Streetlights are ubiquitous, with close to 30m in the US alone and an estimated ~325m across the globe, and while some have been converted to energy saving LEDs and an even smaller percentage have begun to include other services such as cameras for traffic or pedestrian control, they consume considerable energy, space and maintenance, while doing little other than providing a safer walking or driving corridor.  We have noted previously that 5G base stations or repeaters can be installed on such poles, giving carriers a less expensive way to deploy the higher base station count needed for 5G and giving municipalities a potential offset to the cost of powering and maintaining those poles.
Most modern light poles include a photocell sensor to automate the lighting which goes toward reducing cost, but despite the massive number of light poles and their concentration in populated areas, they remain low function devices.  What makes light poles a focus for additional services is the fact that they are all powered, giving add-ons the ability to use that power without the additional cost of running additional power to other external devices, as has been the case for video cameras and similar devices, but it seems one new company is interested in bundling lots of stuff into a relatively small package that is easily installed on existing light poles.
Ubicquia (pvt), a Florida-based start-up has bundled a variety of devices into a single package that attaches to existing streetlights in minutes, giving each the ability to provide Wi-Fi, Directional Microphones, Dual 4K Cameras with 16 days of video storage, and an 8 core AI processor, and a PoE (Power over Ethernet) port for additional applications.  The Wi-Fi 6 access point can be used to provide access to the public or city employees and can be meshed by using a backhaul connection, while the cameras can stream traffic and pedestrian images with the microphones used to gather noise levels, speeding cars, or gunshot noise through the company’s platform management system, which controls all functions and data.  As the platform itself installs through the light pole photocell input, the cost of installation relative to adding individual devices or a dedicated pole is said to be 40% lower (unconfirmed), with compatibility (again unconfirmed) with 360m streetlights.
While street poles have always been financial burdens to towns and cities, increasingly so as cameras become more a part of daily life, the need for carriers to deploy additional base stations for 5G and eventually for 6G give new life to street poles, and will allow governments to provide additional services , partially funded by carriers.  The cost of adding such services through modular systems such as the one described above make it worthwhile and cost effective for adding those services which can benefit the public in numerous ways, particularly by reducing traffic and preventing or solving crime.  While there will always be questions of personal security, light poles and cameras are already so enmeshed into society that unless they are used for quasi-legal purposes, they seem to be accepted by the general population, and as less of a cost burden local governments can expand their use without a heavy cost.

​Note: SCMR LLC is in no way associated, has investments in, or receives any compensation from companies mentioned herein, and while we might speak to management about the company or products, we make decisions about the content of our notes based on our desire to present informational and interesting topics and commentary on consumer electronics, companies, and products.

As we have noted, TV brands have cut orders in order to reduce excessive inventory levels, particularly as inflation reduces consumer demand.  While tracking the price of the hundreds of TV models available to consumers, we have been tracking the pricing of Samsung’s (005930.KS) Mini-LED/QD TV lines both this year and last year in order to see how Samsung reacts to seasonality, macro events, and inventory management.  As the TV sets in this line encompass prices ranging from $15,000 to $450, it gives an indication as to the general tone of premium to mid-range TV pricing.  While we don’t check pricing on a set schedule, as holidays and events play an important part in TV pricing, most of the intervals are between 3 and 4 weeks so charts look relatively normal, and our data today is just over 1 month from our last check.
Discounting to move inventory was not Samsung’s theme over the last month, as on an overall basis prices on all 2022 Mini-LED/QD and QD only models increased by 1.8%, while 2021 models saw a 2.0% increase.  2022 8K models saw an unusual price increase of 7.0%, after a drop to their lowest price point last month, while last year’s 8K models saw little change.  2022 4K Mini/QD models saw a 3.0% price increase with 2021 models jumping 5.7% and this year’s QD only sets saw a 2.1% price decrease (the only category that saw a decrease), while last year’s QD only sets saw a small (0.2%) price increase.  8 of this year’s models were at their lowest price of the year while 2 were at their highest, while 16 of last year’s models were at their lowest price and 4 at their highest.
All in, we expect Samsung was more concerned with margins than moving inventory during the last few weeks, albeit contrary to expectations, and pushed prices back up to previous levels after a short July 4 discounting period.  Figure 1 shows the four general categories across the line and how 2021 and 2022 pricing has changed, while Figure 2 shifts the 2022 models back in time to compare new model price changes to the same time period last year, which shows how 2022 model pricing has progressed relative to last year.  We note that 2022 4K Mini-LED/QD pricing includes 4 models that did not exist in the 2021 line, making average set pricing higher this year although the price pattern is similar.

