​According to local Taiwan media, an earthquake of 6.0 on the Richter scale occurred at 9:50am local time in Taiwan.  The epicenter was 37.7 km south by southwest of the Hualien County Government headquarters in Guangfu Township.  Thus far both Taiwan Semiconductor (TSM) and United Micro (UMC) have stated that production at the fabs continues and was not affected by the quake and panel producer Innolux (3481.TT) stated that while equipment was automatically shut down by the quake, there was no damage and the lines are operating normally.  AU Optronics (2409.TT) has yet to make a comment on the effects of the quake, but likely only saw a 2.0 at that distance.

​China’s internet watchdog, the Cyberspace Administration of China, issued a document that proposes to modify the rules currently in effect concerning the public use of social media.  The proposed rules tighten the censorship that already limits Chinese social media platforms as to the type of commentary that users are allowed to post.  Under the new rules, social media platforms would be the responsible party for reviewing all comments and messages posted during live streaming, regardless of whether they have been tagged by censors, and such reviews would have to be done before they are posted, which would include far more posts than are currently reviewed by such platform moderators.  This would force platforms to vastly increase staff in order to review all posts, comments, and discussions.
The rules would also force social media platforms to establish a system that ‘protects each user’s personal information’, essentially a list of actual user names and information that would identify all on-line posters, which would be used by the platform to report any ‘unlawful and negative information’ to the government, and in many cases be able to delete or modify posts or a user account based on existing rules.  User’s would be required to sign an agreement that holds them responsible for not only their own comments, but those of others that respond to their posts, both text and video. 
While the new rules are still in a proposal form, and no date was given for their implementation, it is expected that they will be instituted this year, putting even more of a burden on social media platforms and instilling fear of government retribution at the user level.  That said, much will depend on how strictly those rules are enforced, despite the threat of spot checks and examinations of how the social media platforms will be reviewing such a massive amount of information on a real-time basis.  It is hard to imagine how social media platforms will respond to these potential mandates given the cost of building out the necessary infrastructure needed to make such changes, but it will certainly have a dampening effect on what gets posted on Chinese social media regardless of what the platforms do.

​As we have noted previously, Samsung Electronics (005930.KS) has recently begun offering its 110” Micro-LED TV in China, and while we noted that the pre-order excitement was high enough to have sold out what ever number of units were being offered (you now have to contact on-line customer service to place an order), we were not sure if any had actually been delivered.  In fact word has come down that the first 110” Micro-LED TV set offered has been delivered to a customer in Jining City, Shandong Province (free delivery we assume) for the price of 1.05m yuan, or $156,997 US.  The system is a 4K device with a 120Hz refresh rate and a maximum brightness of 2,000 nits.  It is equipped to handle HDR10+ and covers 100% of both Adobe (ADBE) RGB and DCI-P3 color standards and is able to display 4 separate video feeds on the massive screen.  To get some understanding of what this unit looks like, image a single TV set the size of four 55” TVs.  Currently you can get a house brand 55” LCD TV at Best Buy (BBY) for just a bit over $300; perhaps not as high quality as a Micro-LED TV with all the bells and whistles, but for the price of the 110” model, you could get 506 55” TVs.  You could give one to everyone in the neighborhood and still have lots left over…

