On May 20 we listed Samsung Electronics’ (005930.KS) new TV line-up, or at least those that were 4K or higher resolution and were designed with quantum dots and/or mini-LEDs.  Only 6 days later, we noted that Samsung had already began discounting 10 of the new models and we note today that Samsung has continued to reduce prices on sets in those lines.  Again we find this surprising as it is early in the product cycle and most of these would be considered premium products, but China’s TCL (000100.CH) has been producing Mini-LED TVs for a number of years and is on their 3rd generation.  While they are not yet available in the US (older models are), they will certainly challenge Samsung as to price, and LG Electronics (066570.KS) will also be releasing a series of mini-LED/quantum dot TVs through the summer and the remainder of the year, all of which have been announced.
We note that in the previous set of discounts the focus was on 65” and 55” sets, while the most recent discounts were focused on 75” and 85” sets, although not exclusively.  LGE’s top-of-the-line 8K 86” Mini-LED/QD TV is priced at $8,000, $1,000 lower than Samsung’s, with the 75” model $2,000 lower (now $1,500) and the 65” model $1,500 (now $1,300) so Samsung’ pricing is certainly higher. The discounts averaged 7.2% in the previous tranche and in the current, 8.6%, with those that have been discounted twice averaging 11.1% from the initial price.
TCL, who has been producing Mini-LED TVs longer than either South Korean producer, does not yet sell this year’s mini-LED/QD TV in the US, but last year’s models, which list for $1,600 (75”), $1,100 (65”), and $800 (55”) are priced far lower than either competitor, and have attracted considerable attention with consumers.  A number of those sets are being offered at a premium on Amazon (AMZN) as they have been in short supply since their release last September.
The updated table with Samsung 2021 models and discounts is below and shows all of Samsung’s models for this year, with those that have just become discounted highlighted in red and those that were previously discounted but remain the same in blue, and those that have been discounted twice in yellow.

In a move that is not surprising, it seems that Samsung Display (pvt) has begun the conversion of its Asan Gen 7 fab to OLED.  While the company was asked by parent Samsung Electronics (005930.KS) late last year to keep some large panel production in service, despite it plans to end all large panel LCD production in South Korea, this fab, known as L7-2 has been rumored to be SDC’s next conversion project for some time, and despite the steadily increasing price of large LCD panels over the last year, the company halted production at the fab at the end of March.
Korean construction company YMC (155650.KS) signed a contract for the dismantlement of LCD equipment with Samsung Construction & Trading (028260.KS), a major affiliate of the Samsung Group (pvt).  The contract was signed on April 1 and was to extend through July 31, although it was recently shortened to July 20, but increased in size from $15.7m to $18.5m.  On 5/11/21 we noted that Samsung was taking bids on the equipment in L7-2, and possibly L8-2-1, which certainly seems the case given the relatively short length of the removal contract.
The L7-2 line has been in production since 2008 and had a peak stated capacity of 180,000 Gen 7 sheets/month will be converted into a Gen 6 OLED fab for what is expected to be ~$2.7b US, similar to the conversion cost of L7-1 line that was converted from LCD to OLED in 2017.  The new fab is expected to add 30,000 sheets/month to SDC’s small panel OLED capacity when completed, although we believe there will be room for additional capacity that could be added at a later date if necessary, as SDC has ample backplane capacity at other fabs and will not need to add to that at A4E. 
 As we had planned for the L7-2 closing at year-end, this will reduce SDC’s large panel output by 1.08m 65” units this year, although we expect Samsung Electronics has been sourcing from alternative suppliers and will see little change to their supply chain.  What this does do is move up the road map for SDC’s A4E fab which we had projected to begin operation in March 2023.  We move that up to September of 2022 (Phase 1) and phase 2 completion from 9/23 to 3/23, giving Samsung Display additional capacity for flexible and foldable OLED production.  We make the assumption that SDC will continue to produce large panel displays at the L8 fab until the end of this year

