Relationships in the display business are strange animals and the give and take between customers and producers is a tightrope walk that would give the Wallenda’s pause.  Panel producers must evaluate the cost of modifications to existing lines in light of the volumes and lifetimes of customer projects, and an over or under estimation on either the customer or producer side can result in an extended period of poor profitability.  Apple and Samsung Display (pvt) have such a love/hate relationship, with Apple always looking to broaden its display supplier list, while SDC advances its technology quickly enough to maintain a lead over its competitors and ingratiate itself with Apple.
Apple and SDC have a number of development projects, one of which is to develop a 10.86” OLED iPad for release next year.  However recent information out of Korea has indicated that the project has been cancelled due to a technology conflict between the two.  Samsung’s typical OLED structure is a single RGB stack, while Apple is convinced that such an arrangement would not produce a bright enough display.  They propose a double stack structure that is essentially two sets of OLED materials on top of each other, with Apple’s contention that the single stack structure would not be bright enough, a relatively common complaint about OLED displays, and that it would extend the display’s lifetime given the use profile for tablets.
SDC seems to have been convinced that such a product, and the changes it would have to make to its production line, would not be profitable for SDC based on its cost estimates and the expectations for potential panel sales to Apple.  Further Apple is expecting to produce two different OLED iPads, one with LTPS backplanes and one with LTPO, which would mean that SDC would have to change processes on both the OLED line (single stack to double stack) and on the backplane line where it would have to either dedicate one line to LTPS and one to LTPO or switch during production.  Based on the cost analysis for such a product and the yield SDC has been able to get on the production of 10.86” OLED panels, it looks like the project has been cancelled.
Whether this means that Apple will wait an additional year or two until LG Display (LPL) is able to bring production levels up to meet Apple’s goals is an open question. LG Display uses a two stack structure for its automotive OLED displays but has only low volume capabilities currently.  If LGD is willing to expand capacity for IT panels using a tandem structure, there is the possibility that Apple might see a way to release two OLED iPads in 2023, but LGD has to make the same profitability calculations that SDC has made and while they might be more adept at the tandem OLED structure than SDC, they would have to get some more substantial reassurances (such as expansion financing) from Apple before they go further…

The European Union is taking a hard stance on CE uniformity and while discussions on a common charging platform for mobile devices has been ongoing for years, while ‘encouraging’ device producers to convert to a uniform charging platform, the EU is now moving forward with legislation to implement such a change with a bit more force than simple ‘encouragement’.  The EU has announced legislation to establish a common charging platform that will reduce the number of mobile phone chargers from 3 (down from 30 ten years ago) to 1, the well-known USB-C charger.  If passed, this will be the standard port for all smartphones, tablets, cameras, headphones, portable speakers, and handheld videogames, with a the giveback to device producers of no longer being required to bundle a charger with every device sold, a concept already being implemented by brands under the guise of reducing CE waste as opposed to reducing cost.
The proposal references unifying the charging speed of devices under the common standard and forces brands to specify the power requirements of each device and whether it supports fast charging, and will be exploring the idea of further requirements for the charger itself in the future.  Once passed, brands will have two years to make the change.  The EU is backing up the proposal with the fact that each consumer owns 3 mobile phone chargers, or which they use two on a regular basis and that 38% of consumers reported that they have experienced problems at least once due to the incompatibility of chargers., causing consumers to spend €2.4b ($2.8b US) on standalone chargers, which eventually cause 11,000 tons of e-waste every year.
The company most affected by the proposal would be Apple (AAPL) whose Lightening charger port is proprietary.  While Apple will have to make a change, the proposal does not force a brand to have a charging port on a device, only that if it does, it must be a USB-C port.  That leaves Apple with the option to make the conversion or do away with the charging port entirely and move to all wireless charging, a step above the company’s MagSafe charging solution that Apple introduced last year.  That said, Apple has likely been working on a number of possible solutions given that discussions surrounding the issue have been ongoing in the EU for so long.  One thing that the proposal does not address however is a port for data transfer, which leaves open the idea that any wireless charging system could also include a proprietary data transfer solution.  This would allow brands to maintain at least some control of how data is shared between devices, although that is a much smaller issue.  The iPhone 16 will show us the ‘new’ Apple way.

China’s largest panel producer BOE (200725.CH) has been trying to break into the Apple (AAPL) iPhone OLED display supply chain since Apple began using OLED displays back in 2017, and while the Chinese trade press has applauded any rumors to the positive, citing China’s and BOE’s eventual dominance over South Korean OLED panel producers, there has been little to get excited about.  There have been reviews where Apple has requested samples from BOE to meet certain evaluation standards and production abilities, but Apple is a strict taskmaster when it comes to components and requires both tight specification control and yield compliance which heretofore has not been met.
