As the largest TV set manufacturer, Samsung Electronics (005930.KS) tends to set the tone for the space each year, usually with announcements at the Consumer Electronics Show in Las Vegas, which begins tomorrow.  That said, many company pre-emp their booths at the show by pre-announcing a bit about what they are going to announce at the show, and Samsung has done so.  While much of the details will have to wait until the show is underway, Samsung did make available a few details as to how its TV line will look heading into 2023. 
We note that predictions for the TV space in 2023 are just beginning to be forecasted and a few targets are being bandied about, but after the tumultuous year the CE space faced in 2022, we and others seem a bit more cautious about making predictions this early in the year.  Excluding our own forecasts, which we have yet to make, the general tone for the TV set industry is looking flat to down slightly, and has the potential to fall below 200m units for the first time since 2017, but TV set brands are a confident lot, especially this early in the year, and are making plans to build up their consumer TV offerings as they do each year.
Samsung Electronics does have some problems in the TV set space, particularly when it comes to OLED TV, where fellow South Korean competitor LG Electronics (066570.KS) and its display LG Display (LPL) dominate the OLED TV space.  As Samsung Display (pvt) decided many years ago (2013 to be exact) that it was not economically feasible to produce OLED TVs using the same production methodology it used to produce OLED smartphone displays, it abandon the production of OLED TVs, eventually backing the use of quantum dots to enhance the company’s existing LCD TV technology.  Samsung Electronics championed QDs and adopted it across a wide swath of its LCD TV line over the years and has since added Mini-LED backlighting to its higher end models, but lacked a TV set that could compete directly with LG’s OLED TV set line, which has been gaining traction as LGD slowly added capacity.
This changed in 2020 when Samsung Display began developing production capabilities for an OLED TV of its own, but not using the same technology as used by LG.  LG Display’s OLED technology, known as WOLED, is based on a layer of yellow/green phosphorescent emitter material combined with a blue fluorescent emitter material.  These materials are coated on a TFT (Thin-film Transistor) backplane and covered with a color filter, essentially a sheet of red, green, and blue phosphor dots.  The white light created by the emitting material passes through the color filter, with each red, green, blue or ‘blank’ phosphor dot filtering out the remaining colors to produce red, green, blue, and white dots for each TV pixel, which each being controlled by the TFT structure below the emitting material.  One big drawback of this process is that using a color filter is a subtractive process, as, for example, the red phosphor in the color filter blocks the blue and green light that make up white light, which means the brightness of each pixel is severely reduced.  LG compensates by adding a transparent dot as part of each pixel, letting the unchanged white light through and adding to the pixel’s brightness, but while this helps the set’s overall brightness, it reduces the overall color intensity.
Samsung Display found that using a similar emitting structure, blue fluorescent and green phosphorescent emitters coated on a similar TFT backplane, instead of using a color filter, they could use quantum dots to convert what is blueish/green light to red, green and blue sub-pixels without much of the brightness and color loss.  Quantum dots, rather than filtering out colors, ‘shift’ the frequency of the light, so the red quantum dot took the blue/green light and shifted it to red, while the green and blue quantum dots shifted the light to those primary colors, with no need for a white sub-pixel.  The result is a TV with a more vibrant color palette, with the potential for a brighter set.
There has been a problem however, which is that LG Display has been producing WOLED TV displays for 10 years, while Samsung Display is still in what would be called relatively small scale production and that is a problem for Samsung Electronics, who needs more QD/OLED volume than SDC can produce if it is to have a significant place in the Samsung TV lineup.  Given that 2022 was really the first year of production for SDC’s QD/OLED display line, decisions as to building out new capacity needed to be based on consumer acceptance of the product, and while said displays and TVs received positive reviews, it was a terrible year for the TV set business and capacity increases were low priority.  Parent Samsung Electronics even went as far to bargain with rival LG Display over the purchase of millions of WOLED TV panels to fill out the 2022/2023 Samsung TV line, but negotiations did not resolve outstanding price issues and no agreement was made in 2022.
As Samsung Electronics begins to reveal its TV set plans for 2023, they have indicated that they will be expanding their QD/OLED TV set offerings by adding a 77” model to the existing 55” and 65” models[1] that were offered in 2022.  This was an inevitability, as premium size (>65”) TV sets continue to gain in popularity and tend to carry a higher premium than smaller sets, but indicates two things.  First, a bit more confidence in the technology by Samsung Electronics, who, at times, seemed less than enthusiastic about QD/OLED, and second, that Samsung Display has brought its yields up enough to be able to allocate some production time to 77” panels, which will likely have lower yields, and can still meet 55” and 65” QD/OLED goals, both of which are important to the decision to increase QD/OLED capacity in 2023.
In the first table below we show Samsung’s 2022 and potential 2023 TV line-up based on size.  77” models are expected to be added to the QD/OLED line and potentially the Micro-LED TV line, while there is some speculation that Samsung will add a number of ultra-large sizes to the Micro-LED line, although we expect there is currently little need for those sizes given their very high cost and the marginal sales of the ultra-large Micro-LED line overall.  One point that should be noted is that Samsung is now moving from Micro-LED TV modules based on PCB boards to TFT and Micro-LED placement on glass substrates. 
This new modality is considerably closer to the more typical TFT processes used in OLED and LCD TVs, and can reduce the cost of smaller sets, eventually putting them in a range more amenable to consumers.  We note also that Samsung has been reducing the size of each Micro-LED structure, enabling the higher resolutions needed for smaller consumer sets.  The 146” set that was shown in 2020 had a chip that was 125um x 225um which was reduced to 75um x 125um in 2021 for the 110” demo.  The 89” model is expected to have a chip size of 34um x 85um, which is a 69% area reduction in pixel size, although we note as Micro-LEDs get smaller it becomes more difficult to move them from die to substrate, so there is a trade-off as pixel size is reduced.
While the 2023 Samsung TV line does not have any major technology changes, at least at this pre-show point, it does show some progress on Samsung’s push toward Micro-LED, which remains a few years off for consumer TV products, and sets a decision point for QD/OLED.  QD/OLED capacity as it stands, is too small to be a true TV set price tier placeholder, so a decision as to whether to add capacity must be made soon.  Samsung continues to support quantum dot technology, which it has spread across almost all of its TV line, and can even be used as a simplified color conversion techniques for Micro-LED, but Samsung needs to compete with LG’s WOLED TV line, with the most likely candidate being QD/OLED, which would mean a more serious commitment to the technology at a time when capacity expansion projects are being postponed or eliminated.  Samsung has made such commitments during difficult times in the past, but the alternative would be to buy OLED TV panels from LG Display which leaves little product differentiation.  We expect Samsung to begin adding additional QD/OLED capacity before mid-year.


