There is nothing worse (well, maybe a few things) than having your smartphone tell you it is going into power saving mode while you are on an important call.  As such, despite the fact that a number of smartphone brands no longer include chargers with new phones, batteries are an important part of what gives us hope that we can finish that important call before the phone shuts off.  Lithium-ion batteries are the mainstay of what runs smartphones, saving been around in mobile devices for only about ten years, but have become an indispensable part of consumer electronics, despite some potential drawbacks.
On the negative side, Lithium is highly reactive to water, creating hydrogen gas which is flammable, so lithium based batteries are carefully encased to avoid contact with water or humidity and mixed with polymers rather than a liquid electrolyte (Li-Po).  On the plus side, they are environmentally safer than Ni-Cad batteries, which they have come to replace, as cadmium is a highly toxic metal.  However they are relatively expensive as much of the material used in the production process is flammable and requires equipment designed to be explosion-proof, but have little self-discharge, which means they can be stored for long periods without losing a charge.
Both battery types have the same power delivery, meaning an 18W Li-Po and an 18W Ni-Cad are equal in the amount of power they can deliver to a device, however Ni-Cad batteries have a ‘memory’ issue, remembering the point at which recharging began, and dropping the voltage to that point even if it is fully charged, which is why users of Ni-Cads are instructed to let the battery discharge fully before recharging.  Li-Po batteries have a much smaller ‘memory’ effect and can be charged at any point without major voltage drop, but require a built-in protection circuit to limit peak voltages on charging and monitor temperature, which adds to their cost, but can be shaped to fit small or unusually shaped spaces inside mobile devices.
But none of this matters when your battery is running out and you need your phone, and all of the hardware in smartphones, especially in 5G phones, can draw down batteries quickly, so one would expect the largest batteries to be in high-end 5G smartphones, however that is not the case, as the 10 smartphones with the largest batteries (7,000 mAh) are all 4G phones priced at $500 or less, a number of which are designed for emerging markets rather than mature markets where flagship phones are most popular.
One thing that seems to be a limiting factor for batteries is the physical size of the phone itself as the additional features in high-end smartphones require additional hardware, all of which competes with the battery for space, so designers are always trading off battery size against feature sets.  But there is another factor that can help in the battle to keep smartphones charged and that is the charger itself.  More powerful chargers are a way for brands to differentiate themselves and decrease charge times, so at least if you can’t fit in the world’s largest battery, you can change the phone quickly.  This is a place where Chinese brands excel and have been leading the charge (sorry) toward faster charging capabilities.  Of the 18 smartphone brands that come with smartphone chargers that are 100W or greater, all are Chinese brands, with the average charger for an iPhone 13 series or a Samsung (005930.KS) Galaxy S21 being between 20W and 25W.  Among the highest power chargers we have seen are the 120W charger supplied with the Xiaomi (1810.HK) 11T Pro that was released in October, which is said to charge to 100% in 17 minutes (5000 mAh Li-Po battery)
But speed is not the only criteria for charging, as the iPhone standard charging system doesn’t run at full power until it is at 50% charge and then begins to limit power as it reaches 70% limiting a full charge (from 0%) to 1hr. 56min. for an iPhone 13.  But higher power chargers, which charge faster also have some drawbacks, which are not usually mentioned in publicity literature.  The reason the iPhone charger reduces power as it gets closer to full charge is that the stress on the battery increases as it charges and limiting the voltage can reduce that stress.  Higher power ‘quick chargers’ do just this, pushing higher voltages when the battery is near zero, and then backing off as the charge increases.  Most rapid charger literature focuses on 10min or 30min. charge times just for that reason and 120W chargers have become commonplace over the next year as charger materials change and become more efficient, growing the ‘fast charger’ market 2.6 times between 2020 and 2022[1].
While the good news is that the voltage limiting circuitry inherent in Li-Po batteries will keep you from overcharging and damaging your smartphone’s battery, you should still not let your battery go to zero if possible as it causes a chemical reaction that can shorten the battery life over time, although most phones will warn you a number of times before you approach zero, and batteries that are designed for higher voltage charging have thicker layers that keep the higher charging voltages from damaging the battery, which also limits their power.  All in, the battle for product differentiation concerning smartphones seems to be migrating toward keeping your phone on for as long as possible and in this case, it seems the consumer is the winner.  That said, both Samsung and Apple (AAPL) now make you buy a charger rather than including one with a new phone.  There is no free lunch.


