​We have been noting the slow progression of Matter, the just released standard that is to unify and simplify smart home products, allowing consumers to utilize a wide variety of control platforms to manage their smart devices, rather than being forced to use only those that are dedicated to those devices.  The Matter standard was delayed for over two years while details were worked out was officially released last month to considerable fanfare, with the hope that the standard will unify the smart home space by unifying both large and small smart home brands, a difficult task considering considerable sums have been spent on proprietary products, networks, and control systems over the last few years.
There have been questions as to the ‘real’ support the standard would garner from major smart home brands, and while we expect support from major ‘promoters’ such as Apple (AAPL), Amazon (AMZN), Google (GOOG), Huawei (pvt), LG (066570.KS), Samsung (033570.KS) , and Texas Instruments (TXN) (Full Promoter & member list here), certified product roll-outs will take considerable time as brands incorporate the standard in new products and develop software updates for existing devices and the list of product categories under the new framework expands.
But there seems to be another issue, behind the more obvious ones concerning member support and potential infighting, and that is cost.  We have been able to gather some information as to what the Connectivity Standards Alliance, the organization behind the standard, is charging for the ability of a brand to use the Matter logo.  As with other major connectivity standards, such as Bluetooth, the platform itself is an open standard, available to everyone free of charge, but if a brand wants to display the Matter logo on a product package to alert the consumer that this will be a ‘Matter Compatible’ product, the CSA charges a fee based on what is known as a PID group, sometimes called a License Code or a Product Key, which is used to identify a registered product.  This could be a group of smart light bulbs (max of 4 to a group), or a security camera, but each PID requires a separate license and therefore an additional fee.
Thus far we have seen fees ranging from a bit over $8,000/year to over $11,000/year that must be renewed yearly, which can become quite expensive depending on the breadth of the product line.  There has been some push-back on the fees from smaller brands, who have indicated that they will use the standard, but will not subscribe to the logo license due to the cost, with some larger manufacturers likening Matter to Bluetooth, where the standard is widespread but few license the logo.  While this is certainly an issue for the CSA, as it must support the continuing development of the Matter standard and the certification process, without the visibility of the logo, it will take far more time for consumers to understand what Matter is and how it might help them with their smart products. 
Hopefully, this will not defeat the effectiveness of the standard, which certainly can go a long way toward making smart products more helpful and affordable to consumers, but we expect the seemingly high fees will slow the standard’s growth, despite its potential adoption by brands, leaving much of the proselytizing to those willing to fork over dollars to advertise the benefits of Matter.  We expect the major CE players to absorb those costs, but the other thousands of CE brands that could be a grass-roots groundswell for the standard, will be left to hope that others will raise the banner for them going forward and that they have not made a foolish decision when adopting the Matter standard.

It is hard to imagine that an entire country is reliant on a single company, especially one that is based elsewhere, but that is the case with Vietnam, as Samsung Electronics accounts for almost 20% of the country’s exports, so when Samsung sneezes, Vietnam catches a cold.  With ~50% of Samsung’s  smartphone production coming from its 6 factories in the country, spread across Hanoi, Ho Chi Minh City, Bac Ninh, and Thai Nguyen, Vietnam’s growth is closely tied to Samsung’s $18b investment in the country’s manufacturing workforce and infrastructure, including a new R&D center that will focus on AI and IoT development.
But that means that when Samsung finds it necessary to cut back production, which it did earlier this year, it has a particular effect on Vietnam’s exports and production values as reflected in the most recent report on Vietnam’s smartphone production in November, which saw a 9.3% decline.  Once again Samsung cut back its smartphone production as consumer demand weakened further, and even recently re-adjusted volume targets became dreams rather than reality.  Overall exports from Vietnam declined by 8.4%, in part due to Samsung’s production slowdown in November, but more concerning was the drop in imports (↓7.3%) which we see as anecdotal evidence that Samsung has reduced component orders from suppliers, indicating a lack of conviction toward a near-term recovery in smartphone shipments. 
Some say that it could just be a shift away from Vietnam by Samsung toward other assembly locations, a result of the country’s close ties to China where trade conflicts with the US continue to expand, or a spike in COVID infections last March, that made it difficult for Samsung to move components in and finished goods out of the country.  We believe it has more to do with Samsung’s view of the CE space overall and smartphone volumes for the remainder of the year, with a focus on maintaining low inventory levels at year end. 
Samsung is expected to release it flagship Galaxy S23 smartphone line in February, so we expect a bit of a boost in production early next year, but after months of fighting the evils of excess inventory, we expect Samsung is looking to be more of a JIT supplier next year, and will farm out more to ODM/OEMs in order to let them carry more of the raw material and component inventory risk.  This bodes a bit poorly for Vietnam, but with the size investment Samsung has made in the country, we expect Samsung will remain firmly rooted in the country, albeit perhaps at somewhat lower production levels, although India continues to ramp up incentives to drawn more major manufacturing to its shores.  Maybe next time the note title will be प्रभात भारत instead of chào buổi sáng Việt Nam.

