CE brands use trade-ins as a way to encourage consumers to upgrade their devices and trade-in values can become a significant selling point for smartphones, where programs like Verizon’s (VZ) recent ‘…even broken phones…’ trade-in promotion can embolden those whose phones have case or screen cracks or barely work to trade-in those phones rather than junk them or pay for expensive repairs.  That said, as inflation lowers the buying power of those dollars you have earned, Apple (AAPL) has taken the concept to heart and devalued the trade-in values for many of its products, with the iPhone being the exception. 
While we make light of Apple’s move as inflation related, we expect Apple’s cost to refurbish, transport, or recycle those devices have risen along with food and pretty much everything else, so we look at the change as more of ‘what else is new’ rather than blaming Apple for the global economic situation, but while everyone struggles to meet such rising costs, one would have to assume that reducing the trade-in value of its products will have at least some effect on sales during a period where the external factors are enough to slow sales on their own.  Hopefully other brands do not follow (from a consumer’s perspective), but more likely others will join the trend after a quarter or so of eating the higher costs, but we can hope…
Here are the changes:

Before we go further we note that ‘could’ shows up a large number of times in the source material, which leaves open the idea that much of this information is unverified and open to interpretation, so we present it here with that understanding.
According to a South Korean trade press source, Chinese OLED panel supplier BOE (200725.CH) has seen significant reduction in its small panel OLED panel shipments to Apple (AAPL) since February with speculation that the displays it has been producing for the iPhone 13 have been suspended by Apple after it was allegedly discovered that BOE had changed the display’s design without Apple’s approval.  Originally the reduced production was thought to be the result of display driver shortages that we noted in our 02/17/22 note, “BOE Behind the Eight Ball”, caused by the prioritization of drivers to LG Display (LPL) by LX Semiconductor (108320.KS) rather than BOE, given LXS’s ownership by LG Group (pvt), the holding company for LG Electronics (006570.KS), LPL’s parent.
While the above theory was both logical and not uncommon during periods when complete orders are unable to be filled, the source speculates that the reduced production was the result of Apple discovering that BOE had made changes to the layout of the TFT (Thin-film transistor) circuitry that triggers each sub-pixel in the display.  Apple has very strict rules about making sure that displays meet company standards and designs, which has been a problem for BOE in the past.  BOE was unable to qualify for Apple’s ‘new model’ display supply chain a number of times, although we believe much of that issue was based on yield rather than design, however BOE’s full iPhone qualification this year seemed to indicate a more reassured Apple toward the company’s production processes.
The speculation does note that there is no expectation that Apple will limit BOE’s iPhone 14 display production based on the possibility of BOE’s possible misstep under the notion that Apple needs BOE for leverage toward iPhone 14 panel pricing with Samsung Display (pvt) and LG Display and cites continued production at BOE’s B11 fab, where the iPhone displays have been produced, but some wonder whether Apple might have given BOE a warning and expects BOE to find a way to fix the issue going forward.  Again, while we consider much of the above supposition, it is certainly not out of the realm of possibility, especially given Apple’s tight control over its supply chain and product quality. 
Both Samsung Display and LG Display have faced quality issues relative to Apple products in the past, and while Apple had little choice to remain with Samsung Display, given they have been the only volume source of Apple’s non-standard small panel OLED displays at times, LG Display has faced significant volume cutbacks that took many quarters to completely rectify, which puts BOE’s possible entry into the penalty box a real possibility, but until production for the iPhone 14 begins during the summer, the possible impact will not be known.  BOE has been expected to supply the majority of the displays for the iPhone 14, while Samsung Display and LG Display supply displays for the iPhone 14 Pro and Pro Max.  BOE was said to have been using a 40m unit target for iPhone displays this year, but it would seem that not only will that fall short of expectations due to the above issues, but also as Apple is expected to have already reduced its overall build projections for the iPhone, as we noted on Monday.  While Chinese trade press is still extoling BOE’s virtues as the iPhone display provider that will replace SDC and LGD, it might prove a bit harder than BOE might have expected. 

