​Last week we noted that Samsung (005930.KS) had reinstated production of the company’s Galaxy S21 FE (Fan Edition), which was originally to be released in August but postponed due to a shortage of Qualcomm (QCOM) application processors.  While we noted that Samsung’s plans had yet to be finalized, expectations were that plans were to have the phone in production for a release some time in 4Q, with a Mid-October launch ‘event’.  Media in South Korea is now reporting that the ‘event’ has been cancelled, although Samsung’s official comment is their usual, “It is difficult to confirm the product before it is released”, but it puts our conclusion that the shortage of Qualcomm 888 Application Processors in question, or does it? 
The Korea media says that the reason (their words) for the cancellation is that the Galaxy Z Flip 3 has sold more than expected, leading to higher production demands for the foldable.  Supposedly the AP’s from Qualcomm are now being redirected to the Flip 3, rather than to the FE, as the Flip is both a flagship item and carries a higher selling price.  If true it does put the shortage of Aps in a bit more perspective, indicating that while production at 5um for Snapdragon 888 has improved, it has not improved enough to give Samsung all that it needs, although the good news would be that the Galaxy Fold 3 is selling well.

Large panel shipments (Fig. 4) were up 0.1% in August while large panel sales (Fig. 5) were down 3.8%, a result of the large drop in TV panel prices (-10.1%).  With July being the peak for TV panel prices and IT product panel pricing remaining stable in August (looks the same in September), but the effects of the steep TV panel price drop in August had a negative effect on LCD panel industry sales, with the price per unit of TV panels considerably greater than that of IT panels.   We show both Shipments & Share in Fig. 6. To illustrate how shipments have remained flat but large panel price increases have kept sales momentum intact.  Given the Significant drop in TV panel prices in August and again in September, we expect the September large panel sales results to see another drop.
TV panel share is a monthly variable that does not get reported by many panel producers (some do quarterly) but based on our data, we believe the shipment level for LCD TV panels declined by 4.3% in August, following a 1.5% increase in July, offset by a 2.8% increase in monitor shipments, flat notebook shipments, and a 4.8% increase in tablet shipments.  The shipment trends are noted in Fig. 7.  Panel producers have been decreasing their share of TV panel production in lieu of IT panel products, less in anticipation of the price drop seen in August but more due to the continued demand for notebooks and monitors.  While there is much talk over how this will lessen the effect on panel producer sales as TV panel prices decline, we have only seen one month of excessive TV panel price declines and therefore little cumulative negative momentum.  Given that September saw an even larger decline in LCD TV panel prices and little price offset from IT panel pricing, we expect that September industry large panel sales will be down in excess of 5%.

Translating those metrics to companies, we first look at the sales share of the top 5 large panel producers to gain insight into who might be affected most by declining large panel prices.  As noted, the concentration is quite high with 83.1% of the industry’s large panel LCD sales coming from the top 5 producers.  That said, given that August was the first month where TV panel prices dropped substantially, we look at the sequential change in sales for large panel producers between July and August to see who was affected most by the TV panel price drop.  We note that ideally we would like to see at least one additional month of data that included substantial panel price drops, but we take what we can get until next month’s data becomes available.  We note that we have added share in the second table to gain better understanding as to how much each panel producer influenced the total.

​We note that Samsung Display has sold or closed much of its large panel LCD capacity, so monthly results could reflect that limited capacity (hence the 1.4% share) and the impact of large panel price declines.  LG Display, to a lesser degree, has done the same.
All in, August looks to be the tip of the iceberg for large panel LCD producers in terms of the impact of decreasing TV panel prices.  If September and October are any indication of the severity of such panel price drops, the effects will be felt by almost all large panel producers, especially if there is little positive offset from IT panel pricing or shipments.  Given that it took only a short period for TV panel prices to trace back almost half of the gains made in the last year, it sets the stage for a weak 4th quarter for large panel producers.  As noted above, we expect IT panel pricing to remain reasonably stable for the remainder of the year, and would find it difficult to assume that TV panel prices continue to fall at such a precipitous rate for the rest of the year, but we did not expect to see an almost 20% drop in TV panel prices in September.  “Surprise, Surprise” – Gomer Pyle USMC (1964).

We had been expecting a continuation of weak TV panel prices and a leveling off of panel prices for IT products (monitors and notebooks) for September, and were a bit concerned that our expectation for TV panel pricing (-6.8% m/m) was a bit aggressive.  It turns out that we were correct in our assumptions for IT panels but it seems our estimate for TV panel prices was not aggressive enough.  In fact, the aggregate decline in TV panel prices in September (-19.10%) was the largest single month decline since we have been accumulating TV panel data, which is over 9 years.