[1] SDC also produces a 34” QD/OLED display for monitors.

As we mentioned in our12-05-22 note, Samsung Electronics (005930.KS) has been conspicuously absent from the AR/VR world and seems to be looking toward the necessity for an application that would drive consumers into the space before making a major step into the AR/VR hardware business.  That said, Samsung has been developing and to a lesser degree marketing, Micro-LED technology, which is the use of very small LEDs as display emitting sources.  While Micro-LED technology is thought to be the ultimate replacement for LCD and even OLED display technology years down the road, it is currently a work in progress, and still faces some major issues that limit its use and maintain a high cost.  While that development will continue, Samsung Display (pvt) is taking its expertise in OLED display technology and moving toward another display venue.
SDC is beginning to take steps toward the mass production of Micro-OLED displays.  Micro-OLED displays use existing OLED technology, that of phosphorescent and fluorescent emitter materials, but with unusually small pixels that are densely packed in a small space..  There are theoretically two ways in which Micro-OLEDs can be used, the first being with an OLED emitter (or combination of emitters) that produces a single color and is then passed through a color filter that breaks the light into red, green, and blue components, similar to the way and OLED TV works.  The second is a using three OLED emitters (RGB) that are individually controllable and therefore do not need a color filter, similar to the way a smartphone OLED display works.  What makes these displays different from typical OLED displays is that they are built on silicon substrates, where larger OLED displays tend to be built on glass or flexible polymer plastics.
The OLED/Color filter path for Micro-OLED is being championed by Sony (SNE), who produces such displays for camera electronic viewer, HUDs, and AR/VR devices.  The display shown below measures 0.64” (Diagonal) and has 3,145,728 pixels squeezed into a display that is 0.512” x 0.384”, representing ~4,000 pixels/inch, with each pixel being spaced 0.0064mm apart (on center).  While this might sound like overkill, in a VR application the display is almost touching your eye, so if the pixels were not so closely spaced, the user would see gaps between the pixels, creating what is called the ‘screen-door’ effect

