​Let’s start off with 2020 was not a good year for the LED space as the COVID-19 pandemic took its toll on the industry.  2020 LED revenue is expected to have dropped ~10% to $15.13b according to the most recent data we have seen.  After such a poor showing, the predictions for the industry in 2021 are for a ‘recovery’ of 3.8% to ~15.7b, but few forecasters would take the opposite view after such a poor year for the industry, especially given the recent arrival of vaccines that could help to prevent the spread of the disease in 2021.
That said, the LED industry is really an application specific one, with each segment having its own performance characteristics and issues, and performance varied considerably in each.  The LED display backlighting market did well as stay-at-home consumers bought tablets, notebooks, and TVs in unusually high volumes to work or entertain themselves during the pandemic.  LED demand from the display space reflected the increased ‘screen’ demand as the number of LEDs used in more specialized products such as gaming monitors also increased.  Given the fact that the pandemic has not disappeared as quickly as some hoped, expectations are for a continuation of display demand into 2021, and logically LED backlight demand should correspond, however we are a bit less sanguine about the full-year prospects for the display space in 2021.
The display industry paints a strong picture for 2021, or at least the early months of the year, however we note that the CE space is just slightly more than a zero sum game, with overall population and economic growth being the increment.  If consumers bought lots of tablets, monitors, and TVs during the pandemic, what would drive them to rapidly replace those items when the pandemic is over?  Unless there is some earth-shattering new development in CE in 2021, we don’t see enough of a driver to offset the demand that was pulled in during 2020. 
The only mitigating factor would be how long it takes for the COVID-19 infection to recede enough to allow a more normal business and socialization environment, and while that factor is a main focus for anyone in the CE space, we are a bit less optimistic about CE growth in 2021 than others, and that would be reflected in LED backlight demand.  We do expect mini-LEDs to become ‘a thing’ in the display space in 2021, but even with the support of much of the LED industry and major CE firms and spectacular y/y growth, we expect mini-LEDs to be less than 1% of the overall LED industry in 2021,
As to LED lighting, in the near-term it seems Chinese LED packaging suppliers have indicated that they would be increasing quotes by 5% to 10% to reflect ‘increased production costs’ and that is being passed down to those that produce LED based lighting, who are expected to raise their prices by 8% to 10% in the New Year.  With Asia being the dominant LED lighting materials supplier and the largest LED lighting market, we expect others will follow.  Automotive LED lighting was also a casualty of the pandemic as global car sales hit record low levels, although there is some optimism that a recovery is already underway and that 2021 will see enough growth to offset much of the negative growth seen in 2020.  We are also optimistic but expect it will take ~18 months for the automotive LED segment ot return to pre-pandemic levels.
There were some positives in the LED lighting segment despite generally poor demand as the shuttering of many businesses saw reduced or very limited hours.  The use of LED lighting for horticultural purposes got a boost as a resurgence in indoor agriculture for food and the legalization of recreational marijuana stepped up that  niche of  LED lighting, but was offset by commercial LED use, meaning use for large scale advertising and promotion which was hard hit in 2020 as performance gatherings were severely limited.  We expect there will be some growth in the commercial LED signage space in 2021 but we expect the dependence the COVID-19 timeline will affect this segment most pointedly.  We could see some pent-up demand stimulating sales if the pandemic subsides enough for large scale gatherings, but our gut says it will likely be a year of relatively small growth for the LED signage space. 
All in, timing will be everything for the LED space in 2021 and while there will certainly be other plusses and minuses, the development and distribution of vaccines on a global scale will set the tone for LED demand in most cases.  The aforementioned price hikes in LED lighting might give a small boost to overall industry revenue as would premium display backlight products such as mini-LEDs, but the general tone will be determined by at what point during the year the virus subsides enough for consumers to regain some normalcy to daily activities.  Restrictions as to indoor dining and large venue gatherings will have to be eased, along with corresponding psychological barriers that have been imbedded in a hopefully more cautious population, before the LED space could be considered to be in a realistically ‘normal’ mode.  But we expect the potential changes, both positive and negative, that were seen in 2020 in the LED space, will offset each other as 2021 progresses, which leads us back to the zero-sum game theory that tempers or enthusiasm a bit more that the more optimistic view the LED industry prefers.