​Five large Chinese companies have indicated that they would begin delisting procedures to remove their shares from the New York Stock Exchange, tacitly over disputes with the SEC over audit information that has been ongoing.  While the China Securities Regulatory Commission has stated that the choice to delist was based on each company’s own business decisions, they have all complied with the rules and regulatory requirements in US capital markets, although the agency also indicated that it was keeping channels open with ‘relevant overseas regulatory agencies”, indicating that there is some ongoing dialog.  Given the increased tension between the US and China in recent weeks, the timing does seem a bit pointed.
The companies involved, Sinopec (600028.CH), China Life (601628.CH), Chalco (601600.CH), PetroChina (601857.CH), and Sinopec Shanghai Petrochemical (600688.CH) will begin the ADR delisting process this month with some maintaining Hong Kong and Chinese exchange listing.  As we have previously noted China Mobile (941.HK), China Unicom (762.HK), and China Telecom (728.HK) were delisted last year based on a previous administration’s administrative order “Addressing the Threat from Securities Investments That Finance Communist Chinese Military Companies” that was left intact by the Biden administration, which was separate from the audit conflict that is the root of the current delistings. 
Pundits are split on whether this would help or hurt the prospects for a deal that might satisfy the US audit rules, but it seems that the current environment is not one under which China is going to be making many concessions, especially if it means opening up books that might reveal connections that could spur further anti-China sentiment as we head into the November elections.  So far no Chinese CE companies have been forced to or voluntarily delist, but the HFCAA (The Holding Foreign Companies Accountable Act) , which contains the rules in contention has implications for a number of Chinese CE companies and the new delisting announcements only add to the tension.
 
 

​LG Display is the world’s only supplier of OLED panels for TVs and has set the tone for large panel OLED products, offering WOLED displays from 97” down to 42”, with flexible, rollable and transparent offering across many of those sizes.  LGD’s TV OLED displays are based on technology that uses a substrate coated with yellow/green and blue OLED materials that produce a white light which passes through a color filter that consists of red, green, and blue phosphors that convert the white light to the colors necessary to produce highly color accurate images.  While this differs from smaller OLED displays that pattern red, green, and blue OLED emitters and do not need a color filter, limitations on the size of RGB OLED displays keeps the technologies from overlapping and given LGD’s experience in producing large panel OLED displays, the competition in the large panel space is limited.
Gamers push the display envelope, looking for larger, faster and more accurate displays, and OLED displays for gaming and monitors have become increasingly popular but at these smaller sizes, the choice of OLED technologies becomes more difficult and with Samsung Display’s QD/OLED the choices become even more complicated.  Small panel OLED producers are looking to find ways to bypass the size limitations of RGB OLED displays while LGD is looking to reduce the size of its displays to further feed the gaming market while still using existing OLED resources.  To that end LGD has indicated that it will introduce a 20” OLED display by the end of this year, which we assume will utilize its WOLED technology, while it works toward the commercialization of an RGB OLED process that is feasible for such panel sizes.  Samsung Display and others are looking to also find ways to bypass the RGB size restrictions to feed such demand but those projects are in the development stage, leaving LG Display’s smaller OLED panel size seeing only minor competition from ink-jet printed panels from JOLED (pvt), which seem to be produced in relatively small quantities.
If LGD is able to produce 20” or 21.5” displays under it current WOLED process it would have an efficiency advantage over those OLED producers that use Gen 6 fab lines as LGD’s large panel OLED lines are based on Gen 8.5.  Not only does this give LGD the ability to produce between 35 (21.5”) and 40 (20”) panels on a single substrate vs. 18 and 21 on a Gen 6 line, giving economies of scale, but also increases the substrate efficiency (the used substrate/total substrate size) from 85% to 93%, and while this doesn’t seem like a big advantage, when multiplied by hundreds of thousands or millions of units, it adds up.
LGD has also indicated that it is working with a customer to design a flexible gaming panel with a curvature that can be adjusted by the user.  This would allow a gamer to adapt the OLED display to the needs of particular games, some of which require extreme focus on the center of the display while others need more peripheral viewing, which would be enhanced by a tighter curvature.  LGD was quick to point out that its WOLED displays, which are based on a single substrate, would be able to provide such a function, while SDC’s QD/OLED displays, which are based on two substrates (OLED and quantum dots) would not.
All in, LGD continues to squeeze as much as possible out of its investment in WOLED which has given it the ability to maintain the massive lead it has in large panel OLED display production, and anything that extends those capabilities should be a plus, but we expect as sizes get down to around 20” the competition from small panel OLED producers will become intense, even if they are less efficient, and by the end of 2023 we expect there will be at least some Gen 8.5 RGB OLED capacity that will compete directly with LGD in that panel size category.  Grab the ring as soon as possible as new contenders are waiting in the wings…

