There are those that believe putting roadblocks in front of competitors, especially roadblocks that might affect both parties, are an ineffective way of controlling competition.  Some competitors might knuckle under with such pressure and step back, while those same roadblocks might spur others to find a way around such impediments.  That latter group, if both well-funded and determined, has the ability to not only circumvent the roadblock but to find a better path to the goal.  Where is this pointing?  The obvious place is the battle for technological supremacy between the US and China.  As the US is the developer of a substantial amount of semiconductor technology, US companies have a distinct competitive advantage when it comes to semiconductor IP, while others, including China, have the advantage when it comes to low-cost manufacturing.  The US has used its IP leverage to slow China’s semiconductor development by limiting advanced semiconductor equipment sales to the mainland and continues to tighten those export controls, so much, in fact, that US equipment suppliers and advanced semiconductor producers are seeing those limitation reduce overall sales and growth.
China’s mindset is a bit different than others in that for whatever social, political, or cultural reason, both the Chinese government and the populous take the actions of the US, even if they might be justified from a military perspective (the same in the US), as a personal affront.  It might seem odd that the population of China, living under a totalitarian government, would have nationalistic pride, but Chinese culture is hundreds of years old and the country has been run by many regimes with a variety of political views, and remains fiercely protective and patriotic.   In fact, it seems that the more the country is pushed by outside sources, the more it pushes back.  Sort of a “You think your better than me?  I’ll show you!” 
Lisuan Technology (pvt), a 4 year old Chinese semiconductor company, founded by a team of former Silicon Valley professionals, has announced that it had successfully tested its high-performance GPU, the G100.  The device differs from other Chinese developed GPU models in that it does not use licensed GPU technology and do others, having designed the technology from the ground up itself.  Making the device stand out further is that it is thought to have been produced on a 6nm node, likely manufactured by China’s leading foundry SMIC (981.HK), with the performance target being Nvidia’s (NVDA) GeForce GTX 4060, a popular mid-range graphics card.  Details are thin and the mass production commercialization of the G100 is still a year off, but the fact that China is able to get close to producing a self-designed GPU competitor is a significant step for China’s semiconductor industry, especially at 6nm..
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That said, it has not been an easy path for Lisuan Technology, with the company getting close to bankruptcy last year until parent Dosin Semiconductor (pvt) bailed it out with a $27.7m capital infusion that has allowed the company to get to this point.  From here drivers have to be optimized and both hardware and software has to be verified, with a small number of units commercially available in 3Q of this year.  We expect that the performance of the G100 will need to be developed further to actually compete with the GTX 4060, but even with the financial difficulties and delays that Lisuan Technology has faced, the fact that they were able to get close to producing a homegrown GPU that seems to be competitive, is a major accomplishment, even with the US restrictions.  China’s ‘Can do” attitude seems to have paid off more than expected and given China a way into this very lucrative market.
Before the AI craze, GPUs were actually used for graphics processing, converting the information sent from the CPU to data formatted for the display.  This is done through a pipeline that includes shaders, which transforms 3D coordinates into 2D projections using scaling, rotation, and translation, all mathematical computations, with primitives (points, lines, shapes) being assembled into fragments and then given additional attributes like color or lighting, again using mathematical transformations.  Given the number of pixels in a common 4K display (8,294,400), each with three (RGB) sub-pixels, and a refresh rate of 60 or 120 times per second, the GPU pipelines are designed to perform a large number of calculations at a very high rate of speed. 
As Ai systems require that same basic process of a large number of parallel calculations done at a very high rate of speed, GPUs are the basic unit behind Ai model training and inference systems.  Obviously more sophisticated than  a laptop GPU that might be a card similar to the Nvidia model mentioned above or an integrated GPU that is part of an Intel (INTC) or AMD (AMD) CPU chipset, data center GPUs are still just very high performance calculators in a market that is currently dominated by Nvidia, Intel, and AMD.  There is rather limited unit volume data on the overall GPU market that includes all GPU types, but form the data we collected, one can see that it is a very lucrative market on unit volumes alone.  Given that the primary GPU producers are US companies, the US government has been severely limiting China’s access to high performance GPUs, pushing companies like Lisuan Technology to develop their own GPU technology.  It seems that China has found a way over the wall.

