​According to local press, the water shortage that has been plaguing a number of regions in Taiwan, has been alleviated by the Caiyun Typhoon (Hurricane to us) that passed over Taiwan on June 4 and the Meiyu front that added to the 807 mm of rainfall seen on the island in the last 12 months, which is about half of the annual average.  A number of key Taiwan based companies, particularly Taiwan Semiconductor (TSM) were faced with both water rationing and the cost of bringing in water, in order to maintain semiconductor production, which is highly water dependent, with a typical fab using between 2m and 4m gallons of ultra-purified water per day.  Crisis averted.

​Last May Lee Jae-yong, the Vice-Chairman and heir to Samsung Electronics, made a public apology concerning the ‘irregularities’ surrounding his inheritance of managerial rights at Samsung Group (pvt) and its policy of suppressing labor unions.  In that speech he promised to abide by the law and stated that “there’s no more controversy about the issue of management succession.” On the topic of Samsung’s intolerance of labor unions, Lee said, “The culture of labor-management relations at Samsung has failed to keep up with the changing times. I will ensure that the phrase ‘no union management’ is no longer used at Samsung,” but in January of this year he was sentenced to finish a 2.5 year term in prison for bribery, and currently resides at the Seoul Detention Center.
While the promises he made before his sentencing were likely carefully screened by Samsung’s legal department and worded as vaguely as possible, Samsung Display (pvt), the company’s display production affiliate, allowed the formation of a union in February 2020, which now has ~2,400 members, or ~13% of the affiliates workforce.  Unfortunately, things have not been going smoothly concerning talks between the union and company management, and a disagreement on the 6.8% wage increase the union has asked for and the company’s 4.5% increase proposal has not been resolved, along with an increase in hazardous duty pay, which has been frozen for 10 years.  Workers received a 2.5% increase last year and a 3.5% increase in 2019.
As these negotiations are the subject of close scrutiny, the outcome could set the tone for union formation and negotiations at other Samsung affiliates, particularly while Lee remains in prison.   The compliance committee that was set up as part of a court order forcing the company to abide by labor laws, is facing considerable pressure to resolve the situation, however union members rejected the company’s proposal and a subsequent vote by union members decided by a 91% positive vote, to take collective action against Samsung Display management.  The union is planning a strike for June 21. 
While strikes are usually ugly affairs with shouting mobs and nasty placards, this strike will be a bit different, starting with six union members and increasing gradually, as this would be the first union strike at a Samsung affiliate, but the union did suspend mediation after deciding that the differences between the two parties were too difficult to resolve, opening the way for the walkout.  SDC managers have kindly given the union a list of the minimum number of workers needed to keep the fab in operation, although it seems that it might take some time for the union to build to anywhere near that point, a rather polite but somewhat superior gesture . 
Given the relatively low level of initial union involvement, at least as of June 21, we expect little impact on SDC’s production, however should the walkout expand and be sustained, it could put more stress on what is a relatively tight display market currently.  As large SDC customers such as Apple and Samsung itself would not have time to requalify new producers or evaluate sample products, an expanded or extended strike could present an issue for release dates, but thus far, while the situation is far more volatile than it might have been in the past when Samsung management was able to squelch any worker disagreements, it still seems quite staid and civilized compared to strike at other companies in Asia and certainly more polite than those seen in the US.

​Apple (AAPL) is certainly the leader in the smartwatch segment, with a share over 50% in the last few quarters, and while Samsung’s (005930.KS) share is around 15% the do hold the number two slot after Apple, and their next iteration of their smartwatch has just been certified by the FCC, hinting that its release is relatively soon.  While no official date for the release of the Galaxy Watch 4 or the Galaxy Watch 4 Active has not been set, expectations are that at least one or both will be announced in August, given that the original Galaxy watch was released in August (2018), as was the Galaxy Watch 3 (there was no Galaxy Watch 2), and the Galaxy Watch Active 2.
