It has been a difficult year for smartphone component prices and a difficult year for smartphones in general, following a number of slow growth years for the overall smartphones space.  Apple (AAPL) has been a standout in that the company has been able to grow share over the last few years while volume leader Samsung (005930.KS) has seem no appreciable share growth.  Apple plays a more subtle marketing game in the smartphone space, limiting offerings to a very small number of models each year and paying little attention to the ‘feature race’ that is common among smartphone brands.  Rather than try to ‘out-feature’ its competitors, especially its biggest competitor, Samsung, who is also the leading smartphone display supplier to Apple, the company focuses more on style, performance, and building a large ecosystem that both feeds iPhone sales and is also fed by the same.

The ‘feature race’ is a function of the fact that the cost of components for a steady state smartphone built in 2018, should decline over time as new suppliers compete against entrenched suppliers for Apple share, and along with that axiom, comes consumer attitudes that tend to see lesser values in features as they become commonplace and are therefore less willing to pay a premium for features that are ‘last year’.  Brands, particularly Samsung, given its vast resources (captive display, captive semiconductor memory, etc.), are constantly adding features, especially to high-end or flagship models to entice consumers with the latest, greatest, or most talked about features.
Apple tends to be a laggard when it comes to features, with the company’s adoption of OLED, a slow process that was years behind other leading brands, but at the same time the company does considerable research in key areas and has bought a number of companies over the years that allow Apple to develop some of what it believes are key components, or at least have a prized research team/IP.  An example is Apple’s focus on its “Face ID” system which it unveiled in 2017 on the iPhone X.  Over 10 years ago Apple began working on developing the technology, purchasing PrimeSense (pvt) in 2013 and InVisage (pvt) in 2017 and has maintained its use since.  On that same premise, Apple has spent years working toward developing its own processor and in 2020 it replaced incumbent Intel (INTC) with its own M1 chip, produced by Taiwan Semiconductor (TSM).
By bringing the chip design in house Apple can better control both its capabilities relative to the demands of iOS and key Apple applications, and its overall performance, one of Apple’s ‘differentiators’, and while iPhone performance has always been a selling point, better performance is a key driver for the devoted Apple fan base that is always ripe to criticize competitor brands’ more generic applications, slower performance, and overcompensation with features that are plentiful but are little used.  While the A Chip series certainly is a differentiator, it also carries a cost, and Apple’s relentless push toward higher performance goals adds a bit to the BOM relative to a more generic processor or even its own predecessor.
Given that component costs have been on the rise over the last 18 months one would expect Apple to pass on those rising costs to consumers, however the high-end smartphone market has become less elastic as prices moved above $1,000 in 2017, however when looking at the iPhone Pro Max, the top end of the iPhone line, the price has not changed between 2018 and the current iPhone 14 Pro Max and remains at $1,099 base price.  During that time, the BOM has varied, with more sophisticated communication hardware, larger batteries, and more plentiful suppliers.  Apple has had to make up the margin impact of these component BOM changes in other places, such as negotiating lower assembly and shipping costs by establishing production closer to fast growing markets or by redesigning the physical aspects of the iPhone line, but in 2020 Apple stopped supplying chargers with new iPhones, which rang the bell indicating that Apple was pushing hard to maintain iPhone margins.
Component BOM for the iPhone Pro Max has varied between -4.4% and +5.2% from the mean during the period between 2018 and 2021, but soaring component costs this year have pushed the component BOM of the iPhone 14 Pro Max up 14.1% from the 2018/2021 mean, or 2.7 times the largest change over the period. Some of this can be attributed to the A16 processor that Apple is using in the iPhone Pro and Pro Max (iPhone 14 and iPhone 14+ use last year’s A15 processor), which is produced by TSM on a 4nm node[1].  While reviews seem to indicate that the faster clock speed and other features of the A16 give it a slight edge over the A15, most say the differences are negligible.  With the A16 system cost rising from ~$45 (A15) to ~$110 (A16), based on recent teardown analysis, the performance boost is an expensive one and coupled with other more expensive components, the base component cost has reached new heights.


