Rarely in the US does a person get ‘removed’ from a political party.  Sometimes however government officials do things that violate the rules of conduct under which the government is supposed to operate, and if such violations become public, they are usually pressured into resigning, usually to “spend more time with the family”.  It has not been unusual to see such malfeasance flash across the screen on CNN, and likely barely noticed by most regular folk, who believe that the government is ‘corrupt and rigged’ according to a recent University of Chicago poll, and the government, regardless of the administration, barely bats an eye during such events, but it is different in China.
The Communist party maintains a stolid face in order not to acknowledge any deviation from the rules the party constructs for the general population, and when there is some visible excursion outside of the norms, there is usually a strong and forceful reaction with arrests, incarceration (aka ‘retraining’), or just disappearance.  The rules in business however are a bit different, both in the US and in China.  In the US corporate malfeasance can bring down the ire of the SEC, who typically fines the evil-doers and perhaps forbids them from ever being able to hold a C-level position at a public company.  Worse yet would be the IRS, who can actually take away the Florida, Montana, NYC, and Tuscany retreats where shamed corporate heads go to ‘retire’.
In China, especially if a business is state financed, state owned, or receiving state or local government subsidies, poor business acumen, the lesser of business ‘crimes’ is usually taken care of quietly, with the operator moved to a new location and given a far more menial task for the ‘glorious’ CCP.  However, when things at big companies go awry due to the discovery of obvious corruption, the government tends to make a statement that indicates their displeasure and serves as a warning to others that might be doing or contemplating something that will make the party look like it does not have control.  Of course, this is not to say that the CEO’s of state-owned or subsidized companies do not get perks, quite the opposite, as many live as well or better than their US equivalents, but should they step over the line, or more so, get caught stepping over the line, they are met with the hardness that totalitarian governments are known for.
Just recently China’s Central Commission for Discipline & Inspection, and the State Supervision Commission, with the approval of the Central Committee of the Communist Party, conducted an investigation into the potential violations of discipline and law of Li Guohua, the former deputy secretary of the party and the general manager and director of China United Network Communication Group, otherwise known as China Unicom (800050.CH), one of the three state-run major carriers in China, the Chairman of the Postal Savings Bank of China (601658.CH), and the general manager of China Post (state).. 
According to the review and investigation, which stated that “Li Guohua lost his ideals and beliefs, betrayed his original mission, was disloyal and dishonest to the party, disagreed with the party, violated the yang and yin, did not implement the central inspection and rectification requirements, and deliberately resisted the organization’s review.  Further, he violated the spirit of (the) eight central regulations, illegally traveled and received public funds and gifts, accepted banquets that may have affected the impartial performance of official duties, failed to report personal matters in accordance with regulations, failed to truthfully explain problems when organizing conversations and practiced nepotism and favoritism, and seriously damaged the atmosphere of selecting and employing people during their tenure.
One would think that those accusations would be enough but the statements continue, pointing out that Li Guohua used relatives to influence his position and to seek personal gain, illegally lent money to management and service objects (providers) to obtain large returns, was morally corrupt, had an unhealthy family style, disregarded his family, made it possible for others (we assume relatives) to make profits in project contracting and business operations, and illegally accepted huge amounts of property, abused his power, and caused heavy losses of state-owned assets, with that last item likely the most important of all.
All things considered, while the statement of violations dug a bit deep when they touted his ‘unhealthy family style’, such violations here in the US would make headlines for a few days after a perp walk and the usual, ‘We will defend our client’s rights and prove that these politically motivated accusations are false and are using our client for publicity during an election year’, with the well-dressed violator making a deal that lets him keep the Montana ranch and Tuscany winery after a lengthy trial.  It was different for Li Guohua, as according to a party statement, he ‘seriously violated the party's political discipline, organizational discipline, integrity discipline and life discipline, which constituted a serious violation of the law’.  His punishment was expulsion from the party, which meant that all the perks he enjoyed as a ranking member would be cancelled, the illegal gains would be ‘collected’, the property involved would be transferred, and then his suspected crimes would be transferred to proper authorities for examination and prosecution, with a less-than-Otisville-like prison where he would serve out his sentence.
While China has been described as ‘the Wild West’ when it comes to business, we note that we have met a number of CEOs that seem to have an aura of ‘I can do whatever I want’, and a quick run-through of streaming services will document how that attitude destroyed the careers of unicorn founders and high profile executives.  In China, it seems that while the party tacitly controls much of China’s major businesses, it can be easy to gain favor in the party and use that influence and power to amass considerable wealth.  That said human nature is the same everywhere and some will become greedy and take that step over the line without the thought that they are putting everything at risk.  Because of the strict doctrine and face-saving attitude of the party, violations that become public must be severely punished, which we expect will be the result of the investigation above.  Less building birdhouses and more eating on the floor.