That said, there are expectations that this Galaxy Watch will be different than previous versions in that Samsung will offer a combination of its own Tizen OS, along with Google’s (GOOG) Wear OS for the first time.  While Samsung has been promoting its Tizen OS for years, it does not have the following in the application developer community that Google does, and when it comes to wearables, the applications available to the user are second only to the look of the device.  If Samsung does offer this OS combination, it would represent an acknowledgement that Google’s application development universe is 2nd to none and it plays a key role in selling wearables.  From the user’s standpoint, an updated Samsung One UI interface will make the OS look almost identical to what users have seen before, but now including Wear OS apps.
There is some indication that these expectations are not just idle speculation, as Google has mentioned that it has modified Wear OS ‘with Samsung’s help’, which is unusual in that any modifications to the OS are usually made by the company releasing the wearable, but in this case, in order to gain the Samsung watch user base, it seems Google has made modifications for Samsung, giving it a better chance of competing against Apple’s Watch OS.  Apple does not let Android smartphone users pair with an Apple Watch, but iPhone users are able to use a Wear OS smartwatch, so you can keep your iPhone but migrate to a non-Apple smartwatch.  In the past, Wear OS and Tizen OS applications that worked with the iPhone were very limited, and we expect the improvements made to the Wear OS will open up many of its applications to iPhone users, giving Samsung a more attractive entry point to Apple’s smartphone user base.
There are some points that go beyond the potential for Samsung’s adoption of Wear OS on the Galaxy Watch 4, such as a glucometer that would measure blood sugar levels or a faster chipset, potentially produced using a 5nm process (previous version was 10nm), and the return of battery supplier CATL (300750.CH), who was the supplier of the battery in the ill-fated Samsung Galaxy Note 7 that caused the phones to catch fire and caused a global recall, and while a glucometer and a faster chipset might be selling points, we expect adding Wear OS, should that be the case, would have a greater impact on sales over time.

Shipments of Handsets in China fell again in May to 23m units.  This was down 16.4% m/m and down 32.0% y/y, against a 5 year average increase of 0.9% for May, putting shipments only 5.5% above the low for the year, which was February, typically the low point for shipments historically.  We expect this trend to continue through June/July/August, which are typically relatively weak months for handset shipments in China, and pick up again in September, although our expectations for the year are for 303.48m units shipped, which would be down 1.5% y/y, even against the weak year in 2020.  While the 1st quarter’s y/y comparison (up 100.2% y/y) was easy due to the onset of COVID-19 in China, the 2nd quarter comparison will be the opposite, given the snapback seen in 2Q last year, and we expect 2Q total handset shipment in China to be down 30.7% y/y at 72.2m units this year.
5G smartphone shipments declined to 16.7m units, down 22.0% m/m but up 6.8% y/y, although the share of 5G smartphones as a percentage of total handsets also declined to 72.6% from its peak of 77.8% last month, and th number of new 5G models released in May declined to its lowest level this year.  We expect that the release cycle for 5G smartphones in China would account for the low number of 5G new models and weaker shipments, although component shortages might begin to slow the rate of 5G smartphone growth in the near-term.  That said, we expect 5G share of total shipments in China this year to remain above 70% for the remainder of the year and new 5G model releases to pick up in September.
On an overall basis, China’s smartphone market remains lackluster, and Huawei’s (pvt) trade issues with the US, while they are less impactful on the Mainland, do have a sobering effect on smartphone demand in China.  As Huawei is unable to avail itself of 5nm or 7nm process nodes, their ability to compete with other smartphone brands is muted, despite the lessened impact of limited Android services in China.  Other Chinese brands continue to try to fill the gap, but to remove what was the number one brand in China from its position in its home country would be like removing the iPhone in the US.  Many will migrate to other brands, but the transition is not an easy one and will opt to hold on to existing Huawei phones for a while to see if the trade logjam breaks.  In the interim, the Chinese smartphone market continues to weaken.

