3Q TV Set Sales Fall Back to 2015 Levels
TV set sales in 3Q of this year are expected to fall below 50 million units for the first time in over 10 years and is almost 8  million units below the 5-year 3Q average.  4th quarter TV set shipment estimates are for 53.2 million units, also below the 5 year average (59.45 million), although we believe that promotions in China might make the final 4Q unit volume a bit higher than forecast.  In order to meet the aggregate forecast for 2025 (202.35 million units) 4Q would have to come in at 58 million units, which seems it might be a stretch, leaving 2025 as another disappointing year for TV set sales.
Market Deceleration & Loss of COVID Gains
The TV set industry is experiencing a period of deceleration, illustrated by almost zero near-term growth and few long-term forecasts that can justify a CAGR above 1%.  Recent results from Samsung Electronics (005930.KS) Visual Display division (TV sets), the leader in the TV set space, faces the same problem as the positive effects of the COVID pandemic fade and TV set sales drift downward, becoming increasingly dependent on a strong 4th quarter and premium TV products to keep from showing negative unit sales growth.  In order for the industry to regenerate itself, it needs to not only restructure its supply chain but also find a path out of the commoditized ‘Bigger is Better’ market and rely more on consumer recognizable technological differentiation.
Quick Note – Lack of Data   
Before we go further, we note also that in years past there were a number of firms that published TV set shipment forecasts and volume on a quarterly basis, however over the last two years a number of those firms have been acquired and absorbed, leaving only a small number of firms that follow the TV set space and few forecasts.  A number of those remaining no longer publish TV set units, focusing entirely on share.  As we do with other CE products, we aggregate as many forecasts and reports as possible to arrive for an average that reduces the effect of outliersw, but we note that with the dwindling number of quarterly and yearly forecasts, we see the numbers for TV set unit volume as ‘less rich’.
Limitations to TV Set Growth
So what is making it so difficult for consumer electronics brands to sell TV sets?  We see a number of factors limiting TV set growth .

• Borrowing – During the COVID pandemic consumers, forced to remain sequestered, upgraded their TV sets as a  crucial form of entertainment.  While this process of ‘borrowing’ future sales to satisfy near-term singular demand has less appeal to consumers, brands seem to have latched on to the idea.  Most recently brands pulled in 2H orders in anticipation of tariffs and trade issues, which depressed late 3Q results and could lighten demand in 4Q.

 

• Replacement Cycles – While the average lifespan of LCD TVs has not appreciably changed over the last decade (5 – 7 years), the type of failure has changed.  Component failure was the issue years ago, while the issue today is obsolescence.  LCD displays can last for 10 years or more but as they age they lose brightness, so while specs tell you the approximate length of time before a display is at half brightness, many consumers will find the set to be unacceptable sooner.  That said, within limits, brands have maintained this 5 – 7 year lifespan even with brighter displays (usually degrade more quickly), keeping consumers from upgrading.  The typical point of replacement is less a component failure and more a distaste for the quality of the picture, moving the decision from an absolute one  to a qualitative one.

 

• Inflation – Consumer buying power erodes as inflation rises, but underlying the obvious is the psychological effects of inflation.  When you are concerned about how you are going to pay your mortgage, you are less likely to upgrade your TV, allowing the qualitative decision to be a bit more tolerant of a lesser picture quality.

 

• Technology – TV technology is mature.  Yes, designers and engineers spend an entire year coming up with something new  to set them apart from other brands, but the impact of those changes on consumers tends to far less than the brand’s focus.  With over 50 global TV set brands differentiation is a very big internal topic among brands but many seem to believe that the average TV set buyer is just as interested in the fact that the new model from XYZ TV Co. can show over 1 billion colors while ABC’s set can only show 16.7 million.  Most consumers are primarily interested in price vs. quality, while most TV set evaluations are  more interested in the deeper technical aspects of TV sets.  Budgets do make a difference and while consumers do buy TV sets on-line (30% - 35% globally) the majority buy sets after viewing them in a brick-and-mortar location.  Seeing how a set looks is a big motivator for upselling while the idea that a set can generate 10 times the number of colors that the human eye can see is less of a driver.
• Competition – There are two kinds of competition in the TV set space. 

