Based on Adobe (ADBE) Analytics, Black Friday sales were $9.1b, up 2.3% y/y, which was up slightly from AA’s expectations of ~$9b (up ~1% y/y), while other sources were looking for a flat to slightly up Black Friday, despite the high inflation scenario this year.  With discounting having started early this year to move excess inventory, other than the one-day door-buster items, discounting seems to be relatively similar to what has already been in place pre-holiday.  Thanksgiving Day on-line sales were $5.3b, up 2.9% y/y, also slightly better than Adobe expectations, according to early data.   While data is not yet in for cyber Monday, Adobe’s expectations are for an increase of 5.1% y/y to $11.2b.
The US Census Bureau provides data concerning the share of annual revenue generated in the 4th quarter of the year for various types of retailers, with 27% of total retail sales occurring in the 4th quarter (2021).  Department stores saw 35.5% of sales in the 4th quarter last year (the highest percentage), while 30.1% of electronics store sales were generated during the same period last year, with sporting goods stores seeing the smallest share (27.6%) of yearly sales in 4Q.

Inflation has been the biggest problem for retailers this year, but the seasonal data suggests that November will see a seasonal drop, allowing retailers a chance to make up some lost ground in terms of profitability, which has been difficult to generate this year for many retailers.  That said, on a more specific basis CE retailers have a relatively long way to go in the CE space as based on the census data, we calculate that through October, electronics retailers have seen inflation increase by 9.67% this year[1], as shown in the table below, while computer retailers have seen a 13.44% increase, and while we include office supplies, not a real CE category, to give some perspective, (up 2.16% YTD), appliances are just about flat for the year, down less than a quarter of a percent.  As noted, we would expect November inflation data for the CE space to be down, but based on holiday numbers thus far, it will be difficult for CE retailers to make up ground lost to inflation.


[1] These calculations are based on setting December 2021 as a zero point and calculating the monthly inflation rate for each category of retailers through October.  This data differs from single month (October) data which is calculated on a y/y basis.

In September we noted that new regulations in the EU, would forbid the sale of 8K and micro-KED TVs.  The rules are not specifically targeting 8K or micro-LED TVs but set power consumption requirements that are based on the energy efficiency (EEI) of the device in order to improve the ecological and environmental impact of television usage in the EU.  Based on a 2016 study, the Eu concluded that the energy consumption from such devices was 3% of the region’s total energy consumption, and that would grow (including monitors and digital signage) to nearly 100 TWh per year by 2030, or roughly 5 times the output of the Grand Coulee Dam in Washington, that services over 8m people in Arizona, Southern California, and Southern Nevada.
The regulation excludes projectors, medical displays, white boards, digital signage, and VR, and set the EEI based on a compilation of the power requirements of HD and UHD (4K) sets available between 2012 and 2017.  They applied those findings to the higher resolution of 8K, however there is a problem with that logic.  The pixel density of an 8K set is 2X that of a 4X set, meaning twice as many pixels must take up the same space, forcing each pixel to be smaller.  Each sub-pixel is surrounded by a black mask that keeps light from reaching the driving electronic (which would cause transistors to stop functioning), however, the electronics that drive each sub-pixel (red, green, and blue) are basically the same size as those in 4K sets, as the same display backplane production infrastructure is used for both 4K and 8K sets.  This means that the black mask for 8K pixels takes up more of the pixel and reduces each pixels’s brightness.  In order to compensate, and make the 8K TV and bright as a 4K TV, the backlight must be brighter, which means it consumes more power.
No current 8K or micro-LED TV sets meet these requirements, and 8K proponents were hoping that the EU would meet again before the end of this year and revise the regulations.  Unfortunately such a meeting has not been scheduled, which leaves only a few months next year for such a meeting, which, if held, might come to the same decision.  As western Europe is only 16% smaller in terms of the sale of advanced (4K and 8K) TVs, even though the 8K market is still a small part of the overall advanced TV segment, it will have an impact on the plans of TV set brands until the issue is resolved.  Creating the infrastructure to reduce the size of the electronics for 8K sets is likely a non-starter for most brands, so there seems to be no near-term alternative unless 8K advocates are able to convince the EU commission to postpone or change the new rules, if they can even get a meeting, so if you live in the EU and you are desperate for an 8K set, you have util March 31 to grab one…

