Since we spent considerable time yesterday parsing data on SVOD and Social Media, we spend a bit more time on data that gives some insight into how COVID-19 has changed buying habits, in this case in Australia, a country where CE products (excluding appliances) represent ~3.3% of the total yearly value of all imports (more than passenger vehicles or crude oil imports) into the country. During the COVID-19 pandemic Australia saw relatively few COVID-19 cases (on a per/million basis) until 4Q 2021 when the Delta variant became dominant, however as early as March of 2020 the country’s borders were closed to all non-residents and Australians returning to the country were placed in quarantine for two weeks., along with states and territories limiting such borders at various times during small outbreaks.  Outbreaks in major cities like Victoria and Melbourne saw lockdowns that lasted 3 to 4 months and a vaccination program began in February of last year.   A Delta variant outbreak caused almost half of the country to return to lockdown in July 2021, although the government ended most public restrictions when a 90% vaccination rate was reached in December ’21, despite the Omicron variant causing new cases to spike.
 From an economics standpoint the Australian government was proactive and cut interest rates in early 2020, followed by a $17b stimulus plan that included both individual and small business payments and support, along with wage subsidies for trainees, and a second package that was paid out in September 2020, but by that time the Australian economy had fallen into recession.  Travel between Australia and New Zealand was restored and curtailed at various times in 2020 and 2021.  By April of last year restrictions were being lifted for some cities but in November the Omicron variant appeared and case rate began to increase spiking fears that another outbreak would occur, forcing purchase restrictions as a wave of panic food and supply buying was the result.  All in, while Australia saw a relatively mild run with COVID-19 due to swift government action, the economic effects were similar to those in other countries, especially those that depended on tourism and migrant workers for agriculture.
So whar does this all have to do with consumer electronics?  Despite the economic impact of COVID-19, Australian citizens bought consumer electronics during the lockdowns and restrictions, with 28% of Australians purchasing a new ‘device’ in 2020 and 38% in 2021.  Smart TV penetration rose from 58% in 2020 to 64% in 2021 and 33% of households upgraded their internet connection, with the need for additional speed as the primary reason, although 67% stayed with their existing carrier, and the data for Gen Z is parsed, 31% in that age category increased their internet speed for gaming, 38% for YouTube streaming, and 27% for SVOD services, although 9% said they changed to another plan (likely slower) in order to lower the cost.
As to specific items purchased as a result of COVID-19, the percentage of Australians buying each device type increased in 2021 over 2020, with a weighted average increase of 5.8%, and as has been the case through most of the pandemic, laptops saw the most turnover, likely due to remote learning needs and work-at-home requirements.  While video calling devices, such as PC cameras and accessories grew 100% y/y, we were surprised that so few Australian bought such devices, unless the market was already saturated, and equally surprised that smartphones were the 2nd most popular CE purchase given  the weakness in that category in other regions.
While the current COVID-19 new case data for Australia (see Figure 2) is certainly not conducive to stimulating CE sales in 2022, the high vaccination rate in Australia (over 86%) has led to a lower ‘serious’ infection rate and relaxed mandates, after a spike in January.  If Australia continues to push for full vaccination and boosters, barring any unforeseen circumstances, the economy should grow between 3.5% and 4.0% this year, with a return to a more normal country-wide supply chain.  Inflation, which was already an issue for Australia coming into 2022 has increased as the war in Ukraine has increased the price of gasoline by about 30% this year, which could impinge on that growth forecast, but it will be interesting to see if Australian consumers remain net buyers of CE products overall as the economy returns to some sort of normal, and which products will see growth or declines.  We would expect laptops to see little growth, while we would expect television sets to see higher growth than last year, with smartphones sales value less this year than last, despite the 5G penetration increase we expect this year (grew from 6% in 2020 to 14% in 2021) as 5G capabilities drift down to lower priced phones.
While Australia has a number of metrics that make it different from other high CE import countries, we expect that it is a good example of a country that was and has been aggressive toward COVID-19 and its impact on the economy, with CE purchase data reflecting that positive stance.  While the global economy will be an influence, we see Australia as a model for understanding consumer CE buying patterns in 2022 and pitted against countries that have taken a more ‘relaxed’ attitude toward COVID-19, it should help to give a balanced picture as to how consumers will react to a less COVID-19 burdened life.

As we noted yesterday, a number of cities in China have been subject to lockdowns this week, particularly Shenzhen.  The new case data for China has always been suspect and continues to be so, however even with the case reporting likely being overseen by the government, the chart below shows an uptick in cases, which is made more obvious in Figure 2, where we clipped the large spike seen during the period around February 13, 2020 during the initial outbreak.  China has not seen a rate over 1new case/million inhabitants since February 22, 2020, which makes the 1.48/million number from yesterday stand out even more.  