The problem is however, that using a color filter to create colors means that much of the light energy is eliminated, either reflected away from the user or absorbed, reducing the overall brightness of each color and the overall display, so Samsung Display, the global leader in RGB OLED displays for smartphones, is looking toward creating RGB Micro-OL:ED displays that contain a red, green, and blue sub-pixel within each pixel, and therefore does not need a color filter.  As can be expected however, these sub-pixels must all fit within the space of a pixel, which makes their deposition even more difficult and precise than that of the OLED/Color filter process.  It seems that while Samsung Electronics is still trying to find a key that will unlock consumer interest in AR/VR, Samsung Display, an affiliate, is thought to be taking the Micro-OLED concept a bit further.  

​Samsung Display is said to be developing a Micro-LED pilot line at its A2 display fab in Asan, Korea.  According to local sources, the company has ordered panel logistics systems from SFA (036540.KS) and glass encapsulation tools from AP Systems (054620.KS) for the pilot line that is expected to go into limited production toward the middle of 2023.  If successful, SDC will allocate funding for the construction of a small mass production line in 2024 that would be built to handle 6,400 sheets/month at the onset.  While we do not yet know the details of the intended product line, we expect the ultimate objective is to produce an RGB Micro-OLED display that will be used in commercial AR/VR applications, likely by Samsung itself, or sold to other customers, and with Apple (AAPL) expected to release an AR/VR device in 2023 or 2024, SDC is looking to develop a high volume mass production line that will feed the Apple AR/VR supply chain, especially given that Sony is expected to be the supplier for the initial Apple AR/VR product.
We note that creating OLED Micro-displays using the OLED/CF process is difficult, but the process of placing three separate OLED emitters in each pixel makes the RGB Micro-OLED process even more difficult, and SDC will face a number of challenges for which it must find solutions that can be scaled to mass production if these displays are ever to be within the cost demands of high volume consumer devices.  There are only a few manufacturers that can produce OLED Micro-displays, a number of which are large enough to be recognized by investors, such as China’s BOE (200725.CH), E-Magin (EMAN) and Sony, however others are far less recognizable, especially those based in China, such as SeeYa (pvt) in Hefei, Sidtek (pvt) in Wuhu City, Olightek (pvt) in Kunming, and Microoled (pvt) in Grenoble, all of whom have at least some product in the market. 
That said, this is still an evolving product segment and is driven on the technology side by higher resolution, higher brightness near-eye display improvements, leading to headsets and devices that are less bulky and cause less fatigue and stress.  But while the near-eye display industry continues to develop, and the two biggest CE players have not yet participated, the need for application driven demand is the industry’s major growth stumbling block.  Gaming is certainly a driver for the VR space and continues to evolve, but the metaphor of the ‘metaverse’, Meta’s (FB) hope for the future, is not enough to drive the high volumes needed for major CE companies to enter the market.  Meta has been on a costly quest to convince the world that the metaverse is other than a way to sell you something and collect user information but lacks a real application driver to attract consumers.  We expect the technology side of AR/VR displays to develop more rapidly in 2023 and 2024 but the application space will be the true driver for pushing AR/VR more quickly into the CE space.  Without application drivers, we expect the overall development of AR/VR to progress relatively slowly, likely falling behind expectations.

