SellCell (pvt) is a company that buys and sells used electronics equipment, primarily smartphones, and as such they would seem to have a bit of a bias toward ‘encouraging’ potential customers to replace their existing phones by selling them through the company, rather than back to the carrier.  They offer better deals than most carriers, who can be very selective about which brands and models they will accept as trade-in, but we note that the survey[1] that they have conducted concerning the iPhone 13 could reflect some of that bias as the full survey is not available.  We note that some of the responses can be compared to a pre-launch survey which was a bit smaller[2].
A number of the responses were surprising, particularly the fact that 64.1% found the iPhone 13 models “Not at all exciting” or “Not very exciting”.  When it came to the features that attracted buyers to upgrade the 120Hz refresh rate was the most popular at 34.1%, considerably more than the 22% in the pre-release survey.  Longer battery life came in 2nd at 25.3%, again much higher than the 8.3% in the pre-release poll.  Under-display touch ID was the 2nd most popular feature in the pre-release survey, but did not even register in the final, but most telling was that 43.7% of respondents said they intend to upgrade to the iPhone 13 in the pre-release survey, while only 23.2% said the same after the new models were released. 
While both surveys were large enough that the data was likely reflective of the true intent of the respondents, the questions leaned a bit to the negative, so we point out again that the company doing the survey has a vested interest in getting folks to upgrade their phones.  That said we were a bit surprised at the lack of enthusiasm expressed for the new models, although our initial reaction was a resounding, ‘more of the same’.  There were a few oddities also, with the survey revealing that 18.3% of Apple users are triskaidekaphobic, meaning they have a fear of the number 13 (check to see if your elevator has a ‘13th floor’ stop…) and that 74% of those polled would prefer a different name than the iPhone 13.  The survey results are shown in figs. 5 – 9 below.
All in, Fig. 9 was the most surprising, as it indicated that the brand that iPhone users would most likely convert to was Google (GOOG), a relatively small name in the smartphone market, especially compared to Samsung (005930.KS) who came in lower than Google.  The Google Pixel series has been compared to the iPhone at times and has a limited number of models, also similar to the iPhone’s offerings, but sell for considerably less than Apple prices.  The Pixel does have a longer battery life than the iPhone 13, which was an important feature for the Apple crowd, but would likely perform much less ‘robustly’ when compared to the iPhone A15 Bionic processor.


[1] Included more than 5,000 iPhone users 18 or older, based in the US.

[2] Included more than 3,000 iPhone users 18 or older, based in the US.

As the CE space heads into the 4th quarter CE brands are beginning to face the reality that TV sales and shipments might not meet the goals that were set for 2021 late last year.  Some brands face the realities of the CE space more quickly than others, but brands must adjust such goals with OEMs and assemblers, who have to make sure they have enough inventory to meet such goals, whatever they are.  This year has presented even more problems for brands, given the semiconductor shortages that have extended component lead times and pushed component ordering to a higher level than might be considered normal.
While demand in the IT space (notebooks, monitors, and tablets) has been strong for most of the year, recent weakness in notebook and Chromebook demand has some brands thinking twice about how they will order for the remainder of the year, but nowhere in the CE space has there been more volatility than with TVs.  A strong 4Q 2020 and a record 1Q 2021, seemed to set the tone for the TV set industry earlier this year with North America being the generator of much of the unit volume and sales growth, but much of that TV enthusiasm came from the 2nd (December 2020 – January 2021) and 3rd (March 2021) stimulus checks paid to US taxpayers. 
However between May ’20 and June of this year, TV panel prices increased rapidly as South Korean panel producers Samsung Display (pvt) and LG Display (LPL) began a program to lower or eliminate LCD large panel production.  While these plans were curtailed to a degree by the rising prices, component shortages gave TV set brands a reason to ‘pad’ orders, for fear that they would be given a smaller than normal allocation from capacity constrained panel producers.  TV set brands continued to be encouraged after the strong 1Q this year, but without a new US economic stimulus in 2Q, things started to unravel quickly.
Panel prices had risen so much at the panel level that set manufacturers could not keep from raising prices at the retail level, and while this was done slowly the cost differential was eating into margins. In 2Q TV panel shipments began to decline, with the industry blaming component shortages, although panel producers still insisted they were not significantly affected by such shortages, leading to our conclusion that ‘real’ demand was waning.  We believe there were two factors that led to the demand slowdown.  Panel price increases that led to consumer facing TV set price hikes, and the COVID-19 vaccine, which began to give consumers the ability to return to a degree of a normal lifestyle and reduced the need for TV viewing and replacement/upgrading.
TV brands however continued to hope that momentum would pick up in 2H as is typically the case, with only Samsung (005930.KS) lowering its expectations for full year shipments from 48m units to 45m units (6.25%).  TV panel shipments continued to slow, yet panel producers were still raising prices up until mid-year, when things began to deteriorate more quickly, with TV aggregate panel prices declining 27.2% (through September) from their peak in July, with expectations that further declines would add to that this month[1].  Shipments have also declined, and while final September data is not yet available, the trend line projection would continue that trend.
It seems TV set brands have now come to the realization that they might not meet the goals that they set for themselves late last year and have begun lowering expectations.  This sets off a reaction across the industry with panel producers first offering volume deals to maintain high utilization rates and then lowering production rates avoid overproduction.  Samsung has again lowered it’s TV set expectations for the year from 45m to 43m units (6.7% and 10.4% from original estimate), while other brands have made larger cuts after holding out for much of the year.  Not all TV brands express their target changes publicly, but just the four in the table below represent over 50% of TV unit volume currently.


