Remember Satphones, those bulky devices that show up as global communication devices that allow soldiers, CIA operatives, and zombie apocalypse holdouts to communicate with others, regardless of their location?  They seem to be in resurgence as Chinese smartphone brand releases its new Mate 50 line that has the capability to connect to China’s Beidou Satellite System for emergency SMS, although the phone does not have 5G service due to trade limitations placed on the company by the US.  The satellite network will allow for simple messaging, GPS, and emergency notifications but will be limited as to data speeds (2G rates most likely).
While ~86% of the global population has cellular coverage and less than 25% have 5G coverage, and while estimates vary, actual cell coverage is limited to between 10% and 15% of the world’s land mass, which means there are a lot of places where your cell phone is just a piece of expensive hardware that does little or nothing.  But the addition of satellite communication capabilities opens the communications grid to an almost infinite number of locations that have been inaccessible to mobile communications..  There are satphones that can be bought by us regular folk, and they are not as expensive as one might think (between $700 and $1,700 typically), but must include a voice/data plan, which can become expensive depending on use and at relatively slow data speeds.  You can buy a base station that allows a computer or cell phone to link to a satellite network, but those cost between $3,000 and $18,000.
While the Huawei satellite hook-up is actually of relatively little use for other than messaging, it predates Apple’s (AAPL) iPhone 14 announcement (tomorrow) that is rumored to include some form of satellite communication capabilities.  There was supposed to be a similar system for the iPhone 13 but Apple and whoever the satellite carrier was to be were unable to reach an agreement before last year’s release.  There is no information yet about the extent of Apple’s involvement with satellite networks, but if the iPhone 14 even hints at such a capability, there will be a renewed interest in the world of satphones and satellite communication networks , and while the cost might be high, it certainly would be a plus if you could whip out your iPhone on K2 and send a few pictures to the folks back home, that is if the phone is not completely frozen (The operating temperature of an iPhone 13 is 32⁰ to 95⁰, in theory). 
The real benefit however would come from the potential for new silicon development, particularly a combination of existing positioning services and other satellite functions.  Mediatek (2454.TT) has completed the first 5G non-terrestrial network connection test, paving the way for such potential silicon, and while plans for new satellite networks offer the potential to accommodate the distance restrictions that mmWave 5G and 6G face due to absorption by buildings, trees, and other objects as a satellite link would eliminate those restrictions and the potential density of base stations needed.  

​Foxconn (2354.TT) Apple’s (AAPL) primary assembler and the largest global OEM purchased a 10% stake in China’s Tsinghua Unigroup (state) through an $800m investment by one of its subsidiaries, Foxconn Industrial Internet (601138.CH), giving the company more direct access to fabless mobile processor producer UNISOC (pvt) and memory producer YMTC (pvt), both part of Unigroup.  While Unigroup defaulted on $3.6b in bonds last year and was sorely underfunded, investments by a number of Chinese funds stemmed the negative financial tide, although plans for fab expansion projects were put on hold.
The tension level between the Chinese and Taiwanese governments has escalated in recent weeks as we have noted previously, and has placed the US government in the middle of the conflict, focusing considerable attention on the region, Foxconn’s home base.  With such tension, the Taiwan Ministry of Economic Affairs is said to be doing a detailed review of the purchase, specifically evaluating national security issues, while the US government is exerting additional pressure on the Taiwan government given that senior management at UNJISOC previously worked for China’s largest semiconductor foundry SMIC (688981.CH), which has been placed on the US entities list.
The official review has yet to start but unsourced feedback has indicated that there is a very small chance that the deal will be approved by the Taiwan government on security concerns alone, although Foxconn has stated that they have reported all the necessary information about the investment to the local Taiwan authorities and are updating the overall investment situation to the necessary government officials.  With so much pressure both inside and outside of Taiwan, it would seem that there is little chance that the deal will survive intact, with Foxconn already facing fines for making the investment without government approval. Now the recent China/Taiwan tensions have placed the deal in an even greater spotlight, giving more scrutiny to the shareholders of the entity that FII invested in, which became the owner of Tsinghua Unigroup after its restructuring. Some of the owners of this entity are said to be Chinese state-owned companies that could have ties to the Chinese military or are affiliated with companies on the US entities list.  Foxconn has put itself in the middle of a global political battle in order to strengthen its supply chain and while it seemed like a good idea earlier in the year, we expect the company had no idea how public the transaction was to become.  Wrong place, wrong time.
 
