​As we have noted in the past, public companies that are listed on the Taiwan exchange are required to report sales on a monthly basis.  This gives investors a view of actual results during the quarter, rather than having to wait for quarterly results, and helps us to spot trends that are company specific or industry wide.  There are three display producers in Taiwan, AU Optronics (2409.TT), Innolux (3481.TT) and Hannstar Display (6116.TT), although Hannstar is primarily a small panel display producer.  We have been tracking such data since 2003 and have built our models using such monthly results, along with a number of other data sources, to gain insight into the display space as a subset of consumer electronics.  It is our wish that other exchanges would implement the same monthly requirements, but realistically the likelihood is infinitesimal so we take what we can get.
AU Optronics reported November sales of NT$17.48b ($571.04m US), up 1/7% m/m and down 43.4% y/y, as a typical (5 yr. avg.) November has been up 1.2%, November m/m results are slightly better than average.  AU Optronics reported area shipments of 1.5m m2, up 17.3% m/m but down 30.2% y/y, which implies an ASP/m2 of NT$11,650, which is down 13.1% m/m and down 18.9% y/y.  Based on the November report, AUO saw improved utilization but lower panel prices, netting out to a slight improvement in overall sales.  December for AUO is typically up 0.4% m/m.
Innolux reported November panel sales of NT$16.182b ($528.63m US), up 3.7% m/m and down 39.1% y/y.  With a typical (5 yr. avg.) November being down 3.8%, Innolux saw a stronger than expected improvement in sales during the month.  Innolux also reported large panel shipments of 9.17m units, up 4.6% m/m but down 22.8% y/y, and 19.75m small panel units, down 9.9% m/m and down 29.3% y/y.  December is typically up 1.5% m/m for Innolux.
November panel sales for both AUO and Innolux were better than we expected given the relatively poor results we have seen from CE retailers, albeit mostly anecdotal, bringing the 4th quarter YTD (2 months) results up 3.6% q/q for AUO and up 2.4% q/q for Innolux, but if we assume a flat December for AUO, 2022 will show the worst yearly performance since 2005 which puts the year in better perspective. Results from other panel producers will likely be less onerous using the same long-term perspective, particularly Chinese LCD panel producers, as they have ben adding capacity over the last few years while Taiwan producers have not, but we expect that on a static capacity basis most panel producers’ full year results would look the same.  We look at 2022 in the LCD panel business as the ‘hangover year’, after the parties in 2020 and 2021, and expect 2023 to be a bit less frenetic but still needing Tylenol™ and electrolytes to make it through the year.

​We have mentioned that the EU has implemented a set of power usage restrictions on CE products that will essentially ban the sale of 8K and Micro-LED TVs in the EU.  The European Commission seems to have rejected requests to review the ruling, which is to go into effect on March 1, 2023, which leaves little time for TV brands and other affected parties to make their case, with the commission seemingly unmoved by an such pleadings thus far.  That said, TV brands are a creative lot and rarely do they decide to acquiesce to regulations without a fight, so there are those in the industry that expect TV brands to adopt a few ‘new’ tactics to allow them to meet the new regulations without inventing new technology.
The Eu regulations are based on power consumption, and in that *K TVs have 4 times the number of pixels to process for each frame, they do not meet the tighter power consumption limits, with Micro-LED TVs having similar power issues.  However, when TVs are sold, the sets are typically set for the highest brightness settings to make them look as they did on the floor of the retailer (retailers always set demo sets to their ‘highest’ settings), which also sets power consumption to its highest levels.  The Eu regulations specify that the power consumption of a set is measured as the set is taken ‘out-of-the-box’, so TV brands will likely change the default brightness settings for those 8K sets to be sold in the EU, to their lowest settings, allowing them to meet the new regulations.  This might not sit well with consumers, who could be disappointed with the brightness being diminished relative to the store demo, but brands can make sure that a notification is made to EU consumers as to the setting and how to return it to the higher brightness once the set is brought home.
Of course this defeats the purpose of the EU rule, which is to lower overall power consumption, but that would likely mean little to brands that continue to build and promote 8K and Micro-LED TVs.  Brands also have another route, and that is to remove the tuner that is available in TV sets, lowering the power consumption and essentially turning them into monitors.  The tuner is the device that allows the TV  to be connected to an over-the-air antenna, and while only ~30% of TV owners receive such signals, it’s a large enough percentage that it might cause those potential 8K TV customers to stick with their old TVs, although 70% of owners, those using set-top boxes or streaming systems, would not be affected.
There is an even more subtle reason why removing the tuner for EU customers is an iffy solution to the 8k dilemma, and that is that many retailers have monitors and TVs in separate product and profitability categories, with TVs the higher margin product.  If the tuner is removed from a TV, it become questionable as to what category it falls in and whether the margins should be at the TV tier or the lower monitor tier, and retailers are typically not willing to allow those margins to change, which makes the ‘brightness’ scheme the more likely in the near-term.
We do understand the EU’s objective, and TV brands typically do not promote devices on the merits of their low power consumption, so little work toward reducing power is done unless it becomes a talking point or is the subject of new regulations, as will be the case in March.  The one thing we are sure of is that if TV set brands see 8K or Micro-LED customers in the EU, they will find a way to meet or beat the new regulations.
 