[1] Preliminary expectations for October would indicate aggregate TV panel prices would be down 38.5% from the July peak by the end of this month,

The industry will redirect focus on any weakness by shifting attention to ‘premium’ or ‘advanced’ TV products like OLED, Mini-LED, or quantum dot set growth, but it looks like the inevitable result of returning to a more normalized demand cycle is lower expectations for the remainder of the year.  That said, there is some hope for at least a little help during the holiday season, and that would come from the lower panel prices that we have seen during the last 2-3 months.  While higher cost inventory will prevail, if TV panel prices continue to decline at the same rate as they have in August and September there might be a little room for holiday discounting at the end of the year, but much will depend on how quickly the high-cost inventory can be sold through (we are not overly optimistic) and lower priced inventory can be produced.  In order for this to make a significant difference to overall TV sales lots of other parts of the supply chain will also have to cooperate (silicon electronics, transportation, etc.) which is why we are not optimistic, but we thought it worth a mention.
“Change always seems impossible until it’s inevitable.” – Sarah McBride

There is a lot of fluff in the almost 300 page Global Foundries (GFS – Proposed) F-1 that we mentioned yesterday, but disclosure is a good thing when you are trying to attract a group of high quality investors that (hopefully) will scrutinize every line of the document and make sure they are able to evaluate a true risk level for the company.  That said, it seems that the media discovered that Global Foundries had previously failed to mention (why would they?) that in 2017 the company and the government of Chengdu had agreed on a project to build a wafer fab which was eventually cancelled and has reserved $34m for potential compensation.  As it turns out Global Foundries had disclosed the project and its cancellation, but the circumstances were a bit more complex than the F-1 paragraph might describe. 
In 2016 GFS and the government of Chongqing signed an MOU to form a JV to set up a local wafer fab however only a short time later GFS reported a large financial loss, which put the project on hold, eventually being cancelled.  But all was not lost as Chongqing’s neighbor, the city of Chengdu, decided to reestablish the project, but this time in Chengdu.  In 2017 GFS announced it would invest $10b in a 12” fab that was to be the largest in China, but by mid-year 2018 GFS announced layoffs across the company and the plant’s recruitment program was halted, and by October the entire project was cancelled by GFS.  In early 2019 all of the purchased equipment was removed and employees were told to seek other employment. 
“Due to a variety of factors, including unanticipated market conditions, the manufacturing operations did not proceed as planned and the parties have been working to wind-down operations of the JV,” is how the F-1 described it, however it seems that the nationalistic conflicts between China and the US were an underlying cause of the project’s abandonment, along with AMD (AMD) moving its foundry business to TSM (TSM) when GFS cancelled the development of manufacturing processes for 7nm and below.  In April of this year GFS received a claim from the Chengdu government that it should share in the losses incurred in the project and negotiations continue to date, hence the $34m provision.  The fab was built but never put into operation, and now that the company is looking for US investors, it becomes increasingly clear that trade relations between the US and China had considerable influence over the final decision made last year.  JOHO.

