Its a few years in the future and you are sitting on your couch after a long day at work at your virtual office watching “Goodfellas” (R.I.P. Ray) for the eleventh time on your video wall, while picking at a Hostess cupcake that you have been hiding in the back of the hydrator for weeks.  A few crumbs fall to the highly polished composite floor, which could be just the evidence that the wife needs to search the kitchen for cupcake contraband, but you gesture left toward the video wall which opens a set of virtual controls and you point to the button marked “C”.  Within seconds those crumbs that could have exposed you to a litany of negative references to your health and the threat of an actual visit to a doctor for a check-up, are gone and all evidence of the hidden cupcakes are gone.  Life is good again.
So how did those cupcake crumbs disappear?  You don’t have a dog so we can rule out absorption by a canis lupus familiaris, and Roomba went out of business years ago, so where did the crumbs go and who took them?  The answer is ‘the robots got ‘em’.  Does it sound a bit like science fiction or even science fantasy?  It’s not based on developments by a group of engineers at Northwestern University who have developed the smallest remote-controlled walking robots ever built, roughly 1/3 the size of a typical ant, and the idea that in the future a pack of such little scavengers would sit in a box under the couch waiting to be called on to clean, polish or perform other functions for you, is not science fiction but merely a practical application of that research.
These little crab-like creatures are not battery powered or driven by complex electronics, but are constructed of alloys that when heated conform into a ‘memory’ shape and are coated with a thin layer of elastic glass that pulls them back to their original shape as they cool.  Currently these miniscule robots are controlled by a remote controlled laser that starts the ‘walking’ process by heating the ‘legs’ of the bots, and by having the laser scan the legs in a particular direction, the bots will ‘walk’ that same way, and as these structures are so small they cool quickly, which allows them to walk or swim more quickly as their size decreases.
The same team at Northwestern devised a process to fabricate these bots by bonding the flat alloy materials to a stretched rubber substrate.  When the rubber is relaxed it buckles and the alloy ‘pops’ into a pre-defined 3 dimensional shape, allowing them to create robots of any size or 3D shape.  Movement of shapes can take the form of bending, twisting, and expanding, which allows the devices to crawl, walk, turn, and jump.  Of course, these experiments are only the basis for the creation of commercial devices, although the team previously developed a winged microchip last September, the smallest man-made flying structure ever built, about the size of a grain of sand, so it would seem the possibilities are not limited to ground work. 
In order to commercialize such devices other methods for ‘stimulating’ them would have to be developed, but nano-fabrication, an outgrowth of semiconductor process technology, is a rapidly developing field, and the application of nano-scale power sources and processors to such devices is a possibility, although the cost of production will be the major consideration for commercialization.  That said, at least the process for creating the structures has been simplified and uses common semiconductor materials and processes, such as Si wafers, sputtering, annealing, photoresist patterning, and tape transfer, and while we are still some time away from these bots helping you to keep your Hostess cupcake habit from the wife, its not really science fiction anymore.  For now, use a paper plate.

​Citation: (Yonggang Huang & Yihui Zhang, 2022)

​Under the “Holding Foreign Companies Accountable Act” passed in December of 2020, the SEC is required to identify public companies that are located in a foreign country by requesting an audit report issued by a registered public accounting company to allow the US Public Company Accounting Oversight Board to inspect or investigate companies despite ‘a position taken by an authority in the foreign jurisdiction’.  In other words, if foreign US listed companies do not fully disclose all information, in particular ownership structure, they are notified by the SEC of such a request and have roughly three weeks to provide complete information.  If they don’t, they are subject to delisting in the US.  The SEC has added an additional 80 names to its list of provisional delisting, including some of the most prominent Chinese technology companies, and including those already delisted, the list now represents roughly half of all Chinese companies listed on US stock markets.   Here are some of the ‘new’ names added this week:
Bilibili (BILI)
Pinduoduo (PDD)
Tencent Music (TME)
JD.com (JD)
Netease (NTES)
We expect that anyone at the institutional level that has or is investing in Chinese companies listed on US exchanges has done considerable due diligence before making such investments.  Understanding Chinese company ownership takes an inordinate amount of time as layers upon layers of organizations are deciphered, only to find that behind the organization names lies a state or city controlled agency.    We do this regularly for what are smaller companies compared to those on the list above and many times we hit a wall where there is no public information to define ownership further.  The companies on the list should at the very least be able to quantify ownership publicly and if they cannot do so, for any reason, they should not be able to  trade on US exchanges.  We are usually less favorable toward government regulations toward Chinese companies, but ownership is definable and should be presented in a way that is relatively easy to understand and allows the investor to understand who benefits from the success of such companies.

