Professional gaming is a lucrative business for the very top players, with team prizes in the millions, Twitch streaming, and ‘influencer’ contracts piling on the bucks, but numbers like those do not come to the average gamer, with mid-level pro gamers taking in between $12k and $60k/year on average, and while that certainly looks attractive to a 15 year old who has spent thousands of hours mastering a particular game or genre.  Once gamers move up to higher skill levels, looking for an edge becomes a bit of an obsession, and while the best gamers are skilled at what they do through days, weeks, and years of practice, there is an obsession with eking out every possible edge when it comes to hardware, and that means both at the processor level and at the monitor level.
Graphics cards are the point at which calculations for each pixel must be processed and rendered.  This includes color, brightness, contrast, texture, shadow, and a variety of other characteristics that make an image seem realistic, and with 4K as the standard resolution for almost anything gaming related, that means 8.294m pixels must be rendered by the graphics card’s GPU at least 60 times each second, with that information transmitted to Red, Green, and Blue sub-pixels individually for each pixel.  Aside from the fact that graphics cards are also used by crypto-currency miners to perform the millions of calculations necessary to generate bitcoin or other crypto-currencies, which keeps them in short supply, there is an intense competition between Nvidia (NVDA) and AMD (AMD) for supremacy in the graphics card market that pushes the envelope toward faster and more powerful graphics cards on an almost daily basis.
That said, none of that matters if you can’t see the game play accurately, and that is the ‘other’ gamer obsession, as gaming monitors have become a big enough category that display producers are designing panels specifically for the category, and monitor designers are following the trend by building gaming monitors that are focused on those characteristics that can give gamers even the slightest edge over their opponents.  Traditional monitors, such as generic desktop displays are typically 17” to 21.5” and designed to be accurate for typical office functions, while those in the graphic design field tend to use larger and higher quality monitors that more accurately represent color.  Gamers need more from their monitors, and that can mean bigger, higher resolution, and higher refresh rates, and in some cases a monitor that wraps around the gamer, helping peripheral vision and off-axis quality.
In years gone by gamers tried to use larger TV displays for gaming but found that they were unable to match the necessary resolution, refresh rates, and other characteristics that were necessary for gaming, and were forced to use monitors designed for graphics processing, a better but not ideal solution.  But as gaming became more popular and the COVID pandemic kept folks indoors, monitor manufacturers realized that they could design a premium priced monitor specifically for gamers that would not require major factory retooling or technology that was beyond the reach of most panel and monitor producers.  Now gaming monitors up to 65” have become available, for a price, with many selling out quickly upon release, despite their high cost, as gamers look to edge out the competition and keep themselves from becoming fatigued after hours of game play.
In that regard, Samsung (005930.KS) has just released pricing on its 55” Odyssey Ark 4K UHD Quantum Dot/Mini-LED curved gaming monitor (LS55BG970NNXGO), a 55” monster that can swivel between typical landscape mode and vertical mode, and has a refresh rate of 165Hz, according to Samsung, the highest for that size monitor available, along with a response time of 1ms.  At 1,000 nits, the display is considerably brighter than most, due to the Mini-LED array, and has a curvature of 1000R, which would be the curvature of a circle with a 39” radius, and includes Samsung’s gaming hub, which allows gamers to play through the cloud rather than through a dedicated game.  The gamer is also able to adjust the aspect ratio and screen size to best fit particular games while allowing for multiple image sources.  Of course this does not come cheap at $3,500 and will not by itself move the needle closer to the 20m gaming monitor units expected this year (up from 7.7m in 2019), but it sets the bar a bit higher for gaming monitors, a challenge that LG Electronics (066570.KS) will take up with an update to its gaming monitor line based on OLED displays, which it insists are the highest possible quality for gaming.  Their 48” version sells for $1,500 but has no curvature.  Let the games begin… or continue.

