Cameras are a mainstay feature for smartphones and we have followed the trend toward multiple cameras on such devices for years, with the first adding a second main camera in 2014.  Little changed for a few years, but in 2018 a 3rd main camera was added to a number brands and by October, Samsung had one-upped the industry by adding a 4th main camera. In 2019 12.8% of all smartphone models had 4 or more main cameras which increased to 39.2% the following year, while last year that share dropped to 24.7% as smartphone pricing became a more serious factor, making 4 main cameras a bit more superfluous.
We believe much of the smartphone industry’s push to add multiple cameras on smartphones was generated by the industry itself and less so by consumers, so the lesser share of 4 or more main cameras last year strikes us a good thing, but at the same time the resolution of smartphone cameras has also improved, a more important metric than the number of cameras on a device.  It is estimated that in 2021 more than 50% of main cameras fell within the 13Mp to 48Mp range, while ~20% were 49Mp to 64%, and those numbers are limited a bit by the iPhone, whose main cameras have relatively small pixel counts (12Mp) that are enhanced by software and TOF.  Last year there were 32 models, representing 5.6% of all smartphone models that had main cameras with over 100Mp, up from 10 in 2020, so we see the trend moving to quality rather than quantity.
That’s the good news, but we are concerned about the growth rate of the mobile camera market in light of the change in focus, and while camera module shipments increased by 5.8% last year, expectations are closer to 2% to 2.5%, which seems a bit low but at least is reflective of what we expect will be the continued focus on mid-tier and low-end phones where camera counts are a more sensitive issue and higher quality cameras on flagship and foldables.  Some of this has already been revealed in relatively weak forecasts for some Chinese camera component manufacturers, but the sales of the camera modules last year grew by 8.2% and is expected to see a CAGR (2020 – 2026) of 14.8% through 2026, with the slowest growing sub-segment, image sensors, still growing at a CAGR of 6.7% over the period.  Leaders in the module space (2020) are LG Innotek (011070.KS), Sunny Optical (2382.HK), O-Film (002456.CH), Sharp (6753.JP), and Semco (009150.KS), as indicated in Fig. 3.

Over the last few years we have mentioned the use of TOF (Time of Flight) sensors as a feature that would improve a user’s ability to take and adapt picture taken in a number of environments.  The information provided by TOF sensors in smartphones creates a ‘depth map’ of the scene, and by evaluating depth information (colors in the picture below) a relatively simple system can be developed that will be able to adjust focus on a layer-by-layer basis, allowing the background to be less focused, drawing attention to the closest image.
TOF sensors are also components used in automotive LIDAR, mapping systems, and industrial vision systems, but were seen as a welcome addition to smartphone camera systems when they began to be included in smartphones back in 2018 after Apple sparked interest in facial identification using a technique called ‘structured light’ that replaced fingerprint identification in the iPhone X.  Samsung and a number of other Android based smartphones followed the trend and released devices using TOF instead of structured light systems in 2018.  Samsung, once a strong proponent of the technology seemed to be moving away from using TOF in its Galaxy series in 2020 after criticism that the type of TOF sensors that Samsung was using were inferior to those used in other devices (See our 10/14/21 note), which would have forced Samsung to move from its own TOF production to that of rival Sony (SNE).  Since then interest in TOF has waned, and few if any (other than Apple) smartphones are expected to use TOF technology this year. 
While Samsung’s decision was based on more in-house issues, the real problem for TOF was the lack of applications that used the data, giving consumers little incentive to see the value in the technology or pay a premium for its addition.  There are applications that use the TOF data to make adjustments to images and video as mentioned above, but without a ‘killer’ application, TOF sensors were looked at as a low return cost burden by smartphone designers.  While we admit that we were wrong about the potential for TOF sensors, there is some potential for their return, perhaps not immediately, but in the next year or so, and that is AR/VR, particularly AR where it is necessary to have a depth map in order to place virtual objects in a real-time image or video.  Without such information, it would be guesswork as to where you might place a piece of virtual furniture when looking at your living room through AR glasses, but with that information the virtual object could be placed in the correct position to see if it fit the room and the décor.
That said, we are not expecting such a change overnight and it will still be a few years before you can walk around with a pair of glasses that include full AR ability, but given the sudden interest in the Metaverse, there could be a bit of renewed interest in TOF sensors, in anticipation of their use as part of an AR system.  While that will likely do little for their use in 2022 smartphones, we expect it will continue to push TOF sensor and system development now that there is the possibility of a commercial ‘killer’ application outside of the automobile market.  We were still wrong, but we might be right a few years down the road.  “Auch ein blindes Huhn findet mal ein Korn” – Loosely translated, “Even a blind chicken finds a kernel of corn”

