​The SIM card (subscriber identity module) in a smartphone is an essential part of the phone and most modern phones will not work without it.  It contains an international subscriber number and a key that identifies the phone to networks and specifies the services that the subscriber has access to on that network, along with a subscriber PIN and a PUK (personal unblocking key) to unlock the PIN.  Physically the SIM card is usually moved from an old phone to a new phone, or a new SIM card is burned, allowing thye device to be registered and identified on the carrier’s network, but over the last few years, the development of e-SIM, an IC that is part of the phone, is slowly changing how SIM cards work and what can be done with them.
Changing carriers with a physical SIM card usually entails going to a store location for that carrier, signing a contract, and having that carrier’s SIM card placed in your phone.  This is not something that most subscribers do on a regular basis and carriers are not want to make this an easy process to prevent subscriber churning as new rate plans are revealed.  E-SIMs however, are programmable, allowing the user to download a new carrier’s SIM information without the complexity of a physical trip to a carrier or smartphone brand store.  There was resistance from carriers when e-SIMs appeared, for obvious reasons, but they have been accepted by smartphone brands and are finding their way into a substantial number of popular smartphone brands.
Looking at the ~546 smartphone models currently available, 26 state that they contain an e-SIM and while that is a small percentage (4.8%), all of the iPhone 13 line and all of the Samsung S21 flagship line contain e-SIMs, along with the Google (GOOG) Pixel 6 line and a smattering of Chinese branded models, among which are some of the most popular Chinese brands.  The problem with e-SIMs however is not that they are not available in many phones but that they are not always supported by local carriers.  In the US AT&T (T), T-Mobile (TMUS), and Verizon (VZ) support e-SIMs, along with Verizon sub-brand Visible (pvt), Truphone (pvt) and Ubigi (9432.JP). 
E-Sims are slowly being adopted by government telecommunication groups around the globe and while this will take some time, it does open up prospects for a concept that might appeal to subscribers, that of being able to have two carrier subscriptions on one phone.  By using a U-SIM (a SIM card for 3G carrier services) and an e-SIM on the same device, the user can have a work phone account and a personal phone account on the same phone, without the complexity of having to allocate a portion of the phone service cost to each account.  Services for the business number will be allocated to that account while calls to a personal account will be so routed, with both numbers ringing on the phone.  This idea can also allow the user to subscribe to a discounted carrier plan for personal use while using a more robust plan for business.
While e-SIMs are still a bit esoteric for the average subscriber, and carriers are not usually the ones to be proselytizing such a service, e-SIMs are just another cog in the wheel of digitalization, which has already changed the face of telephony over the last few years.  It will be nice to be able to change carrier plans without having to wait on line for a carrier employee to tell you that ‘we don’t do that here, you have to call the 800 number first’ or telling you that they need to keep your phone overnight to make the change, and even more important, the competition that such an ability will generate among carriers, which will benefit all subscribers.
 
 

​As we noted on 11/15/21, Samsung has some aggressive targets for its smartphone line next year, and as part of that plan, it targets 13m foldable phones to be shipped, up from the 7m expected this year.  While Samsung Display (pvt) has the capacity to produce the required units for its parent, it also expects to ship an additional 5m units to other customers, a target of 18m units, however the panels produced by SDC need to be assembled into modules before being shipped to customers, which takes place at the company’s module plant in Vietnam. 
With the Vietnam module plant capacity at between 17m and 18m foldable modules/year, even running at full capacity the foldable module assembly process would be the bottleneck facing SDC’s foldable display shipment plans.  To that end, SDC has begun to order equipment to expand module capacity at the Vietnam facility with the goal of increasing module output capacity to 24m units, a ~33% increase, by adding 3 new lines to the existing 7.  As the tools needed for assembly are not akin to those used for actual display production, the timing of tool delivery should not be a limiting factor for SDC.  That said, the COVID-19 travel restrictions mentioned earlier in our daily note, could lengthen the time for the tools to be installed and tested, which is why SDC is ordering enough new module capacity to more than meet foldable module expectations for 2022.