[1] Trendforce data

According to the Korean trade press, Samsung Electronics is expected to be launching 52 new models of smartphones in 2022, with 67m units being part of Samsung’s flagship line, which includes the Galaxy S line and the Z Fold/Flip line.  Additionally, 91m mid-priced models are included in Samsung’s target, along with 176m low priced units, with a total of 49m units being produced in cooperation with OEMs.  While there is some contention concerning how the unit volumes will break out among the price tiers, the total unit target is between 321m and 334m.  The lower estimate breakout is shown below and includes 2021 models that will continue to be produced in 2022.  While there are estimates of when certain models will be released, we expect much will depend on component availability and put little weight in such early timelines.
We note that Samsung’s targets are aggressive, with foldables rising from ~7m units this year to 13m in 2022, but the total of over 300m units has been unreachable since 2017 and carries considerable skepticism across the industry.  While much of the sales value is in Samsung’s flagship and mid-tier lines, it seems foolish to expect such large shipment volumes on an overall basis, especially with the specter of component issues adding uncertainty to the mix.  We expect the recent examination of Samsung’s mobile business by corporate management might be leading to the more aggressive targets, but given how targets have been lowered this year across almost all smartphone brands, we would expect Samsung’s optimism might be a bit misplaced.

​On a unit volume basis, the global smartphone segment saw shipments decline by 10.3% y/y to 319m units in 3Q.  The decline was led by Samsung (-13.5%) and Huawei (pvt) (-88.2%), while all other top brands grew y/y.  Apple grew more than any other brand in 3Q on a global basis at 16.2%.   If we were to remove Huawei from the group, 3Q global shipments would have grown 2.5% q/q, so much of the negative growth came from Huawei’s trade issues with the US.
In China, shipments in 3Q declined 6.4% in 3Q, led by Huawei, with all other major brands growing y/y.   Again removing Huawei from the list, Chinese shipments would have grown 20.7%, although a theoretical calculation given the fact that Huawei’s unit volume decrease in both global and Chinese shipment categories was responsible for much of the gains seen by Chinese brands, who picked up the lost Huawei customers.
We note that our shipment calculations are done by averaging multiple data sources and therefore do not always add up to 100%.  That said, by averaging multiple sources we are able to compensate for outliers that now have a muted effect on the averages.  While extreme variations are relatively rare concerning global brand shipments, regional brand shipment estimates can vary by as much as 25% in either direction.

Apple (AAPL), while a produce of a variety of CE products, is an iconic brand and a company that is a master of marketing.  Apple pays extraordinary attention to product design characteristics, which has always made marketing its products easier than those generic CE products that fall in line with the current swath of smartphones of PCs.  Apple does considerable R&D as to technology and component development in house or in conjunction with suppliers and while not always leading the pack in terms of new technology, the company’s overall product quality is among the best.  That gives Apple the ability to charge a bit more for its products than competitors and has helped the company maintain superior margins, but there is a point at which Apple’s brand marketing can take things a bit too far.
The example is a relatively new item that is part of Apple’s ‘Accessory’ catalog, a polishing cloth “Made of soft, non-abrasive material…”, “…cleans any Apple display, including nano-texture glass, safely and effectively.”  This is a simple way to keep your Apple product displays clean without scratching the surface, likely made of a microfiber material based on a synthetic polyester blend.   The problem with this Apple product is the price, which is $19.00 plus sales tax, and while you get free shipping if you order today, the earliest available delivery date is between January 12 and January 26, 2022, which implies it remains popular, although logistical concerns could also be a factor.
But there are alternatives.  Smaller brands are willing to sell you a 6 pack of 6” x 7” microfiber, individually packed, cleaning cloths, “…perfect for delicate surfaces like LCD TV screens, smartphones and other touch screens…”, for a mere $8.95 (Amazon (AMZN)), or you can get a similar single sheet (7” x 6”) for $1.39..  Not to miss an opportunity, when Samsung Electronics (005930.KS) found out about the product and its price, Samsung Germany sponsored an ‘event’ where they gave out 1,000 ‘glossy cloths’ for free to those that applied through the Samsung mobile app, and while social media questioned Apple’s excessive ‘logo’ pricing, they also questioned Samsung’s tactics.  Some cited Samsung’s Facebook (FB) attack on Apple last year when they released the iPhone 12 without a charger, stating “Galaxy provides the most basic components such as a charger” only to see the post removed before Samsung released the Galaxy S21 without a charger.
 