​We have mentioned that the EU has implemented a set of power usage restrictions on CE products that will essentially ban the sale of 8K and Micro-LED TVs in the EU.  The European Commission seems to have rejected requests to review the ruling, which is to go into effect on March 1, 2023, which leaves little time for TV brands and other affected parties to make their case, with the commission seemingly unmoved by an such pleadings thus far.  That said, TV brands are a creative lot and rarely do they decide to acquiesce to regulations without a fight, so there are those in the industry that expect TV brands to adopt a few ‘new’ tactics to allow them to meet the new regulations without inventing new technology.
The Eu regulations are based on power consumption, and in that *K TVs have 4 times the number of pixels to process for each frame, they do not meet the tighter power consumption limits, with Micro-LED TVs having similar power issues.  However, when TVs are sold, the sets are typically set for the highest brightness settings to make them look as they did on the floor of the retailer (retailers always set demo sets to their ‘highest’ settings), which also sets power consumption to its highest levels.  The Eu regulations specify that the power consumption of a set is measured as the set is taken ‘out-of-the-box’, so TV brands will likely change the default brightness settings for those 8K sets to be sold in the EU, to their lowest settings, allowing them to meet the new regulations.  This might not sit well with consumers, who could be disappointed with the brightness being diminished relative to the store demo, but brands can make sure that a notification is made to EU consumers as to the setting and how to return it to the higher brightness once the set is brought home.
Of course this defeats the purpose of the EU rule, which is to lower overall power consumption, but that would likely mean little to brands that continue to build and promote 8K and Micro-LED TVs.  Brands also have another route, and that is to remove the tuner that is available in TV sets, lowering the power consumption and essentially turning them into monitors.  The tuner is the device that allows the TV  to be connected to an over-the-air antenna, and while only ~30% of TV owners receive such signals, it’s a large enough percentage that it might cause those potential 8K TV customers to stick with their old TVs, although 70% of owners, those using set-top boxes or streaming systems, would not be affected.
There is an even more subtle reason why removing the tuner for EU customers is an iffy solution to the 8k dilemma, and that is that many retailers have monitors and TVs in separate product and profitability categories, with TVs the higher margin product.  If the tuner is removed from a TV, it become questionable as to what category it falls in and whether the margins should be at the TV tier or the lower monitor tier, and retailers are typically not willing to allow those margins to change, which makes the ‘brightness’ scheme the more likely in the near-term.
We do understand the EU’s objective, and TV brands typically do not promote devices on the merits of their low power consumption, so little work toward reducing power is done unless it becomes a talking point or is the subject of new regulations, as will be the case in March.  The one thing we are sure of is that if TV set brands see 8K or Micro-LED customers in the EU, they will find a way to meet or beat the new regulations.