The smartphone market remains weak, with positive momentum, if any, coming from the recent release of the iPhone 14 family and the heavy promotion Samsung Electronics (005930.KS) is doing for the Z Fold 4 and Z Flip 4 models.  It is a bit early for 3Q smartphone shipment data, however based on mobile display panel prices alone, we expect the 3Q smartphone shipment and sales numbers to be down again in 3Q, after a 7.5% q/q and 6.3% y/y decline in 2Q.  While the panel price decline does not track directly with shipments, it gives some indication as to the potential for another decline in smartphone shipments in 3Q, despite the typical build for the upcoming holidays.

5G smartphones continue to grow, with July seeing the number of available 5G smartphone growing 7.1% m/m and up 83.8% y/y (410.5% over 2 years), while the number of vendors offering 5G devices (phones, CPE equipment, Routers, etc.) up 3.1% for the month and up 39.2% for the year in this very weak mobile device market.  While not a ‘study’ in that we cannot compare to-date y/y data, however anecdotally, for all of last year 5G smartphones represented 42.6% of all smartphone models as compared to 50.3% this year to date.
Sub 6  spectrum is still the choice for the majority of 5G smartphones, while Apple continues to support both Sub 6 and mmWave, however the necessity for mmWave tower locations to be considerable more dense than Sub 6, makes it more costly to deploy, limiting it to use in private networks, large venues (stadia, malls, etc.) and dense urban areas.  Currently our data suggests that 42% of available smartphones are able to utilize mmWave frequencies (including those phones that can use both), while 58% are Sub 6 equipped only.
All in, we expect that 5G smartphone availability will continue to grow throughout 2023, albeit at slower growth rates as it penetrates further into the smartphone ecosystem, but will become more subject to the macro CE environment as the technology becomes commonplace to consumers.  While based on advertising, one would expect that the entire US is now able to provide 5G service, we show the coverage maps for the three major US carriers and note that only the purple lines indicate 5G coverage, leaving vast areas across the US where 5G is still unavailable.  As that infrastructure continues to be built out 5G smartphones will be the natural choice for those looking to replace or upgrade.
 