Competition from other TV set brands, and in recent years that means competition from Chinese TV set brands.  This competition is very oriented toward market share, which leads to heavy discounting to attract high unit volume, pressuring prices up and down price tiers.  Most obvious has been the competition in the Mini-LED TV market where Chinese TV set brands established a lead more than a year before other major set brands offered that product.  With that lead, Chinese brands continue to use their more mature production methodology to offer increasingly larger Mini-LED sets at discounted prices, making the disparity between Chinese set prices and those of global brands more obvious.  While this certainly has an effect on profitability for Chinese brands, the Chinese government continues to subsidize both display manufacturing and consumer purchases, although there is a finite limit to consumer subsidies, which seems to have been reached recently.
The other point of competition is platform based.  TV sets compete with smartphones, tablets, and laptops for consumer viewing time and if consumers spend far more time watching videos on their phones than they do on a TV set screen, they will allocate more disposable income toward their phones and less on their TVs.  Brands have tried a number of times over the years to make TV sets the household ‘hub’ but TV sets are not mobile, and consumers are not always positioned near a TV.  Smartphones are good competitors.
Relying on Area Growth
There are two basic functions that drive panel production, utilization, essentially keeping the fab producing at as close to 100% of possible production time, and using the fab to produce high margin product.  Over time the production process for each panel size becomes mature and competition puts pressure on panel prices and margins.  Larger panel sizes are more difficult to produce and therefore carry a premium over smaller sizes, especially if they are able to be efficiently produced on the fab’s substrate size.  This encourages panel producers to produce larger panels, even though very small panels are more profitable on a per in2 basis than medium sized panels.  Panel producers will offer ultra-large panels to brands to boost margins and create differentiation, and as ultra-large TVs also carry a premium at the brand level, they are an attractive way to offset smaller panel margin compression at the brand level.  Over the last 10 years, the average panel size has grown ~32% as brands made ultra large size sets available at lower prices, but there is a finite limit to how large TV sets can grow, and even the most optimistic forecasts for average TV set size see a much slow ROC going forward (6% growth in average panel size between 2025 and 2030).
With retail TV sets at or near 100”  physical constraints become an issue and size growth slows.  As panel producers and brands have been relying on screen size growth for TV set area and sales value growth, we expect that such growth will be more moderate going forward and size expansion will be limited.  We do expect the average size of TV sets overall to still grow as prices for ultra-large sets decline, but the increases will be moderated by physical limitations.  Not everyone can fit a 100” TV in their apartment..

TV Industry Crossroad: Innovation or stagnation
The convergence of several factors—the pull-forward of sales during the pandemic, the long and feature-complete replacement cycle of modern displays, and persistent macroeconomic pressure—has driven the TV set market into a period of  deceleration. With 2025 3Q unit volumes projected to fall back to 2015 levels, the sub-1% long-term CAGR confirms that the historic, volume-driven model is structurally broken. The "Bigger is Better" paradigm has met its physical and economic limits, while incremental technical differentiation is failing to motivate the average consumer.
Industry leaders, as evidenced by the performance of the segment’s leader, are now heavily reliant on premium segments and volatile holiday quarters to maintain positive unit growth. The current landscape is further defined by intense price competition from subsidized Chinese brands and a fundamental competition for consumer attention from mobile platforms.
Meeting the demands of the future requires more than supply chain restructuring. It demands a new value proposition that transcends price wars and commoditized screen sizes. The industry is at a critical inflection point, requiring a shift from being hardware sellers to being experience oriented. The discussion must now turn to the specific strategies and innovations needed to unlock value and regenerate consumer demand, which we will cover in our next note on the TV market.