​We have noted a number of times that there has been considerable pressure on Apple to allow users and ‘unauthorized’ repair shops to repair Apple products, with Apple agreeing last year to give in to those demands.  As of yesterday users and just about anyone can download free repair manuals for a wide variety of Apple products, along with the ability to order tools and parts for such repairs.  We looked at one of the manuals (iPhone 13 Pro Max) to see if Apple was really being ‘user-friendly’ or if this was just a ploy to make things look so difficult that users would wind up at an authorized Apple repair unit, but we were pleasantly surprised at how comprehensive the manual was as to how to perform various repair functions.
There are some caveats, particularly the investment one musty make in tools, and by tools we mean Apple tools, as there are a considerable number of tools that are proprietary or are bundled with certain parts and most of the repairs are classified on general categories, such as ‘battery’, ‘camera’, ‘display’, ‘bottom speaker’, ‘SIM Tray”, and ‘Haptic Engine’ for the iPhone 13 Pro Max, but Apple does give a few price options that let users choose certain parts rather than re-buy the same tools for each repair.  As an example the full screen replacement bundle for the iPhone 13 Pro Max, which includes all tools, screws, and replacement adhesives for $311.96, while the same package without the screws and adhesive sell for $2.00 less, and Apple also gives a $33.60 credit if you return the broken screen for recycling.  Apple does allow renting a full tool kit to make a repair, but each model has its own kit, so unless you are fixing two phones of the same model, you cannot share the tool rental.
The parts provided by Apple are not cheap, which means unauthorized repair shops should give the option of using only Apple replacement parts or substitutes when possible, but at least such shops won’t be experimenting on your device when the attempt to repair it, given the availability of manuals.  All in, it seems that Apple has at least made an attempt to fulfill its promise to open the Apple product repair kimono and has begun to make it possible for some non-authorized product repairs, but given the cost of DIY Apple parts is the same as the cost using an authorized Apple Service Center unless you return the defective part, which means all products under warranty will still go to Apple for repair and many out-of-warranty units will do the same.  Right now Apple only offers parts for the iPhone 12 and iPhone 13, with other products and older models expected to follow.

​As we have noted, Samsung Display (pvt), LG Display (LPL) and most recently China’s BOE (200725.CH) have been working toward developing the technology necessary to produce IT OLED panels on larger substrates, moving from Gen 6 sheets, which are 2.78 m2 to Gen 8.5 sheets, which are 5.5 m2 to increase the efficiency of the process.  Recently is seems that other OLED producers are also looking to make such a change, although we believe the motivation and potential for success are different from those producers mentioned above.  Visionox (002387.CH) has been the name most often mentioned as a potential developer of such technology, although we have our doubts as to whether such stories are anything more than self-promotion.
As OLED display technology migrates to larger devices, OLED deposition technology comes up against some roadblocks, the largest of which is the use of fine metal masks that force gaseous OLED materials to form the pattern on substrates that become pixels on a display.  These masks are made of a nickel/iron alloy that is able to remain stable under the heat and high and low pressures found in OLED deposition equipment, as it is absolutely necessary that the FMM ‘screens’ keep the OLED materials in perfect order and spacing during production.  While the FMM are designed to handle heat and pressure they must also react to gravity, which can cause them to sag and misplace pixels, causing a panel to fail.  While this is not a problem for small OLED displays, such as those used in watches and smartphones, as the displays and masks get larger, such as might be the case for notebook or monitor panels, the effects of gravity get worse and yield management becomes more difficult.
Currently the number of OLED displays produced for IT products is relatively small when compared to smartphone production, but that is expected to change over the next few years with OLED adoption increasing for such products, which makes solving the production issues with larger OLED panels all the more important.  It is especially important to SDC, LGD, and BOE, all of whom are OLED display suppliers to Apple (AAPL), who is expected to continue to migrate more display based products to OLED.  Each of the three has been working toward find solutions that will improve OLED IT panel yields, each with their own ‘slant’ to the problems, but with each knowing that they have the ‘ear’ of Apple as they progress.  Visionox however is not a supplier of flexible OLED panels to Apple, with Chinese brand Honor (pvt) their biggest OLED display customer, along with Xiaomi (1810.HK) for whom they produce OLED watch displays.
To give some perspective in 2021, Honor purchased ~24m OLED panels, and while that might sound like a large quantity, it represents ~3.9% of the OLED display market (unit volume), and while Xiaomi has a larger share (~13.9%) given the size of OLED watch displays relative to smartphones or OLED IT panels, it represents only a small amount of small panel OLED industry capacity.  Apple however purchased ~184m OLED displays last year, most of which went toward iPhone production, giving them a ~29.6% share of the overall small panel OLED market, which is why the three mentioned above are working so hard to solve OLED IT production issues, especially under the assumption that Apple will continue to expand OLED penetration among its IT products.  While all three OLED producers are taking R&D risk and potentially large capital risk, the goal of becoming a primary supplier of small panel IT OLED products to Apple is in their headlights.
That said, it is not the same for Visionox, who would have to get qualified as a primary small panel OLED supplier at Apple before they would even have a shot at competing with SDC, LGD, or BOE for Apple’s incremental OLED IT business, so why would they circulate such stories?  Industry folk, and we certainly can see their point, infer that it is to garner support from the Chinese government in the form of subsidies.  Much of the early construction costs and operating expenses for panel producers in China are paid for through provincial or city-based subsidies that can defray construction costs that might normally be prohibitive, allowing Chinese producers to grow more quickly than non-subsidized producers, and during the early years of operation, those subsidies can offset low yields and low utilization rates for Chinese fabs.  As China has already become the capacity leader in LCD panel production, government organizations are want to give subsidies for such capacity, but a challenge to incumbent OLED leaders like SDC and LGD can still garner local government financial support, giving Visionox the hope that by dangling the idea of building out capacity to challenge others for Apple’s OLED IT business, they might set the wheels in motion for potential government help.
Visionox is said to be testing the OLED IT waters at its V3 Gen 6 fab in Hefei to work through production issues, and then would build a new Gen 8.5 OLED line in another location.  The V3 fab is being built in two phases with “the 2nd phase promoted in a timely manner” according to the company late last year.  Perhaps additional financial support is being hinted at for the phase 2 construction and equipment, which we had expected to be completed later this year, although not oriented to IT panel production.  If Visionox is able to solve the necessary IT OLED production issues on the V3 phase 1 line, it would encourage funding sources to push forward with phase 2 and potentially add a new Gen 8.5 fab designed specifically for IT OLED panels.  By indicating that there was potential for a new Gen 8.5 OLED fab to be built, the company can begin selling the idea to city leaders in other locations to see if funding is available and hopefully create a bidding war, similar to what occurred when Samsung was looking for a new silicon fab location in the US.
There is a lot of speculation here, but certainly not any that has not been seen by us over the years in the display space, so while we don’t like to speculate, the Visionox story has many similarities to others we have heard over the years, and feels as if we have been to this rodeo before.  We could be wrong, with Visionox much further along with Apple or the technology needed for IT OLED production, but we are less sanguine about the idea knowing that Visionox only grew their share of the small panel OLED market from 4.7% in 2020 to 4.9% in 2021, while Samsung Display and LG Display’s real competitor BOE grew its share from 7.3% in 2020 to 10.0% last year, which amounted to a 66.9% increase in unit volume y/y.  Without a very dedicated customer base already established, we expect it will be necessary for Visionox to win a few more games before they build ‘it’, especially knowing who ‘they’ are.