In the pre-GPS world, day-to-day navigation was done with a combination of landmarks, maps, signs, and a good sense of direction, a struggle for many who do not have that last item, but with the advent of GPS systems, the necessity for a good sense of direction has become almost moot, other than keeping you from driving into a lake when the navigation system is incorrect.  Life without GPS is difficult for those that have grown up with it, and the fact of not having your smartphone with you when traveling almost anywhere is testament to our dependency on GPS navigation, but there are alternatives on the horizon.
In VR systems it is absolutely necessary for the user (and the system) to know where they are spatially, not only for the safety of the VR user but for others that might be negatively affected by wildly flailing arms or other body parts, or for the possible destruction of nearby furniture or pets.  Kidding aside, there are a number of systems that are used to gather position information for VR systems, primarily the requirement to mark absolute boundaries before a VR session, or the system’s ability to sense object information around the user using RF, although more sophisticated sensing systems are needed for the advancement of VR into society.  That said, the characteristics needed for positioning in AR systems are far more related to everyday location information, as the evolution of AR systems into daily life will necessitate precise positioning information in addition to the visual information seen by the user.
Without location data the AR system will not be able to point you toward a particular destination or help you pick out your rideshare in an airport waiting line, and more importantly, it could point you in the wrong direction if being used in a driving situation.  We have noted that Google (GOOG) has been collecting visual data for its ‘Street View’ database since 2007, which it incorporates in Google Maps and Google Earth, and more recently made the 20+m GB of data and 10+m miles of roadway imagery available to developers under the “Live View” API, and while Google is the leader in non-GPS location data, they are certainly not alone.  Apple’s geo-anchors use the company’s “Look Around” data, movement indicators, and user imagery to develop a global 3D map, while Facebook (FB) focuses on “Live Maps”, a collection of physical and geometric information, along with a host of other social media oriented companies that are looking for ways to generate location data without using GPS.
The problem stems from the fact that the GPS system relies on signals from at least 4 of the 30+ GPS satellites that orbit our world.  There are instances when atmospheric conditions or signal blockage can compromise GPS signals and smartphone GPS data has a 4.9m (16 feet) radius, which could make it a bit difficult to pinpoint a specific parked vehicle or an item in a large warehouse.  Niantic (pvt) a small company that was spun out of Google, and financed by Google, Nintendo (7974.JP), and The Pokemon Company (pvt), recently bought 8th Wall (pvt), a company that created an interactive AR development platform that is browser based rather than a standalone application.  Niantic’s system is based on geometrics and the system’s understanding of its surroundings along with an understanding of objects themselves, essentially ‘does that object look like something in my database that is defined as a…’, with some of its data collected from Pokemon Go users, a vast network of users who play individually but are now able to play ‘in-network’.  As much of the game is based on finding Pokémon hidden in various locations, the visual data that is collected during the games is added to the Niantic database to build out the 3D maps.
While all of the players in the non-GPS location space are approaching it from different angles, the important factor is that the data is robust, giving object recognition and spatially oriented systems more information on which to rely, making their ability to recognize an exact location more precise.  As noted Google has a huge amount of data from which its systems can match,  and certainly has an advantage over smaller data sets, but tapping into social media or other image sources can build maps quickly with sophisticated algorithms, so there is still no foregone conclusion that one system will rule.  The good news is that will all of this data collection, and more socially acceptable hardware for AR, the idea that you could walk down a street wearing AR glasses that tell you how to get to your destination by painting a red dotted line on the sidewalk or indicating which way to go to find that food truck that used to be nearby, is getting to be more of a reality.

Apple (AAPL) did a bad thing when it released iOS 10.2.1 on January 23, 2017.  The operating system update contained code that the company had added to reduce complaints of battery-related shutdowns on the iPhone 6s, and while the update did reduce the shutdowns by ~80% it did so in a way that reduced the phone’s performance.  When the iPhone 6s was operating with weak batteries, processor intensive operations would push the previous OS to provide the necessary power to the CPU but the weak batteries would sense the excessive draw and signal the OS to shut down before the batteries would be fully depleted.  The ‘fix’ in iOS 10.2.1 now told the CPU not to perform those functions at full speed but at a slower rate, drawing less power from the batteries and no longer causing a shutdown.  The fix worked, but it also produced a noticeable slowdown in iPhone performance and by the end of 2017 Apple was apologizing for the undocumented change and lowered the price on replacement batteries as a way to assuage user ire.
Unfortunately for Apple, iPhone fans were not satisfied by the apology or cheaper batteries and the internet was then consumed with #batterygate, creating a class action lawsuit that was brought against the company for not disclosing that it had slowed iPhone performance without informing users.  The suit was recently settled with each complainant to receive ~$25, with Apple’s total cost of ~$500m.  The company was happy to close the book on an embarrassing event that caused considerable damage to its reputation and legislative focus on its consumer related practices, but the federal judge that ruled in the case was told by the 9th Circuit Court of Appeals that he must review the settlement again due to the fact that he applied the wrong ‘standards’ to the final award.  While the appeals court did not rule on the settlement itself, it cited the judge’s “presumption of reasonableness” as a misstep in assigning the fines and court costs.
While the legalese makes it difficult to understand the gist of the appeals ruling, it seems to indicate that the judge should not have assumed that the settlement was reasonable before he assigned court costs ($80.6m).  The settlement and award required a certification that the legal requirements of class member notification were completed, with over 95m class action notices sent to persons with potentially eligible devices.  However, those who brought the settlement to the appeals court believe that the notices, which were sent to all iPhones with a registered ID, did not cover the actual owners, as businesses could be owners of corporate phones purchased through carriers.  As Apple does not track corporate ownership of its phones purchased through carriers, the complainants allege that there were potential class action participants who were not contacted, and the appeals court agreed pushing the settlement back to the lower court.