It seems that according to informed sources in Japan, Sony (SNE) has decided to adopt the latest advancement in LCD technology in a big way.  The system, known as RGB (mini) LED is another push against OLED technology, which has been gaining recognition in IT devices.  Although this technology has been shown at shows over the last few years, it was officially introduced at CES this year, with Hisense (600060.CH) showing a 116” model and Samsung (005930.KS) a 115” model.  TCL (000100.CH), an early supporter of mini-LED/QD backlighting technology is thought to be developing an RGB mini-LED product for consumer release as part of its high-end line.
The purpose of RGB mini-LED backlight technology is to create a brighter set with more vivid colors while still using LCD technology, as opposed to the more expensive OLED process, which is known for its deep blacks and rich colors.  Given the vast LCD infrastructure that has been developed over the last decade, LCD display producers are always looking to find better ways to compete with new or emerging display technologies and RGB LED is that next step.
In a typical mini-LED LCD TV, the backlight is made up of white or blue LEDs arranged in zones. As the light from these LEDs determines the maximum brightness of the set, one would think that the LEDs for such a backlight should be big and bright, but that is not always the case. 4K TV sets have over 8 million pixels, each able to generate a small part of the complete video frame, with their brightness theoretically based on the amount of light behind them (the LED backlight array).  However, when the scene has both dark and light images, large LEDs leak light into dark pixels and turn them gray instead of black.  In order to reduce this effect, mini-LED backlights use small LEDs grouped in zones that can be turned on or off zone by zone.  While the zones don’t line up against the light and dark parts of the image, the fact that there can be many individually controlled zones, improves the light leakage issue.  Further, each zone is comprised of multiple strings of LEDs (strings are a group of LEDs that work as one) that can be controlled string by string. 
Logic holds that as the number of zones increases, the preciseness that the backlights can provide to the display’s millions of pixels improves, but more zones usually means smaller and more LEDs overall, which is why mini-LED sets tend to be more expensive than generic LED backlight sets.  Behind all of these LEDs that are constantly being turned on and off (and many levels between) is the system that controls them.  The basis for this system is the video processor, a specially designed chip that accepts video information before it hits the screen and reformats it to to the zone closest to that pixel set.  Typically video processors look at this information on a frame-by-frame basis, which means they see brightness  information on every pixel 30 times each second.  Just one data point for each pixel would generate ~248 million data points each second so these processors are specially designed to provide a high-speed data stream.  All of that data is passed on to the LED drivers whose channels are connected to the LED springs.  Based on that massive amount of information, the LED zones are lit to try to correspond to the light and dark parts of every frame.
It’s a complex system that moves at millions of bits/second, but it’s all black and white.  As the light from the LEDs passes through the liquid crystal pixels that open or close to create an image, on top of the pixels is a color filter, essentially a sheet of red, green, and blue dots.  Each LCD pixel is made up of three sub-pixels, each of which correspond to a red, green, or blue dot on the color filter.  By adjusting the amount of light that passes through the three LCD sub-pixels, each pixel can create any color.  There is a problem however, in that the color filter is subtractive and reduces the overall brightness of the display as it subtracts two primary colors to create one from white LED light. 
This system is the basis for every LCD TV, with Mini-LED backlight systems adding more LEDs to the mix, but what about the RGB LED backlight systems mentioned earlier?  In order to reduce the subtractive effects of the color filter, display engineers decided that using colored LED backlights would reduce the amount of ‘filtering’ the color filter needed to do to create colors, and RGB LED backlights were born.  But it is not as simple as it sounds.  Now the video processor not only has to figure out what light level each string much have (30 times/sec.) but now has to figure out how to mix the three color strings in each zone to get closest to the color of that particular section of the image frame.  Once it does those calculations for each zone and string for each frame, it sends the data to the drivers that generate the electrical charge.  This means that instead of one white string in a particular zone, there are now three strings (RGB) and one driver now becomes three drivers.
  

​This is where the trade-off of cost vs. quality becomes important.  Driver ICs represent ~20% of the cost of the backlight system, so increasing the number of drivers increases the system cost and while the total number of LEDs can remain the same; in order to maintain the same number of zones in an RGB system, the number of LEDs could triple.  The processor, which now handles considerably more information processing would likely need an upgrade, so the bottom line is that the cost of an RGB LED backlight system for LCD TVs will be higher than those currently used.
Sony does have an advantage over other brands, making it more obvious why they seem attracted to this new technology.  They are the top of the premium TV price tiers and can absorb the higher cost more easily than some.  As of now, with the only available RGB LED sets being over 100”, the additional cost means little, but it will when the technology gets down to smaller size TVs.  Since the point is to compete with OLED, RGB LED TVs need to be at or below OLED premium levels, which will be difficult at the onset, so this new technology will need to prove itself in the quality arena  which is Sony’s wheelhouse.  More than likely Samsung and TCL will have the largest number of RGB LED backlit TV sets in terms of models, while Sony will have the premium (most expensive) sets, once this technology enters mass production (2026), but there has to be a meaningful difference in visual quality to measure up to the higher price, and that will be up to the consumer to decide.  The current price of the Hisense 116” model in the US is $30,000 as is the 115” Samsung model.  A ‘regular’ 115” Mini-LED TV is ~$20,000 and the largest LG (066570.KS) OLED TV (97”) is $18,000.  Sony has a 98” LCD set that sells for ~$6,200 (MSRP).

