Apple’s plan to release the first Apple Watch with a Micro LED display in 2024 has reportedly been delayed until the second half of 2025 or later due to production challenges. However, this delay shows Apple’s cautious approach to technology and evaluation. This delay shows Apple’s prudence and assessment of technology, but it also brings new opportunities for Ennostar, which was previously considered only a second supplier

According to market research firm DSCC’s, the new Apple Watch will initially adopt Osram’s Micro LED chips, and Epistar(under Ennostar), will be responsible for shipping related components. However, some insiders have revealed that Osram’s technology produces Vertical Chips, which are different from Epistar’s technology and are unlikely to be used in the same project simultaneously.

Epistar’s current chip technology is Flip Chips, Ennostar has stated that American brands are currently collaborating with European suppliers, and Epistar “may have a chance” to be the second supplier, however, ‘the second supplier” may not have a chance to join the cast until 2026.

DSCC mentioned that Epistar is responsible for shipping related components, which differs from what Ennostar said “second supplier”. Technically speaking, Ennostar is more likely to be a “parallel competitor” to Osram since the process of Vertical Chips versus Flip Chips are not on the same technical base. From this perspective, obviously, Apple has dual strategies on Micro LED from adopting Osram’s Vertical Chips as the core and maintaining the technical connections with Taiwanese manufacturers at the same time, which Ennostar may have a shot to ramp up to the main supplier again to take off the “second source” label.

Does the Micro LED process hint at Apple’s product line planning?

Micro LED chips now are mainly categorized into Vertical, Lateral, and Flip chips. According to industry insiders, Osram began developing Micro LED in 2019 but only focused on vertical chips due to patent issues. Currently, only 3 companies in the world have patents for Vertical Chips, and Osram is likely to gain a competitive advantage in Micro LED through these patents. As a result, the company is targeting the development of watches, phones, and AR glasses, and has been collaborating with Apple on watch projects in Germany since 2019. The size of the watch chip produced in collaboration with Apple is approximately 8um.

Meanwhile, Osram announced in 2021 that it is expanding its LED factory in Kulim, Malaysia with an investment of approximately $850 million, and plans to produce Mini LED and Micro LED chips in its 8-inch factory, with mass production expected in 2024. The company also mentioned last year that it plans to produce small-sized products by 2024, and this small-sized product is very likely to be Apple’s Apple Watch.

As for companies such as PlayNitride, Epistar, and Chinese manufacturers that are working on Micro LED technology, they are all using flip chips. PlayNitride stated that they have the opportunity to produce Lateral Chips as client’s request, and Vertical Chips may be produced for AR and VR in the future. “It still depends on the customer’s application to determine what kind of chips matches their products, e.g. Vertical Chips can bring higher PPI with a smaller size of chips.” PlayNitirde said.

Due to differences in the position of electrodes among Vertical chips, Lateral chips, and Flip Chips, give their own pros and cons in each production process. The advantage of Vertical Chips is that they can be made smaller, and the yield rate is higher as the size gets smaller. However, it is difficult to test and repair them once all the Micro LEDs are arranged and connected for testing, so the yield rate may decrease during the bonding process.

Vertical Chips are now suitable for use in the fields of watches, smartphones, and AR glasses, while Lateral Chips are used for other applications like automotive or large displays. However, AUO plans to produce Micro LED watches using Flip Chips, showing that different technologies can still be applied to similar products. In the future, using Vertical Chips may be necessary for developing AR glasses, which may explain why Apple is using this technology in its Apple Watch.

With the dawn of the era of Micro LED mass production, what will be Apple’s strategy?

Apple’s influence in display technology development affects other brands’ adoption attitudes. To reduce risks, Apple is not taking sides as different technologies and processes are involved, which may pose challenges to transfer technology or backplane technology, affecting the entire Micro LED supply chain. For the next generation Apple Watch, Apple is mainly working with Osram for Vertical MicroLED Chips, but may also collaborate with Taiwanese companies on Lateral or Flip Chips in the future.（Image credit: TechNews）

According to TrendForce’s research, the global production volume of smartphones in 2022 is projected to reach 1.192 billion units, a YoY decrease of 10.6%, exceeding even the decline seen in the pandemic year.

However, the market for refurbished smartphones is a completely different story. Research institutions have pointed out that Apple’s sales of refurbished smartphones have grown by 16%, and the company now holds nearly half of the refurbished phone market.

The thriving market for refurbished and second-hand smartphones has ignited demand for touch and display integration IC (TDDI) from the repair market since 2H22, and this demand is expected to double to 200 million units in 2023.

But why is the demand for refurbished and second-hand smartphones increasing year after year? There are two possible reasons based on the current overall environment:

The price of refurbished and second-hand smartphones is lower than that of new smartphones.

Most refurbished and second-hand smartphones are refurbished before being sold back to the market. Their functionality and appearance are mostly normal, and unless the user mentions it, it is difficult to tell if it is a second-hand smartphone.

