As we have noted the Indian government has been and continues to try to attract both display and semiconductor companies to build production facilities on the sub-continent, offering a number of financial incentives that are meant to lessen the burden of such build-outs.  To date the country has been essentially unsuccessful in their attempt to entice front end producers, although they have been able to attract CE device assembly companies who put together phones for Apple (AAPL) and Samsung (005930.KS), which are sold both locally and to customers in SE Asia.  However India faces some real problems attracting more basic CE production in that much of the surrounding CE infrastructure would have to also be built out, and the skill level of employees is not high enough to support those production facilities without importing significant talent from home countries.
If those obstacles were not enough the Indian government is planning to develop an indigenous mobile operating system to compete with Android and iOS in order to further its ‘Digital India’ plans, although we find it hard to understand exactly how an in-country OS would encourage front-end spending, particularly as Apple is the sole supporter of iOS.  Perhaps the country’s investigations into Google (GOOG) and Apple relating to application payment systems makes them believe that they could provide a less expensive or more robust system on their OS, but first they would have to convince developers to adopt the new OS and either port existing applications or write new ones exclusively for the new OS. 
While we are usually skeptics when it comes to plans for rebuilding what has already been built, it could work, but the odds seem small when looking at the number of mobile operating systems developed by such as Microsoft (MSFT), Samsung, Blackberry (BB) all of which have been abandon, along with dozens of others that most would not recognize.  Of course, a self-developed OS could be tailored to Indian social proclivities, making it more attractive to 1.4b Indian residents, but the country already has a few ‘local’ variants that operate under Android, none of which have achieved traction, and undertaking a full OS development is a much larger task.
As seen in Figure 2, the dominant mobile OS is Android, along with iOS represent 99% of the Indian mobile OS market, so it might take some time to unseat such an entrenched user base if potential users could be convinced to switch, with much resting on whether other applications can be ported or new ones developed, all of which will depend on the new OS and how easily developers can make such changes, but in the long run it seems very counterintuitive to set out to spend R&D dollars building what has already been built.  A company like Huawei (pvt), with vast resources and IP had little choice when it was forced out of the Android world, and the company, even if successful with its Harmony OS, would likely be limited to use in China, which means in the long-run it will probably wind up on the list of mobile operating systems that are no longer in use, like Symbian, Blackberry, Firefox, WebOS, Windows Mobile, and Windows Phone, all of which were developed by companies with considerable mobile experience and resources, some of whom had or have a very large installed base.  Rupees well spent?
 

Each year “Twice” (aka This Week in Consumer Electronics) hands out awards, particularly ‘Picks’, the best and most influential consumer technology at CES 2022 (their words), but more important are the awards given for top CE brands, as judged by brand strategy experts, managements of top industry brands, ‘authoritative 3rd party organizations’, and renowned media in the industry (again their words), with criteria including brand strength, overseas sales, global share, export value, promotional budget, patents, and brand innovation  With all of that out of the way, here’s he list for 2021/2022, which is just a snippet from the full list of 50.

More interesting is the list of top 10 TV brands and top 10 smartphone brands that are more representative of the CE space as we see, rather than the broader CE space that the magazine sees.  While Samsung and LG still hold the top two positions Chinese TV brands hold 5 positions and Japan 2 positions, but in the smartphone arena Chinese brands hold 7 of the top 10 spots.  While these lists are not based solely on financial or unit volume results and are qualitative in nature, they do reflect the nature of both CE segments and how, despite attempts to reduce China’s influence by the US government, China remains a significant player in almost all of the global CE markets.  Whether it is good promotion or value oriented products, the battle continues...  