The good news is that LEDs are much smaller, although Sony has yet to give details about LED size, the number of zones, the details of each zone, and the electronics can handle the image processing (AI & ML), but some of the old problems still exist.  The cost will be a very big factor as instead of 5,000 white LEDs, the RGB system would contain 15,000 LEDs (RGB) and a lens, and instead of controlling the brightness of 5,000 white LEDs, the system will have to control the brightness of 15,000 LEDs (5,000 is just an example, we expect there will be more zones as the Hisense set has at least 10,000 zones).  LED uniformity, while certainly better than 20 years ago, gets more difficult to maintain as LEDs get smaller, and as LEDs age, their uniformity also changes, so the sheer number of LEDs needed makes the complexity of building such devices far more onerous and expensive.
So does this mean that Sony is going to let the idea of an RGB LED backlight TV wither on the vine again?  No, we expect it will make it way toward the top of the Sony premium TV line and will compete with other OLED and potentially Micro-LED offerings. Hisense, the first to introduce a Mini-LED TV, will also showcase the technology, but at least for a while it will take its place in the ultra-high quality color world of video editing monitors and those with dollars to spend on the best of the best, while the rest of us palookas have to settle for Mini-LED, OLED, or QD/OLED sets.  If we are wrong and Sony has found a way to produce RGB LED backlight systems for a reasonable price, we will be in line to try one, but with so many potential display technologies on the horizon, time is of the essence. 

​ Smartphones are incredible feats of technology, squeezing innumerable parts into a rectangle typically under 20 in2 and ~ 1/3 of an inch thick.  Most smartphone owners rarely see what is on the inside of their phones, making purchase decisions (hopefully) on matching specifications to their use profile.  But inside those rectangles, packed in like sardines, are literally hundreds of ICs and other components, along with a battery, display, and assorted cameras.  

There are those that relish the thought of purchasing smartphones and then taking them apart, piece by piece, in order to quantify structure and cost.  Such a group is TechInsights, who are known for their detailed teardowns of various CE devices.  They have been kind enough to afford us a detailed look at one of their smartphone teardowns, which we summarize below.
The phone being disassembled here is the Sony (SNE) Xperia 1V, a device released in July of 2023.   Sony is not a major smartphone brand but is known for the high quality of their phones, so the example below should be a guide as to what to look for in a high-end smartphone.  We note that when the Xperia 1V was released, it sold for $1,399.  The phone weighs 188 grams, runs on Android, and has a 6.48” OLED display, along with four cameras, and runs on a Qualcomm (QCOM) Snapdragon 8 Gen 2 processor.
While the greatest share of the BOM is the broad category of integrated circuits (45.7%), the camera subsystem captures 23.7%, due to the fact that it covers 4 cameras and associated electronics, lenses, etc.  The display subsystem, which is a single 6.48” OLED display and a touchscreen, along with a polarizer and cover glass (total of 70 components), is next at 7.5%, followed by non-electronic parts (frame, etc.) at 7.2%.  More relevant to the investment community would be the breakdown of the total component types and the IC category on a branded basis.  As can be seen in the table below, the IC category carries the largest cost share by a large margin, putting significant weight on the brand share shown in the table that follows.  

​Qualcomm supplies not only the phone’s Application and Baseband Processor (Snapdragon 8 Gen 2), but also supplies the audio codec, a number of power management chips, saw filters, RF tuners, and a number of multi-function front-end modules.   We note that Sony’s share is higher than usual, as it uses its own branded components wherever posible, with SK Hynix supplying both DRAM and NAND.  While the details of the lower level components are less important and carry relatively small type or brand share, it is interesting to note that the phone contains 7 PCB/flex boards which contain, in total, 1,708 components, all packed into something that fits into your pocket.  While we knock smartphone brands for releasing new phones each year that are almost duplicates of what came before, it is a great feat of engineering that smartphones work at all, given the number of components that could fail.  Credit where due.