​As the 2nd largest CE company globally, Samsung Electronics has considerable influence over the direction of consumer products and CE technology, yet when in AR/VR circles, little is said about Samsung’s efforts, with much attention given to Meta (FB), who dominates the VR hardware space, and Apple, whose intentions for an Xr device in 2023 or 2024 seem to be well-known to all.  Yet Samsung has been working in the shadows toward developing an AR/VR business plan, although from a slightly different angle than one would expect.
Rather than rush to market with a consumer oriented AR or VR device, Samsung is taking the path of building an AR/VR ecosystem, and working to entice software developers to work with the company, rather than flooding the market with devices and hoping that they become dominant enough to become profitable.  This strategy is a bit different from Samsung’s foldable strategy, which was a race to become the first to commercialize such a technology, given a relatively open field and a well-understood smartphone market.  AR/VR, especially VR, is a new market and one that has considerable issues as to its growth path.  With Meta the dominant player, Samsung would be a catch-up company, having to spend vast sums to advertise that it has the ‘best’ device in the market, and no assurance that the market would accept that notion.
Instead, Samsung seems to be developing an ecosystem around the potential AR/VR markets, starting with a developer system assumedly next year, and aligning the direction of its affiliates and suppliers toward being able to provide as much of the potential ecosystem it would need for a high volume AR/VR production plan.  But Samsung’s focus is more toward creating the content that is necessary to develop the XR market into the high volume markets that Samsung handles well, and that means it needs to coordinate content development rather than flood the market and hope that existing content attracts consumers.  It is not to say that the company does not have hardware under development, with prototypes and models working through R&D, but having released a product in 2018 that saw little volume seems to have shifted Samsung’s attention away from hardware and toward software in this instance.
This is a challenge for Samsung, known for its hardware expertise, and the company faces the relatively meager adoption of its Exynos OS as a blow to its potential for building its software business, but the company does have a massive developer following given its top rankings in many DE categories, which gives them a platform from which to work.  We doubt Samsung is expecting its own developers to generate such content but will incentivize  the communities built around its products to build content for whatever AR/VR platform it releases.  This will be similar to Apple’s AR/VR approach, where Apple knows that despite the ‘coolness’ that an Apple AR/VR device might have, if there is little to do with it, it will see strong initial sales and weak long-term growth.
Both Samsung and Apple seem to be focused more on AR than VR, with the understanding that Meta has been seeding the market for VR to gain share, while losing a considerable amount of money.  W expect that neither company wants to enter into that scenario and are willing to let Meta rule the consumer market, while picking niches in both AR and VR that can carry higher ASP’s.  That is where we expect both to concentrate in the first two year’s of entry into the XR market, and both have the capabilities to ‘encourage’ developers to create applications and content for their platforms, rather than pin hopes on the blossoming of the Metaverse.  It is going to be a long battle for XR supremacy, but if we had to bet we would expect both companies to pursue similar paths toward such product development.

