The three panel producers in Taiwan, given the fact that they are required to report monthly sales, tend to be a precursor to general display industry trends, and as such we track sales data for all three.  On a general basis AU Optronics (2409.TT) and Innolux (3481.TT) are oriented toward large panel production while Hannstar (6116.TT) is oriented toward small panel production, although all three do both.  In April the general trend was for relatively flat sales m/m, although AUO saw m/m sales decline by 10.5% after a strong March.
While each of the three producers have their own sales patterns, the general trend last year was for a weak 1Q and progressive improvement through September.  This will make y/y comparisons more difficult going forward this year, which have already turned negative for both large panel producers.  As we have noted, there has been some non-linearity this year as CE brands pull in orders to move product into the US to avoid potential tariffs, which we expect will continue until the next ‘tariff deadline’ in early July.  Inventory levels in many CE products remain high for the same reason, which could affect production later in the year if there is no incremental demand as the holiday season unfolds in September.

In order to account for unusual or outlying estimates, we average smartphone data from a number of sources to arrive at quarterly and yearly totals.  Our aggregated smartphone shipment total for 2024 is 1.223 billion units, up 5.1%  y/y.  Based on our data Apple (AAPL) edged out Samsung Electronics (005930.KS) by 0.6% in terms of unit volume share (224.8m units for Apple and 223.5m units for Samsung), although Samsung had a higher share in every quarter except the 4th, which is when Apple releases the new iPhone.  They were followed by Xiaomi (1810.HK) with 169m units, Oppo (pvt) with 106.1m, and Transsion (688036.CH), rounding out the top 5 with 102.4m units.  Falling out of the top five last year were Vivo (pvt) and Honor (pvt), with Vivo only 1.4m units less than Transsion.
While our final unit volume number might be a bit different from others, we note that back in late 2023, when predictions are first made for the following year, they ranged from up 3% to up 6.2%, with most in the 3% to 4% range, so even with our 5.1% average increase, the year was a bit better than expected, above the trendline, and a welcome relief after two down years.  Expectations for this year center around 2.1% to 2.4% unit volume growth.  That said, our data indicates that 1Q unit volume was up 1%, and we believe there was some pre-tariff buying in that number.  We are a bit less optimistic than the estimates, but the US/China trade situation puts everything in flux.

Rarely do we spend so much time on CE product shipping, but the current tariff situation forces us to pay extra attention, despite a number of CE exemptions.  To be perfectly honest, we have spoken with a number of folks in the shipping business and a lawyer that specializes in import/export and the conclusion we have come to on what the cost of bringing a TV set made in China into the US is…nobody knows.  We have seen calculations ranging from 5% to over 100%, and the variability is enormous.  This leads us to focus more on container prices as an indicator of the broader effects of the tariff situation. 
Container rates generally have been flat over the last few weeks, certainly lower than this time last year (China/East Asia to US West Coast rates are down 31.8% y/y) but still higher than pre-Red Sea crisis rates.  With considerable talk about Chinese shipping cancellations one might expect rates to drop further, but some retailers are making the bet that if they schedule a shipment from China now, by the time it is loaded and shipped, the US/China tariff situation will be settled, and that has kept rates from falling further.  As many CE companies pulled in shipments to fill warehouses in the US, the panic that bare shelves might incite has yet to begin, but those willing to bet on a quick settlement will also be the first to restock shelves even if no deal is reached, albeit at a much higher price.
That bet also has other implications.  If they are correct and the US and China settle their trade differences quickly, there will be a snapback in shipping, likely leading to a short-term rise in container prices as capacity is constrained.  Ports would likely see considerable congestion with shippers desperate to offload and get ships back to China to get as much low tariff product to the US before anything else changes.  But more likely, negotiations will be drawn out and an eventual interim solution will be reached,  which China will honor for a short while and the administration will use as a victory lap.
We note that in January 2020, President Trump signed the “Phase One” trade agreement with China.  The agreement was made on the promise that China would purchase an additional $200b in US goods and services over the 2020 – 2021 period.  According to US data, they purchased only 58% of the total committed amount, which gave President Biden the justification to continue to apply trade pressure.  While the Trump administration will likely use any agreement as an ‘all good’ sign and back off excessive tariffs, we expect that China will do its best to buy only what it needs over the remaining time the current administration is in power.
While this is certainly one scenario, China, as an authoritarian one party state, is less influenced by popular opinion, and at least from the outside, does not seem to be facing much opposition to the tariffs that it has put on US goods.  We expect US consumers will be less forgiving if a trade deal is not quickly reached, especially as 3Q winds down and the holidays approach, carrying much higher prices.  This makes us believe that an agreement will be reached quickly once negotiations start, and those willing to make the current shipping bet will come out ahead, sort of..