[1] Actually a 3rd Generation 5um node

 Apple will need to make up this incursion into iPhone Pro Max margin in other places, as materials and component prices, while having come down from recent peaks, are still a cost burden.  We expect that Apple has negotiated price concessions with a number of key component suppliers by committing to higher unit volumes, which led to headlines a few months back about Apple increasing order volumes for older iPhone models along with the pre-release orders for the iPhone 14 line, a viable strategy at the time.  That said, as the macroeconomic picture deteriorated over the last few months it is getting more difficult for any smartphone brand to develop an increasingly optimistic view of the remainder of the year, which could lead to Apple having to reduce 4Q supplier expectations and lessen those volume discounts. 
There is still time for a big iPhone 14 advertising push into the holiday season, but it looks like it will be a bit more difficult for Apple to maintain iPhone 14 margins at the same level as the iPhone 13, especially as the performance differences between the iPhone 14/14+ and the iPhone 14 Pro/Pro Max seem to have encouraged consumers to lean toward higher than expected volumes of the Pro/Pro Max, which likely carry lower overall margins relative to the lower-end iPhone 14/14+.  There is one positive behind all of these component machinations, and while it will do little to help Apple financially, a look at the source of the iPhone 14 Pro Max components reveals that 32.4% of the total component BOM are sourced in the US, up from 22.6% last year, while all other regions saw component share declines.

Samsung Display (pvt) has been the exclusive supplier of LTPO based displays to Apple (AAPL) since the company began using the more advanced TFT process for two models of the iPhone 13 last year.  As high screen refresh rates are desired by consumers to keep fast moving images from smearing, device designers also had to deal with the fact that those higher refresh rates mean the images on the screen are redrawn more often each second, with draws more power from the device’s battery.  LTPO (Low-temperature Poly-Oxide) is a combination of LTPS (Low-temperature poly-silicon) and IGZO (Indium Gallium Zinc Oxide) backplane solutions, and is able to allow high refresh rates as well as low refresh rates, which gives the device designers the ability to create a ‘variable rate’ device.  Such systems can sense the resolution of an image stream and tailor the display’s refresh rate to meet that need, so the device can run high resolution images when necessary, but can also throttle the refresh rate to very low levels for text or other slow moving images, saving considerable battery resources.
Apple is credited with the development of LTPO and has used it in the Apple Watch since 2018, but it was used in Samsung (005930.KS) smartphones (Note 20 Ultra) in 2020 and a number of Chinese brands before Apple began to migrate to the technology last year.  The process for producing LTPO is more complex than either of the two processes from which it is derived and that complexity gave Samsung Display the first mover advantage for LTPO, especially in 2021 when it was the sole supplier for the iPhone 13.  This year however, LG Display (LPL) has been working toward adding LTPO to the displays it provides to Apple and had to go through Apple’s rigorous qualification process to join rival SDC, which took longer than expected, leaving Samsung Display as the sole OLED display supplier to the iPhone 14 Pro Max and the iPhone 14 Pro until the end of October.  From that date forward LG Display can now provide LTPO displays for those models, in addition to the two LTPS models it previously supplied, which will reduce SDC’s shipment levels and give a boost to LG Display’s mobile OLED display business, which took a hit when parent LG Electronics bowed out of the mobile phone business last year, especially as the two LTPO models have proven more popular than expected.
BOE (200725.CH) remains a supplier of the iPhone 14’s two LTPS models, but has been working toward improving yields on its LTPO production, although we expect they will likely not qualify this year.  That said, there is the possibility that BOE could get LTPO qualified for the iPhone 15, which would eat further into SDC’s dominant position.  While this is certainly a factor, yield is still a major consideration, and SDC’s long experience as an LTPO producer will likely leave them as the highest volume supplier, but the addition of LG Display and potentially BOE will likely put pricing pressure on SDC going forward.  We expect this will trickle down through the component supply chain in 2023, with purchasing leverage moving from SDC to LGD and BOE, and Apple able to make progress in lower display costs.
 