We believe at times BOE has been able to provide small quantities of OLED displays, primarily for screen repair and replacements, but has not quite been able to meet Apple’s standards.  While likely embarrassing for BOE management, since the dance between the company and Apple has been reasonably public, we certainly give them credit for trying without hesitancy, especially knowing that even LG Display, second only to Samsung Display as Apple’s RGB OLED display supplier, saw its share of Apple’s OLED display business shrink after a problem with a limited number of LGD’s displays were made public.
There could be some celebrating at BOE headquarters in Beijing as it seems Apple has given BOE ‘conditional’ approval as an OLED supplier for the iPhone 13.  In this case conditional means that BOE has not yet met full compliance with Apple’s standards, but has a prescribed period during which to fix issues or to meet other Apple requirements in order to become a fully approved supplier.  We believe this is not the first time BOE has reached this stage with Apple, having failed to fully qualify previously, but at least they are back in the running once again and given the close similarity to the iPhone 12, which BOE has been approved to produce, this go round should be a bit easier than last year.
Regardless of whether BOE gets final approval we would expect volumes to be relatively small, likely less than 5m, potentially due to the fact that BOE would likely have to be separately qualified to produce LTPO OLED displays that are used in the two upper-tier iPhone models.  As Samsung Display is currently the only supplier of LTPO (VRR) OLED panels, both BOE and the more experienced LG Display would be looking to take share from SDC.  While LGD’s more extensive small panel OLED experience, we would expect that battle, should it occur next year, to be considerably more toward LGD’s favor.
All in, any progress Is a good thing for BOE on the Apple OLED front, given the typically high unit volumes and ‘once-a-year’ release process, but from Apple’s standpoint, BOE is the ideal leverage point to be used to squeeze out a few more pricing concessions from SDC and LGD.  We would expect Apple to push BOE with “if you were to get approval, we would need a better price”, and then take that back to SDC and LGD, and we would expect BOE to be a willing participant and one that would be willing to work for very tight margins in order to garner Apple’s favor.  But for BOE to become a high volume small panel OLED supplier to Apple, price is not the biggest factor and the massive amount of experience SDC has with small panel OLED will take years for BOE to develop while at the same time SDC and LGD keep pushing the OLED development cycle.  South Korea will inevitably lose small panel OLED share to China, but Chinese dominance is still a ways away as having the capacity to dominate is a paper metric while having the experience to dominate wins the game.

Apple (AAPL) has announced the next iPhone (13) family, which at this point given the massive number of feature leaks, seems somewhat anti-climactic.  Further, the difference between last year’s models and this year’s is so small as to focus all attention on price, which is also identical to the previous year, using the same size memory configuration, so we see little to get excited about that has not already been the focus of innumerous notes, blogs, and stories in the trade press.  Rather than spend considerable time going over the features and hardware of the iPhone 13, we compare it to the iPhone 12 and highlight those metrics that differ in the table below.
Price is a factor with the iPhone 13 series as prices for all models have remained the same as last year’s models (initial prices) so we expect consumers will have to decide whether the style changes or modest feature upgrades make it worthwhile to buy into the iPhone 13 series or watch the iPhone 12’s all drop in price.  While we are personally not iPhone users, it seems that the iPhone 13 changes are rather nuanced and not worth paying full price for, but the real issue is the cost to Apple of the iPhone 13 series, and we are still a bit away from gathering any BOM information. 
That said, component costs have been rising in almost every category, and while Apple has the kind of leverage that can mitigate most of those increases, we have to expect at least some BOM cost creep.   Speculation  that Apple’s high volume purchases from TSM (TSM) at the 5nm node have culled better pricing across the board for the company, with prie increases of 3% to 4%, while others have seen increases between 10% and 20%.
If, in fact the margin is slightly lower on the iPhone 13 series, the question would be is it in line with similar BOM increases in the iPhone 12.  If the BOM for the iPhone 12 has moved at roughly the same amount over the last year than Apple needs to sell iPhone 13’s to maintain margins and the extra month of sales will certainly help, but if the BOM for the iPhone 12 has been stable, then the iPhone 12’s discounted pricing will be the key to maintaining stable y/y margins for the line.  In that case it would be less important which type of bologna you sell, as long as you sell more.