The Single’s Day celebration is the large shopping ‘festival’ on the globe, and Alibaba (BABA), the original sponsor of the ‘shopping holiday’ has seen Single’s Day sales grow each year since 2009, last year climbing to over $84b, but this year things might be a bit different.  There will still be growth at Alibaba, albeit likely relatively modest growth, especially as the competition has continued to increase over the last few years, but more so the ‘refocusing’ of the on-line retail industry as the Chinese government looks to present a less aggressive picture of the Chinese consumer.
Pre-sales for the ‘holiday’ (not a legal holiday) began on October 24, and ‘Phase One” of the holiday began on October 31 and ran through November 3rd, with the big push starting on 11/10 and continuing through 11/11, the ‘official’ Single’s Day.  Last year Chinese on-line retailers felt pressure from the government to rein in some of the massive promotional programs that are part of the holiday, with key influencers generating millions in a matter of minutes when they promote specific products, but this year, with government investigations into large Chinese on-line retailers intensifying, those promotional programs are toned down even further than last year. 
The theme seems to have changed from one of “buy, buy, buy” to one that looks to generate customer loyalty, and while there are still the “…spend 300 (RMB, ~$41.44) and get 50 off (~6.91)”, the Chairman’s mantra of “…moderate wealth for a common prosperity…” and away from “…promoting mindless consumption…” seems to have made an even greater impression on on-line retailers this year, while the weakening economic position of Chinese consumers has reduced the contribution from smaller cities, where much of the sales growth has come from in the past.
All in, expectations for the holiday are low this year, which we believe is being influenced by the more obvious slower growth In the Chinese economy and the continuing issue of the country’s strict COVID policies that have been limiting travel, manufacturing, and commerce in general.  We expect there will still be a positive spin put on results, but in a more subdued fashion, with more of a nod to rational behavior and less toward the “…we sold 100,000 lipsticks in the first 60 seconds…”  On-line retailers are certainly not going to miss a chance to hawk whatever they have to sell, but will be careful not to promote so aggressively that they fall further into the purview of government regulators, or worse, a statement from Chairman Xi.

Theoretically tablets have been around for almost 30 years, although we look at the tablet ‘era’ as starting with the Apple (AAPL) iPad, which sold 2x predictions in the first 3 quarters after its release in April 2010.  Since then tablets have had their ups and downs, originally focused on  the workplace, and accused of potentially destroying the notebook market, tablets remain a functional part of the CE landscape.  On a long-term basis (see Figure 2), the category has been in decline in unit volume terms, since 2015 but saw a resurgence in 2020, the result of COVID-19, as have a number of CE categories.

