A number of smartphone brands are active in the ODM market, outsourcing the design and production of a variety of models to reduce costs.  Almost all major smartphone brands follow this path to a degree, other than Apple and Vivo (pvt), the sister brand to Oppo (pvt), who is the largest user of ODMs.  Considering that both Oppo and Vivo are owned by the same company, it is unusual that they have been diametrically opposed when it comes to ODM outsourcing, however it seems that Vivo has begun to see the merits of using ODMs, with its first batch of small orders going to Huaqin Technology (8014310.CH) one of the largest ODMs in China. 
Samsung, while 3rd in last year’s ODM outsourcing ranking, saw the biggest y/y increase, up 269.1%, however while LG Electronics (066570.KS) saw a 56.6% increase in ODM unit volume they will likely see a very substantial reduction this year, as they have decided to close their smartphone division.  Huawei (pvt) saw a reduction in ODM orders allotted in 2020, but that was likely a result of weak smartphone sales coming from the US trade sanctions levied against the company last year.  Such a reduction will likely happen again in 2021, as the company’s smartphone sales, both in China and globally, have been further limited by the same sanctions.
Estimates for the smartphone ODM market call for an increase from 480m units last year to 650m units in 2025, while sales value is expected to increase from $26.4b last year to 33.8b in 2025.  Much of the growth is expected to come from said increased unit volume but predictions that the average price of a smartphone will continue to increase at least in the near-term, benefiting ODM sales, is also baked into forecasts for this year and next.  Unfortunately component and raw material inflation is the root cause of the big boost in smartphone ASP last year (10.6%) and this year (3.6%), although we believe preduictions for another 4.1% average ASP gain in 2022 could prove optimistic.  After that ASP’s for smartphones are expected to be essentially flat through 2025.

​While all local smartphone markets have their own characteristics, the US smartphone market is quite different from other large markets.  It is expected to garner a ~10% share of the overall smartphone market with a population that represents ~4.2% of the global total, while China, with 18.3% of the global population, is expected to be 26.7% of global smartphone share at the end of this year, although both are expected to see negative growth this year.  In 3Q Samsung took the top share in the global smartphone market, although we expect Apple (AAPL) will take that position in 4Q on sales of the iPhone 13 series, but the number 3 brand globally, Xiaomi, doesn’t appear in the US, unless it falls into the ‘other’ category, which in total came to 7% in the US in 3Q.
In the US Apple was the share leader in 3Q at 42%, growing 3% from last year’s 3Q, while Samsung took a 35% share, up 5% from last year.  LG Electronics, who last year had a 13% share in the US market (3Q) is defunct, with much of that share falling to Apple and Samsung.  There were two Chinese brands that registered in the US smartphone market in 3Q, TCL and OnePlus (pvt), with 5% and 3% respectively, while Samsung did not register in China, although Apple had a 13% share in 3Q.  Oppo (pvt) and Vivo (pvt) were the two brands in China with the largest share in 3Q, at a combined 43%, both of whom are owned by the same private company, and Honor (pvt), formerly a Huawei (pvt) sub-brand, came in just above Apple (13%) and Xiaomi (14%) at 15%.
Last year in 3Q, the Chinese market was dominated by Huawei with a 35.6% share, which is now down to 8% because of trade restriction imposed by the US that limit the company’s ability to access Google (GOOG) store applications. So, while the US is a diverse smartphone market in terms of brand source, China is not, with 89.9% of new models released in 3Q coming from Chinese based brands.  With Apple and Motorola the only US based brands in the US market, there is plenty of room for competition for US smartphone dollars, although based on what is currently available from US carriers, there are really few choices other than Apple, Samsung, and Google, with a smattering of Nokia and last year’s LG phones.  

