​Today is the last day of the 3 day legal holiday known as the Dragon Boat Festival in Chinese culture.  The holiday is also called the Double Fifth Festival, as on the Chinese calendar, it occurs on the 5th day of the 5th month, which means it varies each year when using a standard Gregorian calendar.  The 5th month is considered unlucky, a time of illness, a proliferation of poisonous insects, and natural disasters, so garlic and aromatic flowers were placed over doorways to remove evil spirits.  Eating Zongzi, a rice dumpling, and racing dragon boats are traditions that go back thousands of years, and have now spread across the globe, with the US Dragon Boat Federation and others sponsoring such festivals in states across the US and global Dragon Boat organizations sponsoring championships in Hungary, Italy, Australia, France, and Canada.

​On March 30, we noted that OLED driver chip manufacturer Magnachip (MX) had received an offer from Wise Road Capital (pvt), whose entities were to buy the company for $29 per share, a 75% premium to the company’s then 90 day average price, with a total deal price of $1.4b.  The buyer was a Beijing-based Private Equity firm that has a number of smaller investments in technology companies mostly in the semiconductor space, including Huaqin Communication (pvt) one of the largest global OEM for a variety of CE devices.  As the 2nd largest OLED driver manufacturer, behind Samsung Electronics (005930.KS), Magnachip is a very important part of the OLED display supply chain and would give the Chinese OLED industry a significant boost.
As the process node for producing OLED drivers is 28nm, the technology is not considered of major importance to national security in South Korea where it has much of its manufacturing, and last month the South Korean Ministry of Trade, Industry, and Energy gave it tacit approval to the transaction, knowing that Huawei (pvt) and others were already developing OLED driver technology on the Mainland.  While we had suggested that getting such a deal through regulatory authorities in both the US (MX is a Delaware corporation) and Korea, the path toward a conclusion seemed to be opening.
As always in the CE space, thing are not always what they seem and yesterday the South Korean press indicated that the Korean government had changed it view on Magnachip’s technology, and that it had been designated as ‘core technology of South Korea’, which would seem to have ended the deal.  It seems that the reason for the change in attitude toward the transaction in Korea was the result of an investigation by the Committee on Foreign Investment in the US (CFIUS), which likely resulted in a negative view from the US Treasury Department, then relayed to Korea.  As the US is particularly sensitive toward doing anything that might help China in their bid to develop their own semiconductor infrastructure, the outcome of such a CFIUS investigation was almost a given.  Whether CFIUS could have blocked the transaction itself is no longer an important point as it looks like both countries are now uniting against the deal, but it doesn’t end there.
Last night, Magnachip received a new offer, roughly 20% higher than the initial offer, from another group of Chinese and Hong Kong investors, despite the potential problems with the authorities, which was both a surprise to us, and a surprise to investors, given the 12%+ move the stock made this AM.  How this offer is any different from the previous one from the standpoint of the government’s involvment, we don’t know, but that doesn’t seem to have made much of a difference to Cornucopia Partners (pvt), the entity that has made the most recent bid.  There is a $105m termination fee to MX if the original deal is not completed, with certain reductions depending on the circumstances.

Mini-LED TVs are a relatively new item for most TV brands and Samsung is no exception.  When they released their first true consumer mini-LED series earlier this year, we noted that prices seemed excessively high, given that Chinese brand TCL (000100.CH) had been offering a lower priced mini-LED line for over a year.  We have updated Samsung’s mini-LED pricing twice since then, with price reductions of as much as 11.1% on some models.  We now post another update with Samsung taking prices on its mini-LED/QD line down further, which points to our original conclusion that the initial prices were way too high to be competitive. 
In this round Samsung now sets prices on some models in the mini-LED line down 20% from initial pricing, and while we expect much of that initial pricing was ‘trial balloon’ pricing, these are certainly noticeable reductions.  Here are the models that have been reduced and by how much.  Those in yellow have been reduced three times.