​On 10-16-20 we mentioned that Samsung Electro-Mechanics (009150.KS) had agreed to sell its Wi-Fi module business to Chemtronics (089010.KS), after selling its wireless charging business to Chemtronics earlier last year. The Wi-Fi business at SEMCO has been working under very low margins (~1% - 2%) and therefore fell under SEMCO’s guidelines of selling any business that did not generate substantial margins, such as the camera module line.  That said, there had been some question about the value of the division, which we believe was set at $130m by SEMCO but was likely closer to $95m when the agreement was signed.
It seems that Chemtronics has decided to cancel the deal, which SEMCO agreed to, also returning the purchase deposit.  While details of the cancellation were not made public, Chemtronics indicated that “Fast changes in the Wi-Fi module market” were the cause for the cancellation, although Chemtronic’s expectations that they would be able to bring Wi-Fi module margins to over 10% were likely more of a factor, with a change in Samsung Electronics’ plans probably the root cause of reduced expectations.  SEMCO’s return of the CHemtronics deposit would seem to indicate there was more than just a change in the overall Wi-Fi market, and something more internal to Samsung Electronics, who would have been Chemtronics primary customer.

Last December we noted that a small Chinese firm Jiangxi Infinitech Optoelectronics (pvt) was looking to enter the display display space and had plans to build an 80,000 sheet/month Gen 6 LCD/OLED fab in Jiangxi province with a budget of $3.52b US.  The company let a number of purchase orders to South Korean equipment suppliers as construction began, with an initial completion date of 1Q 2019.  Unfortunately production progressed slowly, and Infintech requested that a number of its suppliers push out the contractual deadlines for equipment it had ordered.  Given that deadlines are not always met, Korean equipment suppliers Top Engineering (065130.KS), YEST (122640.KS), DMS (068790.KS), and Vessel (177350.KS) all agreed to the initial pushout, but Infintech kept asking for further extensions.
As a number of the companies accumulated materials necessary for the production of the items under contract and generated expenses against delivery, late last year questions began to be raised when word that construction of the factory had been halted and the CEO and top executives had departed from the company.  While we expect the equipment suppliers were a bit suspect, the local Chinese government still considered the project ‘active’ and was still on the books as an operating entity.
The Korean Display Industry Association filed a complaint in July with the Chinese ambassador on behalf of the suppliers but found that the construction company that had been building the fab had filed a lawsuit against Infintech, which is what halted construction.  Jump to today, and one of the suppliers, Top Engineering has taken the bold step to cancel its contract with Infintech, amounting to ~$11m and said it will collaborate with other Korean firms that have signed similar contracts, which together total about $90m.  Unfortunately the Korean Display Industry Association, after the formal complaint, contacting the Chinese Display Industry Association, the Jiangsu government, and a Chinese law firm, has been unable to track down Infintech, which seems to have evaporated into the air in China.  The question is, why everyone waited so long to cancel the contracts, even we saw the handwriting on the wall months ago?  Were they expecting Infintech to suddenly appear with a check or bag of money?.

Guangdong Province (aka Canton) is the most populous in the country and has the largest economy of all of China’s provinces.  With over 100m residents and two of China’s largest cities, Guangzhou and Shenzhen, it is the world’s 4th largest sub economy and borders on Hong Kong and Macau.  Panel producers LG Display (LPL), Sharp (6753.JP), Chinastar (vt), Tianma (000050.CH), and Royole (pvt) all have LCD or OLED fabs in the province and a myriad of other CE companies have manufacturing and assembly capacity as well, particularly in Guangzhou. 
While China does not provide much transparency as to what percentage of the population has been vaccinated and what the cumulative infection rate has been, it seems that an outbreak of ~20 cases was discovered in Guangzhou on Sunday, with all of the cases being local, and while this is a very low number relative to many other countries, the Chinese government has ordered new travel restrictions on anyone leaving the province. 
As of Monday morning the government cancelled many flights out of Guangzhou, the capital of the province, and began testing residents, with one neighborhood being told to stay at home and wait to be tested for the variant that has been spreading across India.   That neighborhood also saw markets and schools shut down on Monday, and the entire city saw schools closed with the only exception being those in their final year of High School.  Nearby cities of Foshan and Shenzhen have also begun a new round of mass testing. 
Anyone leaving Guangzhou, which is 62% larger in population than New York City, is required to show a negative COVID-19 test taken within the last 72 hours, and anyone entering the entire country must quarantine for two weeks as the Central government tries to contain this latest outbreak.  There are many that doubt the accuracy of China’s COVID-19 reporting, so a relative comparison to the US or other countries is hard to make, however the current rate of daily new infections in the US is 6,725, a far cry from one year ago when the number was 18,987.  India has 126,698 new cases on May 31, although down from the peak of 414,433 new cases on May 6 of this year.  China reported 23 new cases on that same day.
Hopefully these restrictions do not last long and would have a minimal influence on actual production in the province, but problems arise with logistics given that Shenzhen is China’s 3rd largest port and is only 17 miles from Hong Kong.  Limited transportation from Shenzhen and Guangzhou could further exacerbated display panel shortages and drive panel prices higher should they be extended.  China has been very aggressive about stemming any outbreaks, but without accurate or trustworthy vaccination data, it is hard to tell the impact of these local breakouts.

