While the datasets for 5G are still relatively small, which leaves us without reliable historic data, as 5G matures, we would expect growth rates to fall into more seasonal patterns similar to the mobile phone market.  January 5G data seems to indicate that we are beginning to see such a pattern, albeit at much higher y/y growth levels, as typically slower smartphone growth months January and February begin to affect 5G device expansion.  January saw only 1.5% 5G m/m device growth, the slowest monthly growth since 5G deployments began, while 5G smartphone m/m growth was 3.1%, slower than January ’21 but still up 115.3% y/y, with most other 5G device types seeing little or no growth m/m.  We would expect February results to be similar, while we would expect March to see a return of m/m growth across many of the device categories.

​China has taken a relatively hard stance toward cryptocurrencies and their supporting ‘organizations’, above and beyond the usual bans on ‘inflammatory content’ or ‘processes antithetical to the cultural and personal well-being of the Chinese population’, but when it comes to the manifestation of the Metaverse, it is much harder for the Chinese state to codify rules, given the ephemeral nature of the Metaverse itself.  That said, the China Banking & Insurance Regulatory Commission issued a ‘Risk Reminder’ yesterday that presented warnings about potential illegal fundraising schemes that seem to be surfacing as the Metaverse garners headlines.
“Recently, some lawbreakers have rubbed off on hot spots (Google (GOOG) translation) and absorbed funds in the name of "Metaverse Investment Project" and " Metaverse Chain Tour ". They are suspected of illegal fundraising, fraud and other illegal and criminal activities,” is how the article began, and then went into more specifics as to what the scams were and what to watch out for, with the first being the fabrication of false Metaverse investment projects, such as game publication, artificial intelligence and virtual reality projects that publicize high returns in order to raise funds, although that seems of little difference from the multitude of scams that US investors face whenever a technology fab comes to the forefront.
The note goes further, citing those that claim “you can make money while playing games”, with the warning that the exchange of virtual currencies and the purchase of the game equipment needed to ‘farm’ such high return schemes is both costly and garners the risk that such operators may close the game at will (this has happened recently) and made it almost impossible for players to retrieve both their original investment and any profits that they might have thought they made.  Then the warning heads into one of our favorite areas, that of Metaverse ‘real estate’, where the ‘lawbreakers’ exaggerate the expectation of virtual real estate price increases and artificially create ‘the illusion of panic buying’ to induce trading, but the most telling is the reference to virtual currencies’ that criminals induce the public to buy in anticipation of it becoming ‘the Metaverse currency’ in the future, while manipulating the price and setting withdrawal rules that generate high fees or make it almost impossible to cash out.
While there doesn’t seem to be anything mentioned in the note that we haven’t seen at least a few times, it seems a bit more comprehensive that the warnings we have seen from the FTC, which are focused on scams where unsuspecting  folks are conned into making various payments (IRS, utility company, outstanding tickets) by converting their hard-earned cash into crypto at an ATM (they will provide you with the nearest one and stay on the line as you make the transaction) when they will send you a QR code that will transfer the money into their account, forever lost to you.  Since that would likely trigger wire fraud, it would be relatively easy to prosecute should the fraudster be found, but rules about some of the more esoteric schemes mentioned in the Chinese note have yet to be written or even contemplated.  Warnings are a start as they alert at least a part of the population to such antics, but there are many across the globe that are gullible enough to believe that they can get something for nothing and will give fraudsters a whole new platform in which to work.  If you haven’t seen “Glengarry Glen Ross” then you are ripe for a Metaverse scam.