As we have been doing since May of 2021, we check pricing on Samsung’s (005920.KS) Mini-LED/QD and QD only TVs to map how macro, seasonal, and holidays affect pricing on this category, particularly as it is a relatively new category and one toward the high-end of the TV pricing.  We have also been tracking Samsung’s QD/OLED TV pricing since it appeared in May of this year, an even more distinct product type that only Samsung Display (pvt) is able to produce currently.  While we don’t check prices for all on a regular schedule, we try to work toward specific events or holidays, and with Black Friday only two days away, we thought it helpful to see whether Samsung is being naughty or nice to its high-end TV customers.
2021 Models
As Samsung is slowly disengaging from its 2021 line, no longer offering 2021 8K Mini-LED/QD sets (900A & 800A series) on its website, along with eliminating one of last year’s Mini-LED/QD 4K series (85A) and one quantum dot only series (80A), Samsung has thinned last year’s models, but seems to have little rhyme or reason as to how they are pricing the remaining 2021 Mini-LED/QD 4K line over the last three weeks.  They did cut the price of last year’s massive 98” Mini-LED/QD 4K TV from $15,000 to $13,000 (↓13.3%), which they have only done one other time (during the July 4th holiday) this year, and reduced prices on all but one of last year’s Mini-LED/QD 4K sets, putting 4 of the 5 Mini-LED/QD 4K sets from last year at their lowest price points since their initial release last year.  Samsung lowered prices on 3 of the 13 2021 quantum dot only 4K sets (70A & 60A), putting 5 in that group at their lowest ever price and one (55” 4K QD only) at its highest price.  Overall, on all the remaining Samsung 2021 Mini-LED/QD and QD only sets, prices declined by 3.9% since our last check on 10/31.
2022 Models
Samsung was a bit more aggressive with pricing on this year’s models but seems to have abandon promoting its 8K Mini-LED/QD line (900B & 800B) whose prices have remained flat over the last month.  As we have previously noted, there are issues with 8K sets in Europe starting in March of 2023, data suggests that 8K sets have been poor sellers so far this year, and the macro environment is less conducive to such high-priced models that offer little image improvement give the lack of 8K content, so there seems to be little incentive for Samsung to discount the sets, other than to dump stale inventory in the retail channel. 
That said, Samsung cut prices substantially on high-end Mini-LED/QD sets (95B), with 3 of the 4 in that line dropping by between 20.0% and 44.4% and putting that group down 48.9% from their initial prices set in May.  Samsung also lowered prices between 5.2% and 11.1% on the lower-priced quantum dot only line (60B), leaving most of the remaining lines flat for the period.  On an overall basis, Samsung cut prices across this year’s 8K and 4K Mini-LED/QD and QD only lines by 5.3% for the period, putting the entire 2022 line down 33.8% from initial prices set 224 days ago. 
However Samsung seems to set price declines during the year more in order to reach a specific price point for the holiday season than to stimulate sales for a particular holiday, as model pricing for this year’s line reached the same dollar price point at Black Friday as last year, despite a lower initial price.  This puts the onus on manufacturing to maintain margins by lowering costs at the same rate as set prices reductions.  We expect this was a difficult task this year but not an impossible one, as panel prices declined while semiconductor and other component prices increased early in the year.  That said, component costs are a bit better now, so there is some hope that manufacturing could lower costs enough to maintain margins, but that leaves little wiggle room on prices if Samsung wants to move excess TV set inventory. 
QD/OLED
Samsung’s QD/OLED TV line, which consists of a 65” and a 55” model, continues to see price declines, now down 27.6% from its initial price for the 65” models and a decline of 32.4% for the 55” model, based on Amazon (AMZN) pricing.  As this is the first year such sets are available there is no comparative data, which means Samsung is flying blind with pricing and is competing against Sony (SNE), whose QD/OLED set prices remains at their original list price of $2,499 (55”) and $2,999 (65”).  Samsung seems far more willing to find a price point that consumers find attractive than Sony, and prices for both models on Amazon, as shown in Figure 3, are close to the discounts that Samsung has offered on its company site. 
The QD/OLED TV product comes at a difficult time given the macro concerns that are troubling large economies across the globe, but Samsung seems willing to test its price elasticity despite the weak environment.  Samsung does have a considerable stake in the success of the product considering affiliate Samsung Display has chosen it as their step toward a mass produced OLED TV and eliminated its LCD TV panel production capacity, but the limited production capacity that is currently available to SDC is not enough for parent Samsung to make it a cornerstone of its premium TV line.  This leads to a decision by Samsung as to whether they are willing to commit to QD/OLED and ok the SDC funding to build additional QD/OLED capacity, which needs to be made relatively soon if that capacity is not to miss the 2023 holiday season.  We see the discounting as a necessary step toward enhancing Samsung’s understanding of consumer response to QD/OLED and moving the decision-making process forward.
While this has been a disappointing year for TV set sales, especially against the economic backdrop, we are a bit more optimistic about 2023 in that we expect component pricing to continue to decline and TV panel prices to be more stable than this year.  That said, consumer buying power is declining so it is hard to find an impetus for a demand driven scenario in 2023, but we expect at least a more stable TV market, making it a bit easier for those who need to make billion-dollar decisions about capacity.  We are keeping our expectations low, but the glass seems slightly more full than empty, with the emphasis on slightly.

Only a few smartphone brands have the wherewithal to develop and use their own application processors.  Samsung (005930.KS) does and Apple (AAPL) has been doing it since 2010, while Google (GOOG) has its “Tensor” AP that it has recently used and Chinese brand Oppo (pvt) is in the throes of an AP development project, but most smartphone brands settle on one of the few AP producers, particularly Qualcomm (QCOM), Mediatek (2454.TT), UniSoc (state), or HiSilicon (pvt), or mix and match when necessary.
AP processor choice is a mix of price, performance, and availability that plays out in the year before models are released, with most consumers oblivious to what is running their smartphone.    Brands with models that vary widely in price, have to sacrifice performance for lower priced models, sometimes using an AP from an earlier generation in order to maintain margins within that price tier, but when it gets to high end flagship phones, the competition is fierce and processors can become a positive or negative to consumers.
Samsung went through such a scenario with the Galaxy S22, where it uses its home-grown AP (Exynos) processor in Europe and Qualcomm’s Snapdragon  chipset in the US and the rest of the world, something Samsung has been doing for years, although at times Samsung gets even more country specific as to which AP they use.  The Exynos processor, which Samsung designed, had some speed and power issues this year that caused a bit of a ruckus when compared to those same phones that used a Qualcomm Snapdragon AP, and recent indications from sources in Korea seem to indicate that Samsung is considering not using its own Exynos Ap in any of the Galaxy S23 flagship line to be released next year, regardless of its regional destination.
As the Samsung mobile division makes such decisions, and is ultimately responsible for the success of the smartphone line, regardless of whether it is the fault of the processor, we expect cost considerations were less important than another ping to Samsung’s smartphone reputation.  But this potential decision leads us to consider why Samsung has mixed processors on its flagship phones in previous years.  Understandably it is likely less expensive for Samsung to use its own processor in mid to low-priced phones, but why use it in flagship phones based on destination?  We have not been able to come up with a reasonable answer other than Samsung is trying to promote the Exynos processor whenever possible and the possibility that a self-designed processor will allow certain features to be enhanced, but we have been unable to understand (if that is the case) why Samsung would limit that to certain countries.
But Samsung’s AP design division is not taking the potential snub lying down and has split the processor design team in two, with one group working toward the development of a processor for computing and AI, and the other working toward the development of a processor specifically designed for communication applications.  Additionally the communications design team will receive input directly from the mobile division, allowing for a more ‘smartphone specific’ design.  We expect the reorganization will do little to change things for the Galaxy S23 line, but should have a positive effect on the S24 (2024), but even with Samsung’s massive resources there are a lot of moving parts to creating an AP that can outperform all other mobile application processors, and there are also questions as to how much Qualcomm being a customer of Samsung’s semiconductor business influences such decisions.  Ideally we expect Samsung would like to equip all of its smartphones with its own AP, but that has proven to be a difficult task for everyone other than Apple who has been at it for over 12 years and sells only top price tier phones.
 