A new bill has been introduced in the House of Representatives that would require owners of operating systems with over 100m US users (such as IoS or Android) to  allow users to choose their own default applications or app stores, as opposed to having the choice made for them with pre-loaded applications.  It also requires that OS owners allow users to hide or delete pre-installed applications or app stores.  Developers must also be provided with access to the OS interfaces, hardware, and software  at the same level as the company or its 3rd party partners.  Under the bill OS companies cannot require that developers use the company’s in-app payment system as a condition for access to the OS or app store, and cannot require pricing terms that are more favorable than on other comparable sites, while they are also restricted from using non-public information collected from an application on their platform to compete with that application.
Currently a number of states have passed or are discussing similar legislation, but most are focused on age verification (Utah put it into law).  Florida has proposed a law that would force Apple to open access to outside app stores and payment systems and a number of other states have proposed legislation that allows sideloading and prohibits mandating OS owned applications.  However, this bill would set rules at the federal level and would prohibit states from enacting laws that would be counter to actions stated in the federal bill, which is the 2nd of its kind to be introduced to Congress.  Similar bills have been subject to aggressive lobbying, partisan politics, and challenges from companies and 1st Amendment supporters, and we expect this bill will face the same, but as politicians look for causes that are popular with consumers, we expect Apple and others will ultimate lose some of their proprietary ‘rights’ and face a more level competitive playing field.  Its hard to tell if the time is right for such a bill to pass, but bills that have gone before and failed have at least built some awareness, so if consumers get more involved in the conflict, the law will eventually be put into effect.  Whether it would be better as a federal law or a state law, depends on who you ask.  Full text of the bill here
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Samsung Electronics (005930.KS) announced that it agreed to purchase the non-medical division (audio) business of Masimo (MASI), a company known for its healthcare products and an ongoing legal battle with Apple (AAPL) over the use of its wearable pulse-ox technology.  The purchase, which is expected to close before the end of this year will make Samsung’s Harman division the largest consumer audio company and will add to Harman’s strong presence in the automotive A/V market.  As shown below, Harman, which Samsung purchased eight years ago for $8b (a hefty 37% premium at the time) is a heavy-weight in both the consumer and automotive audio markets, and with the additional brands owned by Masimo, will extend its footprint in both markets.
The Harman division of Samsung, while a small part of sales (4.3% in 1Q ’25) and op profit (4.5% in 1Q ’25) is an adjunct to Samsung’s automotive business, which includes OLED displays (Samsung Display (pvt)), infotainment processors, image sensors (driver safety), DRAM & NAND for ADAS, and MLCC (Multi-layer ceramic capacitors).  While we don’t have access to detailed data on the non-medical part of Masimo’s business, we know that in 1Q of this year the company produced $146.7m in sales and generated a $6m pre-tax loss[1], somewhat better than 1Q ’24 where sales were $153.2m and generated an $18.5m loss. 
Samsung is paying $350m for the Masimo assets, which we believe is between 0.5x and 0.7x annual sales, a substantial discount to more typical 0.6x to 1.1x for these types of companies, although when Masimo purchased what were then the audio assets of Sound United () for $1.025b, the multiple was 1.6x to 1.7x.  Current long-term CAGR for segments in the audio space remain high (see below) but we believe those are optimistic, even so it seems Samsung was able to purchase these assets at a significant discount.  If they are able to leverage the Masimo businesses as they did with Harman, they should be able to move most of these new brands to profitability as they fall under Samsung’s broad advertising campaigns and substantial reach into Asia, where growth in the audio space is highest.


[1] Excluding all impairment charges.