There are no shortages of comments on Samsung Display’s (pvt) newest display technology QD/OLED.  We have mentioned it innumerable times and most recently there has been talk of a 2nd generational QD/OLED product that is being worked on that will reduce the thickness of the original QD/OLED display. (The 55” TV produced by Samsung (005930.KS) using the original QD/OLED display technology is 1.6” thick).  There has been some controversy as to some of the characteristics of the QD/Display, which is used in a Sony (SNE) TV and an Alienware (DELL) monitor, but the general feeling is that the display technology, especially in its first iteration, is a step up for OLED and display technology generally and is a viable contender against LG Display’s (LPL) WOLED TV technology.
Potential technical issues aside, which will likely be addressed by SDC in the second or third generation product, parent Samsung Electronics has been supportive concerning the new product offering but has been a bit hesitant on the prospects for the technology during its development and early production.  It was surprising to see that Sony was first to announce the availability of the technology in its TV line (shipping expected next month) but Samsung is now offering almost immediate delivery (1 day) through Best Buy (BBY) and is said to be scheduled to receive .5m QD/OLED panels from SDC this year.  While that is a small number of units compared to Samsung ~50m units shipped last year, it would reflect more the early production stage of the technology and Samsung’s lack of information as to how the new technology will be accepted by consumers.
That said, Samsung Display, who will be the sole source of QD/OLED displays to Samsung, Sony, and Dell, must also be realistic as to how many panels they are able to produce this year, and we look at the most important characteristic of panel production, yield, to give an estimate of the number of panels SDC will be able to produce.  As the SDC QD/OLED fab is configured as a Gen 8.5 15,000 sheet/month line, we have to make a few assumptions before walking through the actual estimates.  First, we assume that the fab was built to accommodate MMG (Multi-mode glass), which allows the lines to mix different size panels on the same Gen 8.5 substrate, however most Gen 8.5 OLED lines process a half sheet at a time.  Using MMG would make it impossible to process a half sheet because of the configuration (3 65” & 2 55” panels/sheet or 3 65” panels & 3 34” panels/sheet), so we did calculations for both MMG and non-MMG configurations.  
We also have to make some assumptions as to how many of each panel size Samsung Display is producing[1], which would be based on consumer demand, which is still an unknown, however we build in a roughly two to one ratio for 65”/55” as the price differential between the two is ~35% and the screen size of the 65” model is ~40% larger, with roughly 15% of production going toward the 34” (monitor) size. 
The most important metric in the calculations is yield, as QD/OLED is a new technology and has a number of process steps that are different than typical OLED display production.  Typically yields are quite low when production begins as tools need to be tuned to mass production levels, however it has been rumored that SDC was having trouble with yield and had been moving into mass production with yields in the 50% range.  We expect this was a reason for parent Samsung Electronics’ reticence about promoting the technology late last year, however a recent internal memo from SDC management to employees indicated that yields are now 75% with a target (timeframe?) of 90%+.  It is rare for any company to publish actual production yield, especially for a new product, but it seems that SDC wanted to encourage the fab staff to have an optimistic view of the potential for the product and the prospects for their continued employment on the project.  This gives us some clarity as to where the production yields are currently, which we build into our model below.  As noted, while we are less sanguine about the use of MMG at this fab, we present both MMG based and non-MMG based estimates.


[1] Available to SCMR LLC clients.

​Based on our estimates Samsung Electronics will take ~85% of SDC’s QD/OLED TV panel production this year, with the remainder going to Sony.  As part of SDC’s 2022 QD/OLED production we expect ~110,000 monitor panels to be produced, but we expect there is some flexibility in that figure.  If SDC were to lower the percentage of capacity dedicated to monitor panels, it would lower the total number of panels produced, but increase the number of 55" and”65”, which would boost the number of TV panels it could offer to Sony.  That said, for SDC to be ultimately successful with its QD/OLED project, the company will have to build new capacity to increase production, which would likely take a year if they were to build in an existing location.  In order to meet the 2023 holiday season they would have to make such a decision by mid-year 2022, which would leave little time for Samsung and Sony to evaluate consumer reaction to the product, which puts SDC in the unenviable position of having to make that decision with relatively little customer data. 
If they decide to expand, equipment suppliers will be pressed to also meet such deadlines, which can complicate such timelines.  All in, QD/OLED, or at least Samsung Display’s version of the technology is just beginning to emerge but there is little time to make educated decisions as to expansion plans or SDC will be limited to current production levels until 2024.  While this would certainly give the technology a chance to mature a bit, other display technologies will also improve and QD/OLED will face a stronger challenge from competitive TV display technologies.  Decisions, decisions… 

