In June smartphone shipments in China increased 34.6% m/m and 9.2% y/y to 28m units, the first positive y/y comparison since December of last year with 98.2% of those phones being smartphones.  5G shipments were 23m or 82.1% of the total, up 29.9% m/m and 16.2% y/y.  34 new models were released in June, with 28 being smartphones and 25 being equip for 5G (73.5% of new models).  Domestic brands shipped ~24.5m units or 87.5% of the total, up 47.6% m/m but down 0.4% y/y.
The increase in June shipments is certainly a step toward at least some recovery from the dismal shipment metrics seen in China since January, which we believe reflects both the Chinese New Year holiday period and the aggressive lockdowns that were initiated by state and local governments.  We expect there was considerable pent-up demand at the consumer level and for brands whose production was limited during the quarantines.  We expect smartphone shipments to level off for the remainder of the year, albeit at a lower average level than last year, as can be seen in the charts below. 
While certainly a recovery from the last few months, it is difficult to see a demand based recovery in the Chinese smartphone market as there is little new in the way of features and new form factors (foldables) are still a very small portion of unit volumes.  The driver for any smartphone sales on the Mainland has certainly been 5G as China continues to push forward with base station installations outside of COVID hot zones and with 5G smartphones represented 3:1 in new models, all brands are making sure they have at least a number of offerings for potential new customers or 4G converters.  All in it was certainly the best month in the quarter, but the long-term chart tells the story of consumers unwilling to spend for upgrades that don’t appreciably move the needle and higher brand costs make the steep discounts needed to get Chinese consumers to open their wallets are hard to come by this year.
Chinese smartphone producers, both OEMs and assemblers have been facing volume challenges for a number of years as the Chinese smartphone market peaked in 2016 and has been on the decline since.  As volumes were reduced manufacturers searched for products that could help them fill lines that were now running at low utilization rates.  Due to the attraction of the smartphone market, which has among the highest unit volumes of all major CE product categories, phone manufacturers were not willing to give up on the smartphone market, despite the slowdowns and were willing to take smaller and lower profit margin orders over the last few years than they would have in the 2017’s and 2018’s, but competition, even for these smaller orders became so intense that manufacturers began to look for other CE products that could help them maintain high levels of utilization.
While volumes for such ‘non-phone’ products (tablets, laptops, etc.) were not as high, the initial margins were enough to be profitable and fill the lines, however over the last year the competition for these products has become so intense that unit pricing wars have begun to push smaller producers and assemblers out of the ‘non-phone’ market, leaving them without alternatives to fill production gaps.  We make the assumption that this will cause some to finally give up the ghost and the market will tighten a bit, but until then it seems that smaller Chinese smartphone producers are going to be fighting a losing battle amongst themselves.

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

The smartphone market is highly competitive to say the least, and both small and large marketing departments are constantly challenged to find ways in which to differentiate their products and make them more appealing to the buying public.  In some cases this can be a sleek or fancy new design, in others leading technology, and finally in some, the wedding cake approach, tier after tier of extra features that are meant to overwhelm the user with the phone’s ability to run almost every aspect of life.  As in all things CE this works in cycles, with categories like multiple cameras, higher pixel displays, or faster charging all taking p[precedent for a period of time only to fall prey to consumer ennui after they become commonplace, so every once and a while a brand, in this case a new brand, decided to try to simplify and return to basics, or so the copy says.
Nothing (pvt) Technology was formed in 2021 (we noted same in our 03/25/22 note) by Carl Pei, the founder of Chinese smartphone brand OnePlus (pvt) and added a number of well-known investors from other successful CE companies (all of whom are prominently shown on the company website) and released an earbud product in July.  A few days before our earlier note the company announced its intent to release a smartphone with a simplified OS on top of Android and in June of this year began taking pre-orders for the phone which had been promised for the summer of this year, with 100,000 pre-orders said to be signed up.