Honor (pvt) is an unusual smartphone brand in that it is state-owned, having been sold to the Shenzhen government (98.6%) and a group of Honor’s former distributors and partners (1.4%) by its former parent, Huawei (pvt), in order to shield the company, formerly Huawei’s mid-range smartphone line, from US trade sanctions that have severely limited Huawei’s ability to compete in the smartphone market.  In making the split, which raised ~$15b for Huawei, Honor no longer had access to Huawei’s vast IP, huge R&D budget, or Huawei’s marketing, but at the same time is no longer burdened by the US trade restrictions that have cost Huawei much of its smartphone business.
The ~7,000 employees became responsible for their own product development and marketing in November 2020 and was able to release its first purely ‘Honor’ smartphone in early 2021 and has climbed to a ~4.8% share of the global smartphone market heading into 4Q 2021.  More to the point Honor has just released its first foldable smartphone, with a delivery date of January 18, which puts it in with the likes of Samsung, Huawei, Oppo (pvt), Xiaomi (1810.HK), and Motorola (MSI), all of whom have foldables which range in price from ~$925 to almost $2,200.  While the Honor Magic V does not have an official price, it is expected to sell for between $1,500 and $1,600, putting it in roughly the same price category as the Samsung Z Fold 3.
All in, there is nothing outstandingly different about the Honor Magic V relative to other foldables, but as a first entry for a relatively new company, without the resources of Huawei, it’s a good start.  While Honor does have a good following in China, they still face intense competition from other Chinese and outside brands, so their success in the foldables realm is not assured.  That said, they do have the Shanghai government as their primary funding source, which gives the local government a large vested interest in Honor’s success, which certainly will not hurt when it comes to allocating resources, particularly financial ones. 

​As the Metaverse hype continues into 2022, we expect big fish to swallow small fish as the need to build a Metaverse infrastructure resonates with any company that is even related to media.  The most recent rumor-mongering, and there are plenty of Reddit (pvt)-based sources in the VR space, says China’s internet giant Tencent (700.HK) is ripe to purchase gaming smartphone producer Black Shark (pvt), a five year old company whose largest corporate shareholder is Xiaomi.  The company has released a number of gaming smartphones over the last few years and has earned a reputation as a high performing gaming device, but there are questions as to whether Tencent will continue to produce Black Shark smartphones if it makes the acquisition.
The deal, which is said to be valued between $408m and $424m, has the blessing of Xiaomi, as an investor in the company, but while the Black Shark company store advertises its phones, and a variety of accessories, the word is that Tencent is more interested in the company’s VR capabilities as part of a developing ecosystem for VR overall at Tencent.  While there is little about Black Shark’s VR gaming expertise the company promotes itself as working toward developing a gaming ecosystem including hardware, software, and service, so we have to assume that Tencent sees a layer of product expertise that is not visible directly.