As the effects of the pandemic have eased over the last few quarters, tablet shipments began declining q/q in 2Q of last year and on a y/y basis in 3Q ’21.  That has continued with only the 2nd quarter of this year seeing a q/q increase, only to be followed by a q/q decline in this year’s 3rd quarter.  Comparing the first three quarters of this year to 2021 (same period) shows shipments down 17.5%, while 2021’s first three quarters were up 25.1% over 2020, and the first three quarters of 2020, when the pandemic started, were up 58.3% over the pre-pandemic first three quarters of 2019.  This brings us to the conclusion that while tablet shipments have been on the decline, they have not yet returned to pre-pandemic levels.
Does this mean tablets have found a new ‘normal’ level, or are they just returning to pre-pandemic levels more slowly than other CE categories?  Unfortunately we believe the later based on Figure 3 & Figure 4.  Figure 3 shows quarterly tablets shipped by brand and the quarterly number of panel produced.  We note that we zeroed the panel production numbers to shipment numbers in 1Q ’17 to show the difference between tablet shipments and tablet panel production, so there are no panel units shown in Figure 3.  However in Figure 4 we show cumulative tablet shipments and cumulative tablet panel shipments, along with the spread between the two. 
Figure 4 indicates that tablet panel shipments were relatively closely matched to tablet device shipments until the 4th quarter of 2018, when increasing tablet shipments more than offset tablet panels produced, leaving tablet brand buyers unable to meet quotas.  Given that this was an untenable situation for tablet brands, panel producers began to step up production, building to both their own and brand inventory.  This increasing level of tablet panel production continued through much of the pandemic, with the spread leveling off between ~22% and 23% as tablet sales began to slow last year.
This would suppose that in order for tablets to return to a more steady growth pattern, brands need to reduce inventory levels, reducing the spread between shipments and panel production, while panel producers could lower tablet panel production further, with both parties working toward a more JIT supply chain that will reduce the spread and carrying costs.  But this is a lot to ask an industry that has relatively little visibility and is quite sensitive to macro events, which leads us to believe that the slow return to pre-pandemic levels for tablet shipments will continue into 2023, with the typical positive bumps from yearly new model iPad launches that occur in the 4th quarter.  Hopefully the long-term trend line curve seen in Figure 2 will pan out to be a harbinger of a more rational tablet market, but we expect more of the same for the next few quarters.

​National Day (October 1) was the beginning of Golden Week in China, a week-long holiday known for high travel volumes and commerce saw reduced travel this year due to COVID restrictions, leading to a drop of 18.2% y/y in the number of tourists traveling, and a 39.3% drop y/y relative to pre-pandemic levels (2019).  Consequently domestic tourism revenue also dropped by 26.2% y/y and by 55.8% vs 2019 levels, with ~75% of A-Level tourist attractions open this year.  Chinese cultural centers sponsored 13,940 activities with 59.27m Chinese citizens participating, with the government sponsoring 9,100 “Cultural & Tourism Consumption Promotional Activities in 85 cities, funded by $39.6m in subsidies.
We expect much of the weak showing was a result of the specific restrictions on travel in a number of cities and regions due to the country’s stringent COVID rules, and a general malaise over the weakness in housing prices and the general economy in the country.  While one might expect that restrictions might be eased a bit as the Chinese Communist Party Congress meets later this week, but it seems that local officials see the restrictions as a sign of loyalty to the party and will do almost anything to prevent an outbreak in the near-term, regardless of the economic consequences.  The above travel numbers were the lowest since 2014.