In a ½ hour event the phone was announced under the concept that it was designed with ‘less distractions. More Soul and pure instinct’, with a self-effacing video that describes how the inventors were imbued with the idea of removing the barriers between technology and people by eliminating silly product names and tech-speak, leaving just artistry, passion, and trust.  What came out was a phone that looks a bit different in that it is made with clear glass, allowing the insides to be exposed, and uses ‘Glyphs’, essentially LED lights, to notify users of calls or other functions if sounds are turned off.  While flashing lights in someone’s pocket might play well at meetings or in movie theaters (remember those?), LED lights do seem to be a way to attract the attention of young buyers, likely an outgrowth of in vitro disco hopping by their parents.
We compared the feature set against the Apple (AAPL) iPhone SE and the Samsung (005930.KS) Galaxy A53, as both are popular mid-range priced smartphones.  As far as we can see, at least from a hardware standpoint, the Nothing phone is about what might expect from a manufacturer trying to compete with a wide variety of $250 to $500 smartphones that was looking to add a bit of pizazz to their marketing campaign and as we have yet to see the actual phone or the OS we cannot yet evaluate how well it interfaces with other CE products (both Android and iOS) as it was originally touted, so we reserve full evaluation to a later date .  We do expect lots of excitement from fanboys, who will see the pictures of Twitch (AMZN) and Reddit (pvt) founders on the site and buy the phone regardless of how it functions or how practical it is, and some who will appreciate the odd-ball features, but as to sustainability, the company will have to sustain the flashing light mantra going forward or continue to find other shiny objects to attract the attention of younger smartphone buyers when there are over 100 brands and thousands of models to choose from.  

​On 7/12/22  we noted that the Indian Law Enforcement Agency froze 119 accounts totaling $57.4m, along with fixed deposits, 2Kg of gold, and cash of the Chinese smartphone firm Vivo (pvt), under the accusation that the company had been funneling sales revenue back to its parent BBK Electronics (pvt) in China to avoid paying taxes in India.  Vivo is a sister brand of BBK along with Oppo (pvt), OnePlus (pvt), RealMe (pvt), and iQOO (pvt), and to understand how important Chinese brands are to the Indian smartphone market, in 1Q of this year, Chinese brands represented 84.8% of the Indian smartphone market, with only Samsung (005930.KS) and ‘other’ making it into the top 6 group.
It seems that the India\n government has struck again, with the Directorate of Revenue Intelligence, part of the country’s finance ministry, indicating that it had found evidence that Oppo “willfully and wrongly declared description of certain items it imported which allowed it to improperly avail duty exemption benefits of $374.3 million,” with management accepting the wrongful submissions before the Customs Authority at the time of import.  The ministry searched the offices of the company and the residences of the management team as part of the investigation which led to the recovery of incriminating evidence.  The Ministry also added that Oppo had made $176m in license and royalty payments to other companies, both in and out of China that it did not disclose in the value of goods it imported into India, which violates Indian customs law.  Oppo has voluntarily deposited $56.5m as partial customs duty since the investigation.
Oppo’s view however is a bit different than that of the Indian government in that it believes such issues are ‘industry-wide’ and is reviewing a recent warning that the ministry issued after the earlier Vivo incident and an even earlier investigation that led to the seizure of $725m of assets owned by China based Xiaomi (), which erupted into threats of physical violence and harsh statements from the Chinese government during the investigation.  The enmity between the two countries stems from border wars that began in the 1960’s but reignited in May of 2020 when Chinese and Indian troops battled along disputed border areas, eventually erupting into gunfire in September 2020 after 45 years of relative peace. 
Those battles resulted in the Indian government banning Chinese software applications and some cancellations of contracts between Chinese companies in strategic Indian markets and considerable anti-China protests.  While the effect on Chinese smartphone brands was felt for a shot period, they regained popularity with Indian consumers because Chinese smartphone brands designed products designed for the Indian population that had some very specific needs, while more global brands did not, leading to a very loyal following on the sub-continent, aside from the political wrangling.. 