​Samsung (005930.KS), along with a number of other smartphone brands, has a trade-in/trade-up program that allows existing and potential customers to trade in various smartphone models toward a new phone.  Included are many popular Samsung Galaxy Models like the S8+ ($610 rebate) or the Galaxy Note 8 ($720 rebate), even including older models like the Galaxy S6 ($100 rebate) or the 2016 Galaxy J1 ($10 rebate).  In order to ‘convert’ Apple (AAPL) or other branded smartphone users to Samsung, the rebate program also includes many other phones, like the iPhone 6s+ ($330 rebate)  or even the elderly (9/2013 release date) iPhone 5c ($50 rebate).  Also included are select models from Huawei (pvt), LG (0065930.KS), Oppo (pvt), Sony, and Xiaomi (1810.HK).
That said, Samsun has begun to expand its trade –in/trade-up program to other devices including laptop and watches, now including Samsung products and laptops and wearables from LG, Lenovo (992.HK), ASUS (2357.TT), HP (HPE), Dell (DELL) and Apple.  While a full rebate list for the US is not available, returning a Galaxy Watch 2 or Watch 3 when you purchase a Galaxy Watch 4 gives you an $83 rebate and incentives on other than Samsung laptop brands command a premium as high as $125 to convince the potential buyer to switch to the Samsung brand.  The program in South Korea is administered by Mintit (pvt), a company we mentioned in our 12/27/21 note, that operates trade-in ATMs for smartphones.  The company will pick up the used laptop and perform an inspection and then informs the user of the rebate price being offered, returning the device if physically unacceptable or if the user decides the offer is not high enough.  Samsung plans to expand the program further this year as it launches new products.

​If nothing else China’s largest LCD producer BOE (200725.CH) is persistent.   The company has been trying to enter Apple’s OLED display supply chain for over two years and finally has qualified to become a 3rd supplier to Apple for iPhone OLED displays (see our note 11/8/2021) late last year.  While the company is in the early stages of its flexible OLED relationship with Apple, it seems BOE is not wasting any time about pushing forward toward increasing that relationship.
According to local South Korean press, BOE is modifying the 3rd phase installation of its B12 Gen 6 OLED fab in Chongqing, to be able to produce flexible IT panels, rather than smaller flexible smartphone panels, as are  the other two lines at the B12 fab.  Expectations are that they will adapt the line, which is expected to begin equipment installation at the beginning of 2Q, to handle displays up to 15”, above the ~10” size used in the iPad.  The line is also expected to be able to manage a tandem (2 stack) OLED structure, different than the single stack used in smartphones.
BOE would again be in contention with Samsung Display (pvt) and LG Display (LPL), who are also small panel OLED suppliers to Apple, with Samsung dominating the flexible OLED tablet in laptop market.  Both SDC and LGD are said to be developing Gen 8 OLED fab capabilities in order to expand their ability to supply larger OLED displays to Apple and others, while BOE’s B12 fab is Gen 6, leading some to believe that the BOE B12 Phase 3 line is a pilot for a for a Gen 8.5 fab to be built in the future. 

ATMs are almost afterthoughts, with almost 500,000 such devices in the US and millions world-wide (the one shown in Fig. 5 is one of two at McMurdo Station in Antarctica) and out-of-network fees actually declining over the last two years.  But in South Korea, ATM look-alikes now serve a different purpose, and one that used to force consumers to have a face-to-face with a carrier employee, something the COVID-19 pandemic has made far more unsafe.  The ATM look-alike in Fig. 6, is owned by Mintit (pvt), and is a device in which you insert your old smartphone, and through AI based hardware and software, the kiosk evaluates your phone and in 3 minutes, you get a value that the machine is willing to pay you for your old phone, based on its evaluation of physical wear and tear and a variety of evaluations the AI does on the integrity of the total device.  At that point you have the choice of accepting the offer and being paid in cash immediately, or donating the phone and/or proceeds to Save the Children.
Surveys have indicated that while 78.1% of users had never used such a device for making a used phone transaction, 83.5% of users were ‘very satisfied’, ‘satisfied’, or somewhat satisfied’ with the system and 84% said they would be using the system again in the future.  The Mintit ATM won a Red Dot award in Berlin in 2019 for its design and also scored high for creativity and user experience, both simplifying the typical physical negotiation over the value of used smartphones and giving the option for donation.  The Mintit ATM were launched in August of 2019 and now number ~6,000 across South Korea, primarily in major e-marts or home goods stores, and even in the first year of operation were collecting over 10,000 used phones each month, rather than have them sit in a drawer for many years.  3Q unit collection topped 322,000 units with 4Q expected to be up an additional 4%b bringing the full year total to over a million units collected.
The system does guarantee a minimum price and offers a certificate that guarantees that all personal data is removed from the phone.  Most recovered phones wind up overseas, while those with low residual value are recycled properly, rather than being thrown in with regular trash.  The company now has a 10% share of the smartphone recycling market in Korea, through its partnership with Kumkang Systems (014280.KS), who produce the units, and SK Networks (001740.KS), part of the vast SK Group (pvt) conglomerate that includes SK Telecom (SKM), that re-distributes the used phones across its global network.  Not quite the old ATMs we are used to, but an application that seems to work.