China’s May Day holiday, aka Labor Day, celebrates the contributions and dedication of China’s workers, although in recent years it has also become another one of China’s ‘Shopping holidays”.  The official holiday is a weeklong (including weekends) but has become two weeks if you include the extra week of pre-holiday sales.  We have access to data on May Day holiday TV sales in China, along with the same for National Day, a slightly longer (unofficial) that comes in mid-September.  By putting the sales data together for 2024 and 2025 we can see the trend in TV size sold during the three periods between May Day 2024, National Day 2024 and May Day 2025.
Of course, the Chinese trade press has been extoling the ‘massive’ growth in large TV sets, essentially those between 85” and 100”, so we were curious as to the validity of those claims, but we also note that China’s “New for Old” rebate program, which offers rebates on all TV sets that meet certain energy guidelines with a maximum of $272 (US) per set, remains in effect, which skews sales to larger sizes.  On a gross basis, the in-store size average of TV sets sold in China during this year’s May Day was 71.4”, up 2.0” from last year, while that average in online stores was 62.7”, up 2.5” y/y.  While 98” and 100” sets increased by large percentages y/y the actual volumes for these large sets are still small (23,537 combined for May Day 2025), while 85” set volume was almost 5 times the number of 98” and 100” sets sold, making the increase in set size more of an 85” story than a 98”/100” one.
The Chinese trade press also championed the same ultra-large story with the fact that sales value increased9.3% y/y during the holiday, which many attribute to the larger number of 98” and 100” sets, but it is almost impossible to disaggregate the increase in sales value across all TV set sizes as smaller 65” – 85” sets could have seen price increases between2024 and 2025.  We don’t doubt that ultra-large TV set unit volumes have been increasing in China, but there is also the concept that if Chinese buyers are able to afford such large TV sets, the Chinese consumer is ‘richer’ and more successful, something that the Chinese government has been promoting over the last few years.  It is difficult to separate the fact from fiction.
 

Most data concerning mobile phones is based on either shipment volumes or on phone sales value.  Both of these metrics are able to provide a short or long-term view of the popularity of a particular phone model or brand and can help to understand sales trends, all of which are helpful in understanding the mobile phone market on a general basis.  That said, neither metric gives any understanding of usage, a more esoteric but necessary metric for  more detailed view of the mobile phone business.  Usage statistics can indicate a number of points when trying to gain insight into the mobile market, such as:

• Penetration
• Mobile vs. Desktop
• Connection Frequency
• Content Consumption
• Focus for Advertising

In the table below we show those brands that have the most activity on the internet, meaning the user either clicked on a website or used search engine results to visit a website.  The tracking system has tracking code on over 1.5 million websites from which it derives such information.  We have eliminated any brand that has a share less than 0.11% to simplify the table and we note that the brands shown represent over 99% of mobile usage in each country.  The five countries indicated in the table represent 45.78% of the global population and show how different brand penetration is for each country.  In terms of the number of available brands (greater than 0.1% share), Pakistan has the most (21), while both the US and China have 17, India 18, and Indonesia only 13.
The US has the most brand loyalty, with Apple (AAPL), the top brand with a 57.6% usage penetration, more than twice the leader in any other country, and is also the leader, albeit with a smaller share, in China.  In the US the top two usage brands, Apple and Samsung (005930.KS), represent 80.6% of tracked website traffic, a grater share than the combined total (top 5) share in all other countries and over 50% of the worldwide share.  When averaging brands across the five countries (unweighted) Apple still maintains the greatest share (20.1%), followed by Samsung (14.1%), Xiaomi (1810.HK) 11.1%), Vivo (pvt) (10.9%), and Unknown (9.9%).  Without Unknown, 5th place went to Oppo (pvt) (9.3%).

While the absolute share for each brand changes slightly each month, real changes in usage brand share take time as can be seen in XXX below.  Standouts are Samsung (Upper Orange line), who has been losing share since 2023 and Huawei (Light Blue)who, under US trade sanctions, has been losing share since 2020.  Overall, during the 5-year period those who lost share were Samsung, Huawei, LG (), Nokia (), Lenovo (), Sony (SNE), and ASUS (), while those that gained share were Apple, Xiaomi, Oppo, Vivo, Motorola (), RealMe (pvt), OnePlus (), Tecno (), and Infinix ().  We note that only one Chinese brand has been in the loss column (Husaei) while other than Apple, all the gainers were Chinese brands.