We do note that there has been considerable talk concerning Apple’s order levels for the iPhone 13, which are expected to be ~90m units by year-end.  At 20% above last year’s order rate, much has been made about the optimistic view that Apple has on the iPhone 13 family, however it seems there is more to the numbers.  As the announcement date for the iPhone 13 is ~1 month earlier than the iPhone 12, the number or pre-order and selling days would increase by ~36% while the orders have assumedly increased by 20%.  Assuming that the early weeks would see the highest order numbers, we set-up a sales schedule to make a more realistic comparison. 
Despite the difference in the starting dates, we decreased the starting (Day 1) unit sales by .1% each day from the pre-order date until the end of the year.  By adjusting that initial unit sales value, we were able to model theoretical weekly sales for both the iPhone 12 and the iPhone 13 to the previous year’s total (75m units) and expected total units sold in the initial year for each.  In order for the iPhone 13 series to meet its goal of 90m units this year, inclusive of the extra days, it would have to outsell the iPhone 12 by ~18.7% in its 1st week of sales, so we should be able to understand how close Apple will be to its goal for the iPhone 13 line as the estimated data becomes available.
All in, while Apple has made some positive changes this year, we see little to get excited about, other than the extended battery time.  Earlier in the year we had expected that Apple might lower the price of the iPhone 13 family, but the increasing component costs that have plagued the CE space seems to have dashed any hopes of same, although there is still some time for holiday discounting.  We believe it could be a bit of a struggle this year for Apple to meet its 90m unit goal without stepping up marketing spend.  Hopefully there will be a bigger increment to the feature set next year and a real reason to upgrade.  BTW, Apple has lowered the initial price of the iPhone 13 in China (higher than in the US) by ~$124 relative to last year’s model, so we do expect sales in China to be stronger this year, especially with Huawei (pvt) being almost out of the smartphone business.  Last year China was ~20% of Apple’s sales.

As we noted, Apple has maintained pricing for this year’s iPhone 13 family relative to last year, however in China the price of the new iPhone 13 series, while higher than in the US, is lower than the starting prices seen for the iPhone 12.  As can be seen in the table below base models of the iPhone 13 are less expensive than the iPhone 12 (original price) by between 3.2% and 13.3%, but still remain at a premium to US prices, which are between 13.5% and 21.5% less expensive.  Currency has played a part in the decrease, but Apple’s component cost leverage and a desire to stave off domestic competition are also factors.
Apple’s biggest competitors in China are from domestic brands, particularly Oppo (pvt), Vivo (pvt), and Xiaomi (1810.HK), whose share of 21.2%, 23.7%, and 17% all outperformed Apple’s 11.8% share in 2Q ’21.  That said, Apple will have at least a part of 3Q and all of 4Q to gain share now that the iPhone 13 has been released and we expect the lower price could attract a bit more attention, or at the least provide some competition against those Chinese domestic brands that have tried to move up to more premium oriented smartphone models, especially given the massive pressure put on Huawei by US trade sanctions.   While we expect Apple is looking to squeeze a few more share points out of China for the remainder of the year by lowering prices a bit, they will also likely slow those domestic brands from moving up the price curve at the same time.

The AR/VR market is growing and there are gobs of statistics and estimates to prove that fact, but even with gobs of data on how big the AR/VR market is expected to be, it needs to be validated by a true believer and not just any true believer, but one who carries significant weight.  While Samsung (005930.KS) is known to lead markets from a technological standpoint and has a vast customer base that loves to try new technologies and new features, when it comes to validating a technology there is none better than Apple (AAPL).  Apple is rarely first with technology advances, waiting to see what might fit into the basic Apple model of selling more stuff for higher prices, and even when they dip their toes in the waters of a new technology they tend to take it slower than most.  However, if they find that a technology allows them to sell more stuff, they go all in, and for the industry that can be game changing.
Recently it has been reported that Apple has requested samples of FMM (Fine Metal Masks) from a South Korean display equipment producer APS Holdings (054620.KS).  Masks like these are used to pattern OLED materials on various substrates to produce RGB OLED displays.  What makes these masks a bit different, aside from the fact that they are not produced by the industry leader Dai Nippon Screen (pvt), is that they have a resolution of 3,000 pixels/inch, which is 4.7x the highest ppi in the smartphone market, and almost 22 times the pixel density of a 32” 4K TV.  These masks are potentially to be used for small, high resolution displays such as those in VR headsets, and while we expect this is little more than one of Apple’s R&D projects, it underlies the industry’s need for a major CE player to get involved.
