We have been hearing that a dispute between Samsung Electronics and BOE has resulted in Samsung reducing its display panel orders from the Chinese producer, supposedly over failed negotiations concerning royalty rates.  In order to recover part of the cost of advertising, brands can negotiate with suppliers for the right of the supplier to ‘advertise’ as part of the device’s promotion.  In some cases this comes as a ‘royalty’ the brand would charge the supplier to have their name appear in the advertising as ‘…display produced by xxx’ or something similar, although component cost reductions can also be used for the same purpose.  The larger the brand the more leverage it has to make such adjustments.
It seems that BOE has refused to accept Samsun’s royalty terms after 6 months of negotiations, and Samsung has therefore reduced the number of display panels it has purchased from BOE, and recent publicity surrounding an upcoming visit to Samsung by the chairman of TCL (000100.CH), seems to indicate that other panel producers have sensed an opportunity and are looking to fill the gap in Samsung’s panel purchases left by the BOE reduction.  TCL is the owner of Chinastar (pvt) China’s 2nd largest panel producer, in whom Samsung Display has a 12.33% stake taken when they sold their Suzhou LCD fab to Chinastar in 2020.
While we expect there is the potential for the BOE/Samsung royalty issue to me a motivating force behind a reduction in panel purchases from BOE by Samsung, we note also that Samsung has severely reduced its panel purchases from all of its display suppliers for the month of July as it tries to reduce panel inventory across its supply chain.  Whether the supposed BOE reductions were in line with this plan or whether they included additional cuts as a result of the royalty disagreement remains an open question, although the push by TCL/Chinastar seems more like the latter, as a trip to Samsung by TCL’s chairman would seem unlikely if it were just to fill a short-term gap in production.  It will be hard to discern the split until we see BOE sales numbers for July and compare them against reductions from other suppliers, particularly Chinastar, but if BOE’s sales look worse than others, we can then make the assumption that additional reductions were made as a result of the rancor between the two, and could continue for the remainder of the year.

While Samsung Electronics (005930.KS), might not have been the first to release a foldable device, they certainly have been the category’s biggest proponent.  With the company expected to release its 3rd generation foldable series next month, there is little about the Z4 line that is not already known, other than price, although speculation is that both models will remain at the same price as the previous iteration.  That said, what about the Galaxy Fold 5 and Flip 5, which will not be released for over a year?  Yes, there is already the beginnings of conjecture about that next generation of foldable smartphones, even before the previous version is out.
The Galaxy Fold 5 and Flip 5 are expected to be based on Qualcomm’s (QCOM) Snapdragon 8550 chipset (aka Snapdragon 8 Gen 2), a 4um node device produced by Taiwan Semi (TSM) to be released later this year as an upgrade to the Snapdragon 8+ Gen 1, which was recently released.  This has also brought on speculation that Samsung will no longer use its own Exynos processor in the foldables (and potentially other mobile devices) as the Snapdragon specs have bypassed those of the Exynos.  But there is one aspect of the Flip/Fold 5 that is unusual, and that is Samsung’s unit volume targets, which are expected to be quite low and are seemingly reflecting a dour picture of the smartphone or CE environment in 2023.
As shown in the table below, we believe Samsung shipped 7.11m foldable units in 2021.  Samsung originally set a target of 10m units for this year but increased that to 15m units earlier this year.  Thus far we have not heard that the target for this year has changed, and, if the release date of August is correct, production of those units has been underway since late May or early June, especially considering the difficulties associated with shipping that CE companies are currently facing.  As production for the Galaxy Fold/Flip will continue through the end of the year, there is stil time for Samsung to reduce the number of units once they see whether the macro environment is affecting foldable sales. 
That said, the trade press in Korea is stating that Samsung has already set its unit volume targets for the Galaxy Fold/Flip Series 5, tobe released in August 2023, but at a considerably lower target (10m units) than one might expect given Samsung’s hopes for growth in the foldable smartphone category. This could be a reflection of Samsung’s 2023 macro outlook or more likely in our view, a very conservative estimate that will likely be raised, a more positive timeline than one where targets have to be reduced.  We note also that the ratio between the two models in both 2021 and 2022 has been 3:7, while in 2023, it is 1:4, according to the same sources.  This implies that the Galaxy Flip 5 will see an increase in unit proportion against the more expensive Galaxy Z Fold 5. 
Again, without confirmation from Samsung, we expect this would reflect an anticipated decline in price for the Galaxy Z Flip, which would increase its customer base, while the Galaxy Z Fold remains near or at its current levels to preserve margins across the entire foldable smartphone line.  This also does not assume that Samsung will release any new foldable smartphone models, which we believe is certainly a possibility in 2023, so the speculation of over the Z Flip and Fold targets could be excluding other models that would bring the targets up to what would be more ‘growthy’ levels, especially as Samsung has stated that it expects to expand the foldable line over time.