​Chinese OLED panel producer Tianma (000050.CH) has indicated that it has started production runs at irs T18 fab in Xiamen.  While this is likely test run production, it is ahead of our ramp schedule and while it will be a number of months before the fab will be at full (phase 1) capabilities, it will likely take considerably longer for Tianma to fill this fab’s capacity.  The fab itself consists of two 15,000 sheet/month flexible OLED production lines and additional room for a third line, for a total of (phase 1 and 2) of 48,000 sheets/month and has an estimated cost between $6.8b and $7.6b when completed.  Tianma runs a Gen 5.5 OLED fab in Shanghai that is primarily producing rigid OLED displays, another Gen 6 OLED line in Wuhan that was built for a full capacity of 37,000 sheets/month, but is not fully built out, and a Gen 4.5 pilot line used for R&D.
Last year Tianma began the year shipping ~1m OLED display on a quarterly basis, increasing that to between 2.2m and 2.8m as the year progressed, which gave them a share under 2% of the small panel OLED market, so the Xiamen fab will add to that share as it ramps production , however based on Tianma’s capacity last year, which based on a 6” display base, would have been ~154m units, so based on our estimates of ~9m units shipped last year, the  company’s OLED fabs are considerably underutilized or have extremely low yield rates.  This makes it more necessary for Tianma to build out customer relationships or improve yield rates in order for the new fab capacity noted above not to depress profitability further, which leads us to expect a later start for the second phase of the Xiamen fab. 
Tianma also runs a number of LCD fabs which provide much of its sales volume, although the newest Tianma LCD fab went on line in late 2017, and while all of its LCD assets are likely fully depreciated, they are heading into their 5th year of production and are likely in need of upgrades in order to compete with some of the newer LCD fabs in China.  This makes building expensive small panel OLED fabs that are producing at low utilization rates even more risky as capital has to be allocated to upgrade the LCD side in order to provide steady income, while the spending for OLED produces losses.  That said, in China the display industry is funded by the Chinese government at the provincial or city level primarily, and while those capital flows have shifted a bit toward semiconductor capacity, we expect Tianma will continue to be support with subsidies and financing from government entities until the Xiamen fab is completed, and while early individual stockholders might be happy with the results (initial price – 4/1/1995 - $1.82), current stockholders would be less so as over the last 2 years the stock has fallen from a peak of $17.90 in February 2020 to its current price of $12.07, not quite at its low (January 27,2022 - $11.83) but close to it.

​Few of us worry about cell service, with the US covered by 2G, 3G, 4G and now 5G coverage in all but the most remote locations, and smartphones are enough of a status symbol that unless you keep your vintage smartphone covered, it would be hard to keep from being publicly embarrassed when using an old smartphone.  But there are those that do, and that will be getting more difficult soon.  As of February 2022 AT&T (T) will shut down the remainder of its 3G network, T-Mobile (TMUS) will shut down Sprint’s 3GCDMA network on March 31, and its own 3G network on July 1, while Verizon (VZ) will end its 3G network on December 31 of this year.
The bulk of 3G network users would be older smartphones but there are also older tablets, watches, medical devices, SOS (“I’ve fallen and I can’t get up”) services, and security systems that still operate on 3G, so it is incumbent for folks to check the operation of such services to make sure they are not disconnected.  Here’s a list (certainly not complete) of phones that will not work by the end of this year (or earlier).  AT&T provides a way you can look up your phone’s model to see if it will still work on their network, while T-Mobile says it will contact all affected subscribers.  Verizon gives a number to call to check.

• HTC Desire 500.
• Samsung Galaxy Trend Lite.
• Archos 53 platinum.
• Samsung Galaxy Trend II.
• Samsung Galaxy S3 mini.
• Caterpillar Cat B15.
• Sony Xperia m.
• Wiko Sync Five.
• Wiko Darknight.
• Samsung Galaxy Xcover 2 phone.
• Huawei Ascend G740.
• ZTE Grand S Flex.
• Lenovo A820.
• Huawei Ascend Mate.
• ZTE V956.
• UMi X2.
• Huawei Ascend D2.
• Samsung Galaxy Core.
• Faea F1.
• THL W8.
• ZTE Grand X Quad v987.0
• ZTE Grand Memo.
• Samsung Galaxy Ace 2.
• LG Lucid 2.
• LG Optimus F7 phone.
• LG Optimus L3 II Dual.
• LG Optimus F5 phone.
• LG Optimus L5 II.
• LG Optimus L5 II Dual.
• LG Optimus L3 II.
• LG Optimus L7 II Dual.
• LG Optimus L7 II.
• LG Optimus F6 phone.
• LG Enact.
• LG Optimus L4 II Dual.
• LG Optimus F3 phone.
• LG Optimus L4 II.
• LG Optimus L2 II.