Chinese brands are often maligned outside of the mainland as offering low quality goods that undercut ‘quality’ global products.  They are further  criticized for being produced under government subsidy support that reduces their financial profitability burden, giving them a competitive edge, yet consumers seem to crave goods produced in China.  China’s manufacturing value is the highest globally and China’s vast workforce is also the largest in the world, however when one evaluates the top brands globally[1], China has only one company in the top 10 in 2024and none in 2023.


[1] Kantar Survey 2023-2024, Interbrands Survey 2023 - 2024

For many years China has been known as the world’s OEM/ODM and has paid considerable attention to building that manufacturing base and far less attention to branding.  While in some circumstances “Made in China” is considered a negative, that logo also tends to indicate potentially lower priced goods, manufactured at low cost and highly competitive on a price basis.  However, for many goods, the quality issue is almost immaterial and price is the driver.  Would there be a quality issue that would push consumers to a higher cost product when it comes to plastic tableware or fast food giveaway toys?  Likely not, but that shorter-term manufacturing focus on cost over brand has kept China from capturing global brand awareness.
There is also the perception that products made in China are ‘junk’ or dangerous, a perception fostered by competitors who cite recalls and poor quality products.  As the quality issue is subjective, we focus on recalls to get a better understanding of the validity of the claim.  We accessed global and country-by-country recall data for the years 2015 to 2022, however comparing country-by-country recalls makes little sense without considering the manufacturing value of the country, so we matched that data to each country’s manufacturing value.  While China might have more recalls/year than Germany, China’s manufacturing value is 5.7x that of Germany, so we adjust the yearly recall number to each country’s manufacturing value.  This generates an adjusted value that reflects a more realistic view of product recalls.  From that perspective, China ranks below Turkey and roughly equal to both France and the UK over the 5 years between 2018 and 2022, debunking the recall myth.

China does have other issues that have prevented the country from developing global brands, one of which is a lack of cultural identity.  China’s authoritarian government and the positions it presents and represents to the outside world are dominant when compared to the country’s cultural history and only in the last few decades has the government acknowledged the richness and longevity of China’s cultural history.  When compared to countries like South Korea, where music, film, and television have developed into a distinctive style, China is better known for food than its culture or lifestyle.  This shallow view of China limits its perception as a driving force in the consumer world and only in the past few years have Chinese consumer companies become known globally.  Some of these companies are both large and have been in business for many years, however once they breech the shores of China, they have to compete with the iconic brands shone above.  We have no doubt they will do so successfully over time, but while everyone in China knows Apple (AAPL) or McDonalds (MCD), few in the US are familiar with Tencent (700.HK or Alibaba (BABA).  When comparing sales for the last 12 months of the top 5 global consumer companies and the top 5 consumer companies in China, it is easy to see that the lack of sales outside of the Chinese mainland is a  major factor

The US market is an important one for consumer companies, with between 35% (Samsung) and 61% (Amazon) of sales[1] coming from the region for the top global retail companies in the lists.  Chinese top 5 list members’ home country sales range between 55% and 97%, but trade and geopolitical issues continue to block Chinese consumer companies from accessing the US markets, while many of the global top 5 are already well established in China.  Chinese consumer companies continue to reach outside of China to gain continued growth, but are forced to limit exposure in the US, pushing them to establish footholds in other regions where they can develop recognition without the barriers they see in the US.  If they are successful in developing those ties, they will have ample opportunity to expand and begin to compete more globally.  It will be a bit more difficult without the US market, but Chinese companies are resolute in building their brands wherever they can.  A strong global economy would make that process easier, while the lack of governmental support for off-mainland business is an offset, but we expect if the US remains blocked, as we expect it will, the Chinese government will join the battle a little more aggressively to capture global share and standing.


[1] Can include US and other countries in North America.

The volatile trade situation between the US and China has actually existed for years, however more recent trade issues have been based on agreements set by both countries as early as 2016 and 2017.  But in 2020 the US and China signed the Economic & Trade Agreement, known as “Phase One”, which was to level the trade playing field between the two  countries.  As this agreement is the basis for many current trade issues, we took a look at the agreement itself and how the current situation developed.
Economic & Trade Agreement (“Phase One”) Agreement) between the US Government and the government of the People’s Republic of China.