​Apple (AAPL) has been a leader in promoting customer privacy and back in 2014 moved from a security system that had a master key to one where a user passcode was combined with a unique encrypted key that was not accessible to Apple.  The thought was that this would remove Apple form situations where the previous master key was being requested by local or governmental authorities to unlock phones owned by lawbreakers, terrorists, or serious felons.  By championing privacy, the company hoped to sidestep controversies involving the collection of private data by the government, such as those leaked by Edward Snowden, and moved the responsibility for personal data security to the consumer who became the responsible party for individual data security.
Apple has made continued improvements to its personal information security over the years and the controversies flared again during the early days of the COVID-19 pandemic when health officials wanted to use Apple devices for contract tracing, particularly location data, which was again refused by Apple.   In recent months Apple has added options such as ‘lockdown mode’, which can be implemented if a user suspects that his data security has been compromised.  The system limits areas where attacks might occur, blocking many functions, particularly shared functions, to limit access from outside penetration. 
Apple has just added a number of new security functions, some of which are for those in sensitive positions, such as journalists, politicians, or other government officials, but all can be implemented if a user wants another layer of security.

• Message Contact Key Verification – This option automatically alerts the user if an ‘adversary’ breeches cloud servers, even though the server data is encrypted.  The service can also be used to verify a contact code through a 2nd secure call, in order to make sure the primary contact is valid.
• Security keys for Apple IDs – This service adds 3rd party hardware to the 2 factor authentication already in place, to ensure that an attacker who is able to phish the 2 factor security, will face an additional hardware device, such as a plug-in fob or NFC device held by the user that would be impossible to phish unless physically stolen.
• Advanced data protection for iCloud – Apple adds end-to-end encryption to nine more categories of data stored on iCloud servers, including device backups, message backups, notes, photos, and voice memos, as a default, but there are still a number of iCloud storage types that are not fully encrypted.  iCloud mail, contacts, and calendars are not fully encrypted as they need to operate with global systems that would not be able to work through such security protocols.

We do not expect these extensions of Apple’s already obvious personal privacy policies will change the potential for the battle between law enforcement and Apple’s focus on privacy, but with each privacy improvement Apple moves more of the security responsibility from itself to the consumer and that does make it considerably more difficult for legitimate law enforcement to utilize data held by perpetrators on Apple products.  No matter what system is devised to find a balance between personal data security and preventing serious crimes or terrorism, some will try to abuse that balance for personal or political gain, making its legitimate use all the more difficult. 
Apple is right in assuming that corporations should not be the ones making personal security decisions, but at the same time, putting it in the hands of the government is not a wonderful alternative, and while personal data and information security should be controlled by the user, it is easy to see how that can also be abused.  We certainly don’t have the answer, but this battle is really over the value of individual rights and that has been an ongoing question in the US since way before 1776 so a few moves by Apple are unfortunately not going to answer any questions or change minds, but they should make users more cognizant of how their personal data is stored, if nothing else.

We have mentioned previously that the Indian government has been investigating a number of Chinese smartphone companies that operate on the sub-continent, with Xiaomi (1810.HK), Vivo (pvt) and Oppo (pvt) seemingly in the governmental crosshairs.  While financials and business practices are certainly the focus of these investigations and a number of discrepancies have already been found, border conflicts between China and India have raised the level of tension between the two for the last 2+ years and have politicized the fact that Chinese companies are the dominant suppliers of smartphones to the Indian market with a 62.3% share in 3Q.
Things have taken a turn for the worse this week when Indian authorities halted the exportation of some 27,000 Vivo smartphones (value of ~$15m) from be shipped out of India to other countries.  The Vivo phones were produced in India at Vivo’s Noida facility, which the company built in 2015 and has increased production from 50m units last year to 60m this year, with a target of 120m units in the future.  Vivo can meet all of its smartphone demand for India itself currently and has just begun shipping the excess to nearby countries, such as Saudi Arabia and Thailand.  The phones in question are being held at the New Delhi airport over questionable export declarations, particularly their value.  India’s own cellular and electronics lobbying association wrote a letter to the government, asking for a quick release of the devices and how the incident is a negative toward the encouragement of manufacturing for export in the country, but the government has refused to comment on the investigation.
All in, the conflicts between China’s smartphone vendors and the Indian government will do little to encourage companies to establish or increase their manufacturing bases in India, but at the same time, Chinese smartphone brands have been playing fast and loose with import and export rules and have been extremely ‘creative’ when it comes to financials, finding many ways to show losses that allow for tax incentives and subsidies on a local basis, and profits for the parent companies in China.  As India is relatively new to the global manufacturing world, and is somewhat unused to the ‘Chinese way’ of doing business under a totalitarian government that hides considerable graft and subterfuge, they seem to have decided to show that they will not stand for such double-dealing recently, and while that will counter some of their “Made in India” momentum, it does set the tone for a more rational approach to manufacturers from other countries, particularly semiconductor companies that might be looking to diversify away from China while still feeding a large and growing market. 
As the two counties now have populations that are almost the same (China is the larger by 2.76%) and India is a Democracy while China is a single-party dictatorship, India’s show of strength toward Chinese companies, despite their dependance on, puts them in stead with the US and its allies, who are key to developing the infrastructure necessary to build India’s electronics and semiconductor business.  Hopefully these skirmishes do not move Chinese smartphone vendors out of the country before others, such as Samsung (005930.KS), can fill the gap, although a key executive at Xiaomi’s India division resigned yesterday as the case against the company, whose assets have been seized, winds through governmental channels. 