​DRAM and NAND Flash prices remained flat in May after a large increase in April, however while that might lead to a more optimistic view of pricing going forward, as contract price agreements are typically reflected in the first month of the quarter, the following two months tend to remain flat with the first.    Expectations for DRAM pricing to jump between 10% and 15% in 3Q have now been toned down to between 3% and 8%, which would be reflected in the July price.

​2/3rds of the Way through the 2nd quarter panel prices continue their rapid increases with only a few exceptions.  Monitor panel prices increased by 5.8%, almost identical to the previous month and the average monthly increase (5.7%) seen so far this year.  Monitor demand continues to be strong enough to support price increases on a general basis, but shortages of a number of components, particularly controllers, allow panel producers to remain in a favorable bargaining position which has allowed them to offset lower unit volume with higher prices.  The aggregated current price for monitors is currently 24.4% above the high point last year and 51.5% above the low (see Fig. 5 for earlier years).
Notebook panel prices increased by 3.9% in May, a bit below the previous month’s gain, but again, almost on the average gain for this year of 3.7%.  Demand also continues to be strong, led by a number of global educational purchase programs that have continued this year, and the same component issues as mentioned above.  While we expect some of those high volume purchase programs to end by the end of 2Q, the component shortages have pushed out delivery for panels and extended lead times for notebook delivery, which could extend demand strength into the summer a bit.
Aggregate TV panel pricing was up 3.7% in May, showing a much lower increase than last month (7.3%) and lower than the average increase so far this year (5.6%).  While calling a 3.7% monthly increase ‘weak’ might be overstating the facts, given the last 12 months, especially the last 6 or 7 months, the increase was unusually low, and while TVs face the same or greater semiconductor related shortages as other panels, the aggregate price of TV panels is now up 28.7% from last year’s highest point and up 107.3% above last year’s low.  TV set producers have increased set prices at least once this year, with some twice, and are worried that another price increase, which seems inevitable will begin to have a more significant impact on demand.
North America has been the growth leader in the TV market, with stimulus checks and continued stay-at-home attitudes keeping demand high, especially relative to China and Europe, where demand is weaker, but as COVID-19 restrictions are lifted, and TV set prices continue to rise, we expect demand to slow, which it did in April.  There are still TV stock outs at TV retailers in the US, as panel supply is constrained by component shortages, but we see the continued upward pressure on set prices as a potential factor that could change the positive outlook that set makes still seem to have. 
While we have not seen any major changes to TV set yearly targets, the somewhat bleak outlook for any significant change in semiconductor supply leads us to expect that component shortages will continue into 3Q, which will limit panel volume and keep upward pressure on TV panel prices, which will have an increasing effect on demand.  Whether May’s ‘weaker’ panel price increase reflects a shift in TV set demand is moot as one month certainly does not make a trend, but should we see a lower rate of change continue, it could signal a change in demand over the next few months.  A bit too early to tell, but certainly a possibility.
Mobile phone panel prices did not change in May, and while that would be below this year’s average increase of 1.2%, mobile phone panel prices have been much more stable than other categories.  While demand spikes do occur when new release inventory building arises, smartphone demand has not seen the increases that other CE product categories have this year, and Chinese demand is beginning to look like it is resuming its more typical weaker trend, with April seeing negative y/y growth after positive y/y growth in the 1st quarter.  The COVID-19 issues in India are also a drag on smartphone demand, all of which give us the view that mobile panel prices will see relatively mild increases in 2Q overall and potentially for the remainder of the year, other than the typical seasonal spike in September.