Earlier this month we noted that rumors that China’s Royole, the first company to produce a retail foldable device, was going to apply for listing on China’s STAR board in order to raise capital for a new OLED fab it intends to build.  We know that the application has been accepted by the board and is under review currently, but digging out the preliminary prospectus took a bit of time.  In fact the prospectus is 549 pages of detail, in Chinese, so we are taking some time to work our way through translation issues, but among the early pages is the typical ‘Risk Factors’ section, which gives some indication of what will follow in the full text.  Here are a few of the stated ‘Risk Factors’:

• Unprofitable or the risk of accumulated uncovered losses in 2017, 2018, 2019 and January-June 2020.
• The net profits of shareholders were -359,132,800 yuan ($-95.0m US), -802,179,700 yuan ($-120.9m US), -1,073,192,800 yuan ($-164.5m US)and -960,537,200 yuan ($-147.2m US), net profits attributable to ordinary shareholders of the parent company after deducting non-recurring gains and losses are -358,997,600 yuan, -78,619,700 yuan, -985.6494 million yuan, and -743.8969 million yuan during the reporting period.,
• The main reason for the company's continued loss is that the company's products are still in the market expansion stage and the sales are small and new products.  The R&D requires a lot of investment. It is expected that the company will continue to lose money. The company will continue to invest in large-scale research and development in the next few years, and the company’s sales scale is small and commercialized
• The company cannot guarantee profitability in the next few years, and may face the risk of delisting after listing.  There is a certain degree of uncertainty in the landing (listing?) and the unprofitable state may continue to exist after the listing. If the company triggers the delisting conditions stipulated in the "GEM Stock Listing Rules it may cause the company to trigger (listing) withdrawal.
• The company’s financial situation is under pressure, which will affect the distribution and growth of the company’s employee salaries, thereby affecting the company’s future and the introduction of talents and the stability of the existing team may hinder the realization of the company’s R&D and commercialization goals, and damage and harm the company’s ability to successfully implement business strategies.
• During the reporting period, the net cash flow generated by the company’s operating activities was -358,005,200 yuan ($-59.0m US), -611.8802 million yuan ($-93.8m US), -810.5213 million ($-124.2m US) yuan and -386,0919 million yuan ($-59.2m US).
• The company’s articles of association (draft) arrangements, holders of Class A ordinary shares can vote 4 votes per share, while holders of Class B shares can vote 1 vote per share.  At present, the actual controller Liu Zihong holds 38.61% of the company’s shares, (or) 61.98% of voting rights.

Fab Utilization rates, based on possible capacity vs. actual production were as follows:

​More to come over the next few days but it is the first time we have been able to clarify all of the hype surrounding the company.  The risks are as expected but the utilization rates were lower than expected.  The company did indicate that the COVID-19 pandemic caused some smartphone orders to be postponed, which seems to be an understatement based on the utilization rate.