As has been the case since March, all three of the primary 5G Ecosystem metrics we track have been on the rise, with the total number of 5G devices remaining substantially above the trend line.  Available 5G smartphones increased by 7.5% m/m and 240.6% y/y while the number of available CPE devices, an indicator of potential demand for 5G in-home or business usage, grew 6.7% m/m and is up 71.4% y/y, and the number of combined 5G devices reached over 800 for the first time.  The m/m growth of available 5G devices is settling down to a range between 4% and 14%, a less volatile range than last year’s -1% to +40% range.  We expect this stability to remain and potentially narrow, although we expect new smartphone releases toward the holidays might skew the averages a bit, including the release of the next iPhone series.
All in 5G continues to grow at an increasing rate, we see more mid to low price tier phones equipped with 5G.  A look at phones currently available (2021 releases), 5G availability breaks down as follows, with over 50% of smartphones released this year in the $200 - $300 range equipped with 5G modems and 46.9% of all smartphones released this year inclusive of 5G.  We expect that share to rise further this year as the bulk of the smartphones to be released in 2H will be in the higher price tiers:

We have been hearing that the world’s largest LCD panel producer, BOE (200725.CH) has begun planning a new Gen 10.5 LCD fab project.  While the company will not confirm anything official, BOE is already the global leader in large panel LCD production, and the addition of a 3rd Gen 10.5 LCD fab would certainly move them further ahead of their closest rival, fellow China countryman, Chinastar (pvt), who we expect will have a ~13.5% share of the global LCD market (capacity basis) against BOE’s 26.8% share at the end of this year.  While we have yet to see any documents that verify the new project, it would not be surprising to imagine BOE wanting to further capitalize on the large increases seen in LCD panel prices over the last year.
BOE’s last two Gen 10.5 fabs have a stated capacity of 120,000 sheets/month, and while speculation about the new fab is calling for 150,000 sheet/month capacity, we are, at least for now, adding 120k to our fab database, as duplicating an existing fab is always easier and less expensive than changing the configuration.  Timing is still a big question, as no announcements have been made, but we plan an announcement, if the project is approved by the board, in September, which would lead us to a phase 1 opening of June 2023 and a phase 2 opening of March 2024, with both ramping to full production over roughly 10 to 12 months. The ramp will begin to increase BOE’s global capacity share in 2023, and more so in 2024 and 2025, although much will depend on the timing and how quickly BOE can find customers to fill the new fab.  The table below compares our expectations for BOE’s gross LCD capacity share under current circumstances and with the inclusion of this new Gen 10.5 fb.

We note that BOE’s plans for its earlier Gen 10.5 LCD fabs were delayed from their original timeline, in part because of COVID-19, but also as a reflection of what were declining large panel LCD prices.  As those prices have increased, the expected profitability of new fabs, at current panel pricing, is very attractive and makes a strong case for government subsidies that now expect to see some sort of return, aside from job creation.  BOE’s management has stated that it believes the LCD display industry is exiting an era of cyclicality and becoming a more mature and more predictable industry.
While we agree with the fact that the LCD display space is maturing, we are not convinced that cyclicality is being washed out of the industry.  LCD displays will still have to compete with OLED and other potential display technologies, and while mini-LED backlighting and quantum dot enhancement can help to bring LCD specs closer to other display technologies, consumers want bigger and better TVs at lower prices and that means continued competition.  Unless the world has permanently changed due to COVID-19, there will always be periods of supply/demand imbalance, during which the profitability of LCD fabs will be marginal.  Building a Gen 10.5 fab does give BOE and others an efficiency advantage over older Gen 8.5 LCD fabs, especially with larger LCD panels (65” and over), but assuming that everything will remain the same as it is now years into the future is a dangerous game.