As analysts we always look for anecdotal evidence that what we feel is true is actually a valid hypothesis, but most times that evidence is hard to come by…and other times it’s not.   Given our longstanding experience with the CE and display space we tend to get a feeling that something is going to happen before it actually does, and while we are certainly wrong (on occasion) or misjudge timing, having closely followed the display space for over 18 years gives us some sense of intuition about how things will play out.  While the industry bemoans about how deeply it had to cut utilization to try to manage inventories and keep panel prices from dipping so far below cash costs that it was not worth turning the power on, we saw this issue as the potential solution to the very problems the industry had created for itself.
The necessity for lower utilization rates at panel producers, be it LCD or OLED, is a function of the classic imbalance between capacity and demand, and while there are many ways in which demand can be influenced, supply/capacity, especially in the display space, where greenfield capacity has a high capital cost and process equipment has long lead times, needs years to plan and complete, which means panel producers must anticipate industry and macro conditions years in advance.  Such advanced planning is fraught with influences that color panel producer views and complicate the process further and such can push a short-term or long-term roadmap toward a postponement or eventual cancellation, or worse, an idle or under used facility.
The threat of competition is certainly one ‘influencer’ in the capacity decision making process, but there is competition in every business.  In the case of the display business however there is another kind of competition that we believe is, and has been, a major factor in exaggerating the cyclical nature of the panel business, and that is political nationalism (aka ‘polinat’ – you heard it here first ☺).  Under our definition, polinat is the influence of politics in a country’s desire to be recognized globally, which puts the government’s necessity to gain global acceptance above that of the populous and can be a significant influence on a country’s economic and business outlook, depending on the political system.  Over the last 12+ years the Chinese government has had a significant influence on the display space through government sponsored funding of display capacity, which was readily accepted by panel producers.
The plentiful funding, which typically comes from provincial or city owned entities, has allowed Chinese panel producers to expand capacity at an unprecedented rate, which in many cases had little to do with supply/demand and more to do with a desire to cement China’s place in an industry that has previously been dominated by other Asian competitors.  Underlying this political nationalism has been good old company rivalry between Chinese panel producers themselves, which has served to aggravate the situation.  The Chinese display industry has been focused on chasing market share since its inception and now is the dominant force in the LCD display space, and has built out very significant capacity under the assumption that the LCD display business will continue to grow, with China the dominant force behind that growth. 
This enthusiastic capacity expansion was reinforced during the COVID-19 pandemic, as panel prices rose under unusual demand circumstances and most panel producers became profitable.  This positive justification led to further expansion planning under the assumption that we were living in a ‘new’ demand environment and funding continued, even after panel prices began to deteriorate in July of last year, and while TV panels pricing declined rapidly, panel producers continued to justify those expansion plans citing the mantra that IT panel pricing (monitors, notebooks, and tablets) remained strong.  Unfortunately that IT panel price stability was not sustainable given the fact that most panel producers shifted capacity from TV panel production to IT panel production as TV panel prices deteriorated, which caused IT panel prices to deteriorate, especially as demand weakened.