​Matter is out!  Matter is a connectivity platform that was developed and is supported by hundreds of CE companies that will allow all devices that are certified by the Matter organization to interoperate.  In theory this would allow smart home devices, most of which operate on proprietary networks and protocols, to essentially control each other, giving consumers the ability to cherry pick products that fit their requirements, rather than have to stay with a particular brand for all.  The standards were officially released yesterday to developers and a number of test labs were authorized to perform the testing necessary to receive Matter certification and trademark.
There are already over 4000 Matter certified products under many product type categories, with some easily recognizable by consumers and others a bit more esoteric.  A few of the more recognizable ones are ‘smart’ plugs, ‘smart’ thermostats, ‘smart’ switch/dimmer, LED bulbs, Motorized curtain & shades, Home hubs, and smoke alarms, while blood pressure monitors, Energy consumption meters, electronic pill counters, and cellular repeaters are less obvious.
The good part of this is that if the standard is successful, you won’t need to have an app or hub to control each brand of smart devices in your house, as, in theory, they should all be able to be controlled from a common platform of your choice, such as Home Pod, Siri, or Alexa, and as should be expected, the standards are being promoted by Apple, Google (GOOG), and Amazon (AMZN), including 28 ‘promoter’ companies, 268 ‘participants’, and 228 adopters.  While the names above have taken the promotional reins for Matter, promoter Samsung Electronics seems to be unusually quiet about the release after recently signing a deal with LG Electronics (066570.KS) and Electrolux (ELUX.SE) to support Samsung’s own “Smart Things’ platform, which opens the question of whether the standard will be adopted across the industry or whether it will be the stepchild of a few CE giants that already have their VA products in your home.  Without a full commitment from almost all of the CE majors, smaller device manufacturers will hesitate to abandon their own proprietary systems, and the smart home market will remain in the mire that has kept it from growing or being useful to a broad segment of the population in the past.
We have been using smart home products since 1978 when the first X-10 smart plugs (produced by BSR[1]) appeared in RadioShack (pvt) stores, and rarely have we found any group of consumer products that are less user friendly than home automation products on a general basis, hence our skepticism about how easily a standard like Matter will be adopted across the CE space to ‘revolutionize’ the ‘smart’ industry.  Aside from the typical years of meetings to iron out the details of the standards, for which we commend the members, there is the problem of convincing both corporate and developmental executives that many of the projects that they have been developing are no longer necessary.  There will be a lot of therapy, workspace counseling, and water cooler (private Zoom more likely) grumbling before both large and small companies are willing to go all in, so our guess is that we will not know the effect of Matter until the 2023 holiday season at the earliest.  We hope it works because it is a pain to have 5 or 6 ‘smart’ apps on a phone and even more of a pain to try to find the remotes for those that are still controlled with such archaic devices.  Still waiting…
 


[1] BSR – Birmingham Sound Reproducers – At one time the holder of an 87% share of the record turntable market.

​In our 05/02/22 note we indicated that despite Xiaomi (1810. HK) being the best-selling smartphone on the subcontinent only a month before, the government of India decided to freeze the company’s assets, continuing an investigation that accused the company of transferring large amounts of capital out of the country under the guise of 'royalty payments’ that violated Indian statutes.  The government alleged that since 2015 Xiaomi had been using this method to move what was alleged to be over $680m, with the implication that company employees had given misleading information to local banks in order to exact the transactions.
It seems that Xiaomi’s appeal fell on deaf ears as the Appeals Court agreed with the earlier decision and confirmed the legality of the seizure of $682m in Xiaomi assets, of which ~84% is said to be royalty payment to be made to Qualcomm (QCOM), with both companies supporting each other in that they agree that a legal agreement to license Qualcomm’s IP was the ultimate end for the capital transferred, with Xiaomi adding, “We will continue to use all means to protect the reputation and interests of the company and our stakeholders,” although it is going to be a difficult task considering India has also accused and fined a number of other Chinese smartphone brands over violations said to have been made in recent years.
Under the more obvious alleged violations, there has been considerable bad vlood between China and India over border conflicts that began in 2020 when conflicts over a road being built by Indian workers was said to cross into disputed land between the two countries.  Since then India has been closely watching for incursions by Chinese military, and has taken a very aggressive stance toward Chinese smartphone brands, we believe partly as a  a public face toward Chinese aggression, but also as a way to lessen the dominance that Chinese smartphone brands have in India, in order to give Indian brands a helping hand.  While whether the allegations against Xiaomi, Oppo (pvt) and other Chinese smartphone brands are legitimate or not, the conflict does not help India’s programs to encourage display and semiconductor companies to build actual production facilities on the sub-continent, especially given the history of the Indian government’s incentive programs, which have come and gone a number of times as administrations changed.  Not quite biting the hand that feeds you, but maybe nipping at the fingers…