​Harvey Norman (HVN.ASX) is a medium sized retailer and franchisor based in Australia that generated ~$6.43b in sales for the (June) 2022 year, putting it about the same size as Staples (pvt) in the US, and sells computers, furniture, and other CE products.  The company has 739 franchised stores and complexes in Australia and additional stores in New Zealand, Singapore, Slovenia, Ireland, Malaysia, and Croatia.  Harvey Norma closed the 6/22 year with a net debt to equity ratio of 10.3%, up from 7.4% in 2021 but down from 19.4% in fiscal 2019, so this is not an over-leveraged company, but after a ‘good’ Black Friday, one franchisee was shocked to receive a notice that forbid franchisees from ordering new stock, indicating that the company was significantly overstocked heading into the holiday season.
Suppliers, who had been expecting to offer discounts on stock they wanted to move out during the holiday, are now offering even steeper discounts to other retailers given the situation at Harvey Norman, after receiving a similar letter from management, and some franchisees have indicated that November was a ‘shocker’ as to revenue for the month overall, with the expression typically used in Australia to describe a particularly bad game of rugby or soccer.  We take that to mean that November sales dropped off very quickly, leaving the company committee that determines the company’s range of products to halt new purchases.
Contacts in Australia have noted that the Harvey Norman ordering system lacks a central buying process, leaving sourcing to individual franchisees who must operate under the committee’s guidelines, but no matter what the system, it seems that November put the fear of God into the minds of committee members, which has now been passed on to franchisees, and finally to their suppliers.  This is a single datapoint in the vast CE supply chain but indicates how quickly things change and how those changes are carried down the supply chain.  We don’t make the implication that this is happening to other retailers in Australia or other countries, but it certainly does little to set a positive tone for the remaining holiday season.

Each holiday season we are inundated with on-line and brick & mortar ads pointing to ‘gifts for less’, ‘guaranteed lowest prices’, and ‘Save Up to XXX%’ to lure consumers into at least looking at adds that seem to offer ridiculously low prices for an almost infinite range of items.  As our focus is consumer electronics, a narrower but even more intense slice of the holiday advertising onslaught, we check to see if random samples of those advertisements are able to stand a bit of fact checking.  Our most recent dive into holiday CE ads are those from Wal-Mart (WMT), known for its vast assortment of goods at prices lower than most local retailers.  As a CE retailer, Wal-Mart is in the top 5, but not quite known for the quality of its offerings or its concentration in CE when compared to Best Buy (BBY), Crutchfield (pvt), or more local retailers, but in terms of volume, they are certainly prominent,  so we looked to their latest ad to see how things stack up.
The most current ad for TV deals features a 24” HD Roku (ROKU)-based TV for $88 (yes, $88) made by ONN, Wal-Mart’s CE house brand produced by a company known as Durabrand (pvt), which is really a tradename owned by Wal-Mart.  The TVs sold under the ONN label are actually produced by Lenoxx (pvt), ALCO Electronics (328.HK), and Funai Electronics (pvt), with Funai typically the leading producer.  This set has HD resolution and little else other than Roku built-in (subscription needed), so for anything more than basic viewing, such a set would not suffice, and we expect such a deal is a loss leader (shipping is free), so the number of sets sold at this price will be relatively limited and will likely revert back to its ‘real’ price of $130, and is available on Amazon (AMZN) from a 3rd party seller only for $194.
Following the ONN deal mentioned above were a number of Hisense TVs ranging in price from $178 for a 40” FHD LCD TV to a 58” UHD 4K model for $298.  The problem is when the model numbers are checked, it appears that these TVs are models produced in 2018, which is a sign that they have been languishing in a warehouse until some manager said to get them out at any price to create space for new inventory.  We did find a few ‘deals’ at Wal-Mart that were from more identifiable brands.

