​There are only a few places where data on Chinese smartphones is available, and fewer where the data is consistent and reliable, so we are always a bit hesitant when quoting statistics from unnamed or even named state organizations.  That said, the China Academy of Information & Communication, a well-known think tank that operates under the Ministry of Industry & Information Technology, the state-run organization that is responsible for regulating and developing almost anything involving communication, has been unusually consistent with both monthly smartphone unit volumes, and an occasional look into more detailed Chinese smartphone statistics.
A recent blurb from CAIC indicated how certain smartphone characteristics were broken down between 4G and 5G smartphone in 2Q, and while the data is certainly pointed toward presenting China’s 5G model in its best light, we were able to make some comparisons on a global rather than a regional basis to see how different the global metrics were from the CAICT data.
While 5” smartphones are not uncommon globally, looking at the 10 most popular smartphones on a global basis this year, we note that all are above 6.4” and as large as 6.78” (display size), so while China boasts that 76.9% of all smartphones shipped in 2Q were greater than 5” and 100% of all 5G smartphones were greater than 5”, we would have been more interested in 4G/5G smartphones 6” or greater, as the data would indicate more information about current consumer tastes, and when comparing the Chinese data to global data, 23.1% of all Chinese smartphones shipped in 2Q were under 5”, while only 7% of all global smartphones shipped were under 5”.  Looking at the global list of most popular smartphones, we were unable to find any smartphone (4G or 5G) under 5” within the top 70 most popular phones.
In the same way the Chinese data indicated that 74.4% of all smartphones shipped in 2Q had a resolution of 720 (HD) or better, while the global data indicated that 92.5% of all smartphones shipped globally were at least 720, although it seems that 5G smartphones in China are almost all (97.8%) 720p or greater while only 46.8% were 720 or greater on a global basis.  It is hard to reconcile that such a small number of global 5G smartphones would have 720 or greater resolution we are more suspect of the global data than the Chinese data in this case, as we expect few 5G smartphones would add much value to consumers at resolutions lower than 720.
Cameras are still a big deal to many smartphone buyers, although we wonder how many can actually tell the difference between an image taken with a 25MP camera and one taken on a 50MP camera, but according to the CAICT data all 5G smartphones shipped in China in 2Q had at least a 50MP main cameras, while on a global basis the data shows that only 42.6% of main smartphone cameras were at least 50MP.  Further, the CAICT data showed also that 100% of all 5G smartphones with selfie cameras had at least a 13MP selfie camera, while the global data showed that only 37.4% of 5G smartphones met the same criteria.  In this case we can see the possibility of inexpensive 5G smartphones that are more oriented toward high-speed data and voice than the necessity to take high quality photos, but again it remains hard to reconcile much of the Chinese and global data, but anyone who works with data, particularly big data, can tell you that how you present the data has as much to do with how it is perceived than the data itself, sort of the glass half full/half empty debate…

