​Taiwan based Trendforce tends to be optimistic when making forecasts, but so far this year they have been unable to pin down a stable estimate for smartphone production in 2021.  Back in February they were estimating 1.367b units but only 3 month later lowered that number by about a half percent to 1.36b produced, as COVID-19 outbreaks in a number of countries gave pause to the outlook for 2H.  Once again, they have cut that forecast, this time by ~1% to 1.347b units, and have cautioned that it has the potential to be cut again if those outbreaks continue. 
While these are relatively small forecast cuts, they do show how volatile the CE market has been this year, and for those products, smartphones included, that are not part of the ‘stay-at-home’ surge, there has been little to get excited about.  Many CE companies have cited the impact of COVID-19 on transportation costs and factories in India, Vietnam, Thailand, and Malaysia, all of whom were the recipients of new production capacity as many CE companies transitioned out of China, are now facing issues of their own, with government mandated factory closings and increasing outbreaks putting pressure on an industry (smartphones) that was already seeing little growth.  While the smartphone industry is focused on the upcoming Apple (AAPL) iPhone series, the rest of the industry is under the thumb of the pandemic once again, and will likely see further forecast reductions this year.

​As we have previously noted, Samsung is expected to include the ability to use the S-Pen device on its upcoming Galaxy Z Fold 3 to be announced next month.  The S-Pen has been an integral part of the Samsung Galaxy Note series that has been around since 2011.  Samsung has ‘leaked’ the Z Fold 3 pricing in South Korea, which is expected to be between $1,500 and $1,660, however unlike the Galaxy Note series there will not be a slot in the Z Fold 3 to store the S-Pen.  While this seems to already be a focus point for some bloggers, despite the expected lower overall price of the new model, it seems Samsung is also offering a case for the Z Fold 3 that includes a slot for the S-Pen, with the cost of the case and the pen in South Korea ~$76.00 US (the pen alone is ~$34 US).
Those spending ~$1,600 for a new smartphone, especially one that will have a foldable display that will be expensive to replace, should not hesitate to purchase a case for the phone, which will solve the S-Pen issue, and there will likely be a variety of alternative cases available once the official announcement is made, so the S-Pen ‘controversy’ should disappear.  That said, Samsung also seems to have very significant confidence in the new Z Fold and how the price will affect sales, as the word among component suppliers is that Samsung has ordered 100,000 units of the Z Fold 3 for South Korean release, which is 10x the previous version, including last year’s pre-ordered units.  If Samsung does sell through this large order quickly, it will set the tone for the entire foldable series to replace the Galaxy Note, which has seen declining sales over the last few years.  Samsung has considered ending the series this year, but needs to fill the gap among it user base by offering the S-Pen with the Z Fold 3 to those that are already Samsung pen fans.  Samsung is also expected to offer a ‘pro’ version of the pen that will allow gestures via bluetooth.

Zhengzhou is the capital of Henan Province and has a population of ~10m, over twice the population of LA, and receives an average of over 11” of rain during July and August, so the population is used to a bit of flooding now and then.  That said, a few extra days of rain have led to devastating flash floods that caused 12 deaths and led to over 500 people being trapped in subway tunnels in and around the city after flood defenses were overwhelmed and water filled the tunnels.  24” of rain fell on Tuesday, with almost 8” in one hour, causing roads to close, airport traffic to end, and more permanent damage to roads in some areas.
 
Foxconn (2354.TT) has three factories in Zhengzhou, and while the company insists that there is no flooding in those locations, they do admit that some of the areas surrounding the factories have become impassable and emergency measures have been taken to maintain the safety of employees.  That said, the three factories account for roughly half of the assembly of iPhones, and while the factories themselves remain in operation, the ability to move materials and goods in and out of the plants is quite limited according to local press, increasing fears that there could be some delays in the iPhone 13 announcement or availability.  Some flights have been able to leave the Zhengzhou airport but most have been cancelled and some feeder roads have been damaged, but given the fact that it is still a bit early in the iPhone build cycle, unless the rain continues for many days, we expect the Apple iPhone release schedule will remain intact.

