DRAM[1] prices jumped 26.7% in April on an monthly basis (average price on 4/29/21), while NAND Flash[2] remained flat for the month. The DRAM increase was the highest since early 2017 as potential shortages and increasing demand for notebook PCs has encouraged PC component buyers to increase orders to ensure stock in 2Q, when inventory levels are expected to decline on increased notebook orders and server demand.  Current expectations are that DRAM prices will rise again in 3Q as inventories are worked down and sales during the holiday season are anticipated.
 


[1] DDR4 8Gb 1Gx8 2133MHz
 

[2] NAND Flash 128Gb 16Gx8 Multi-Level
 

​Last year’s iPhone 12 series saw both a delayed announce date of October 13 (typically September 20) and a further delayed release date for the iPhone 12 Mni and the Pro Max, which were released on November 13, 2020, 20 days after the iPhone 12 and iPhone 12 Pro.  While the December quarter was still a record for overall Apple (AAPL) iPhone sales, which included previous models, a normal selling period could have boosted sales further.  We expect this year’s iPhone 13 will be back to the typical release date and possibly sooner.
The delay last year was based on a suppose number of issues, with Taiwan Semiconductor, Apple’s foundry for the A14 bionic processor that is the basis for the iPhone 12 family, and last minute 5G antennae module changes, which meant requalification.  This year however, while there have been rumors that Apple has reduced some component orders during 2Q, for the existing iPhone, there have been a number of component suppliers who have hinted that they are getting ready to begin component production in June , which would indicate a return to Apple’s more normal iPhone release schedule.
Some of the component suppliers have indicated upcoming changes to cameras and it is well expected that some of the new iPhones will have a 120Hz. refresh rate, which implies an LTPO backplane, supplied by Samsung Display, LG Display, and possibly BOE (200725.CH), but most important would be TSM’s production schedule for the A15, Apple’s upgrade to the current A14 processor.  Apple has contracted much of TSM’s 5nm capacity and expectations are for processor production to begin in May, which would fit with a more normal release schedule.  While we have seen stories about how any number of potential component suppliers are gearing up to become part of the iPhone 13 supply chain, we take those more as expectations rather than actual order based expansion, but all in, it seems that Apple is back on schedule for a normal iPhone release this year and if they can produce as popular a device as it seems the iPhone 12 seems to be, they could set some new records again this year.

Samsung Electronics (005930.KS) reported 1Q revenue of 65.4twon ($59.0b US), up 6.2% q/q and 18.2% y/y to a new 1Q record and operating profit increased 3.9% q/q and 45.7% y/y.   Samsung makes it easy to understand how the quarter progressed and what they expect for next quarter and the 2nd half, although much is standard company-speak with no information.  Rather than draw out the conference call text, we post the results & outlook page of their presentation and add comments where appropriate.
Semiconductors
Memory
1Q Results           Despite higher-than-expected shipments backed by strong demand from PC and mobile, profit decreased slightly Q-Q due to initial costs associated with advanced process migration and a continued downward trend in NAND prices.
 
2Q Outlook         Profit to improve significantly amid favorable business conditions, which include strong demand mainly for server/PC.  Demand driven

2H Outlook         Overall demand for server/mobile/PC, etc., to stay solid.    
            
DRAM   
1Q Results           Actively addressed growing PC/consumer demand as well as solid mobile demand. 

2Q Outlook         Enhance market competitiveness via ramp up of 15-nano process.

2H Outlook         Strengthen technology competitiveness by applying EUV to 14-nano DRAM based on cutting-edge technology

NAND
1Q Results           Actively addressed demand from client/server SSD and mobile. High cost of 3–5nm process node buildout to compete with Taiwan Semiconductor (TSM).

2Q Outlook         Accelerate migration, mainly for the industry’s only single-stack based 6th-generation 512 Gb V-NAND and actively address an increase in demand for high-capacity products of 8TB or more.