Sometimes trying to make things better can create bigger problems than the fix was to cure, but this one was a bit surprising.  Apple (AAPL) has been receiving negative feedback on its forums and social media regarding damage to the iPhone and problems relating to using the device when riding motorcycles or mountain bikes.  It seems that taking a ride on your chopper with your iPhone may not be a good idea, especially if you are one of those who straps it onto the handlebars.  Apple has now responded by recommending that users do not directly connect the iPhone to the handlebars or body of such ‘high-power’ machines or at the least use a vibration damping mount if absolutely necessary.  They go as far as taking that warning down to mopeds and electric scooters.
It seems the problem is rooted in the iPhone’s OIS (Optical Image Stabilization) system, which was developed to allow the user to take clear pictures even if the camera moves a bit.  The system uses a gyroscope to sense if the camera moves and moves the lens to compensate, reducing image blur, and some models go further with a closed loop system that compensates for gravity and vibrations.  That said, Apple does say that ‘direct exposure to high amplitude vibrations in a specific frequency range for long p[periods of time may degrade the performance of these systems and cause deterioration in the image quality of photos and videos.  It is recommended to avoid exposing your iPhone to long-term high amplitude vibrations.”
All’s well and good, and kind of a no brainer except that when Apple was promoting the iPhone 11 Pro back in 2019 they used the two GIFs below as part of the promo, which were used to promote the iPhone’s ability to overcome excessive shaking and vibrations and that back as far as the iPhone 6s, Apple has been using OIS and closed loop autofocus, so the issue either has gotten worse or has changed with system changes.  Apple has also mentioned recently that OIS and the Closed Loop Autofocus systems are vulnerable to magnetic interference from some magnetic iPhone accessories, but removing the accessory should cure that problem.  Some iPhone users joked that the next Apple accessory will be a shock absorbing bracket for mounting your iPhone where it now seems to not belong.
https://www.ednchina.com/d/file/news/2021-09-13/a3914ba37cafc9da137007d5349630fa.gif
https://www.ednchina.com/d/file/news/2021-09-13/4b62ecd24d566080193f61b59ffb0b8b.gif
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There are many issues facing the development of Micro-LED displays, with transferring the millions of tiny LEDs from wafers to display substrates.  As there are almost 25m individual LEDs in a 4K micro-LED display and over 99.5m in an 8K Micro-LED display, moving such vast numbers of ultra-small devices presents some unusual challenges.  That said, aside from the huge numbers, the fact that even at .99999% yield, there would be 249 and 996 non-working Micro-LEDs that would have to be individually repaired, a process that we estimate could be as costly as the entire transfer process, and yields are far from 5 9’s currently.  The most recent estimates we have seen indicate that repairing each non-working Micro-LED takes about a second which would imply a 90% yield would generate 9.953m bad die for each display.  At 1 second each to repair, it would take 115.2 days for repair all non-working die!  There are systems that are being developed that can test all of the die that have been transferred and through various means, such as laser ablation, remove and replace the non-performing Micro-LEDs, but there is also another way.
Instead of pulling all of the die from the wafers on which they were produced, by testing the die at the source, a KGD map (Known Good Die) can be generated, which will point out those die that should not be addressed by the transfer tool, reducing the number of non-performing die that need to be reworked.  Notice we said reduce, because the testing and transfer processes themselves can also damage the Micro-LEDs, however pre-testing and creating a die map can reduce the time to transfer and repair substantially.  Electrically testing these tiny LEDs at the wafer level means they have to be connected to a testing probe, and with the size of Micro-LEDs decreasing toward single digit ums, this can be a somewhat destructive process for a small number of the Micro-LEDs under test, which lessens the effectiveness of the pre-transfer process.  Some companies, such as Instrument Systems (4902.JP) and InZiv (pvt) test at the wafer level using optical means, which avoids the probe issues, and can both mark non-performing Micro-LEDs on the KGD map and indicate whether die metrics, such as photoluminescence (which does not need direct die contact) are up to necessary standards.  That said, testing photoluminescence only can miss some metric that can only be tested by direct contact, so while a single test type system is helpful, it does not solve all of the testing and transfer issues.
According to South Korea’s Top Engineering (065130.KS), while testing for both electrical and optical characteristics at the wafer level, they have found a way to test same without direct chip contact, which, if true, would reduce the potential testing damage completely and speed up the entire production process.  The tool, known as TNCEL-W can inspect Micro-LEDs at 50um or less at the wafer stage and while the company has said that they are currently conducting performance tests with domestic and foreign customers they believe they can make a significant impact on the cost of the Micro-LED process.  There is little other information concerning the tool, as it is still in the test mode, but if Top has found a way to do non-destructive optical and electrical testing they could pull in the Micro-LED timeline when the tool goes into commercial production.  There are still many other challenges that have to be resolved in order to make commercial Micro-LED production competitive, but we are always on the look-out for those that say they can make a dent in the Micro-LED ‘punch list’.  If Top has found a way to do what they say, they have made a big step forward in the Micro-LED world.  

China’s TCL (000100.CH) is on their 3rd iteration of Mini-LED TVs, while typical leaders Samsung Electronics and LG Electronics (066570.KS) are on their 1st.  As we have noted previously, TCL has also been the price leader in the Mini-LED TV space and is one of the reasons Samsung has been changing prices on its Mini-LED/QD TVs on almost a weekly basis.  That said, TCL also noticed that Samsung’s product line-up is more extensive than theirs and includes a number of high-end models that were not part of the TCL Mini-LED/QD line.  In order to remedy that situation and capture a portion of the premiums associated with such high-end models, TCL has just released two new Mini-LED sets, both 8K models, in three sizes, 85”, 75”, and 65”.
Again, we note that comparing feature sets in TVs is quite difficult as not only are not all features specified for each TV model with the ‘value’ of features specific to a particular brand subject to great variability, but specs like ‘lots of’ or ‘thousands of’ leave a bit too much to the imagination.  That said, what is notable with these new TCL Mini-LED TVs is that while the TCL model shown in the table is 11.3% less expensive than a comparable Samsung set, it is not the more typical 20%+ less featured and less expensive that has been the go to TCL vision.  It seems that TCL has gotten a taste of the ‘high life’ and is willing to play into the same premium pricing plans that Samsung and LG have been working toward, at least for their Mini-LED/QD sets.  Whether TCL will sell enough of such high-end sets to make a difference remains to be seen, but it was likely an easy decision to give it a try now that others have set pricing at the high-end of the market.