·        LG Optimus F3Q phone
·        Iphone 5 or older
 

​Samsung likes India.   The brand is 2nd only to Xiaomi (1810.HK) in share across the sub-continent, and Samsung has been doing at least some mobile phone component production in India since 1996.  In 2018 the company completed the 1st iteration of the world’s largest mobile phone assembly plant, which was completed in 2020, doubling its capacity.  However Samsung also like Vietnam, where it will be adding $920m to expand its production capacity there, where it produces ~60% of its ~300+m smartphones[1] that it ships each year, a larger share than in India, after shifting all of its smartphone assembly out of China over the last year.
However last year Samsung moved two smartphone production lines back to its factory in Gumi, South Korea, where it has testing facilities and production capabilities for the domestic Korean market.  This ‘reshoring’, as the company calls it, was in response to some of the stringent lockdowns implemented in Vietnam and India due to COVID-19 outbreaks, and was a way to make sure that such lockdowns do not affect the company’s overall smartphone assembly capacity, although it would seem to be creating at least some capacity that might be underutilized at times.
With the recently announced increase in spending in Vietnam, it seems that Samsung is indicating that it is now prepared for any COVID-19 or other potential production problems on a global basis, with additional capacity, albeit relatively small in Brazil and Indonesia and is still focused on using Vietnam’s assembly capabilities, cost structure, and tax incentives as its Southeast Asian manufacturing hub.  Samsung has no smartphone assembly facilities in the US, despite the size of the market and Samsung’s share, with most smartphone product for the US shipped from Vietnam.  Chinese brand Vivo (pvt) also announced a $467m US investment toward expanding its production capabilities in India, where with its sister brand Oppo (pvt) they hold a combined 32.3% share, which will allow it to both better serve the India market and export to nearby regions.


[1] Estimates vary considerably as to the unit volume from both the Vietnam and Indian plants, however they are the bulk of Samsung’s smartphone assembly capacity.

​Over the last few years we have mentioned PlayNitride (pvt) a Taiwan based company that has been developing Micro-LED display technology.  The company, among whose investors are Samsung, Lite-On (2301.TT), Applied Materials (AMAT), and AU Optronics (2409.TT), is expected to submit documents to the Taiwan Innovation Board, a subset of the Taiwan Stock Exchange that is designed to help small companies or start-ups obtain capital.  Among the listing requirements for the Innovation Board are undergoing pre-listing advisory guidance with an underwriter or registration as an emerging stock for 6 months and in business for two years or more.  Sales must be NT$150m or greater ($5.4m US) and the board must have 5 or more members, and the company and major shareholders are subject to lock-up for 6 months after the listing and can only sell an additional 25% of holdings every 6 months after that initial sale.
PlayNitride has developed, both internally and with partners, a number of Micro-LED display products, under the names PixeLED®, µ-PixeLED™, and PixeLED Matrix™, and has been showing prototypes, particularly those used for AR/VR applications and automotive HUD displays for a number of years at major trade shows.  We believe the company is part of Apple’s well-known ‘secret’ LED R&D center in Taiwan, along with AUO and Ennostar (3714.TT) that is researching micro-LED display technology for Apple.  PlayNitride has an R&D and pilot production line in Hsinchu and its building a second line for full scale production.  While PlayNitride is fabless, it has developed a proprietary wafer process, mass transfer technology (stamp), and LED repair process, all of which will help to move the technology into a production mode.  PlayNitride showcased a 37” modular display, a 7.6” transparent Micro-LED display, a 1.4” circular high-density (338 ppi) wearable Micro-LED display, and a 0.39” full color ultra-high resolution (1411ppi) Micro-LED display for AR applications at CES this year.  The listing is expected to be achieved by the end of 2022.
 