2H Outlook         Accelerate migration to 6th-generation V-NAND

IT & Mobile
               Mobile
1Q Results           Revenue and profitability grew significantly backed by 1) increased sales of flagship models as Galaxy S21 has been well received by consumers.  High-end 2) Increased sales of mass-market models equipped with price competitiveness and strong features. Low to Mid-tier 3) Growing contributions from Devices Eco system products including tablets, PCs, and wearables.

2Q Outlook         Sales of newly-introduced A series to accelerate and sales of tablets and wearables to be solid but weakening new product effects for flagship models and short supply of some components may lead to a decline in revenue.  Working to minimize impacts of component issue via supply rebalancing based on our global SCM capabilities and secure solid profitability.

2H Outlook         Work to achieve solid profits by 1) strengthening leadership in premium segment by sustaining sales momentum of Galaxy S series and by popularizing the foldables category 2) maximizing sales of our new competitive 5G models for mass market 3) driving full-fledged growth of the Device Ecosystem which includes tablets, PCs, and wearables.

               Network             
1Q Results           Revenue improved q/q led by performances in North America and Japan, and profitability remained solid.   

2Q Outlook         Address expanding 5G commercialization in Korea and continue roll outs in North America, Southwest Asia, etc.

2H Outlook         Remain active in 5G commercialization in Korea and overseas, while continuing to seek new business opportunities.

Consumer Electronics                   
               TV
1Q Results           Proactively addressed market demand using global SCM capabilities and achieved revenue growth y/y by expanding sales of premium products.  Newly launched Neo QLED models delivered strong sales at the early stage and garnered praise from the market.

2Q Outlook         Capture demand induced by sporting events by focusing on sales of new/premium products such as Neo QLED TVs.  Strengthen leadership with launch of micro-LED TV for home.  Micro-LED TV not mass market product.

2H Outlook         Keep monitoring market conditions and preemptively address shifts in the market.  Strengthen premium leadership and continue sustainable growth by expanding sales of Lifestyle products designed to satisfy the diverse needs of our consumers and high-value products such as Micro-LED TV, Neo QLED TVs, etc.

               Digital Appliances
1Q Results           Revenue improved q/q and y/y led by increasing sales of premium products such as Bespoke and Grande AI appliances, and through efficient operation via modernization.

2Q Outlook         Expand global launches of Bespoke products.  Achieve growth throughout lineup by increasing sales based on products customized to emerging markets and by popularizing our differentiated Windfree air conditioners.

2H Outlook         Keep gaining growth momentum with innovative products as well as New Life products and by fostering growth channels.    
​                         
On an overall basis 1Q was a strong quarter for Samsung and was a record 1Q in terms of sales and far above the 5 year 1Q q/q average of -7.9% and the 5 yr. y/y average of +3.8%.  While we certainly care about Samsung’s semiconductor business, our focus is still on display, TV, and mobile.  In order to put those in perspective, we show each category in reference to Samsung’s 1Q results in the table below.  We note that display references Samsung Display, and the mobile numbers are for handsets only and do not include networking products..

​TV is typically down in1Q (q/q), given holiday sales in the previous quarter, but that decline was far less than typical, and we put less weight on the y/y 1Q TV sales given that 1Q last year was right at the beginning of the COVID-19 pandemic, but while Samsung’s 1Q TV business was affected by the onset of COVID-19 last year, it was down only 3.25% from the previous year, which we see as marginal, so Samsung’s 1Q y/y strength in TV sales was more telling than usual, despite the 4Q/1Q decline.  Display however saw a much larger than average decline in 1Q sales on a q/q basis, but Samsung Display has been reducing its exposure to the large panel LCD business and has converted and sold such fabs, which skews the sales numbers..  That said, even with those changes, display sales were up substantially more than the average on a y/y basis, indicating the effect of rising panel prices.
Mobile had an outstanding 1Q, with near record sales, and both q/q and y/y metrics far above 5 year averages.  The Galaxy S21 ha sold well, we believe a result of lower prices vs. last year’s models, although Samsung is expecting some of that momentum to tail off in 2Q.  We expect the concept of assumed yearly incremental flagship model price increases has become less of a focus for the company’s smartphone business, at least for now, given this year’s success, which could improve the Galaxy S series sales performance over the long-term, and while still a bit of a novelty, the company hopes to augment high-end sales with an increasing number of foldables.  While flagship sales will slow in 2Q, Samsung will try to fill the gap with its Galaxy A series, a group of mid-tier smartphones that start at ~$450 and reach a low of ~$120.  While these are popular Samsung phones, Samsung has kept prices very close to last year’s models, which will likely not give them the boost that the S21 series saw, and they could face some component shortages, which is why 2Q outlook for mobile is less enthusiastic.
The overall outlook for 2H from Samsung was about as non-committal as possible, with comments like ‘fostering growth channels,” and “monitoring market conditions”, other than in semis, where they expect strength to continue.  With the constantly changing outlook for COVID-19 from a global perspective, and the potential for continuing component shortages, Samsung is taking a bit more of a ‘wait-and-see’ attitude than LG Display (LPL), who was a bit more fearful that what has become ‘stay-at-home norm’ for demand could change in 2H.  Samsung does have the semiconductor business as an offset to consumer electronics that most others do not have, but underlying demand for semiconductors is driven, in part by demand from CE products and will face some ‘rebalancing’ if COVID-19 is further contained and there is less of a consumer ‘sequestered’ attitude.