As we have noted, TV brands have cut orders in order to reduce excessive inventory levels, particularly as inflation reduces consumer demand.  While tracking the price of the hundreds of TV models available to consumers, we have been tracking the pricing of Samsung’s (005930.KS) Mini-LED/QD TV lines both this year and last year in order to see how Samsung reacts to seasonality, macro events, and inventory management.  As the TV sets in this line encompass prices ranging from $15,000 to $450, it gives an indication as to the general tone of premium to mid-range TV pricing.  While we don’t check pricing on a set schedule, as holidays and events play an important part in TV pricing, most of the intervals are between 3 and 4 weeks so charts look relatively normal, and our data today is just over 1 month from our last check.
Discounting to move inventory was not Samsung’s theme over the last month, as on an overall basis prices on all 2022 Mini-LED/QD and QD only models increased by 1.8%, while 2021 models saw a 2.0% increase.  2022 8K models saw an unusual price increase of 7.0%, after a drop to their lowest price point last month, while last year’s 8K models saw little change.  2022 4K Mini/QD models saw a 3.0% price increase with 2021 models jumping 5.7% and this year’s QD only sets saw a 2.1% price decrease (the only category that saw a decrease), while last year’s QD only sets saw a small (0.2%) price increase.  8 of this year’s models were at their lowest price of the year while 2 were at their highest, while 16 of last year’s models were at their lowest price and 4 at their highest.
All in, we expect Samsung was more concerned with margins than moving inventory during the last few weeks, albeit contrary to expectations, and pushed prices back up to previous levels after a short July 4 discounting period.  Figure 1 shows the four general categories across the line and how 2021 and 2022 pricing has changed, while Figure 2 shifts the 2022 models back in time to compare new model price changes to the same time period last year, which shows how 2022 model pricing has progressed relative to last year.  We note that 2022 4K Mini-LED/QD pricing includes 4 models that did not exist in the 2021 line, making average set pricing higher this year although the price pattern is similar.

​Last month we commented on the upcoming Samsung (005930.KS) ‘event’ that was expected to contain the announcement of Samsung’s latest foldable smartphones, the Galaxy Fold/Flip 4 series, and what we hoped might be part of that release.  The event has taken place, the new phones announced, and while we have yet to examine the software, we can point to how our hopes and expectations were met, at least thus far.
Our first ‘hope’ was for a lower price, pitting economies of scale against the higher cost of silicon and other components.  Unfortunately, at least at the onset, it looks like there was little pricing movement, with the Z Fold 4 (256Gb) selling for $1,799, even with the Z Fold 3, while the 512Gb version is a few dollars more expensive than last year’s model.  There is a new version of the Z Fold 4 that has 1Tb of memory that sells for $2,159 so there is no comparison to the older model.  The Z Flip 4 (128Gb) is priced at $999, the same as the previous model, with the 256Gb version $10 more than the previous year’s model, so little change, although there is now a 512Gb version that sells for $1,179, so there is little change overall on pricing, a bit of a disappointment and somewhat of a stumbling block to incremental y/y shipments.
We had hoped for a bigger 2nd screen on the new models, as the less often the device has to be opened the longer it will last and when closed a foldable should be the equivalent of a ‘regular’ smartphone, with a full sized high-resolution display.  When comparing the new Galaxy Fold 4 to the previous model, it turns out that the size of the device is actually slightly smaller (~2%) but marginally thinner (under a mm difference when closed), although its .28oz. lighter.  The main (foldable) display still has a 7.6” diagonal with marginally smaller bezels, with a 90.9% SBR vs. the Fold 3’s 88.8% SBR, with both having a PPI of 374.  The cover display on the Fold 4 is still a 6.2” display but with a a higher resolution (+10.9%), so on an overall basis there was little change as to the displays on the Z Fold 4.  The Galaxy Z Flip 4 has the same main (foldable) screen as the previous model, and the same size cover screen (1.9”) and the overall device is a mere 2.1% smaller than last year, so again little movement on our 2nd wish.
As far as our hope that the new device would be more ‘durable’, both new models have upgraded the cover glass from Corning’s (GLW) Victus to Victus+ with higher scratch resistance and the new X Fold 4 has a higher pixel count main camera and a 3x (vs. 2X) zoom on Cam #2, with pretty much everything else staying the same, while the Z Flip 4 has a 12% more powerful battery.  Both new versions have upgraded chipsets, CPU’s, and GPUs, as one would expect, which should eke out slightly better performance, but on an overall basis most of the hardware has remained the same.
As we have yet to look at the software and built-in apps, we cannot tell if Samsung has made progress toward the development of applications that take further advantage of the device’s foldability, our 4th hope, so we will have to leave that slot open, but we are leaving the table feeling a bit unsatisfied, kind of like grocery store Sushi…you want to like it bit there is little to get excited about, somewhere between Masa and gas station tuna…