 

​After the tension producing visit to Taiwan by House Speaker Nancy Pelosi, Apple (AAPL) has cautioned its suppliers in Taiwan who are shipping components or product to China to make sure the labeling complies with what are long-standing Chinese policy that requires said items to be sourced labeled as “Chinese Taipei” or Taiwan, China”, a tacit reference to the Chinese government’s belief that Taiwan is part of China, succinctly summarized in a document circulated by the Chinese Embassy in the US entitled, “Taiwan – an Inalienable Part of China”, which details a short history of the 1912 Chinese revolution and the Chinese civil war in the 1940’s, but is very specific in stating that “The lingering civil war which was imposed on the Chinese people in late 1940s and more importantly the intervention by foreign forces against the reunification of China led to a temporary state of separation between the two sides of the Taiwan Straits after the People's Republic of China was founded. But the status of Taiwan as part of China's territory has never changed, nor has the Government of the People's Republic China ever given up its jurisdiction over Taiwan.”
The document goes further in that when diplomatic relations were established between the Chinese government and the US in 1949 said agreement included “The United States of America recognizes the Government of the People’s Republic of China as the sole legal government of China.  Within this context, the people of the United States will maintain cultural, commercial, and other unofficial relations with the people of Taiwan.  The government of the United States acknowledges the Chinese position that there is but one China and Taiwan is part of China.”  However the document goes further stating that the Chinese government does not object to the US maintaining non-governmental economic and cultural relations with Taiwan, but “What we do oppose is US conducting official exchanges with the Taiwan authorities”, drawing a rather vague line between official and non-official meetings with the Taiwan government.
With all of that said, Apple is not taking a chance that its Taiwan supply chain inadvertently angers Chinese Import/Export authorities by using labeling that implies that Taiwan is not part of China, such as “Made in Taiwan” rather than “Taiwan, China” or even “Chinese Taipei”, as the Pelosi visit has raised tensions between the US and China relative to Taiwan.  In light of the upcoming release of the iPhone 14 line, it would seem Apple does not want to find that components and materials are being more carefully examined, slowing shipments, or even held for official review and has asked its suppliers in Taiwan to make sure the labeling complies with Chinese rules.  While assembler Pegatron (4938.TT) states that all operations in China are running normally, there have been rumors that some components from Taiwan had been held by authorities for more detailed inspection.

Fun with Data – iPad Procurement
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Chinese panel producer BOE (200725.CH) has been on a roller coaster ride with Apple (AAPL), with Apple rejecting the company’s displays for entry into the iPhone supply chain a number of times in 2020 and 2021, but the company persevered and was accepted into the exclusive fold typically dominated by Samsung Display (pvt) and LG Display (LPL).  Just when things seemed to be going well, stories began to circulate earlier this year that BOE had changed driver circuitry on a display it was supplying to Apple without permission, and they were suspended from iPhone production for a period of time.  Since then there have been various projections as to how much participation BOE will have in the iPhone 14 series, which should begin this month.
Much has been made in the Chinese trade press as to how BOE is now challenging South Korean dominance in Apple’s display supply chain, with considerable and mostly well-deserved nationalistic pride, but while the press champions BOE’s success with the iPhone, they miss the fact that BOE was the primary supplier of LCD displays to Apple’s iPad line in 2021 and is expected to remain so this year, despite reductions in Apple’s display procurement for the product., which is expected to decline by 25.8%.  In fact, if estimates for LCD iPad display procurement are correct, BOE will see only a small drop in y/y units shipped (-2.7%), while LG Display will see a 17.0% reduction in units and Sharp (6753.JP) will see a 59.2% y/y unit reduction this year.  MacBook shipments are expected to see a 1.9% increase this year, and while BOE will not have the dominant share, it will be the only supplier to see an increase in units (+87.5%), with both LG Display (-5.1%) and Sharp (-9.6%) seeing decreases, which points to the fact that BOE, while still facing some challenges in the OLED space, is seeing considerable success with Apple in the LCD display space.
While OLED displays, particularly flexible OLED displays tend to be the focus for number crunching and press releases, there is still a vast LCD display world that gets little recognition unless it has ‘quantum dot’ or ‘mini-LED’ attached, but that world is still a very large one with ~891.2m large panel LCD units shipped last year, generating over $85b in revenue and one that Chinese display producers dominate.  While the Chinese press glorifies any statistics that show Chinese supremacy in the display space, credit is due to BOE, Chinastar (pvt) and other Chinese LCD display producers, who hold the top share in the large pane LCD space.  One can question whether that will be as valuable a position 5 years from now, but currently they certainly have accomplished their goal of becoming the leading source of large panel LCD displays.