 

​In July we noted that Samsung Display had been having difficulty with it’s ink-jet printing tools on its QD/OLED line and had reconsidered replacing those tools, which had been supplied by Samsung Electronics (005930.KS) affiliate, SEMES (pvt), after a bake-off with US based IJP supplier Kateeva (pvt), despite the better results from the Kateeva tools, which SDC already uses to encapsulate OLED displays.  We were surprised when the SEMES decision was made, as Kateeva had considerable experience with SDC and was the performance leader, but we expect there were other criteria, likely price, that could have influenced the decision at that time.
Since then it has become known that SDC is either replacing or adding IJP capacity to its QD/OLD line using Kateeva IJP to deposit quantum dot materials, with South Korea’s HB Solutions (297890.KS) as the provider of software that sits on the Kateeva tool, and delivery of the combined tool set is expected this month under a $10.2m contract with HBS.  SDC was said to have already purchased the Kateeva tool late last year and provided it to HBS for the software modification.  As HB Solutions made a $13.5m investment in Kateeva earlier this year and also purchased rights to additional Kateeva patents in the US, there was a point at which, if the deal between Kateeva and SDC did not go through, HB Solutions would become the owner of some of Kateeva’s collateralized patents, but it seems that any recent delays had little to do with Kateeva.
While it will take some time to bring the Kateeva tool into full production, we expect that the addition of this new IJP tool is part of the increased capacity SDC has been touting in relation to its QD/OLED fab.  Earlier yield issues are now assumed to be at least in part, related to the SEMES IJP tools, and the use of the Kateeva/HBS tool should allow SDC to bring QD/OLED yields even higher than the recent 85% rate that has been estimated.  The battle over who should supply IJP to the QD/OLED project has been going on since early 2020 (likely even before that date), and now seems finally resolved with Kateeva the winner after Kateeva had spent considerable capital developing the tool for SDC.  While SDC’’s original choice of the SEMES IJP tool almost cost Kateeva its existence, it seems SDC has had enough sense to admit they were wrong and make the change, something a bit less common than one might think in the display space.  All in, it is a positive for HBS and Kateeva, but more so for SDC, who needs to expand QD/OLED capacity with as little capital as possible. 