• Vizio (VZIO) 4K UHD LED Smart TV (V505-J09) – A 50” 2021 model selling for $298 at Wal-Mart.  The same set was available on Amazon for the same price and sold in April of this year for $296, its lowest price (sold for $400 on Amazon in October of 2021), so the ‘deal’ at Wal-Mart (on-line only) was the same as what was available on Amazon.
• Samsung (005930.KS) 65” 4K UHD HDR LED TV – A 65”LCD TV (UN65TU7000FXZA) 2022 model selling for $478 at Wal-Mart.  The same set is currently $448 on Amazon, its lowest historical price, with the high being $550 seen in July.
• LG (066570.KS) 4K UHD OLED Web OS TV – A 55” 4K OLED TV selling for $997 at Wal-Mart.  Amazon has the same price currently but sold the set for $977 back in October of this year$1,400 at the end of May.

There were many more, although most were selling at or above the comparable Amazon price (when available), so the only real ‘deals’ were on Wal-Mart house brands.  This is similar to the typical discounting scenarios seen at Best Buy, whose Insignia (pvt) in-house brand is also produced primarily by Funai, also a TV set producer for Vizio, one of the top 5 global TV brands, whose major shareholders include Foxconn (2354.TT) AmTran (2389.TT), and Innolux (3481.TT).   All in, unless you have a very specific need for a relatively low-grade TV, don’t be pulled in by ‘holiday deals’  unless you check specifics about the actual sets being offered.  TV set companies do not make it easy for consumers to decipher the model codes (each brand is different), so it is easy to wind up buying older models, which could lack current features.  To illustrate, here’s how the model numbers of LG sets can be broken down, with the single letter ‘Q’ indicating the model year… 

​As the 2nd largest CE company globally, Samsung Electronics has considerable influence over the direction of consumer products and CE technology, yet when in AR/VR circles, little is said about Samsung’s efforts, with much attention given to Meta (FB), who dominates the VR hardware space, and Apple, whose intentions for an Xr device in 2023 or 2024 seem to be well-known to all.  Yet Samsung has been working in the shadows toward developing an AR/VR business plan, although from a slightly different angle than one would expect.
Rather than rush to market with a consumer oriented AR or VR device, Samsung is taking the path of building an AR/VR ecosystem, and working to entice software developers to work with the company, rather than flooding the market with devices and hoping that they become dominant enough to become profitable.  This strategy is a bit different from Samsung’s foldable strategy, which was a race to become the first to commercialize such a technology, given a relatively open field and a well-understood smartphone market.  AR/VR, especially VR, is a new market and one that has considerable issues as to its growth path.  With Meta the dominant player, Samsung would be a catch-up company, having to spend vast sums to advertise that it has the ‘best’ device in the market, and no assurance that the market would accept that notion.
Instead, Samsung seems to be developing an ecosystem around the potential AR/VR markets, starting with a developer system assumedly next year, and aligning the direction of its affiliates and suppliers toward being able to provide as much of the potential ecosystem it would need for a high volume AR/VR production plan.  But Samsung’s focus is more toward creating the content that is necessary to develop the XR market into the high volume markets that Samsung handles well, and that means it needs to coordinate content development rather than flood the market and hope that existing content attracts consumers.  It is not to say that the company does not have hardware under development, with prototypes and models working through R&D, but having released a product in 2018 that saw little volume seems to have shifted Samsung’s attention away from hardware and toward software in this instance.
This is a challenge for Samsung, known for its hardware expertise, and the company faces the relatively meager adoption of its Exynos OS as a blow to its potential for building its software business, but the company does have a massive developer following given its top rankings in many DE categories, which gives them a platform from which to work.  We doubt Samsung is expecting its own developers to generate such content but will incentivize  the communities built around its products to build content for whatever AR/VR platform it releases.  This will be similar to Apple’s AR/VR approach, where Apple knows that despite the ‘coolness’ that an Apple AR/VR device might have, if there is little to do with it, it will see strong initial sales and weak long-term growth.
Both Samsung and Apple seem to be focused more on AR than VR, with the understanding that Meta has been seeding the market for VR to gain share, while losing a considerable amount of money.  W expect that neither company wants to enter into that scenario and are willing to let Meta rule the consumer market, while picking niches in both AR and VR that can carry higher ASP’s.  That is where we expect both to concentrate in the first two year’s of entry into the XR market, and both have the capabilities to ‘encourage’ developers to create applications and content for their platforms, rather than pin hopes on the blossoming of the Metaverse.  It is going to be a long battle for XR supremacy, but if we had to bet we would expect both companies to pursue similar paths toward such product development.