​The headlines in a South Korean tech paper indicated that a research firm had discovered that Samsung Electronics (005930.KS) was selling its 65” QD/OLED TV (S95B) at a price $200 below that of its main competitor LG Electronics (066590.KS) 65” W-OLED TV (Model G2), which would imply Samsung is willing to keep this new technology priced as a direct alternative to LG’s OLED TV products, regardless of how LG prices its comparative products.  With the original 65” QD/OLED price of $3,000, Samsung has already reduced the price, which remains at $2,600 on their website and within a few dollars of that more major retailers.  That said, we did find one on-line vendor that was offering the unit for an unusually low price of $2,049 out of Hollywood, Florida, although neither sales nor support lines seem to be working.
While we do expect that Samsung will try to remain competitive with LG’s OLED TV offerings with LG’s G2 series priced at $1,999 (55”) and $2,599 (65”), we were unable to find the offer mentioned in the trade press, although we expect there will be a few ‘door buster’ type sales over the next few months that might get the price a bit below the LG range, but we expect Samsung has built-in some substantial controls as to how the QD/OLED TVs are priced in order not to create unfair competition between vendors.  We believe it is frowned upon for brands to officially lock retailers into a price but we know of a number of instances where large brands have castigated those who beak the ‘suggested’ price points.  We do expect that Samsung will have some room to lower QD/OLED prices as it improves yield, and we would expect the company is still experimenting with how it is going to present the new technology from a pricing standpoint, so there might be a point where Samsung is willing to sell for little or no margin to make sure it sells out the targeted number of units before year end.  We are still watching…

​Samsung Electronics gave preliminary guidance for 2nd quarter of 77t won ($59.27b US) in sales and 14t won ($10.78b US) in operating profit, with sales slightly above consensus of 76.7t won and OP slightly below consensus of 14.5t won.  While Samsung will not give detail until later this month, we expect Samsung’s smartphone division to have seen a drop of between 18% and 19% in profits on a similar decline in smartphone shipments, while Samsung’s semiconductor memory business offset much of that decline. 
While Samsung continues to balance weak CE businesses with strong semiconductor sales, we expect 3Q guidance later this month to be a bit less optimistic given the inventory issues Samsung is facing in the TV space and the continuing weakness in the smartphone market and a bit of price pressure in the DRAM space, which will likely give the company a lesser ability to offset CE weakness.  We do expect Samsung’s smartphone business to see some momentum as SDC begins to supply iPhone 14 displays in 3Q, particularly as we expect Samsung to have taken back some share from China’s BOE (200725.CH), who we expect to be a bit more limited in how many iPhone 14 units they will be shipping this year, but Samsung’s own demand also needs to pick up, and that will be driven more by macro factors than new smartphone release timing.

​Samsung Electronics (005930.KS) is said to have suspended orders for LCD TV panels from its suppliers for between 30 days and 45 days according to a number of sources in South Korea.  This comes after it was widely noted that Samsung had reduced its TV set shipment plans for the year a 2nd time, from an original 53m – 54m units to 45m units and then to the current 40m units, as inventories grew to  2x pre-pandemic levels while demand slowed.  The original estimations would have built in an increase over last year’s 50m units, which was 10% above the shipment rate in 2020.
While the impact will be different for each of Samsung’s suppliers, we expect Samsung’s monthly order rate to be between 3.3m and 3.75m panels, which would represent between 5.8% and 6.6% of monthly panel production based on most recent data, and with an average price of $76 (TV panel ASP) a value of between $250.5m and $285m, would represent between 5.0% and 5.6% of large panel sales on a monthly basis.  Given that the 5 suppliers most likely affected would represent ~69.2% of monthly large panel industry sales, we expect the impact to be significant for BOE (200725.CH), Chinastar (pvt), HKC (248.HK), AU Optronics (2409.TT) and Innolux (3481.TT), but again, specific impact by company would depend entirely on order concentration and the type and price of the panels ordered as we are using an average price across all panel sizes.  Those with orders for 65” and larger panels, which carry a price considerably above the average would see a greater impact.  We expect BOE and Chinastar, both of whom have Gen 10.5 LCD panel fabs which specialize in large panel production would see the biggest impact.
As we have noted previously, much will depend on how quickly TV panel and set inventory can be reduced to more normal levels, which would entail a period of watching demand in a steady state environment (June) and then gauging how much discounting is necessary to bring those levels in line.  As raw material and component prices have risen, offsetting some of the declines in panel prices, TV set brands will likely tread softly when it comes to discounting, at least at the onset, but we suspect if normal levels have not been reached by the end of July, we will see even more aggressive discounting and the potential for Samsung’s cuts to extend into the first two weeks of August, exacerbating the potential impact to LCD large panel producers.  That said, we expect at least a modicum of stability by September but worry that at the first sign of even modest demand improvement at the set level, panel producers will increase utilization to bail out what is shaping up to be a weak 3Q.

