At this time, all participants are in listen-only mode. There will be a presentation followed by the question-and-answer session. At which time, if you wish to ask question, you will need to press star one on your telephone keypad. I would now like to hand the conference over to your host today. Please go ahead.
That's great. Good evening. Welcome to our 2018 first quarter conference call. I'm Eddie Gong, head of investor relation of AAC. Joining us today, we have our CEO, Mr. Benjamin Pan, and our managing director, Mr. Richard Mak. Before we start, we would like to remind you some information you may hear during our discussion today may contain forward-looking statements. Actual results or trends could turn out differently. I would now turn the call over to Richard for a brief review of the results before opening up the call to questions. Richard.
Hi, good evening. Thanks for joining us on the call today. For the first quarter, although there was a weak seasonality in smartphone supply chain, we reported strong year-on-year revenue and net profit growth, 10% and 6% respectively, to RMB 4.6 billion and RMB 1.1 billion respectively. Gross margin, although down 3.6 percentage points to 38%, that is mainly due to a significant US dollar depreciation against renminbi in the first quarter when we compare that in the same period of last year, given our currency mix of revenue. Net profit margin is down less than one percentage point, 0.9 percentage point to 24.3%. We have the benefit of mitigating that with fair value gain on our investments, and favorable taxation achieved in the first quarter. In this slide, the performance of different business segments are shown. Acoustic experienced strong growth of 27%, driven by acoustic specs upgrade cycle.
Of course, our new SLS solution, which has already been adopted by a major flagship model launch during the first quarter. Although in the segment of haptics and RF mechanical structures, sales have declined 11% due to some product mix factor. However, very good progress is going on in Android smartphones as they pursue advanced haptics for upgrading the tactile user experience. We are also glad to report that high-end metallic frames and 3D cover glass solutions had already started shipping in the first quarter. In optics, sales is on track to deliver the single digit of total revenue for this year. At the same time, there is increasing demand of the unique WLG hybrid lens solution. We will consider continue to expand production capacity for both the plastic lens and WLG.
Finally, for the MEMS microphone in this quarter, sales was up 65%, shipments growth in line with our sales expectations. The 27% increase in acoustic sales year-on-year was driven by both shipments and ASP growth of the speaker module. When speakers and receivers continue to operate to more complex design, which caused some migration from the standards of speaker module. That's why on a standalone basis, the speaker and receiver components shipment declined. Higher selling price of the SLS platform to some extent explained ASP growth of the speaker module. I would like to take the opportunity to reiterate two recent updates that we posted and broadcasted last week. For the first time, Moody's have issued a Baa1 credit rating to the company, and the related outlook on the rating is stable, and we are very pleased with that.
Also last week, we issued the sustainability report for the year 2017. We welcome feedbacks from investors and yourselves and other stakeholders as usual. We are mindful of our commitment to further provide improvement and strong performance on initiatives we started on AAC overall manufacturing roadmap to become a responsible company. We welcome, and we will continue our efforts on that. Now, I think we are ready to open the floor for Q&A. Please raise your questions.
We will now begin the question and answer session. If you wish to ask question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. We are limiting to two questions at each time. Your first question comes from the line of Cherry Ma from CLSA. Please ask a question.
Good afternoon, Benjamin and Richard. Thank you for taking my question. My first question is related to gross margin. Gross margin had not dipped below 40% since 2008. External factors like currency is hard to manage, but product mix and product efficiency should be within the company's control. I'm wondering which product or specific group of customers was the main contributor of this margin erosions besides FX. FX aside, is this a structural change in profitability that we should expect into Q or rest of the year?
Cherry, hi. This is Richard. Thank you for your question. We don't see any long-term structural changes to our cost structure as such. We believe our target and achievable gross margins on all our products platforms, including the new optics business. Again, we are aiming for them to deliver more than 40% gross margins. I think in the first quarter, on a year-over-year basis, RMB has appreciated 7.5%, and that on its own has caused a 3.2% drop in gross margins. Having said that, I think the second quarter, as of today, if we looked at how RMB has performed since 1st of April to today, I think RMB has remained quite strong. To some extent, I think that there will still be an impact on the gross margins for second quarter.
Nevertheless, the fundamental of our capability of delivering, achieving gross margins of about 40% in most of our business, we expect for the growth as a whole, definitely over 40%.
To follow up to my first question, when we negotiate price with our customers, do we take this RMB strength into account when we negotiate a new pricing based on US dollars?