​Vivo (pvt) is not a smartphone brand well-known in the US, however the company held a 7.9% share of the global smartphone market at the end of last year, and a ~16% of the Chinese market at the same point.  Owned by China’s  BBK Electronics (pvt), along with its sister brands Oppo (pvt), OnePlus (pvt), RealMe (pvt), and iQOO (pvt), Vivo is among the most popular smartphone brands in India, with a share that is on par with Samsung.  That said, there has been considerable enmity between the Indian and Chinese governments over border issues for the last few years and occasional flare-ups of anti-Chinese sentiment have been focused on Chinese smartphone brands at times.  Some of that antagonism seems to have made it way to the Indian Law Enforcement Agency who recently froze Vivo’s bank accounts, citing the investigation of 48 Vivo locations in India under provisions of the Indian Money Laundering Act.
The Bureau has accused the company (and others) of remitting 62.48t rupees (~$7.85b US) to China and other locations to avoid paying taxes, which represents about half of the company’s revenue.  The bureau froze 119 Vivo accounts totaling $57.4m, along with fixed deposits, 2Kg of gold, and cash.  Vivo has asked the New Delhi High Court to unblock a number of the accounts so it can pay salaries and dues, who then gave the enforcement agency until tomorrow to make a decision as to whether to unlock the few necessary accounts.  The enforcement agency has indicated that the capital was shifted back to China to make the Indian operation look like it was producing a loss and therefore avoid taxes and alleged that some Vivo executives had tried to leave the country when they discovered the investigation and had used forged identification and address documents when they formed the Indian subsidiaries of the company, strangely using the addresses of what turned out to be a government building and the home of a local bureaucrat instead of the real corporate address.  The investigation continues….
 

The smartphone market has been relatively weak this year, with optimistic shipment targets made late last year being trimmed so far this year.  There has been little hope that sales will pick up appreciably, outside of seasonal norms in 3Q and 4Q, other than Apple’s (AAPL) iPhone 14 family release in mid- September, and that could be delayed a bit if there are problems with logistics.  Typically (5 year average) smartphone shipments increase ~1.1% in 2Q and 13.5% in 3Q, and while much of the hard shipment data for 2Q has yet to be published, early estimates are that shipments are expected to decline ~3.0%.  3Q however is more of a crapshoot (non-technical term for statistical anomaly)) as the typical 3Q q/q gain is 13.5%, which, given the macro environment, might be a bit difficult for the industry to meet, especially given the higher than normal inventories plaguing a number of CE product categories.
In the past OLED based smartphones have defied broader growth patterns for the broad smartphone market as share grew, but with OLED smartphone share reaching ~43% last year and continued share growth this year, OLED smartphones are mainstream and face macro challenges similar to those for LCD smartphone displays.  This is made more understandable considering that the competitive nature of the OLED display space continues to increase with Chinese small panel OLED display producers pushing to gain share to prove their worth in the overall display market, as they have done in the large panel LCD space and Chinese rhetoric about how they are challenging the dominance of South Korean small panel OLED producers Samsung Display (pvt) and LG Display (LPL) with a bent toward the goal of ‘world dominance’.
As we have previously noted, South Korean small panel OLED producers have a number of advantages over Chinese small panel OLED producers, primarily the production experience that comes from 15 years of small panel OLED fab operation and a broad supporting infrastructure, while Chinese players began what would barely be called commercial production 9 years ago.  That said, Chinese small panel OLED producers do have one large advantage, and that is capital, which despite questionable operational profitability (without subsidies), seems to be readily available to OLED producers for expansion and to make up operational shortfalls.  The expansion capital has allowed Chinese small panel OLED producers to add considerable capacity over the years as seen in Figure 2, and without question we expect Chinese small panel OLED producers to eclipse South Korean capacity some time over the next 2 – 3 years.