​On 9/29 we noted that Samsung Display seemed to have cancelled an on-going project it had been working on for Apple (AAPL).  The project was to develop a 10.86” OLED iPad display for release in 2022 but a conflict over specifications for the panel were cited by the media as the cause for the cancellation.  Samsung’s typical OLED structure is a single RGB stack, however Apple is convinced that such an arrangement would not produce a bright enough display.  They proposed a double stack structure that is essentially two sets of OLED materials on top of each other, with Apple’s contention that the single stack structure would not be bright enough, a relatively common complaint about OLED displays, and that it would extend the display’s lifetime given the use profile for tablets.
SDC seems to have been convinced that such a product, and the changes it would have to make to its production line, would not be profitable for SDC based on its cost estimates and the expectations for potential panel sales to Apple.  We also noted that 2nd OLED supplier LG Display), would now have the opportunity to explore such development without the pressure that SDC would typically bring, particularly as LG Display has already developed a simplified dual stack structure that would be the basis for the Apple panel development.  It seems that such a project is underway at LG Display, with a target of developing a 12.9” dual stack OLED display using LTPO (Low-temperature polycrystalline oxide), but the likelihood of a 2022 product seems remote considering the early development stage, the complexity of the display, and the capacity available to LG Display. 
Perhaps if LGD is able to meet Apple’s exacting specifications, and calculates that they can profitably produce such a display for Apple for an extended period of time, we might see such a device in 2023 or 2024, but at the same time Apple is also exploring Mini-LED technology, which would likely be a bright and less expensive solution, albeit one that might not meet all of Apple’s criteria for color quality without quantum dots, so in reality the pressure never goes away.  Get cookin’.

​China Mobile (601728.CH) is the world’s largest telco by subscribers (945.5m as of 6/2021).  As such, they let some of the biggest telecom projects globally, all of which are within China or Hong Kong.   Earlier this year China Mobile let an equipment contract for its 5G 700MHz network project worth a maximum of 7.5b yuan (~$1.16b US), which was won by Huawei (pvt), and strangely enough China Mobile has just awarded the service part of contract to, you guessed it, Huawei, which would total out the project at ~$2.32b US.  Huawei does have to share both contracts with local competitor ZTE (000063.CH) at a 50/50 split, but the totals are large enough that even 50% of the deal is a significant amount.
While the equipment part of the contract was open to competitive bidding, the service segment was only open to two bidders, Huawei and ZTE in order to maintain brand support service for the equipment, but there was likely a bit of a bias toward using Huawei and ZTE as they both remain on the US trade sanctions list and have seen their global telecom business severely limited by US pressure.  While open bidding procedures were used for the equipment part, it seems that unless Huawei and ZTE were going to low-ball bids, they were going to get the contracts, as while China Telecom has publicly trading shares, the company is actually state owned, and therefore directed by the government toward serving the good of the people, which in this case means keeping Huawei’s and ZTE’s telecom businesses strong despite US intervention.  It’s nice to have a population of 1.45b behind you, even if they don’t know they are.

Composite Small panel OLED display shipments for 2Q came in 7.9% better than expectations, led by stronger than expected shipments from Visionox (002387.CH) and Tianma (000050.CH).  Expectations for 3Q are for a 16.0% increase in composite shipments, led by a large increase in flexible panel shipments (+53.4% q/q) by Samsung Display (pvt), which is likely based on production for Apple (AAPL) and to a lesser degree at LG Display (LPL) likely for the same customer.  3Q on a y/y basis is expected to be up 16.5%.. 
We note that while Chinese small panel OLED suppliers are certainly gaining share this year, they are expected to lose share in 3Q as production for Apple at South Korean producers dominates the quarter.  While BOE (200725.CH) is producing small quantities of panels for the iPhone, we see only a small (8.1%) increase in volumes in 3Q.  That said, while Chinese small panel OLED volumes are still small, they continue to grow as yields improve and capacity is added, and while Korea still dominates the small panel OLED space, there are 5 small panel Chinese OLED producers, with almost all increasing capacity into 2022.