​Of course, this next review will cost more in legal fees, court time, and draw out the settlement longer, but that is the price we pay for a legal system that strives to satisfy every possible legal argument, even if 99% of the potential class action participants were notified.  The few who did not like the settlement, particularly the legal costs assigned by the judge, have been able to hold off the final say in this long, drawn-out lawsuit, despite pretty much everybody else being satisfied.   Such is the state of litigation in the US today.   “Justice is justly represented blind, because she sees no difference in the parties concerned.  She has but one scale and weight, for rich and poor, great and small.” – William Penn

​Intel announced a new graphics card aimed at squeezing industry leader NVidia (NVDA) by offering the new card at $329.  Intel is citing the run up in GPU (graphics processing unit) prices, a result of a tight semiconductor market and the needs of bitcoin miners, who use the cards for hash processing, as their focus for the new device, which the company says will have 65% better ray tracing capabilities (image rendering) than the competition, at a more moderate cost, which is a dig at Nvidia’s RTX 30360 graphics card.  The Nvidia card, which appeared on Amazon (AMZN) at ~$480 in May, saw a spike to ~$605 in August and then a fall to $381 earlier this month (currently $399) as demand weakened and inventory levels remained high.
It is early in the lifecycle of the Intel card (Arc A770) so only a few benchmark studies have been done, with the Intel card outperforming the RTX in many, but not all games.  On average the Intel card saw a 13% improvement in frame rate, and Intel says it should see improved performance in those games where it did not beat the RTX as it develops new drivers.  If that is the case, the Arc A770 will be able to compete with the more powerful RTX 3060 Ti card, which retails for ~$450 at least for now as Nvidia and AMD (AMD) are scheduled to release their next generation of GPUs by 1Q ’23.  While Intel has a shot to gain some attention as a lower cost alternative, gamers tend to “Go big or go home”. 

Samsung Display’s (pvt) CEO, JS Choi, seems to have taken on the additional roll of head of SDC marketing as he has been quite visible over the last few months promoting SDC’s new and developing products at conferences and trade shows all across the globe.  He did not miss a beat during his speaking time at the Intel (INTC) 2022 Innovation Forum to demonstrate a prototype of a slideable laptop that the company is developing that expands from a 13” tablet to a 17” laptop (see Figure 1 & link below).  Similar to smaller smartphone sized expandable/rollable prototypes, this device allows the user to pull the side frame to extend the tablet to laptop size, with the extended portion of the display being coiled internally until expanded.  When released the extended frame slides back to the smaller size and the additional display is then re-rolled internally.
While the SDC CEO ‘announced’ the device, no date for its release was given, which keeps it in the same category as the S-Folding displays (see Figure 2) that SDC has shown in recent months, that of ‘potential products’ that SDC and partners or affiliates are developing to exploit SDC’s foldable OLED display prowess.  We expect that SDC’s parent Samsung Electronics (005930.KS) will release at least one ‘advanced’ foldable/rollable model in 2023, and given the company’s massive media blitz promoting the most recent Galaxy Z Flip and Z Fold smartphones, there will be considerable customer interest in such as the category develops and refinements to the technology continue as we get closer to the reality of a truly rollable display configuration, as we show in Figure 3, a dream device (our favorite) that Universal Display (OLED) burned into our minds years ago to promote OLED technology.
Samsung Display has been the leader in the flexible display market since its initial release of the Galaxy Round in 2013 and the Galaxy Note Edge in 2014, the first commercial flexible OLED products[1], and continues to hold that lead, with China’s BOE (200725.CH) the only sizable contender albeit with a 9.2% share vs. SDC’s 71.2% in 2Q.  As the small panel OLED display market continues to mature, display producers struggle to differentiate their products to void the inevitable price degradation that occurs in the display space. 
By developing new small panel OLED display formats, such as those noted above, Samsung has been able to stay a step ahead of the pack, both on the production side with SDC, and on the product side with its successful Z Fold series of foldable smartphones.  That said, now that the public has been informed and likely convinced that foldable displays are smartphone fans’ new toy, there will be considerable momentum for foldable displays going forward, however that comes with the same caveats as any other feature that appears in consumer related devices, and that is practicality.  While foldable displays represent a significant leap in display technology, unless such displays serve a practical purpose, they will become ‘just another feature’, like multiple cameras, rapid chargers, or borderless displays, that consumers will assume they get for free after the initial excitement dies down.  If Samsung and other brands are able to come up with foldable/rollable devices that actually benefit consumers, the technology will have an extended lifetime and appeal, otherwise it will disappear into the world of generic display technology.