Yesterday we noted that El Salvador had become the first country to adopt bitcoin as a valid and accepted currency which adds bitcoin to the country’s official currency, which has been the US dollar since 2001.  As a primarily cash economy (only 30% of the population have bank accounts or access to financial services) this is an unusual place to start a bitcoin based financial system, especially one that is starting with relatively little regulation, but El Salvador’s President has run on a progressive ticket, and many say that bitcoin is about as progressive as you can get.
But it doesn’t end there, as we note that yesterday El Salvador’s President took things one step further and ordered the country’s state-owned geothermal power company LaGeo to develop a plan to provide facilities for bitcoin mining, which on the face of it seems a bit out of place from the companies that might normally build such facilities, which are essentially server farms.  That said, he also posted a short video of steam rising from a geothermal well, with the caption, “Our engineers have just dug a new geothermal well that will provide 95MW of 100% clean, zero-emission volcanic geothermal energy.  We start designing the entire bitcoin mining hub around that.”
As bitcoin mining consumes a great deal of energy, it has been criticized as a secondary polluter, increasing the need and use of fossil fuels to generate that power and adding to CO2 emissions.  Bitcoin mining supporters have been promoting the idea of using renewable energy for bitcoin mining to reduce its environmental impact, but this seems to set a new level of ‘wokeness’ to bitcoin.  China’s low-cost energy production has made it the bitcoin mining capital, but tiny El Salvador seems to be rising to the challenge and with a 930 mile active volcano subduction zone down much of the Western Central American isthmus, countries like Guatemala, Honduras, Nicaragua, Costa Rica, and Panama, might see this as a way to boost their economies and follow El Salvador’s lead.  

​When Dustin Hoffman, as Ratso Rizzo, slammed his hand on a taxi and yelled, “I’m Walkin Here!” while crossing against the light, he exemplified the attitude of New Yorkers in the late 1960’s, who felt the streets of the city were just as much theirs as for cars and trucks.  Crossing the street was an anywhere affair and even a split second space between moving vehicles was an opportunity to save a few seconds by crossing in the middle of the block.  While that attitude has never fully changed, the issue has transformed into a more rational one, where crossing at the corner seems to have finally caught on, but the smartphone has made even that more rational concept as or more deadly than before.  It is not uncommon to see those socially self-absorbed wanderers step off the curb into ongoing traffic without lifting their eyes off of their smartphone, often with AirPods or other devices stuck in their ears, lessening the impact of horns or traffic noises that might alert them to an oncoming vehicle. 
Trying to change the habits of those addicted to Twitter (TWTR) or Facebook (FB) is a moot point, so LG Electronics (066570.KS) has come up with a solution, an app called ‘Soft V2X’ that has now been modified from its original terminal based application to a smartphone app, and once the app is loaded, those city ramblers will be protected from the hordes of vehicles whose job is to get across an intersection just as the light changes.  The application transmits the users current location, direction, and speed to the real-time cloud, where the server side application selects information about vehicle movement, traffic signals, and other relevant metrics, and evaluates the risk of collision.  If that risk level reaches a set point, it warns the user with an overlay warning message, sound, and vibration.
The app is also able to detect the potential for collision between vehicles or pedestrians who do not have the app by accessing CCTV information and using AI to predict possible issues by making its own estimates of speed, direction, etc., and the system is also able to access RSU (Intelligent Roadside Units) information that is being added to traffic lights, light poles, and highway markers, in ‘smart’ cities, and combines camera and LIDAR information, making it an effective solution for traffic and pedestrian monitoring during adverse weather conditions or at night.  The LGE system also has a ‘child’ mode, which alerts the user when there are children pedestrians nearby or when the user is entering a school zone or near a stopped school bus.
While V2X was originally designed as a control system for vehicles, the adaptation to mobile devices opens that up to billions of potential users, and while LG Electronics does not have an actual commercialization date yet, the thought is that they will give the app to users for free in order to generate as much data as possible, with some tie-in to the proliferation of RSUs in cars and roadside that can communicate with V2X systems.  Expectations for V2X adoptions in vehicles differ greatly, but estimates for 2026 seem to be for ~40m vehicles equipped with some form of V2X, and with 5G slowly becoming available, the ability of those systems to communicate with little latency are becoming a reality.  No longer will you have to say, “I’m walkin’ here!” as your smartphone will say it for you and slow the car just enough to allow you to not miss that post on last night’s “The Bachelor” wardrobe mishap by being knocked over by a fast moving side view mirror.
We note that in order for a V2X-like system to operate effectively it must be in widespread use, which means it needs to be funded by both the government and private sources, and there needs to be an international strategy toward spectrum assigned to such systems.    The FCC has recently began to open the 5.9GHz band to V2X, which is a first step, but that needs to be globalized or the cost of implementation will remain burdensome.  As to the need for widespread use being a limiting factor, the example is, if 10% of cars are using the system, the chance of two equipped with V2X meeting would be ~1%.  At 25% the chance would be 6.25%, and if 50% of cars were equipped, the chance would be 25%.  Once the rate was above 70%, the chance of two cars with the system meeting would be over 50% (RATE2), so as is typical of many new CE product technologies, we have a chicken and egg scenario, with standards, cost, and funding the mitigating factors, although here, what could be more important than saving a life or getting the latest info on those 4” Aquazzura heels that just went on sale on ShopStyle (4755.JP)?