The perfume and scents industry is not one that makes headlines often.  Perfume ads with celebrities tend to come and go but over the last 25 years there have been some scents for both men and women that have sustained themselves on the best-seller list and generated millions of dollars in revenue.  As an example in 2022 Dior (CDI.FR) Sauvage was selling at the rate of $4.6m/day for much of the year and last year the perfume market was estimated to be between $50.5b and $55.5b US, with an expected CAGR of between 4.7% and 5.9%[1].


[1] Sources: Estee Lauder, VMR.com, CB Insights

Scent developers start their process with an idea.  It could come from examining current popular scents to capitalize on a trend, or it could come from a creative point of view, maybe recalling  a travel destination or personal experience.  The process then moves to the selection stage where the perfumer, based on expertise, selects fragrances that they believe will represent their concept.  What follows is an extended trial and error process where the scents are blended to form a ‘top note’, the basis for the overall scent, ‘accords’ that push the scent in a particular direction (rose, marine, etc.), while making sure that the materials have a consumer-oriented longevity and projection (how far away the scent can be noticed), all of which are developed by trial and error.
There is software that can help perfumers, even AI based software like Philyra, developed by Symrise (SY1.XE) and IBM (IBM) and released in 2018.  The software contains a database of 3.5m legacy formulas and 2,000 raw materials, and, according to the company “…is able to guide perfumers towards exciting and surprising solutions, explore new combinations and materials without human bias, and help perfumers update and improve upon iconic fragrances.” In particular, Philyra helps perfumers to work toward using sustainable materials in their development.
While software platforms like this help the scent development process, it is a long and arduous process that takes many months or years until the right combination of scent and materials is reached.  Even with software providing assistance to perfumers and the expertise of a professional and experienced ‘nose’ (1st tier perfumers can make over $400K/year) commercial success is certainly not guaranteed and the cost of development, materials, and advertising can be quite financially burdensome, even for a large company.
But fear not perfumers, as a group of Japanese scientists have taken the idea of AI scent development further and created a Generative Diffusion Network for creating scents.  This new model uses mass spectrometry data from 166 essential oils to isolate 9 ‘odor descriptors’ that can be used to form scent combinations which are then tested for accuracy in a double-blind (human) process where participants had to match the AI aroma with the appropriate descriptors.
To illustrate: “As an illustration of the procedure, for the first sample of the sensory test two odor descriptors, Wood and Spicy, were selected. A random 201-dimensional vector of Gaussian noise was chosen as the seed for the OGDiffusion network. The network was then run in inference mode, generating a mass spectrum as the output. This mass spectrum was subsequently analyzed using non-negative matrix factorization to identify the essential oils required for the mixture. The analysis determined the following essential oils and proportions: Cypress (0.10), Angelica root (0.07), Cuminum cyminum (0.05), and Trachyspermum ammi (0.78). The specified amounts of each essential oil were pipetted into 5 mL vials and diluted with alcohol at a 2:1 ratio. The resulting mixtures were prepared for sensory evaluation in odor vials. Table S1 shows the essential oil recipes used in all sensory experiments.”
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The idea behind this model is to eliminate problems that exist with current AI scent development systems.  Such systems are based on proprietary data and require expert human intervention, along with results being hard to reproduce.  While they are considered helpful to those in the scent profession, they are not automated and that is where this new model goes.  The system learns without needing prior chemical composition knowledge and is able to generate precise results that can be reproduced exactly, and mass spectrometry data can be easily represented as weighted sums, a function commonly used in LLMs.
So, will those wishing to become perfumers or scent specialists be out of a job?  In some ways the answer is yes, as there will be less need for the trial and error development system used today and that means less learning situations for those coming up in the industry, but again humans are essential, even in this automated scenario, as there must be someone who can test the combinations created by the AI, even if they were created without human assistance.  Without a ‘nose’ to smell the combinations there is no subjective point to attach to the scent.  So, in this case, such an AI system will reduce the amount of work associated with the development of scents but will still require a high-quality professional to make sure that the scent is a pleasant or exciting as expected.  The nose knows.