Handset shipments in China improved in June at 25.64m units, a bit ahead of our 25.25m unit estimate, although the y/y comparison was still down 10.3%.  The 2nd quarter saw shipments of 76.14m units, down 22.3% q/q and down 26.9% y/y, against the COVID-19 snapback seen in last year’s 2Q.  The 1st half saw shipments of 174.14m units, up 13.8%, with the 1H y/y improvement coming primarily from the very weak 1Q in 2020 when COVID-19 caused significant lockdowns.
The Chinese smartphone market is also feeling the effects of the US government trade ban on Huawei (pvt), who had been selling phones with components stockpiled earlier in 1Q, but was unable to secure additional components in 2Q.  On the positive side, 5G smartphone shipments continue to increase, seeing an 18.2% increase m/m to 19.79m units, and while 5G shipments in 2Q were down 17% q/q, they were up 17% y/y, again with the q/q weakness likely coming from Huawei.  5G shipments in 1H were 127.8m units, up 101% y/y.  5G smartphone shipments represented 77.2% of the total in June, slightly below the peak of 77.9% seen in April, but remains on an increasing trend line.  As 5G antenna and modem costs are reduced, we expect the 5G share trend to continue to increase but we expect the y/y ROC to level off until 5G connectivity becomes more meaningful in low-end phones, likely in concert with the next round of integrated modems that we expect relatively early next year.  We note that 2G and 3G phone shipments in China have now fallen to ~1% and are already meaningless relative to 4G and 5G.
On an overall basis, if Huawei had not been facing such stringent US trade sanctions, we would have expected to still see a decline in Chinese smartphone shipments this year.  Chinese brands have been working hard to capture the Huawei smartphone customer base but while they will likely capture much of that share, Apple (AAPL) remains a contender, but one that will show up primarily in 2H.  Overall component shortages could also cut into total 2021 smartphone shipments in China, but we see less of an impact from component shortages in 2H and less of an overall impact on demand from increasing component prices for smartphones than with other CE devices.

Smartphones are handy gadgets and while the value of being connected 24/7 is debatable, such devices have become increasingly sophisticated over the last few years with multiple cameras that compete with SLRs,and TOF sensors that can map surroundings and give users the option to modify or add images to a video in real-time.  These are handy things to have if you are taking pictures for National Geographic or getting a good look at the QAnon Shaman, but the necessity for having five high quality cameras on your smartphone seems a bit over overkill for taking the usual selfie shots of your friends making goofy faces or of what you are having for dinner.

However a recent WIPO patent application made by Chinese smartphone brand Vivo (pvt), seems to take the camera concept even further by including a detachable camera drone that can lift off from the phone and is able to take pictures from angles not possible using a camera mounted on the phone. While the patent application suggests a number of variations including a 2nd camera on the ‘drone’ and a TOF type sensor, adding the capability for distance measurement and effects, along with proximity sensors to keep the drone from collisions with other flying objects, the details on how the drone is controlled or how data is stored or transferred are not quite available. 
However a lack of details has not kept some from producing a mock-up and video of such a product and projecting a 5cm x 5cm x 1cm size, allowing it to be completely hidden inside of the smartphone when not in use.  Of course no reference is made to where the phones electronics might have to go in order to create room for the drone, which, using a typical 6.8” smartphone, would take up ~20% of the space normally allocated to the phone’s innards, or how long the drone battery might last, but not to be a downer, here’s the rendering video: https://youtu.be/gK7nWwoAfRQ
This is really a device concept patent, which is presented to keep others from trying to use the ‘flying camera’ concept in a smartphone without a license from Vivo and will likely never see mass production for a number of reasons, primarily as we expect the market for such devices would be rather small.  However Vivo has shown a smartphone ‘concept phone’ that has a detachable camera, a progressive idea taken from those smartphones that have pop-up cameras, and smartphone brands are always looking for ways to garner media attention so we have learned never to say ‘never’ when it comes to smartphone features.  Looking forward to the days when we can zoom in on what the neighbors are having for dinner.

There are lots of estimates for small panel OLED displays both LCD and OLED, with the focus on smartphone or feature phones, and while unit volumes and sales are certainly important, another metric we track is trends in new models, both the number of available models and the features.  Our most recent look was concerning the use of OLED displays in smartphones, where we were looking to see how estimates for OLED penetration, usually made on a unit or area basis, compared to OLED smartphone penetration from a model standpoint.
Given that the data collected for 2021 is for only the first half of this year, and that on average (last two years) 55.2% of available models are released in the 2nd half of the year, we can make some assumptions about how many new smartphone models will be released and available this year and what percentage of those will be OLED or LCD.  Based on the typical split between 1H and 2H, the model suggests that this will be a record year for new smartphone models, reaching a projected 426 smartphone models released or available this year, up 12.5% from last year, and slightly above the peak of the last 5 years (2017) (Fig. 1).  OLED share itself has been increasing in new models, with a projected 48.6% share of new & available models by the end of this year and a slightly higher share (over 50%) for the 1st half (Fig. 2).