That said, while the numbers would indicate that Chinese small panel OLED producers can take over the lead position in production capacity from South Korean rivals, there are missing factors in Figure 2, and those are utilization and yield.  Given Samsung Display and LG Display’s long-term small panel OLED production experience, they maintain high yield ratios, and while they vary according to how long a product has been in production and the complexity of the display, we believe South Korean small panel producers maintain higher yields than their Chinese rivals and are therefore able to produce more sophisticated small panel OLED displays.  While such sophisticated displays carry a higher profit margin, the market for same is smaller than that of more generic small panel OLED displays, which theoretically should lead Chinese small panel OLED producers to higher utilization rates and higher unit counts, however this is not the case based on our data, and even with China’s largest OLED producer BOE (200725.CH) becoming part of the Apple iPhone OLED display supply chain, utilization rates at Chinese small panel OLED producers remain low, and given the weakness in the overall smartphone market, we expect relatively low utilization rates to continue into 3Q for most Chinese small panel OLED producers.
We expect composite small panel OLED demand to be up 8.7% q/q, but down 1.8% y/y, with only 4 of 8 smartphone brands (including ‘other’) seeing an increase q/q, with Apple the greatest increase based on the iPhone 14 estimated release dat.   We do expect declines in small panel OLED displays from Huawei (pvt), Oppo (pvt), and Vivo (pvt) in 3Q, which would affect production at Visionox (002387.CH) and Tianma (000050.CH), while any Chinese branded smartphone order reductions at BOE will likely be offset by production for the iPhone 14, for which BOE is expected to produce 5m units.  To put that in perspective BOE has been producing ~15m small panel OLED units on average, for the last 6 quarters, with SDC and LGD expected to produce 60m and 25m respectively, based on a 90m order from Apple, which seems to be the latest estimate.
While we are certainly not denigrating the competitive threat to South Korean small panel OLED suppliers from Chinese suppliers, we point to the fact that even with BOE’s participation in the iPhone 14, Chinese small panel OLED producers have maintained a relatively stable supply share of ~23.6% (6 quarter average including 2Q/3Q forecasts) while South Korean producer share has averaged 76.4% over the same period.  Given our expectations for 23.2% and 76.8% respectively for 3Q, we see little change over the average.  As we noted above, we do expect China’s small panel OLED share to increase as their capacity and experience grows, but we are far more willing to accept that change when factoring in utilization, yield, and profitability and given how rapidly the technology seems to be changing, we expect it will take more than subsidies and capacity for Chinese small panel OLED producers to overtake South Korean suppliers in the near to mid-term.  After that, it’s anybody’s game…
 

​With many major CE companies no longer selling product in Russia, the Russian government is trying a scheme that it hopes will allow those Russian citizens who still want those CE products that are no longer sold in the country.  This week the Russian government published a detailed list of products from a variety of companies that the government now includes in its ‘parallel import’ plan that it instituted in March in response to US and other country sanctions.  The parallel import plan allows Russia to purchase the listed goods from any company outside of Russia regardless of where they were produced, but no longer needs the permission of the trademark or copyright holders to do so.
The Russian Trade Ministry stated that “Parallel import does not mean permission to import and circulate counterfeit goods in Russia - the products must be legally put into circulation from the country of import”, and added that customs services will be paid, although while the Russian government will consider such purchases to be legal, we expect the copyright and trademark holders will not see it the same way, and we expect that anyone selling such items into the Russian market will be tacking on some fairly hefty fees that will push prices up considerably. 
The bigger question would be how closely CE companies will monitor the shipments of goods that have already been shipped to other countries that remain on friendly terms with Russia, and that would depend on each company and how much control they have over their own foreign subsidiaries and how respectful those subs are to corporate mandates.  It is still going to be very difficult and likely expensive for Russian citizens to buy CE products from companies that have banned sales in Russia, but we expect a few iPhones and Samsung (005930.KS) TVs to make it across the Russian border for now.  There are only so many Russians who will settle for a 2017 Yota phone.