While Taiwan based Digitimes tends to be a highly promotional news source concerning CE related companies in Taiwan, on occasion they do basic research that is informative and unbiased.  Over the last six months they undertook a project entailing looking at the financial reports of 4,725 publicly listed companies across 11 countries in Asia.   Their Asia Supply Chain 100 ranks Asia’s top 100 hardware suppliers by sales and other financial  metrics and is focused on hardware suppliers in eight industries including ICT (Information & Computer Technology) end devices and equipment, consumer electronics, motor vehicle manufacturing, medical electronic devices, semiconductor, electronics components, motor vehicle parts and equipment and electromechanical technology. However, no medical electronic device supplier made it into this year's top 100 list.
The top 100 names were primarily based in Japan, China, Korea, and Taiwan, which is of little surprise, with the two largest groups being auto/motorcycle manufacturing and ICT end device equipment suppliers.  Of the top 100, most are from East Asia, with only five suppliers based in Southeast Asia, including one Indonesian company and four Indian companies.  When broken down to the top 10 companies on the list, 5 are auto/motorcycle manufacturers (Toyota (TM), Honda (HMC), SAIC (600104.CH), Nissan (7201.JP), Hyundai (005380.KS)), 3 are ICT suppliers (Samsung Electronics (005930.KS), Foxconn (2354.TT), Hitachi (6501.JP)) and two are CE companies (Sony (SNE), Panasonic (6752.JP)), and while Taiwan Semiconductor (TSM) is #18 on the list, it has a profit margin of 38.7%, the highest on the list.  

Corning (GLW) has been a glass supplier to almost all panel producers and has been a key supplier to Samsung’s smartphone business, with its Gorilla Glass® and Victus™ products and to affiliate Samsung Display, providing substrate product for LCD and rigid OLED displays.  Normally, parent and affiliate tend to be on the same page as to both short and long-term goals, but over the last year or so, that relationship seems to be less cordial and more disruptive.  There has been evidence that the decision made by Samsung Display to end its production of LCD displays and develop a quantum dot/OLED large panel product has not met with the kind of reception that SDC would have liked, and at times over the last year, rumors that Samsung would not be marketing a TV product using the new technology have surfaced and retreated a number of times, and since SDC and Samsung’s TV business are operated independently, both have had to make changes in the way in which they do business. 
Samsung’s TV business has been buying much of its LCD panel product from other suppliers and has been increasingly using ODMs to develop and produce some of its more generic LCD based product.  While this looked like a significant benefit early last year when LCD large panel prices were declining, it has become an increasingly more difficult market for large panel buyers as prices have been rising since the middle of last year.  While Samsung’s TV business has now endorsed Samsung Display’s QD/OLED product, the relationship between the two divisions still seems a bit strained.
At the same time, Samsung Display and Samsung’s Mobile division have also been at odds over the use of UTG (Ultra-thin glass) that is used as a cover glass for its foldable smartphones.  Samsung Mobile’s previous foldables, the Galaxy Z Fold 2 and the Galaxy Z Flip have both used UTG from Schott (AFX.GR) and processed by Dowooinsys (pvt), a company that Samsung Ventures has financed.  This relationship was developed by Samsung Display, and at least the Schott agreement, extends for three years from inception, however, Samsung Mobile considered the Schott/DowooInsys product too expensive but had no alternative, given that Corning’s UTG product was still under development last year. 
That seems to have changed with the new Galaxy Z Flip, where Samsung Mobile has agreed to split the cover glass for this next iteration between the Schott/Dowooinsus team and one comprised of Corning and eCONY (pvt), a Gumi based glass processor, which is in keeping with Corning’s stated timetable of UTG commercialization this year, and a nod to the Corning, eCONY process of laser cutting, rather than the wheel cutting used by the Schott/Insys team.  Rather than give Samsung Display the option to use whatever process they thought best, Samsung Mobile will handle the UTG relationship with Corning, which indicates a bit of continuing tension between the two divisions.