​Samsung Electronics (005930.KS) has agreed to sign a contract with the labor unions that were formed by employees after many months of negotiations and potential strike threats.  The unions, formed in 2018, represent ~5,000 of Samsung’s ~110,000 employees and have been pushing to get Samsung to change compensation provisions and negotiate wage increases that reduce the pay gap between line employees and management.  The new package, which is expected to be signed in a few days after 10 months of negotiations, puts in a 7.5% wage increase for 2021 and a 9% increase for this year, the highest in 10 years and the first time in the company’s history that they have signed an agreement with a labor union.
As p[art of thye agreement a task force is to be set up to rework a number of Samsung wage policies, one in particular that progressively lowered employee salaries in the years leading up to retirement in order to ‘encourage’ senior employees to push out retirement as far as possible.  The union was also seeking to change the rules regarding pay incentives for those employees who work during holidays and pushed the company to agree to pay employees for unused holiday time, and not to include overtime pay as part of an overall wage package, which essentially meant there was no overtime pay.
Over the years Samsung has paid employees ‘incentives’, which were based on calculations by management that were not disclosed to employees, while other South Korean companies tend to use a fixed percentage of net profit as the incentive pool.  Samsung has promised to provide more transparency into how the calculations were made and the union relinquished on their original request for a 25% share of the profits.   This was a long battle (31 bargaining sessions) to at least begin the unionization of Samsung and one that was not without the use of ‘leverage’ on both sides, but it seems that a final agreement has been made and at least those in the union have the ability to collectively bargain with management, something they have never been able to do previously.

​Last year Samsung Electronics (005930.KS) shipped 270.5m mobile units, up 5% y/y and had high hopes for smartphone shipments this year, at least at the end of last year, but the most recent prognostications from the share leader now call for mobile shipments to be down slightly for the year, after a 14.4% decline in shipments in 2Q and the specter of excessive inventory both at Samsung and across much of the smartphone industry.  Samsung indicted that it is focusing on the premium smartphone segment and expects to see sales and ASPs increase in that category as it garners increasing shipments of its foldable smartphone line, but it is still competing with Chinese smartphone brands in the mid-range price tier, where the highest unit volumes take place.  
In that regard, Samsung reduced orders from component suppliers in 2Q and has hinted about other cost saving measures some of which relate to cameras and camera module reductions in mid-tier models.  While the full impact of those changes has not been felt, the overall component order reductions are just coming to the surface as South Korean camera and related component suppliers begin to report 2Q results.  Most recently Partron (091700.KS), a long-time Samsung camera module supplier, reported a 21% drop in sales q/q and a 5% drop y/y/, with operating profit declining 61% q/q and 45% y/y, and Samsung Electro-Mechanics (009150.KS), 23.7% of which is owned by Samsung Electronics, saw its optical solutions division’s 2Q sales decline 10% q/q and 4% y/y.  SEMES has focused on supplying its parent with camera modules for its high end lines, such as the Galaxy S and Note series, but has more recently been supplying modules for the A series, again a mid-tier line where the competition is quite intense.
There are a number of other similar suppliers in Korea that have likely faced the same challenges in 2Q as suppliers of optical components and cameras to Samsung but have not yet reported results, such as MCNEX (097520.KS), Power Logics (047310.KS), Cammsys (050110.KS), Namuga (190510.KS), and Coasia Optics (196450.KS), but more to the point will Samsung’s longer cost cutting measures magnify the slower sales of smartphones for the remainder of the year and into next year?  We expect that the ‘camera wars’ which have led to the proliferation of multiple cameras, with some models having 5 or 6 front and rear cameras, has come to an end, although we expect the focus to now shift to ever higher resolution cameras and better image stabilization systems rather than an excessive number of cameras.  That said, it would seem that at least the next few quarters will be bumpy for Samsung’s local camera component supply chain as Samsung and the industry readjust order levels to lower demand.