We have noted a number of times, the ‘unusual’ uses found for Apple’s (AAPL) AirTags and the associated ‘Find My’ application used to locate lost Apple devices, particularly iPhones, iPads, Macs, and the Apple Watch, but it seems another ‘unusual’ use has been discovered during the Russian invasion of Ukraine.  It seems that since the Russian invasion is not considered a ‘war’ but a ‘special military operation’, it would not be a violation of the Geneva Convention that Russian soldiers have been looting Ukrainian cities and even sending such stolen items back to Russia, but by ‘collecting’ Apple products, the Russian soldiers have given the Ukrainian military a new tool to battle such aggression.
It turns out that by using the ‘Find My’ application, the Ukrainian military has been tracking looted Apple devices as the looters move with the stolen devices, including when they made a recent retreat into Belarus, according to the staff of the opposition leader in Belarus, providing the map below.  This is a step up from location data available from FitBit (GOOG) devices that had been used in earlier conflicts to locate hidden military bases.  As the ubiquity of Apple products and social media have made passing Apple’s ‘Find My’ information so precise and easily passed to the proper authorities, it seems that the Russian troops, in their excitement to ‘own’ an iPhone, have given the Ukrainian military the ability to use that naiveté to their advantage.  Perhaps Apple should offer to ship a few hundred thousand older iPhones to Mariupol in plainly marked crates that somehow fall into the hands of the Russian military…
 