Ericsson (ERIC) puts it out for all to see in the Ericsson Mobility Report, a document the company produces twice yearly and has been for the last 10 years.  What makes us appreciate the data is the fact that unlike many organizations that make quarterly or yearly forecasts, Ericsson starts each bi-annual update with a comparison of what was forecasted and what the actual results are, a humbling experience for most and one that is routinely avoided by many.  Being among those that look at vast amounts of data and make such forecasts, we appreciate those that look at data and forecasting as an opportunity to give a particular insight into that data, and not a reason to apologize for being incorrect.  We note John Kenneth Galbraith’s iconic quote about forecasting, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know,” which points to humility in forecasting, and Naved Abdali’s often misquoted, “Some people claim they predicted a downturn, but they forecast a downturn every day, and finally, one day, they are right.  Even a broken clock is right twice a day,” that is indicative of the futility of self-promotion in forecasting.
In any case, here’s what the Ericsson report showed:

​[1] Forecast made in 2011 for 2016
[1] Forecast made in 2015 for 2021

…and here are some new ones:

• 5G subscriptions in 2027 – 4.4b
• 5G Subscriptions will account for 90% of North American mobile subscriptions in 2027
• 5G Subscriptions will account for 44% of Latin American mobile subscriptions in 2027
• During the last 6 months the number of service providers offering 5G Fixed Wireless Access services has increased by 25% from 46 to 57, with the Middle East and Africa representing ~60% of that growth
• By 2027 FWA will be offered to over 800m customers
• The fastest growing region for mobile data traffic between 2021 and 2027 is expected to be Southeast Asia and Oceania at 34% CAGR
• North America is expected to see mobile traffic growth of 24% CAGR between 2021 and 2027
• 5G coverage is expected to be over 2b people this year and will grow to ~75% of the global population by 2027 

Rumors concerning the demise of Samsung’s (005930.KS) Galaxy Note Series smartphone line have been circulating for over a year, and while there has been no ‘official’ statement that the Note will no longer be produced, it seems that we have seen the last Note smartphone this year.  One of the most important functions of the Galaxy Note series, which was considered the ‘highest-end’ model in the Samsung smartphone line, was the S-Pen, giving the device the ability to be used for note-taking, particularly for business users, along with large screens that created the ‘phablet’ category, between a smartphone and a tablet.  Sales of the original Note were stronger than expected and subsequent models continued that strength, and Samsung used the Note to introduce curved edges with notification displays in 2014, but in 2015 Samsung tried to expand the appeal of the Note to consumers and made the device less complicated to use, alienating some of its original fans.
In 2016 the company skipped the number 6 and released the Note 7, which included an iris scanner, opening it to secure payments, and a translation feature, trying to woo back the business customers it lost with the Note 5.  Pre-orders for the Note 7 were at record levels but when reports of the phone overheating and exploding began to appear Samsung issued a recall and replacement of the Note 7.  Unfortunately some of the replacements also overheated and burned forcing Samsung to fully recall the Note 7 only 60 days after its release.  Not to be taken down by a recall, Samsung released the Note 7 FE (Fan Edition), a refurbished Note 7 with a smaller (and safer) battery in 2017, starting the FE series that continues today. 
The Note 8, which allowed the phone to be connected to a keyboard and monitor, acting as its own computer, was a popular device, but the Note 9 saw few technology changes and sold poorly, pushing Samsung to create two sizes for the Note 10, with the smaller size attempting to attract women.  With sales of ~12.7m in 2019, Samsung tried to follow up with the Note 20 models but saw sales fall under 10m units, and with no new Note model this year sales continued to decline.  Samsung has now taken the S-Pen, the most popular Note feature and added it to the Galaxy S21 Ultra and the Galaxy Fold 3, eliminating the need for the Note line while following Samsung’s long-term goal of pushing all of its technology through the entire smartphone line, rather than keeping the ‘cool’ stuff just for the flagship models.
Given that the Note models were usually sold at a premium to other flagship smartphone line, the Galaxy S series, Samsung needed a replacement for dwindling Note sales, and while the Galaxy S series continues, the product differentiation afforded the foldable line and its success gives Samsung the option of cancelling the Note line without a long-term effect on margins.  The cost of producing foldables will continue to decline as will the cost of the components needed to accommodate the technology and Samsung has planned to produce 13m Galaxy Folds and Flips in 2022, which would bring foldable shipments back to the Galaxy Note’s 2019 sales level and exceeding the Note’s combined sales for 2020 and 2021.  With little competition from Chinese smartphone brands[1], Samsung’s foldables are the logical alternative to the Note, which was seeing increasing competition from Chinese brands and Samsung Display (pvt), the display production subsidiary of Samsung Electronics, is said to have a foldable display production target of 16m units in 2022, up from 8m this year, which includes foldables for laptops.