In our note of 7/15/22 we indicated a dispute between Samsung Electronics and China’s BOE (200725.CH) over what amounts to advertising royalties which have caused Samsung to reduce orders for LCD panels from BOE and has spiked interest from other Chinese panel producers who would like to fill the gap left by the Samsung/BOE disagreement.  As we also noted BOE’s Chinese rival Chinastar (pvt), owned by TCL (000100.CH) has already been to South Korea to sweet talk Samsung executives and local suppliers and is now expected to travel to Cupertino to schmooze with Apple (AAPL) folks to gain some traction as a panel supplier for MacBooks and iPads.
Chinastar has been reviewing plans to expand its OLED production capacity, potentially with lines dedicated to Apple, and would be expected to put additional pricing pressure on LG Display (LPL), the current panel supplier to the MacBook line.  China star is already a supplier of TV panels to Samsung, along with AUO (2409.TT), Sharp (6753.JP), BOE, and LGD, and Samsung is a shareholder in TCL, so the visit to Korea was one with some weight and a visit to Apple by TCL’s chairman would certainly create some anxiety at BOE and LGD.  As Apple is quite particular about their displays, the recent brouhaha over BOE’s changes to Apple’s qualified display design without prior approval has set BOE back a bit in terms of company reliability and once there is even the smallest amount of blood in the water[1] the sharks will gather.  We would assume Chinastar will gain share at Samsung and Samsung will use Chinastar to further its pricing leverage with its other suppliers, particularly BOE, and any success at Apple will help Chinastar gain share against BOE, although we expect it will take considerable time for Chinastar to build out dedicated Apple capacity.


[1] Fact – Sharks can sense between 1 part in 25m and 1 part in 10 billion depending on the chemical, which would be the equivalent of one drop of blood in a small swimming pool.

​TCL is a very price competitive brand, particularly when it comes to TVs and even more so when it comes to QD/Mini-LED TVs, as it was the first brand to release such combined technology and is a generation ahead of rivals, including Samsung Electronics and LG Electronics (066570.KS).  TCL recently released a 98” QD/Mini-LED TV to compete with a 98” offering from Samsung and noted that it had received 5,000 pre-orders for the sets in the 1st hour it was listed, which sell for ~$8,900 against Samsung’s recently discounted price of $13,000.  TCL has now stated that it has already sold more than 4,000 of the units, mostly during the 6/18 holiday, roughly 5x the number it sold last year.  Samsung has not disclosed its sales figures for its 98” QD/Mini-LED models.  Displays for the TCL 98” QD/Mini-LED model are produced by Chinastar, a subsidiary of TCL.
While it is hard to verify such specific sales figures, especially those from China, we expect TCL has had some success with its ultra-large QD/Mini-LED lines given both pricing and local familiarity, but the ultra-large TV market is a rarified one with expectations for less than 100,000 98” units sold this year, including other technologies, although the sales value is certainly enviable even for 4,000 units, which would be the sales equivalent of selling 54,769 TCL 55” QD/Mini-LED TVs based on current prices, and while the TCL98” TVs mentioned were sold in China for ~$8,900 you can steal last year’s model from Best Buy (BBY) at the currently discounted price of $8,500, although you would have to wait until August 3 to have it delivered, especially as it would be hard to fit in a standard vehicle as the box is 5 feet high and 8 feet long.