Global Foundries (pvt), formed when Mubadala Investment Company, the investment arm of the United Arab Emirates purchased certain semiconductor assets from Advanced Micro Devices (AMD) in 2009 and combined it with the assets of Singapore-based Chartered Semiconductor (pvt), is considered the 3rd largest foundry globally.  The F-1 was filed with the SEC yesterday and while the filing gives no indication as to the size or value of the offering, the fund is expected to value Global Foundries at ~$30b US, not surprising considering the current state of the semiconductor space.  GFS is the proposed symbol. 
Global Foundries, which operates five foundries, one each in Malta and East Fishkill[1], New York, one in Burlington, Vermont, one in Singapore, and one in Dresden, Germany, competes with Taiwan Semiconductor (TSM), United Microelectronics (UMC), and Semiconductor Manufacturing International  aka SMIC (688981.CH), employing ~15,000 workers with ~46% in North America.  The company has a considerable number of long-term supply agreements, most of which were signed this year (see table below), however the company has been operating under an IFRS yearly loss since 2011 and under non-IFRS measurement just turned positive on a gross margin basis during the first six months of this year, albeit still at an operating loss.  As there have been a number of financial adjustments over the last few years, investors should look at the financials carefully to better understand the sales and earnings capabilities of the company.


[1] East Fishkill fab is currently part of ON Semiconductor, with the transfer to be completed by the end of 2022.

​[1] 300mm equivalents, kwpa
[1] Excludes Fab 7 Module which is under construction. ~450 kwpa expected.

​As we have noted previously, there has been a shortage of driver and timing ICs for display panels.  This has limited panel shipments slightly but has built on itself with panel producers accumulating inventory levels that are above normal as a safety net for further potential driver/TCON shortages.  While this has proved to be a good solution for much of the year, the current slowdown in demand for notebooks and TVs would be a point where panel producer demand would slow, especially as foundry costs for such products continue to rise in 4Q, however monitor demand is still robust that panel producers have continued to place driver orders, which is expected to push driver prices up a bit again in 4Q.  With relatively high driver inventory levels at LCD panel producers going into 2022, we expect demand to slow a bit further and LCD driver prices to stabilize or weaken. 
At the smartphone level the situation is a bit different, with LCD smartphone demand waning and small panel producers working out of inventory.  Small panel OLED producers face similar demand challenges, however OLED drivers are limited to a smaller production base, which is expected to keep OLED driver demand strong and prices high for the remainder of the year.  While OLED smartphone expansion will continue next year, unless there is a resurgence in smartphone demand, we expect flat OLED driver pricing in 1Q ’22 and weaker LCD driver pricing during the same period.

​As we have noted in the past, while China’s stock markets are both volatile and in some cases a bit sketchy as to what passes for financial review, there are a number of systems where investors or potential investors can directly pose questions to listed companies.  Not all companies participate in such public programs and among those who do, not all participate as actively as others.  The larger companies tend to have someone (CFO, Board Secretary, IR, etc.) who answers the questions, but there is not requirement as to response time or depth of the answer, with many answers copied from earlier, similar questions.  That said, while the answers can be telling, both from a content standpoint, and from how carefully they are worded, the questions, even before they are answered, can give some indication as to the level of comfort or discontent that investors are feeling.
China’s largest panel producer BOE (200725.CH) is a company that is responsive to its investor questions, although they can accumulate for over two weeks until a response is given.  While we have reviewed some of BOE’s Q&A in the past, we always check to see what ‘state’ the current crop of questions is in, which gives us some indication as to how investors are feeling toward the stock and the industry.  Here is a sample of the current open questions to the company (We note that these are translations from the Chinese via Google (GOOG):

• “Your company has spent huge sums of money to build a factory, are there enough orders at present?  Are there any new breakthroughs in technological development?”
• “Hello Secretary of the Board.  Will panel prices rebound and rise in the fourth quarter?”
• “It is rumored that BOE’s performance in the third quarter fell sharply, which was less than expected and there are major risks.  Is it true?”
• “Power cuts have occurred across the country.  Has the company’s current production and operation activities been affected?”
• “Research and research institutions will release TV panel price forecasts for the next month that month.  I would like to ask: 1) Does the company’s TV panels produce according to orders, or do they produce first and then strive for orders? 2) Has the company’s TV panel shipping price been finalized in the same month? 3) How much TV panel production will the company reduce from October?”
• “I hope that the company can interpret the impact of power curtailment on the display business: 1) Are the panels, modules, and complete machine factories included in the power curtailment? 2) What are the impacts of the panel raw materials, the materials of the module section, and the complete machine section? 3)  What is the impact of power curtailment on the company’s overall display panel business?  Thanks!”
• “What does the company think about the transfer of the TV screen production line to the IT screen by the panel factory production line, will it cause the TV screen to stabilize, which will lead to a substantial price reduction of the IT screen?”
• “The company’s three OLED production lines have invested more than 130 billion yuan, but it seems they are still in a state of loss.  When will they be able to make a profit?”
• “The company has been deeply involved in the panel industry for many years and has accumulated more than 70,000 useable patents, with an annual R&D investment of 10billion yuan.  But where is the company’s technical moat?  Don’t expect BOE to become a patent hooligan, at least it can use patent barriers to prevent disorderly expansion of domestic production capacity, right?  Patents are not only used to ensure that they can produce, but also to hope that BOE can also pay attention to patent protection.”

