operators have promoted network speeds of anywhere from 2 Mbs to over 1.7 Gbs, while tests have indicated that the average 4G FWA network operated at a download speed of 96 Mbs, up slightly from 93 Mbs six months ago.  5G quotations from operators range from 20 Mbs to 4.3 Gbs, although about half are promoting download speeds of 250 Mbs to 1.5 Gbs, with the average tested speed being 658 Mbs, up from 604 Mbs six months ago, but to the credit of operators, the average network speeds promoted this year are down from last year, not the speed itself, but the range, which means the operators are getting more realistic in their FWA service promotions.
One last area of question about FWA services is installation.  Outdoor antennae and equipment can be mounted on a roof or on a wall, while indoor CPE equipment can be located in the specific customer location, wherever the signal is the strongest (usually a window).  Outdoor installations usually need an engineer to set up antenna and CPE equipment, while indoor installs are usually done by the customer, lowering the cost and time associated with the installation considerably, and while customers are likely to choose the lower cost option, operators also offer far more indoor FWA CPE options, now about 2 to 1 overall, and 1.5 to 1 for 5G, which is more sensitive to source direction of blockage, as the outdoor option needs more company support.
All in, FWA is becoming a real service that can compete with hard-wired services in many locations.  With both 4G and 5G FWA CPE equipment available 56 sources, up from 31 last November, and 9 in November 2019, there is a rapidly developing ecosystem for FWA as a way to distribute high speed broadband across a commercial enterprise of a residential home., and as 5G, both mid-band and mmWave deployment continue, we expect FWA will become a more common service plan for those looking to enhance their network connectivity.   While there are a few ‘hazy’ spots in the deployment of FWA, broadband has never been without same, and with the level of completion already seen between operators and equipment vendors for 5G, we expect FWA will make meaningful gains this year and more so in 2022 as more spectrum is released on a global basis.  Names like Insego (INSG), MeiG (002881.CH), and Casa Systems (CASA) will get some of the press that more well-known FWA CPE suppliers like Huawei (pvt) and ZTE (000063.CH) might normally get.