Little has been said during the 1st half of this year about previously announced expansion plans, but we expect much has been said internally and most recently a trip by the chairman of TCL (000100.CH) the owner of China’s 2nd largest panel producer Chinastar (pvt), visited South Korea to meet with Korean equipment suppliers to discuss ‘the current state of the industry’.  According to the South Korean trade press, those discussion were focused around the TCL chairman explaining to equipment suppliers that delayed payments and timeline pushbacks were the result of the overall weakness in the display market and to discuss the feasibility of changing the format of some of the equipment from small panel OLED (Gen 6) to Gen 8 in order to move more toward the production of IT OLED panels and away from those for smartphones.
Equipment producers were told that Chinastar’s T5 Gen 6 LCD fab in Wuhan that TCL announced late last year would be expanded, has delayed the expansion until 2023 and the company’s T9 Gen 8.6 LCD fab project in Guangzhou will also be postponed for 6 months, apologizing for the delay in progress payments.  This is a sensitive subject for South Korean equipment suppliers as we mentioned in notes on 12/29/20 and 6/1/21, as a company known as Jiangxi Infintech Optoelectronics (defunct) has ordered roughly $77m from a number of South Korean suppliers for a $3.5b mixed use LCD/OLED Gen 6 fab it was planning to build in 2018.  After multiple delivery pushouts and little, if any payments, the company’s management abandon the project and left the country leaving South Korean equipment vendors with raw materials and project expenses that were never paid and the expensive task of trying to recover funds through the Chinese courts.
TCL is lucky in that Samsung Display (pvt) has a 12.3% share in TCL, which it purchased when it sold its LCD fab in Suzhou to Chinastar in August 2020.  This gives TCL considerable credibility with Korean suppliers, but more importantly the delays in TCL’s display expansion projects are indicative of the theory that the idea that helter-skelter expansion might not be the only way to prove a country’s ability to compete in the world market, and that the concept of ‘If you build it they will come’ was a line form a movie and not necessarily a motivation for spending billions of dollars.  The continued expansion of LCD production capacity through 2023 and 2024 against a more moderate demand cycle was one that give us little hope for more than modest sales gains for the industry and as that philosophy spread to the OLED space, the same fate, out a few years further, was also inevitable, but a more rational view of capacity now seems to be starting to take hold with the TCL chairman’s trip a good omen.
That said, we still have to account for the political nationalism that exists in China which is exacerbated by anti-China political rhetoric in the US.  Historically capacity delays tend to disappear at the first sign of rising prices and while Samsung Display made the hard decision to exit the large panel display business years ago and LG Display (LPL) has been following a similar path, that decision seemed a very wise decision in 4Q 2019 and a terrible one in July 2021.  The underlying price competition from Chinese LCD producers that caused such decisions, a function of the Chinese desire to prove its global worth by dominating a space that had been controlled by it political and regional rivals, still exists and our concern is that while we take the TCL/Chinastar postponements as anecdotal evidence that there is potential for more rational display capacity expansion planning in China, changing a mindset is a difficult task that either takes a long time or is forced economically.  While we prefer the former and abhor the idea of an extended downturn in the display and CE space, sometimes it takes being hit over the head to figure out that you are the one doing the hitting.