Smartphone prices vary on a country by country basis, with logistics and currency playing a significant roll in setting those prices, and with the rapid depreciation of the yen against the dollar this has become quite apparent as Apple (AAPL) raised iPhone prices in Japan as of July 1 in order to protect profitability as profits are converted back to dollars.  Not only are current models now more expensive, but older models have also seen price increases and less expensive models like the iPhone SE are becoming scarce, particularly the iPhone SE (2nd Generation) Apple’s low-priced offering released in April 2020.  That phone (used) used to sell for ¥20,000 ($146.34 US) but is now selling for ¥30,000 ($219.51 US), a 50% increase according to retailers in Tokyo.
Other iPhone models have also seen increases, such as the iPhone 13 (128GB), which was released in September 2021, and has gone from ¥98,800 ($722.91 US) to ¥117,800 ($861.92 US), a 19.2% increase, and the iPhone SE (3rd Generation), which was released in March of this year, has increased in price from ¥57,800 ($422.92 US) to ¥62,800 ($459.50 US), an 8.6% increase since its release., and the iPhone 11[1] (released 9/2019), the iPhone 12 (released 10/2020), and the iPhone 13 (released 9/21) have increased in price by 15.4%, 8.5%, and 7.8% respectively.  A recent survey added that ownership of used phones (purchased used or refurbished) in Japan in April of this year was 11.6%, almost 2 times the rate over the last 20 years.
While certainly disconcerting from the Japanese consumer’s standpoint, however iPhone prices in Japan are still below those of the equivalent phones in other countries as shown in the table below, which shows both the pre and post price increase in Japan compared to the US, Germany, and China representing the North American, European, and Chinese markets[2], although the US price does not reflect retail sales tax as they vary from state to state.  As the price rises in Japan it pushes the iPhone purchaser’s income threshold higher but still represents a bargain for those in most other countries and ‘pre-increase’, the Apple direct sales sites in 34 countries averaged $925.23 for the iPhone 13 (128GB), while the Japanese site price was $723.02, the lowest of all.  Some Japanese retailers have noted that since Japan’s COVID tourist restrictions have been eased the number of iPhones sold, both new and used, has increased, with some purchasing more than one, leading to speculation that they are being resold in other countries.
 


[1] 256GB for all iPhone 11,12,13

[2] Table conversion rates are 139¥, 1€, and 6.7 yuan to the dollar.
 
 
 

With 4 of the top 5 selling smartphones in Japan being iPhones (52% share in April 2022), the Japanese smartphone consumer is very sensitive to Apple smartphone price changes and fears that further price increases in existing or upcoming iPhone models will price them out of the Japanese market, despite their low cost relative to the global averages, so it will be up to Apple as to whether it will continue to increase prices if the yen depreciates further against the dollar.  That said, Apple has US investors to consider and a larger vested interest in the US Federal Reserve’s policy moves than it does in the Bank of Japan’s and the US smartphone market alone is over 5 times the size of the Japanese market, so the decision to raise prices based on the spread between the yen and the dollar was actually an easy one and will continue to be so if the trend continues.