• BASICS: To Improve access in the agriculture and financial services sectors, refrain from problematic policies and practices related to IP and technology transfer and increase its (China) purchases of certain U.S. goods and services.

Under its 2015 10-year plan the Chinese government targeted 10 sectors where it wanted to raise industrial productivity: Advanced information technology, automated machine tools and robotics, aviation and aerospace equipment, maritime engineering equipment and high-technology ships, advanced rail transit equipment, new energy vehicles (NEVs), power equipment, agricultural machinery, new materials, biopharmaceuticals, and advanced medical device products.

• The goals of the “Made in China 2025” program (a subset of the 10 year plan), are to develop ‘indigenous technologies, IP and know-how, substitute domestic technologies, products, and services for foreign ones, and to capture a larger share of worldwide markets.  The US government sees these goals as problematic in that they are supported by more than $500 billion in governmental financial funding and would create excess capacity and cause ‘long-lasting damage to US interests’, although it is hard to understand why such incentives are different from those offered by the US government.
• Along with the subsidy issue, back in 2017 the US government began a Section 301 investigation into China’s IP practices.  Specifically, the use of a variety of tools to require or pressure the transfer of technologies and IP to Chinese companies.   This is viewed as a way of depriving U.S. companies of the ability to set market-based terms in technology licensing negotiations with Chinese companies, a valid complaint.  The US took it further citing Chinese intervention in markets by directing or unfairly facilitating the acquisition of U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and IP; and conducting or supporting cyber-enabled theft and unauthorized intrusions into U.S. commercial computer networks for commercial gains.  Since then the US reviews all acquisitions of US companies to determine if the technology is sensitive or crucial to the US military or key industries.  They have nixed many such deals.
• ISSUES: Tariffs have been a method for protecting industries from aggressive incursions by those who have  a financial advantage and both the US and China use them.  China’s trade tariff for MFNs was 7.5% in 2023, with an average of 14% for agricultural products and 6.4% for non-agricultural products, but China bound 100% of its lines to the WTO, which means the rates they set are the maximum rates they can collect.  This while not perfect, gives a sense of stability to the tariff system, something the US (under th current administration) has decided not to do.
  • The US government has been complaining that  as of the end of 2024  China has not even met its import tariff rate quotas for most products, which are agreed upon levels that cannot be exceeded without triggering even higher tariffs.   That said, those levels have been exceeded for corn and wheat imports from the US.  The Phase One agreement also required that China make improvements in its administration of TRQs for wheat, corn, and rice, which the US government says that China has not done so. 
  • The US government has also been complaining about other trade barriers it believes China has set up to prevent US companies from developing share on the Chinese mainland, particularly regulations around standards for agriculture, cosmetics, and meats and poultry, along with the difficulties China presents to those external suppliers that wish to participate in the country’s Government procurement programs.
  • Since the 2020 agreement, either individually or as part of the WTO the US and China have had innumerable meetings and discussions concerning the abovementioned issues and other policy complaints, particularly covering IP, trade secrets, trademark ‘squatting’, online piracy (movies, books, audio, etc.), counterfeit goods, and what the US government calls ‘indigenous Innovation’, essentially China’a favored approach to IP developed in China. 