Shindo ENG (290520.KS) is a South Korean company that produces specialized equipment for the display industry.  In particular equipment that laminates various materials to other materials in both LCD and OLED displays.  Their 3D laminator is used to attach an OLED panel to the touch panel and cover glass (as seen below) that have curved sides, however they also produce a 2D OLED laminator for devices that have flat displays.  While this sounds rather mundane, the 2D OLED laminator product has seen a bit of a resurgence this year as it is used to attach the foldable display to the hinged frame for Samsung (005930.KS) foldables on an exclusive basis.  This gives a bit of insight into the plans for foldables both in 2020 and 2021 as follows.
Shindo supplied 15 laminators to Samsung in the first half of 2020 and 13 in 2H, but was expecting to ship more in 2H than in 1H.  While Samsung could certainly have over-ordered a  bit in 1H, more likely the effects of COVID-19 on smartphone sales was a factor that might have made Samsung a bit more cautious about how smartphones and particularly foldables  would sell in 2H.  Also revealing is that the company also sold 4 units to China’s BOE (200725.CH), which the company used to produce Huawei’s (pvt) Mate X foldable and 1 unit to Visionox (002387.CH), who we expect is using it to develop a foldable display for Xiaomi (1810.HK) to be released in 2021. 
Shindo did say that some orders for its equipment (not specified) that were expected in 3Q and 4Q had been pushed to 2021, with their major clients being BOE, Chinastar (pvt), Tianma (000050.CH) and Visionox, we expect that was another cautionary note about the more realistic expectations of Chinese panel producers, despite the continuing aggressive rhetoric.  The company did note that it expects Royole (pvt) and EverDisplay (pvt) to begin new investments in foldable in 2021 (Royole has stated that they are building a new flexible OLED fab) and they expect strong shipments to Chinese customers through 2023.  While these are just data points it does give some clarification to the level of commitment panel producers have toward foldables and the general prospects for the OLED display business both in 2020 and in 2021.  “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” — Jim Barksdale…
 

​In a completely unsurprising move, Samsung Display (pvt) has decided to push the end of its large panel LCD production from 12/31/2020 to some point in the future ‘based on market demand and profitability’, which means until panel prices fall below break-even.  This follows the same tactic from LG Display (LPL), who also postponed large panel LCD production closings into 2021.  Samsung Display has already sold their Suzhou Gen 8 fab to Chinastar (pvt), who will continue to supply LCD panels to Samsung Electronics (005930.KS), but might see a bit less demand as it competes with Samsung Display’s other large panel LCD fabs.
China’s largest panel producer BOE (200725.CH), Samsung’s largest outside supplier was also expecting to see increasing orders in 2021 as SDC ended large panel production, but the SDC fab closing extension could put that on hold at least until panel pricing settles down.
On an overall basis SDC’s extended production will likely be absorbed by its parent, but that will offset some of the expectations for LCD display industry growth in 2021.  Samsung overall will see some offset to the double whammy it would have received as it absorbed rising panel prices at the set level while gaining little from SDC’s panel production profitability if all fabs had closed at year-end. 
Given that there is now no timeframe for closures from both South Korean LCD panel producers, and Samsung Display has converted a portion of its L8 LCD fab from LCD to QD/OLED, it is difficult to map the impact of the timeline change on the display market, but from a monthly perspective SDC’s L8-2 fab has a stated capacity of 190,000 sheets/month, and assuming that it has converted ½ of the L8-1 fab, L8-1 would have a capacity of 85,000 sheets/month, for a total of 275,000 sheets/month.  If these fabs were to produce only 28” monitor panels (a logical choice at 88% substrate efficiency), they could produce 6.6m units/month at 100% utilization, or just under 20m units/quarter.  Considering that the industry will have shipped ~165m monitor units in 2020, or 41.25m units/Q, the addition of ~20m units from this fab alone would be a bit under half of monitor demand for the quarter.
While much of this capacity will go directly to Samsung Electronics, it does reduce the need for capacity that would have been provided by other suppliers and will go toward reducing capacity tightness generally, although less so for TV panel production.  The substrate efficiency of Gen 8.5 LCD fabs for 65” and larger TV panels is relatively low compared to smaller panel production efficiency, such as monitor or notebook panels, which would steer SDC toward smaller panel production, leaving large panel TV production to those producers with Gen 10 or higher capacity.  Again, these are back-of-the-envelope calculations and do not take into account Samsung Display’s Gen 7 capacity or are they realistic in that they use only 28” monitors as an example, with fabs typically producing a number of panel sizes each month.  They also assume 100% utilization which is also not the norm, but they do give some idea as to the potential impact to broad-based supply.
All in, Samsung Display’s postponement was an easy decision for the company to make as panel pricing rose to profitable levels as the year progressed.  Over the next few weeks we will run a few possible scenarios that would include SDC’s and LG Display’s ‘new’ outlook on LCD panel production to see what the supply/demand balance would look like and how much the timeline changes would affect the overall large panel display market.  We will try to look at the most realistic scenarios possible but there have been few times that we can remember the display space being in a greater state of flux so it might take a bit of time to establish parameters for the large number of variables on both sides of the supply/demand equation.

