Samsung, Huawei et al – Nasty origami pt. V.

Folding screens need to start again from scratch.

• There is still plenty of enthusiasm and research being put into flexible screens but until the scratch-ability issue is solved, these designs are going nowhere.
• The level of interest in the industry in flexible screens is high mostly because they have the potential to kick-start a big replacement cycle which the industry badly needs to return to growth.
• However, as Samsung and Huawei have shown, these screens are much more difficult to get right than previously expected which has resulted in the delay of both the Galaxy Fold and the Mate X.
• I still think that one or both of them could still end up being cancelled entirely.
• Most smartphones today use tempered or molecularly hardened glass to protect the screen from scratching.
• On a flexible screen, this is obviously not possible which is why everyone is using plastic.
• The Mohs scale measures the hardness of materials (scratch-ability) and tempered glass scratches at level 6 with deeper grooves at level 7.
• Plastic, by contrast, scratches at a level 2 meaning that the screen of a foldable phone could end up being 9-13x more scratchable than a regular smartphone.
• This is why I suspect that Samsung made the suboptimal design decision to put the screen on the inside of the device with another glass protected screen on the outside.
• This has resulted in a thicker, ugly looking device when closed but most importantly, the screen is protected from scratching when it is closed.
• However, Huawei’s is on the outside meaning that the plastic screen will be subject to the full force of keys, coins, lint, and handbag contents.
• If Huawei’s screen is very easy to scratch, this will prove to be a much bigger problem, than the one that Samsung is facing today.
• When it comes to making and understanding smartphone screens, Samsung is the undisputed global leader and so I suspect this is why it has rejected the idea to put the screen on the outside.
• Hence, I think that when the Mate X arrives in the hands of reviewers, it will suffer as badly, if not worse than the Galaxy Fold.
• Until this problem is solved, the only viable form factor is a folding device that keeps the flexible screen on the inside which is not optimal from a design standpoint.
• It is also more difficult both in terms of software and hardware as well as more expensive.
• Consequently, the ambitious plans of Sony, Huawei, Xiaomi, Oppo, Vivo and so on will have to wait until this tricky problem is solved.
• As a result, I see no recovery in the market going into 2020 and think that smartphone shipments will remain flattish.
• Against this backdrop, Samsung is the most interesting stock to look at as it is in pole position to benefit from Huawei’s catastrophic loss of market share in its markets outside of China (see here).
• My portfolio remains long Samsung Electronics going into its full Q2 19 results on 31^st July.