When purchasing refurbished smartphones, most people prioritize high-end models with high price points, regardless of the brand. However, the entry threshold for high-end new smartphones is often high, but this type of smartphone can be obtained at a cheap price in the second-hand market.

Why iPhone is the preferred choice?

• Brand recognition: Consumers of all ages may immediately think of Apple/iPhone when they hear the words “smartphone brand,” and iPhone can become a faction in its own right compared to Android smartphones.
• Operating system support: For smartphone users, the biggest fear when using the same smartphone for a long time is encountering the problem of the operating system no longer being supported. Although the smartphone can still be used when the operating system cannot be upgraded, security is no longer guaranteed.

However, the support and fluidity of the operating system are often advantages of Apple, and the iOS update support period is quite long, up to 6 years. Although 6 years may not sound long, statistics show that the average device usage cycle for an iPhone user is 3 years, and a support period of 6 years is actually a very long time. Even if you take over someone else’s second-hand smartphone, you don’t have to worry too much about the operating system not being supported.

While the growth of the refurbished smartphone market is good news for consumers, how much benefit does it bring to smartphone manufacturers?

For smartphone manufacturers, most of the profits come from the sale of new smartphones. When consumers purchase second-hand smartphones, the profit margins for manufacturers are reduced. However, manufacturers can still benefit from the demand for refurbished smartphones by participating in the refurbishment process or selling refurbished smartphones themselves.

As we look at the global economic growth rates for 2022, one country’s GDP performance stands out: Vietnam. According to the International Monetary Fund (IMF), Vietnam’s estimated GDP growth rate for 2022 is 7%, compared to 2.6% in 2021, making it the most fast-growing country among the neighbouring countries.

Undoubtedly, the country’s impressive performance is largely due to the global supply chain’s migration to the country, driven by the COVID-19 pandemic and the trade war between the US and China.

Pandemic and Trade War as Catalysts for Supply Chain Relocation

Long before the supply chain’s recent move, Samsung had already made aggressive investments by allocating 60% of Samsung Galaxy phones’ production in Vietnam. As a result of that, Vietnam’s electronics manufacturing exports surpassed its largest industry, textiles, a decade ago.

Over the last couple of years, the increasing tension between U.S. and China’s lockdown during the pandemic has made the leading brands aware of the high geopolitical risks as well as the importance of supply chain diversification. These concerns forced them to vigorously re-evaluate the plan to move their manufacturing factories to Vietnam, mitigating the risks they are exposed to.

Laptops: The Last Piece of Puzzle

In this migration, Apple and Dell have been the most proactive brands. After Shanghai’s lockdown, Apple has chosen Vietnam as its second-largest production base for laptops, tablets, and TWS earphones. Luxshare has already attracted attentions for building an AirPod production line in Vietnam, but not until recently, the laptop OEMs in Taiwan have geared up for expanding their investments there: a couple days ago Quanta Computer just announced a $50 million investment to establish a Vietnamese subsidiary to produce MacBooks; Foxconn, another key supplier of Apple’s macbook, is reported to begin their trial run for macbook after an $9 billion investment in 2022 for capacity increase.

On the other hand, it is said that Dell had actively reviewed its suppliers and component sources before 2022 to ensure the stable supply for their bidding market in the North American. As Dell becomes more aggressive in shifting their production lines from China to other locations, suppliers such as Compal and Wistron have also been actively building laptop assembly lines in Vietnam for the past two years.

A flexible production model is on the horizon

In the past, most OEMs considered Vietnam as a backup due to the complex logistic management potentially caused by the relocation of production lines. However, given that the most complicated and rigid laptop supply chains have begun to move, it is generally believed that this represents a solid trend where Vietnam is almost set to take over China’s position.

According to TrendForce, Vietnam is projected to account for 5% of global laptop shipments by 2023, which marks a notable increase from less than 1% just a year ago, making the country the second-largest laptop production base after China.

However, from the perspective of supply chain risk diversification, brand customers demand production models that not only reduce over-concentration in China but also enable quick response to possible contingencies at each production base.

That means even if laptop production is concentrated in China and Vietnam, if there is an urgent situation, OEM factories’ production lines in other regions must be able to provide immediate support. Such production models will inevitably reshape the supply chain landscape moving forward.

(Photo credit: Freepik)

According to TrendForce’s latest research, global NB shipments are forecasted to drop by 5.8% YoY to around 177 million units. However, the downtrend in NB shipments is starting to moderate, and the projected figure for 2023 is expected to represent the lowest point before 2025. Currently, inventory corrections for components and whole devices are taking place in the global supply chain for NBs. Prices are also being cut substantially across sales channels, and PC OEMs have scaled back component procurements. There is a chance that the NB market will return to its usual cyclical pattern and show growth during 2H23, when back-to-school and holiday-related promotions are expected to boost device sales.