 

Smartphone shipments have been weak and estimates for full year mobile shipments have been slowly declining as expectations for 2Q smartphone shipments, particularly in China, are not expected to see much of a recovery, other than modest seasonal improvement from the low in February.  As can be seen in Figure 1, in years prior to COVID-19, there was a steady build toward the 4th quarter shipment peak, which was interrupted in 2020 with the onset of the virus, and boosted in 1Q ’21 as some COVID restrictions were lifted as vaccination programs began to take hold.  This year however, there has been no return to a more normalized pattern, assuming 2Q estimates are correct, as the COVID lockdowns in China and the war in Ukraine, coupled with global inflation pressure consumer spending power. 
While Chinese smartphone shipments seem to be settling into a new, lower level, 5G has resumed its growth path and reached 85.1% of smartphone shipments in May, the highest level ever recorded, and 5G unit volume has returned to more normalized levels after a weak February, even as the number of new 5G models released in May declined.  We expect 5G share in China to remain above 80% for the remainder of the year.
In the past OLED displays were reserved for high-end or flagship smartphone models, given their high contrast, response time, and color stability, but as RGB OLED process technology became more adapted to mass production, OLED displays have been made available to a wider variety of smartphone models, with 43.8% of smartphone models released this year (YTD) with OLED displays, ahead of 2021’s 40.1%, and 2020’s 34.1%.  The premium status garnered by OLED displays in smartphones has made shipments less vulnerable to the ups and downs of shipments in the broad smartphone market, but as that share increases OLED displays are beginning to exhibit the same supply/demand characteristics as the mobile LCD display market.
A portion of that increased volatility comes from the inclusion of Chinese small panel OLED producers, with much being said, particularly in the Chinese trade press, about how Chinese small panel OLED producers are challenging South Korea’s dominance in the small panel OLED space.  Of course, Chinese small panel OLED producers have made inroads, particularly as smartphone brands look to find ways to gain leverage over Samsung Display (pvt), who is the absolute leader, and local Chinese smartphone brands look to local suppliers whenever possible, but as seen in Figure 4, South Korea’s regional share in the small panel OLED display market remains above 75% and defined further in Figure 5.  We are certainly not saying that Chinese small panel OLED producers are not making headway, but while on a percentage basis y/y shipment growth by Chinese small panel OLED producers has been impressive, the overall shipments are still small relative to Samsung, and if the last few quarters are any indication of what is to come, Chinese small panel OLED producers face the same seasonality and customer issues that South Korean producers face.
China’s BOE (200725.CH) has been expanding its small panel OLED capacity over the last two years and has become part of the Apple (AAPL) OLED display supply chain, which has been exclusive to Samsung Display and LG Display (LPL) in the past.  The path has not been an easy one for BOE, as we have outlined in a number of notes, but they have made it to the Apple iPhone platform, which is an accomplishment in itself, while other Chinese small panel OLED producers remain closely tied to local smartphone brands.  We expect Apple to utilize BOE as a tertiary supplier through 2023 as BOE must prove itself to be both reliable in terms of volume and in terms of panel consistency, issues that both SDC and LGD have faced at times.
All in, we expect growth to continue at Chinese OLED suppliers, and with BOE’s potential feed into the iPhone 14 build, the overall Chinese share will increase, but both South Korean small panel OLED suppliers, particularly SDC, have continued to invest in technology over capacity in the OLED space and that has been the one factor that keeps them from the rapid share loss that some predicted.  As the small, panel OLED display space matures further, we believe that Chinese small panel OLED producers will need to spend more on technology development in order to compete on the same level as SDC and LGD, while still increasing capacity, which will push the need for financial support higher, without the ‘automatic’ growth OLED has seen in the past.  The strong customer base that South Korean OLED producers have developed over the years, while certainly not immune to seasonality and macro factors, will allow them to hold onto premium product oriented customers, while we expect Chinese OLED producers will take the same path as they did in the LCD business, that of more generic suppliers, and while that will likely lead to more share gains over time, we expect it will prove hard for Chinese small panel  OLED producers to unseat the incumbents.