All of these issues, along with similar issues in the financial services sector, and the alleged Chinese government’s inability to follow through on mutually agreed on changes, are the basis for the current administration’s trade policies with China, at least on the surface, while China’s government subsidy programs are also a bone of contention. Labor practices, preferences for state-owned companies, and VAT taxes are also on the list of complaints.
However we note that a quick check of US government subsidies shows that this year the US is estimated to be spending $42.4 billion in direct government farm payments and is expected to spend $181.8 billion for programs like crop insurance, risk coverage, and price loss over the next 10 years.  Fossil fuel direct subsidies and tax breaks typically range from $10 billion to $52 billion each year, but if you count indirect subsidies that benefit the industry, the number climbs to ~$760 billion, and those are only two of many categories, making US complaints about Chinese subsidies a bit moot..
When it comes down to the current state of trade between the US and China, the true motivating factor is political.  Yes, China has the largest trade deficit of any nation with the US, but it is also the largest market in terms of purchasing power parity and the 2nd largest in terms of GDP and is a heavily manufacturing oriented country with a relatively low consumer consumption rate.  As the US consumer is less savings oriented than most other countries with high GDP’s, US consumers are going to want to buy more goods from manufacturing oriented countries like China than China buys from us[1].  Trying to balance trade with China by bringing production of googly eyes or sandbox toys into the US is a waste of time as most small business owners will confirm as it is quite difficult to compete in labor intensive markets.  When threatened, as they are now, China and other manufacturing countries will agree to terms, make token gestures and continue on a similar path as they have been.
Trying to convince US consumers to buy only US made products, even if they are more expensive than those made in other countries only works in time of prosperity, and in most cases US consumers don’t examine everything they buy as to its country of origin.  So expecting all goods that are manufactured in China to shift production to the US is a losing game.  That said, the ratio of US services exported to China against goods imported from China has increased from 3.4% 20 years ago to 10.9% last year.  In creasing that ratio will work toward reducing the US/Chinese deficit more realistically over the long-term, without forcing the US consumer to change habits, buy less from China, or pay more for goods manufactured in the US.  We should certainly try to retore some manufacturing to the US, but it needs to be manufacturing things that are based exclusively on US technology, not generic products that have labor as their biggest cost.
For example, Semiconductors make sense, but not high volume mature node products that are relatively easy to manufacture, just leading edge products and the tools needed to produce them.  When it comes to CE products, how can we compete with rows upon rows of factory workers who get paid (average factory worker) between $8,184[2] and $14,435/year to a US factory worker whose average salary is $53,416[3].  Even when adjusting for purchasing power parity, the US factory worker makes between 3.1x and 1.7x more than the Chinese worker, and that is only the labor cost.  Tariffs are a way of trying to force long-term change in a short period and when it comes to responding China has shown that it can provide lip service for as long as necessary to prevent ‘stick damage’.  They will likely do it again, so perhaps another method should be tried.
 
 


[1] We note that US consumption to gross GDP is 62%; China’s is 39%.

[2] National Bureau of Statistics of China, CEIC

[3] US Bureau of Labor Statistics
 

Back in January we noted that President Trump announced , on his first day in office, the Stargate Project, a $500 billion dollar project to build 500,000 ft2 data centers across the US.  The President outlined ‘Big beautiful buildings’ that would create over 100,000 jobs in partnership with Japan’s Softbank (9434.JP), Open AI (pvt) and Oracle (ORCL), the first of which actually started construction in mid-2024.   The initial $100 billion was said to be deployed ‘…very, very quickly’.   As the President’s speech warmed up, he noted that on the first day of his presidency his administration had already lined up $3 trillion in new US investments and expected to have a total of $6 - $7 trillion by the end of the first week.
The Stargate project, which bears an eerie resemblance (see our note “Stargate – Different This Time?”) to the Foxconn (2354.TT) ‘6th Wonder of the World’ display project in Wisconsin that the President touted during his first term, a project that is still looking for a purpose and has barely produced anything, although much of the Stargate Project is to be funded by private funds, rather than the public funds used for the Wisconsin project. Softbank is expected to directly fund 10% to 20% of the project with capital from its Vision Fund, with the rest of the capital coming from debt.
While Softbank met with a number of banks and PE firms in January. Those negotiations did not prove meaningful, and it seems that Softbank’s team of 20 to 30 has yet to complete the project financial plan and is now working on  smaller project by project financing.  In the interim a number of changes have occurred that are making it difficult to find investors willing to fund such a project.  Those changes are:

• China shocked the world with DeepSeek (pvt), a model that promises a much lower cost of training.
• Trump’s own tariffs are estimated to potentially add between 5% and 15% to the cost of data center construction.
• Fears of industry overcapacity as Microsoft (MSFT) cut back its data center plans and Amazon Cloud Services (AMZN) saw slower than expected growth.

These issues have caused investors to become far more cautious than in 2024 and many are waiting to see how the trade situation plays out before making any large scale investments in the data center market.  This leaves Softbank with less of a story to tell investors and a potentially more difficult task to explain how the project will maintain a high utilization level, necessary for the return that Softbank expects. 
While none of this is really surprising given the fact that the current administration is big on promises and light on details, it would mark another time when US politics overpromised and underdelivered.  We expect more building will be built in Abilene (They were being built even before Project Stargate) but ‘very, very quickly’ already seems to be fading away.  It’s a good thing that the public has a short attention span for such things or they might notice a pattern.