COVID-19 is out of the news a bit as the Russian invasion of Ukraine takes precedence, but while mask mandates come off in the US and the new case rate declines after the spike seen earlier this year, China maintains a very strict lockdown policy toward COVID-19 outbreaks in order to keep the virus contained in the country of 1.448b people.  Major Chinese cities are particularly sensitive to outbreaks and Shenzhen is no exception, as the 6th largest city in China and has been given the name’ “China’s Silicon Valley” due to the large concentration of technology companies that have headquarters or operations in the city.  Huawei (pvt), Oppo (pvt), TCL (000100.CH), Tencent (700.HK), and ZTE (000063.CH) are all based in Shenzhen and Taiwan based Foxconn (2354.TT) has its 2nd largest manufacturing campus in the city.
On Monday the Shenzhen government imposed a one week lockdown across the city, shutting down production at plants for what is expected to be a week.  Many of the companies have instituted production shifting plans to compensate for such draconian COVID responses from local governments in China, but even well planned shifts to production facilities outside of the area or the country take a toll on production goals.  The good news is that the first quarter is usually the weakest for the CE space, which means there is time for any shortages that might occur to be made up before the busy 3rd quarter, but drilling down in the display space, there is one panel producer that would be exposed to such a shutdown more than any other and that is panel producer Chinastar (pvt).
Chinastar has five LCD lines in Shenzhen, which represents 75.5% of its current monthly LCD panel (m2 basis) output.  Tianma (000050.CH) also has a fab in Shenzhen but is only a small part of global LCD production while Chinastar’s Shenzhen fabs represent 36.9% of global monthly LCD panel output.  Assuming 7 days of shuttered production and a day on either side to bring lines up and down, that would represent ~10% of Chinastar’s 1Q Shenzhen production, or 3.69% of LCD capacity in 1Q as a worst case scenario.  While we expect the fabs are not completely shut down, but Chinastar only has a Gen 8.6 fab in Guangzhou and the one it purchased from Samsung Display (pvt) in Suzhou as alternatives, so it will be difficult for Chinastar to move much of its large panel production to other fabs outside of Shenzhen.
While looked at across the 2022 year, this will be a small bump in the road, however it could influence large panel pricing if panel buyers are caught short in the near-term.  Large panel prices have been declining but those declines have been slowing as large panel prices neared pre-pandemic lows and cash costs.  With Chinastar’s issue, there is the possibility of a bump in LCD large panel prices that would not be based on long-term demand and could give a false sense of a potential recovery in large panel prices.  We certainly don’t rule out a large panel price recovery this year, but it would have to be one based on real demand rather than one based on a short term perturbation in the LCD production cycle of a single city.   According to the Taiwan tech press, most of the Taiwanese companies operating in Shenzhen will see little effect from the lockdown, although we take much of that as a bit of nationalism toward China given they will not recognize Taiwan as a sovereign country.

​On December 23, the Chinese government locked down the city of Xian, limiting its 13m population to only one resident per home allowed to go out for necessities each day.  The lock down came in response to a round of testing revealed 127 new COVID-19 cases across 14 districts in the city, triggering the biggest lock down in China since the original Wuhan incident.  The delta variant is still responsible for most of the new infections but such precautions are being taken to make sure that the Omicron variant does not take hold.  All domestic flights in and out of the city were cancelled and all transportation routes have been closed.
Samsung’s (005930.KS) semiconductor fab in Xian has been affected and while shut down, the company did indicate that it was making ‘flexible adjustments’ to its production lines as it is now working with limited personnel.  The plant, which produces ~40% of the company’s NAND flash is expected to continue to operate under limited conditions, but an extended lockdown could begin to affect NAND pricing into January, and a full line stop would take weeks to restart.  Since the Chinese government has left the lock down timing as indeterminate, the effect on Samsung’s production and global supply has yet to be determined.

On 12/16/21 we noted that Apple (AAPL) had notified employees that any return to offices for Apple staff employees, which had been tentatively scheduled for September and then pushed to October, would be postponed until January 2022 due to the Delta variant, which was then postponed indefinitely.  At various times Apple has closed its stores in a number of global locations in response tp the spread of COVID-19, particularly the Delta variant, with all stores finally being reopened in June of this year, for the first time in just under a year and a half.
As we mentioned in our recent note, Apple has begun to close a number of stores in the US and Canada and the Omicron variant spreads, and yesterday announced the closing of all of its stores in New York City, as new cases surged.  Apple has a number of flagship stores in NYC, with the largest being the 5th Avenue store between 58th and 59th, at one time being the only Apple store open 24 hours a day.  All stores are still open to outside product pickup, but only Apple employees are allowed inside.
While we certainly give Apple credit for being proactive concerning the safety of customers during the pandemic, all is not perfect in Appleland, with a strike and walkout staged by Apple employees on Christmas Eve, albeit one not endorsed by any Apple trade unions.  The walkout was the result of a customer incident in Jacksonville, Florida where a customer spit on an Apple employee, and was later allowed to return to the store, with the employee allegedly being told that ‘the customer did nothing wrong’.  Of course, once such was posted on Twitter, reports of other incidents, abusive store managers, and other employee issues soon followed.  While we doubt much changed as a result of the strike, which was said to encompass some 50 workers, a wise old man once said, “It’s a sewer out there”, and now it seems to also be a sewer in there.