​While not an official holiday in China, Single’s Day (aka 11/11) is the largest shopping day globally, surpassing all other holidays in revenue generated.  The holiday is said to be the result of a group of four Nanjing University student’s frustration with the constant focus on marriage and couples, deciding to celebrate their ‘singularity’ with a celebration (originally called Bachelor’s Day).  This idea spread through social media and while celebrating singles, is also a day where parties and special programs are common, allowing single men and women to meet and find a partner.  The 11/11 designation (双11) represents singles (ones) and couples (11) and was trademarked in 2012 by Alibaba (BABA).  Shopping had little to do with the origins of the holiday, but as Alibaba championed the data early on, it became a focus for every type of consumer related product, from restaurants and Karaoke Bars to almost anything that can be purchased on-line and is now the biggest single day revenue generator of any global holiday.  Of course it doesn’t hurt to have 18.3% of the global population behind such a celebration in China alone, but a $75b last year, Single’s Day is 3x larger than the total of Thanksgiving, Black Friday, and Cyber Monday combined.
While expectations for the extended holiday (11 days) still call for growth of ~15% this year, that compares to 26% last year, as China’s GDP growth of 4.1% in 3Q was lower than last year’s 3Q growth of 4.9% and lower than 2Q’s 7.9% and inflation is also increasing, with the PPI rising 13.5% y/y last month after a 10.7% increase in September, and the CPI rising 1.5% y/y last month, 2x the rate in September.  Many Chinese companies built inventory levels earlier in the year in anticipation of component shortages and rising inflation but have sold out much of that lower cost stock and are now faced with raising prices or facing lower margins. 
While these are cyclical economic issues that face many businesses globally, the Chinese government has been particularly focused on “common prosperity” or the redistribution of wealth, which has taken the form (among other ways) of increased scrutiny concerning anticompetitive behavior among large on-line businesses.  Alibaba saw a $2.8b fine, with others either under investigation or having decided to ‘donate’ billions to government sponsored social programs to join the ‘redistribution’ as President Xi Jinping makes it a ‘priority’.  Specific warnings to on-line retailers, such as banning the practice of raising prices before putting them on sale for the holiday, or limiting marketing messages to consumers, have made on-line retailers in China a bit more cautious this year, which could be reflected in a slower holiday growth rate, and companies have been focusing on ‘woke’ promotions and vouchers this year, as opposed to those that are absolute revenue generators.  Whether all of these factors make a difference to Chinese consumers or if they are sustainable over time remains to be seen, but its still going to be the globe’s biggest shopping day.

Corning (GLW) held an opening ceremony at its Gen 10.5 glass substrate plant in Guangzhou, the company’s 3rd Gen 10.5 plant in Mainland China and Corning’s 7th glass plant in China.  There is one Gen 10.5 LCD display fab in Guangzhou, which is owned by Sharp (6753.JP) and Foxconn’s (2354.TT) Chairman Terry Gou.    While Sharp has a Gen 10.5 LCD fab I Japan, the China Gen 10.5 fab had been delayed during the early stages of COBID-19, and given Corning’s careful expansion plans, Sharp has likely given the ok for the fabs phase 2 build out, which was originally scheduled for earlier this year, before the COVID-19 delay, which would double the fab’s capacity to 90,000 sheets/month and make it worthwhile for Corning to build a plant nearby.
Corning has also agreed to a strategic cooperation framework with Shenzhen based Tianma (000050.CH) to develop applications that encompass Corning’s ColdForm technology, which allows for Gorilla Glass to be processed (ion exchange, etc.) and then bent and formed without the use of what would typically be a hot molding process done before processing.  While allowing for the same automotive design shaping that hot molding allows, all of the process steps can be completed before forming, making processing considerably easier and less expensive.  Additionally both companies will conduct joint research toward the development of new products in automotive and the CE space.
 