In the broad display market, China’s BOE (200725.CH) is the leader in LCD panel production, however in the OLED display space BOE has been playing catch-up with Samsung Display (pvt) and LG Display (LPL), particularly when it comes to producing iPhone displays for Apple.   As we have noted previously, BOE has been included in Apple’s iPhone display supplier list this year after a number of futile attempts at qualification in 2020 and 2021.  While SDC produces the most sophisticated (LTPO) displays, LG Display has been gaining favor with Apple and has seen increasing OLED display volumes last year and again this year, while BOE is just beginning to bring production volumes to scale.
That said, BOE has put out expectations of producing ~40m OLED units overall, with ~30m for the iPhone this year and some optimistic prognosticators have stated that BOE’s share could be as high as 20% (40m+) with Apple this year, although we see more reasonable estimates in the 14% to 16% range.  However it seems that BOE has already hit a stumbling block in that a shortage of display driver silicon, an item absolutely necessary for display production, could limit BOE’s small panel OLED production this month and next.  BOE’s display driver supplier, LX Semiconductor (108320.KS), formerly known as Silicon Works, that is part of LX Holdings (pvt), owned by LG Group (pvt), the holding company of LG Electronics (066570.KS) and LG Display (among others), has been unable to meet its production goals and has had to allocate silicon capacity.  Not surprisingly LG Display’s driver needs come before BOE’s and BOE is expected to fall short of its production goals for 1Q by ~3m units.
Whether the shortage will reduce the overall 1Q and possibly 2Q total unit volume for the iPhone is still a question, with driver inventory level at Samsung and LGD unknown, but it will put BOE in a difficult position, albeit not completely its fault, in its first year as a primary OLED display provider for the iPhone.  Much has been said about BOE’s potential to displace SDC and LGD in the iPhone display market in Chinese trade press once the final qualification process was completed last year, but BOE is still far from catching Samsung or LG Display, as SDC is producing iPhone displays using LTPO, a more versatile backplane that allows for a number of features in the top-tier of the iPhone line and LGD is expanding its production of both LTPS and LTPO production to accommodate Apple’s capacity demands, so while BOE is certainly a competitor, and a potential source of negotiating power for Apple, they still have a way to go before they will be on par with SDC and LGD, and this setback will do little to help that situation.

In the broad display market, China’s BOE (200725.CH) is the leader in LCD panel production, however in the OLED display space BOE has been playing catch-up with Samsung Display (pvt) and LG Display (LPL), particularly when it comes to producing iPhone displays for Apple.   As we have noted previously, BOE has been included in Apple’s iPhone display supplier list this year after a number of futile attempts at qualification in 2020 and 2021.  While SDC produces the most sophisticated (LTPO) displays, LG Display has been gaining favor with Apple and has seen increasing OLED display volumes last year and again this year, while BOE is just beginning to bring production volumes to scale.
That said, BOE has put out expectations of producing ~40m OLED units overall, with ~30m for the iPhone this year and some optimistic prognosticators have stated that BOE’s share could be as high as 20% (40m+) with Apple this year, although we see more reasonable estimates in the 14% to 16% range.  However it seems that BOE has already hit a stumbling block in that a shortage of display driver silicon, an item absolutely necessary for display production, could limit BOE’s small panel OLED production this month and next.  BOE’s display driver supplier, LX Semiconductor (108320.KS), formerly known as Silicon Works, that is part of LX Holdings (pvt), owned by LG Group (pvt), the holding company of LG Electronics (066570.KS) and LG Display (among others), has been unable to meet its production goals and has had to allocate silicon capacity.  Not surprisingly LG Display’s driver needs come before BOE’s and BOE is expected to fall short of its production goals for 1Q by ~3m units.
Whether the shortage will reduce the overall 1Q and possibly 2Q total unit volume for the iPhone is still a question, with driver inventory level at Samsung and LGD unknown, but it will put BOE in a difficult position, albeit not completely its fault, in its first year as a primary OLED display provider for the iPhone.  Much has been said about BOE’s potential to displace SDC and LGD in the iPhone display market in Chinese trade press once the final qualification process was completed last year, but BOE is still far from catching Samsung or LG Display, as SDC is producing iPhone displays using LTPO, a more versatile backplane that allows for a number of features in the top-tier of the iPhone line and LGD is expanding its production of both LTPS and LTPO production to accommodate Apple’s capacity demands, so while BOE is certainly a competitor, and a potential source of negotiating power for Apple, they still have a way to go before they will be on par with SDC and LGD, and this setback will do little to help that situation.