​The Criminal Division of the Seoul High Court held a hearing yesterday that should bring the bribery trial of Samsung’s Vice-Chairman Lee Jae-yong to a close, with the court’s decision on sentencing to be made in about one month.  The special prosecutor in the case has demanded a sentence of nine years although the court has said it would take into consideration Samsung’s ‘new’ compliance monitoring system, which could serve to reduce the sentence.  The nine year request is lower than the 12 years originally requested by the prosecutor at the 1st trial.
In the first of the three trials, Lee was given a five year sentence, which the Appeals Court reduced to two years in prison and four years of probation after Lee was found innocent of some of the charges, but the case was handed to the Supreme Court last year, which decided that some of the charges deemed ‘innocent’ should be considered ‘guilty’.  That court returned the case back to the Seoul High Court for a 3rd try where it currently stands.  Lee is the only son of former Samsung Chairman and grandson of Samsung founder Lee Byung-chul.
Samsung has been held under the continuing trials since 2017 and with the Seoul Court’s decision, will get some resolution as to the prospects for Lee’s control and potential management of the company.  As far as we know, the Seoul High Court decision can be appealed to the Supreme Court again, but only on questions of law.

Consumer electronics can be a hit or miss business, with initial seemingly spectacular ideas either falling short with consumers or never getting off the ground at all, but some ideas or products were destined for problems right from the start, and as we close what was a very unusual year for consumer electronics, we highlight one of the exceptional ones.
In 2019 the brother of late drug cartel top dog Pablo Escobar became a smartphone entrepreneur by releasing the ‘Escobar Fold’, a $350 foldable smartphone that turned out to be a Royole (pvt) FlexPai with a gold laminate emblazoned with Pablo Escobar’s initials, which covered up the Royole logo (sorry for the misogynistic photo, but that was the ad for the device, not surprisingly…).  Unfortunately, many customers sent in their money, expecting what was then an almost $2,000 smartphone to be shipped to them for $350 and for some reason, did not receive their phone.  

​As if not enough smartphone buyers had been scammed with the Escobar Fold, the ‘company’ released the Escobar Fold 2 this year for a mere $400, which turned out to be a Samsung Galaxy Fold 2 with a similar gold foil covering the brand name.  Strangely it seems that customers who sent in their money did not received this year’s model either, but likely that’s due to a shortage of gold foil…

​A recent comment from Taiwan based MLCC supplier Yageo (2327.TT) has indicated that its inventory levels are low and will likely remain so until after the Chinese New Year break, as it has been finding it difficult to hire new employees pre-holiday. Personnel has been an issue for the MLCC space for much of this year as COVID-19 has hampered travel and production levels, despite an increase in MLCC capacity in 2019.  As demand has increased this year, primarily from 5G smartphones and to a lesser degree from automotive, inventory levels at some suppliers have been reduced.   
Current inventory levels are ~8 weeks at Yageo, which is below normal.  We have seen lead times for a variety of MLCC increase starting at the end of October, and with MLCC utilization rates at 90%+ in Taiwan, the MLCC market continues to tighten as we head into 2021.  Given the vast number of different MLCC types and sizes, it is difficult to average out the lead times, but none that we have checked have seen a decrease in lead times over the last 60 days.  The chart below shows monthly operating revenue for Taiwanese MLCC producers Yageo and Walsin (2492.TT).  As Walsin has been at nearly full utilization since June, they have been unable to increase sales while Yageo was able to increase utilization at its China plant.  Both companies are expected to increase capacity in 2021 but projects could be slowed by COVID-19 early in the New Year.  Yageo’s new capacity is greenfield while Walsin is expected to add to existing lines, at least as of its recent commentary.