In our note of 7/15/22 we indicated a dispute between Samsung Electronics and China’s BOE (200725.CH) over what amounts to advertising royalties which have caused Samsung to reduce orders for LCD panels from BOE and has spiked interest from other Chinese panel producers who would like to fill the gap left by the Samsung/BOE disagreement.  As we also noted BOE’s Chinese rival Chinastar (pvt), owned by TCL (000100.CH) has already been to South Korea to sweet talk Samsung executives and local suppliers and is now expected to travel to Cupertino to schmooze with Apple (AAPL) folks to gain some traction as a panel supplier for MacBooks and iPads.
Chinastar has been reviewing plans to expand its OLED production capacity, potentially with lines dedicated to Apple, and would be expected to put additional pricing pressure on LG Display (LPL), the current panel supplier to the MacBook line.  China star is already a supplier of TV panels to Samsung, along with AUO (2409.TT), Sharp (6753.JP), BOE, and LGD, and Samsung is a shareholder in TCL, so the visit to Korea was one with some weight and a visit to Apple by TCL’s chairman would certainly create some anxiety at BOE and LGD.  As Apple is quite particular about their displays, the recent brouhaha over BOE’s changes to Apple’s qualified display design without prior approval has set BOE back a bit in terms of company reliability and once there is even the smallest amount of blood in the water[1] the sharks will gather.  We would assume Chinastar will gain share at Samsung and Samsung will use Chinastar to further its pricing leverage with its other suppliers, particularly BOE, and any success at Apple will help Chinastar gain share against BOE, although we expect it will take considerable time for Chinastar to build out dedicated Apple capacity.


[1] Fact – Sharks can sense between 1 part in 25m and 1 part in 10 billion depending on the chemical, which would be the equivalent of one drop of blood in a small swimming pool.

​TCL is a very price competitive brand, particularly when it comes to TVs and even more so when it comes to QD/Mini-LED TVs, as it was the first brand to release such combined technology and is a generation ahead of rivals, including Samsung Electronics and LG Electronics (066570.KS).  TCL recently released a 98” QD/Mini-LED TV to compete with a 98” offering from Samsung and noted that it had received 5,000 pre-orders for the sets in the 1st hour it was listed, which sell for ~$8,900 against Samsung’s recently discounted price of $13,000.  TCL has now stated that it has already sold more than 4,000 of the units, mostly during the 6/18 holiday, roughly 5x the number it sold last year.  Samsung has not disclosed its sales figures for its 98” QD/Mini-LED models.  Displays for the TCL 98” QD/Mini-LED model are produced by Chinastar, a subsidiary of TCL.
While it is hard to verify such specific sales figures, especially those from China, we expect TCL has had some success with its ultra-large QD/Mini-LED lines given both pricing and local familiarity, but the ultra-large TV market is a rarified one with expectations for less than 100,000 98” units sold this year, including other technologies, although the sales value is certainly enviable even for 4,000 units, which would be the sales equivalent of selling 54,769 TCL 55” QD/Mini-LED TVs based on current prices, and while the TCL98” TVs mentioned were sold in China for ~$8,900 you can steal last year’s model from Best Buy (BBY) at the currently discounted price of $8,500, although you would have to wait until August 3 to have it delivered, especially as it would be hard to fit in a standard vehicle as the box is 5 feet high and 8 feet long.

​which will likely include the introduction of the Galaxy Z Fold 4 and Z Flip 4, Samsung’s latest entries into its foldable smartphone line.  Last week we noted that we were less concerned with feature changes in both models than we were about the price, which we hoped would be reduced as Samsung gained scale, although our actual expectations are for flat y/y pricing for the new models.  That said, almost immediately after we published our note, rumors began surfacing that Samsung was going to raise the price of the foldables to compensate for increased material and  logistics costs, certainly a negative in our view.
Most recently we received pricing data from Korea that indicated that Samsung had reached a tentative price agreement for the new models with a mobile carrier (domestic) that would hold the price of the Galaxy Z Fold (256GB) at the same price as last year, while the Galaxy Z Flip (256GB) would increase by 3.6% and the 512GB models would remain at last year’s price.  Given the strength of the dollar there is some play here relative to what will be US pricing, but it seems that Samsung has, at least for now, kept new model pricing relatively intact if the Korean pricing is any indication, which we would see as a positive for foldable sales given the recent rumors, and if you pre-order (Korea) they will throw in a pair of Galaxy Buds 2, a case and a 1 year phone care package. 
While blogs have been chattering about the miniscule changes in bezel size, notch shape, or camera specs, most consumers at least start evaluating new smartphones based on price, so a small or no change should keep the foldable playing field relatively level heading into the 2nd half.  It’s now up to Chinese rivals to see if they are able to cut prices for new foldable models in the current inflationary environment in order to gain share against Samsung, whose share of the foldable market was between 85% and 90% last year.