Sounds like a novel you read as a young teen, but it represents the evolution of mobile devices that we can use to make our daily lives easier.  Of course this comes with a dependency that has become ‘the silent epidemic’, but that is for another day, while right now we seem to be on the verge of a potential transition to the next level of mobile ‘convenience’ devices, the smart ring.  While smart rings are currently available from a number of brands, most of which are not recognizable names and are privately funded, but the big boys are just around the corner, sort of.
Apple (AAPL) filed its first ‘ring’ patent back in 2015, followed by Samsung Electronics (005930.KS) just two month later, with both adding follow-up filings over the years, but both were beaten by Amazon (AMZN) who released the “Echo Loop” in September 2019, only to kill the product before year-end 2020.  Apple’s ring development is said to be linked to its potential XR device while Samsung’s development path is more toward being a ‘control’ center for a variety of devices, but the ‘rings’ that are currently available are more like smart watches in that they typically measure and track a number of body functions, and potentially offer advice as to how to ‘live your best life’, meaning staying healthy, while others are far more specific to the needs of specific user types.
For instance, the Oura (pvt) Gen 3, a $349 device made from titanium and weighing between 4g to 6g, comes with 6 month of free ‘membership’ ($5.99/month thereafter) and includes an optical heart rate sensor, a blood oxygen sensor, a skin temperature sensor, and a PPG sensor that measures HRV (Heart rate variability aka Photoplethysmography), a substitute for ECG that has recently been incorporated in a number of commercially available devices, along with an accelerometer.  The devices lasts between 4 and 7 days before recharging and the membership software, aside from the data itself, gives you an in-depth sleep analysis every morning, personalized health insights and recommendations, live heart rate monitoring, and skin temperature readings to let you know if you are sick or heading into a menstrual cycle.

While the Oura is at the top of ring pricing, there are a number of other less expensive ring devices that offer more specific functions, such as the $100 McLear (pvt) ring that is designed to execute “RingPay” transactions, essentially a wallet that allows the user to make contactless purchases as if they were using a contactless card.  The company offers cash back rewards to users, which increase if you become a member, and allows multiple ‘rings’ and the ability to transfer between them, but no sensors for bodily function measurements.  One step further from the ‘measurement rings is the $58 ArcX (pvt) ring that serves as a Bluetooth joystick that allows you to control a smartphone, camera, and similar devices, while keeping the controlled device in a pocket or backpack.  You can use it to control music during a workout and even accept calls, all using one hand.

But Samsung and likely Apple seem to be taking the ring concept further and a 2021 South Korean filing by Samsung shows a far more sophisticated ring device that includes a display and is oriented toward being a control center for a variety of devices, and while it could have a variety of sensors, including photodiodes, LEDs, and a PPG sensor, the objective is to give the user easy access and control over their devices, without touching the device, through various touch and mechanical switches and dials built into the ring.  According to the patent documents the ring is able to pass on any sensor information to other devices when necessary or to evaluate sensor data and can be charged wirelessly.
The smartwatch market, the most similar to the rings described above was roughly $30b last year, so the development of any device that can feed into such a market is a given for major CE companies, and with the current crop of smart watches ranging from $60 (OnePlus (pvt)) to ~$800 (Apple Ultra), there seems to be enough interest in what is now a small and underserved market to attract some spending.  We expect much of the market evaluation at major CE companies is based on whether the smart ring market will eat into the smart watch market, but we believe the evaluation is much more complex and is oriented toward the impact it might have on the smartphone market, a cash cow for many CE companies. 
As brands face the constant battle to differentiate their smartphones, features become an important part of that differentiation, but as smartphones mature, it becomes more of a game to find something ‘new’, such as Samsung’s focus on foldable devices.  If smart rings can perform smart watch functions and allow you to keep your smartphone in your pocket for much of the day, it lessens the value of those two devices, not something major CE companies want to face.  That said, a good marketing department could latch on to a smart ring as an adjunct to a smartphone sale, as a $50 or $100 accessory.  Tablets were feared to have the potential to destroy the laptop market and yet they both exist, and foldable smartphones have been said to be the demise of tablets, but all still exist and find a niche where they provide the user with convenience, they key to CE popularity.  As we noted, a good marketing department can find a purpose for even the most worthless of CE products and based on what we have seen so far, there are certainly applications where smart rings make more sense than watches or even smartphones in some cases.

Samsung Electronics (005930.KS) reported preliminary 3Q results of 76 trillion Won ($53.88b US) and operating profit of 10.8 trillion Won ($7.66b US), with sales down 1.6% q/q but up 2.7% y/y while op profit was down 23.4% q/q and down 31.7% y/y .  Both sales and op profit were below consensus of 78.3 trillion Won and 11.86 trillion Won (missed by 2.9% and 8.9% respectively).  Samsung does not provide detail on results until the call on October 27.  That said we expect the weakness in operating profit was the result of weakening demand in Samsung’s memory business, with a bit of positive momentum from Samsung Display, which saw the ramp of display production for the recent Apple (AAPL) iPhone 14 family release.
DRAM Pricing spiked last year, however, as did LCD panel prices, the reduction n COVID infections and the subsequent reductions in mandated sequestering, reduced the demand for PCs, laptops, and monitors.  Server memory remained strong even as consumer memory demand weakened, and DRAM pricing forecasts made early this year, despite being down y/y were somewhat optimistic.  By July however, server demand also began to weaken and 2022 DRAM pricing estimates were revised further downward, as shown in the table below.  As Samsung is the leader in the DRAM market, with a 43.5% share in 2Q, the impact of weaker demand and pricing is a given, with a lesser impact on SK Hynix () and Micron (MU), who have a 27.4% and 24.5% DRAM market share, with the top three accounting for 95.4% of the total market.  More detail after the conference call later this month.