Other than as to how coal might limit power generation and therefore cause mandated blackouts as it has in China, we don’t really track coal resources, but we do for some of the metals that are commonly used in consumer electronics.  What brought coal to our attention, other than the China situation, was the fact that the Indonesian government has issued a ban on coal exports, which began on January 1 and continues through the end of the month.  Indonesia was the 2nd largest coal exporter in 2020 behind Australia, and that year exported 17.6% of total coal exports.  The export ban was instituted when mines failed to meet a government requirement that 25% of their annual production must go to the state-owned electric company PT PLN at a maximum price of $70/ton.  By halting coal exports the government is trying to ensure that domestic power generation will continue uninterrupted.
In itself, the Indonesian coal export ban is only tangentially relevant to the CE space, however this week the President of Indonesia indicated that it is reviewing export restrictions on other mineral resources, with indications that copper and bauxite (85% of bauxite is converted to aluminum) among the one being considered.  While these metals are well traded on a number of exchanges, lessening availability issues, copper is up 6.9% over the last 30 days and 26.5% over the last year, while aluminum is up 13.0% over the last 30 days and up 48.2% over the last year.  Indonesia was the world’s 6th largest copper exporter in 2020 with a 4.2% share and the 5th largest bauxite exporter last year, so such potential bans would only serve to tighten the market further and add to the rising cost of CE products.
While the Indonesian coal mandate seems plausible in order to maintain a consistent supply of power across the country, limiting the export of metals like copper and aluminum seems considerably less so and more of a political issue, but we already hear that some of the countries that are major producers of CE products are looking to diversify their copper and aluminum import sources to avoid being caught in any new restrictions  The Indonesian ban on coal exports is in place but others are still in the realm of political rhetoric and speculation, so we expect it is doing little other than upsetting the Indonesian mining industry and pushing some importers away from Indonesian suppliers.  Maybe the end game in the government’s mind is to ratchet up prices for the country’s natural resources, but price elasticity is funny in how it tends to even things out in the long run, while politicians tend to be relatively short-term.
 

We don’t usually mention automobiles in our CE notes, but we do mention teardowns when they are available, particularly if they include a BOM.  In the case below, a Japanese professor at Nagoya University and his team were curious about the world’s most popular EV, the Wuling Hongguang MINIEV, which returned to the number one position, beating the Tesla () Model Y in sales during October.  Given the extent of the Japanese automotive industry, the professor and his team (the Power Electronics Research Laboratory) decided to dismantle the MINI EV (aka “Froggy”), which is produced by SAIC (600104.CH)-GM (GM)-Wuling (305.HK), a JV between the three based in China, and sells for between $4,100 and $6,200.  The professor was curious as to how the company could produce such a popular car for such a small amount of money.
After dismantling the vehicle the team found that a number of systems that are common to pure electric vehicles were not present.  In most EV’s there is a brake energy recovery system that converts the thermal energy produced by braking into electrical energy and stored in the battery to extend the vehicles cruising range.  As this was not present in the MINIEV, its range is limited to a bit over 100 miles, limiting it to local use, however it also reduced the cost by ~$380.  The water cooling system usually found in EVs was also eliminated in favor of an air cooling system and the Inverter, which converts DC power from the battery into AC for the motor, has a lifetime of ~8 years or ~75,000 miles as opposed to a more typical 20 years and ~125,000 miles.
While the elimination of such sub-systems goes toward reducing costs, the real gains are made by using off-the-shelf parts, which do not require special development costs.  Many of the parts used meet household appliance standards, not more reliable automotive standards, so while the cost is low, the vehicle is more likely to fail.  In order to compensate for the higher potential for maintenance problems, the company has put the more delicate components in modules, which make their replacement considerably easier, albeit a bit more expensive.
In terms of the overall cost of the vehicle, the team found that the cost of the battery system alone accounted for just under half of the cost of price of the vehicle, and even the Chinese government could not rationalize the losses being generated by some of the vehicle’s suppliers, given its robust sales.  Inquiries into those supplying motors found that the ~$3.01m in sales had generated only $415,000 in losses, which were such a small part of the company’s business that they made little difference.  The government asked that supplier make sure investors were informed of the potential risks, while the suppliers extolled continuing increases in sales, ‘ushering in a booming development opportunity.’
However, when it came down to the actual BOM, from the manufacturer itself, the total profit for the vehicle came to less than 89 yuan, which is the equivalent of $13.96 currently, a rather thin margin, which was similar to an estimate made by a person said to be close to the manufacturer, who pegged the profit at 100 yuan, or $15.69.  The vehicle, considered the least expensive pure EV in China and the most popular, is quite popular among the under 30 set and has become a bit of a fad, with many owners modifying the car to stand out graphically.  Comments from owners indicating that there are few chances to buy a car for the price of 3 iPhones, seems to indicate that the demand, regardless of the potential limitations, will remain, but the real question is how long can the company continue to produce such vehicles at such a small margin.
 