We are very used to cyclicality as a way of life for products in the CE space and watch that cyclicality to indicate when product or component pricing begins to change momentum or direction to better understand the coming months, quarters, or years.  Semiconductors however seem to be less cyclical, with grow across the industry driving sales and device growth rather consistently over the last few years, and while consumers have been in an unusual environment since 2020 regarding the lifestyle changes that COVID-19 has forced on us, despite the continued spread of the virus, the world seems to be getting back to what might be considered a more ‘normal’ mode, albeit with a few leftover lifestyle anomalies. 
 
We have seen demand, artificially induced or otherwise, rise and fall for many CE product categories, over the last 2 1/2 years, with much of that reflected in pricing, but given the very specific capacity issues facing semiconductors, plus the expense and time it takes to add capacity, semiconductor sales have been growing steadily through much of the pandemic, as seen in Figure 1 and Figure 2, although in the most recent quarters, unit volumes have been decreasing from their peak last year as sales and ASP have flattened.  Based on expectations developed by WSTS (World Semiconductor Trade Statistics), a non-profit forecasting agency for the industry, 2H ‘2022 will grow another 15.1% y/y, pushing full year growth to 16.7%, down from last year’s 25.7%, but still a very strong year.
 
What might cause some concern is that the WSTS prediction for 2023 calls for y/y growth of 5.1%, the slowest growth since the pandemic began, and while this is still substantial growth for an industry that has grown rapidly during the last two years, we would assume that pricing will be more difficult to maintain in an environment where sales and unit growth have leveled off and will likely be more influenced by seasonal patterns than during the last two years, with ASPs a bit more volatile.  Our concern now is that expectations for the 2nd half of this year are a bit more optimistic than the overall global economy might be able to support, and if 2H results are weaker than expected, forecasts for 2023 will be lowered with the potential to slow capacity expansion projects.  Under such a scenario fab capacity estimate for 2024 – 2025 would likely be reduced, but we see such changes as positives for the semi space, given the potential for over-capacity in 2024 and beyond.  In the CE space it is a bit easier to see the trends as the industry is rarely capacity constrained for extended periods but the semi market seems to have become bifurcated once again, with certain products remaining in short supply while others see weakening demand, making it more difficult to spot macro trends, but we take what we can from the data thus far and look toward 3Q to better understand how weak CE demand will affect the semiconductor supply chain.
 

As always we look at panel sales as an indicator toward the health of the CE space given the relative high percentage of BOM that displays represent in most CE products, but much data on CE product shipments is gathered quarterly, we focus more on data that we can gather on a monthly basis in order to gain insight into the trends that will be affecting quarterly and yearly industry and company results.  While in the US and many other countries there is no requirement that companies report monthly sales to investors, there are such rules in Taiwan, which is the reason for our focus on Taiwan based panel producers AU Optronics (2409.TT), Innolux (3481.TT), and Hannstar (6116.TT), particularly AUO and Innolux, as they are both large panel producers, while Hannstar is primarily a small panel producer. 
AU Optronics reported July sales of NT$17.43b ($582.3m US), down 15.8% m/m and down 47.7% y/y against a 5 year July average of -0.5% m/m.  This continues the monthly downward trend which began in July of last year as seen in Figure 1.  AUO also reported shipment area of 1.3m m2, down 18.2% m/m and down 38.1% y/y, the lowest monthly shipment area since AUO began reporting such data.  This is indicative of the weak customer demand and the resulting utilization cuts that have been plaguing the display space since the end of 1Q, and give some indication as to the extent of those utilization cuts.  Based on 19 months of shipment area data, the average monthly shipment area is 2.0m m2/month, with the July data down 35% from that number and down 42.9% from the peak (12/2021), and also down 29.0% from the average shipment area for this year (1.83m m2/month). 
While it is difficult to disaggregate reduced customer demand and intentional utilization cuts, we estimate that AUO has reduced their utilization rate by between 25% and 30% this year, after being close to 100% for much of 2021.  That said, AUO has been able to maintain a relatively stable sales/m2 since the beginning of this year, albeit down from 2021, indicating that the lines that are still in operation are generating 6.1% less sales than they were during last year’s 1st half, likely a result of producers having less choice as to what jobs they take on, meaning settling for less profitable products to fill existing lines.
Innolux, Taiwan’s other large panel producer reported sales of NT$15.760b ($526.5b US), down 18.3% m/m and down 51.1% y/y against a 5 year average for July of down 2.2% m/m.   Large panel shipments were 8.25m, down 26.2% m/m and down 32.8% y/y, the lowest large panel unit volume since February 2020, as seen in Figure 4, with small panel shipments of 22.97m units, down 24.4% m/m and down 19.3% y/y (Figure 5), putting total shipments down 24.9% m/m and down 23.3% y/y.  We believe Innolux has waited a bit longer than most to become more aggressive as to lowering utilization and pulled back large panel production to a larger degree in 3Q.
All in, the effects of lower utilization rates at Taiwanese large panel producers are now becoming more apparent in their monthly sales, while still facing weak panel pricing as Chinese LCD panel producers continue to offer panel price discounts to fill fabs.  We expect a little help over the next month or so from easing raw material and component costs, but expect it will take some time for those cost reductions to filter through the display supply chain.  Given that panel inventory was certainly higher than normal exiting 2Q, we expect it will take the rest of August at least, to work that down to more realistic levels, which would imply that utilization cuts will remain in place for this month, although we do not expect additional cuts in September from most large panel producers.    We believe the holiday season will still be lackluster, but even a small improvement in inflation could help to lift consumer spirits enough to at least keep 4Q in the CE space from declining q/q.  It is still hard to get optimistic about the remainder of this year, but at least we can see the possibility that there are a few scenarios where 2023 sees some y/y upside.