Next month the FCC will vote on new proposed rules that would require all gateway providers to adopt more stringent rules regarding SHAKEN/STIR, the FCC’s program to combat robocalls and ID spoofing.  Currently gateway providers, essentially those that provider software interfaces that allow carriers to ’speak’ with each other despite different protocols, have been exempt from SHAKEN/STIR rules.  These rules require carriers to confirm the validity of a caller ID at its origination point and compare it to a list of known IDs.  If valid, the carrier adds an encrypted certificate to the call header that includes the carrier’s identity and a ‘trust value’.  VoIP software on the receiving end then checks the authenticity of the message by decrypting the certificate using the provider’s public key. 
Small carriers were given an extended period to implement the SHAKEN/STIR rules, which was recently shortened to accelerate the program, however gateway providers were given certain exceptions which the current proposed rules would end.  Gateway carriers have been the mechanism by which spoofers and robocallers have been working around the SHAKEN/STIR rules already implemented by large carriers, using the un-blocked gateways to enter US carrier networks.  By closing this ‘hole’ the FCC is hoping to reduce the number of illegal calls made from foreign countries to US consumers, which total over 125m/day, with consumers losing a bit under $2b each year to this type of fraud.
The new rules, if passed, would put the onus on gateway providers to participate in blocking programs, investigations, and overall mitigation, along with taking responsibility for robocall campaigns that occur on their networks, and non-compliance would result in that gateway’s removal from the Robocall Mitigation Database and would cause other networks to block calls from that gateway.  While not yet at the rule stage, the FCC is also reviewing a similar proposal for intermediate carriers who might sit between networks, who are not yet part of the SHAKEN/STIR requirements.  While such rulemaking has been around for years, little has actually been done to increase US and foreign carrier responsibility for robocalling and spoofing, so any rules that focus the carriers on the fiscal impact of not policing such fraud is a benefit to consumers, but the wheels of progress grind exceedingly slow, especially when they are government rules, and while the FCC has sanctioned and fined an increasing number of Robocallers based in the US, most of the calls originate overseas, which .
The FCC is expecting that cease and desist rules to foreign carriers will be honored with the threat of blocking, but if there is money to be made through scammer fraud, it is going to be hard to slow the tide unless those rules are carried out, and that becomes not only a carrier issue but a political one which can complicate enforcement even further.  It is a tough problem but a necessary one to address but one that has become so out of control that many US consumers no longer answer their phones unless the CID is in their contact list.  That’s a sorry state for any country to be in, especially one with a relatively sophisticated telephony infrastructure.  