​Influencers are an integral part of e-commerce, whether you believe in them or not, and live streaming events by influencers can be a way for companies to sell lots of items in a very short time.  There is little that is not sold this way, from makeup to bananas, but can influencers sell financial products the same way?  They do, and because of the popularity of such events, the Chinese government has ‘proposed’ new rules regarding the sale of financial products by influencers that are not licensed or regulated.
The new rules, which are expected to go into effect after a public comment period, not only make it illegal for influencers and celebrities to aggrandize financial products but now make it illegal for them to sell banking, insurance, and securities services on-line unless they are appropriately licensed, ending a lucrative business that has flourished in China over the last few years and given celebrities a second income source.  Chinese government regulators have been watching the sale of such products online for a number of years with a 2020 notice by the Chinese Banking & Insurance Regulatory Commission highlighting fraudulent and misleading claims by unlicensed celebrities on the internet, but have left the online market untouched until now.  If this trend is picked up in the US, does it mean that Tom Selleck will not be able to hawk reverse mortgages online? 

​5 Year Plans are big with the Chinese government and the Japanese press has indicated that the Central Cybersecurity & Information Committee of the Communist Party of China (CCICCPOC?) has announced their 5 year plan for strengthening its competitiveness and building a national information plan under the auspices of ‘enhancing the convenience of the people through the advancement of information technology.”  Among the plan details are to increase the number of Chinese internet users from today’s 989m to 1.2b by 2025, which would be an increase in penetration from 15% to 56% over the same period, and to increase the revenue generated by e-commerce from the current $1.846t to 2.67t, a ~44.6% increase.  The plan also focuses on improving both government efficiency and corporate digital competitiveness, by increasing the percentage of permits issued by provincial level governments from 80% currently to 90% in 2025, and increasing the R&D expenses in manufacturing sales from 2.35% in 2020 to 3.2%. 
The plan also emphases speeding up the establishment of an IoT network that connects 5G mobile communication systems with automated driving, energy, and medical services, which it will eventually connect to domestic GPS systems, which would allow ground based sensors to communicate directly with drones and surveillance systems, essentially converging big data, IoT, artificial intelligence and surveillance cameras as part of an anti-terrorism network, a bit more dystopian than one might expect in a 5 year plan.  However the underlying principal is based on the simple comment by China’s General Secretary Xi Jinping, who stated “There is no modernization without information.”
While most folks believe that Chinese cities are the ones with the most surveillance cameras, it turns out that the two cities with the most CCTV cameras/km2 are Chennai and Hyderabad, India, with 657 and 480, which comes to one camera in every 131 ft2. or one camera for every 39 people in the city.  The Chinese city with the most CCTV cameras is Harbin, with 411/km2, while Beijing is 10th with 278/kn2. (London is 4th at 399/km2).  As China’s implementation of facial recognition has allowed it to build a vast facial database, the use of such data has been part of the government’s ‘blacklist/whitelist’ social programs that can go as far as matching faces on jaywalkers or those that eat on public transportation, and then blacklist them, which limits their ability to travel and can go as far as alerting residents near an offender, asking them to turn in the blacklisted resident.
While there have been legitimate court cases in China that placed limitations on the use of facial data in a number of circumstances, particularly by private companies, the government has access to that database and can use it for whatever purposes it desires.  All in, building out IoT infrastructure has a bit of a different meaning in China than it does in the US, at least for now, and does not quite seem to be only for ‘enhancing the convenience of the people.”

​Magnachip (MX), a top 5 producer of display driver ICs, has officially ended its merger deal with Wise Road Capital (pvt).  The $1.4b deal for Magnachip has met with opposition from various US and foreign government agencies, who see the merger as a way for China to gain access to US semiconductor technology.  In particular, the US Committee on Foreign Investment (CFIUS), run jointly by the Department of the Treasury with members from a variety of US government departments, put the deal on hold in June to examine details further, with the Treasury Department indicating that the deal was at risk in August.  Without the CFIUS approval, the deal could not be completed.  As part6 of the merger deal Wise Road is required to pay Magnachip a total of $70.2m, $51m to be paid immediately and the rest by the end of 1Q 2022. 