In 2024 China shipped 314.6m mobile phones, up 8.7% y/y, marking the 2nd consecutive year that shipments have increased y/y.  86.4% of phones shipped were 5G models, the highest for any year (2023 was 82.2%), and 85.6% of shipments were domestic (Chinese) brands.  As can be seen in Figure 1 and Figure 2, after a dismal 2022 and 2023, China’s smartphone market has recovered, albeit modestly.
So far this year (Jan/Feb data only) January smartphone shipments were down 14.2% y/y, but February shipments were up 37.9% y/y and above the 5-year average by over 25%.  On January 20, the Chinese government added smartphones to its “New for Old” consumer product subsidy program, which we expect accounted for the strong February results.  While we expect continued strength in smartphone shipments in the domestic Chinese market, we expect consumers took advantage of the subsidy at the onset, and front-loaded February shipments.  March is  typically a strong shipment month, so we can see how much front-loading was done in February through the March shipments when they are released.
While the domestic situation for Chinese smartphone brands improves, the current trade war with the US, despite recent smartphone exceptions, still requires that Chinese smartphone brands entering the US pay an import tariff of between 20% and 25%, which, unless absorbed by the brand, will make them less attractive against other non-Chinese brands.  The most common Chinese brands entering the US are:

• One Plus (pvt) – Offered through all three major US carriers, although estimates for US sales are between 5% and 10% of company totals.
• TCL (000100.CH) – Typically sold unlocked.  Estimates are for between 10% and 15% of total sales to the US.
• Motorola – Owned by China’s Lenovo (992.HK) and sold through all US carriers and retailers.  Roughly 20% to 30% of total sales (estimated) are in the US.
• ZTE (000063.CH) – While most consumers believe ZTE smartphones are banned in the US (They were in 2018, but they paid a $1.4b fine and the ban was lifted), pre-paid phones from Metro (TMUS) are made by ZTE, but the numbers are small.

While other Chinese smartphone brand phones are sold in the US, the numbers are small and most have no official presence in the US.  However, even though  the recent exemptions  from additional tariffs have given the Chines smartphone brands shown above a bit of breathing room, the administration has promised to ‘investigate’ the matter further, essentially threatening new phone tariffs.  Chinese brands already work for very tight margins, so should any new smartphone tariffs be levied on Chinese brands, they will likely have to pass most of the incremental cost on to consumers.
That said, they have one thing in their favor, Apple (AAPL) who has been able to lobby the President to postpone another massive Chinese tariff increase.  While Apple is still a competitor, it has considerable production in China, and therefore works toward the same goals as Chinese brands in this instance.  As Apple continues to shift iPhone production away from China that will dissipate, leaving Chinese brands to fend for themselves, an unenviable position at best, at least for the next 3.5 years.