​After Taking what is expected to be a rather large jump in prices, DRAM and NAND Flash price increases are expected to be a bit more modest in 3Q and the 2nd half.  With DRAM prices up between 18% and 23% and NAND Flash prices up between 5% and 10% in 2Q, 3Q expectations look far less aggressive, but seem to be carrying a bit more risk.  With component shortages on the minds of memory buyers during 1H, buyers aggressively bid for memory to build inventory safe stocks in case the shortages seen in a number of IC products shifted to memory. 
With customer DRAM inventory levels higher than normal, expectations for 3Q DRAM pricing is for an increase of between 3% and 8%, a far cry from the previous quarter, but supplier inventories still remain low and demand for server memory typically increases in 3Q,, giving  producers the ability to maintain or increase DRAM prices.  NAND Flash is in a similar situation, with customer inventories higher and supplier inventories lower than normal, with wafer shortages and enterprise storage demand also increasing in 3Q.  This has pushed up 3Q NAND Flash price expectations from earlier expectations of a 3% to 5% increase to 5% to 10% in the September quarter.
That said, all is not set for smooth sailing in the memory space as the smartphone space is now seeing a slowdown as Chinese brands lower their full year unit volume targets, lowering overall smartphone growth from 9.4% earlier to 8.5% currently.  COVID-19 outbreaks in Southeast Asia and an overall slower end to the pandemic in China and India, are taking their toll on what we have noted previously as aggressive smartphone unit volume estimates and inventory levels at OEMs will have to adjust to those lower targets.  Despite the higher inventory levels at smartphone and PC OEMs, demand from other memory categories (see above) should offset the demand declines from a weaker smartphone outlook in 3Q, and the balance between negative and positive forces here still lean a bit toward the positive side.
That said, it would not take much to tip the scales in another direction, should the COVID-19 outbreaks prove more difficult to control, and this is true for many other parts of the CE supply chain as we also have noted previously.  While CE component sales remain high on a relative basis, as comparisons become harder, enthusiasm over the 1st half’s easy comparisons will wane a bit and the potential for declining q/q sales comparisons along with y/y comps, paints a higher risk scenario than was apparent in 1H, both for memory and the CE space in general.  We don’t want to seem overly negative but we certainly feel a higher risk scenario for the 2nd half is possible, and while OEMs in Taiwan are still showing reasonably strong results, the last two months have seen m/m sales turn negative for all but two assemblers and y/y sales comps for all but one OEM turn negative in May.  Short-term data but likely beginning to reflect Chinese smartphone target reductions.  More to follow.
 