In front of April 2, CE brands rushed to get containers into the US, only to find that ‘reciprocal’ tariffs proposed by the administration were to be postponed for 90 days.  One would expect brands to take a less aggressive approach to building US inventory levels given the lack of follow-through on these additional tariffs, yet it seems the postponement has done little to stem the inventory build in the CE retail space.  Given the exemptions the administration placed on a number of CE goods it can be seen that the administration is particularly aware of the impact that these potential tariffs would have on the US economy and the US consumer.  Yet brands don’t seem to be convinced that they will be at least partially and possibly fully exempt from new tariffs and continue to build inventory further as ‘protection’.
Sales for electronics & appliance retailers were down on a y/y basis in January and February and up in March (seasonally adjusted) and were above 5-year averages for February and March as shown below, so there was a bit of pre-buying by consumers.  That said, since the April 2 deadline and the subsequent postponement, inventory levels, at least in the PC space, have continued to increase. 
Typically 6 to 8 weeks of inventory are held across the CE retail supply chain, yet it seems that the average currently is about 10 weeks, with some mid and low price tier products in the 12 to 16 week range according to data from primary suppliers.  As we still have over 60 days before the next deadline, there seems to be little panic among brands, but more of a steady stream of additional product, with most traffic through standard shipping containers and little air transport.  But for containers to reach the US and pass through customs, they need to be on the water in early June and container prices to date are remaining steady, a good indication of the anxiety level of shippers at this point in time.  While they are not in a panic, they are not taking any chances.
We are a bit surprised that CE brands are continuing to build inventory after the postponement and exclusions, but it seems to indicate a distrust of the administration’s exemption fortitude and leans toward a worst case scenario in July.  We believe that the impact of reciprocal tariffs should they be implemented on CE products and therefore consumers, would be quite onerous and politically burdensome, making such an enactment very short-term (days/weeks) before exemptions come to the surface again.  While there are lots of countries that could see massive tariff increases, the primary US trading partners will likely be exempted again.  The harder question to answer would be how much the potentially high tariff status of countries like Vietnam, Indonesia, and the Philippines will affect prices if those tariffs are imposed, and whether India will be exempted as these are a key manufacturing centers for CE products.
In the interim, China remains the primary target for tariffs, and to offset the expectations for lower trade with the US, China will continue its efforts to increase local consumption.  We expect they will add additional consumer appliances to the subsidy programs that have been in place for months and will cooperate with provincial governments to add ‘smart’ home-oriented devices to the subsidy list, paid for with another round of bond sales of ~$41b US.  There has been some talk about the central government’s desire to consolidate the semiconductor equipment industry in China by merging China’s ~200 semi equipment companies into 20 primary suppliers.  While this will save subsidy capital and improve cost efficiency, it will take some time to implement and to see results, although it has been done in other industries in the past, typically through M&A financed with government support..

When reading about phone or e-mail scams it is easy to wonder why someone might fall for such, considering how often we are warned about same and how often they present themselves, but far more people fall for scams than you might think, and they are not only the little old ladies in farmhouses that are usually pictured.  The FBI just released its 2024 Internet Crime Report that shows that US consumers lost a staggering $16.6 billion to-criminals last year, up 33% y/y on 859,532 complaints of which 29.8% had incurred actual losses.  The average loss was $19,372.  Over the last 5 years the FBI received 4.2 million complaints that resulted in $50.5 billion in losses.
While there were more complaints filed by those over 60 years old in 2024, and ~$4.5 billion in losses for that age group, the 40 – 50 age group racked up $2.2 billion in losses and the 30- 40 age group another $1.4 billion.  The 20 – 30 age group was the most careful, losing only $540 million ($7,563/incident report), while the under 20’s lost onl $22 million but averaged over $12,000/ incident report.

​On an overall basis the Internet Crime Complaint Center (IC3) received complaints for a very wide swath of internet crimes, ranging from the most common phishing/spoofing, where personal information is the most typical objective, to SIM Swap scams, where scammers try to transfer user’s account information to another phone.  True Cryptocurrency complaints were given special focus (would have been in the #2 position if included in the list by number of complaints and #1 by loss value), with 4,323 folks notified by the IC3 that they were involved in a crypto scam.  It turned out that 76% did not know they were being defrauded until they were notified, and those notifications  were able to save consumers over $285 million.