Just weeks ago, the sentiment in the CE space was positive, with headlines about a better 2H or 3Q and an optimistic view of the massive 6/18 shopping holiday in China, the 2nd largest behind Single’s Day (11/11).  However little has been said about the holiday, which ended last week, even though sales were up 10.3% y/y at JD.com (JD), the originator of the shopping holiday, as since 2018, the JD.com 6/18 holiday sales gains on a y/y basis have consistently been between 25% and 35%, which puts this year’s results well below typical.  Recent easing of travel restrictions in Beijing have already triggered a new outbreak with restrictions expected to be reinstated, while the country is facing Nucleic Acid COVID testing within 48 hours for all entering public spaces, offices and schools, so there is much to be said about the effect of those and other COVID restrictions on in-store purchases. 
That said, ~24.5% of total retail sales in China in 2021 were made on-line, down only a bit from the 24.9% in 2020, so on an overall basis COVID this year seems to have had roughly the same effect on brick and mortar sales as in 2021.  This leaves the effects of inflation as the major cause of the weakness, yet INF data suggests that China’s inflation rate will be 2.08%, only slightly above the 5 year average of 1.96%.  Of course, there is the possibility that the Chinese government is not reporting accurate inflation data to the IMF, but at least the data for this year has been fairly consistent, rising from 0.9% in January and February, to 1.5% in March, and 2.1% in both April and May.
While the data suggests that macro issues in China have been relatively minor, especially when compared to the annual rate in the US in May of 8.6%, so we have trouble understanding the weakness from a consumer perspective, but the malaise seems to be a general depressive state that has settled over many of China’s largest cities, a result of the on-again-off-again lockdowns that have kept the population in lockdown on and off for months, but we also see that the aggressive discounting normally done in the weeks before the official holiday being less than during last year.  We expect this is a function of both the increasing cost of raw materials and components that have not been fully passed on to consumers by CE manufacturers, leaving little room for aggressive pricing, and the fact that a portion of the demand seen in 2021 included demand not sated in 2020.
In some CE products it is easy to see, such as notebooks, where government sponsored purchases drove outsized demand that ended as early COVID restrictions ended globally, while TV set sales where consumers stuck at home wanted to upgrade relatively early in the COVID pandemic cycle,  saw only a modest change from the norm.  But while here in the US and in Europe, where we faced the most severe restrictions earlier in the COVID pandemic, the Chinese population, at least in its big cities, is facing the prospects of the how the restrictive policies of the Chinese government, good or bad, will make normal life almost impossible, and that seems to have paled thoughts of spending especially without massive discounting to attract on-line flow and created a weariness toward spending on consumer electronics that seems to have taken hold on the Mainland.
We expect this will continue until China’s COVID-19 policies become more amenable to the population and the economy, which we would expect (in a tacit way) at the end of Q3 or in early 4Q, at which point much of the excess CE inventory will have been worked down and the holiday season is upon us.  That said, we expect Chinese consumers will still need to see some incentives by way of loss-leaders or discounts, which will be a bit tricky for brands still carrying high-cost product, and much will depend on how long CE companies continue to hold back orders, a problem for those companies whose CE brands are considered leaders in China and want to continue to show profitable results.  But growth is the key for the Chinese government and while the mandates associated with COVID are one way to protect the Chinese economy from the scourge of a massive COVID outbreak across the country, the Chinese government must still find a way to break the lassitude that we believe has gripped the Chinese population. 