​The same data gives us some understanding of the size of new & available models, which has changed substantially over the last few years, but rather than plot the share of each size of smartphone over the last 5 years, which would present a complex visual, we show in Fig. 3, the largest size category for each year and the share of the total that that size held.   Back in 2017 the 5.0” to 5.5” category was not only the largest, but also held over a 75% share of the total, however within a year that share dropped to under 30% as smartphone sizes began to increase rapidly and by 2019 the largest size category for smartphones was 6.2%.  While the average smartphone has continued to increase in size, the 6.4”to 6.5” category has remained the largest for smartphones both last year and this year and continues to increase as a percentage of the total from 35.7% last year to a projected 41.6% this year.  With the increasing number of foldables, all of which sport OLED displays, we expect the size categories at and above 7” to continue to expand and the OLED share of new and available smartphones to continue to increase.

​Back in January (see our notes 1/14/21 and 1/25/21) we noted that Apple (AAPL) had added a ‘caution’ to its devices that instituted its MagSafe magnetic charging system, including the iPhone 12 family.  At issue were the increased number and strength of the ring of magnets that were responsible for holding the device in the correct location during charging, with the warning that anyone using an implanted devices, such as a defibrillator or pacemaker should keep any device or accessory using MagSafe more than 6 inches from the implanted item.
This means not keeping an iPhone 12 in a breast pocket or putting the phone next to you when you are sleeping.  The FDA agreed with Apple’s warning, and at the time of the study was unaware of any adverse reactions between the iPhone 12 and any implantable devices.  A recent study by the American Heart Association however, disagrees with that conclusion.  The AHA study found that the iPhone Pro Max resulted in ‘identifiable magnetic interference in 3 out of 3 tests where the phone was place directly over an implanted device and 8 out of 11 (72.7%) of ex-vivo tests, meaning those where the phone was placed next to an implantable device that was not implanted.  The conclusion was, “As a result of these tests, the researchers concluded that Apple’s iPhone 12 Pro Max MagSafe technology can cause magnet interference on CIEDs and has the potential to inhibit lifesaving therapy.”
As noted, the tests were done by placing the phone directly over the device on the patient’s skin, although it was found that with some models the effect was seen at 1.5cm (0.6”), so in more practical terms, the risk would be more from the possibility of an accidental contact, however the AHA did go on to compare the results for the iPhone 12, which Apple insists does not carry any greater risk than older generation iPhones (non-MagSafe), against a study done that found no cases of magnetic issues in the 148 patients that were tested. 
All in, even if the implants are affected by the iPhone 12, the interference will not cause a heart attack or any other symptoms that might be dangerous to the patient.  During the interference, the implant would however be in backup mode and would not be able to provide the patient with the necessary assistance during tachycardia or other arrhythmias, which could have serious consequences.  The bottom line is if you have an implanted device, keep your iPhone (or other similarly charging device) in your pants pocket or handbag.

We have mentioned Samsung’s FE (Fan Edition) smartphones as recently as 6/14 in reference to the initial FE, a refurbished version of the infamous and recalled Galaxy Note 7, and the more recent Galaxy S21 FE released last October, but it seems that while Samsung is expecting to release the next Galaxy S21 FE this coming October, it might not be available to all that would like it.  We noted on the 14th that Samsung had halted production of the S21 FE and was considering allocating the phones application processor, the Qualcomm (QCOM) Snapdragon 888 to other products.  Now it seems that Samsung is considering releasing the S21 FE but only in the US and Europe and excluding South Korea, Japan, and Australia as a possible alternative, with the lack of foundry capacity at the root of the problem, although there is still hope for you ‘secondary countries’ in that Samsung will decide some time before December whether it will release the S21 FE in countries other than the US and Europe, likely based on available capacity at Qualcomm and Samsung’s AP inventory levels after the initial release.