However, this scenario will depend on two factors. First, PC OEMs will have been able to effectively get rid of the existing stock of NBs belonging to the older generations during 1H23. Second, global inflation will ease as 2023 progresses. Currently, the IMF forecasts that the rate of global inflation will slide down to 6.5% in 2023, compared with 8.8% in 2023. Such development will help raise the consumer spending related to electronics. All in all, notable inventory corrections and the reduction of inflationary pressure will allow the NB market to leave the gloomy situation of 2022 and get back to upbeat state of quarter-to-quarter shipment growth.

Market Segments for Commercial and Consumer NBs Will Both See Decline in 2023, Chromebooks, Gaming NBs, and Creator NBs Will Become Main Demand Drivers

Looking at the various segments of the NB market, unit shipments and market share are expected to drop for both commercial NBs and consumer NBs. Conversely, Chromebooks will grow in terms of shipments and market share despite various headwinds. In 1H23, mature regional markets such as the US and emerging regional markets such as Indonesia and India will be releasing tenders for Chromebook for educational uses. Turning to gaming NBs, their global shipments are forecasted to increase by 8.3% YoY to 17.45 million units for 2023 thanks to the seasonal demand surge in 2H23. As for creator NBs, the market for them is growing because professional content creators want to purchase a “mobile workstation” in place of a high-end gaming NB for tasks such as building 3D models and processing large amounts of multimedia files. Global shipments of creator NBs are forecasted to rise by 24.9% YoY to around 437,000 units for 2023.

(Note: “NB” stands for notebook or laptop computer.)

Smart watch shipments reached 107 million units in 2021, surpassing the shipments of smart bands for the first time. Smart bands declined in 2021 with only 70.33 million units delivered. As branded manufacturers strengthen their investment in the smart watch market, market growth has accelerated. Due to the proximity of functional applications, the smart band market has been gradually supplanted by low-cost smart watch products. Therefore, driven by new products in 2022, the current forecast indicates that smart watch shipments will continue to grow in 2022, reaching 119 million units, for an annual growth rate of 11.4%. Smart band shipments are expected to decline to 55.18 million units and the gap between the two continues to widen. It is worth noting, although branded manufacturers are optimistic regarding the development of the smart watch market, in light of risks such as the COVID-19 pandemic, war, and inflation, continuing downward revisions of smart watch shipment volume in 2022 cannot be ruled out and annual growth rate may even fall below 5%.

The top five major manufacturers of smart watches are Apple, Samsung, Huawei, Xiaomi, and Garmin with a combined market share of 63%. Apple Watch shipments reached 36.6 million units in 2021, with an annual growth rate of 20%. Apple is optimistic regarding the market in 2022. On the one hand, the company believes that the Watch Series 8 can maintain the same consumer interest as the Watch Series 7. On the other hand, a wave of entry-level product replacements is expected with the launch of the second-generation Watch SE. Coupled with the launch of new Pro products, Apple believes that market demand in 2022 will surpass that in 2021 and shipment volume is expected to reach 43 million to 46 million units.

However, considering the negative economic impacts following the wake of the COVID-19 pandemic and inflation, 4Q22 holiday sales may not pan out as expected. Throwing in the wildcard of China’s lockdown strategy, production of new Apple Watches may be affected if lockdown measures reappear in 2H22, which will lead to a risk of further delays in shipments of new products, upsetting shipments in 2022. Therefore, shipments of Apple Watches are conservatively forecast to reach 39.1 million units in 2022.

Although Samsung began exploring the wearable device market very early, due to the small market size and the rapid growth of the smartphone market, smart watches were not the focus of Samsung’s product development at the time. This was true up until recent years. As the growth of smartphones slowed, Samsung has once again strengthened its distribution of other consumer electronics products which has led to continuous growth in Samsung Galaxy Watch shipments. In addition, since Huawei has been flattened by Sino-US trade friction, Samsung leaped to claim the number two spot in the smart watch market in 2021. Samsung smartwatch shipments are estimated to grow from 11.09 million in 2021 to 14.1 million units in 2022.

After Google officially acquired Fitbit, although Fitbit remains nominally an independent brand, internal reorganization is bound to be carried out considering this affords more efficient resource allocation, integrating the companies’ procurement, product development, etc. Google will have two smart watch brands, Fitbit and Pixel. In terms of high-end watches, the Pixel Watch is a flagship product positioned as an extension of the Pixel mobile phone and is primarily used in synergy with smart phone functionality. Therefore, the Pixel Watch uses the Samsung Exynos chip and it is expected to highlight the features of various apps in the Google Play Store. Since Fitbit was acquired by Google, it has become necessary to adjust unified strategy and integrate and reorganize resources. Although smart watch shipments resumed growth in 2021, there is some distance between leading brands. Fitbit Is expected to launch new products in 2H22. Google Pixel Watch is also expected to be launched in 2H22, so Google/Fitbit smart watch shipments are estimated to grow to 3.65 million units in 2022.

（Image credit: Pixabay）