​BCDtek (pvt), aka Coreview, aka Shenzhen Xinshijia Semiconductor Technology, has announced $970m project to develop a 12” micro-OLED display line, likely in Shenzhen, China.  The company specializes in silicon-based OLED micro displays, currently producing 0.4” (1024x768), .06” (1280x1024), and 0.97” (1920x1080 micro displays for use in AR/VR and HUD systems and drivers for those products.  While the company does not specify how the project is being financed, BCDtek, which was formed in 2020, was originally funded by Advanced Micro Fabrication Equipment Company (688012.CH), one of China’s largest Semiconductor and LED tool vendors, that itself was funded by Sunic Systems (171090.CH), Qualcomm (QCOM), Goldman (GS), and a number of VCs.
We note that Jade Bird (pvt), Shanghai based producer of micro-LED displays and Micro-projectors has also bee building new capacity, and had recently capped a $92m project in Hefei that is expected to be able to produce 120m units/year when fully built out, which we expect will begin production in 1H ’23.  Jade Bird currently produces three mono-color 0.13” Micro-LED displays with a resolution of 640x480 with extreme high brightness @5,000ppi.
China has been very active in developing advanced display technology projects, with a number of ventures being funded both by the government, private industry (local and foreign) and VCs in China, going back a number of years.  The projects range from Micro-OLED production and driver facilities, to Micro-LED process development and small scale production lines, with secondary larger projects behind them.  China’s largest panel producer BOE (200725.CH) began investing in Micro-OLED back in 2017, developing a line with a $170m investment, and Olightek (pvt/state) and US based Kopin (KOPN) both contributed to the project.  Visionox (002387.CH) has a subsidiary that has a Micro-LED pilot line that began prototype production last year, showing a 300+ppi 1.84” sample this year, and TCL (000050.CH) announced a 2.02” VR oriented Micro-LED display and a TCL subsidiary released holographic waveguide based Micro-LED full color display late last year, and both eMagin (EMAN) and Kopin have been developing their own versions of Micro-OLED displays.
Samsung Display (pvt) and Samsung Electronics (005930.KS) have been particularly quiet about their Micro-LED and Micro-OLED plans outside of their TV and monitor applications, but we know that part of the development of SDC’s QD/OLED displays involves the potential development of nano-rods, Micro-LED structures that can be grouped into very small ‘clumps’ for high density Micro-LED displays along with quantum dots for color conversion, but as Samsung seems to have little interest in competing in the VR/AR world, at least at this point, but we find it hard to believe that SDC is not working toward producing a Micro-OLED high resolution, high brightness display for customers given its expertise in RGB OLED display production.  All in, while both Micro-OLED and Micro-LED display production is still in the early stages of development, particularly Micro-LED, China is certainly looking to become a major player in the space, we expect with the idea of creating at least an even playing field with South Korean, Taiwan, or Japanese display producers, and not having to spend years trying to catch up with other producers.  Capital, even in this more difficult environment, does not seem to be an issue, with the stumbling blocks more toward finding more standardized processing techniques than finding applications or financing.

​While quite far from the measures taken by the EU to codify the necessity of a universal charging standard, three US senators have penned a letter to Commerce Secretary Gina Raimondo, requesting that the US follow in the path of the EU and force all smartphone manufacturers to come to grips with a universal charging standard.  The letter, written by Ed Markey, Elizabeth Warren, and (surprise) Bernie Sanders, cites the CE industry’s failure to establish its own uniform charging standards and the resultant expense and frustration to consumers of having to purchase multiple charging devices and how that creates considerable electronic waste (53.6m metric tons in 2019.  The letter urges the US government to coordinate to form a comprehensive plan that will both protect consumers and the environment by addressing the lack of a common charging standard.

​negative connotations, but when applied to what are already highly speculative assets, the results can be both spectacular and disastrous, as the founding partners of Three Arrow Capital (pvt) discovered when they found themselves unable to meet margin calls last week, due to the rapidly falling values associated with the funds cryptocurrency investments, while Crypto lending firm Celsius (pvt) is asking customers to give it more time to stabilize liquidity, after halting withdrawals last week.  Taking the opposite tact, the President of El Salvador a country that adopted bitcoin as legal tender last year, despite a warning from the IMF, told investors to ‘stop looking at the graph and enjoy life”, although not mentioning how they were to do so given the rapid decline in the value of their crypto-assets.
There is little to say about the speculative aspects of cryptocurrency other than it was and remains a classic example of the greater fool theory, but we wonder where the next shoe will drop.  Actually we don’t wonder about that, as we believe the NFT market will eventually find itself wondering what is the real value of digital real estate?   Is it $1t as an 11/2021 study indicated, or is it a ‘collective obsession’ that plays out relatively quickly as its financial underpinnings face an undetermined future?  We would be careful chasing pictures of grinning monkeys or smiling stick figures because they are smiling as their authors quickly convert your crypto into cold hard cash and head for an extended vacation in Ibiza.  P.T Barnum said it well in “There’s a sucker born every minute”, although it’s been said many times before and since in other words.