Our primary 5G indicators, with a focus on device and smartphone growth, continued again in October, with both easily staying above trend lines.  Device growth was 5.2% m/m and up126.6% y/y, while 5G smartphone count was also up 5.2% and up 128.2% y/y, putting it up 1000% over a two year period, but the growth was not limited to phones, as 5G laptops grew 5.3% m/m to 122.2% y/y and 5G tablets grew 8.7% m/m to 257.1% y/y.  On an overall basis, 5G smartphone growth has slowed from last year’s aggressive pace, with an average m/m increase of 7.7% this year vs. 14.9% last year over the same period, with a 6.7% average for Q3.  We expect somewhat slower m/m growth in upcoming months as the denominator increases, with 1Q and 4Q 2022 seeing the strongest quarterly 5G smartphone growth.
 

A number of smartphone brands are active in the ODM market, outsourcing the design and production of a variety of models to reduce costs.  Almost all major smartphone brands follow this path to a degree, other than Apple and Vivo (pvt), the sister brand to Oppo (pvt), who is the largest user of ODMs.  Considering that both Oppo and Vivo are owned by the same company, it is unusual that they have been diametrically opposed when it comes to ODM outsourcing, however it seems that Vivo has begun to see the merits of using ODMs, with its first batch of small orders going to Huaqin Technology (8014310.CH) one of the largest ODMs in China. 
Samsung, while 3rd in last year’s ODM outsourcing ranking, saw the biggest y/y increase, up 269.1%, however while LG Electronics (066570.KS) saw a 56.6% increase in ODM unit volume they will likely see a very substantial reduction this year, as they have decided to close their smartphone division.  Huawei (pvt) saw a reduction in ODM orders allotted in 2020, but that was likely a result of weak smartphone sales coming from the US trade sanctions levied against the company last year.  Such a reduction will likely happen again in 2021, as the company’s smartphone sales, both in China and globally, have been further limited by the same sanctions.
Estimates for the smartphone ODM market call for an increase from 480m units last year to 650m units in 2025, while sales value is expected to increase from $26.4b last year to 33.8b in 2025.  Much of the growth is expected to come from said increased unit volume but predictions that the average price of a smartphone will continue to increase at least in the near-term, benefiting ODM sales, is also baked into forecasts for this year and next.  Unfortunately component and raw material inflation is the root cause of the big boost in smartphone ASP last year (10.6%) and this year (3.6%), although we believe preduictions for another 4.1% average ASP gain in 2022 could prove optimistic.  After that ASP’s for smartphones are expected to be essentially flat through 2025.

​Apple (AAPL) has lost a bid to stay a key order in the case of Epic Games (pvt) vs. Apple that was made in September by Federal Judge Yvonne Gonzalez Rogers.  The stay would have prevented the implementation of the court ordered injunction, as noted below, which puts Apple in the position of no longer being able to prohibit application developers from including links to external or alternative payment options, both in the application and through the app registration process.  Apple had asked the court for additional time to rewrite the policies it uses currently, which prohibit payment linking to sources other than the iOS App Store.
The judge’s current stay ruling stated that “Apple has failed to satisfy its burden, and the request as framed is DENIED. In short, Apple’s motion is based on a selective reading of this Court’s findings and ignores all of the findings which supported the injunction, namely incipient antitrust conduct including super-competitive commission rates resulting in extraordinarily high operating margins and which have not been correlated to the value of its intellectual property.” 
This allows the injunction to go into effect immediately, prohibiting Apple from restricting app developers from offering external payment methods to users, although Apple is still allowed to restrict in-app payments.  The judge gave Apple 30 days in which to implement the changes, which will be in effect during the appeal process.  Apple recently updated App Store rules to allow developers to contact users directly about payments, a result of pressure from other lawsuits, which allows methods that bypass Apple’s 15% to 30% commission, but Epic Games (the Plaintiff in the case) is pushing for the in-app rules to be eliminated, and Google (GOOG) has recently indicated it is cutting app store fees for most developers, in a bid to quell further pressure..  