​According to the Chinese trade press, Samsung is planning to resume ordering TV panels from suppliers after halting those orders in mid-June.  While no sources were named or quoted the gist was that Samsung’s TV inventory, which ballooned to 16 weeks in June, was now at a more normal 8 weeks and the company was ready to place orders with its panel suppliers, BOE (200725.CH), Chinastar (pvt), Innolux (3481.TT), and AU Optronics (2409.TT).  The sources go further in that they blame Samsung, the share leader in the TV market, as the reason for the downturn in the display space, as they ‘did not notify their supply chain for over a month’ when inventory levels became too high.
While we expect Samsung, as did most other brands, was want to acknowledge that the demand side was weakening, but to be accurate, the best indicator that TV demand was weakening would be the price of TV panels, which peaked in July 2021, and was certainly a visible sign to the entire display supply chain, including panel producers, who decided to continue to produce at levels that would maintain positive gross margins despite the obvious signs that something had changed.  Additionally LCD capacity additions and greenfield expansion projects continued to be announced, financed, and constructed through much of the downturn and utilization rates that should have been cut in March, were maintained by almost all panel producers until they were forced to make those cuts in June.
It would be wonderful if Samsung was able to reduce 16 weeks of TV inventory down to 8 weeks in what amounts to 9 weeks during a highly inflationary period, but with the lower demand seen for many CE products in recent weeks, making that assumption still seems to be a bit of a stretch.  More likely Samsung is doing what all TV brands typically do in late August and that is to begin ordering enough components to meet expected demand for the holiday season.  Jumping to the conclusion that everything is back to normal in the TV space is ignoring what really caused the problem in the first place, over capacity and over-ordering, along with the assumption that the COVID induced out-performance of late 2020 and much of 2021 was the ‘new normal’.  Optimism is OK but being overly optimistic carries the same number of potential negatives as does being overly negative.
 

​Samsung likes India.   The brand is 2nd only to Xiaomi (1810.HK) in share across the sub-continent, and Samsung has been doing at least some mobile phone component production in India since 1996.  In 2018 the company completed the 1st iteration of the world’s largest mobile phone assembly plant, which was completed in 2020, doubling its capacity.  However Samsung also like Vietnam, where it will be adding $920m to expand its production capacity there, where it produces ~60% of its ~300+m smartphones[1] that it ships each year, a larger share than in India, after shifting all of its smartphone assembly out of China over the last year.
However last year Samsung moved two smartphone production lines back to its factory in Gumi, South Korea, where it has testing facilities and production capabilities for the domestic Korean market.  This ‘reshoring’, as the company calls it, was in response to some of the stringent lockdowns implemented in Vietnam and India due to COVID-19 outbreaks, and was a way to make sure that such lockdowns do not affect the company’s overall smartphone assembly capacity, although it would seem to be creating at least some capacity that might be underutilized at times.
With the recently announced increase in spending in Vietnam, it seems that Samsung is indicating that it is now prepared for any COVID-19 or other potential production problems on a global basis, with additional capacity, albeit relatively small in Brazil and Indonesia and is still focused on using Vietnam’s assembly capabilities, cost structure, and tax incentives as its Southeast Asian manufacturing hub.  Samsung has no smartphone assembly facilities in the US, despite the size of the market and Samsung’s share, with most smartphone product for the US shipped from Vietnam.  Chinese brand Vivo (pvt) also announced a $467m US investment toward expanding its production capabilities in India, where with its sister brand Oppo (pvt) they hold a combined 32.3% share, which will allow it to both better serve the India market and export to nearby regions.


[1] Estimates vary considerably as to the unit volume from both the Vietnam and Indian plants, however they are the bulk of Samsung’s smartphone assembly capacity.