As we have previously noted Apple (AAPL) iPhone assembler Foxconn (2354.TT) has faced a bit of difficulty this year when it comes to seasonal hiring as while the crowds of potential workers brought to the company by recruitment agencies were still coming, they were fewer than last year, assumedly due to fear of the potential spread of COVID-19 in such close quarters.  Even with bigger sign-on bonuses, some potential workers that might typically sign on during this the busy season for iPhone assembly, Foxconn is having trouble filling the necessary quotas to keep the lines up to speed and has reportedly increased signing bonuses by another 20% to fill the gap.  The hiring bonus in at the Longhua factory was $782.23 on July 19 and is currently (yesterday) $960.01 and it seems that it is even higher at the Foxconn factory in Zhengzhou, where it was recently $1481.50, as long as employment conditions are met, while competitor Pegatron (4938.TT) is offering a $2,074.10 monthly salary to fill its ranks.
Unfortunately for those hired it seems that only hours ago the city of Shenzhen has ordered over 100 companies in the city, Foxconn included, into a ‘closed loop’ lockdown, to contain COVID-19 infection breakouts.   Other firms, including Chinese companies, BYD (002594.CH), ZTE (000063.CH), and Huawei (pvt) have been included in the company list,  The process means that only employees that live on site, meaning in company or company-sponsored campus housing, will be allowed to work, and no new employees may enter and no existing employees may leave.   All of this comes after the government of Shanghai held over 20 meetings with a variety of foreign firms that have representation in the city in June to try to mend fences after the 60 day lockdown that blemished the city’s reputation as a hub for foreign businesses.  Shenzhen itself is not locked down officially but is trying to seal off those residential and commercial areas where it sees the highest risk, a bit less onerous than the March lockdown, which forced residents to be tested multiple times and allowed only one individual in each household to leave to buy necessities every few days.
 

​Apple (AAPL) devices are among the most fertile fodder for speculation and rumors, with everyone from ‘leakers’ to analysts citing “Everything You Need to Know About the (insert Apple Product Here)”, with much of the information meeting the analytical standard of ‘…even a stopped clock is right twice a day…’, but the media needs content and to many rumors are content, correct or not, so the mill continues to grind out speculation on a daily basis.  As we have noted previously, Apple did not mention anything about the potential release of an AR/VR/XR product at the last developers conference, to the disappointment of many who were looking for some indication that such a device was imminent or at least in a later stage of development, however that has done little to stymie the flow of speculation about such a potential Apple release, in fact it seems to have increased the tide of conjecture.
Most recently there has been some specific reference to the Apple AR/VR/XR supply chain, which, according to some, is gearing up in anticipation of a product (aka ‘Project N301’) release as early as the end of this year or early 2023, with a 2nd product (aka ‘Product N421’) slated for 2024.  The first product release is said to be a VR headset with additional AR capabilities, while the 2nd is either an updated version of the N301 or an AR only device.  While we know Apple has a number of display research projects in the works, Micro-OLED seems to be getting the most attention as a VR display for such a project, and where LCoS (Liquid Crystal on Silicon) was the early AR display favorite, that technology has been mostly replaced with Micro-OLED, given the infrastructure that has been developed around small panel RGB displays and to a lesser extent OLED lighting. 
While the substrate for smartphones is a flexible plastic or glass, Micro-OLED displays are constructed on Silicon substrates and can therefore utilize semiconductor tools for many of the associated processes, and through systems such as multiple stacks and direct patterning, high resolution and high brightness OLED displays can be produced.  With typical small (1” to 2”) OLED displays being very low resolution (450x450) and relatively low brightness (350 to 450 nits), such displays are not suitable for AR or VR applications, which require resolution of 1920x1080 at a minimum and brightness levels of multiple thousands of nits, and as earlier AR/VR displays used WOLED display technology that required a color filter, such levels were not achievable.  As Micro-OLED uses patterned RGB emitters, it requires no color filter, which can vastly improve brightness.
But the problem with Micro-OLED technology is it is relatively new and each company developing the technology has their own way of patterning and driving the OLED materials, which means an ‘un-common’ infrastructure and supply chain.  While an AR or VR device by Apple will go a long way toward developing a supply chain around Apple’s BOM and chosen technology, we expect that technology to change very rapidly, making the development of a mass market infrastructure hard to develop., especially if Apple’s technology differs from that of Meta (FB), who is the current share leader in the VR headset space. There are a number of companies that produce Micro-LED displays, some of which are focused on the display side while others are dedicated to projection modules but each has its way of differentiating itself from competitors.  
Large display panel producers like China’s BOE (200725.CH) or LG Display (LPL) or well-known image sensor manufacturers like Sony (SNE), and more specialized OLED producers like eMagin (EMAN) and Kopin (KOPN) are all working toward the goal of finding an inexpensive way of producing Micro-OLED displays to feed the XR space, particularly AR development, but Apple itself is deeply involved in such development, having applied for or been granted over 53 patents related to AR and 51 related to VR just in the US, going back as far as September 1999 and as recently as last month.  While many of these patents have to do with the mechanics of display image processing or optical systems that bring images to the user’s eyes, Apple is deeply involved and likely has the goal of producing some device that they can sell and provide content for. 
Whether the device appears this year, next year, or in 2024, Apple’s ‘legitimization’ of AR and VR technology to the average consumer will be a big step forward for the industry, which is currently quite fragmented, but as we have said in the past, the key to really expanding AR usage is the creation of applications that will drive consumers toward the technology, not because Apple says its good and they can show off a well-designed AR device, but because the applications become ingrained in our culture.  Selling product will be the focus for retail applications and location services will certainly be enhanced, but an application such as language translation would be a killer application in our view.  Imagine walking down the street in a foreign country and just by looking at a person, you could understand what they are saying in any language.  Of course the quality of the translation systems are a key, but just the ability to get an understand of local culture by listening to everyday conversations would be a benefit to all, and that’s only one application, so if Apple really wants to sell AR products they should be spending mucho dollars on application development, as without effective consumer applications, the best you get a a good-looking headset that sits in a drawer.