​Last month we commented on the upcoming Samsung (005930.KS) ‘event’ that was expected to contain the announcement of Samsung’s latest foldable smartphones, the Galaxy Fold/Flip 4 series, and what we hoped might be part of that release.  The event has taken place, the new phones announced, and while we have yet to examine the software, we can point to how our hopes and expectations were met, at least thus far.
Our first ‘hope’ was for a lower price, pitting economies of scale against the higher cost of silicon and other components.  Unfortunately, at least at the onset, it looks like there was little pricing movement, with the Z Fold 4 (256Gb) selling for $1,799, even with the Z Fold 3, while the 512Gb version is a few dollars more expensive than last year’s model.  There is a new version of the Z Fold 4 that has 1Tb of memory that sells for $2,159 so there is no comparison to the older model.  The Z Flip 4 (128Gb) is priced at $999, the same as the previous model, with the 256Gb version $10 more than the previous year’s model, so little change, although there is now a 512Gb version that sells for $1,179, so there is little change overall on pricing, a bit of a disappointment and somewhat of a stumbling block to incremental y/y shipments.
We had hoped for a bigger 2nd screen on the new models, as the less often the device has to be opened the longer it will last and when closed a foldable should be the equivalent of a ‘regular’ smartphone, with a full sized high-resolution display.  When comparing the new Galaxy Fold 4 to the previous model, it turns out that the size of the device is actually slightly smaller (~2%) but marginally thinner (under a mm difference when closed), although its .28oz. lighter.  The main (foldable) display still has a 7.6” diagonal with marginally smaller bezels, with a 90.9% SBR vs. the Fold 3’s 88.8% SBR, with both having a PPI of 374.  The cover display on the Fold 4 is still a 6.2” display but with a a higher resolution (+10.9%), so on an overall basis there was little change as to the displays on the Z Fold 4.  The Galaxy Z Flip 4 has the same main (foldable) screen as the previous model, and the same size cover screen (1.9”) and the overall device is a mere 2.1% smaller than last year, so again little movement on our 2nd wish.
As far as our hope that the new device would be more ‘durable’, both new models have upgraded the cover glass from Corning’s (GLW) Victus to Victus+ with higher scratch resistance and the new X Fold 4 has a higher pixel count main camera and a 3x (vs. 2X) zoom on Cam #2, with pretty much everything else staying the same, while the Z Flip 4 has a 12% more powerful battery.  Both new versions have upgraded chipsets, CPU’s, and GPUs, as one would expect, which should eke out slightly better performance, but on an overall basis most of the hardware has remained the same.
As we have yet to look at the software and built-in apps, we cannot tell if Samsung has made progress toward the development of applications that take further advantage of the device’s foldability, our 4th hope, so we will have to leave that slot open, but we are leaving the table feeling a bit unsatisfied, kind of like grocery store Sushi…you want to like it bit there is little to get excited about, somewhere between Masa and gas station tuna…