To some extent, there are different business arrangements when we looked at the project. Some customers, we would be discussing the business in RMB and some customers in US dollar. Nevertheless, I think the extent of appreciation or in the past, some depreciation of RMB have been outside the kind of framework of the business arrangements. It's a variable arrangement.
Thank you. My second question is in optics. I would like to ask in terms of shipment volume of plastic lens, how was it in 1Q? Have we reached our 20 million monthly shipment targets? When will we start mass production of hybrid lens? What sort of specs would it be in our capacity expansion plan for the second half?
I think as we said as we announced. Again, I think this is Richard. As we announced as we said in the past, we are progressing very well with the optics business in terms of both plastic lens and WLG hybrid lens solution. Our plan of preparing a capacity of 20 million pieces per month, I think we have reached that. I think in the second quarter, we have strong confidence that that capacity in the second quarter will turn into shipment. That is very much on track. The hybrid lens, I think as we spoke last time, I think in the third quarter, we will be shipping the hybrid lens solution. That has not changed. Again, the company is confident that it will be a start of a very important new capability, which the industry has been anticipating.
在5月份，下个月按照我们整个order和我们的产能来看，我们是希望大概在25个million左右，所以我们也有提到，我们的capacity在持续的提升中间，应该在Q3，如果我们的产能跟上的话，我们应该可以看到单月25个million到30个million的shipment，每个月。因为我们今年主要的CapEx在光学上面，我们也在检讨说四季度要不要有一个30个million以上的一个capacity的准备。那至于说WLG，从现在来看，市场的兴趣度就像我们原来预测的一样，是非常不错。从现在来说，我们上半年还是在准备5个million的一个产能，到年底的话，我们是希望维持在接近10个million的capacity左右。至于说项目，我觉得差不多从三季度开始和四季度，我们会逐步看到项目起来。我们希望WLG就像我们的塑料lens一样，先把我们的能力建起来，然后再项目跟上来，尽快把我们的产能填满。那基本上我们在光学的一个战略上，我们的plastic lens在建立40到50个million产能以后，我们希望在plastic lens上面的产能稍微缓一下，去提升我们在glass。第一个是我们希望我们的shipment在plastic lens上，绝大部分集中在5P，甚至我们希望说4P都是在这中间占很少的比例。同时在我们WLG上来以后，尽可能地把这个50个million的shipment能够往WLG这样的方向发展。所以我们用的光学的一个竞争策略，基本上还是说WLG是我们竞争的一个主要的位置，一个主要的地位。我们是希望说充分地用WLG来提升我们混合lens，或者叫跟glass lens组合在一起这样的产品价值。
Ben has added to give some numbers for the May shipment. I think for the month May, we will likely to reach a range of 16 million-17 million pieces in the month May. There's a very high probability that in the following month, in June, something close to 25 million may be the shipment that we are expecting. The overall longer-term or medium plan for this year is that most likely by or in the third quarter, the capacity for plastic lens will be in the range of 25 million-30 million. Whether in the fourth quarter we will consider further expansion along with our CapEx plan to increase capacity, say to 50 million. That is something that we are ready to pay attention.
At the same time, in the next two months, we are seeing very strong, very steady progress in terms of building up the capacity and shipments. For WLG, the current reception as expected is very, very, very positive. The capacity each month reach 5 million. We are there. Possibly, I think most likely by year-end, it will get to 10 million per month. In terms of projects delivery, shipment mostly will take place in the third and fourth quarter. The importance there is to build up our capability at this stage. The long-term strategy, as we have said last time or many occasions, is that with the plastic lens, the focus definitely is for a 5P design. There will be small portions of 4P design, but the aim of plastic lens capability is really focusing on replacing the plastic lens solutions with WLG.
Whether we get to the 50 million capacity is really a question of how much we could prove to the market that WLG is a long-term capability and it's welcomed by the market.
Next question comes from the line of Yunxin Cai from Morgan Stanley. Please ask your question.
喂，潘总，Richard，Eddie，你们好。谢谢。我其实第一个问题主要是关于收入。所以收入的话，我们之前有提过25%的guidance。那想请教一下，我们现在是不是还可以维持这个guidance？那如果方便的话，我知道我们现在可能不太给这个季度的变化，那是不是上下半年比重来看的话，我们是不是可以预计下半年的比重会比较高？
Hi, this is Richard again. Thank you for your question. I think what we'd like to say at the current stage is that the guidance for the 2018 sales most likely will be a double-digit growth on a year basis, instead of quantifying, giving a number. Again, I think you're right in saying that because AAC business is not only concerned about the next 90-day cycle, we are in this for a long kind of building up our foundation for miniature technologies. It's more important for us to make sure the preparations and the business cycle are in sync, whereby AAC growth is on a sustainable, strong platform background. On that, we like to say obviously this year, perhaps in some of the years before, a stronger second half would not be unlikely. I think would be likely pattern to see how our sales progress.