Recent measurements taken by a reputable source during a demonstration and comparison of Samsung Display’s (pvt) QD/OLED display technology and that of LG Display’s (LPL) WOLED display technology revealed a set of comparisons that showed superior results for SDC’s QD/OLED displays.  That said we have to qualify the results somewhat as the tests were not made on the displays themselves but on TV sets using such displays.  The QD/OLED set was a Sony (SNE) A95K, a $3,000 set ($2,500 for the 55” model) and the comparative set was an LG (066570.KS) C2, a $1,700 set ($1,300 for the 55” model).  Both are 4K UHD sets with 120 Hz refresh rates, with the Sony set boasting a “Pixel Contrast Booster” and “XR Triluminos Max™ XR Smoothing”, systems that process the signal to make it “more pleasant to the human eye at all brightness levels”, while the LG set has EVO, a system that combines an enhanced OLED emitting stack and an AI processor that “…make EVO brighter than similar sized conventional LG OLED models”.
After one wades through the marketing, the sets were tested with a handheld colorimeter, which is a device that measures the color palette of displays, using a sensitivity model that is the same as the human eye, so different than an absolutely technical evaluation, such as might be done by a spectrometer, this device reports the brightness the way we might actually see it.  As these sets use a variety of systems to ‘enhance’ the color gamut, the panel itself is not being tested but the set in its entirety, and settings for those enhancements should be at default levels, although that is not always the case at demonstration events and in retail situations.  With those caveats, the data is shown in Figure 1, with the Sony (QD/OLED) as the left bar and the LG (WOLED) as the right bar for each primary and CMYK color.
The charts shows that the QD/OLED set produces higher values for each color, with red, yellow, and magenta being the most significant, with white being similar, and likely unnoticeable to the average user. While again, we caution that these measurements are after set enhancements and not the panels themselves, so the readings and comparisons are influenced by both the panels and the associated set electronics, but they represent a bit more incremental information about Samsung Display’s QD/OLED panels and help to validate SDC’s claims of superior color reproduction.  Samsung Display is expected to go into mare detail about the improvements they have made to their QD/OLED panels at CES in early January, but the average buyer would likely only care if the sets themselves were visibly different enough to justify the newer technology, or if the price differential were unusually large.  We do note that the Samsung Electronics (005930.KS) QD/OLED TV sets, which were not measured here, cost $1,800 for the 65” set and $1,500 for the 55” set, far closer to the prices of the LG WOLED sets than the more expensive Sony models.

The US DOC has preliminarily completed an investigation into the bypassing of Chinese Anti-dumping tariffs on solar panels and components.  The investigation ruled on eight companies, four of which were found guilty of bypass tariffs by sending panels to Cambodia, Malaysia, Thailand and Vietnam for minor modifications, and then shipping them to the US to avoid the ‘direct from China’ tariffs.    Under the ruling those four countries were now designated as having potential for such illegal activities and companies operating in those countries can now attest to the fact that they are not circumventing US law as to the import and export of solar panels, as a way to exclude them from potential future liability.
The ruling did find that four companies (listed below) were circumventing tariffs in the manner noted above and could face continued import suspension, potential back tariffs, and possible ‘deposits’, if the final determination agrees with the preliminary findings, which are expected by May 1, 2023.  In the interim the DOC is expecting suppliers to make sure they have discovered whether the products they are importing are not circumventing tariff on PRC products or find other sources.
BYD Hong Kong (1211.HK)–
Canadian Solar (CSIQ)
Vina Solar (601012.CH)
Trina (688599.CH)
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