​Canada runs at a slower pace than the US, but should that mean Canadian time is different than US time?  If you were an iPhone user yesterday, it seems that you woke up an hour earlier than usual.  Cellular based Apple (AAPL) devices decided that they could not wait until next Sunday and set themselves back an hour, anticipating the end of daylight savings time by almost a week.  The issue came not from iOS or WatchOS, which have had DST problems in the past, but from a number (unknown) of Canadian cellular carriers, particularly Bell of Canada (BCE), where the company indicated that it had discovered and was investigating the problem at 7:42 AM, with the company righting the problem by 7:50.
Some other carriers were affected but more sporadically, with the problem being traced back to Bell substituting a -5 in front of Greenwich Mean Time, rather than a -4, which told phones that it was six days later and had them reset to that incorrect time.  Some folks found that company managements were not particularly sympathetic to their lateness, given they were unaware of the problem, while others did not consider any excuse a viable one for being an hour late.  It is possible to turn off the automatic date and time updating on an iPhone, and it will still correct for DST as that is embedded in iOS, but the phone will no longer update if you cross a time zone.  The alternative is to get an old alarm clock, as they did not update automatically and avoid any battery complications by plugging it in.  We live in a complex world.

As far as smartphone sales go, China is the most important global market, with a share of 26.7% last year, and while CAGR for the period of 2018 and 2020 is -4.5%, that is only slightly above the total market CAGR of -4.0%.  This makes the Chinese smartphone market one to be carefully studied, looking for indications as to how trends are playing out, both monthly and quarterly, as a potential precursor to global market results.  September was a bit of a disappointment in the Chinese smartphone market as shipment were 21.4m units, down 12.0% m/m and down 8.2% y/y with September typically up 6.2% m/m (5 year average).  Given that the number of new models released in China in September was 58, similar to August’s 57, it would seem that Chinese consumers were not particularly impressed with the new batch of smartphones from local vendors, which gives us pause as to how the remainder of the year will play out in the Chinese market.
Based on September’s performance, we lower our expectations for China’s full year 2021 smartphone shipments from 332.9m units to 313.6m units, a reduction of 5.8%, which would put the year up 1.8%, rather than our previous estimate of 8.1%, and the 2nd half being considerably weaker than the first half of the year.  5G smartphones shipments were 15.1m units, down 16.6% m/m but up 7.9% y/y.  This marks the 2nd month in a row of negative monthly 5G shipment growth in China, with both declining faster than the overall market on a m/m basis.  While this is something to be closely watched, as 5G smartphones have been a source of growth in the Chinese market, we believe the slowdown in 5G shipments is a function more of an overall slowdown in the Chinese market than a function of 5G itself, especially as China continues to build out 5G networks. 5G smartphone share of total shipments in the Chinese market has been above 70% since March of this year and while it could drop below 70% in 4Q, the average for the first 9 months of this year (73.8%) is considerably higher than last year’s 46.8% for the same period.
While we believe the Chinese smartphone market is maturing, smartphone penetration rates are still estimated to be below 60%, and while penetration rate increases will become harder to come by going forward, the 5G conversion  replacement cycle will likely support at least some growth again next year.  That said, 6G is a few years off and it will be difficult for the Chinese market to see much unit growth in 2023 and beyond until that cycle becomes a reality, which will make the Chinese smartphone market even more competitive than it is currently.  While this does not bode well for Chinese smartphone brands, it will likely lead to more feature rich and potentially less expensive models for Chinese consumers over the next few years, and while this is a plus for potential Chinese smartphone buyers, it will continue to put pressure on non-Chinese brands, who are faced with further share loss in China and more global competition as Chinese brands look to grow outside of the Mainland.
 

​As we gather more data on 3Q OLED smartphone shipments, we get more of an understanding as to the discrepancies in such data between sources.  While we believe that in the case of LCD panels, where there are many variations, small panel OLED displays are less varied and should therefore be easier to track.  In theory that seems correct given that the distinct difference between rigid OLED and flexible OLED as to substrate should simplify calculations, as long as foldable OLED is included, but we see a much bigger difference between shipment estimates, both in the 3rd quarter and in previous quarters.  Last week we noted our expectations for 3Q small panel shipments, but feel investors would be better served with a range that would allow for some of the differences in estimates that we have found.
Based on that concept we offer slightly modified estimates for 3Q small panel OLED shipments:

• OLED smartphone panel shipments in 3Q – Between 160m and 165m units, which would be up between 23% and 25% q/q and between 14% and 31% y/y.
• Samsung Display (pvt) dominated small panel OLED shipments with between 62% and 64% of flexible panel shipments
• Samsung further dominated shipments for small panel rigid OLED rigid displays with a share between 83% and 86%.
• Apple’s (AAPL) portion of total small panel OLED shipments in 3Q was between 34% and 37%
• Apple’s portion of Samsung Display’s small panel flexible OLED shipments was between 65% and 68%.