​As we have noted, Samsung Electronics announced its QD/OLED TV line in March and began taking pre-orders in north America and a number of European countries, with regular sales beginning in April in the US and May for Europe.  Samsung is now expanding sales of the QD/OLED TVs to Singapore, Australia, and New Zealand, with the UAE, Brazil and other Central and South American countries in 3Q, and the rest of Europe by the end of the year.  The QD/OLED sets remain excluded from the Korean market, Samsung’s home territory.  We expect that supplies are still limited, despite the improvement in Samsung Display’s (pvt) QD/OLED yield rate and that Samsung’s heavy marketing of its QD/Mini-LED TV line as its premium TV offering would conflict with the idea of an OLED based TV, which Samsung has not offered and has denigrated in the past.
In our 4/18/22 note we estimated Samsung Display’s unyielded and yielded production for 2022, which we believe will fall to less than the general consensus of just over 1m units.  As this is a small percentage of the ~40m to 50m units Samsung typically sells each year, the marketing conflict remains a difficult one until a decision is made as to whether Samsung Display will expand QD/OLED capacity, which we expect is being decided currently.  While we could take the expansion of sales coverage as a sign that such a decision has been made, we hesitate to make such an assumption as the glass half-empty view would be that current sales have not been high enough to account for the potential production this year.  We ascribe to neither view at this point as shipments for the QD/OLED models have only been in place for a relatively short time, giving limited data to Samsung, especially during a period when TV set demand has been under pressure.  Given the potential investment involved in expanding SDC’s QD/OLED capacity, we expect the decision might be postponed until the end of 3Q or possibly to the end of the year.

​In our 8/16/21 note we indicated that Samsung Display (pvt) had been developing an alternative method for the deposition of OLED materials for RGB displays.  The process involves both shifting from Gen 6 substrates (which are typically used for small panel and IT OLED production, to Gen 8.5 substrates, which are typically used for larger TV size panels.  The reason for the research is that as current deposition systems are horizontal, the masks are affected by gravity causing them to sag as they get larger which has limited their size to Gen 6 when producing RGB OLED displays.  SDC is working with tool vender Ulvac (6728.JP) to develop a deposition tool that is vertical rather than horizontal, eliminating the potential gravitational mask sag issue, allowing the tool to process larger Gen 8.5 substrates.  If successful, it will give SDC a cost advantage over other OLED producers when producing IT RGB OLED displays, such as those for laptops and monitors. 
We would expect SDC to convert existing Gen 8 LCD capacity to this new process, as the TFT portion of the display process would be quite similar to what had already been in the LCD fab, which would save considerable time and cost, but at the time of our note, much depended on whether the technology was viable and cost effective.  We expect that SDC has decided that the technology is viable but has yet to decide whether the process is cost effective, with a large portion of that cost being the Gen 8.5 vertical deposition tool designed by Ulvac.  Typical Gen 6 OLED deposition tools range from $350m to $400m with Ulvac asking for $540m to $617m for the new tool, which is far above SDC’s $309m offer.  SDC is saying that they are currently the only buyer of the tool and that Ulvac has yet to complete the final version, while we expect Ulvac is building in a premium to cover sunk development costs, the larger format, and the fact that no other manufacturer has made such a tool.
We expect SDC is not betting the ranch on the Ulvac tool and is likely looking to Canon-Tokki (CAJ), the company with the largest OLED deposition tool base, for an alternative, although we expect the tool development process is further along at Ulvac, but SDC is likely looking to get the new fab in place in time for Apple’s (AAPL) OLED iPads, which are expected in 2024.  SDC could produce such OLED displays on existing Gen 6 production lines, but would have little cost advantage over LG Display, who will be competing for the Apple business, which is why we expect a decision to be made within the next 30 to 60 days.