After a small bounce in September, large panel shipments in October declined by 4.3% m/m (down 18.8% y/y), seemingly settling into a range around 60m units/month, where it has been since July, with an increase (↑13.8% m/m) in tablet shipments largely offsetting the decline (↓18.2%) in notebook shipments.  IT (notebook, monitor, and tablet) panel shipments declined by 5.2% m/m and by 26.5% y/y while LCD TV panel shipments declined by 2.7% m/m and 0.9% y/y.   Large panel LCD revenue declined by 3.2% m/m and 30.5% y/y, bringing large panel ASP up 1.1% for the month but still down 14.4% y/y.  China’s LCD panel producers represented 48.6% of industry revenue, and while Chinese large panel revenue growth in October was a meager 1.5% m/m (↓32.0% for YTD), China was the only region that saw revenue growth in October.  BOE (200725.CH), China’s largest large panel LCD producer represented 56.8% of revenue generated in the region, with Chinastar (pvt) and HKC (248.HK) in the #2 and #3 positions with an 18.8% and 17.9% revenue share respectively.
October is typically (5 yr. avg.) a down month for large panel LCD shipments (-3.1% avg.), so results this year were only modestly worse, however we expect November, typically an up month for shipments (+2.0% on avg.) to be weak as consumer enthusiasm continues to wane and COVID lockdowns in China limit brand shipments, leading to order cutbacks at panel producers.  If this scenario plays out, it should help to reduce inventory levels further, working toward reducing the over-supply as the holidays progress.  While we still see little hope for a demand led CE recovery as we head into the new year, there seems to be some headway being made toward maintaining lower display production levels and normalizing inventory levels, perhaps leading to a more stable, if unenthusiastic start to the new year.  With Chinese New Year coming early (1/22/23), much will depend on the COVID lockdown situation relative to Chinese CE demand, which could easily swing in either direction.  If the lockdowns are softened, we expect a bit of pent-up CE demand, but if not, we expect the Mainland will see weaker CE results than seen in the US and Europe.  It is in Xi’s hands…