The table below gives some perspective on the changes that we have already seen in panel prices, with the high and low prices for each type, the current (September) panel price, and the difference between the panel price peak and nadir vs. the current prices.  As can be seen, Monitors and Notebooks are at peak prices but all other panel types are between 19.7% and 53.7% from their high points since the beginning of 2019.  We note that until August of this year TV panel pricing had been positive m/m since June of last year and has declined from its high in only two months, tablets have seen flat or positive panel pricing since October 2019, while phones have been up and down for some time. The graphic below shows the data in a more visual mode.

With expectations of another very weak month for TV panel prices in October and what are essentially flat IT panel prices, we expect the industry will see another decline in panel revenue in October (see below).  While there have been few panel producers that have not been espousing the validity of their push toward IT panel production in lieu of TV panels, the question remains whether IT panels will follow the same fate as TV panels and when that might happen.  We do note that social effects of COVID-19 have had a far more profound effect on demand for notebooks and monitors, especially given country-wide programs to equip students with laptops during periods of lockdown, and while we expect overall demand for laptops, Chromebooks, and similar mobile devices to remain at a higher level that pre-pandemic, we also expect a decline in IT product demand as we enter 2022.
The only real mitigating factor in that equation is component shortages, which could extend the demand cycle further into 2022, but as some of the larger educational laptop programs wind down at the end of the year, some of those shortages could abate.  In the US, much will depend on the success of bringing students back to classrooms, and whether that scenario plays out without major COVID-19 outbreaks.  We expect an initial spike in COVID-19 among school aged children that might travel to the unvaccinated population, but we expect by early 2022 for that to have run its course to a large degree.  When those numbers start to decline, we expect demand for notebooks and tablets will decline.  That said, we do not expect to see the extreme panel price drop in IT products that has been the case with TV panels, as TV demand has been weakening for months, and while the tipping point was not reached until TV set producers realized that existing set sales targets were unrealistic.  We expect a more gradual weakening of IT panel prices through the 1st quarter of next year.

So as not to use the massively overused word ‘unprecedented’, we choose unparalleled to describe the rise in LCD panel prices over the last year.   Panel producers have been enjoying utilization rates in the mid to upper 90s and have been on the right side of negotiations with buyers for almost the entire period.  Given that China will represent 54.3% of LCD panel production this year, China’s LCD panel producers have a significant influence on the industry and their actions can set the tone for supply, and while they have been quite happy to continue to increase capacity and push utilization rates to their capacity limits we have been wondering when they might notice a bit of a change in demand. 
As we have noted previously, TV panel prices have started to decline, and while they are still far above lows set over the last 24 months, they declined by 10.1% in August and are expected to see another substantial drop (-7.7% est.) when September data is collected.  IT panel prices, meaning notebooks, monitors and tablets, have been a bit more positive, still rising in August, but at a slower rate than in the past, and are expected to see a bit of a decline this month, so one might say we have reached some sort of peak and can see a path toward more realistic panel pricing going forward.  Demand has obviously weakened a bit, with inventory levels at brands more closely reflecting what they believe they need to meet 4Q demand, and the panic that has filled panel buyer’s hearts for much of this year seems to have turned from “I’ll take it (at any price)” to “I’m good for now”.
Regardless of the circumstances surrounding the reasoning behind the current less frenetic demand profile, the bigger question is how Chinese LCD panel producers will respond.  They will be expected to generate the same high margin results in 2H as they did in 1H, which can only be accomplished if they are able to run their fabs at the same high utilization rates that they have in previous months.  However this level of production would continue to put pressure on panel prices and while TV panel prices have already begun to decline, overproducing IT panels would be a more serious issue.  Many panel producers have moved production from TV panels to IT panel production, with the IT products typically a bit more profitable on an m2 basis.  This emphasis on IT panel production has helped panel producers see a bit less of an impact from falling TV panel prices, but leaves them vulnerable to a more leveraged dependency on IT panel production.
If IT panel prices begin to weaken, we would hope that rather than continue to run fabs at high utilization rates and exert pressure on IT panel prices, Chinese producers would lower utilization rates, essentially reducing capacity.  They would have to deal with lower margins, but would not start a cycle of continuing pressure on panel prices.  It seems that such an event is actually occurring, as we are beginning to hear that Chinese LCD panel producers have lowered utilization rates a bit this month.  If this proves to be the case, and it is not just a minimal change, the industry could sidestep what would be a typical cyclical decline in panel prices and a similarly typical decline in panel producer profitability.  Hard utilization data is ephemeral at best, so we have to accept that panel pricing, albeit on a bit of a lag, is the ultimate arbiter of whether panel producers reacted correctly to weakening demand and stabilized panel prices in 4Q, but it is rare that the industry does not over or under step what would need to be done to keep things in harmonious balance.  “The best-laid plans of mice and men often go awry”