​According to local Korean trade press, Samsung Electronics has initiated a program to develop a lower priced foldable smartphone for release in 2024.  With the concept of bringing the cost of a foldable down to 1m won (~$770 US) from the $960 to $1,550 (1.5m to 2m won) that such Samsung foldables cost last year by focusing on core functions, the company is hoping to widen its share of the foldable smartphone market and increase its own share of foldables across its smartphone lines.
As Samsung and other smartphone brands face competition from lower priced but fully featured Chinese smartphone brands, the impact on flagship models has been felt over the last two+ years, with Samsung’s best-selling phones being its Galaxy A series rather than the flagship Galaxy S series.  The Galaxy A series is priced between $180 and $450, while the Galaxy S Series is priced between $1,000 and $1,200 (Initial price).  While Samsung is expected to ship 15m foldables this year, up substantially from the 8m shipped last year, it is still under 6% of Samsung’s expected smartphone shipments this year. 
However with a share of just under 90% of the foldable market last year, Samsung needs to develop even larger volumes to maintain that very dominant share as other brands enter the market, and that would require a lower priced foldable to appeal to the more price conscious smartphone buyer as Samsung discovered when it lowered the price of the 2021 Galaxy Z Flip foldable to $999 last year.  That ~$200 price reduction over the previous year’s Galaxy Z Flip model made  last year’s Galaxy Z Flip the best-selling foldable model with a 52% share of the market. 
While we expect foldable display production costs to continue to decline, a less feature-rich foldable might be the key to bringing out a mid-priced foldable that will appeal to the top end Galaxy A Series customer without cannibalizing the more premium priced Galaxy Z Flip and Galaxy Z Fold.  As Apple is expected to enter the foldable market around the same time (2024), we expect Samsung’s ‘other’ motive for developing such a device would be to lessen the impact of Apple’s (AAPL) entry into the foldable market, which would likely have the most impact on the more expensive Samsung Galaxy foldables.  It will be tricky to create a less expensive device that still has enough features to warrant purchase without making it so attractive that it cuts into the Z Flip and Z Fold market, but we expect Samsung will do extensive customer testing before it makes such a step and will have a better understanding of the ‘foldable customer’ by then.
 

Over the last few years we have mentioned the development of TADFs (Thermally Activated Delayed Fluorescents) as complementary to or as an alternative to fluorescent and phosphorescent OLED emitter materials.  Given that TADFs are based on fluorescent materials, which are relatively inexpensive but exhibit a number of the more desirable properties of more costly phosphorescent OLED materials, they have been the subject of considerable research in the OLED material space since the early 2000’s, particularly at the university level, with the objective of designing less expensive alternatives to the red and green phosphorescent OLED emitter materials that are used in OLED displays currently.
In order to produce the light necessary for an OLED display, electrons in the emitter material absorb electrical energy which pushes them from what is called a ground state (it is easiest to think of it as an orbit around a planet) to an excited state (a higher orbit).  These excited electrons quickly fall back to their ground state but give off the electrical energy they absorbed in the form of light, essentially converting the electrical energy that you supply when you turn the display on, into the light you see on the screen, with the composition of the emitter material determining the color of the light.