Much focus has been given to semiconductor based component shortages, and rightly so as capacity has been behind demand for many months and demand has remained relatively strong throughout, yet more basic components face similar shortages and get much less attention.  In most cases basic component shortages tend to push out lead times, which tends to be a good indicator of the supply/demand balance.  There are almost an infinite number of small components such as resistors, inductors, and capacitors and such a large variety of each makes tracking price almost an impossibility, leaving lead times as the alternative.
Fig. 1 shows the long-term lead time trends for capacitors on a general basis and Fig. 2 shows lead time changes for the last few months.  We have focused our attention on MLCCs ((Multi-Layer Ceramic Capacitor), as they have become an even more integral part of a number of consumer electronics products (5G smartphones, electric & hybrid automotive systems, etc.), and they continue to see lead time increases and increasing demand and sales, with 3Q expectations for a 15% q/q increase in sales, but lead times for other capacitors (aluminum, tantalum, etc.) have also been increasing as supply disruptions in Malaysia and rapidly increasing raw material costs take their toll. 
Tantalum concentrate alone has seen a 33.02% increase in price over the last 12 months while ruthenium, also a basic resistor material, has increased 158.6% over the same period.  While some of the factors that have caused price and lead time spikes over the last year are COVID-19 related and are considered ‘transitory’ by some, the net is that we have to live with what is available and for capacitors, which have typically been easily sourced, that could mean waiting as long as 48 weeks for certain products.  With well-planned ordering, lead times of 20 weeks to 24 weeks are barely tolerable, but for products where lead times are greater than 6 months, we would expect either end product delays or eventual product cancellations unless you have the buying power of Apple (AAPL) or Samsung (005930.KS).
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​Conducting business in China has many nuances that would seem foreign to many, but it seems that taking advantage of imbalances in supply and demand is one that is common to almost all regions of the globe.  In some cases it is a function of double ordering or inflating potential targets to increase leverage with producers, while in other cases it is just buying whatever is in short supply and hiking prices until buyer’s eye begin to bleed.  In many cases governments look the other way, but when it comes down to how such unsavory practices affect state or other high profile businesses, the Chinese government has a tendency to take action.
It seems that three Chinese electronics distributors took advantage of the supply/demand imbalance facing vehicle manufacturers, particularly when foundries were also facing COVID-19 staffing issues, earthquakes in Japan, and a blizzard in Texas that exacerbated the imbalance that foundries were already facing from increased semiconductor demand from increasing electric vehicle production.  According to a briefing by the State Administration of Market Supervision, the shortage of chips, particularly those needed for electric vehicles, has reduced such vehicle production in China, and when tracing back the cause for such issues, it was found that the three chip distributors had ‘maliciously snapped up chips in China, hoarding them and driving up prices. Causing the prices of some chips to continue to rise, some by 3 – 10 times, and some by 30 – 40 times, which seriously affected the orderly production and healthy development of the industry.’
In August a task force set out to find why overall auto related chip prices had increased by 10% -15%, with some individual chips increasing as much as 50% and when it was discovered that three chip distributors had purchased certain chips at 10 yuan ($1.55) and sold them at more than 400 yuan ($62.14), with a standard markup being between 7% and 10%, a full investigation was held and each of the three distributors was fined 2.5m yuan ($338,373 US), and were put on a watch list that will continue to be monitored by the state.  Milton Friedman said,” What is greed? Of course, none of us are greedy, it’s only the other fellow who’s greedy. The world runs on individuals pursuing their separate interests”, but it was better said by Veruca in Charlie & the Chocolate Factory, “I want an Oompa-Loompa!  I want you to get me an Oompa Loompa right away!”

Despite shortages, plant closings, and higher prices for most CE products, 5G smartphones continue to grow with device count growth remaining above the trend line since April.  Of the three primary indicators we look at, only one, the number of new form factors, did not increase in August.  We see that of little concern given that number, which represents new potential CE devices that have yet to be ‘5G enabled’, has been steady at 22 since March and already includes smartphones, indoor & outdoor CPE devices, 5G modules, routers, gateways, laptops, hotspots, tablets, in-vehicle routers, USB modems, and a number of specialty 5G devices, such as robots, TVs, cameras, repeaters, vehicle OBUs, and a vending machine, so it is becoming a bit harder to increment that number, although it is still up 22.2% y/y.
More importantly the number of 5G vendors increased by 7.7% in August (65.6% y/y) and the number of devices grew by 5.7% (+147.1% y/y) and all categories (other than ‘Form Factors’) saw both m/m and y/y growth.  While the charts paint the picture, we put August 5G growth, y/y growth, and two-year growth in the table below for clarity.  We note that there were no 5G tablets available in 2019.