​Back in March we noted that LG Display (LPL) had decided to trademark OLED.EX after the company unveiled its new TV line at CES, touting a 30% increase in brightness compared to conventional OLED displays.  What made this possible was a change in the chemistry used by LGD, substituting an isotope of Hydrogen (deuterium) that has both a proton and a neutron in its nucleus, as opposed to just a proton, as is the case with ‘regular’ hydrogen.  While this change is a yawn for most consumers, the bonds between molecules using deuterium rather than hydrogen, are stronger and the rate of reaction is slower than normal, which means a potentially longer life.  In OLED displays, the current ‘push’ given to emitting materials determines their lifetime, with the tradeoff between brightness (more push) and lifetime a major concern for OLED display designers.  By substituting deuterium for hydrogen, the materials can be driven harder, increasing brightness, while the lifetime remains the same, hence the 30% increase in brightness that LGD claims, similar to deuterium’s application in pharmaceuticals where it is used to extend drug lifetimes.
Deuterium has been used in the development of TADF (Thermally Activated Delayed Fluorescence) emitter materials but is currently expensive as it requires a more complex synthesis process, but when compared to the cost of alternatives that would increase OLED display brightness, such as dual OLED stacks, the material cost is more reasonable.  However, there are few sources of deuterium, as the process for extracting it from water (1 in every 6700 water molecules is deuterium) requires considerable energy, which limits production, and while the demands of LG Display’s OLED TV business use relatively small amounts of the material, it remains another expensive materials in the OLED stack.
While the promotion of deuterium as a point of differentiation for LG Display’s OLED TVs continues, they are not the only ones interested in the material, and a joint venture between Samsung Display (pvt) and Japanese chemical supplier Hodogaya Chemical (4112.JP) seems to have thought enough about the potential use of deuterium to take LG Display’s patent for its use in display devices to court in South Korea in January of this year, asking the Intellectual Property Trial & Appeal Board to invalidate the IP.  It seems that the court agreed with Samsung and Hodogaya and nullified a patent that specified the use of deuterium in an electroluminescent device that was filed by LGD and development partner Material Science (pvt), as sated in the IP Abstract below.
“The present invention has the effect that it has property including the low driving voltage, the luminous efficiency and longevity etc. as the organic compound which more specifically, becomes as the new organic compounds and the organic electroluminescent device including the same with the deuterated (Deuteration) and the organic electroluminescent device including this as the material of at least one organic layer high.”
 
IP litigation is extremely complex and in the case of organic materials, is burdened by the number o0f potential organic molecules that can be combined to create an emissive device, but when a patent is challenged, the burden of proof is on the litigant to prove that there was prior art, the patent was similar (not novel) to other IP, or a number of other qualifiers that might have been overlooked during the patent’s original application and approval.  While we have a limited understanding of the nuance of the Korean judicial system, we believe that an appeal must be filed within two weeks of the invalidation notification, or for procedural issues, a filing must be made with the Supreme Court, but it would be rare that a ruling of this kind would prohibit the broad use of deuterium in display devices, but more likely limit its use to certain circumstances. 
 
While LGD has filed tag-along patents in other countries, including the US and China, as the displays in question are produced in South Korea and China, the ruling will likely be challenged in those jurisdictions by SDC or others and defended by LGD, and will continue this litigation battle for years to come.  We expect this will do little to change LG Display’s plans for adopting the deuterium process for its entire line, but will only serve to raise the total cost of materials a bit higher when litigation costs are factored in.  

​While the news is carrying shots of continuing protests in China over the country’s strict COVID lockdown policies, those lockdowns continue, and salary and bonus promises have been found to have strings attached that have angered Foxconn (2354.TT) workers who stayed on during the recent lockdown in Zhengzhou.  Back on 11-1-22 we estimated that the lockdowns would result in a shortfall of 11.2m iPhone 14 units, and while the most recent estimate from ‘industry sources’ put the shortfall for just the iPhone Pro, one of four iPhone 14 models, at close to 6m units, with the Pro Max expected to be the better seller of the two high end models.  Our estimate might be high, but its looking more like it could be close as the days wear on.
 