[1] Other brands have shown earlier prototypes of flexible OLED displays or devices, some based on e-paper or polymer materials, but we still consider Samsung’s ability for high volume flexible OLED mass production for the Note Edge to be the actual start of the ‘flexible OLED Age’.

https://www.digitaltrends.com/wp-content/uploads/2022/09/samsung-slidable-PC.webp?fit=720%2C423&p=1  (Ctl + Click)

​While the data we have on small panel OLED display demand is preliminary in that it represents only the rigid small panel display market, it is a bit disturbing in that actual 2Q small panel rigid OLED display demand was quite a bit below expectations.  We do note that rigid small panel OLED display share continues to decline, falling from 47.2% in 2020 to 44.0% last year and 38.2% in 2Q ’22, so the flexible small panel OLED business would be more representative of the overall small panel OLED display space, however the drop off in small panel rigid demand in 2Q was far greater than expected, pushing down 3Q expectations, and could portend 2Q small panel flexible display actual results and similarly lowered 3Q expectations.
Based on our data, 2Q small panel OLED rigid display demand was 25.9% below expectations, putting it down 19.5% q/q and down 33.2% y/y, led by a substantial difference between actual demand and 2Q expectations from Samsung (-37.4%) and Xiaomi (1810.HK) (-21.4%).  3Q expectations for small panel rigid OLED demand is now expected to decline by 25.9% q/q which implies a 46.5% decline in small panel rigid OLED demand on a y/y basis.  Again, rigid OLED is only 38.2% (2Q) of total small panel OLED display demand, but with 2Q actuals coming in so far below expectations for rigid small panel OLED, it is noteworthy in that we expect similar results from small panel flexible OLED data over the next week or so.  While much of the trade talk has been on the effect of inflation on demand in the LCD space, it looks like the small panel OLED display space was not spared based on this preliminary data.