​In June we noted that Foxconn (2354.TT) had been offering aggressive bonuses to workers at its Zhengzhou assembly plant known as “iPhone City”, where it employs over 200,000 to assemble iPhones and similar Apple (AAPL) products.  The incentives were offered to assuage worker fears that COVID restrictions might keep them at the plant for an extended period of time and limit their ability to travel to their homes when not working.  Last week we noted that the Zhengzhou government had done just as the worker’s feared and locked down the city, with many workers having anticipated the move and left the plant days earlier.  Foxconn provides for the workers that remain on campus with dormitories, food, and a few stores, but communal meals and other typical amenities are restricted.
Early indications pointed to Foxconn’s ability to transfer some of the Zhengzhou workflow to its assembly plant in Shenzhen, which faced its own closings in March and July, but was still operating at normal capacity.  In our note last week we calculated that while the issues in Zhengzhou could push out delivery times, they would not substantially impact 4th quarter iPhone shipments, though in worst case could push some sales into 1Q ‘23.  It seems that we were wrong as Apple made the following announcement this morning:
“We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models.  However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products.” 
While we expect there might be a bit of the general economic macro malaise built into that statement, it seems more workers than expected anticipated the lockdown and took off before the restrictions began, leaving the factory at lower capacity than we had expected.  Apple did not give specific targets for 4Q iPhone shipments, but street expectations seem to be concentrated between 50m and 55m units for this year.  Apple’s previously had an optimistic view of iPhone shipments, as in June the company was said to have increased orders for iPhone components from suppliers by 5%, and during the pre-order period that started September 9, early pre-orders, especially for the iPhone 14 Pro and Pro Max, were said to be ahead of the corresponding iPhone 13 models released last year.  With this morning’s iPhone statement and what is likely another week+ of lockdown in Zhengzhou, the lockdown seems to be having a greater impact than we originally thought.  Our estimation of an 11.2m unit shortfall seemed high at the time and a bit extreme, but today’s comments from Apple make it less so.

​Taiwan based Foxconn (2354.TT) is a massive employer in China with 12 factory complexes, the largest of which is located in Longhua Town in the city of Shenzhen, which has come to be named “Foxconn City” and covers 1.2 mi2 within its walls.  Many workers live in the dormitories and walk to the 15 factories within the ‘city’, which has its own stores, restaurants, banks, and hospital, and while numbers vary considerably, the lowest worker count we have seen is ~200,000.  Foxconn also has a similar ‘city’ in Zhengzhou, said to also employ ~200,000 workers, which is also known as “iPhone City”, as much of Apple’s (AAPL) iPhone line is assembled at the Zhengzhou complex.
Late last week the local government informed the management of the Zhengzhou complex that the city would be placed on lockdown due to an outbreak of COVID-19, limiting travel.  This forces workers to stay ‘on campus’ in the dormitories, as the factories are allowed to continue production under a ‘closed loop’ system, meaning no one leaves the complex.  As this was a situation that developed rapidly, it seems Foxconn was caught off guard and did not have the resources needed to feed and house the entire staff of workers.  Under lockdown rules workers were not allowed to eat communally in the company cafeteria, and were forced to eat in the dorms, which caused conditions to be difficult early on. 
There have been a number of news stories and videos about workers jumping over fences in order to leave the plants for fear of being caught in a COVID outbreak or unhappy about the poor living conditions, so Foxconn began to increase weekly bonuses to workers from ~$14/wk. to ~$55/wk., and for those that worked for more than 25 days, the bonus was increased from ~$205 to ~$685.  Those that put in “full effort”, meaning remained on campus for the entire period, could earn a potential ~$2,054 bonus, against a typical worker salary of between $410 and $550/month.
Over the last two days there have been videos circulating social media saying that there have been 8 deaths at the Foxconn Zhangzhou plant during the lockdown, which Foxconn denies under the premise that the videos were ‘doctored’, but the real question is how much the issues at Foxconn will affect iPhone 14 family production.  Recent estimates indicate that the plant’s output could be reduced by as much as 30%, due to staff shortages caused by workers leaving, but some of that shortfall can be transferred to the Shenzhen facility, which faced two closings this year in March and July but is currently not under lockdown. 
Quick math based on historic Apple iPhone shipments would indicate that Apple would typically ship 85.97m iPhone units in the 4th calendar quarter, as each quarter this year has been up between 2.5% and 3.2% y/y.  Taking the mid-point of that spread generates the 85.97m units for 4Q (cal.).  As a check, 4Q shipments for the iPhone typically represent 36.5% of the full year’s shipments, and the number above would represent a slightly more conservative 35.6% of full year, so it is certainly within reason.  As Foxconn assembles ~70% of iPhones, that would represent 60.17m units in 4Q, or 20.06m units/month.  Assuming the lockdown lasts for one month and that Foxconn’s production rate is reduced by 30%, that would represent a shortfall of 14.04m units for the quarter, or 16.3% of 4Q (cal.) unit volume.  Again this assumes a one month lockdown, a 30% volume reduction, and no shift to another Foxconn plant, all of which would likely be the worst case scenario. 
We would expect that with the unusually large ‘incentive’ payments Foxconn is offering, the volume reduction will be less than 30%, and while the lockdown could last a month, we expect it will last 2 to 3 weeks, as the company and the city are testing virtually everybody on a regular basis.  We expect Foxconn can offload ~10% of the ‘missed’ volume to the Shenzhen plant, and, in worst case, Apple could shift another 10% to other assemblers, bringing the shortfall to ~11.2m units spread across the globe.  While this is still a substantial shortfall, iPhone buyers have faced order fulfillment delays before, with two weeks not being uncommon during periods of high demand.  As Apple has been the only smartphone brand to see shipment growth last quarter, iPhone 14 family customers could see longer than usual delivery delays, but good logistics could shorten that time a bit by pulling inventory from slower sales regions.  All in the worst case scenario for iPhone 14 shipments and delivery is likely less of an issue than the news stories seem to hint at, and even our quick calculations assume a positive y/y iPhone shipment number, which is certainly not a guarantee given the macro environment, so unless the lockdown is sustained or spreads to Shenzhen, we expect it will do little to hinder Apple sales for the 4th calendar quarter, and in worst case push some shipments into 1Q ‘23