China’s largest display producer BOE (200725.CH) and Korea’s largest display producer Samsung Display (pvt) are locked in a race to be the first to produce IT OLED panels on Gen 8.6 substrates.  Current production is done on existing Gen 6 OLED production lines, but with expectations that demand for OLED laptops and monitors will continue to increase, and the carrot of Apple’s (AAPL) slow but steady conversion of its mobile products to OLED, the race continues to escalate.  OLED It panels can and are produced by both (and others) on Gen 6 OLED lines, but the number of panels that can be produced on one substrate of Gen 8.6 glass is more than twice the number that can be processed on one Gen 6 substrate, so overall fab efficiency is higher for Gen 8.6.
Of course, the necessity for increasing OLED IT panel production volumes is based on demand, so both Samsung Display and BOE are making the bet that OLED IT volumes will continue to increase, although both are starting production at levels below the stated capacity of the fabs, and both stating that the expansion to full capacity will take place as the market continues to grow.  Some of this open-endedness comes from Apple, who has been thought to be adjusting its OLED transition plans due to weak market conditions, but when making long-term plans (fab equipment has a 5–7-year depreciation term in South Korea and a 7 year term in China) shorter -term factors carry less weight.
So how much does it cost BOE and Samsung Display to build out these new fabs?  SDC has the advantage of being able to reuse fab space that was previously used for large panel LCD production, so no greenfield cost, but lots of modifications for new equipment.  Samsung Display is using Canon (7751.JP) as a source for the deposition tools it is building its fab around, which are estimated to cost ~$400 million each (2 are needed for a 15k line) with another ~$100 million for vacuum chambers and logistical equipment that is tied to these tools, so the key equipment cost alone is over $600 million. 
BOE has selected Sunic Systems (171090.KS) to supply their deposition tools for an expected ~$500 million price tag (inclusive of associated equipment) so BOE will have a cost advantage.  This seems to have lit a fire under Samsung Display to beat BOE in being the first to mass produce IT OLED products on a Gen 8.6 platform, gaining the advantage of experience, a key to improving yield.  In that vein, SDC took delivery of its 1st (of two) Gen 8.6 OLED deposition tools about a year ago and has been refining the process and tool characteristics since the installation was completed.  The 2nd tool is expected to be delivered within the next 2 – 3 months.  SDC has stated that they expect to begin mass production in 2026, however more recently there have been indications that SDC is planning to begin mass production this year, likely putting at least the first (of two) lines about a year to 18 months ahead of BOE.
Again, the risk to both producers is how rapidly the market for OLED IT products develops and how much of that capacity can be produced on existing Gen 6 capacity.  In the table below we look at rough (very) shipments for OLED IT products in 2023 and 2024 and we note that it is estimated that Apple (iPad Pro) was responsible for at least half of the growth in OLED tablet shipments.  Given that there is a considerable amount of global Gen 6 capacity, even another year of strong unit growth could be covered by existing Gen 6 capacity, albeit a bit less efficiently, so the necessity for either SDC or BOE to begin production at these new facilities is less critical.  

​That said, much of the existing Gen 6 OLED capacity is unable (as it stands currently) to produce some of the more esoteric OLED stacks and backplane configurations that Apple seems to desire and are becoming the leading edge in IT OLED production technology, so we have to sub-divide  demand further into ‘advanced’ OLED IT and ‘regular’ OLED IT production, and that is where both SDC and BOE will really compete.  LG Display (LPL), who produces ‘Advanced’ OLED IT products on its Gen 6 OLED lines and has yet to announce plans for a Gen 8.6 OLED IT project, is also a competitor and one that has been qualified as a full-scale producer for Apple using its current Gen 6 fab, so things get even murkier when LG Display is put into the mix.
All in, SDC and BOE will duke it out for leadership in this new Gen 8.6 OLED IT category and will likely not get much out of the results for the first few years, while LG Display has the option of remaining a Gen 6 OLED IT player or stepping up to Gen 8.6 and incurring the risk of taking on a considerable financial burden and hoping that the market can support all three players quickly.  It is good that the industry is progressing in terms of its ability to efficiently produce OLED IT products, but the necessity for immediacy seems a bit harder to understand.  Samsung Display has always been the leader in RGB OLED production and as BOE is the masthead producer for the highly competitive Chinese display industry, neither seems to have much choice that to compete at this point, while LG Display will likely be the only profitable supplier of IT OLED for the next few years without the cost and depreciation of a new fab.  If it’s between 1st or 2nd place and losing money for the next few years and 3rd place and making money now, we go for the bronze.

Last week we noted that panel pricing for 2024 was up 0.2% y/y for the year, with relatively stable pricing for notebooks and monitors and a bit more volatility for TV, tablet and mobile panel pricing. Figure 2 shows that monthly panel sales were both strongest and most ahead of 5-year sales averages in 2Q, with 6 out of 12 quarters above the averages and 5 below (August was flat against the average) for the year.  This tracks against 50.5% of yearly panel sales in 1H and 49.2% in 2H, the opposite of the norm of 48.7% in 1H and 51.3% in 2H (5-yr. avg.).  