While big electronics names like Hewlett-Packard (HPE) and Sony (SNE), are players in the commercial VR space, the industry needs a well-known hardware name to gin up consumer interest in VR and there is none better than Apple for legitimizing a technology, even if it has been around for years.  In the case of the APS Masks, they are produced using laser drilling rather than the typical wet etch method, which allows the masks the higher resolution.  Further, most VR devices use white light that is colored by a color filter, similar to the way LG Display (LPL) produces OLED TVS, but just as it does in OLED TVs, the color filter reduces the amount of light the display is able to generate, so the ideal circumstance would be to produce true RGB patterning on a silicon substrate that would eliminate the need for the color filter and produce a brighter display.  If Apple finds the APS masks viable for production, it could set the tone for Apple to venture further into the world of commercial VR.
Before we all get re-excited about VR, we note that looking back to estimates made in 2017, expectations for VR unit volume were for ~100m units to be sold in 2021.  Current expectations are for 6.1m units this year so we are a bit cautious about how quickly even a CE behemoth like Apple could move the market, so we take forward VR estimates with a grain of salt, but hope that Apple does find a way to utilize the APS high-resolution technology that will benefit consumers while keeping us with at least one foot in reality.

Sometimes trying to make things better can create bigger problems than the fix was to cure, but this one was a bit surprising.  Apple (AAPL) has been receiving negative feedback on its forums and social media regarding damage to the iPhone and problems relating to using the device when riding motorcycles or mountain bikes.  It seems that taking a ride on your chopper with your iPhone may not be a good idea, especially if you are one of those who straps it onto the handlebars.  Apple has now responded by recommending that users do not directly connect the iPhone to the handlebars or body of such ‘high-power’ machines or at the least use a vibration damping mount if absolutely necessary.  They go as far as taking that warning down to mopeds and electric scooters.
It seems the problem is rooted in the iPhone’s OIS (Optical Image Stabilization) system, which was developed to allow the user to take clear pictures even if the camera moves a bit.  The system uses a gyroscope to sense if the camera moves and moves the lens to compensate, reducing image blur, and some models go further with a closed loop system that compensates for gravity and vibrations.  That said, Apple does say that ‘direct exposure to high amplitude vibrations in a specific frequency range for long p[periods of time may degrade the performance of these systems and cause deterioration in the image quality of photos and videos.  It is recommended to avoid exposing your iPhone to long-term high amplitude vibrations.”
All’s well and good, and kind of a no brainer except that when Apple was promoting the iPhone 11 Pro back in 2019 they used the two GIFs below as part of the promo, which were used to promote the iPhone’s ability to overcome excessive shaking and vibrations and that back as far as the iPhone 6s, Apple has been using OIS and closed loop autofocus, so the issue either has gotten worse or has changed with system changes.  Apple has also mentioned recently that OIS and the Closed Loop Autofocus systems are vulnerable to magnetic interference from some magnetic iPhone accessories, but removing the accessory should cure that problem.  Some iPhone users joked that the next Apple accessory will be a shock absorbing bracket for mounting your iPhone where it now seems to not belong.
https://www.ednchina.com/d/file/news/2021-09-13/a3914ba37cafc9da137007d5349630fa.gif
https://www.ednchina.com/d/file/news/2021-09-13/4b62ecd24d566080193f61b59ffb0b8b.gif
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Over the last few years the CE industry has decided that blue light is bad for you especially when you are trying to go to sleep, and has implemented a number of systems that reduce blue light in displays.  Citing studies (mostly animal based) anti-bluers say the blue light suppresses the production of melatonin, a naturally produced hormone that is involved in a number of circadian rhythm systems in vertebrates including hibernation, blood pressure, and sleep-wake timing.  When released by the pineal gland at night it activates melatonin receptors, starting a cycle called dim-light melatonin onset which continues until the body is exposed to daylight, at which point the resulting proteins are destroyed and receptors are no longer stimulated.  That said, there is little evidence supporting the use of melatonin to induce sleep, with a 2017 study (Matheson E, 2017) indicating that taking Melatonin as a dietary supplement allowed sleep onset 6 minutes earlier but had no effect on total sleep time.
Some studies have indicated that exposure to as little as 2 hours of blue light can slow the natural production of Melatonin and can cause phototoxicity (skin and/or eyes become sensitive to light and can blister) and WebMD, source of much incorrect medical information, states “Blue light exposure might raise your risk for certain cancers”, but exposure to blue light during the day may have the opposite effect.  It’s used to treat seasonal affective disorder (SAD), a form of depression related to the changing of the seasons.  All in there is very little conclusive evidence that blue light (in moderate doses) is harmful, but it can be a rallying cry for CE companies that wish to present a woke face to consumers.