Sounds like a novel you read as a young teen, but it represents the evolution of mobile devices that we can use to make our daily lives easier.  Of course this comes with a dependency that has become ‘the silent epidemic’, but that is for another day, while right now we seem to be on the verge of a potential transition to the next level of mobile ‘convenience’ devices, the smart ring.  While smart rings are currently available from a number of brands, most of which are not recognizable names and are privately funded, but the big boys are just around the corner, sort of.
Apple (AAPL) filed its first ‘ring’ patent back in 2015, followed by Samsung Electronics (005930.KS) just two month later, with both adding follow-up filings over the years, but both were beaten by Amazon (AMZN) who released the “Echo Loop” in September 2019, only to kill the product before year-end 2020.  Apple’s ring development is said to be linked to its potential XR device while Samsung’s development path is more toward being a ‘control’ center for a variety of devices, but the ‘rings’ that are currently available are more like smart watches in that they typically measure and track a number of body functions, and potentially offer advice as to how to ‘live your best life’, meaning staying healthy, while others are far more specific to the needs of specific user types.
For instance, the Oura (pvt) Gen 3, a $349 device made from titanium and weighing between 4g to 6g, comes with 6 month of free ‘membership’ ($5.99/month thereafter) and includes an optical heart rate sensor, a blood oxygen sensor, a skin temperature sensor, and a PPG sensor that measures HRV (Heart rate variability aka Photoplethysmography), a substitute for ECG that has recently been incorporated in a number of commercially available devices, along with an accelerometer.  The devices lasts between 4 and 7 days before recharging and the membership software, aside from the data itself, gives you an in-depth sleep analysis every morning, personalized health insights and recommendations, live heart rate monitoring, and skin temperature readings to let you know if you are sick or heading into a menstrual cycle.

While the Oura is at the top of ring pricing, there are a number of other less expensive ring devices that offer more specific functions, such as the $100 McLear (pvt) ring that is designed to execute “RingPay” transactions, essentially a wallet that allows the user to make contactless purchases as if they were using a contactless card.  The company offers cash back rewards to users, which increase if you become a member, and allows multiple ‘rings’ and the ability to transfer between them, but no sensors for bodily function measurements.  One step further from the ‘measurement rings is the $58 ArcX (pvt) ring that serves as a Bluetooth joystick that allows you to control a smartphone, camera, and similar devices, while keeping the controlled device in a pocket or backpack.  You can use it to control music during a workout and even accept calls, all using one hand.