There are ads on TV and social media encouraging viewers to see the world as ‘reopening’ as the COVID-19 pandemic is said to be winding down.  Inherently skeptical and with many mixed messages coming from CE companies, we took it upon ourselves to see if those ‘feel good’ messages were based in fact or were just holiday hype.  Rather than take the word of CE company CEOs or calculating endless sales figures, we took the top 10 ‘electronic circuit’ component exporting countries and looked at where they are in terms of COVID-19 infection rates.  This is not a detailed comparison, just a visual look at where each of the top CE exporting countries is relative to COVID-19 cycles.  The charts shown the number of new cases per million population and while the starting dates for each are not always the same (depending on when they started reporting) the endpoints are all 11/18/21.  Export data is from 2020..
The top three countries represent 50.3% of the total value of circuit component shipments last year, and while each has seen COVID-19 spikes over the last 22 ½ months, they all are seeing small numbers of new cases.  While this should be associated with improving production and increasing exports, these countries take draconian measures when even small outbreaks are discovered.  This tends to be local, but well enforced, which can have an effect on particular production sites, but is far better than the broad travel restrictions found in countries where the virus is far less under control.
After the top three, things begin to deteriorate, with Singapore, South Korea, the US, and Vietnam still battling recent peaks or increasing cases, while Malaysia, Japan, and the Philippines have come off of the spikes caused by the Delta variant during the summer.  As we have noted recently, the recent Delta variant outbreak in Vietnam, where only 38.5% of the population is fully vaccinated, has been particularly intense, with factories in Ho Chi Minh City having been closed or working at low production levels for weeks at a time.  In comparison, 59.4% of the Hong Kong population is fully vaccinated and 67.96% have at least one dose.
While we don’t fully subscribe to the “We’ve got this under control” advertising, we do see some reasons to be optimistic, at least for the electronic component part of the global CE supply chain, but as the top 15 regions make up 97.7% of electronic circuit component exports, it is not only important that these regions see improving prospects going into 2022, but that the overall global consuming population also see pressure from COVID-19 wane.  Many of the countries on the top 10 list are also major CE product buyers, but a recovery in the global population is also necessary for a real CE recovery to be sustained.  41.4% of the global population is fully vaccinated and 52.6% have received at least one shot.  Most epidemiologists believe herd immunity becomes a reality when at least 70% of the global population has been vaccinated.
 

The Magic Kingdom in Shanghai is a wonderful place where kids can enjoy the fantasy of a world that has little connection to the day-to-day reality we, as adults, experience.  On Sunday however, as the evening fireworks sparkled over Sleeping Beauty’s Castle park crowds received a Weibo (SINA) message from Disney management saying the park was closed and rides had stopped, new guests could enter the park and the ~34,000 guests who were within the park confines, could not leave and must be tested.  There was no panic, according to many, and after a few words continued to watch the fireworks.  At the exits were tables with PPE-suited workers that began working through the lines that were longer than those on any of the popular rides earlier in the day while the Disney staff handed out power packs so folks could charge their phones and stay in contact with those outside of the park.  Later that night 200 busses took park goers home for two days of isolation.
This unusual circumstance was prompted by the discovery of a single Shanghai visitor that tested positive, with questions as to whether she had actually visited Disneyland itself, but the park indicated that  that the testing and subsequent three day closure was to “cooperate with the pandemic investigation in other provinces and cities.”  On the next day China (population 1.447b) reported 54 new COVID-19 Delta variant cases, totaling ~500 cases across the country, concentrated in Heilongjiang, a province in Northeast China that borders Russia and Inner Mongolia.  Officials in the province have responded quickly with lockdowns, travel restrictions, and mass testing, while in other cities officials have stopped all traffic by turning all stoplights red, until the public protested, and severe restrictions in other cities have caused residents to leave over the last year.
While the public’s patience with the government’s strict COVID-19 rules, there seems to be an understanding that the only way China is going to maintain control over the COVID-19 virus is to enact such intrusive measures when even a single case is identified.  Given China’s very low rate of infection and death, it seems to be working, at least as far as the data can be trusted.  There are few countries where such a strategy is workable, especially when much of the rest of the world is trying to reopen despite the continued spread of the virus, but while the authoritarian government in China rules with an iron hand, it seems that much of the population understands that even a small breakout must be dealt with swiftly or will spread in such densely populated cities.  With over 74% of the Chinese population vaccinated the numbers prove out.