Some of the biggest discrepancies between estimates were with 2020 quarterly small panel OLED shipments, where differences ranged between 0.5% and 14.6%, while this year the range was between 1.6% and 8.1%.  We expect the range between estimates for this year will expand a bit further as we access some of the more aggressive estimates from China, so we will continue to work with ranges, especially as smartphone brands adjust their full year smartphone shipment targets, but we expect the estimate differences, on a longer-term basis, to narrow in 2022. 

​Florida Senator Marco Rubio and a number of other Republican senators called on President Biden to add Honor (pvt), the independent spin-off of Huawei’s (pvt) smartphone business, to the ‘entities’ list that would keep company’s in the US or those using US developed equipment from sourcing product to the Chinese company.    Rubio described Honor as an ‘arm’ of the Chinese government that is now able to access US technology that has been denied to Huawei.  With the spin-off of the Honor business, Huawei has stated that they have no financial or management influence over Honor, which has given the company the ability to access the Google App store and associated products, which opens the company’s products up to the world market, while Huawei remains unable to do so, which has severely limited its smartphone business.
Rubio’s letter goes further, stating that the Chinese government has been able to dodge a ‘critical American export control’, and by failing to act the US Department of Commerce is setting a dangerous precedent, ‘and communicating to adversaries that we lack the capacity or willpower to punish blatant financial engineering by an authoritarian regime.’  Last August a group of Republican Congressmen also called on the DoC to add Honor to the list, under the assumption that keeping Honor ‘unlisted’ would allow Huawei access to semiconductor foundries and equipment that has been restricted by the listing, although no proof of Huawei’s alleged access to the Honor supply chain has been given in either instance.
Honor might have caused this latest political diatribe by mentioning earlier this week that it had ‘succeeded in confirming cooperation with a number of supplier partners in the early stage” and that upcoming Honor 50 smartphones would include Google Mobile Services, the most onerous part of the Huawei ban.  This seemed to have attracted the attention of China hawks and put Honor back in their field of vision.  While Honor might find it necessary to announce its current independence from the Huawei ban, it might have served them better to wait until they were able to both secure substantial component inventory from foundries and to release at least one major product using Google services and letting the ‘chips’ fall where they may after that.  Now the increasing pressure to focus on China as an adversary will likely pull in any decision by the current administration and could end Honor’s elation over being able to release its first truly global smartphone.

​Many Samsung (005930.KS) smartphones did not use Samsung’s own chipsets, including high-end flagship models.  The top of the line Samsung Galaxy S21 5G models all contained a Qualcomm (QCOM) Snapdragon 888 chipset if it was sold in the US and China, while other regions received the same phone with Samsung’s own Exynos 2100 chipset, which would seem rather unusual, but has been the case for many of Samsung’s smartphones.  In fact, much of Samsung’s smartphone line, including foldable use application processors produced by Qualcomm or Mediatek (2454.TT), and only Chinese brand Vivo (pvt) has released a few models with the Samsung Exynos chipset.  It seems odd that Samsung’s self-produced chipset would not appear in many of its smartphones, as it assumedly would be less expensive than purchasing an outside AP, but there have been problems that have led to a low adoption rate for the in-house AP, and Samsung aims to change that going forward.
Things got so bad that a petition on Change.org in April of last year requested that Samsung stop using the Exynos processor on many international versions and consistently use the Qualcomm processor, as “The Exynos phones are slower, have worse battery life, worse camera sensors (a separate issue) and processing, get hotter and throttle faster, amongst other issues.”  Comparison tests on sites like AnTuTu and GeekBench confirmed the weaknesses when compared (Exynos 990) to the Qualcomm 865 and Samsung’s share of the AP market has been declining and our quick check of the Exynos’s use in Samsung’s own phones seems to show a big push in 2019 and then a decline in its use in 2020 and this year.
One issue that has been cited for the problems associated with the Exynos AP is that Samsung had been using its own custom CPU cores (Mongoose) produced at its Texas facility, which as a single core outperformed Qualcomm, but when combined with other functions in the SoC, the package fell short in comparisons.  Samsung closed its custom CPU lines at the end of 2019 and adopted ARM based CPU design, similar to that used by Qualcomm and others.  Samsung has also been working with AMD (AMD) to improve graphics performance and will use AMD’s next generation graphics processing unit in the upcoming Galaxy S22 release expected in January.  Samsung is also said to be working on a fix for the heat problem, which is caused by 5G communication chips.
The S22 is still expected to be released with both the Exynos and Qualcomm options, but Samsung is expected to increase the use of the next generation Exynos processor in a larger portion of its smartphone line, which is also expected to have a unit volume target that is ~20% higher than this year.  While it is still early for setting 2022 targets, we expect some of the expansion of the Exynos AP is due to the shortages facing the semiconductor industry which could limit the availability of APs to Samsung.  By using its own AP, it can bypass some of the issues that could arise in 2022, but the comparisons between the ‘new’ Exynos and both Qualcomm and Mediatek must be much closer if Samsung does not want to face continued criticism.  By switching to ARM cores, they have narrowed the gap, but if they are going to expand the Exynos across the line, it better be as good as or better than the others.