Whether this is business as usual for Samsung divisions, or a new, more competitive relationship among Samsung Electronics’ divisions remains to be seen, but it does have the earmarks of a mandate from senior management focusing on profitability, and if that means going to an outside source for an equivalent but less expensive product, so be it.  Competition from Chinese suppliers, a number of whom are subsidized by the Chinese government, has pressured a number of South Korean CE supply chain participants over the last few years, and pressure on LG (066570.KS) to divest its money-losing affiliate divisions has spurred a number of divestitures that we have noted.  While it is hard to tell whether the instances mentioned above are part of a ‘new’ Samsung or just a more public reveal of what has been going on behind closed doors, it seems that Samsung’s affiliates can no longer take for granted that they will be the preferred supplier to other Samsung affiliates, which in the long-run is a good thing for Samsung and for consumers, who will hopefully see better pricing as a result.

The stack of materials that creates an OLED display seems simple, essentially a light emitting layer between an anode and a cathode, but it is certainly not.  There are a number of ‘other’ material layers that support the emitting layer (EML), including Hole Injection Layers (HIL), Hole Transport Layers (HTL), Electron Blocking Layers (EBL), Hole Blocking Layers (HBL), Electron Transport Layers (ETL), and Electron Injection Layers (EIL), a number of which are supplied by different manufacturers.  In some stack designs there are multiple layers of these materials, adding to the complexity, and with a number of companies vying for each stack slot, despite the fact that there are relatively few OLED stack material suppliers, the competition is fierce.
Solus Advanced Materials (336370.KS) is one of those competitors, and after committing $25m to build a new OLED material production facility that will be available in the 2nd half of 2022, seems to have edged its way into the OLED material stack at LG Display (LPL), or at least at one LG Display OLED fab.  According to Korean sources, Solus is to replace two of the four Hole Transport layers at LGD’s E3 OLED fab in Paju, South Korea, and while the amount of material involved for Solus is relatively small when looked at across the entire stack, it is important in that chemical giant Merck (MRK) has been the sole supplier of all four HTL layers to LG Display until now. 
Again Solus is supplying only two of the four HTL layers at one of LG Display’s three OLED fabs, but it does mark a significant change for LG Display, who has been looking to add an additional HTL supplier, considering Merck to be both expensive and unreliable according to local sources.  Using a South Korean based supplier is also a benefit, as South Korean OLED producers, Samsung Display (pvt) and LG Display are still quite dependent on materials supplied by other countries, particularly Japan, where political issues have caused some of those materials to be limited by the Japanese government.  As Solus expands production next year in China, it will try to replace Merck at LG Display’s Guangzhou fab, LG Display’s largest OLED fab.
Solus is also a supplier of what is known as advanced ETL to Samsung Display, which SDC has been using in its production of small and mid-sized OLED panels for almost eight years, and is said to be developing a similar material for Samsung Display’s QD/OLED project. Solus also supplies capping material, a non-emitting material used to cover the cathode in the OLED stack.  Since this material is not emissive, the development of new capping materials is much slower than other materials in the OLED stack, where new emissive and helper materials are being developed almost monthly.  This gives Solus a more stable product, while developing newer and more competitive materials for Samsung and others.
As is well-known, the emissive materials market is dominated by Universal Display (OLED) who owns the IP relating to the use of metal-organic phosphorescent materials.  In RGB displays, such as those produced by Samsung Display, two of the three emissive materials are phosphorescent based, while the third, blue, is fluorescent, and primarily supplied by Idemitsu Kosan (5019.JP), however LG Display’s large panel OLED displays are produced using a single phosphorescent emitter, UDC’s yellow/green and a blue fluorescent material.  This leaves open competition for all of the other materials in the OLED stack and companies like DS Neolux (213420.KS), Hodogaya (4112.JP), Sumitomo (4005.JP), and JSR (4185.JP) are constantly supplying new stack materials to both South Korean and Chinese OLED producers to replace or add to existing OLED production material stacks and all OLED producers are working toward improving their displays by upgrading their stack materials.  This leads to a very ‘fluid’ market that changes with every new stack implementation, and while the number of high-grade OLED material suppliers stays about the same, the chessboard of who supplies what is constantly changing.