​Here’s where it gets a bit more complex…  When the electrical energy is applied to that electron and it moves to an excited state that change can happen two ways, as a singlet or a triplet, with the technical difference between the two not germane here, but phosphorescent OLED materials produce triplets which have considerable higher efficiency when converting electrical energy to visible energy (light).  This makes phosphorescent OLED materials the preferred choice for display manufacturers.  However there are some drawbacks, the first of which is such phosphorescent emitters are only available in certain colors, with blue the exception, so in order to create an RGB (Red, green, blue) display, a less efficient fluorescent blue emitter must be included, which means a less efficient combination of materials and the potential for the materials to age at different rates.
Without going into the details of why creating a phosphorescent blue emitter has proven difficult, we leave it to say that material scientists have been working toward improving the efficiency of blue fluorescent materials for many years, which is where TADFs and Cynora (pvt) come in.  One technical detail of the difference between fluorescent and phosphorescent emitters is that the jump up to an excited state and the subsequent return to ground state in fluorescent emitters is rapid, while in phosphorescent emitters (triplets) it is relatively slow, which makes phosphorescents more efficient in converting electrical energy into light energy.  TADFs take the rapid fluorescent singlet reaction and slow it down (hence the ‘delayed’ in the name) to make them more efficient, giving the potential for TADFs to be used as a more efficient blue emitter when paired with phosphorescent red and green emitters.
This has been the objective of Cynora and a Japanese company Kyulux (pvt), who have been working toward the development of a blue TADF for a number of years, along with a vast group of universities and R&D arms of companies in the display materials business.  Unfortunately such development has proven more difficult than might have been originally thought and while there have been blue TADF materials released commercially, they have not been able to meet all of the characteristics needed by OLED display manufacturers.
Heretofore we have only mentioned OLED material efficiency, but commercial OLED emitter materials must meet a number of other characteristics, all of which are a sort of balancing act between efficiency, material lifetime, and color point, as each fluorescent, phosphorescent, or TADF material is trade-off of the three.  We have seen highly efficient blue phosphorescent OLED emitters that would certainly meet commercial requirements in that category, but had lifetimes that were not commercially viable, and we have seen efficient blue phosphorescent emitters that had longer lifetimes, but were not the deep blue necessary for commercial displays, so Cynora and other TADF developers have been competing with phosphorescent blue developers to hit that magic combination of all three characteristics that would push a new material into true commercial production.
If Cynora has not been able to produce the perfect blue TADF iteration, why would Samsung Display (pvt) , an affiliate of Samsung Electronics (005930.KS), and investor in Cynora, want to pay an estimated $300m (no confirmation on price has been noted) for the company, especially as it seems the company had been reducing its staff over the last few months?    We believe there are a number of reasons, the first of which is IP.  Cynora has filed or been granted over 600 patents, much of which relates to the development and application of TADFs, with an emphasis on blue.  Even if Cynora was unable to meet its goal of developing a commercial blue TADF OLED emitter material that offered better characteristics than existing fluorescent emitters, they have done very extensive work toward that end, which makes that IP valuable, particularly to Samsung Display, the leader in the RGB OLED space.  LG Display (LPL) was also an investor in Cynora, which means that SDC’s purchase would also force other OLED producers, including LG Display, to license any TADF IP that was developed by Cynora if it predates new material TADF discoveries and would give SDC a cost advantage if such materials became commercially viable.
We expect that while Cynora has sold relatively small amounts of various materials, their last funding round was in May of 2019 and were likely facing the prospects of a need for further financing, given a staff of ~120.  At the time of the 2019 financing the company’s CEO was replaced, likely to refocus the company toward a more financially viable commercial timeline.  Our history with the company has consisted of a number of meetings over the last seven or eight years where timeline estimates tended to be pushed forward, so we would expect that initial and early investors (2010 and earlier), might be looking for a way out of what has become a longer-term investment than originally thought.  While we have looked at a number of Cynora’s patents, we expect SDC has done a deep dive into the value behind the company’s IP in order to value the only part of Cynora that SDC seems to want.  If SDC is able to monetize that IP then the transaction will make sense, otherwise it seems to be a protective move to keep any hidden potential out of the hands of competitors and to bail out the company’s venture investment.

​As we have noted previously, Samsung Electronics (005930.KS) has recently begun offering its 110” Micro-LED TV in China, and while we noted that the pre-order excitement was high enough to have sold out what ever number of units were being offered (you now have to contact on-line customer service to place an order), we were not sure if any had actually been delivered.  In fact word has come down that the first 110” Micro-LED TV set offered has been delivered to a customer in Jining City, Shandong Province (free delivery we assume) for the price of 1.05m yuan, or $156,997 US.  The system is a 4K device with a 120Hz refresh rate and a maximum brightness of 2,000 nits.  It is equipped to handle HDR10+ and covers 100% of both Adobe (ADBE) RGB and DCI-P3 color standards and is able to display 4 separate video feeds on the massive screen.  To get some understanding of what this unit looks like, image a single TV set the size of four 55” TVs.  Currently you can get a house brand 55” LCD TV at Best Buy (BBY) for just a bit over $300; perhaps not as high quality as a Micro-LED TV with all the bells and whistles, but for the price of the 110” model, you could get 506 55” TVs.  You could give one to everyone in the neighborhood and still have lots left over…