But Samsung and likely Apple seem to be taking the ring concept further and a 2021 South Korean filing by Samsung shows a far more sophisticated ring device that includes a display and is oriented toward being a control center for a variety of devices, and while it could have a variety of sensors, including photodiodes, LEDs, and a PPG sensor, the objective is to give the user easy access and control over their devices, without touching the device, through various touch and mechanical switches and dials built into the ring.  According to the patent documents the ring is able to pass on any sensor information to other devices when necessary or to evaluate sensor data and can be charged wirelessly.
The smartwatch market, the most similar to the rings described above was roughly $30b last year, so the development of any device that can feed into such a market is a given for major CE companies, and with the current crop of smart watches ranging from $60 (OnePlus (pvt)) to ~$800 (Apple Ultra), there seems to be enough interest in what is now a small and underserved market to attract some spending.  We expect much of the market evaluation at major CE companies is based on whether the smart ring market will eat into the smart watch market, but we believe the evaluation is much more complex and is oriented toward the impact it might have on the smartphone market, a cash cow for many CE companies. 
As brands face the constant battle to differentiate their smartphones, features become an important part of that differentiation, but as smartphones mature, it becomes more of a game to find something ‘new’, such as Samsung’s focus on foldable devices.  If smart rings can perform smart watch functions and allow you to keep your smartphone in your pocket for much of the day, it lessens the value of those two devices, not something major CE companies want to face.  That said, a good marketing department could latch on to a smart ring as an adjunct to a smartphone sale, as a $50 or $100 accessory.  Tablets were feared to have the potential to destroy the laptop market and yet they both exist, and foldable smartphones have been said to be the demise of tablets, but all still exist and find a niche where they provide the user with convenience, they key to CE popularity.  As we noted, a good marketing department can find a purpose for even the most worthless of CE products and based on what we have seen so far, there are certainly applications where smart rings make more sense than watches or even smartphones in some cases.

​Good ideas are difficult to come by, and smartphones are no exception as the competition for new features, both hardware and software is intense.  While Apple (AAPL) is not known to be as much of a hardware innovator as other smartphone brands, typically waiting for either real customer acceptance of a new technology, or holding out until they are able to offer something one level above a ‘me-too’ feature.  We have mentioned that Apple has added the ability to send an emergency text message through a satellite network in locations where cell service is not available, and Apple also added ‘advanced motion algorithms’ to assist users who have been in a car accident or more serious crash.
 
The system evaluates a number of factors and Apple has said that it has been trained over millions of hours of real-world driving and data from crash recordings to generate accurate results, and a recent test at 40 kph (~25 mph) did not generate enough momentum to trigger an alert, especially as the test vehicle did not roll over.  At 50 mph the driver dropped the Apple Watch out of the window to simulate a high speed crash and rollover, which triggered the emergency system due to the high impact and rolling motion sensed by the sensors, including a 3 axis gyroscope and an accelerometer that takes readings 3 time each millisecond and microphones that can detect a loud sound such as a crash, along with GPS data that can indicate a rapid change in speed.  All well thought out ideas and coordinated by the algorithm itself based on the data it has been taught.
 
What it did not learn was about roller coasters, where the speed and momentum vary considerably with the weight of the car and the point at which it is measured, but the world’s fastest coasters easily break 100 mph, with the Formula Rossa coaster in Abu Dhabi hitting 150 mph.  Speed alone is not the only factor to consider as momentum mis a function of speed x velocity, and accelerometers, gyroscopes, and similar sensors don’t know the difference between a 90 foot drop on a coaster at 30 mph or a car rollover, which has caused a number of iPhone 14 users to find that their phones have been dialing 911 while they were riding coasters at amusement parks.  The iPhone system, should it sense what it believes is an accident, sounds an audio and visual alert, and will repeat the alarm if the user does not respond in 10 seconds.  After the 2nd attempt the phone or watch will dial emergency services.
 