​Shortages and price increases are in the tech news every day, mostly in reference to those products that affect large industries, but supply/demand imbalances and raw material price increases have begun to affect a much larger swath of the consumer electronics space.  One unusual circumstance comes from Shanghai Jingfeng Mingyuan Semiconductor (688368.CH), aka Bright Power Semiconductor, a Shanghai based supplier of LED lighting drivers.  While the company’s 1Q report, indicating a 124.3% jump in y/y sales, gross margin improvement from 23.9% to 37.4%, and a staggering 2,424.3% increase in net profit, was exemplary, the most telling part of the 1Q report was not the rapidly increasing sales or profits.
The company indicated that it had issued a letter to its customers informing them of a price increase on January 5, a result of upstream raw material price increases, long semiconductor and packaging production cycles, and limited foundry and testing resources.  While not all that unusual, the company added that it issued another price increase letter on March 12, and a 3rd on April 1, and pointed out that any orders that had not been delivered by April 19 would be subject to another price increase, making four since the beginning of the year.
While this is only one company in China, it does point to how intense the driver shortage actually has become, and while in this case the drivers are for LEDs, the foundry capacity normally allocated to driver production, which typically runs on more mature nodes, is being allocated to other products at the same time both raw material pricing is increasing and relatively simple resources, such as testing, are also in short supply.  This leaves buyers in the position of using volume to garner favor with those providing resources, even if that volume is overstated.  This ‘trickle-up’ effect will burden the industry even after demand slows as the cost of inventory will be that much higher and slower demand will extend the time it takes to work through that inventory, regardless of what it is.

While the US has three major carriers that advertise mmWave 5G services, they are not the same.  A recent survey by Opensignal indicates that Verizon’s (VZ) mmWave average download speed is ~3 times faster than mmWave 5G from AT&T (T) and T-Mobile (TMUS), at ~693Mbps.  With Verizon having substantially more mmWave 5G spectrum than other carriers after the last auction, and an emphasis on the higher C-band spectrum, it is not surprising that their download speeds are so much higher, however that doesn’t always translate into a more robust experience for the user.
The problem stems from the relatively short distance that mmWave signals can travel before being blocked by, well, almost anything, which means that high-band mmWave coverage is very limited relative to low band mmWave, which contributes to the cost and feasibility of building out high-band mmWave infrastructure.  The good news, at least for Verizon, is that their users are able to connect to mmWave 5G 0.8% of the time they are connected to the network, and while this might seem exceedingly small, it represents a 100% increase from the survey taken last June.  AT&T and T-Mobile users were able to connect to mmWave 0.5% of the time, similar to Verizon’s scorer last year.
We know of 25 smartphone models that have been released since the beginning of 2020 that included mmWave high band modems, so there is really no device limitation for those that wish to take part in mmWave 5G, but we caution those to keep expectations low as to how much mmWave will add to a user’s 5G experience, at least as a mobile service.   5G mmWave for FWA (Fixed Wireless Access) is another animal however, and factory or building-wide installations of this type are far easier to control and cover, despite the fact that walls provide the same limitations as exterior blockages.  Interior issues can be overcome using a number of wired and wireless solutions that are not possible outside of a structure.  That said, users should not expect consistent high download speeds from any mobile mmWave network yet, unless they are under an in-house network.  Once outside, its either going to be low-band mmWave or back to 4G most of the time, although we do expect more models with both sub6 and mmWave capabilities over the next  12 months, and continued mmWave installations, but it will still be some time before one can drive a distance while staying connected to mmWave networks.