With the specter of a new COVID-19 causing renewed concern over logistics, we put together a set of charts showing the new COVID-19 infection rate (per 1m persons) in a number of countries that are key to the consumer electronics space.  We were surprised at the marked differences between just these few countries, although we remain quite suspect about the data from China, which at 18.3% of the global population, would likely be just a bit closer to the global average of 89 new cases/day/mil.  At 0.066 new COVID-19 cases/mil, they are either doing a fantastic job at containing the virus or have been under reporting since the disease’s onset.  Not that we have any special insight there, but based on the country’s lack of media transparency, we lean to the latter, to say the least.
What started this COVID-19 recheck was the implementation of strengthened quarantine guidelines by the government of South Korea, where the new case rate has exceeded all-time highs.  This prompted Samsung Electronics (005930.KS) to further restrict overseas travel, suspend indoor and outdoor sports, including in-house fitness programs, limit private gatherings, and ban drinking parties known as Hoesik, an integral part of socialization in Korean business culture.  Business travel was restricted to ‘managementally essential’ trips and all travel to the nine countries where the Omicron variant first occurred was banned completely, while the ratio of work-at-home time was raised from 30% to 40%+, with only those fully vaccinated being able to attend meetings, events, or training sessions, including visitors to the company.

The US Bureau of Industry & Security, a division of the US Department of Commerce, has added 27 companies to the US ‘entities’ list that specifies those companies that “have been involved, are involved, or pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests of the United States.”  Once included in the list, any company wishing to do business with same is required to submit an application for a special license, which would be reviewed and either granted or denied by the ERC (End-User Review Committee), under a policy of presumption of denial (their words).  The new ‘entities’ are as follows along with the violation that put them on the list:
China

• Corad Technology (Shenzhen) Ltd.; (Said to have sold US tech to Iran Military and North Korea)
• Hangzhou Zhongke Microelectronics Co., Ltd.; (Association with the People’s Liberation Army)
• Hefei National Laboratory for Physical Sciences at Microscale; (Attempting to acquire US items for military applications)
• Hunan Goke Microelectronics; (Association with the People’s Liberation Army)
• New H3C Semiconductor Technologies Co., Ltd.; (Association with the People’s Liberation Army)
• Peaktek Company Ltd.; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• Poly Asia Pacific Ltd., (PAPL); (Contributed to Pakistan’s unsafeguarded nuclear activities)
• QuantumCTek Co., Ltd.; (Attempting to acquire US items for military applications)
• Shaanxi Zhi En Electromechanical Technology Co., Ltd.; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• Shanghai QuantumCTek Co., Ltd.; (Attempting to acquire US items for military applications)
• Xi'an Aerospace Huaxun Technology; (Association with the People’s Liberation Army)

 

• Yunchip Microelectronics. (Association with the People’s Liberation Army)

Japan

• Corad Technology Japan K.K.

Pakistan

• Al-Qertas;

• Asay Trade & Supplies; (Contributed to Pakistan’s unsafeguarded nuclear activities)

• Broad Engineering (Pakistan); (Contribution to Pakistan’s Ballistic Missile Program)

• Global Tech Engineers; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• Jade Machinery Pvt. Ltd.; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• Jiuding Refrigeration & Air-conditioning Equipment Co (Pvt) Ltd.; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• K-SOFT Enterprises; (Contributed to Pakistan’s unsafeguarded nuclear activities)

• Muhammad Ashraf; (Procuring items without EAR license)
• Muhammad Farrukh; (Procuring items without EAR license)

• Prime Tech; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• Q&N Traders; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• Seljuk Traders (SMC-Private) Limited; (Contributed to Pakistan’s unsafeguarded nuclear activities)
• U.H.L. Company. (Contributed to Pakistan’s unsafeguarded nuclear activities)

Singapore

• Corad Technology Pte Ltd. (Said to have sold US tech to Iran Military and North Korea)