Rarely in the US does a person get ‘removed’ from a political party.  Sometimes however government officials do things that violate the rules of conduct under which the government is supposed to operate, and if such violations become public, they are usually pressured into resigning, usually to “spend more time with the family”.  It has not been unusual to see such malfeasance flash across the screen on CNN, and likely barely noticed by most regular folk, who believe that the government is ‘corrupt and rigged’ according to a recent University of Chicago poll, and the government, regardless of the administration, barely bats an eye during such events, but it is different in China.
The Communist party maintains a stolid face in order not to acknowledge any deviation from the rules the party constructs for the general population, and when there is some visible excursion outside of the norms, there is usually a strong and forceful reaction with arrests, incarceration (aka ‘retraining’), or just disappearance.  The rules in business however are a bit different, both in the US and in China.  In the US corporate malfeasance can bring down the ire of the SEC, who typically fines the evil-doers and perhaps forbids them from ever being able to hold a C-level position at a public company.  Worse yet would be the IRS, who can actually take away the Florida, Montana, NYC, and Tuscany retreats where shamed corporate heads go to ‘retire’.
In China, especially if a business is state financed, state owned, or receiving state or local government subsidies, poor business acumen, the lesser of business ‘crimes’ is usually taken care of quietly, with the operator moved to a new location and given a far more menial task for the ‘glorious’ CCP.  However, when things at big companies go awry due to the discovery of obvious corruption, the government tends to make a statement that indicates their displeasure and serves as a warning to others that might be doing or contemplating something that will make the party look like it does not have control.  Of course, this is not to say that the CEO’s of state-owned or subsidized companies do not get perks, quite the opposite, as many live as well or better than their US equivalents, but should they step over the line, or more so, get caught stepping over the line, they are met with the hardness that totalitarian governments are known for.
Just recently China’s Central Commission for Discipline & Inspection, and the State Supervision Commission, with the approval of the Central Committee of the Communist Party, conducted an investigation into the potential violations of discipline and law of Li Guohua, the former deputy secretary of the party and the general manager and director of China United Network Communication Group, otherwise known as China Unicom (800050.CH), one of the three state-run major carriers in China, the Chairman of the Postal Savings Bank of China (601658.CH), and the general manager of China Post (state).. 
According to the review and investigation, which stated that “Li Guohua lost his ideals and beliefs, betrayed his original mission, was disloyal and dishonest to the party, disagreed with the party, violated the yang and yin, did not implement the central inspection and rectification requirements, and deliberately resisted the organization’s review.  Further, he violated the spirit of (the) eight central regulations, illegally traveled and received public funds and gifts, accepted banquets that may have affected the impartial performance of official duties, failed to report personal matters in accordance with regulations, failed to truthfully explain problems when organizing conversations and practiced nepotism and favoritism, and seriously damaged the atmosphere of selecting and employing people during their tenure.
One would think that those accusations would be enough but the statements continue, pointing out that Li Guohua used relatives to influence his position and to seek personal gain, illegally lent money to management and service objects (providers) to obtain large returns, was morally corrupt, had an unhealthy family style, disregarded his family, made it possible for others (we assume relatives) to make profits in project contracting and business operations, and illegally accepted huge amounts of property, abused his power, and caused heavy losses of state-owned assets, with that last item likely the most important of all.
All things considered, while the statement of violations dug a bit deep when they touted his ‘unhealthy family style’, such violations here in the US would make headlines for a few days after a perp walk and the usual, ‘We will defend our client’s rights and prove that these politically motivated accusations are false and are using our client for publicity during an election year’, with the well-dressed violator making a deal that lets him keep the Montana ranch and Tuscany winery after a lengthy trial.  It was different for Li Guohua, as according to a party statement, he ‘seriously violated the party's political discipline, organizational discipline, integrity discipline and life discipline, which constituted a serious violation of the law’.  His punishment was expulsion from the party, which meant that all the perks he enjoyed as a ranking member would be cancelled, the illegal gains would be ‘collected’, the property involved would be transferred, and then his suspected crimes would be transferred to proper authorities for examination and prosecution, with a less-than-Otisville-like prison where he would serve out his sentence.
While China has been described as ‘the Wild West’ when it comes to business, we note that we have met a number of CEOs that seem to have an aura of ‘I can do whatever I want’, and a quick run-through of streaming services will document how that attitude destroyed the careers of unicorn founders and high profile executives.  In China, it seems that while the party tacitly controls much of China’s major businesses, it can be easy to gain favor in the party and use that influence and power to amass considerable wealth.  That said human nature is the same everywhere and some will become greedy and take that step over the line without the thought that they are putting everything at risk.  Because of the strict doctrine and face-saving attitude of the party, violations that become public must be severely punished, which we expect will be the result of the investigation above.  Less building birdhouses and more eating on the floor.