Apple (AAPL) has been a big fan of blue light reduction, having added a feature called ‘Night Shift’ to iOS in 2016 that shifts the display’s color mix toward ‘warm’ when it senses diminished external light.  Android phones picked up a similar feature soon after and almost all smartphones now have a ‘night mode’ that is supposed to help you sleep better.  However, a number of studies have indicated that the color shifting feature has little if any benefit, with an examination of whether Night Shift reduced the adverse effects of nighttime iPad use at the Lighting Research Center at Rensselaer Polytechnic Institute finding that the feature did avoid melatonin suppression more that the default settings, but not enough to make any appreciable difference in sleep quality.
In April a study (Kara M. Duraccio PhD, 2021) at Brigham Young University sampled 167 adults (18 – 24) with iPhones that were randomly assigned one of three conditions – iPhone use during the hour preceding bedtime with Night Shift enabled, the same with Night Shift disabled, and no phone use.  The participants were tested for seven nights with the outcome that there were no significant differences in sleep outcomes across the three conditions.  Further, for those averaging more than 6.8 hours of sleep per night, the ‘no phone’ condition generated the best results, and for those sleeping less than 6.8 hours/night there was no difference under any of the conditions, essentially concluding it is better not to use your phone before you go to bed, but not because of blue light issues.
While we have no documentation to prove our theory, we believe that while blue light might have a minuscule effect on potential sleep conditions, more likely is the mental tension derived from e-mails, texts, checking Instagram, and the host of other obsessive behavior that smartphones and social media has instilled in us.  Rather than drifting off into a night of restful sleep, we are thinking about whether that last post was really ‘about you’ or whether it was just a generally stupid comment.  Remember books?  They don’t generate blue or any other kind of light and a well-chosen one can work better than an Ambien.  “I think it’s good that books still exist, but they do make me sleepy” – Frank Zappa – The Real Frank Zappa Book.

While we expect Apple (AAPL) will modify and expand its Mini-LED supply chain as the company adds additional Mini-LED product conversions to its line later this year, we can garner at least a rough map of current players.  These suppliers are certainly not exclusive, at least intentionally so, as Apple is wary of single-point-of-failure issues, but in these relatively early days of Mini-LED production, not all suppliers can meet Apple’s technology, quality, and volume demands, especially after issues around some of Apple’s earlier Mini-LED products gave users cause for questioning whether the change to Mini-LED is a good one.  With iPad sales strong, it seems the overall Apple customer is convinced, but we would imagine Apple is particularly careful when adding new suppliers.  Here’s the latest list.

Apple has been working to diversify its supply chain on a geographic basis for a number of years and has chosen Vietnam to become an alternative to assembly in China where many Apple products have been produced.  In the 1st quarter of 2020 Apple began an initiative in Vietnam to encourage suppliers to expand their capabilities, particularly for Air Pods, with the expectation that such expansion would lead to shifting assembly of the Air Pods 3 product from China to Vietnam, or at least a substantial chunk of production.  Apple also had planned to shift some MacBook and iPad production to Vietnam from China, but it looks like both sets of plans have been put on hold due to the COVID-19 outbreak in Vietnam.
While Apple had been trialing Air Pod production in Vietnam, border limitations between China and Vietnam have made it more difficult for engineering talent to move from China to Vietnam and has also limited the full development of the supply chain in Vietnam.  One area that such border issues have depressed is the joint development of new product between suppliers and CE brands, in this case in Vietnam, which is dependent on the same engineering expertise that has been limited by COVID-19 border restrictions.  This is not only an issue for Apple but has also affected Google (GOOG) who had planned to produce the Pixel 5 smartphone in Vietnam but found that it was necessary to bring production for that phone, which was released last October.
At least for now it seems that Apple has shifted AirPods 3 production back to China in light of the factory closings and travel restriction in Vietnam, although the company has indicated that it still intends to move some of the AirPod 3 production to Vietnam ‘later’ and reports that Amazon (AMZN), who was facing similar problems with production of a number of ‘smart’ products in Northern Vietnam factories, has also shifted production back to China.  Hopefully this is a temporary setback for CE production in Vietnam which has emerged as a strong contender for CE product development, but stories of furloughed factory workers on bicycles trying to leave Ho Chi Minh City but being turned back by police do not set the tone for a conducive production environment, at least for now.