Shipments of Handsets in China fell again in May to 23m units.  This was down 16.4% m/m and down 32.0% y/y, against a 5 year average increase of 0.9% for May, putting shipments only 5.5% above the low for the year, which was February, typically the low point for shipments historically.  We expect this trend to continue through June/July/August, which are typically relatively weak months for handset shipments in China, and pick up again in September, although our expectations for the year are for 303.48m units shipped, which would be down 1.5% y/y, even against the weak year in 2020.  While the 1st quarter’s y/y comparison (up 100.2% y/y) was easy due to the onset of COVID-19 in China, the 2nd quarter comparison will be the opposite, given the snapback seen in 2Q last year, and we expect 2Q total handset shipment in China to be down 30.7% y/y at 72.2m units this year.
5G smartphone shipments declined to 16.7m units, down 22.0% m/m but up 6.8% y/y, although the share of 5G smartphones as a percentage of total handsets also declined to 72.6% from its peak of 77.8% last month, and th number of new 5G models released in May declined to its lowest level this year.  We expect that the release cycle for 5G smartphones in China would account for the low number of 5G new models and weaker shipments, although component shortages might begin to slow the rate of 5G smartphone growth in the near-term.  That said, we expect 5G share of total shipments in China this year to remain above 70% for the remainder of the year and new 5G model releases to pick up in September.
On an overall basis, China’s smartphone market remains lackluster, and Huawei’s (pvt) trade issues with the US, while they are less impactful on the Mainland, do have a sobering effect on smartphone demand in China.  As Huawei is unable to avail itself of 5nm or 7nm process nodes, their ability to compete with other smartphone brands is muted, despite the lessened impact of limited Android services in China.  Other Chinese brands continue to try to fill the gap, but to remove what was the number one brand in China from its position in its home country would be like removing the iPhone in the US.  Many will migrate to other brands, but the transition is not an easy one and will opt to hold on to existing Huawei phones for a while to see if the trade logjam breaks.  In the interim, the Chinese smartphone market continues to weaken.

Samsung Electronics’ (005930.KS) mobile marketing team was excited back in August of 2016 when the company released the Galaxy Note 7, the successor to the Galaxy Note 5, and features such as a dual sided curved display and support for HDR (High Dynamic Range).  In South Korea, where the phone was released first, demand was high, beating previous model pre-order records and Samsung found itself a bit short of units when it began international release, but for a good reason.  In days that ensued, Samsung received positive reviews and the Note 7 was on its way to becoming a star in the Samsung Galaxy lineup.
Unfortunately that did not last, with reports of the Note 7 bursting into flames as the battery overheated, forcing Samsung to issue a ‘soft’ recall of the device only four weeks after its release, followed by a more formal recall about two weeks later, a marketing nightmare for the company.  But it did not end there, and the replacement phones that were issued to those consumers returning their Note 7’s under the recall, also began to catch fire, prompting the company to issue a global recall and end production for the Note 7.
Samsung’s marketing department is aggressive, and could not just walk away from such a public relations disaster, and nine months after the disastrous end to the Note 7, the company issued the first ‘fan edition’, under the marketing story that the phone was so popular, despite the ‘issues’, that fans were clamoring for the phone, and this, a refurbished version of the Note 7 (with a new battery supplier) was the answer to that demand at least in South Korea where it was originally released.  The company sold out all of its Korean inventory (~400,000 units), which were built from parts left over from the Note 7, and while it said it had no plans to produce any additional units there was talk that it was so popular that it should be released internationally.  This was never done, although a limited number of Note FE’s showed up in Malaysia and a few other locations.
That said, the success for the FE was now ingrained in Samsung marketing’s zeitgeist, and while it took some time before the next Fan Edition hit the shelves (Galaxy S20 FE – 10/2020), Samsung used it to create  a $700 version of the Galaxy S21 ($1,000) that retained most of the important features.  The FE did have a plastic back while the original had a glass back, and it had a larger but lower resolution screen, and an MP second camera, where the S20 had a 64MP second camera, but it allowed Samsung to essentially lower the price of the S20, without actually lowering it.
With the release of an ‘Fan Edition’ tablet in May, and the potential release of a Galaxy S21 FE later this year, it seems Samsung has adopted the Fan Edition as a way to offer a bit of diversification without diluting the original product price, but it seems that plans this year are not going to be as easy to implement, with claims that Samsung has halted production of the Galaxy S21 FE recently due to a shortage of semiconductor components, and has or is considering reallocating Qualcomm (QCOM) processors from the FE to its foldable line. 
Samsung sys it has not made a decision as to whether to suspend production of the S21 FE, which has not been formerly announced, but the company has said in the past that it will produce FE versions of its flagship phones.  With last year’s S20 FE not being announced until September last year, Samsung still has time to make an official decision, but without a change in the prospects for semiconductor supply, it seems Samsung will likely be rationing components as the year progresses.  While the Fan Editions seem to generate incremental sales of the company’s flagship lines, components will go to wherever the margin is the highest, and we suspect that is with foldables, which might put an end to both the Galaxy Note and the Galaxy FE models, at least until the component shortages are alleviated.