​In our note of 06/01/22 we indicated the love/hate relationship that smartphone brands have had with ToF sensors that map image distance through the use of laser and VCSEL technology.  While Samsung (005930.KS) has abandon their use in its smartphone line, Apple (AAPL) has remained a staunch supporter and continues to use the technology for both identification and in image processing.  While the note was focused on the potential for ToF sensing in the AR/VR space, Apple has taken ToF’s ability to create a three dimensional image of an object one step further in the company’s just introduced iOS 16.
There are a number of systems used to create 3 dimentional affectures for typical 2 dimentional audio recordings.  When recorded tracks are mixed in a studio, sound engineers can use a variety of ‘tricks’ to make sounds appear to have ‘depth’, and as far back as the early 1070’s, 4 channel consumer audio products became available, although they required a 4 speaker system.  As ‘quad’ was never effective enough to justify the added cost of the hardware, such systems disappeared quickly and over time various techniques were used by hardware manufacturers to enhance typical stereo recordings, particularly for films.  One such enhancement was the sub-woofer, which filtered out  all frequencies above 200Hz and passed the remaining low end sinals to a specialized amplifier and speaker to bring out the vibrations associated with action movie soundtracks.
As TV technology continued to improve, many found the imbedded audio insufficient and companies like Dolby (DLB), DTS (XPER), THX (DIS), and iMAX (IMAX) began to find ways to enhance audio by creating processing systems that enhanced audio by using digital means to separate a stereo feed into a number of components (typically 6, known as 5.1) that maintained a left/right speaker set-up but added a center channel, two rear channels and the sub-woofer noted above.  For years this was sufficient for most however as TV screens increased in size, 5.1 audio, which tends to be horizontal (as if performed on a stage), did not correspond to the fact that images on a large screen might be at the top or bottom and not always in the middle and so audio processing companies came up with the idea that since the audio was digitized, why don’t we add two more speakers (above and below, creating a 7.1 format.
Again, this was still not enough for designers who wanted to create even  more realistic audio to match what was happening on large screens, and the idea of ‘objects’ was developed.  Object oriented audio means that aside from the standard 7.1 locations where sounds can be located, certain sounds (objects) are given metadata that allows them to be placed anywhere in the spatial realm but also allows them to move in 3 dimensional space.  This means that a sound engineer can assign a particular sound (loosely defined as a track) as an object and move it to match an object moving on the screen, no matter what direction it moves.   Once assigned and tracked by the engineer that audio object will always appear to follow the image on the screen.
This technology is very effective in theaters and in residential environments where the required number of speakers can be placed, but with the expansion of mobile devices and earbuds, the world of audio plunged back into the dark ages.  Early ear buds (some still are) sounded like tin cans and the many hours of time artists and engineers spent trying to make a recording sound optimal were reduced to a tiny vibrating disc that had the frequency response of a 1950’s car radio.  Ear buds have improved, at least to a degree, but audio that was mixed to 5.1 or 7.1 became flat without the additional speakers that earbuds could not provide.
Implementations of Dolby Digital+™, the most popular digital audio format, began to appear in mobile devices, allowing 3D spatial audio to be implemented in headphones but was a bit limited and mixes had to be adjusted to compensate for the lack of 5.1 or 7.1 speakers, but Apple decided that it could do more than just provide relatively expensive earbuds to its users and came up with the idea of ‘Spatial Audio’.  Spatial Audio uses the accellerometer and gyroscope found in mobile devices to map the sound field to the users head movements, so if the user turns toward the left, the audio moves the same way.  As always, you would need an Apple device to use spatial audio (some Beats products also work) and the Air Pods must be 3rd generation to use the function, but with the release of iOS 16 Apple has taken the idea further and this is where ToF comes in.