Earlier this month we noted that China’s Vivo (pvt), a well-known smartphone brand that is owned by BBK Electronics (pvt), the same Chinese company that owns Oppo (pvt), OnePlus (pvt), RealMe (pvt), and iQQQ (pvt) brands that represented 46.4% of the Chinese smartphone market in 3Q and 28.6% of the global smartphone market, was granted a patent entitled “Terminal Device” by the USPO.  What made this patent a bit unusual is that it is not a device that folds like current foldable smartphones, but one that is a tri-folding device that can be used as a single screen device when closed and as an ultra-wide device when completely unfolded.
In typical use, most likely gaming, the screen is open to its full (3X) extent, which is ideal for game play or movie viewing but does not leave room for game or video controls, however embedded in the device are two projectors placed on either side of the open display, that project a keyboard or control space on the desk or table in front of the device.  Since there are two projections of the same keyboard image, the placement of a finger or similar object on the virtual keyboard will cause sensors to detect that the projected image has been interrupted and will plot the location of that interruption.  By calculating where on the virtual keyboard the projected image has been interrupted, the corresponding key or control movement can be determined and the system recognizes the users input.  

That said, Samsung Electronics, the current leader in the foldables market, has been awarded a new patent by WIPO that shows a tri-foldable smartphone similar to a prototype that the company showed in May and August, although this new patent shows that the three cameras have been moved to the back of the device, along with a sub-display.  However when the device is folded the first of the three screens becomes the main screen and lessens the need for a large back screen and an under-screen camera is also available for use when the device is open, along with a fingerprint scanner and supporting hardware and software for the S-pen, along with connections for an external keyboard, mouse or microphone.  Typical USB-C connection is offered but HDMI is also available along with an audio connector and an SD card slot, so the device can be used as a projector or large display source through the HDMI connection.  Samsung also states that as with all tri-fold devices, the quality of the antenna signal is compromised as the distance between components increases (no data but seems logical) so they have added a second antenna set in the third ‘fold’, along with one in the first.
As we have stated previously, the filing of a patent does not indicate that a company will actually produce a similar device, but it is known that Samsung has been working on a rollable smartphone that would expand to twice its normal size, so the idea of a tri-fold is just a logical expansion of that concept.  More likely a 2023 product, if it ever makes it off of the drawing board, but waiting too long will give Vivo, and Oppo sub-brand OnePlus more time to refine their patent related prototypes.  As the foldable leader, Samsung must push the envelope as quickly as possible without shooting itself in the foot with a device that is less than functional or has physical flaws.  You’ve got to be in it to win it.