Samsung Electronics’ (005930.KS) mobile marketing team was excited back in August of 2016 when the company released the Galaxy Note 7, the successor to the Galaxy Note 5, and features such as a dual sided curved display and support for HDR (High Dynamic Range).  In South Korea, where the phone was released first, demand was high, beating previous model pre-order records and Samsung found itself a bit short of units when it began international release, but for a good reason.  In days that ensued, Samsung received positive reviews and the Note 7 was on its way to becoming a star in the Samsung Galaxy lineup.
Unfortunately that did not last, with reports of the Note 7 bursting into flames as the battery overheated, forcing Samsung to issue a ‘soft’ recall of the device only four weeks after its release, followed by a more formal recall about two weeks later, a marketing nightmare for the company.  But it did not end there, and the replacement phones that were issued to those consumers returning their Note 7’s under the recall, also began to catch fire, prompting the company to issue a global recall and end production for the Note 7.
Samsung’s marketing department is aggressive, and could not just walk away from such a public relations disaster, and nine months after the disastrous end to the Note 7, the company issued the first ‘fan edition’, under the marketing story that the phone was so popular, despite the ‘issues’, that fans were clamoring for the phone, and this, a refurbished version of the Note 7 (with a new battery supplier) was the answer to that demand at least in South Korea where it was originally released.  The company sold out all of its Korean inventory (~400,000 units), which were built from parts left over from the Note 7, and while it said it had no plans to produce any additional units there was talk that it was so popular that it should be released internationally.  This was never done, although a limited number of Note FE’s showed up in Malaysia and a few other locations.
That said, the success for the FE was now ingrained in Samsung marketing’s zeitgeist, and while it took some time before the next Fan Edition hit the shelves (Galaxy S20 FE – 10/2020), Samsung used it to create  a $700 version of the Galaxy S21 ($1,000) that retained most of the important features.  The FE did have a plastic back while the original had a glass back, and it had a larger but lower resolution screen, and an MP second camera, where the S20 had a 64MP second camera, but it allowed Samsung to essentially lower the price of the S20, without actually lowering it.
With the release of an ‘Fan Edition’ tablet in May, and the potential release of a Galaxy S21 FE later this year, it seems Samsung has adopted the Fan Edition as a way to offer a bit of diversification without diluting the original product price, but it seems that plans this year are not going to be as easy to implement, with claims that Samsung has halted production of the Galaxy S21 FE recently due to a shortage of semiconductor components, and has or is considering reallocating Qualcomm (QCOM) processors from the FE to its foldable line. 
Samsung sys it has not made a decision as to whether to suspend production of the S21 FE, which has not been formerly announced, but the company has said in the past that it will produce FE versions of its flagship phones.  With last year’s S20 FE not being announced until September last year, Samsung still has time to make an official decision, but without a change in the prospects for semiconductor supply, it seems Samsung will likely be rationing components as the year progresses.  While the Fan Editions seem to generate incremental sales of the company’s flagship lines, components will go to wherever the margin is the highest, and we suspect that is with foldables, which might put an end to both the Galaxy Note and the Galaxy FE models, at least until the component shortages are alleviated.

What does your smartphone camera actually do when you take a picture?  It collects information about the intensity of the light as it enters the imaging sensor and from that data constructs a two dimensional image of the three dimensional image you were viewing.  While this sounds like a massive reduction in the information that exists in the real world, much of which is processed by your visual cortex, we have become quite used to such 2 dimensional images, since 1839 when Alphonse Giroux signed an agreement to commercialize his camera with Mande Daguerre, who had developed a process for single shot photographic printing.  Since then 2 dimensional photographs have become the standard for almost every application where an image is recorded on a directly viewable substance.
3D, in various forms, has been around for many years, entering and exiting the consumer electronics space at various times as the technology develops, and AR/VR, a more common form of 3D imagery, is becoming a commercial product, but is there any way to use the information available in a say, smartphone camera, to do more than produce a 2 dimensional image?  Enter the light-field camera, a sort of 3D camera, but not one where you need special glasses of a helmet to see a 3D image. In full disclosure, the three dimensional images we are speaking about here are not the roller coaster or animation type of images usually associated with 3D, but are more normal images that you can take with your smartphone camera, or will in the near future.