Large panel LCD sales saw a decline of 2.1% in April after a large increase in the previous month.  Large panel shipments also declined (-6.6%) but large panel ASP increased by 4.8% offsetting much of the unit volume decline, while on a y/y basis the large panel segment was up 65.6%.  On a regional basis the industry saw growth in large panel sales in only one region, China, where sales were up 4.0% m/m and up 82.1% y/y.  On a weighted average regional basis, the industry saw a decline of 1.5% in sales in April, but on a weighted average basis saw y/y growth of 50.6% this year.
Among those panel producers that are focused on large panel production[1] those with positive m/m April results are in the 1st column in order of gain and those with negative m/m sales are in the 2nd column from largest to smallest.  We note that while Panda (600775.CH) shows up as a big gainer in April on a m/m basis, the sale of two of their fabs at the end of last year, makes their y/y April comparison -57.9%.  Both Samsung Display (pvt) and LG Display (LPL) have also rationalized their large panel LCD production, but LG Display still remained up 18.3% y/y in April, while Samsung Display was down 58.3% during the same period.
Panel producers remain in an advantageous position, with demand outstripping supply, but the ASP increases seen each month must be maintained going forward as shipments decline, a result of component shortages, with mix shift limited by those same shortages.  Large panel sales, on a m/m basis, have declined each month this year other than March, which saw a large (13.4%) increase as the New Year holiday in China ended and inventory needed to be replenished.  Thus far large panel demand has remained strong enough to offset component shortage based delivery push-outs, but at the first sign of weaker demand, panel producers will begin to see their absolute control over panel pricing erode.  That said, thus far this year, even with relatively flat unit volumes, panel producers have been able to show very strong y/y results, but will see those comparisons getting more difficult for the remainder of the year.  Without the aggressive panel price increases we have seen over the last year, the game will become more difficult for panel producers going forward.


[1] We exclude Hannstar, IVN, Japan Display, Panasonic, and Tianma

​RealMe (pvt) is a smartphone brand that was spun off of Oppo (pvt), one of the largest smartphone brands in China, and while they are relatively new (only 3 years old), it has commanded considerable attention as it has been growing rapidly, particularly in emerging markets, and has grown from a miniscule share in 2018 to over 4% of the global smartphone market currently, commanding a 12% share in India and is in the top 5 in a number of Southeast Asian countries.
While RealMe is growing rapidly, they are still facing the same issues that other smartphone brands are facing on the supply side, and do not have the same bargaining power as volume giants such as Huawei (pvt), Samsung (005930.KS), Apple (AAPL), or Xiaomi (1810.HK) to gain leverage.  That said, they have been particularly up front about the rising cost of producing smartphones, particularly as their phones tend to be mid to lower-tier priced models (Their latest, the GT Neo, sells for ~$315 and they have phones priced down to $50) and recent comments by senior executives indicated that they expect prices to increase significantly in the 2nd half of the year, citing storage, charging components, and batteries as some that are seeing rapid price increases.
The company expects that these shortages will continue through the 2nd half and will push smartphone prices up by ~10% in 2H, and indicated that some local (China) smartphone manufacturers have lowered orders and shipment targets.  April, as we have noted previously, was a weak month for smartphone shipments in China, down 23.8% m/m and more importantly down 34.1% y/y, after three months of positive y/y growth, although we note that those y/y comparisons were relatively easy given the timing of the initial outbreak of COVID-19 in China.
Unfortunately such a price increase would begin to erode the smartphone price declines we have seen among major smartphone brands, who are trying to appeal to a more price conscious customer, rather than feature oriented buyers, which has helped to at least stabilize the smartphone business during the pandemic.  While a 10% increase might not be enough keep a replacement phone from being purchased, we expect the actual production costs in 2H could be greater than 10%, which means that the price increase will not cover the added cost.  Brands will expect the retailer to share some of the reduced margin, but that just means the retailer will be incentivized to sell higher margin products, a catch- 22.