​Samsung Electronics’ (005930.KS) S2 semiconductor fab in Austin, Texas and its sister fab in Taylor (under construction) could have other siblings as Samsung has submitted paperwork for 11 potential semiconductor fabs that it could build in Texas over the next two decades.  The paperwork, which is required when applying for tax subsidies, noted the potential for a total of $192b in spending  for the 11 fabs, which would cost between $12b and $23b and provide ~900 jobs each, although the Austin fab employs ~10,000 total.  Samsung indicated that it had no specific construction plans for these potential fabs and is spending $17b on the Taylor project, but indicated a target of 2034 and extending out until 2042 for the last two projects. 
The tax breaks on the real estate are estimated to be as high as $4.8b and usually last for 10 years.  As the US Chips Act winds its way through Congress it would seem an appropriate time to allude to a desire to build semiconductor capacity in the US, although these plans do not commit Samsung to anything more than the Taylor project, but it certainly won’t hurt to see if it stirs up some excitement from other potential fab locations in and outside of the US.  Samsung has two fabs in China and three in South Korea but none in Europe.

Samsung Electronics does not like ToF (Time of Flight) sensors.  While promoting the idea of using ToF sensors in smartphones as adjunctive depth maps to optical cameras, they have slowly abandon the concept, particularly on their flagship models, while other brands, particularly Apple (AAPL) and a number of Chinese brands continue to use the functions to augment security and imaging.  Samsung is now contemplating the removal of ToF sensors on the upcoming versions of the Galaxy A24, A34, and A54, which are among the company’s best-selling (volume) smartphones.
While we have gone into considerable detail as to why Samsung made the decision to abandon ToF, we expect the most recent change is one based on cost, with the elimination of the ToF module a cost saving measure on these mid-priced smartphones in a very competitive segment of the market.  Of course there is the marketing jargon that says the company feels it is better to focus on developing better quality cameras than on maintaining a high number of different camera types on its phones, which is the antithesis of the thought process a year or two ago when the battleground was who could put more cameras on their phones, but with silicon and component prices still at high levels, Samsung’s marketing motivation has shifted from quantity to quality for next year’s mid-range models.
Underneath all of the pro/anti ToF rhetoric, is the fact that Samsung Electro-Mechanics (009150.KS), the Samsung affiliate that produces many of Samsung’s camera modules, had made a decision about the ‘type’ of ToF sensor it was to develop a number of years ago, choosing what is known as ‘indirect sensing’ over the ‘direct sensing’ choice made by ToF camera competitor Sony (SNE).  When Apple settled on Sony’s solution battle lines were drawn between the two types of ToF sensors and competition heated up, tightening margins and putting pressure on SEM to reduce costs in order to counter what Sony was promoting as superior ToF technology (see table below).  We believe SEM was not able to bring cost down low enough for parent Samsung Electronics to justify the cost given the weaker characteristics and the decision was made to eliminate ToF from flagship models and now from mid-range priced models.
All in, Samsung’s continued insistence that consumers do not use the functions associated with ToF sensors as a justification for removing them still rings hollow with us, and seems more like a justification for the need to cut costs, as was the ‘environmental’ justification of removing chargers from the box when consumers purchased a new phone last year (Apple did the same), but ToF lives on outside of the Samsung world, and as we noted in our 6/10/22 seems to be finding its way into other applications in the CE space, while remaining an integral component of the various forms of driver assistance systems and fully automated vehicle systems.  While we might be a bit bruised by Samsung’s continuing battle against ToF in the smartphone space, we see its value increasing across a wider swath of applications…