LG Display (LPL) sales of 6.88t won ($6.175b US) were slightly above consensus of 8.83b won, down 8% q/q but up 46% y/y, while operating profit was 523b won ($469.45m US), down 8% q/q, although above consensus of 510b won.  Shipments were down 2.3% on an area basis, and ASPs, also on an area basis, were down 6.8%.  While it might seem unusual that LG Display saw lower ASPs during a period when panel prices were rising, we believe it had more to do with mix, which saw a seasonally lower component of small panels, which carry a higher ASP on an area basis.  In terms of overall capacity LPL saw a 3.7% increase q/q and a 15.5% increase y/y with much of that y/y gain coming from the OLED fab in Guangzhou.
Guidance
 2Q          Shipments up mid to high single digits - As we would expect on a seasonal basis

ASP down mid to high single digits – Likely due to continued weakness in small panel demand, which seems a bit more pronounced at LPL than with others.  We would assume both declining orders from Huawei (pvt) and the further wind down of LG’s (0665709.KS) mobile business are the reason for the weakness.

Component Supply – “Close eye on the market” – A non-answer – Inventory was up 8.3% q/q in 1Q on lower sales, although full inventory breakdown was not released (yet), but we would expect that raw materials would be up as the company would likely have begun to stockpile as many components as possible.  We believe LPL was affected by the NEG (5214.JP) power outage in December, which would likely have caused the company to build as much substrate inventory as possible as a cushion.

OLED – Goal to improve yield & productivity – Push to premium to increase profitability – While utilization is high at LGD’s large panel OLED fabs, yield is still low and is key for bringing the segment into profitability, likely with the Guangzhou fab ( the newest) having the lowest yields.

Mobile – Preparing for mass production of new models in 2H – Means 2Q could also see weak mobile sales

LCD TV – Remain Flexible within the available resources – No change in view.  With rising panel prices, we expect no change again in 2Q.

>>>>>Note: “Notably, in the second half (of) this year, we anticipate changes in people’s consumption patterns following vaccination campaigns and the subsequent improvements in the COVID situation.  In particular, changes in people’s lifestyles such as growing outdoor activities, could lead to changes in product demand.” – The most significant comment in the call.  While timing will be key, it seems the company has the notion that 2H might not be as robust as 1H this year.  Surprisingly specific.

OLED TV shipments were 1.6m units – Flat with 4Q (typically down) – Outpacing overall TV market growth - Price reductions and a 48” model will help this year
Q&A

OLED Capacity Expansion?

Positive outlook for OLED TV but due to above, will watch 2Q and 3Q carefully – OLED TV capacity plans are based on long-term prospects for the technology and the market, but it seems the company is unsure as to whether it should build out additional large panel OLED capacity.  More likely it is a timing issue as a commitment to a new large panel OLED fab is an expensive proposition and would likely need a round of public financing.  If the company’s attitude (above) is that there is a possibility for a weaker than expected 2H, raising capital would consequently be harder in 2H.  Tough decision that will likely not be made until early 4Q.

Small panel OLED (Flexible) – Currently have 45,000 sheets/month capacity – Will maximize productivity – No decision on expanding capacity

OLED TV Profitability?  Trying to improve yield & quality – No timeframe but moving in right direction – As demand is strong now, it is all on improving yield.

OLED Targets for 2022?  Depends on capacity expansion (above) – Given the more cautious nature of the company’s 2H outlook, not surprising.