​El Salvador is a tiny country, bit smaller than New Jersey and about the same population as Maryland, but with a GDP/capita of $8,388 (NY State GDP/capita is $87,866 for reference) it is not a rich country and ~70% of the country’s population does not have access to traditional financial services, such as a bank account or credit card.  It does have one defining characteristic however, it is now the first country to approve Bitcoin as a legal currency, with the parliament passing a bill (64 for, 24 against) yesterday that gives Bitcoin “…currency with free powers, unlimited in any transaction, and freely available to anyone, public or private”, according to the country’s President.  The official currency of El Salvador has been the US dollar since 2001.  The price of Bitcoin spiked on the news.
The country recently announced a partnership with Strike (), which went live in the country in April, is there to help set-up a fintech banking infrastructure, and given the lack of financial regulations, it is open to a wide variety of efforts to help the local community, or so the press reads, and is pioneering, not the conversion of bitcoin into local currency, but the conversion of all transactions into bitcoin.  This means paychecks can be issued in bitcoin and bills can be paid in bitcoin, with local businesses posting item pricing in bitcoin, and ATMs converting bitcoin into cash.
While this is a novel idea, albeit a bit unusual for an economy that receives 20% of its GDP from payments to citizens from relatives outside of the country, there are few regulations that both safeguard citizenry and help to regulate transactions.  While bitcoin is said to be the ultimate in transparency, given that all bitcoin transactions are permanently stored and but not identified by name, there are a vast number of ways in which bitcoin purchases, sales and transactions can be made ‘less transparent’ and disassociated from those who wish to use them for nefarious purposes.  Will El Salvador become a hub for those who have accumulated Bitcoin wealth ‘illegally’?  Likely not, but it will be interesting to see how this plays out in such a microcosm.  We are not sure how the population of El Salvador would have viewed the rise of Bitcoin from 29,004 on 12/31/20 to its peak of 65,587 in April, and its fall to 34,877 currently on their bank accounts, while the US Dollar index moved from 89.97 to 90.86 over the same period, but with 70% of the population without bank accounts, maybe it is the right place to try it out..

Quick Note: As far as indicators go in the CE space, LCD/OLED panel production metrics are among the best.  There are few CE items that do not have at least some form of display attached, and the main categories for panel production, large panel (10” and above), and small panel (smartphones, AR/VR, etc.) cover just about every device that has a display.  Smartphones alone shipped ~1.4b units last year and adding feature phones, the total comes to over 2b, and along with large panel displays, the industry generated over $150b in panel sales last year.  As we collect data from a myriad of sources, we are able to generate a picture of panel production and pricing, which tends to be a precursor, in a broad sense, for the CE space, given that displays tend to be the most costly item in CE product’s BOM. 
That said, panel production and pricing is not a perfect indicator but more incremental data in our quest for understanding the current and future state of the CE space.  On a long-term basis, panel production is far better at predicting or anticipating CE trends, but many of us have the pressure of making shorter term judgements, and so we present both short and long-term data whenever possible.  Panel producers in Taiwan have an exceptional characteristic in that they are required to report monthly sales, which helps to spot trends that can be muted when reporting sales on a quarterly basis, which is why we present such data.
All three Taiwanese panel producers saw a m/m increase in panel sales, and given the weakness seen across much of the CE space in 1H last year, all three were up substantially on a y/y basis, as they have been for since roughly a year ago.  AU Optronics (AUOTY) saw the largest m/m increase of 8.5%, followed by Innolux (3481.TT), up 3.4%, and Hannstar (6116.TT), which is really a small panel producer, up 2.4%.  With large panel prices up between 3.5% and 5.8% in May, one could draw the conclusion that much of those sales increases were driven by panel price increases, but more likely they were driven by mix shifts and available capacity, which have a greater influence on monthly sales than panel prices, given that short-term production contracts tend to lock in a price throughout the production run.
We do note that, while AUO no longer gives small panel and large panel shipment data, both Innolux and Hannstar saw a decline in small panel shipments, which was likely affected also by the flat small panel pricing seen in May.  The panel pricing trend for small panels has been far less volatile this year than large panel prices, up only 5% YTD, so it reflects a more accurate picture of demand for that segment, and we note that for Hannstar, whose primary business is small panel production, small panel shipments are down 4.4% YTD on a y/y basis, singling out the difference between stronger performance for large panel products and weak performance for small panel products.
Again, this is short-term data and limited to Taiwan based panel producers, but the performance of small panel production and pricing is far more normal and becoming predictable once again, while large panel shipments, pricing, and sales are still reflecting the changes to consumer habits as a result of the COVID-19 pandemic.  While large and small panel categories have different characteristics, those who say that the current trends in large panel shipments, pricing, and sales are the new ‘normal’, should look to small panel metrics as to what they might look like once the global effects of the pandemic are assuaged.