​According to Korea’s ETNews, Apple has confirmed that the rumored OLED iPad will be released in 2024.  Apple and suppliers have been producing prototype of the device to make sure that the OLED displays can scale to while still meeting Apple’s specifications as the OLED iPad, should it be similar in size to the current model, would have a screen with almost 3x the size of an iPhone.  With sales in the 50m to 60m range, a mistake on the company’s first OLED base iPad would be quite expensive and damaging to the company’s reputation and the extra time the company is taking to make sure things are right is similar to how the company worked through the iPad OLED conversion years ago, which was slower than most major smartphone brands and started with one model, eventually expanding to the entire iPhone line.
There is still considerable speculation as to who will be supplying the displays for the OLED iPad with Samsung Display and LG Display in primary contention, with both indicating potential capacity expansion plans geared toward producing larger OLED panels on Gen 8 substrates rather than the more typical Gen 6, which would lead to more efficient processing.  China’s BOE is also angling to make its way further into Apple’s display supply chain, although the company is still behind SDC and LGD in terms of producing acceptable yields on LTPO displays, which have been the backplane technology of choice for Apple’s high-end iPhone models.  With the iPad typically being released in September, BOE and potentially others, will have a bit over a year to supply Apple with additional prototypes and gear up production, but it will be difficult for new fabs to be built and tested in that time, so we expect the first round of OLED iPads will still be produced o Gen 6 lines with the possibility that there will be more than one supplier, even if there is only one OLED iPad model in the 2024 year.
 
 

​We have mentioned a number of incidents where criminals or ex-boyfriends have tried to use Apple’s (AAPL) Air Tags to track people or items (high value cars most often) and Apple’s noteworthy attempts to make such use considerably more difficult, but once again criminals have tried to stalk a vehicle by attaching an Air Pod in the hope that they could track the whereabouts of a Japanese police detective.  Last May a detective in the Aichi Prefecture police force was about to get into his unmarked car parked in the station’s visitor parking lot when he noticed a small black box attached to the car’s muffler.  When he removed it he found it contained an Air Tag, at which point he alerted other officers about such a possibility, although no other tags were found.
In Japan it is hard to buy an Air Tag for cash so the odds are that the purchase can be traced, and whoever planted it knew little about car mufflers, which heat up to over 500⁰ and would have likely melted the box and the Air Tag, which has a temperature tolerance of 140⁰.  Considering that Air Tags have serial numbers that link the devices to the Apple account ID that activates them, the police should have an easy path toward discovering the person that planted the device, and Apple has stated publicly it will cooperate with any legitimate law enforcement requests concerning the illegal use of Air Tags.  While the idea of the tag was likely to stay one step ahead of the detective, the choice of using an Air Tag and its placement was a bit amateurish, as the Japanese police take even the pilfering of fruit or candy as a crime worth investigating, and other tag types have less traceable roots, but the choice of the muffler as the hiding spot was a new low in criminal intelligence.