​As we have noted previously, Samsung Display (pvt) has made a bet on a new display process using both quantum dots and OLED materials.  The QD/OLED process would coat a substrate with a blue OLED emitter and use quantum dots to shift the blue color to red and green to produce RGB pixels.  By shifting the blue light, the concept would avoid a color filter, with is currently used in OLED TVs and reduces the intensity of each sub-pixel by filtering out other colors.  Quantum dots however ‘shift’ rather than filter the light and change the color at a higher efficiency level.  SDC has also been examining a path that substitutes quantum dot nano-rods for the blue OLED material, and converting the nano-rod blue color to RGB with QDs.
Samsung Display is expected to start QD/OLED (or some variant) by the end of this year and has delivered sample product to parent Samsung Electronics (005930.KS) and Sony (SNE), potential customers for a commercial product, and while actual production in 2022 is expected to be relatively limited, SDC is expected to build out its QD/OLED production capacity next year in its Q1 fab in Korea, as other brands have expressed interest in the potential product.  The risk to SDC is substantial as there has been some controversy as to whether Samsung Electronics is on board with the technology, but SDC must eventually be able to produce large panel displays using some form of non-LCD technology to maintain its status as a major panel producer.  Without large panel production, SDC would be left to the vagaries of the small panel OLED market with a side business of OLED IT panels, so it is imperative that SDC find a viable large panel product to replace the LCD assets it has sold or idled.
Behind SDC’s risk issues also lies establishing a supply chain for the QD/OLED product, which entails convincing support companies to build out capacity to meet potential demand for QD/OLED.  Given the early stage of SDC’s QD/OLED product, one would expect this to be a difficult task given that SDC cannot provide an absolute guarantee that the product will be adopted by brands and if so, at what volumes, but that does not seem to have deterred CU-Tech (376290.KS), a supplier of PC boards, who announced last night that it will build 5 new production lines dedicated to SDC’s QD/OLED displays.  The company said it will build three of those lines in 2023 and two more in 2024, which is specific enough to assume that they have been in discussion with SDC as to a potential capacity expansion timeline.  According to management, when the five lines are completed, they will be able to produce ~600,000 units/month consisting of two source boards and a controller board. 
This would indicate that SDC has estimated a production run rate of between 7m and 7.2m QD/OLED units in 2024, an optimistic view three years out, considering that an un-yielded 30,000 sheet/month line would be capable of producing ~ 1m 65” units/year.  The implication would be that SDC would have to build out a full 45,000 sheet line twice a year through 2024 and run the combined operation at 80% yield in order to generate enough units.  That is a tall order even for Samsung Display, especially with little actual mass production cost data on which to rely.  That said, SDC has always taken risks when it comes to new technology, so while this is a big step to take on its own, we wouldn’t put it past SDC to make such a commitment.

While our obsession with trying to understand Samsung’s Mini-LED/Quantum Dot TV pricing continues, we do a quick look below at how Samsung’s Mini-LED TV pricing compares with those of TCL (000100.CH) and LG (066570.KS).  There are other brands that also offer Mini-LED/QD TVs but feature comparisons and pricing equivalents in the US are a bit more complicated than the table below warrants.  Of the three brands below, TCL is the price leader, which is consistent with their policy generally, so we use TCL as the base for comparisons here.  Note that we have only included those sets that are comparable, which limits the size of the table somewhat but gives a better comparison of set-to-set equivalent pricing.  As can be seen, TCL is the price leader for all models, other than the equivalent less featured models, with both LG and Samsung having lower base prices for that tier.  Note also that the prices shown for Samsung’s Mini-LED/QD TVs are current prices and are all lower than Samsung’s original release prices, which ranged from 14.3% to 24.3% higher than current.

The European Union is taking a hard stance on CE uniformity and while discussions on a common charging platform for mobile devices has been ongoing for years, while ‘encouraging’ device producers to convert to a uniform charging platform, the EU is now moving forward with legislation to implement such a change with a bit more force than simple ‘encouragement’.  The EU has announced legislation to establish a common charging platform that will reduce the number of mobile phone chargers from 3 (down from 30 ten years ago) to 1, the well-known USB-C charger.  If passed, this will be the standard port for all smartphones, tablets, cameras, headphones, portable speakers, and handheld videogames, with a the giveback to device producers of no longer being required to bundle a charger with every device sold, a concept already being implemented by brands under the guise of reducing CE waste as opposed to reducing cost.
The proposal references unifying the charging speed of devices under the common standard and forces brands to specify the power requirements of each device and whether it supports fast charging, and will be exploring the idea of further requirements for the charger itself in the future.  Once passed, brands will have two years to make the change.  The EU is backing up the proposal with the fact that each consumer owns 3 mobile phone chargers, or which they use two on a regular basis and that 38% of consumers reported that they have experienced problems at least once due to the incompatibility of chargers., causing consumers to spend €2.4b ($2.8b US) on standalone chargers, which eventually cause 11,000 tons of e-waste every year.
The company most affected by the proposal would be Apple (AAPL) whose Lightening charger port is proprietary.  While Apple will have to make a change, the proposal does not force a brand to have a charging port on a device, only that if it does, it must be a USB-C port.  That leaves Apple with the option to make the conversion or do away with the charging port entirely and move to all wireless charging, a step above the company’s MagSafe charging solution that Apple introduced last year.  That said, Apple has likely been working on a number of possible solutions given that discussions surrounding the issue have been ongoing in the EU for so long.  One thing that the proposal does not address however is a port for data transfer, which leaves open the idea that any wireless charging system could also include a proprietary data transfer solution.  This would allow brands to maintain at least some control of how data is shared between devices, although that is a much smaller issue.  The iPhone 16 will show us the ‘new’ Apple way.