OLED adoption in IT products?                 LG Display has been in both large and small OLED production for many years.  IT OLED products is the ‘last frontier’.  Ready to leverage that expertise – This is a new but slow to develop market and adoption is hinged on relative panel price.  The good news is that LCD IT panel prices have been rising quickly, which works toward closing the spread between LCD and OLED displays, but price still keeps OLED at the top of the price range for IT products.  OLED notebooks are becoming more commonplace but it has been a slow process in past years.  We expect a more rapid migration this year because of the smaller gap, but the difference in display quality and performance must be made more apparent to consumers, other than those who work directly with media production.

Automotive?  Hard hit due to COVID and semi shortage but increased orders by 15.8% q/q, including flex OLED – Note that references orders not sales as this is a long cycle business

               If EV sales recover expect automotive flex OLED to expand on LT basis – Again, orders not sales
OLED is ~30% of automotive orders – This is a good thing as LPL needs to fill small/medium OLED panel gaps, but we do not expect meaningful sales this year.

Automotive revenue recognition?  Once orders are received it takes 1 to 1.5 years for development and then more for production and delivery but will see 4 to 6 years of production. – Too early in what is a long cycle business to tell when product will be released and recognized.

What about LCD production?  P7 fab will continue through this year and possibly into 2022, depending on the market – Right up until panel prices decline.
​
All in it was a good quarter, especially when one compares against last year, but the cautionary 2H ‘guide’ is likely to keep estimates from getting out of control, as well as continuing component shortages.  With Op Margins in positive territory for the last three quarters, investors should rejoice while they can.  Other than the 2H forecast, LG Display rarely makes big decisions this early in the year, so we are not concerned as to the lack of expansion plans, but would expect at least an idea of both small and large panel OLED expansion plans by the next call, especially with a bigger commitment from Apple (AAPL) and the need to ramp up OLED TV sales next year.  Given that our expectations were in line with the strength of the display market, the quarter met our expectations.

While the headline seems to indicate that autonomous robotaxis will become available in China next month, it seems that such is not really the case.  A number of Chinese companies are working toward such a goal yet fully driverless vehicles plowing through the streets in China are still years away.  The ‘robotaxi’ headline actually does have some meaning in the Baidu (BIDU) will be providing an app that will allow folks to call a driverless vehicle, for which they will pay $4.60 US, but the vehicles are limited to roads in what is called a ‘geofenced’ area, in this case in an industrial park in Beijing, which is one of the venues for the 2022 Winter Olympics.  The park is ~5.3 miles wide.
In fact, while the vehicles are driverless, they are able to be controlled by remote operators using 5G connectivity if occupants find they are not going where expected or are in need of assistance, driving or otherwise.  While Baidu is charging for the service, they will also provide a ~$6.00 voucher for a nearby museum.  The vehicles are modified electric automobiles produced by Chinese high-end brand Hongqi (pvt), which is owned by FAW Group (state).  Baidu is the autonomous vehicle leader in China, based on number of vehicles and miles driven, but a number of Chinese companies are involved in the autonomous market, using the seven government sponsored testing facilities across the country, and a number of cities have designated roads that are available for robotaxi testing, although they are required to have a safety driver.  There is no charge for those vehicles.
 
 
 

​Vanguard Semiconductor (5347.TT) has announced it will purchase fab L5B from AU Optronics (AUOTY) for $32.4m, adding to its three other Taiwan-based semiconductor fabs and Singapore fab.  The AU Optronics L3B fab was a Gen 3.5 (610 x 720) line developed years ago and has not been in production in recent years, but was capable of producing TFT substrates, which gives it a layout that can be relatively easily converted to semiconductor production.  The fab deal is expected to close by the end of this year and when built out is expected to produce 40,000 8” wpm.  The total capacity for Vanguard, in its existing 8” fabs is ~145,000 wpm, so the new fab would represent a 27.6% increase in 8” capacity.