​According to Korean trade press Sony (SNE) will be releasing the first commercial TV sets using Samsung Display’s (pvt) QD/OLED technology in June.  The Bravia A95K will come in 55” and 65” models and is expected to sell for $3,000 and $4,000 respectively.  This is a bit unusual in that SDC parent Samsung Electronics (005930.KS) would be thought to have 1st mover advantage with a new technology developed by its affiliate, but there has been considerable back-and-forth between the two over the technology, with Samsung Electronics allegedly delaying the initial release in May, but postponing that date over disagreements concerning panel price and panel allocation. 
The price of the two models, should these numbers prove true, would put the sets at the top of the premium OLED list, at least for 4K TV sets, as pricing for 2022 models from a number of brands have not yet been revealed.  As a new technology, or a new production process, one would expect a price considerably above existing premium TV sets, with both novelty and the high cost of production and low yields the general culprits, and by no means is this an inexpensive TV set.  However, while the process is different from producing WOLED and involves production steps that are new or less typical and therefore require more specialized equipment and more rigorous testing, the price is not unreasonable in our opinion.
While we cannot directly compare other display technologies to QD/OLED until production models are available and evaluated by display testing specialists such as Displaymate, or Rtings, we do note that the price of Samsung’s initial Mini-LED/QD 65” TV model released last May (65” 900A 4K) has declined 26.9% from its original price in less than a year.  Mini-LED/QD technology is considerably different than QD/OLED technology and is based on processes that are more mature, so we would look at such price reductions as a stretch for QD/OLED in its first year, especially as competition will be quite limited and the display single sourced, but a $4,000 starting point is certainly within the realm of retail customer budgets.

​You don’t usually hear that a major CE company is refusing to take new orders for a product, but Sony (SNE) is doing just that, not because they want to, but because they could not fill the orders if they took them and its not because of a monstrously popular product, but a lack of components that is leading the company down this path.  Sony is not taking new orders for its popular mirrorless cameras, the Alpha a7 II ($1,598) and the Alpha 6400 ($1,000), despite the November and December holiday period when sales for such cameras are the highest.  Component shortages have left the company to apologize to consumers on its website and hand over the individual customer issues to retailers, who have been told that customers will have to wait until early 2022 (no specific date) before they can take delivery. 
Such ‘mirrorless’ cameras fall into an unusual class, as technically your smartphone camera is considered ‘mirrorless’ , as are many point-and-shoot digital cameras, but in this regard the term is used for cameras with interchangeable lenses.  The big difference however is the addition of the EVF, electronic view finder, which shows exactly what the image will look like using current settings, allowing the user to adjust those settings to optimize the image before taking the shot.  Additionally such systems can include an image stabilizer, which keeps the sensor steady, even when shooting without a tripod, allowing for slow shutter speeds (better for low light) that would be impossible for most SLRs.
That said, as such devices continue to increase semiconductor content, they fall prey to the same shortages that other CE products are seeing, and given the more specialized nature of some of the components, they tend to be short run products that get bumped by high volume silicon.  Sony is not alone here, as Nikon (7731.JP) was forced to delay the release of a new interchangeable lens camera for 45 days when factories producing components in Asia were shuttered due to COVID-19.
Its not like the camera business can easily withstand a bad month or quarter either, as the increasing quality of smartphone cameras has pressured stand-alone camera sales for the past few years, leaving manufacturers and component suppliers wary of increasing capacity, and while the industry saw a bit of a recovery in 1H, with Sony and others raising forecasts, August saw y/y shipments go negative, followed by a 30% drop in September.  Sony says they will minimize the impact of the shortages by redesigning and sharing parts, as well as increasing inventory, but the former takes time and the latter caused prices to rise further for other CE products.