One doesn’t usually think of the washing machine business as a dog-eat-dog market but the global household laundry equipment market is a ~$101b market, along with the inevitable ‘smart’ washing/drying’ category driving much of the growth.  The global market is fragmented with China’s Haier (600690.CH) the leader with a ~20% share, followed by Whirlpool (WHR) (14%), but the ‘other’ category is a big one at over 30%, pointing to a number of smaller brands that are popular regionally.  LG Electronics (066570.KS) has a lesser share (~6%) and South Korean rival Samsung Electronics is part of the ‘other category’, although in the US both LG and Samsung are popular contenders given their focus on ‘smart’ versions of washer/dryer products.
A few years back the former administration instituted trade restrictions on South Korean washers and dryers to help US brands (Whirlpool) to maintain a leading market share, and while those restrictions have been lifted, both the US and global washer/dryer markets remain quite competitive.  Samsung is adept at high volume manufacturing and cost containment in the consumer electronics space and has tried to bring that expertise to their consumer appliance business, however Samsung’s typical approach of pitting suppliers and technologies against each other to lower costs seems to have backfired when it came to their washer business.
Last year Samsung received more JD Power awards for its washers and dryers than any other brand, however they were forced to recall 86.2% of their Bespoke Grande AI front loading washers that they produced between September 2021 and May of this year due to defects in the washer door.  Those defects were allegedly caused by Samsung’s attempt to cut costs by changing suppliers and the formulation for the adhesive that seals the glass to the washer door.  Not only did the company have to issue an expensive recall, but one of its division presidents was called before the Korean Nation Assembly to explain why the defect occurred.
It seems that Samsung’s traditional adhesive supplier, Henkel (HEN.XE) found itself in competition with HB Fuller (FUL), who was providing Samsung with an adhesive that was 25% less expensive than Henkel’s silicon enhanced adhesive.  Fuller’s adhesive was less expensive because it was based on a polyurethane base, different from most washer adhesives, but to Samsung it represented a bit more margin or at least an offset to some of the raw material costs seen over the last two years.  Unfortunately the polyurethane adhesive turned out to be less resistant to heat and other chemicals in detergents and was said to be the cause of the leaky doors, the recall, and the embarrassing testimony. 

Earlier this month we noted that it has been a difficult year for WOLED TV, with negotiations between Samsung Electronics and LG Display (LPL) for the purchase of ~2m WOLED displays failing, and overall TV demand falling below expectations as the global economy faced rising inflation and rising interest rates.  Our two demand scenarios yielded unit volume estimates of 7.77m units as the best case and 7.27m units as the worst case, with a ~3% over-supply in the best case and a ~17% oversupply in the worst case[1].  Since then it seems estimates for WOLED TV shipments have continued to erode with back half production being lowered at LG Display, the sole producer of WOLED panels for TV, and the lack of an agreement with Samsung, weak overall TV demand, and continuing LCD panel price declines, all contributing to lower expectations.
With our worst case estimate looking the more likely, we move our attention to 2023 for WOLED TV set shipments and look toward the possible scenarios that might develop next year.  While there are certainly many variable that could come into play during 2023 that would affect OLED TV shipments, we focus on two.  Fist, whether Samsung and LG Display can come to terms as to a deal for what would likely be ~2m WOLED units, and the price of LCD TV panels.  To some degree they are dependent on each other as the relative value of LGD’s WOLED panels to Samsung would be determined by Samsung’s alternative, which would likely be LCD panels with Mini-LED/QD backlighting, already a mainstay of Samsung’s premium TV business, so if LCD TV panel prices continue to decline, we expect Samsung will opt for the less expensive solution, LCD, and LGD will face more typical OLED TV demand.
As we have mentioned previously, TV panel prices, while still declining m/m, have at least slowed their precipitous declines, and could see at least a shot at stability toward the end of this year.  That said, we still believe it will be a rather difficult holiday season for the TV set market as inventories are coming into the holidays higher than demand might portend, and while some panel producers have reduced utilization rates substantially, others less so, reducing the drawn down of inventory levels.  If holiday sales are enough to deplete excess TV panel inventory, it could set the tone for at least a small TV panel price recovery in late 1Q ’23 and that scenario would, in our view, give Samsung more incentive to strike a deal with LG Display as the value of relatively fixed price WOLED panels would look more attractive.
All in, we see a best case scenario of 9.25m units next year and a worst case of 8.5m units as shown below, with both Samsung’s potential decision and LCD TV panel prices as the swing factors.  Samsung does have the upper hand in the negotiations, especially when it comes to negotiating prices for LCD TV panels, as they are the largest purchaser of LCD panels that has no internal large panel LCD production capabilities.  While there are no other OLED TV panel producers who could supply mass production level volume, other than LG Display, Samsung seems to have chosen the LCD alternative this year and could do so again next year.


[1] 10% oversupply would be the normal baseline.