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.

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

​For the first time since 2013 Samsung employees were given a special bonus for the holidays.  Roughly 100,000 employees at 20 Samsung Group (pvt) companies were given a special bonus on top of their Christmas Eve year-end bonus, including Samsung Electronics (005930.KS), Samsung C&T (028260.KS) and Samsung Life (032830.KS) which could be as much as double their monthly wages.  Samsung employees also are able to earn TAI (Target Achievement Incentives), usually given in July and December if the division has met half year and full year goals, and OPI’s (Overall Performance Incentives) at the end of January if the company exceeds its profit target.  OPI’s are typically derived from a pool of 20% of the excess profits and can be as high as 50% of the employee’s annual wages.  Samsung’s Device Solutions business employees (semiconductors and Display), which generated operating margins not seen since 2018 (9 mos.), are expected to see a 100% TAI and likely at 100% OPI in January.
In past years, automobile dealers would gather near the Samsung facilities and offer 2% discounts for Samsung employees who would had just received bonuses, as long as they could show an official copy of their certificate of employment, but this year it seems that employees receiving bonuses are less likely to buy a new vehicle and more likely to pay down mortgages for homes they purchased over the last as hosing prices in South Korea spiked ~12% during the first three quarters of this year, pushing many residents to buy before they were priced out of the market.  While local businesses always see some traditional Hoesik (“eating together”) from Samsung employees, they have muted expectations this year despite the large bonuses.  

The governor of Texas and Samsung Electronics (005930.KS) announced yesterday that the company would be building its next semiconductor fab deep in the heart of Texas, just a bit south of the town of Taylor and a ~30min. ride from Samsung’s Austin fab.   Now that the decision has been made, we were curious to see what were the details of the offer that enticed Samsung to the Lone Star State (Fun Facts: State Slogan: The Friendly State; State Bird: Northern Mockingbird; State Large Mammal: Texas Longhorn; State Small Mammal: Nine Banded Armadillo; State Flower: Bluebonnet; State Plant: Prickly Pear Cactus; State Gem: Blue Topaz; State Soil: Houston Black; State Colors: Red, white, and blue; State Dish: Chili; State Snack: Chips & Salsa; State Sport: Rodeo; Most Important Texans [our choices] Janis Joplin & Beyonce).
In order to bring Samsung to their fair city, the government of Taylor created what they called an ‘extraterritorial jurisdiction’ as a tax increment investment zone to ‘facilitate development or redevelopment by financing the costs of public works’, ’for the public purpose of developing and diversifying the economy of the zone, eliminating unemployment and underemployment in the zone.’ Essentially the city is saying that the area is undeveloped and Samsung Austin Semiconductor intends to purchase the property and build a 300mm semiconductor plant, the size of which will be no less than 6m ft2, plus ancillary buildings, and the city would like to facilitate the purchase and help to assist the $17b project.
In order to make the sale work, Samsung has to deposit $500,000 with the city during the 1st six months to cover the city’s ‘Development Review Costs’ and thereafter, up to a maximum of $5m, which the city will pay back yearly at a rate of 1% of the zone’s collected taxes for 16 years.  If it is not fully paid at that point, it comes from the city’s general revenue.  But the real kicker is the ‘Economic Development Incentive Agreement’, which says that the city will provide ‘tax grants’ of 92.5% of the assessed property tax for the first 10 years, 90% for the next 10 years, and 85% for an additional 10 years, which are estimated to total $467.8m, with the total expected tax revenue of $522.6m, leaving ~$52.2m for the city in actual tax revenue after costs over the life of the agreement, or about $1.7m/year.  Samsung’s restrictions as to what it does with the $11.7m (current assessed value) of land are few, other than a maximum building height of 250 ft, only one 6’ x 10’ sign at the entrance to the site, and being limited to two helicopter landing sites on the property.  The ~1,074 acres has little on it now, a few houses, storage facilities, and a baseball diamond, with most of the land devoted to agriculture, and the agreement states that ‘no persons will be displaced and in need of relocation’ from the plan’s implementation. 
All in, we expect the local and state government will take a hand in facilitating whatever larger scale improvements need to be made, such as widening access roads and providing power and water to such an operation.  Texas runs its own power grid, separate from much of the country-wide systems, so the ~100 Megawatts/hr. of power needed (enough to power ~20,000 homes) would be ERCOT’s responsibility, although we wonder where the 2m – 4m gallons of water needed for the fab each day will come from, as there was no mention of such in the proposal.  As we discovered during the Foxconn (2354.TT) Wisconsin fiasco, the devil is in the details, and while we have considerably more faith in Samsung’s commitment than that of Foxconn, politics plays a large part in such decisions.  Hopefully this project will move past the planning stage some time before the semiconductor space heads into over-capacity.