As we have noted previously, BOE (200725.CH), China’s largest panel producer maintains active communication with its shareholders or potential shareholders.  While this Q&A does not always answer questions or acknowledge the validity of suggestions, at least management responds to a reasonable proportion of the numerous questions asked.  Over the last 24 hours, the company responded to the most recent batch of questions and suggestions, some of which we detail here.

• (Suggestion) – BOE should consider buying Visionox.  According to the ‘investor’, Visionox’s (002387.CH) major shareholder is looking for an exit strategy and the value of the stock is ~10b yuan ($1.566b US), which would buy Visionox’s three OLED fabs at a price far cheaper than they could be built for today.  BOE’s response, “Thank you for the suggestion”.  Visionox has been struggling to achieve profitability for years and while they continue to build out the 3rd OLED fab in Hefei, they have been relying on government subsidies to provide operating capital, with net income negative despite increasing sales from fab ramps.  While BOE would be paying cents on the dollar and has the production experience to improve overall yield, such an increase in capacity would likely outstrip BOE’s customer demand.

 

• Status of Repurchase Plan? BOE has been operating a stock repurchase plan under which it has bought 248.6m shares.  While this seems like a very substantial amount, it represents 0.645% of the company’s outstanding shares and a purchase value of ~$213m US and seems to have done little for the stock, although the program continues.

 

• Who is Your Glass supplier for the Vehicle Display Base Project?  Last month BOE announced it will spend $390m to build a ‘Vehicle Display Base’ in Chengdu.  It seems some investors are confused about what this actually entails as the project is an assembly facility that takes open cell panels (those without backlights) and customizes them according to customer specifications.  That would include adding a backlight, frame, and a number of other possible components, so the only glass that might be used in such a situation would be a cover glass.

 

• What are your capabilities for LTPO?  BOE responded that LTPO is in development and would be ‘introduced in a timely manner’ and that all of the company’s flexible OLED lines ‘have conditions to upgrade part of the production capacity to LTPO’.  We expect 2023 at the earliest.  This question was most likely asked in reference to BOE’s tacit final approval from Apple to be supplying OLED displays for the iPhone 13 and future iPhone series.  Some iPhone models are expected to be using TFT systems using LTPO rather than the more typical LTPS backplanes in the future, with the LTPO process being more complex and more costly.  We believe only Samsung Display (pvt) is currently able to supply high volume LTPO OLED displays to Apple and will probably be the primary supplier of those models in 2022, with LG Display (LPL) developing MP capabilities for LTPO to a small degree next year and expanding that in 2023. 

 

• It seems the company is behind plan as to flexible OLED shipments.  In July and August 11m and 14m units were shipped.  How many in September?  Surprisingly the company indicated that they had shipped 40m flexible OLED panels by the end of 3Q, which would imply ~15m in September, although they did not confirm the correctness of the July and August figures.  We believe they are correct.

While BOE continues to gain traction in the OLED space, at the end of 3Q we estimate that they had a 16.3% share of the small panel flexible OLED market, in terms of units.  This is larger than any other small panel flexible OLED producer, including LG Display, but quite a bit behind Samsung Display’s 62.2% share over the same period.  We do expect BOE’s share to increase considerably as it builds production into Apple’s iPhone supply chain, but despite the increasing unit numbers, we expect Samsung’s ability to produce higher value LTPO displays for Apple, will continue to give SDC a sales dollar advantage that is out of proportion with its unit volume share.  That said, BOE continues to push hard to develop its small panel flexible OLED business with Apple, and while the stock likely reflects more of the company’s exposure to the LCD panel business, they are now the #2 player in the small panel flexible OLED space and will see considerable growth in 2022.