SellCell (pvt) is a company that buys and sells used electronics equipment, primarily smartphones, and as such they would seem to have a bit of a bias toward ‘encouraging’ potential customers to replace their existing phones by selling them through the company, rather than back to the carrier.  They offer better deals than most carriers, who can be very selective about which brands and models they will accept as trade-in, but we note that the survey[1] that they have conducted concerning the iPhone 13 could reflect some of that bias as the full survey is not available.  We note that some of the responses can be compared to a pre-launch survey which was a bit smaller[2].
A number of the responses were surprising, particularly the fact that 64.1% found the iPhone 13 models “Not at all exciting” or “Not very exciting”.  When it came to the features that attracted buyers to upgrade the 120Hz refresh rate was the most popular at 34.1%, considerably more than the 22% in the pre-release survey.  Longer battery life came in 2nd at 25.3%, again much higher than the 8.3% in the pre-release poll.  Under-display touch ID was the 2nd most popular feature in the pre-release survey, but did not even register in the final, but most telling was that 43.7% of respondents said they intend to upgrade to the iPhone 13 in the pre-release survey, while only 23.2% said the same after the new models were released. 
While both surveys were large enough that the data was likely reflective of the true intent of the respondents, the questions leaned a bit to the negative, so we point out again that the company doing the survey has a vested interest in getting folks to upgrade their phones.  That said we were a bit surprised at the lack of enthusiasm expressed for the new models, although our initial reaction was a resounding, ‘more of the same’.  There were a few oddities also, with the survey revealing that 18.3% of Apple users are triskaidekaphobic, meaning they have a fear of the number 13 (check to see if your elevator has a ‘13th floor’ stop…) and that 74% of those polled would prefer a different name than the iPhone 13.  The survey results are shown in figs. 5 – 9 below.
All in, Fig. 9 was the most surprising, as it indicated that the brand that iPhone users would most likely convert to was Google (GOOG), a relatively small name in the smartphone market, especially compared to Samsung (005930.KS) who came in lower than Google.  The Google Pixel series has been compared to the iPhone at times and has a limited number of models, also similar to the iPhone’s offerings, but sell for considerably less than Apple prices.  The Pixel does have a longer battery life than the iPhone 13, which was an important feature for the Apple crowd, but would likely perform much less ‘robustly’ when compared to the iPhone A15 Bionic processor.


[1] Included more than 5,000 iPhone users 18 or older, based in the US.

[2] Included more than 3,000 iPhone users 18 or older, based in the US.