Based on Adobe (ADBE) Analytics, Black Friday sales were $9.1b, up 2.3% y/y, which was up slightly from AA’s expectations of ~$9b (up ~1% y/y), while other sources were looking for a flat to slightly up Black Friday, despite the high inflation scenario this year.  With discounting having started early this year to move excess inventory, other than the one-day door-buster items, discounting seems to be relatively similar to what has already been in place pre-holiday.  Thanksgiving Day on-line sales were $5.3b, up 2.9% y/y, also slightly better than Adobe expectations, according to early data.   While data is not yet in for cyber Monday, Adobe’s expectations are for an increase of 5.1% y/y to $11.2b.
The US Census Bureau provides data concerning the share of annual revenue generated in the 4th quarter of the year for various types of retailers, with 27% of total retail sales occurring in the 4th quarter (2021).  Department stores saw 35.5% of sales in the 4th quarter last year (the highest percentage), while 30.1% of electronics store sales were generated during the same period last year, with sporting goods stores seeing the smallest share (27.6%) of yearly sales in 4Q.

Inflation has been the biggest problem for retailers this year, but the seasonal data suggests that November will see a seasonal drop, allowing retailers a chance to make up some lost ground in terms of profitability, which has been difficult to generate this year for many retailers.  That said, on a more specific basis CE retailers have a relatively long way to go in the CE space as based on the census data, we calculate that through October, electronics retailers have seen inflation increase by 9.67% this year[1], as shown in the table below, while computer retailers have seen a 13.44% increase, and while we include office supplies, not a real CE category, to give some perspective, (up 2.16% YTD), appliances are just about flat for the year, down less than a quarter of a percent.  As noted, we would expect November inflation data for the CE space to be down, but based on holiday numbers thus far, it will be difficult for CE retailers to make up ground lost to inflation.


[1] These calculations are based on setting December 2021 as a zero point and calculating the monthly inflation rate for each category of retailers through October.  This data differs from single month (October) data which is calculated on a y/y basis.

​We have mentioned that several LCD and OLED panel producers have slowed or postponed decisions or plans to expand capacity over the last few months, a result of the macro inflationary environment and the concurrent lack of consumer spending.  While Chinese panel producers still have groundbreaking ceremonies and sign both letters of understanding and form new entities with local governments to build out existing or add local LCD or OLED capacity, the realities of the current situation tell a somewhat different story.  Chinastar (pvt), a subsidiary of TCL (000100.CH) has been building its T5 fab since the middle of last year, originally to be a Gen 6 OLED fab, with the possibility that it could change to an LCD fab for IT products and a micro-LED backplane line. 
As the display and CE market deteriorated this year Chinastar, while having ordered a considerable amount of fab equipment form a variety of vendors, seems to have pushed out the delivery dates, some of which were to have been delivered this month.  Two South Korean equipment suppliers indicated that they had seen such delays for contracts with near-term delivery dates, totaling $24.2m US, one of which seems to have been pushed into late 2023 (unconfirmed), and the potential micro-LED project seems to have been indefinitely postponed.  While last year panel producers were competing with semiconductor manufacturers for equipment for the TFT portion of display production, causing unusually high demand and long delivery schedules, display tool vendors are now putting the breaks on those deliveries, causing serious problems at equipment vendors who have invested in materials and labor but cannot claim customer acceptance.
While these issues are devastating to LCD and OLED equipment manufacturers, the postponement or cancellation of potential capacity expansion projects is a positive for the industry, albeit a bit later than hoped.  With little demand expansion expected for the display space over the next year, and the expansion of new product categories, such as AR/VR and Micro-LED still a few years out, there is little need for greenfield capacity, unless it is dedicated, such as has been the case with Apple (AAPL) and LG Display (LPL) in years gone by.  But with a number of OLED panel producers chasing the same potential future Apple business, and the thought that the automotive display business cannot be supported by existing capacity, has pushed some to set capacity goals a bit unrealistically. 
While most expansion plans are rarely fully cancelled (it does happen), most slow considerably or change from one display modality to another as display perspective change, and delays or postponements of new capacity currently serve to tighten the supply side of what is an unbalanced equation currently.  Without a return to the incremental demand seen during the height of the COVID pandemic, or a more conducive spending environment, the display and even the entire CE space must focus on supply, at least for the 1st half of 2023, so we view any delays and postponements as a positive, despite the implications for tool vendors and similar suppliers, as it seems better to take a short-term hit than to live through an extended downturn that could impact the entire industry.  It’s the best of a bad situation.