Vietnam has become a major production base for many companies that have been looking for alternatives to production in China, with an ample workforce and positive government support for global businesses, but recently (early July, the country, which has a vaccination rate of ~26.6% has seen a big spike in new cases, limiting travel and logistics, and closing plants during the spike.  There have been a number of commentaries and announcements concern where the outbreaks have been most prominent and what companies were affected, but little definitive data on the extent of the issue has been circulated.  The American Chamber of Commerce in Vietnam[1] has done a number of ‘flash surveys’ to gather some data concerning the status of US and foreign companies operating in Vietnam and at what level of production they are operating.  The latest survey was taken between August 23 and 25, which is close to the peak infection point for this cycle, so it should give some insight into how difficult conditions are for manufacturers in the country.
Survey Results:
Vaccinations have seen a sharp uptick, especially around Ho Chi Minh City, the country’s largest city, where almost 50% of companies polled indicated that almost 50% of staff had received at least one dose of the vaccine, up from 25% in a survey taken 3 weeks ago.

• 13% of those surveyed indicated that their companies had ceased operations or were operating with a skeletal staff, with nearly 50% operating at under 50% of normal capacity.
• 20% of respondents have already shifted some production, with another 16% discussing options.
• While AmCham members and families were worried about the poor and disadvantaged, who were being impacted most severely, 71% expressed ‘concern about quality of care if you or a family member develops serious symptoms.’

 


[1] AmCham Vietnam represents 650 corporations and 2,500 individual business representative. The US is Vietnam’s largest export market

The survey data indicates that over the 20 day period between surveys, those businesses that had seen the least impact from the COVID-19 outbreak (operating at 50% of normal or better) saw things recover, however those that had been most severely affected saw things get worse, with workers hesitant or unable to return.  The government of Vietnam has implemented a “3 on Site” model in July, which involves eating, sleeping, and working without leaving the factory site, however as the outbreak became worse, particularly in the more populous southern provinces, the wisdom of such a policy was questioned and suspended in Ho Chi Minh City where over 3,700 businesses had spent considerable sums to implement the practice.

​While the concerns of businesses over the spread of the virus continues to grow, it seems that the biggest issue right now is a lack of coordination from the government.   Provincial governments do not seem to be operating with a coordinated approach to vaccination programs or rules and regulations concerning protection from the spreading infections.  There does seem to be some improvement from the higher vaccination rate, but low efficiency ports, either for inflowing components or outgoing product are unacceptable for companies, especially those in the CE space where the selling season is limited.  That said, a lack of government coordination seems to be an issue for many countries including the US, so while Idaho remains the state with the lowest vaccination rate in the US (46.4%), that seems to be a voluntary issue, where the 26.6% rate in Vietnam is due to a lack of vaccine and a lack of government coordination.  Welcome to the real world.

​Yesterday we noted the growth of 5G smartphones in China during August and today we dig a bit further into the global 5G market for clues as to share and direction.  Based on data that breaks down 5G shipment share in 1Q and 2Q, it seems that global 5G smartphone shipments are moving from upper-tier priced models to lower-tier models as less expensive 5G chipsets find their way into lower priced phones, particularly the $200 - $400 tier (Figs. ½) and summarized in the table below.

Taking it one step further, again looking at the $200 - $400 price tier, we can see what brands have made share gains over the last year by comparing current 2Q share against last year.  While a number of vendors saw share increases y/y in 2Q, the most interesting change was from the ‘other’ category, which decreased from 32% to 11%.  This was likely a function of the inclusion of Huawei (pvt) in the category as the company faced very significant share loss due to US trade sanctions.  Only the Honor (pvt) brand lost share y/y, but this was likely a result of its spin-off from Huawei into an independent organization, so we believe the share loss that can be attributed to Huawei was captured almost completely by Chinese 5G smartphone brands, particularly Vivo (pvt), where 5G shipments increased from 28% of sales in 2Q last year to 80% this year.