Consumer Electronics is a broad category and from our perspective is no longer just focused on the hardware we use in our daily lives.  The category has become richer as the world of digital media has expanded, and as some might aver, we are on the threshold of another step function in the digital world with the popularization of the Metaverse.  Putting aside the ‘things to come’ refrain for a moment, we take a look at digital media as seen through the eyes of Deloitte, who summarizes digital media trends each year through a variety of consumer based surveys.  While we are always a bit wary of surveys, given that the survey format itself tends to color responses, they do give a bit of insight and interesting and surprising data relating to the long-term prospects for various forms of digital content.
Streaming video has become the standard-bearer for digital entertainment over the last 15 years, whether it is watched on a smart TV, monitor, laptop, tablet or phone, but at the same time has created an environment for consumers that has become complex and at times burdensome both from a source and a cost perspective.  The challenges of convincing the current generation of digital media users to abandon more traditional forms of entertainment have dwindled as the younger generation’s proclivity and appetite toward digital media is almost an inborn attribute, so SVOD suppliers are now trying to understand what they might face as that generation becomes their primary income source.
SWOD sources are in a competitive battle with social media where personalization is the mantra and algorithms are continually refined to include more specialized personal services than just entertainment.  This gives additional stickiness to those platforms with consumers and at little or no cost, while SVOD services push to monetize ‘new and exciting premium content’ that they know is just a short step away from what they have included in standard services in the past.  So while SVOD services capitalized on the ‘unbundling’ of cable services to gain viewership, social media is looking to capture eyeballs by essentially unbundling everything and providing content for free, albeit with a continual bombardment from advertisers.
While this competitive situation was already developing over the last few years, the COVID-19 pandemic accelerated that timeline as consumers were forced to shelter in place and became even more starved for the ‘companionship’ that the digital world can provide.  Concepts like the Metaverse, where consumers can wander through universes, real or unreal, through the anonymity of an avatar while sitting on their living room couch, now seem somehow plausible and an obsession with everyday folk dancing on TikTok has replaced watching cat videos to generate a bit of well-needed excitement.  But as the world begins to work through ways to control the COVID-19 virus and allows consumers the option to return to what was their previous ‘external’ life, will the momentum toward social media and a less social world remain, or will we revert back to  a less digital social life?
The Deloitte survey was conducted in December of 2021 and included 2,000 US consumers, along with comparative surveys in the UK, Germany, Brazil and Japan with the data being weighted nationally, with 5 generational categories as follows:

• Gen Z                    Born: 1997 – 2007            Age: 14 – 25
• Millennials           Born: 1983 – 1986            Age: 26 – 39
• Generation X      Born: 1966 – 1982            Age: 40 – 56
• Boomers              Born: 1947 – 1965            Age: 57 – 75
• Matures               Born: Prior to 1947          Age: 76+

 
Figure 1 shows the churn rate, meaning those US consumers that added and cancelled SVOD services during the past 12 months, broken down by age category.  With Gen Z and Millennials obviously the most prone to ‘gaming’ SVOD services, the churn challenges facing those providers will likely continue to increase as Gen X, Boomers, and Matures age out, but all is not lost for SVOD providers as those same younger generations are more likely to cancel services and then resubscribe, which is shown by country (and average) in Figure 2.  While Figure 2 is a bit of a positive for the SVOD community, churn reduces visibility and increases cost, so SVOD suppliers are looking for ways to keep subscribers from cancelling a subscription when the season for a particular show ends and resubscribing when the show begins its next season, a common practice.

One potential solution for SVOD providers would be to reduce streaming service costs by supplementing income from ads, similar to how social media supports itself.  The question is whether consumers who are paying for such services (as opposed to free social media) would be willing to agree to such plans and at what price point would it begin to alleviate ‘seasonal’ or other churn?  While Figure 3 gives some insight into the question, with the most ‘popular’ option being 12 minutes of ads per hour and no fee, we were surprised that the ‘no ads - $12 fee’ option scored almost as high on average.
Taking it a bit further the survey looked at some alternative options that might keep consumers from switching in and out of SVOD services.  These ranged from a typical ‘no ads or restrictions for an annual fee’ to ‘no option would keep the subscription’, with a few gradations between including ads, time restrictions for premium content, and delayed sports coverage.  Surprisingly the ‘no option would keep subscription’ scored the highest on average, with over 50% of consumers in Japan opting for that option and just over 40% on average.  Outside of the survey data shown in Figure 4, US consumers indicated that when thinking about cancelling an SVOD service, 37% would stay if they had access to 1st run movies and 34% would stay if there was a loyalty program, while more specifically, 51% of Gen Z and Millennials would stay if their SVOD subscription included a gaming or music service.
 