Apple (AAPL) has significant brand strength, especially in the US, so it is not surprising that a  snapshot of new smartphone activations on Christmas Day would be heavily weighted toward Apple, but the data, collected by Flurry Analytics whose code is in over one million mobile applications, shows that 9 out of 10 smartphone activations made in the US on Christmas Day were iPhone models, far above last year’s 43% for Apple during the 2019 Christmas to New Year period, although Apple still held 9 of the top 10 positions on Christmas Day 2019.
That said, this year there were 23% less smartphone activations than last year and it seems the trend was more toward lower priced models as COVID-19 depressed economic prospects for new smartphone buyers and gift givers.  The table below shows the most popular models in order of activations on Christmas Day.  Missing from the list this year is the iPhone Mini, which has not been selling as well as expected.   We expect due to the small screen size (5.4”) compared to the iPhone 12 (6.1”), with only a difference of $100 in the base price.  While this hurts the iPhone Mini, the iPhone 12 at $799 seems to have hit the mark with consumers as it has already become the best-selling 5G smartphone and will likely surpass the older iPhones in terms of rank within a short time.

Back in 2018 Jiangxi Infinitech Optoelectronics (pvt), a small Chinese firm, was looking to enter the display space and had plans to build an 80,000 sheet/month Gen 6 LCD/OLED fab in Jiangxi province with a budget of $3.52b US.  The company let a number of purchase orders to South Korean equipment suppliers as construction began, with an initial completion date of 1Q 2019, but contractual deadlines kept being pushed out as the construction progress slowed.  Top Engineering (065130.KS), YEST (122640.KS), DMS (068790.KS), and Vessel (177350.KS) were among those that renegotiated deadlines set to expire in late 2018 a number of times, only to see little or no payment.   Contract extensions as far as December 30, 2020 still remained until the companies involved started voiding the contracts, with dwindling contact with Infintech.
A number of the companies accumulated materials necessary for the production of the items under contract and generated expenses against delivery, although it seems little equipment was actually produced.  The amount still owed under the contracts, some of which run into 2021, comes to over $90m US.  It seems that the construction of the factory has been halted for some time and the CEO and top executives of Infintech have departed, although the project is still considered ‘active’ and has not declared bankruptcy (yet).  The South Korean equipment suppliers, along with the Korean Display Industry Association filed a complaint in July with the Chinese ambassador and have contacted Chinese law firms, the Jiangxi government, and the display association of China to check Infinitech’s status, but found that the Chinese construction company that had been hired to build the LCD fab has also filed a lawsuit against Infinitech halting all construction, with the court’s ruling that the company owes $29.7m in remaining construction costs and liquidating damages, although where that money will be coming from is yet unknown .
As we have previously noted China has been very aggressive over the last few years in building out its display infrastructure.  That said, a number of projects we have seen announced either were absorbed by existing panel manufacturers or became mired in funding issues, some of which had to be taken over by local governments who are protecting their initial stakes in the projects.  Infinitech’s project, while still in limbo, does not seem to be going anywhere and the prospects for those equipment suppliers who made and extended contracts with the company seem to be diminishing.  While planning and raising initial capital for display capacity look very attractive to local governments and investors, the necessity for skilled management and investors who understand realistic timelines are most important. 
China has been to a large degree successful in its push to dominate the display space, and seems to be heading in a similar direction in semiconductors, but the path to their display success is littered with a number of projects that seem to have disappeared or are in a ‘state of flux’ to put it gently.  We have noted a few similarities in the semi space recently, where we expect the expertise and patience needed is even greater than in the display space.  Sometimes money isn’t the only thing needed.