Most dangerous were data breach issues and ransomware threats made to critical infrastructure, with manufacturing (primarily data breach) and health care (both) being the biggest targets.  The IC3 was able to successfully freeze $496 million in US assets and $92 million in international assets relating to business e-mail scams for a 66% success rate.
The IC3 also  receives complaints from foreign countries but more relevant is the data on where fraudulent wire transactions were headed, surprisingly China was last on the list.
 
 

• Hong Kong                    27.2%
• Vietnam                         23.5%
• Mexico                            13.4%
• Philippines                    12.7%
• India                                11.8%
• China                              11.4%

 When one looks at the data for loss by age group, there are some obvious standouts, particularly for the 60+ crowd who seem very prone to falling for phishing and tech support scams, but the 40 to 50 year old group topped those falling for credit card scams, while 30 – 40 year old’s topped the list for e-mail scams and employment scams, and almost all groups seem to play along with overpayment scams, where payments are sent to individuals who are asked to forward the amount to another, while keeping a ‘fee’.  When the money is forwarded, the scammers use the account information to drain the scammed account.
The data gets even more granular, with state data showing that California individuals lost over $833 million, followed by Texas ($490m), Florida ($388m) and New York ($258m) and DC ($251m) as the top 5.  As noted earlier, crypto has unusual focus when it comes to internet crime and it is on the rise, with 2024 showing a 29% increase in crypto complaints and a 47% increase in crypto losses in 2024.  US Crypto scam losses amounted to $5.8 billion, with the 40 – 50 and the over 60 age groups hit the hardest, although the ability to access or send crypto via ATMs is beginning to give scammers an easier and less traceable way of getting payment for a number of scheme types.
The IC3 and the FBI generally receive thousands of complaints each day and while the impact on individuals, especially those most vulnerable is considerable, the overall impact of being able to integrate complaint data through the IC3, gives the FBI the ability to connect similar or identical complaints and find patterns that can be investigated, and if necessary, freeze funds for domestic and international entities that are consistent violators.  While scammers continue to evolve tactics to avoid broad detection, at least there is a part of the US government that is working solely for consumers without the influence of lobbyists and special interest groups as scammers don’t typically hire lobbyists…

Normally, when we look at monthly display panel sales, they are ~5 weeks old[1] and represent the totals for the previous month.  While we do the same this month, it seems a long time has passed since March, making those metrics seemingly less relevant.  As CE brands spent much of March pulling forward production and shipments to beat the Trump  ‘Liberation Day’ deadline, it is difficult to look at the data the same way it is normally used.  That said, large panel shipments were ~73m units, up 11.1% m/m and up 6.0% y/y, while total shipments were 5.1% above the typical (5-year) March shipment average.  This put the quarterly shipment total at 202.3m units, 6.2% above typical, indicating that the quarter (Jan/Feb) was already about 1% above average.
In terms of sales, total large panel sales for March were ~$6.24b, up 12.7% m/m, but down 6.4% y/y, while on a YTD basis, sales were up 4.5% y/y.  Among those panel manufacturers that are primary large panel producers, the biggest gainers in March were both South Korean producers, Samsung Display (pvt) and LG Display (LPL), up 57.9% m/m and 34.8% m/m respectively.  This implies that while both South Korean panel producers accounted for only 21.5% of total panel revenue for March, they accounted for ~38% of March large panel sales growth.  SDC feeds parent Samsung Electronics (005930.KS) QD/OLED TV set and OLED monitor line, and, as much of the Samsung’s TV line is assembled in Mexico before shipping to the US, we expect these were rush orders to beat the early April deadline.  LG is basically the same in the TV space.
Now that the deadline has been pushed out until July, we expect April large panel shipments will better reflect actual demand and inventory levels but given the capricious nature of comments from the President and White House, it is still difficult to predict what path consumers and CE companies will take in the short-term.  At our gut level, we feel that as negotiations with potentially heavily tariffed countries continue, the WH spin will be positive and while the reality of the outcomes is questionable at best, consumer sentiment on trade will improve through May and early June.  That said, the offset will be increasing prices of both components and CE products as old inventory is sold, and higher tariffed goods take their place.  This leaves us, once again, in a net neutral position for the next month (May) and a slight negative bias for the CE space in 2H thus far, as consumer pre-tariff buys and higher prices weaken typical holiday demand.


[1] 2 weeks from previous quarter mid-point and 3 weeks into following quarter.