The system uses what is called a plenoptic camera, which is a fancy name for a camera that has a set of micro-lenses in front of the imaging sensor.  Not only would the camera pick up the light intensity, as any camera would, but also gathers information about the direction that the light rays are moving, which allows the software to modify the image in ways a typical 2D camera cannot.  There are a number of characteristics that can be derived from the information collected by a light-field camera, that allow the user to not have to choose the point of focus in an image, in other words the software can use all of the image data to keep every part of the picture in focus, not just a face or central image.  In the same way it can refocus any plane in the image, allowing any part of the image to be in focus while others are not, and in almost true 3D fashion, the image viewpoint can also be changed, meaning that the image of a person can be rotated along with the background.
It doesn’t end there as a light-field camera can also create a depth image, remove the background from an image, and measure distance, all similar to what would now entail using a regular camera and a depth sensor, but understanding what a light-field camera can do needs some imagery.  The image below (Fig. 1) was taken with a light-field camera, and each of the individual images below (Fig . 2 – Fig 4.) are blowups of a particular portion of the 1st image.  Note that every pixel in all three images are in focus, something a normal camera would not be able to do, and after the image has been taken, the user can refocus any part of the image while blurring any other part. (Fig. 5), and while we cannot adequately show the camera’s ability to change perspective, we include a video below.  Background removal and/or substitution is also easy as the camera has captured far more data than normal, and can understand each depth ‘plane’ to remove the background, rather than use color or specific image shapes of guidelines to gauge where the background actually is (Fig. 6 & Fig. 7).
Such cameras are just beginning to reach commercial potential and we expect will make their way into high-end smartphones over the next few years as smartphone brands look for more ways to differentiate themselves from others and app developers better understand the capabilities of using this kind of information to enhance or modify images.  There are obvious uses in surveillance and law enforcement and certainly for professional photography, but while all of those applications allow costs to remain high, applications on consumer devices will bring the cost down far more quickly, but as the key to consumer demand will be applications, the need for developers to focus on more than filters and face changers is key to the technology’s development.  It’s a technology waiting for an application….
https://youtu.be/zHrd3ztHLpk

In 2004 Huawei’s chip design department became HiSilicon (pvt), an affiliate of its parent, and one of the top fabless design shops globally.  In fact, in 1Q 2019 HiSilicon moved from #25 to #14 in ranking among all semiconductor companies, based on sales, including foundries, and by 1Q of last year it made it into the top ten in both 1Q and 2Q.  That said, by the end of 2020, it had fallen out of the top 15 and in the first quarter of this year, reported only $385m in sales, down 87% y/y.
US trade sanctions against parent Huawei that have restricted foundries from producing semiconductors for HiSilicon have left the company with a very large operation and little revenue to offset such an operation, and the burden of a staff of over 7,000 does not make things any easier, however, despite the fact that HiSilicon’s major customer is struggling to find semiconductor production capacity for many of its CE products, Huawei has indicated that they are a private company and therefore ‘will not be affected by external forces’ and will not give up HiSilicon.  HiSilicon continues to develop 3nm application processor chips (Kirin 9010), despite the fact that they cannot be produced, along with developing new 5G silicon, even though its share in 5G is expected to decline from 23% (2020) to 5% this year, and is forced to use Mainland foundries such as SMIC (688981.CH) and HuaHong (1347.HK) that do not have capacity at nodes below 28nm. 
While this allows the production of a number of needed semiconductor products, application processors, a necessary item for smartphones and other CE devices, are competing at the 5nm node, which is unavailable to HiSilicon.  While Huawei can continue to fund HiSilicon for what we expect would be another year without outside help, unless the US lowers the barriers it has placed in front of China’s semiconductor development plans, HiSilicon will have to change, and that will not be easy for Huawei or the Chinese government to accept.  With that in mind, we struggle to find a way that a fiercely private company like Huawei will accept what would likely have to be subsidies and partial ownership by the Chinese central or local government, but the key word is survival and the US does not seem to be easing any restrictions thus far.