As the software is relatively new, having gone through development in partnership with DeafKidz International and the Royal National Institute for the Deaf, an organization that represents and does research for the 12m deaf or hearing impaired in the UK (17.4% of the current population – US is ~14.3%), new features are still being added with the company having noted that upcoming additions are an ability to detect different voice tones, accents, and pitch variations, all of which will enhance both the recognition and translations systems being used.
One concern we have, and hopefully others share, is the collection of data during the use of the application (or any application).  As the information is encrypted and travels over a secure link, there is little need for concern over it being intercepted by nefarious parties, but the translations themselves and the meta-data that is part of that data becomes recognizable at certain points in the process and given the issues over privacy that are currently a major part of social media, we checked to see what the company collects, particularly as the UK’s secession from the EU could put GDPR[1] rules in jeopardy.  It seems that the UK, despite its EU withdrawal, is still art of GDPR, so such rules remain in place and the company specifies its data collection policy below.

• No data is shared with 3rd parties
• Collects personal information, such as name. E-mail address, and user ID.
• Collects contact information and data on interaction with other applications, along with crash logs and diagnostic information.
• Data is encrypted over a secure connection and can be deleted upon request.

All in, XRAI is an example of an application for AR that provides a highly useful service for a segment of consumers, and to us, represents much of the difference between VR and AR currently.  While VR is a rich medium for certain content, it limits the user to a specific location, along with an inability to see the environment in which the user operates.  There is other translation software and some specifically for AR, as we have previously noted, but this application was designed to be specific to those that are deaf or hearing impaired.  With 1.5b such folks across the globe (18.75%) and expected to increase to 2.5b by 2050, there is certainly a market for such an application, and while AR is not the only way it can be implemented, it is an effective one that requires relatively little technology that does not already exist.  Smaller, less obtrusive AR glasses would be nice and an untethered device with an internal battery would also be a bonus, but we see this type of AR application as one that is both practical and beneficial to users, and that is what makes successful CE products.
Note: We get no compensation from any company, mentioned or implied, and offer our notes only as informational to investors who have an interest in the consumer electronics sector.  While there are links to our website and other websites, including those where items might be purchased, we receive no compensation for those links or products sold through those links.


[1] General Data Protection Regulations – passed in 2016 and enforceable in 2018, that sets parameters for data privacy and transfer