That last statement from Gen Z and Millennials seems to lead back to the somewhat obvious focus of younger generations toward gaming and social media content.  In regard to social media, the survey questioned respondents as to what they do on social media, and while other surveys we have seen seem tend to disagree at times, the use of social media to watch or read news is the largest category at ~38% on average, as shown in Figure 5, followed by listening to music at 30%.  There are certainly variations between countries, such as the difference between the US, where listening to music took the top spot at 28% and news was 2nd at 27%, and Japan where news was 52% and music was 29%.  Most surprising in this category was the low averages for playing games (19%) and watching sports (12%) but we note that the data here is across all age groups, rather than just Gen Z and Millennials.
One area that is, or should be of concern to SVOD providers is the content itself, as 70% of Gen Z and 66% of Millennials say they spend more time watching user-generated content than they planned to and 59% and 63% of those groups say they spend more time watching user-generated content than 6 months ago, while 56% of Gen Xers indicated that they watch more user-generated content than they did 6 months ago..  Even more consequential is that 57% of Gen Z, 60% of Millennials, and 45% of Gen Xers indicated that they spend more time viewing user generated content than TV shows or movies, which would be an important metric for the SVOD community to gauge the value of branded streaming content.
If the value of SVOD content is lessened by user generated content, meaning that of influencers who promote lifestyles and products, and businesses find increasing value in ads and retail sales surrounding that content, consumer spending toward SVOD services would decline and SVOD content creation budgets would be affected.  While this might seem a bit far-fetched 70% of US survey respondents indicated that they followed an influencer and 33% of those indicated that said influencers made a difference to their buying decisions, with that share increasing to over 50% for US Gen Z and Millennials.  That trend is certainly a global one with 88% of Brazilian respondents indicating they follow an influencer and 79% in Japan, so while SVOD providers compete with each other to create more valuable content, they are really competing with social media where advertisers and influencer sponsors can capture revenue from product sales and social media firms can garner higher advertising rates, but underlying all of that is the social connection that social media provides that is absent from most SVOD services, and we see this as most concerning when it comes to the aging of the Gen X and Boomer age groups. 
As the younger generations, who seem to be more oriented toward social interaction through digital media than physical social interaction, the trend away from SVOD services will likely continue unless changes are made to pricing and/or service content.  The logical progression in our view would be for SVOD providers to become more social media conscious, such as providing Twitch-like services that would allow SVOD users to watch content with friends, something gamers have been doing for years, changing content scheduling so as to offer similar popular content for a more extended portion of the year, or the ever popular loyalty programs that give subscribers free content if they remain a full year subscriber.  It will be a difficult battle for SVOD providers as they come up against changes in attitudes toward the value of SVOD content, and a tie to gaming would certainly help to maintain younger subscribers, but the real question will be whether SVOD providers understand that while they were the successful radical alternative to cable’s service bundles, social media is heading toward being the radical alternative to SVOD and video content providers must change or accept a far more competitive and less profitable environment.

​While Huawei (pvt) and ZTE (000063.CH) have already been sanctioned by the US government over alleged collusion with the Chinese government, there are a number of Chinese smartphone and telecom companies that have not, some of whom sell products in the US and Europe, but there is the possibility that new sanctions might be imposed on some Chinese brands as they sell products into Russia during the Ukraine invasion.  The Chinese government has taken the stance that it does not believe that sanctions against Russia have any basis in international law and will create more problems than they solve, leaving Chinese smartphone producers to continue to sll product in Russia.
Russia’s largest mobile operator MTS () has indicated that sales of Huawei smartphones jumped 300% during the first two weeks of March, along with triple digit growth from Chinese brands Oppo (pvt) and Vivo (pvt).  While these brands are hard to find in the US, Oppo and Vivo are both typically found among the top 5 brands globally, so the possibility of US sanctions, which would preclude any company (globally) from producing or selling same if they are produced with any US equipment or software (hard to imagine that is not the case).  If the US were to sanction these companies for selling in Russia, it could create a very difficult business situation among US supporters in Europe and Asia.  That said we have seen a number of companies in the US that have indirect ties to Russia be criticized and social media will continue to press those connections.  While sanctions against Russia make us feel that we are doing something for the people of Ukraine, they have implications that wind even more deeply through the US economy and the US political system.  It’s complicated…