In the pre-GPS world, day-to-day navigation was done with a combination of landmarks, maps, signs, and a good sense of direction, a struggle for many who do not have that last item, but with the advent of GPS systems, the necessity for a good sense of direction has become almost moot, other than keeping you from driving into a lake when the navigation system is incorrect.  Life without GPS is difficult for those that have grown up with it, and the fact of not having your smartphone with you when traveling almost anywhere is testament to our dependency on GPS navigation, but there are alternatives on the horizon.
In VR systems it is absolutely necessary for the user (and the system) to know where they are spatially, not only for the safety of the VR user but for others that might be negatively affected by wildly flailing arms or other body parts, or for the possible destruction of nearby furniture or pets.  Kidding aside, there are a number of systems that are used to gather position information for VR systems, primarily the requirement to mark absolute boundaries before a VR session, or the system’s ability to sense object information around the user using RF, although more sophisticated sensing systems are needed for the advancement of VR into society.  That said, the characteristics needed for positioning in AR systems are far more related to everyday location information, as the evolution of AR systems into daily life will necessitate precise positioning information in addition to the visual information seen by the user.
Without location data the AR system will not be able to point you toward a particular destination or help you pick out your rideshare in an airport waiting line, and more importantly, it could point you in the wrong direction if being used in a driving situation.  We have noted that Google (GOOG) has been collecting visual data for its ‘Street View’ database since 2007, which it incorporates in Google Maps and Google Earth, and more recently made the 20+m GB of data and 10+m miles of roadway imagery available to developers under the “Live View” API, and while Google is the leader in non-GPS location data, they are certainly not alone.  Apple’s geo-anchors use the company’s “Look Around” data, movement indicators, and user imagery to develop a global 3D map, while Facebook (FB) focuses on “Live Maps”, a collection of physical and geometric information, along with a host of other social media oriented companies that are looking for ways to generate location data without using GPS.
The problem stems from the fact that the GPS system relies on signals from at least 4 of the 30+ GPS satellites that orbit our world.  There are instances when atmospheric conditions or signal blockage can compromise GPS signals and smartphone GPS data has a 4.9m (16 feet) radius, which could make it a bit difficult to pinpoint a specific parked vehicle or an item in a large warehouse.  Niantic (pvt) a small company that was spun out of Google, and financed by Google, Nintendo (7974.JP), and The Pokemon Company (pvt), recently bought 8th Wall (pvt), a company that created an interactive AR development platform that is browser based rather than a standalone application.  Niantic’s system is based on geometrics and the system’s understanding of its surroundings along with an understanding of objects themselves, essentially ‘does that object look like something in my database that is defined as a…’, with some of its data collected from Pokemon Go users, a vast network of users who play individually but are now able to play ‘in-network’.  As much of the game is based on finding Pokémon hidden in various locations, the visual data that is collected during the games is added to the Niantic database to build out the 3D maps.
While all of the players in the non-GPS location space are approaching it from different angles, the important factor is that the data is robust, giving object recognition and spatially oriented systems more information on which to rely, making their ability to recognize an exact location more precise.  As noted Google has a huge amount of data from which its systems can match,  and certainly has an advantage over smaller data sets, but tapping into social media or other image sources can build maps quickly with sophisticated algorithms, so there is still no foregone conclusion that one system will rule.  The good news is that will all of this data collection, and more socially acceptable hardware for AR, the idea that you could walk down a street wearing AR glasses that tell you how to get to your destination by painting a red dotted line on the sidewalk or indicating which way to go to find that food truck that used to be nearby, is getting to be more of a reality.