[1] 3Q ’21 Samsung Share – Foldables – 93% - Source: DSCC

China’s smartphone shipments saw a large jump in October, far above expectations.  33.6m phones were shipped during the month, up 57.0% m/m and up 28.2% y/y, the highest single month increase since March, reversing the declines of the last two months.  While we have no company shipment data specific to October, we expect the unusually strong results for the month were due to the September 24 release date of the Apple (AAPL) iPhone in China.  According to JD.com (JD) and other on-line sources, there were at least 5m pre-orders for the iPhone 13 series on just the first day they became available and shipping dates were already moving to the 2nd week in October by the end of the day. Since the bulk of orders would ship in October, it would seem to account for the roughly 10m incremental shipments for the month, especially since the October data reveals that 25 of the 26 new phone models released in China in October were from domestic brands, leaving 1 new model from a non-Chinese brand.  The ‘iPhone bounce last year, seen in November, was a bit muted due to COVID-19.
5G smartphone shipments in China also increased in October, increasing to 26.6m units, up 76.2% m/m and up 58.7% y/y, reaching near the peak months of January and March this year.  Again, the increase of 11.5m units m/m would likely reflect the strong iPhone 13 shipments as all four iPhone models are 5G ready.  5G phones made up 79.2% of overall shipments in China in October, maintaining a share between 70% and 80% for much of the year, and 61.5% of domestic new models.  Based on 5 year averages, total shipments for China’s phone market in 2021 should be ~347m units, which would be up 12.3% y/y.  We make the assumption that November and December generate ~65m units shipped.
Early data on smartphone sales during China’s Single’s Day holiday (11/1 to 11/11) indicate that sales were down 0.7% y/y to ~12.9m units, due to the earlier release of the iPhone this year and the continuing weakening of Huawei’s (pvt) smartphone business.  Local brands Vivo (pvt) and Xiaomi (1810.HK) took the top sales share at 20% and 19% while Apple came in 3rd at 18%.  Huawei saw a meager 7% share of holiday sales, while former Huawei brand Honor (pvt) came in at 13%, almost double its former parent.  Alibaba (BABA) saw a GMV[1] of $84.5b, up 8.5% y/y, below the $86b to $90b forecasted, while JD.com fared better overall at $54.6b, up 28.6% y/y although a bit less than last year’s 33% gain.
With the potential for the first y/y increase in Chinese phone shipments since the peak in 2016, the Chinese press is extolling the ‘glorious recovery’, leading to ‘years of prosperous expansion in the industry’.  While this is certainly looking like a better year than the previous four, it is still only a single year indicator during a two year period that saw the world mired in a devastating pandemic which has destabilized the CE space and created many pockets of both positive and negative growth.  We have no vested interest in the Chinese smartphone market other than as an observer, and would wait a bit before calling a secular trend.


[1] Gross Merchandise Volume – A non-specified measure used by Chinese retailers.

Who is this man and what is he dreaming about?  He’s an engineer (not his real job) at Corning (GLW) and he is dreaming about ways in which the glass content of smartphones can be further increased.  What will put a smile on his face is a recently granted patent for what is a six sided, all glass mobile device, and to make the smile even bigger, the patent was granted to Apple (AAPL), and follows a series of other earlier Apple patents that describe similar devices.  In a true sense, the patent actually describes an all glass structure comprised of a transparent front and back, with touch controls, and four sides, with touch sensitivity for additional controls, such as speaker volume and power. 
While the entire body looks like a single piece of glass, it is actually two or more pieces joined using glass frit, a bonding material that acts as glass solder, melting at relatively low temperatures and then quickly hardening to seal the bond.  Such materials were used to join the glass parts of cathode ray tubes.  Panel producers also dream of such devices as the potential for a second display on the back and more simplified indicators on the side mean more panel content and more dollars/phone.  Of course, a patent, while an indication of potential direction, does not mean such a device is being developed, and there are still a number of issues, particularly the need for machining to create holes for microphones and speakers, but device producers have surmounted many such problems over the years in order to differentiate their products, and glass scientists continue to fabricate new materials that were not even dreamed about a few years ago. 
With ultra-thin flexible glass just beginning to have an impact and more mature hardened glass products moving from consumer electronics to the automotive space, the reality of a six-sided all glass smartphone no longer seems that far-fetched.  Samsung (005930.KS) originated mobile devices with rounded edges, which also seemed fanciful a few years back and now seem the norm, so the reality of such a truly six-sided device with multiple displays and indicators is both plausible and possible, but what will really put a smile on this man’s face is that the six-sided, all glass phone will need six sides of Gorilla Glass™ to protect it.  That’s a lot of glass.