Apple users can use their iPhone to ‘map’ their head and ears.  Similar to the Face ID setup, you not only hold the phone in front of your head but you also ‘map’ each side so the system can get an image of your ears and head shape from a number of different angles.  Once the process is completed iOS 16 will remember your ‘head configuration’ so changing Air Pods will not mean a bunch of new head scans.  Once you have been scanned you now have ‘Personalized Spatial Audio’ which is said to reduce the audio artifacts that appear when algorithms convert 3 dimensional audio to headphone formats, but the difference is likely to be rather elusive for the average user.  That said, the idea of mapping audio to each user is akin to making sure that the speakers in a 5.1 or 7.1 set-up are in the proper locations and is certainly a path toward improving audio when using earbuds.
Having been in the audio engineering business years before entering the financial world we can appreciate Apple’s pursuit of improving the audio experience, despite the fact that it is done through tiny speakers jammed intoi your ears.  Any system that helps to recreate the subtleties that are so painstakingly added to recorded music are o.k. with us and we commend Apple for trying, even though we expect the average Air Pod user is likely to never look at audio settings or listens with one bud out.  Yes we are audio purists and elitists and listen only to FLACs when using headphone (not earbuds) and vynal when listening on speakers, but we appreciate Apple’s efforts to make the earbud experience a bit more realistic.

In our note of 9/23/21, we spoke about the proposal made by the European Commission to address the problems for consumers related to the presence of three different connectors (charging and data transfer) on the market.  The problem, a lack of charging interoperability and the environmental impact associated with the problem pushed the EU Commission to propose measures that would reduce ‘charger fragmentation’ and ‘performance interoperability’, and allow consumers to decide whether or not to acquire a charger when buying a new device.  Simply, the EU wants one charger standard so consumers do not have to buy a new charger with each new device.
As part of the review process the EU put forth a matrix of six options for consideration, with the “F” option the preferred choice by the commission.  We have added which options are supported by various organizations, although they seem rather obvious, at least in the working document proposal.  The final agreement could be a single option or a blend.  

​[1] Including tablets, digital cameras, headphones, portable speakers, and handheld video game consoles.

This week EU countries agreed to implement the proposed rules that would limit mobile phones, tablets, and cameras to a single charging port type, which would in theory, allow users to use one charger for all of their mobile devices.  The port specified is what is known as a USB-C, which is commonly used for charging, transferring data, and mimicking your phone on a larger display, and most Android phones have USB-C charging ports currently (77.9% of all phone models available in 2021 and 2022 by our count), but the remainder, mostly iPhones and other Apple (AAPL) products, have a proprietary connector which Apple licenses to cable manufacturers.  With 420m portable electronic devices sold in Europe last year the EU says it would be able to avoid disposing of the 12,000 tons of chargers that are thrown away each year, saving 861,000 tons of copper, zinc, and tin in the process, and reducing the cost to consumers of standalone chargers, which is estimated to be about $2.8b each year.

​The agreement, which would be implemented two years after its final approval is a problem for Apple who has opposed the idea on the grounds that it would stifle innovation, although the company uses USB-C connectors on much of the MacBook line due to its higher power handling capabilities.  Apple will have time to make the changes as the rule implementation does not begin for two years after final approval for smartphones and tablets and two years later for laptops, and Apple’s MagSafe, which is a wireless charger could offer a solution that is less costly than reworking all Apple mobile products to USB-C if the company feels that consumers would accept it, although we believe the new rules as they stand would need to be modified for that option. 
Citing environmental concerns has been the company speak concerning Apple and Samsung’s (005930.KS) elimination of chargers and power cords in new device packaging last year, but it is hard to imagine that the environmental concerns were more than an add-on to justify cost cutting measures for both companies.  As the cost of producing separate Apple products tailored to EU rules would likely be cost prohibitive, we expect Apple will comply globally, especially given the momentum behind such rules in other countries, but will likely petition to have the process modified over the next two years.  We believe Apple has been prepared for such an event and will make the required transition in the iPhone 15 (2023) or the iPhone 16 (2024), but will not see license revenue for the Lightening connector from cable manufacturers trail off until 2024/2025.