​The late Lee Kun-hee, former Chairman of Samsung Group (pvt) from 1987 to 2020 (not in 2009), and the third of four sons of Samsung founder Lee Byung-chul, was a rich man.  He was the wealthiest person in South Korea for a number of years, with an estate worth an estimated $21b at the time of his death, and was credited with changing Samsung from a high volume, low quality producer to one of high quality, which eventually moved the company to a leadership role in television, smartphones, and a variety of other CE related and unrelated businesses.  While his Samsung stewardship was not without controversy, having been convicted of bribery and tax evasion, sentenced to seven years in prison and fined ~$312m, but was pardoned by the then President of South Korea, who stated that the intent of the pardon was to keep Lee on the International Olympics Committee, although the president of South Korea was later convicted of corruption and received a 15 year sentence.
The Samsung Group’s interests range from Samsung Electronics (005930.KS), the largest producer of CE products globally, Samsung Engineering (02803450.KS), Samsung Fine Chemicals (004000.KS), Samsung Fire & Marine (000810.KS) & Samsung Life Insurance (032830.KS) (insurance), Samsung Heavy Industries (010140.KS) (shipbuilding), Samsung Securities (016360.KS), and dozens of other affiliated companies  ranging from machine tools to resorts, along with a multitude of JVs, controlling and non-controlling investments in hundreds of companies.
That said, with Lee’s death came tax time, and the family is said to have an inheritance tax liability of 12t won, or ~$10.8b which it must pay over the next 5 years.  Sounds relatively simple, but the complexity comes from the fact that each Samsung affiliate will be directed to pass down shares to family members according to the wishes of the late Lee Kun-hee.  Some of those shares will be used to pay the inheritance tax installments starting this month.
While the estate will be the subject of legal wrangling for some time, the family has also decided to donate the former chairman’s 23,000 piece art collection to public institutions, and will donate 1t won (~$898m US) to philanthropic organizations, with much going to the construction of South Korea’s first hospital for infectious diseases and a related R&D center, while almost $270m will go toward paying the expenses of children with cancer or rare diseases for the next 10 years.  Aside from building Samsung into the powerhouse that it is today, that is a notable legacy.   

​Skyworth (751.HK) is a global brand with a ~4% to 5% share of the global TV market, but it seems that they have run into a bit of a problem after it was discovered that an application on Skyworth TVs has been collecting data concerning devices on family networks and is sending them to a 3rd party data company that ‘cooperates’ with international advertisers, media companies, TV stations, and other customers, supplying such data and analysis derived from your Skyworth Smart TV.  The company running the data collection is Beijing Gouzheng Data Technology (pvt), a company that counts Skyworth as one of its investors.
The software was installed as part of the TV set’s Android OS, and collected data every 10 minutes that included the name (hostname) of his computer, his network interface card, the IP address and user names of any devices connected to the network, along with other local wi-fi networks that were nearby.  The data then became part of a container that holds such information from over 100m smart TVs, and is sold to other TV brands for targeted advertising according to Gozen Data, although some Chinese journalists indicate that such software is part of ‘Project Xueliang’, a program of the Chinese government that uses the software for 24 hour video surveillance, especially in rural areas, that also collects information about contacts and social media interactions.
While we cannot verify that the information collected is being used for nefarious purposes, it is not the first time TV brands have been accused of collecting user information without the knowledge of users.  In 2017 Vizio (VZIO) reached a $2.2m settlement with the FTC over the capture of what users were watching on a minute by minute basis sold that information, including attached demographic data to others, without the knowledge of the user.  Vizio is required to notify the user that such data is being collected and offering to opt out the user.  Samsung was forced to reveal that some of its smart TV models were ‘capturing voice commands and associated texts so that we can provide you with Voice Recognition features and evaluate and improve the features,’ and LG (066570.KS) was ‘looking into’ claims that its TVs back in 2013 were logging what you were watching and streaming.
Skyworth yesterday released an official statement indicating that it disabled the service on all Skyworth TVs, launched related investigations, and terminated it cooperative relationship with Beijing Gouzheng Data Technology, although it mentioned that the data collected was used for ratings research services.  Skyworth ‘sincerely apologizes to the majority of users and states that the data collection will improve and the user’s privacy policy will be perfected to ensure that information is collected in accordance with the user’s authorization within the scope of legal compliance.‘  No mention of any change in the company’s investment in Gouzheng Data.