It seems this is happening to users on roller coasters and to the few individuals who dropped their iPhone 14s or Apple watches out of a moving car, with emergency services being confounded by the call upon arrival, but you can’t fault Apple for trying or for the application for misunderstanding the extremely rapid speed changes of a typical roller coaster.  Its likely going to be updated in another software iteration with a ‘turn off crash detection for 10 minutes’ function or if you must ride a coaster sooner, just give it to someone on line to hold.  We are sure they will be there when you get off the ride…
 
 

Last week we noted that demand for small panel (primarily smartphone applications) rigid OLED displays in 2Q was considerably below expectations (missed by 25.9%), coming in down 19.5% q/q and down 33.2% y/y.  Much of the small panel OLED demand shortfall came from Samsung Electronics (005930.KS) and Xiaomi (1810.HK), and has led to expectations for 3Q small panel OLED rigid demand to decline by 25.9% q/q and by 46.5% y/y.  While these are certainly concerning data points, we also noted that small panel rigid OLED displays are an increasingly smaller part of overall small panel OLED displays, falling to 38.6% in 2Q and averaging 40.1% in 1H after 2021’s average of 44.0%, which puts the focus more specifically on small panel flexible OLED displays for a better understanding of demand for the smartphone OLED display market.
Now that we have full demand data for small panel flexible OLED displays, we note that the results for flexible OLED displays in 2Q was only off by 1.9% putting 2Q composite small panel OLED demand 12.85% below expectations, not a great number but certainly better than the rigid miss.  As can be seen in the table below, while both Apple (AAPL) and Vivo (pvt) came in above small panel flexible OLED expectations, Apple represented 49.6% of actual small panel flexible OLED demand in 2Q and was the only brand that saw better than expected results in the composite, with the composite itself being down 13.6% q/q and down 3.4% y/y.

The weak results in 2Q and the ongoing macro challenges facing the smartphone market have brought down expectations for small panel OLED demand in 3Q although there is hope for a relatively small amount of q/q growth (3.4%), as shown in the table below.  While these expectations translate to a decline of 20.3% (composite) on a y/y basis Apple, Honor (pvt) and Huawei (pvt) are expected to see q/q increases, with only Huawei seeing a y/y increase, a result of the extremely poor results Huawei saw in 2021 due to US trade restrictions. 
All in, another weak quarter for smartphones continues to put a damper on small panel OLED growth, despite an increasing share of the overall smartphone market, with Apple the only substantial standout.  As the iPhone 14 series was announced on September 7, much of the 3Q actual results will rest on the new iPhone line’s popularity during the last 15 days of the month, and based on those results, Apple will determine it order rate for 4Q.  In 2020 and 2021 Apple increased orders q/q in 4Q (11.9% and 71.5% respectively) while the y/y increase was less than 1%.  While we expect Apple is optimistic about customer demand for the iPhone 14 series, we assume they will temper that enthusiasm a bit as the macro-economic situation  continues to weigh on consumer spending, which would lead us to expect Apple’s full year small panel OLED demand to be ~200m units, up 9.8% y/y.  Given that almost all of Apple’s iPhone models (old and new) are OLED, this gives a good approximation of Apple’s 2022 display demand, which should translate into shipments, less build and transport timing and existing inventory.

​Simply put, Apple (AAPL) has very stringent rules as to components and suppliers and maintains a list that can be the difference between a good and a bad year for suppliers. The most current list, which was recently updated, added seven Taiwanese companies while removing six, added four Japanese suppliers while removing five, one South Korean company was added, and two US companies were added while two removed.  While the list covers Apple’s suppliers primarily for 2021, the list is updated periodically.  Here are a few of those public companies that have been added and removed.  The full list is here.
Adds:

• Taiwan Surface Mount Technology – 6278.TT
• Wingtech – 600745.CH
• LX Semiconductor – 108320.KS
• Toyoda Gosei – 7282.JP
• Lattice Semiconductor – LSCC
• Power Integration –POWI

Removals:

• Jones Tec PLC – 300684.CH
• Auras technology 3324.TT
• Primax Electronics – 4915.TT
• Maxim Integrated Circuits – ADI
• Sumida Corp – 6817.JP
• TK Group – 2283.HK

 
 

Apple (AAPL) did a bad thing when it released iOS 10.2.1 on January 23, 2017.  The operating system update contained code that the company had added to reduce complaints of battery-related shutdowns on the iPhone 6s, and while the update did reduce the shutdowns by ~80% it did so in a way that reduced the phone’s performance.  When the iPhone 6s was operating with weak batteries, processor intensive operations would push the previous OS to provide the necessary power to the CPU but the weak batteries would sense the excessive draw and signal the OS to shut down before the batteries would be fully depleted.  The ‘fix’ in iOS 10.2.1 now told the CPU not to perform those functions at full speed but at a slower rate, drawing less power from the batteries and no longer causing a shutdown.  The fix worked, but it also produced a noticeable slowdown in iPhone performance and by the end of 2017 Apple was apologizing for the undocumented change and lowered the price on replacement batteries as a way to assuage user ire.
Unfortunately for Apple, iPhone fans were not satisfied by the apology or cheaper batteries and the internet was then consumed with #batterygate, creating a class action lawsuit that was brought against the company for not disclosing that it had slowed iPhone performance without informing users.  The suit was recently settled with each complainant to receive ~$25, with Apple’s total cost of ~$500m.  The company was happy to close the book on an embarrassing event that caused considerable damage to its reputation and legislative focus on its consumer related practices, but the federal judge that ruled in the case was told by the 9th Circuit Court of Appeals that he must review the settlement again due to the fact that he applied the wrong ‘standards’ to the final award.  While the appeals court did not rule on the settlement itself, it cited the judge’s “presumption of reasonableness” as a misstep in assigning the fines and court costs.
While the legalese makes it difficult to understand the gist of the appeals ruling, it seems to indicate that the judge should not have assumed that the settlement was reasonable before he assigned court costs ($80.6m).  The settlement and award required a certification that the legal requirements of class member notification were completed, with over 95m class action notices sent to persons with potentially eligible devices.  However, those who brought the settlement to the appeals court believe that the notices, which were sent to all iPhones with a registered ID, did not cover the actual owners, as businesses could be owners of corporate phones purchased through carriers.  As Apple does not track corporate ownership of its phones purchased through carriers, the complainants allege that there were potential class action participants who were not contacted, and the appeals court agreed pushing the settlement back to the lower court.

​Of course, this next review will cost more in legal fees, court time, and draw out the settlement longer, but that is the price we pay for a legal system that strives to satisfy every possible legal argument, even if 99% of the potential class action participants were notified.  The few who did not like the settlement, particularly the legal costs assigned by the judge, have been able to hold off the final say in this long, drawn-out lawsuit, despite pretty much everybody else being satisfied.   Such is the state of litigation in the US today.   “Justice is justly represented blind, because she sees no difference in the parties concerned.  She has but one scale and weight, for rich and poor, great and small.” – William Penn