​The US Department of the Treasury has designated 21 entities and 13 individuals to Executive Order 14024, which allows the treasury to impose sanctions on any entities or individuals that are deemed to be attempting to evade sanctions placed on the Russian Federation, which in this case would would be supplying or financing Russia’s invasion of Ukraine.
In the technology space a St. Petersburg software and communications company that supports the Russian Liana satellite network that has been used to track ships, aircraft and ground vehicles during the invasion has been sanctioned, while T-Platforms (pvt) a supercomputer developer that was originally on a similar list but was dropped at the company’s request, was put back on as they are suspected of having developed a supercomputer center for the Russian military.
Likely most significant is Mikron (pvt) a subsidiary of RTI Systems (pvt) one of Russia’s largest defense contractors.  The company produces Power Management ICs, a number of discretes, and IoT sensors and systems.  According to the DOT Mikron is responsible for exporting more than 50% of Russian microelectronics and is the largest chip producer in the country and the only Russian producer at 65nm.  The focus of the sanction is the company’s development of a domestically produced chip for the Mir payment card system.  The State Research Center of the Russian Federation Central Scientific Research Institute of Chemistry & Mechanics was also added to the list for their part in developing a tool that was responsible for the August 2017 cyber-attack on a Middle East petrochemical facility, known as Triton (aka Hatman), and while the center has already been sanctioned back in 2020, the DOT is adding a number of employees who were present during the 2017 attack, as they have continued to  support and conduct further attacks at energy facilities in the US and other countries
The new sanctions expand coverage by the DOT to the aerospace, marine, and electronics sectors with the intent of imposing economic cost on the country for its entry into Ukraine and is added to other designated sectors such as financial services, technology, and defense.  The sanctions imposed are to block all property and interests of same in the US and to prohibit all transactions with US persons or in the US by any of the companies or individuals.  Here’s the link to the full list.

​In late 2020 a new UK based brand known as Nothing (pvt) was formed with seed round backing from a Who’s Who of CE industry names including Tony Fadell (Apple team leader for 18 generations of iPod and 3 generations of the iPhone), Steve Huffman (CEO of Reddit (pvt), Kevin Lin (COO of Twitch (AMZN)) and a later round with a collection of highly visible former athletes, DJs, and influencers, along with an investment from Google (GOOG) Ventures totaling ~$143m.  To date, the company has released one product, a $99 Bluetooth earbud, compatible with Android and iOS that is ‘carbon neutral’.
Yesterday the company announced plans to release its first (and highly anticipated, according to the company) smartphone product based on the ‘Nothing OS’, an Android based system that “…captures the best features of pure Android, distilling the operating system to just the essentials, where very byte has a purpose…”  The OS will be launched in April while the phone release date has not been given.  A 27 minute “Truth About Nothing” promo spends most of the time explaining how excited the company is to be the innovator for new technology, but in the last few minutes gives a few hints as to what they are eventually going to release.
A number of references toward Apple’s ‘closed’ ecosystem and how that limits innovation were made while promoting the benefits of using the vast number of Android applications that are already available, but again specifics were again thin.  A bit of color was given on apps that might reside on the phone itself, but it seems the real objective is to use the Nothing OS to connect to a wide variety of other CE products, both Android and iOS which would be a valuable product if it is truly compatible with both.  We are sure Apple will have some say about the value of its control over the quality of Apple products, while Google is usually happy to promote anything that is Android related.
We expect much of the upcoming focus will be on the Nothing phone (due out in the summer?) but the real key to the company’s survival will be the OS, where many much larger and more financially able companies have tried and failed.  That said, we reserve judgement until the OS is released and we can get a better picture as to how it might work with other devices.  The phone will likely be a slick and hip new entry into a market of bland new models, but we hope that the promo’s lack of detail and unfocused objectives do not portend another iPhone clone.