​China’s BOE has had a difficult time with Apple (AAPL), having been rejected a number of times by the company as a supplier of OLED displays for the iPhone 13.  BOE failed the approval process a number of times and was finally given permission to produce limited quantities of OLED displays, starting with replacement screens for those phones returned to Apple for repair, and eventually progressing to larger quantities for actual iPhone 13 production.  BOE ran into trouble however when it was discovered that the company had modified TFT circuitry traces without the prior approval of Apple, which resulted in a halt to much of the supply agreement between the two companies in February/March.
While there has been considerable speculation as to the status of the relationship, particularly as production for the iPhone 14 is about to begin later this month or in July, BOE has been working toward reestablishing itself in the good graces of Apple to regain standing as a display supplier for the iPhone 13 and iPhone 14, which are by in large produced by South Korean rivals Samsung Display and LG Display (LPL).  We believe they have been re-approved for the iPhone 13 and are back in production, but according to local South Korean press, must undergo a new approval process for the iPhone 14, which is said to be underway at Apple.  If BOE wins approval, they are expected to be producing the OLED displays for the iPhone 14 basic model, which is based on LTPS backplane technology, as opposed to LTPO that is used on the higher end models.  Depending on the time it takes, and the success of the evaluation, BOE would be a few weeks behind SDC and LGD in terms of production, but we expect the company will do whatever it takes to meet the volume goals needed by Apple in order to maintain what is a rather fragile relationship currently.

Samsung Electronics has been wrestling with smartphone inventory issues, with ~18.5% of the company’s recently revised smartphone shipment targets already in distributor’s hands, considerably above the standard 10% to 12% usually held.  Much of the inventory is the Galaxy A series (2022 models range in price from ~$182 - $525), which has sold poorly this year, which Samsung Display had been producing aggressively early this year before parent Samsung Electronics lowered their shipment target from 310m units to between 270m and 280m.
But the increase in inflation and overall uncertainty over the war in Ukraine has made consumers even more careful about spending and the TV space has also not been spared from similar inventory issues and target cuts.  While it is not surprising that the bulk of the shipment reductions would be LCD based, given its dominant share of the set market, both Mini-LED and OLED TVs are expected to see continued growth this year of what is expected to be a 270m to 280m unit market.  Unfortunately, the malaise that has set over the TV market since the end of 1Q continues to extend and estimates for both of those TV set growth products are beginning to decline.
Most recently OMDIA reduced its expectations for Samsung’s Mini-LED TV shipment target from between 3m and 3.5m to just 3m and while the category is still seeing massive growth (8.3m units this year up from 1.9m last year), trimming the more aggressive targets seems the case recently, although the growth in the category is still massive.  Mini-LED is also applicable to IT products, typically monitors and laptops, where shipments are expected to grow by 45.5% this year to 20.8m units but only by 3% in 2023, leading to a decline in Mini-LED IT shipments in 2024 and 2025, under the scenario that despite Apple’s increased use of Mini-LED going forward, the company will shift to OLED in those later years.

​This week Samsung’s (005930.KS) Vice-Chairman and empire heir Lee Jae-yong visited with Peter Wennink, the CEO of ASML (ASML) in the Netherlands to discuss the future of semiconductor technology, market prospects, and the supply of EUV equipment, according to tech press, but it is also said that the trip had another purpose and that was to secure the purchase of an extra EUV tool, above the orders originally set for this year.  With ASML as the only supplier of the EUV tools needed for semiconductor production at or below 7nm, Samsung’s ability to grow its chip business in order to catch up to leader Taiwan Semiconductor (TSM), is dependent on ASML, who has scheduled 51 such tools to be built this year. 
Currently Samsung has been scheduled to receive 18 such tools while TSM is to receive 22, leaving 11 for other customers, so the trip from Korea to the Netherlands is said to also have been made to secure another EUV tool from ASML to help Samsung grow a bit more than originally planned.  Samsung purchased a 3% stake in ASML in 2012 for $280.8m, which is worth ~$3.4b today, but Intel (INTC) and TSM also own stakes in the company (15% and 5% respectively), so being a stakeholder in ASML likely had little influence.  That said, a visit from the heir to the Samsung fortune and the company’s 2nd largest customer does hold some sway.  Whether it was enough to grab another $150m tool remains to be seen, but we expect it was more whether ASML can up the total number of units it produces this year, as we expect all of the other 11 units to be produced were already on order from other customers.