​Samsung Electronics (005930.KS) has been a leader in the 5G smartphone race, releasing the 1st 5G smartphone, the Galaxy S10 5G in April of 2019, but has been lagging behind Chinese brands, who have pushed the technology given the aggressive 5G base station buildout that has taken place across the country.  Samsung has lost share in China, not only because of 5G, although that is seen as a contributing factor.  Based on Samsung’s current 2021 smartphone lineup (there are at least two more models slated for release this year), 5G capabilities are available in all flagship models (Z Series & S Series), but only in 33% of Samsung’s mid-tier (A Series) models, 27.3% of its lower-priced models (M Series), and 33% of its lowest tier models (F Series).
Samsung is expected to push 5G into all of its 2022 A series models next year in order to attract more users in both China and Europe, where EU members have a ‘unified’ plan for 5G buildout through 2027, have implemented 5G in at least 24 of the 27 EU countries, and are expected to have almost 36m subscribers by the end of this year (Western Europe).  Samsung will continue to provide 4G LTE versions of such new models for those areas where 5G has yet to be implemented.  While 5G is a bit of a different animal from other smartphone features, this is in keeping with Samsung’s plan to push down features that might have appeared only in flagship phones in the past, to lower priced models and will likely push down high pixel cameras, larger batteries, and IP67 (water/dustproof rating) to all or many of the A series phones. 
Samsung will also be pushing the connectivity aspect of the company’s smartphones, expanding their ability to share information with other Samsung products, from Smart Tags™ to appliances, and given the broad Samsung CE ecosystem, using the smartphone platform as a control point for many of those products, is an advantage few of its competitors have.   Moving such connectivity from flagship phones down to mid-tier phones will be a viable way for Samsung to counter Chinese smartphone brands, most of whom do not have more than a few CE products outside of smartphones.  The trend with Chinese CE companies is to use a ‘smart screen’ (aka a connected TV) to control and monitor CE products, but this limits consumer reach.  Given that smartphones are rarely out of reach to consumers, a phone that offers connectivity to a wide selection of CE products become more indispensable to consumers, and bringing that down to phones under $500 should help Samsung to regain some share in 2022.  LG Electronics (066570.KS) has a similar connectivity system (ThinQ) but will no longer be producing smartphones.

There is nothing worse (well, maybe a few things) than having your smartphone tell you it is going into power saving mode while you are on an important call.  As such, despite the fact that a number of smartphone brands no longer include chargers with new phones, batteries are an important part of what gives us hope that we can finish that important call before the phone shuts off.  Lithium-ion batteries are the mainstay of what runs smartphones, saving been around in mobile devices for only about ten years, but have become an indispensable part of consumer electronics, despite some potential drawbacks.
On the negative side, Lithium is highly reactive to water, creating hydrogen gas which is flammable, so lithium based batteries are carefully encased to avoid contact with water or humidity and mixed with polymers rather than a liquid electrolyte (Li-Po).  On the plus side, they are environmentally safer than Ni-Cad batteries, which they have come to replace, as cadmium is a highly toxic metal.  However they are relatively expensive as much of the material used in the production process is flammable and requires equipment designed to be explosion-proof, but have little self-discharge, which means they can be stored for long periods without losing a charge.
Both battery types have the same power delivery, meaning an 18W Li-Po and an 18W Ni-Cad are equal in the amount of power they can deliver to a device, however Ni-Cad batteries have a ‘memory’ issue, remembering the point at which recharging began, and dropping the voltage to that point even if it is fully charged, which is why users of Ni-Cads are instructed to let the battery discharge fully before recharging.  Li-Po batteries have a much smaller ‘memory’ effect and can be charged at any point without major voltage drop, but require a built-in protection circuit to limit peak voltages on charging and monitor temperature, which adds to their cost, but can be shaped to fit small or unusually shaped spaces inside mobile devices.
But none of this matters when your battery is running out and you need your phone, and all of the hardware in smartphones, especially in 5G phones, can draw down batteries quickly, so one would expect the largest batteries to be in high-end 5G smartphones, however that is not the case, as the 10 smartphones with the largest batteries (7,000 mAh) are all 4G phones priced at $500 or less, a number of which are designed for emerging markets rather than mature markets where flagship phones are most popular.
One thing that seems to be a limiting factor for batteries is the physical size of the phone itself as the additional features in high-end smartphones require additional hardware, all of which competes with the battery for space, so designers are always trading off battery size against feature sets.  But there is another factor that can help in the battle to keep smartphones charged and that is the charger itself.  More powerful chargers are a way for brands to differentiate themselves and decrease charge times, so at least if you can’t fit in the world’s largest battery, you can change the phone quickly.  This is a place where Chinese brands excel and have been leading the charge (sorry) toward faster charging capabilities.  Of the 18 smartphone brands that come with smartphone chargers that are 100W or greater, all are Chinese brands, with the average charger for an iPhone 13 series or a Samsung (005930.KS) Galaxy S21 being between 20W and 25W.  Among the highest power chargers we have seen are the 120W charger supplied with the Xiaomi (1810.HK) 11T Pro that was released in October, which is said to charge to 100% in 17 minutes (5000 mAh Li-Po battery)
But speed is not the only criteria for charging, as the iPhone standard charging system doesn’t run at full power until it is at 50% charge and then begins to limit power as it reaches 70% limiting a full charge (from 0%) to 1hr. 56min. for an iPhone 13.  But higher power chargers, which charge faster also have some drawbacks, which are not usually mentioned in publicity literature.  The reason the iPhone charger reduces power as it gets closer to full charge is that the stress on the battery increases as it charges and limiting the voltage can reduce that stress.  Higher power ‘quick chargers’ do just this, pushing higher voltages when the battery is near zero, and then backing off as the charge increases.  Most rapid charger literature focuses on 10min or 30min. charge times just for that reason and 120W chargers have become commonplace over the next year as charger materials change and become more efficient, growing the ‘fast charger’ market 2.6 times between 2020 and 2022[1].
While the good news is that the voltage limiting circuitry inherent in Li-Po batteries will keep you from overcharging and damaging your smartphone’s battery, you should still not let your battery go to zero if possible as it causes a chemical reaction that can shorten the battery life over time, although most phones will warn you a number of times before you approach zero, and batteries that are designed for higher voltage charging have thicker layers that keep the higher charging voltages from damaging the battery, which also limits their power.  All in, the battle for product differentiation concerning smartphones seems to be migrating toward keeping your phone on for as long as possible and in this case, it seems the consumer is the winner.  That said, both Samsung and Apple (AAPL) now make you buy a charger rather than including one with a new phone.  There is no free lunch.