With the release of the iPhone 13 still scheduled for October, we expect 5G smartphone shipments to see substantial increases in the 4th quarter.  Last year, despite the October 2020 release, the iPhone 12 accounted for ~24% of 5G smartphones last year, and while the 5G smartphone market is a bit more diverse this year, both the iPhone 12 and the upcoming iPhone 13 are expected to account for ~1/3 of all 5G smartphone shipments this year.

3D TVs had their day, becoming commercialized in 2010 and peaking in 2012, but by 2016 the production of 3D TVs had ended.  With no real standardization and an audience in which ~12% could not watch such images without complications and ~30% were unable to fully visualize 3D images, the concept, which in most cases involved the wearing of 3D ‘decoding’ glasses, was considered a fad, despite the success of a number of movies that were shot in 3D.   Another unusual display technology, stretchable displays, has been on the mind of a number of OLED display producers, particularly Samsung Display (pvt), who has shown such at exhibitions over the last few years.   We never could quite understand the attraction for stretchable displays, as the applications were quite limited, but from the standpoint of being able to actually produce such a display, it was a technical accomplishment.
Now SDC has taken both technologies and combined them to create what might be called, for lack of a better name, a stretchable 3D display.  It’s not exactly a 3D display, but if you watch the demo, you can see that the display moves (stretches) in accordance with the content, which in this case is flowing lava.  While watching a TV made with such material might not have the depth that actual 3D technology might have, the fact that the screen could ‘flow’ with the content might be a legitimate application for stretchable display technology.  In this case the demo was made using a 13” panel, so a real commercial product is still far away, but at least it begins to justify all the R&D that has gone into stretchable displays; sort of…
https://youtu.be/kg2Izr6krY0
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At the end of June, a Swedish court upheld a ban established by Sweden’s Post & Telecom Authority that was put in place last year against both Huawei (pvt) and ZTE (000063.CH).  This was the 2nd appeal made by Huawei after losing its 1st appeal late last year.  While Huawei has always competed with Sweden’s own 5G supplier Ericsson (ERIC), the ban, which was not supported by Ericsson, has had an effect on Ericsson’s prospects for selling 5G equipment in China, the globe’s largest 5G market.  It seems that China has decided that it will be buying less 5G equipment from Ericsson, now that the Swedish government has reinforced the ban, and Ericsson has indicated that it will be closing one of its R&D centers in Nanjing, offering to transfer all employees to another Swedish firm who has offices in Nanjing.  Roughly 600 employees are involved.
Ericsson will still have 4 other R&D centers in China and is expected to hold a 23% share of the global 5G equipment market this year (down from 26% last year) but saw a big drop in its Chinese business in 2Q and noted in July that it was no longer counting on a number of 5G tenders that it had expected to win before the tension between the two countries escalated.  While the company’s president and CEO still believes it can generate business in China, it will likely be facing far greater nationalistic challenges than last year.  According to Trendforce, the global mobile base station market will look like this at the end of this year.

August was a bit of a difficult month for Taiwan based panels producers, and while particularly regional, is likely to be the tone for other panel producers that do not report monthly data.  While AU Optronics (AUOTY) no longer reports large and small panel shipment data, sales declined 1.9% m/m in August, a month that is typically up 7.6% sequentially.  Based on Fig. 1, it seems that sales this year peaked in June and have been declining, albeit at a modest pace.  The decrease in sales (m/m) comes despite a 3.33% increase in total panel area shipped.   Innolux (3481.TT) (Fig. 2) looks similar, with its peak in July and a slightly larger m/m decline in August, while Hannstar (6116.TT) saw its peak (Fig. 3) in March and has also been trending downward.  We note that while Hannstar is growing their large panel display business, the bulk of Hannstar’s sales is based on small panel product, which sets them apart from AUO and Innolux.

As we have previously noted, large panel prices have begun to decline, putting some pressure on overall sales, and component shortages have limited some IT panel production, however if large panel prices (TV mostly) continue to decline, even with the shift toward IT products many panel producers have made over the last few months, the effects will become a bit more visible, especially if IT panel pricing increases moderate.  AUO generated 26% of sales from TV panels in 2Q and Innolux 38%, so there is still quite a bit of leverage toward large panel pricing which could prove detrimental this month and into 4Q.