​In the past Apple (AAPL) has been criticized for its policies concerning the repair of its products, particularly iPhones, which had to be returned to the company or brought to an authorized Apple service center at considerable expense.  Opening an iPhone as a user would invalidate the warranty and cause even more expense for repairs.  Apple did not supply components for repair to non-Apple repair centers and used a number of screws and other connectors that were not typically available, making it quite difficult for sources outside of the Apple world to make such repairs.  Apple’s theory behind these rules was to guarantee that all repairs were done with quality replacement parts (supplied by Apple) and that the quality of the work met with Apple’s rigorous standards, and to a degree that was true, but the underlying factor of channeling all repair work to Apple-related entities to capture incremental revenue, was hard to ignore.
Last year Apple agreed to loosen it’s strangle hold on the repair of Apple products, as we mentioned in our 04/28/22 note which indicated the availability of Apple repair manuals, tool kits, and parts, allowing almost anyone willing to pry open their iPhone, a shot at fixing a dead battery, replacing the cracked screen or other more complex repairs if their warranty has expired and it seems that Apple really took the idea to heart with the iPhone 14 family, which has been completely redesigned to be ‘repair friendly’, although that only applies to the iPhone 14 Pro and iPhone 14 Pro Max, the upper-end of the iPhone 14 line. 
Recent teardowns of the new iPhone 14 family have revealed that Apple completely redesigned the interior of the iPhone 14 Pro and Pro Max, making them almost modular in that the two high-end models can be opened from the back of the device (last one that had that option was the iPhone 4s, released in October 2011), rather than prying open the device from the front.  The display and glass panel (rear) are held by only two screws and two connectors and are not glued  to the frame or other panels or held by a number of oddly shaped screws, some of which have been hidden, causing the necessity of removing other components.
iPhone 14 repair documents indicate that the iPhone Pro and Pro Max are essentially 3 layer ‘sandwiches’ consisting of the display, a mid-frame that contains most of the internal components, and the rear glass panel.  This means that the cost of repairing a cracked rear glass cover becomes far less expensive, and screen replacement should similarly be less costly.  Whether Apple passes that savings on to customers remains unknown as the company likely received considerable grief from its authorized repair members who no longer have the exclusive rights to repair Apple devices.  That said, the internal changes do not extend to the iPhone 14 and iPhone 14+.
While perhaps not as altruistic as it might seem on the surface, we certainly give Apple credit for making these changes and following through on its promise to make repairs easier and more accessible.  Hopefully they follow through further next year with a similar redesign of the interior of the lesser priced iPhone models, but progress is progress and is worth commendation.
What the Matter with Matter?
We have written about the upcoming “Matter” connectivity standard a number of times over the last few years as it has the ability to be a unifying force between brands that will jump start the on-again/off-again smart home industry, which is in dire need of a reason for existence, other than to add to the human desire to become part of the living room couch for the bulk of the day.
The Matter platform, which is supported by literally hundreds of CE and associated companies, from Amazon (AMZN), Google (GOOG) and Samsung (005930.KS), to Ikea (pvt), Vodaphone (VOD), and Shenzhen SEI Robotics (pvt), will allow all devices that are certified by the Matter organization to interoperate.  In theory this would allow smart home devices, most of which operate on proprietary networks and protocols, to essentially control each other, giving consumers the ability to cherry pick products that fit their requirements, rather than have to stay with a particular brand for all.
We say ‘in theory’ because the Matter standards were due out last year, and again at CES early this year, but to data have not been launched.  Not surprisingly, there are rumors of infighting between members and factions over where the standards will go in the future, and despite the fact that lead members Amazon and Google have pledged to upgrade products to the Matter standard many companies are still promoting their own proprietary smart home platforms. 
The Matter undertaking is a large one, with hundreds of product types, models, and flavors in the smart home market, few of which are compatible. Which forces consumers to have a proprietary system for dimming the lights and another for programming the washer/dryer, which along with the increased R&D a system development cost, is the primary reason why the smart home business has not taken off, especially during the COVID pandemic. 
In fact it seems that the delays involving Matter have put such pressure on some smart home brands that a company like Lenovo (992.HK), a well-known laptop brand, seems to have decided to shut down its smart home products business.  Lenovo’s smart home products are smart plugs, smart power strips, smart clocks, and smart LED lightbulbs, along with a number of 3rd party products, which it has been promoting since 2017, but word from retailers is that the company is moving out of smart home products given the lack of traction in the space.
There are certainly a portion of the global population that could find significant value in smart home devices, as the simple tasks that smart home devices can accomplish are not easy for the disabled, but this is a relatively small market that is only attractive to niche brands.  For the industry to see real momentum it must be easy for consumers to use.  No separate controls for each device, no hubs for each system, and no high prices, all of which could become a reality if Matter or a similar unifying protocol becomes the way of the world.  But human nature seems to have taken hold in the CE space once again and put proprietary interests above those of the target audience, leaving those without strong financial support and R&D financing to slowly walk away from the space.  This is not the first time bickering between parties has stymied the smart home business, but the early momentum behind Matter was so strong that it seemed to be a possible solution for the smart home industry.  Now we just have to wait and see if the standard will actually be released before the current generation of potential smart home customers gives up.