[1] Trendforce data

According to the Korean trade press, Samsung Electronics is expected to be launching 52 new models of smartphones in 2022, with 67m units being part of Samsung’s flagship line, which includes the Galaxy S line and the Z Fold/Flip line.  Additionally, 91m mid-priced models are included in Samsung’s target, along with 176m low priced units, with a total of 49m units being produced in cooperation with OEMs.  While there is some contention concerning how the unit volumes will break out among the price tiers, the total unit target is between 321m and 334m.  The lower estimate breakout is shown below and includes 2021 models that will continue to be produced in 2022.  While there are estimates of when certain models will be released, we expect much will depend on component availability and put little weight in such early timelines.
We note that Samsung’s targets are aggressive, with foldables rising from ~7m units this year to 13m in 2022, but the total of over 300m units has been unreachable since 2017 and carries considerable skepticism across the industry.  While much of the sales value is in Samsung’s flagship and mid-tier lines, it seems foolish to expect such large shipment volumes on an overall basis, especially with the specter of component issues adding uncertainty to the mix.  We expect the recent examination of Samsung’s mobile business by corporate management might be leading to the more aggressive targets, but given how targets have been lowered this year across almost all smartphone brands, we would expect Samsung’s optimism might be a bit misplaced.

​On a unit volume basis, the global smartphone segment saw shipments decline by 10.3% y/y to 319m units in 3Q.  The decline was led by Samsung (-13.5%) and Huawei (pvt) (-88.2%), while all other top brands grew y/y.  Apple grew more than any other brand in 3Q on a global basis at 16.2%.   If we were to remove Huawei from the group, 3Q global shipments would have grown 2.5% q/q, so much of the negative growth came from Huawei’s trade issues with the US.
In China, shipments in 3Q declined 6.4% in 3Q, led by Huawei, with all other major brands growing y/y.   Again removing Huawei from the list, Chinese shipments would have grown 20.7%, although a theoretical calculation given the fact that Huawei’s unit volume decrease in both global and Chinese shipment categories was responsible for much of the gains seen by Chinese brands, who picked up the lost Huawei customers.
We note that our shipment calculations are done by averaging multiple data sources and therefore do not always add up to 100%.  That said, by averaging multiple sources we are able to compensate for outliers that now have a muted effect on the averages.  While extreme variations are relatively rare concerning global brand shipments, regional brand shipment estimates can vary by as much as 25% in either direction.