While we left out the simplistic questions like, “Will you be profitable in the 3rd quarter?”, these questions, which are in some cases more sophisticated than might be expected, seem to indicate a growing concern among investors that the industry, and therefore BOE to a degree, is in turmoil as continuing panel price declines put pressure on sales and earnings while many panel producers are still expanding capacity. 
The last question, which was a suggestion that BOE use its patents to rein in other Chinese panel producers expansion plans was quite unusual in that it was asking BOE to be the ‘watchdog’ for the Chinese panel industry, rather than the state or local governments, who are still funding expansion plans and operating budgets.  We doubt BOE would take up such a roll, but local governments, which should more closely oversee provincial and regional expansion, have a vested interest in funding capacity in that it creates jobs and tax revenue, and do not have the expertise or insight to look at the industry as a whole.  While BOE has more of that expertise and insight, they have their own vested interest in promoting the industry and would likely be looked upon as a pariah if they began forcing competitors into court just to limit their ability to compete. That leaves the panel industry in China to police itself, and that has not worked all that well in other industries. 

It is still early in the foldable smartphone cycle, even with the August 11 release of Samsung’s (005930.KS) 3rd foldable series iteration, the Galaxy Z Fold 3 and the Galaxy Z Flip 3.  With shipments beginning in South Korea on August 24 and in a number of other countries by the 2nd week in September, there are a few data points coming in as to how the devices are selling.  These are anecdotal at best and in some cases represent what dealers ‘expect’ rather than what has already been delivered, but it seems the units are selling reasonably well thus far.
Given that South Korea, Samsung’s home court, dealers were able to start accepting orders early, and thus far ~1m units have been sold in Korea, which is more than the very popular Galaxy Note 10 (8/23/19) and the Galaxy S8 (4/21/17) sold in an equivalent period, with 270,000 activations on the first day of sales.  JD.COM (JD) was said to have a total of 700,000 waitlisted orders at the end of August, while TMall (BABA) was said to have 168,000 in the queue at the same time.
More surprising is that India seems to have also fallen for the new foldables, with 1st day orders said to be 2.7 times that of the Note 20 (Announced 8/5/20) and is expected to exceed the Note 20 in overall sales, although we note that sales of the Note series had been declining for the last few years.  More surprising was the statement that 60% of the sales of the two foldables in India were for the more expensive Galaxy Z Fold and that 25% of those phones turned in for Fold price rebates were iPhones.
In China, where Samsung’s smartphone share has dwindled to ~1% over the last few years, the new Fold series sold 35,000 units and for the first time in many years, said phones made it into the top 10 in China for the month of September.   While some are touting that increased interest as a way for Samsung to find its way back into the Chinese market, with domestic brands representing 93.8% of total shipments in China, its going to take a lot of foldables to gain significant unit share for Samsung, although from a sales value standpoint things might be better, as the average smartphone price in China is a bit over $400, while the price of the Z Flip 3 and Z Fold 3 is ~$1,150 and $2,350 respectively.
Expectations for the Flip 3 and Fold 3 are for ~7m units sold this year and while the phone has barely been rolled out globally, expectations are already rising as such narratives about orders and sales appear.   Samsung is said to have begun to expand production at its assembly plant in Bac Ninh, Vietnam, one of three in that country, in order to alleviate potential delivery issues.  While we are encouraged by such patter, it would seem to be a bit early in the Flip/Fold 3 cycle to be making suppositions about 2021 shipments as we head into the holiday season.