Neon lights have been around since the 1920’s and while neon glows red/orange and other gases are used for other colors, “neon lights” are more a generic term than one specific to a particular color, and by the 1940’s neon lights were so popular that even small US towns had at least one neon sign hawking something on Main Street.  That said, ~70% of the neon gas currently produced globally is used in the semiconductor industry, specifically for excimer lasers used in DUV (Deep Ultraviolet) stepper photolithography down to the 7nm node, and Lasik eye surgery. So why do we mention neon? Because the Ukraine is the world’s leading producer of neon gas (~50% share) and the war with Russia has increased the concern that the gas will be in short supply.
Neon gas is found naturally in the air but at only 18.2 parts per million and is a byproduct of a process that removes oxygen from the air.  As the oxygen is removed through liquification, a neon and helium (NHM) mixture must also be removed, but in order to move the NHM from 30% - 40% purity to the 99.999% needed for commercial use, the energy cost is so high that only the largest facilities can do so profitably, with smaller plants just releasing the NHM into the atmosphere.
As the lasers[1] are used the neon degrades, introducing impurities which affect the performance of the laser and the neon has to be partially or fully replaced after a few weeks. During the 2015/2016 unrest in Ukraine laser designers at companies like Cymer (ASML) and Gigaphoton (631.JP) found ways to reduce gas consumption, stretching the replacement intervals by modifying the injection software, but the only long-term solution has been to recapture the ‘used’ gas in tanks under the floor of the fab and eventually filtered and returned to the laser, and this process has an efficiency of between 85% and 92% and is more energy efficient than producing ‘fresh’ neon.
The problem with the recovery/recycle process is that the lasers must be designed to take advantage of such a system and that production must stop in order for the cleanroom to be fitted with the recovery tanks, so in many cases, even with the price of neon increasing, it is more cost effective to buy new gas rather than convert to recycle/recover for smaller companies, especially when utilization is high.   The wholesale price of neon has jumped from 1,850 yuan (~$290/ft3) on February 24 to 16,000 yuan (~$2,511 US) on March 17, when both major neon producers in Ukraine shut down[2], after a previous increase between October 2021 and February from the equivalent of $62.77.  This makes the economics for recovery a bit different, especially if semiconductor manufacturers did not have strong ties to Chinese neon producers as a secondary source of the material, but with semiconductor demand at such a high point, it is still questionable as to whether fabs can take down production to make such changes at this point


[1] Typically Argon Fluoride lasers, which are made up of 95% neon despite the name.

[2] Ingas is in Mariupol and Cryoin is in Odessa.

Over the last few years we have noted some of the more extreme changes in CE material pricing and given the new geopolitical environment we are currently in, we thought it important to take a quick look at the pricing of a few of the more important metals used in CE products.  The Russian-Ukraine war has obviously caused spikes in many commodities, some of which have been facing increases due to COVID-19 and the supply chain issues it has caused, but while the three shown below have seen big price increases due to the recent hostilities in Europe, two of the three have already begun to subside and while they will likely take time to stabilize as US and European sanctions against Russia continue, the spot price extremes will likely dissipate. 
That said, the increased tension could leave the previous increases intact and set a higher average until real demand begins to return to more historic levels, which we would have expected around mid-year 2022 for many CE products before the hostilities.  We expect safety stocking will continue to keep price momentum upward until some real signs of a cease-fire or negotiations are seen, but the glass half full view says if this had happened in the 3rd quarter of this year when production begins for the holidays, it could have been much worse.