It is still early in the foldable smartphone cycle, even with the August 11 release of Samsung’s (005930.KS) 3rd foldable series iteration, the Galaxy Z Fold 3 and the Galaxy Z Flip 3.  With shipments beginning in South Korea on August 24 and in a number of other countries by the 2nd week in September, there are a few data points coming in as to how the devices are selling.  These are anecdotal at best and in some cases represent what dealers ‘expect’ rather than what has already been delivered, but it seems the units are selling reasonably well thus far.
Given that South Korea, Samsung’s home court, dealers were able to start accepting orders early, and thus far ~1m units have been sold in Korea, which is more than the very popular Galaxy Note 10 (8/23/19) and the Galaxy S8 (4/21/17) sold in an equivalent period, with 270,000 activations on the first day of sales.  JD.COM (JD) was said to have a total of 700,000 waitlisted orders at the end of August, while TMall (BABA) was said to have 168,000 in the queue at the same time.
More surprising is that India seems to have also fallen for the new foldables, with 1st day orders said to be 2.7 times that of the Note 20 (Announced 8/5/20) and is expected to exceed the Note 20 in overall sales, although we note that sales of the Note series had been declining for the last few years.  More surprising was the statement that 60% of the sales of the two foldables in India were for the more expensive Galaxy Z Fold and that 25% of those phones turned in for Fold price rebates were iPhones.
In China, where Samsung’s smartphone share has dwindled to ~1% over the last few years, the new Fold series sold 35,000 units and for the first time in many years, said phones made it into the top 10 in China for the month of September.   While some are touting that increased interest as a way for Samsung to find its way back into the Chinese market, with domestic brands representing 93.8% of total shipments in China, its going to take a lot of foldables to gain significant unit share for Samsung, although from a sales value standpoint things might be better, as the average smartphone price in China is a bit over $400, while the price of the Z Flip 3 and Z Fold 3 is ~$1,150 and $2,350 respectively.
Expectations for the Flip 3 and Fold 3 are for ~7m units sold this year and while the phone has barely been rolled out globally, expectations are already rising as such narratives about orders and sales appear.   Samsung is said to have begun to expand production at its assembly plant in Bac Ninh, Vietnam, one of three in that country, in order to alleviate potential delivery issues.  While we are encouraged by such patter, it would seem to be a bit early in the Flip/Fold 3 cycle to be making suppositions about 2021 shipments as we head into the holiday season. 

Smartphone brands have to put a lot on the table when making estimates of how many units they expect to sell each year, as that data becomes the jumping off point for the product supply chain.  While modifications can be made after the new devices are released, in order to build enough stock, hard unit numbers must be supplied at least 3 months in advances, and given the shortages the industry has been facing over the last year, more likely those numbers must now be locked in 6 months ahead to avoid delivery delays.  However, it gets even more complicated as companies like Samsung have a multitude of smartphone series, and a number of models in each with different component line-ups and variations down to the basic component level.
The real work for component buyers comes before assemblers have any idea of what they will be producing as brands must also make sure either they or the supplier can access the number of components needed for each variant, and that those supplies meet brand unit volume goals.  Taking the example of Samsung’s (005930.KS) Galaxy S line, which is the company’s most visible flagship smartphone product, the current (S21) series has three basic models, the S21, the S21+, and the S21 Ultra.  All three have different displays, case sizes, cameras, batteries, and many, many differences in internal components, so not only must suppliers get an order specifying the total number of units overall, but it must be broken down into every potential variant.  If those orders, based on both the brand’s estimated unit volumes and estimated component and labor costs are wrong, in either direction, the profitability of that line will suffer.  At an estimated $415 BOM for the Galaxy S21, incorrect estimates leading to delivery issues or excess inventory add up quickly.
On a broad basis the table below shows what Samsung has, and is expected to order for the three Galaxy S2x variants in terms of percentage of total (Note – Where ranges are given we take the center point which means the totals do not always add up to 100%).  The upcoming S22 will be the first time Samsung has ever allocated more than half of total production to a single model, which we take to indicate some concern for both the differences between the models and the price of the more expensive plus and ultra versions, and while Samsung had placed early orders for 30m units this year (S21), it is expected to be ordering only 20m initial units for the 2022 series.  We do note that Samsung’s initial expectations for the Galaxy S21 series was 26m units, the company upped that to 30m around the January release date.
Last year Samsung was surprised at the initial popularity of the Galaxy S20 Ultra and found that they had not ordered enough of that model to fill orders leading to shipment delays and cancellations.  It is easy to see that they expected a similar circumstance with the S21 series, more than doubling the previous year’s order, while some of that expected enthusiasm is reflected in the order breakdown for the S22 series, but the total number of S2x Ultra units declines from 9m this year to 5m next year, even with what we expect will be a flat or slightly lower BOM, which indicates Samsung’s lower risk profile for smartphones going into 2022.