As to individual company sales performance in 2024, all large panel producers saw panel sales increase in 2024 except Innolux (3482.TT), who saw sales decline by 1.2%.  On a y/y basis Samsung Display (pvt) was the leader, expanding shipments and sales of their QD/OLED panels, and while SDC gained share in the large panel space in 2024, their share of the large panel market remains low (4.4%).  Chinastar (pvt) saw the biggest sales gain y/y at 31.5% but will see its sales and share expand again in 2025 when they close on the purchase of LG Display’s (LPL) Guangzhou, China large panel fab.  While all four Chinese large panel producers saw sales increases, only BOE (200725.CH) and Chinastar saw share gains in the large panel space.  2025 will also see the end of Sharp’s (6753.JP) participation in the large panel space as they lease their Gen 10 LCD fab in Sakai, Japan to Softbank (9434.JP) to use as a data center, after years of disappointing sales and operational losses.
All in, while the first half of 2024 was stronger than 2H, the Chinese government was responsible for keeping large panel producers from ending the year on a more sour note.  Their “Swap Old for New” program, which included TV sets at the end of August, helped to stimulate enough Chinese consumer demand to put a halt to sliding TV panel prices, which peaked in July and began a rapid decent.  The subsidy program offered consumers a subsidy of between 15% and 20% depending on the energy efficiency of the TV. And TV brands found ways of meeting the energy requirements without redesigning those sets that did not qualify.
The program continues into 2025, however it is unsure whether TV set demand in China for 2025 has been pulled into 2024 because of the subsidy program.  If that is the case (we believe so), it has the possibility of causing large panel producers to overproduce heading into 1Q, under the belief that the ongoing subsidies will continue to stimulate set sales.  In 4Q Chinese TV set brands Hisense (600060.CH) and TCL (000100.CH) increased sales targets and panel purchases as a result of the subsidy program.  With Chinese New Year coming at the end of this month, it will be March before can get a read on actual TV set shipments in China.  This issue, along with the potential for additional tariffs on Chinese goods, will be the drivers for large panel producers in the early part of the year, making it considerably more difficult to plan production, although we expect Chinese TV set brands will continue to target higher TV set sales and panel purchases until they receive some indication that they are no longer stimulating incremental demand.  That would typically lead to a more conservative production stance in 2Q, but with the tariff wildcard and the possibility for a bit of overproduction in 1Q, it could go in almost any direction.

When foldables first appeared some in the smartphone world were concerned that foldables were making smartphones inconvenient for users because they were too bulky to comfortably fit in one’s pocket when folded.  Over time those concerns seem to have dissipated as 2024 progressed, it seems that substantial progress was being made on that front.  In the early part of last year foldables were running 15.3mm to 15.8mm when closed and 7.1mm to 7.5mm when open.  Just for reference 25.4mm = 1 inch, so 15.8mm = 0.62”.  Later in the year, it seems that foldable brands took that criticism to heart with the Samsung (005930.KS) Z Fold 6 only 12.1mm when closed and 5.6mm when open.  But the competition did not stop there, with the Huawei (pvt) Mate XT Ultimate coming in at 12.8mm when folded and only 4.8mm when open.  Not to be outdone, Samsung countered with the Z Fold 6 Special at 10.6mm when folded and 4.9mm when open, and we note that the iPhone 16, which is not a foldable, is 7.8mm thick, so the Z Fold 6 Special is only 2.8mm thicker than the iPhone 16 when it is folded.
One would think the concept of thinner foldables would have run its course when a folded phone has come so close to the thickness of a regular phone, but that is not the case.  Chinese brands Oppo (pvt) is said to be about to release (February) the Find N5[1] foldable which is shown to be only 4.0mm thick when open, even though it has a large 5,700mAh battery.  While we don’t have a thickness when closed for the Find N5 yet, given that other foldables are typically 0.8 to 0.9mm thicker closed than open, we can estimate that the Find N5 will be between 9.0mm and 9.3mm thick when closed, just a millimeter and a fraction thicker than an iPhone 16.  Oppo says they were limited in how thin they could make the Find N5 only by the thickness of the Type-C connector used to charge the phone.  Type-C connectors are typically less than 1mm thick but need additional vertical space to be reinforced into the frame of the phone, so unless someone is able to modify the connector, the competition for thinnest foldable might be coming to an end this year, perhaps followed by a focus on multiple fold devices, where only one segment would need a connector, leaving others to be even thinner, or maybe skip the connector altogether in favor of wireless charging, removing the last restriction to thinness.


[1] Will be available in the US as the OnePlus Open 2.