As we have been doing since May of 2021, we check pricing on Samsung’s (005920.KS) Mini-LED/QD and QD only TVs to map how macro, seasonal, and holidays affect pricing on this category, particularly as it is a relatively new category and one toward the high-end of the TV pricing.  We have also been tracking Samsung’s QD/OLED TV pricing since it appeared in May of this year, an even more distinct product type that only Samsung Display (pvt) is able to produce currently.  While we don’t check prices for all on a regular schedule, we try to work toward specific events or holidays, and with Black Friday only two days away, we thought it helpful to see whether Samsung is being naughty or nice to its high-end TV customers.
2021 Models
As Samsung is slowly disengaging from its 2021 line, no longer offering 2021 8K Mini-LED/QD sets (900A & 800A series) on its website, along with eliminating one of last year’s Mini-LED/QD 4K series (85A) and one quantum dot only series (80A), Samsung has thinned last year’s models, but seems to have little rhyme or reason as to how they are pricing the remaining 2021 Mini-LED/QD 4K line over the last three weeks.  They did cut the price of last year’s massive 98” Mini-LED/QD 4K TV from $15,000 to $13,000 (↓13.3%), which they have only done one other time (during the July 4th holiday) this year, and reduced prices on all but one of last year’s Mini-LED/QD 4K sets, putting 4 of the 5 Mini-LED/QD 4K sets from last year at their lowest price points since their initial release last year.  Samsung lowered prices on 3 of the 13 2021 quantum dot only 4K sets (70A & 60A), putting 5 in that group at their lowest ever price and one (55” 4K QD only) at its highest price.  Overall, on all the remaining Samsung 2021 Mini-LED/QD and QD only sets, prices declined by 3.9% since our last check on 10/31.
2022 Models
Samsung was a bit more aggressive with pricing on this year’s models but seems to have abandon promoting its 8K Mini-LED/QD line (900B & 800B) whose prices have remained flat over the last month.  As we have previously noted, there are issues with 8K sets in Europe starting in March of 2023, data suggests that 8K sets have been poor sellers so far this year, and the macro environment is less conducive to such high-priced models that offer little image improvement give the lack of 8K content, so there seems to be little incentive for Samsung to discount the sets, other than to dump stale inventory in the retail channel. 
That said, Samsung cut prices substantially on high-end Mini-LED/QD sets (95B), with 3 of the 4 in that line dropping by between 20.0% and 44.4% and putting that group down 48.9% from their initial prices set in May.  Samsung also lowered prices between 5.2% and 11.1% on the lower-priced quantum dot only line (60B), leaving most of the remaining lines flat for the period.  On an overall basis, Samsung cut prices across this year’s 8K and 4K Mini-LED/QD and QD only lines by 5.3% for the period, putting the entire 2022 line down 33.8% from initial prices set 224 days ago. 
However Samsung seems to set price declines during the year more in order to reach a specific price point for the holiday season than to stimulate sales for a particular holiday, as model pricing for this year’s line reached the same dollar price point at Black Friday as last year, despite a lower initial price.  This puts the onus on manufacturing to maintain margins by lowering costs at the same rate as set prices reductions.  We expect this was a difficult task this year but not an impossible one, as panel prices declined while semiconductor and other component prices increased early in the year.  That said, component costs are a bit better now, so there is some hope that manufacturing could lower costs enough to maintain margins, but that leaves little wiggle room on prices if Samsung wants to move excess TV set inventory. 
QD/OLED
Samsung’s QD/OLED TV line, which consists of a 65” and a 55” model, continues to see price declines, now down 27.6% from its initial price for the 65” models and a decline of 32.4% for the 55” model, based on Amazon (AMZN) pricing.  As this is the first year such sets are available there is no comparative data, which means Samsung is flying blind with pricing and is competing against Sony (SNE), whose QD/OLED set prices remains at their original list price of $2,499 (55”) and $2,999 (65”).  Samsung seems far more willing to find a price point that consumers find attractive than Sony, and prices for both models on Amazon, as shown in Figure 3, are close to the discounts that Samsung has offered on its company site. 
The QD/OLED TV product comes at a difficult time given the macro concerns that are troubling large economies across the globe, but Samsung seems willing to test its price elasticity despite the weak environment.  Samsung does have a considerable stake in the success of the product considering affiliate Samsung Display has chosen it as their step toward a mass produced OLED TV and eliminated its LCD TV panel production capacity, but the limited production capacity that is currently available to SDC is not enough for parent Samsung to make it a cornerstone of its premium TV line.  This leads to a decision by Samsung as to whether they are willing to commit to QD/OLED and ok the SDC funding to build additional QD/OLED capacity, which needs to be made relatively soon if that capacity is not to miss the 2023 holiday season.  We see the discounting as a necessary step toward enhancing Samsung’s understanding of consumer response to QD/OLED and moving the decision-making process forward.
While this has been a disappointing year for TV set sales, especially against the economic backdrop, we are a bit more optimistic about 2023 in that we expect component pricing to continue to decline and TV panel prices to be more stable than this year.  That said, consumer buying power is declining so it is hard to find an impetus for a demand driven scenario in 2023, but we expect at least a more stable TV market, making it a bit easier for those who need to make billion-dollar decisions about capacity.  We are keeping our expectations low, but the glass seems slightly more full than empty, with the emphasis on slightly.