​We have noted a number of times that Apple’s Air Tags and similar tagging devices have been used surreptitiously to track ex-wives, girlfriends, expensive cars and other items by stalkers and thieves without the knowledge of those involved, and Apple and others have taken this seriously by adding features that alert potential ‘trackees’ when they are near a device that they do not own or is moving with them.  There are other even less expensive devices that can provide such illegal functions, but Mr. Lawrence Welch, formerly of Nashville and now a resident of the local jail, decided that he was going to up the ante a bit when trying to track his ex-girlfriend.
Mr. Welch, who is already facing two domestic assault charges from almost a year ago, found that his ex-girlfriend had turned off the Life360 app that they had previously been using to keep track of each other and began texting demands that she call him and reveal where she was.  He did manage to track his ex down to the local Family Safety Center where she was filing an order of protection against him but was spotted leaning down beside the front passenger side tire of her vehicle and the police were called.  When they examined the car they found that he had placed an Apple watch on the wheel, a bit more expensive (~$300) than an Air Tag (~$30).  Upon questioning Mr. Welch admitted that the watch was his and was arrested.
While there is no anti-stalking feature on the Apple Watch, it is tied directly to an Apple account along with a cellular plan which makes it quite easy to trace back to an owner, and Apple does cooperate with law enforcement to identify owners based on the devices’ serial numbers, leading to where and when the watch was purchased, so the owners identity can be found.  But there is no anti-stalking protection on the Apple Watch as it is likely that Apple would not expect someone to use a $300 watch as a tag, so while Mr. Welch inadvertently found a way to track his ex that would not have alerted her, it was both accidental and a ridiculous use of an Apple Watch.  Perhaps Apple will add some protection to a Watch OS upgrade when this incident gets back to them but for now be on the lookout for an Apple Watch attached to your tire if you are having trouble with an ex-boyfriend…

Back in late January we noted that battle between Epic Games (pvt) and Apple (AAPL) over 3rd party payment restrictions for applications in the Apple store has blossomed into a global ‘review’ of Apple’s store practices by a number of governments.  The ruckus was over Apple’s draconian policies concerning the use of ‘alternative’ payment methods on the app store where Apple App Store application developers forbidden from selling subscriptions directly or outside of the AAS in-app purchasing system, but had to give 30% of that subscription revenue to Apple, unless the user signs up for longer than 1 year, when the fee drops to 15%.
Apple made some minor concessions to what is a mounting tirade against such limiting policies however Japan’s Fair Trade Commission forced Apple to allow some applications in the store to direct users to their own websites to sign up for subscriptions, while South Korea passed legislation that banned all application store operators from forcing developers to use in-store payment processing however just before Christmas last year the Netherlands Authority for Consumers and Markets published an order requiring Apple to “adjust the unreasonable conditions in its App Store that apply to dating-app providers”, as Dutch dating app providers are currently unable to choose a payment system.  The ACM went further in that the required Apple to adjust the system within 60 days or it would be fined €5m per week, up to a maximum of €50m.
Apple has made some attempts to comply with the new order although they were not enough to satisfy the ACM which continued to levy weekly fines against the company and last week the European Union published its Digital Markets Act, which details requirements that Apple and other firms (Google (GOOG) tends to be a 2nd focus) to offer alternatives to the App Store and its payment system restrictions., with those rules to be implemented by October.  It seems that the momentum against what many consider anti-competitive practices by Apple are not going away easily.  To make matters worse, the fines in the Netherlands, which we originally believed would max out at €50m, do not, and the Dutch authorities have the option to  increase the weekly rate once €50m is hit, which should be in early April.

​The iPhone SE is an appealing low-cost version of the iPhone 13 line that Apple has updated for the first time in 2 years.  Earlier this month (3/9/22 & 3/23/22) we compared the iPhone SE (2022) to the older model and to Samsung’s (005930.KS) A23 LTE for perspective on how the SE compares with other mid-range smartphone as the iPhone is typically known as a premium brand.    Since then there have been delays in pre-order shipments, which were pushed out to today or tomorrow quickly after March 19, when pre-orders began, and most recently there are indications that Apple has already cut orders at suppliers, although such cuts have yet to be officially confirmed nor has the reason why.
Speculation from some has cited slower than expected sales (or pre-orders) with high-end expectations coming down from 25m to 30m units for this year by ~10m units.  Other sources have indicated that Apple is cutting orders by 20%, but in both cases the reasons seem to differ.  In one case the source indicates that store checks point to weak sales while others are focused on the war in Ukraine and inflation, although technically slower sales and inflation are closely tied together.  After only 9 days, during which many potential buyers might be more concerned about pump or food prices than buying new phone, it seems a bit early for Apple to start cutting orders from wherever their initial orders were weeks ago.  Yes the Ukraine war has been raging for 36 days, but it took some time before the world realized that Russia was looking to take over the entire country and not just a few provinces.
All in, the world has moved into a new mode, one not seen, especially in Europe, for many years and that will set many similar estimates for CE products off balance.  While we believe Apple could have already contacted suppliers about possible order reductions, things remain very fluid and with 3 quarters to go for this year, any order reductions could easily me made up later in the year if the socio-economics environment changes, and we have no absolute understanding of Apple’s real order estimates to suppliers, only those of analysts, so without a crystal ball, we expect much of the speculation over potential iPhone SE order cuts is just that, speculation and is subject to change almost daily.