​The South Korean trade press is reporting that LG Display has won an order from Apple to supply LTPO OLED small panel displays for the iPhone 14.  LTPO allows for the display to support a variable refresh rate system that reaches a maximum of 120 Hz, allowing for both a longer battery life and less blur during image playback.  Samsung Display (pvt) has been the sole vendor of LTPO displays to Apple and was expected to hold the same exclusive position in 2022, but it seems LGD has been qualified by Apple and will now supply at least a portion of the LTPO displays for the iPhone 14 Pro Max model, while SDC will remain the sole supplier for the iPhone 14 Pro.
Both LG Display and BOE (200725.CH) have been vying for a place in Apple’s LTPO display supply chain, and while both have been supplying LTPS OLED displays for the current iPhone line, neither was expected to be ready for volume LTPO display production in 2022.  LG Display has been part of Apple’s LTPO development project but had yet to prove it was able to produce such displays with a high enough yield that Apple would qualify them as a supplier.  BOE is working toward the same goal but has yet to commercialize its LTPO process for volume production, although it has entered Apple’s LTPS OLED supply chain this year and will expand its volumes in 2022.
On an overall basis, LG Display might not see an increase in the number of small panel overall displays it supplies to Apple in 2022 as the conversion of production lines from LTPS to LTPO will reduce the available capacity for LTPS displays, but the higher value LTPO displays will likely improve average small panel OLED ASP, and more importantly prove to Apple that LGD can become a major supplier of LTPO displays in the following years.  Of course, Apple will use the fact that it now has a 2nd LTPO display supplier to work down price with SDC, but the real competition will occur when BOE is able to be qualified for Apple’s LTPO displays, as Apple will squeeze SDC further as long as there are no display problems in 2022.

Last month we were a bit skeptical as to whether we were seeing a recovery in Chinese smartphone shipments or whether the release of the Apple (AAPL) iPhone family in the country pushed shipments to new levels.  November followed a similar path with shipments of 35.3m units, above our expectations of 33.77m units and up 5.1% m/m and up 19.3% y/y, perhaps not the unusual strength seen last month (up 57.0% m/m), but still better than expected and trending upward.  Recent indications that iPhone sales in China have begun to tail off leaves us in the same basic position of needing another month of data before drawing a directional conclusion, as Single’s Day (11/11) data indicated slightly weaker sales for the entire CE space on a y/y basis.
5G smartphone shipments increased substantially to 29m units, above our 26.8m unit expectations, up 9.0% m/m and up44.0% y/y.  November would be the largest shipment month for 5G smartphones in China since the country began keeping records, so it follows the overall trend, and since the iPhone flagship family are all 5G phones, the growth of 5G smartphone units is likely being helped by iPhone sales.  5G share of overall mobile phone sales in China also set a record at 82.2%, well above our 76.1% share expectations.
Based on our December estimate of 32.72m units (-7.3% m/m), total mobile phone unit volume for the full year would be 350.15m units, which would be up 13.7% y/y, and the first y/y gain since 2016, certainly a watershed event for the Chinese smartphone market.  With 5G representing (exp.) 75.4% of smartphone shipments and 45.5% of all new domestic models released in 2021, 5G is the obvious growth factor that has helped to pull China’s smartphone market out of its extended slump.  As of September the Chinese government has stated that just under 1m 5G base stations have been deployed across the country and local carrier 5G coverage extends to all prefecture-level cities, more than 95% of counties and 35% of towns, with over 392m Chinese households on the country’s 5G networks, which has been driving 5G smartphone growth through the replacement of 3G and 4G phones, and while we take most 5G data (both US and China) with the understanding that politics can shape the information,  even a close approximation to those figures gives Chinese subscribers the incentive to convert to 5G.
We do note that a recent study by Ookla (ZD). Indicated that in 3Q the US was the country that provided the most 5G availability based on the percentage of 5G enabled users who spent the majority of their time on 5G networks, while on a performance basis ranked by 5G network speed in capital cities, Washington DC was 31st, at 160.41 Mbps.  We note also that the blended spectrum being used by a country’s carriers will be a large part of the average speed across that country, particularly in smaller countries where the density needed for higher 5G spectrum is less of an issue.  That said there are still many countries that still rely on 2G and 3G networks and are upgrading to 4G rather than 5G.  Some are more obvious than others, with 89.9% of Central African Republic subscribers still on 2G/3G networks, while Palestine is still 84.7% 2G/3G and Israel has only 3.8% 5G availability, leaving many countries and regions open to 5G development.