​Foxconn (2354.TT) Apple’s (AAPL) primary assembler and the largest global OEM purchased a 10% stake in China’s Tsinghua Unigroup (state) through an $800m investment by one of its subsidiaries, Foxconn Industrial Internet (601138.CH), giving the company more direct access to fabless mobile processor producer UNISOC (pvt) and memory producer YMTC (pvt), both part of Unigroup.  While Unigroup defaulted on $3.6b in bonds last year and was sorely underfunded, investments by a number of Chinese funds stemmed the negative financial tide, although plans for fab expansion projects were put on hold.
The tension level between the Chinese and Taiwanese governments has escalated in recent weeks as we have noted previously, and has placed the US government in the middle of the conflict, focusing considerable attention on the region, Foxconn’s home base.  With such tension, the Taiwan Ministry of Economic Affairs is said to be doing a detailed review of the purchase, specifically evaluating national security issues, while the US government is exerting additional pressure on the Taiwan government given that senior management at UNJISOC previously worked for China’s largest semiconductor foundry SMIC (688981.CH), which has been placed on the US entities list.
The official review has yet to start but unsourced feedback has indicated that there is a very small chance that the deal will be approved by the Taiwan government on security concerns alone, although Foxconn has stated that they have reported all the necessary information about the investment to the local Taiwan authorities and are updating the overall investment situation to the necessary government officials.  With so much pressure both inside and outside of Taiwan, it would seem that there is little chance that the deal will survive intact, with Foxconn already facing fines for making the investment without government approval. Now the recent China/Taiwan tensions have placed the deal in an even greater spotlight, giving more scrutiny to the shareholders of the entity that FII invested in, which became the owner of Tsinghua Unigroup after its restructuring. Some of the owners of this entity are said to be Chinese state-owned companies that could have ties to the Chinese military or are affiliated with companies on the US entities list.  Foxconn has put itself in the middle of a global political battle in order to strengthen its supply chain and while it seemed like a good idea earlier in the year, we expect the company had no idea how public the transaction was to become.  Wrong place, wrong time.
 
 

​After the tension producing visit to Taiwan by House Speaker Nancy Pelosi, Apple (AAPL) has cautioned its suppliers in Taiwan who are shipping components or product to China to make sure the labeling complies with what are long-standing Chinese policy that requires said items to be sourced labeled as “Chinese Taipei” or Taiwan, China”, a tacit reference to the Chinese government’s belief that Taiwan is part of China, succinctly summarized in a document circulated by the Chinese Embassy in the US entitled, “Taiwan – an Inalienable Part of China”, which details a short history of the 1912 Chinese revolution and the Chinese civil war in the 1940’s, but is very specific in stating that “The lingering civil war which was imposed on the Chinese people in late 1940s and more importantly the intervention by foreign forces against the reunification of China led to a temporary state of separation between the two sides of the Taiwan Straits after the People's Republic of China was founded. But the status of Taiwan as part of China's territory has never changed, nor has the Government of the People's Republic China ever given up its jurisdiction over Taiwan.”
The document goes further in that when diplomatic relations were established between the Chinese government and the US in 1949 said agreement included “The United States of America recognizes the Government of the People’s Republic of China as the sole legal government of China.  Within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan.  The government of the United States acknowledges the Chinese position that there is but one China and Taiwan is part of China.”  However the document goes further stating that the Chinese government does not object to the US maintaining non-governmental economic and cultural relations with Taiwan, but “What we do oppose is US conducting official exchanges with the Taiwan authorities”, drawing a rather vague line between official and non-official meetings with the Taiwan government.
With all of that said, Apple is not taking a chance that its Taiwan supply chain inadvertently angers Chinese Import/Export authorities by using labeling that implies that Taiwan is not part of China, such as “Made in Taiwan” rather than “Taiwan, China” or even “Chinese Taipei”, as the Pelosi visit has raised tensions between the US and China relative to Taiwan.  In light of the upcoming release of the iPhone 14 line, it would seem Apple does not want to find that components and materials are being more carefully examined, slowing shipments, or even held for official review and has asked its suppliers in Taiwan to make sure the labeling complies with Chinese rules.  While assembler Pegatron (4938.TT) states that all operations in China are running normally, there have been rumors that some components from Taiwan had been held by authorities for more detailed inspection.