In January China shipped 33.02m mobile phones, down 1.1% m/m and down 17.7% y/y, with domestic brands making up 25.65m units, or 77.7% and smartphones making up 98.0% of the total, a share consistent with much of 2021.  26.3m of the mobile total were 5G phones, for a 79.6% share of the total, and 30 new models were released into the domestic Chinese market of which 50% were 5G.  Mobile phone Shipments in China have returned to pre-COVID-19 levels for the last four months and we expect a continuation of that trend for much of this year, seasonality aside. 
We expect the most significant mitigating factor will be component shortages that could limit shipments or push back model release dates, which leads us to forecast full year mobile phone shipments in China to be 381.24m units, up a relatively conservative 8.7% y/y.  We expect 5G phones to continue to grow share, reaching an average of 80.7% for the year, which would imply shipments of 307.67m 5G units this year, unit growth of 15.6% over 2021’s 266.2m 5G shipments on the Mainland.  While we expect there could be considerable play in all of our shipment estimates for China, we expect that on an overall basis 2022 will be a less volatile year than the last two.
We have noticed a trend that seems to be maintaining itself over the last few years and that is a decline in the share of the Chinese market by domestic brands as seen in Figure 6, which has declined (trendline) since 2019.  That said, there have been some monthly domestic brand share increases that have made such data look less valid, such as the peak in June ’21 of 95.9% domestic brand share, but we expect much of that has to do with the timing of domestic brand releases versus foreign brand release schedules.  Chinese brands certainly have the largest share of the domestic market, but the impact of trade sanctions against former share leader Huawei (pvt) by the US has reduced their share both globally and in China, and while domestic brands have picked up much of that slack, it has opened the door a bit wider for foreign brands such as Apple (AAPL) and Samsung (005930.KS).
 

​The Metaverse is, if nothing else, the point at which the CE space generates the most current hype, with companies making sure to mention their connection to the Metaverse, however tenuous, at every public juncture, while investors seem to be willing to assume such massive growth that valuations become meaningless.  While crypto currencies have their own issues, much of the Metaverse hype is tied to crypto and NFTs, where the days of the Gold Rush, tulip mania, and the more recent dot.com bubbles look modest in comparison.  That said, does the hype continue into 2022 and beyond or does it slowly fade away as the reality of the Metaverse becomes more apparent? 
Since the Metaverse, in its real form is based on VR, while development of flashy Metaverse ‘universes’ will continue and tools to develop then get better, we believe the limitations imposed by VR headsets will bring the hype down to a more reasonable level with large stakeholders generating hope and hints of extraordinary and easy to come by wealth, while unit volumes remain the metric to watch.  In that regard, we note that Facebook’s (FB) Oculus VR headset line is without question the most popular VR headset, and has been for a number of years, accounting for between 73% and 78% of the VR market last year.  The next iteration for the Oculus line is expected to be the Quest Pro, wireless headset with eye tracking, face tracking, and a slew of extras such as local depth sensors that can map the user’s environment to the display or sense when someone enters their movement field and a ‘record’ function that captures a few seconds of VR data that can be played back before resuming the game.
The new Oculus headset is expected this year, and while component shortages and similar issues might push that toward the 2nd half or into 2023, the Metaverse hype machine will restart when the headset is released.  In the interim, the Metaverse publicity machines will shift a bit toward AR, where the Metaverse itself is not directly involved but could help to keep Metaverse momentum alive until the seminal Oculus event.  AR does have some direct and practical applications and as it does not exclude the user from reality, is a less immersive but more ‘natural’ (we use that term loosely) and easier to accomplish from a technical standpoint.  That said, nothing helps to move technology forward more quickly than the profit motive and while manufacturing and business applications for AR are the ones that will pay premiums for hardware and service, everyday AR applications that can give the user the ability to visually search will likely be the topic of focus for AR this year.  If and when a manufacturer can come up with a truly wearable AR ‘headset’ that can use eye tracking to pull up information on products as the user walks through everyday situations, the Metaverse will become secondary to the sales gathering potential for AR.  Maybe Apple (AAPL), Google (GOOG), Facebook, Xiaomi (1810.HK) or Vuzix (VUZI) will make that happen this year, but until then we will have to be content with reality.
We estimate Oculus headset shipments for 2020 and 2021 below.  More to come…