理解。那另外想再follow up一下，就是因为整个看起来今年这个一季度的话，好像马达这边看起来比较弱一点，但是我想你们announcement上面有提到说结构件二季度之后会增长比较强劲，所以这样的话，整个今年来看的话，非声学的收入今年还是可以超过声学的收入的比重吗？
I think as we said, the Android business in terms of the performance not only in acoustic, but in RF mechanical and haptics, and to some extent, we described a little bit about optics development for the Android models. I think those are very strong growth factor. The percentage I think really is a play out between how these progress in the second half of the year. Whether the split will be a very marked divide, I doubt it. Maybe it's very kind of close divide. At this stage, I think it's too early to be certain to be able to give you a fixed kind of decision on which portion. I think they will come very close to one another.
我觉得今年我们非声学的生意超过声学的生意，这一点还是可以确定的，因为至少你看我们今年光学的生意，这个是一个确定的增长，按照我们目前的一个shipment来讲。然后另外一个就是说，你不管是RF mechanical还是马达，还有3D glass，虽然是少量，但是这一部分还是在增长。
增长。
增长，在一个增长期。所以从这个角度来说，我觉得我们今年非声学的比例跟声学之间的一个占比，跟去年相比还是会有所进步。那是不是会像我们原来预期的那么大，那现在要看整年的一个情况来看。但是总体的非声学的占比越来越高，我觉得不光是今年，在后面几年来说，这种趋势是确定的。
Ben answered that clearly with optics making a meaningful contribution to revenue this year and helped by extra 3D cover glass and haptics growth in Android business. In Android business segment, it is very likely that non-acoustic definitely would be a larger portion compared to acoustic, not only for this year, but for future years trying to come on the developments of these three business segments. We expect non-acoustic to continue to be a larger portion.
理解，谢谢。那最后一个问题其实主要还是想请教潘总这边，这是一个比较大方向的问题，因为感觉整个行业上半年还是比较动荡，我们也是从渠道那边了解，就是客户订单这边可能修正的也比较多。那还想请教，不知道潘总现在整个对手机行业到整个下半年趋势的一个看法，那现在像短期来看的话，国内目前拉货看起来力道还是不错，那像短期变化其实还可以再持续呢？谢谢。
我觉得从Android系统来说，现在看来整个shipment还是不错的，今年来说我们看到的会比较强，这一点是应该目前来看是确定的。
Ben confirmed that he believes from the numbers forecasts, the shipment for this year should remain quite positive.
Next question comes from the line of Nancy Chang from JP Morgan. Please ask your question.
潘总，还有Richard，还有Eddie，你们好。我这边两个问题想要请问一下。第一个问题就是第一季在声学这边营收有非常强劲的成长，year-over-year。那可不可以稍微跟我们分析一下，有多少是来自于价的成长，有多少是来自于量的成长？这是我第一个问题。谢谢。
In the first quarter, we believe both the volume and ASP contribute to the growth. I think the volume growth is higher in terms of the speaker, especially what we call the speaker module. Definitely it is a strong double-digit growth. In terms of ASP, I think it is meaningful. Again, close, I would say a lower double-digit growth in ASP. Each contribute differently, but both are very healthy, very positive trend.
好，谢谢。那我第二个问题是想要问关于WLG Lens的部分，因为在这个press release有提到，不论在sensing的design或是imaging的application，都有看到很强劲的客户interest。想请问一下，从第三季将要出货的这些状况，大概有%多少是所谓sensing，有%多少是imaging？谢谢。
我觉得如果从三季的我们的第一个出货来说，应该会是在sensing的一个project。然后跟到后面，我们希望包括我们现在在设计的一个project，或者在近来，基本上是照相的。大概是这样的一个趋势。而且从我们的一个目标来说，因为我们主要的包括张力的布局各方面，主要是集中在六片。我们讲的六片，不一定是六片，六片的一个镜头，我们是希望以一支五片为主，在照相方向。所以这个是我们目前在努力来达到的。
Ben, that's the WLG hybrid lens solutions that we are focusing for delivery in the third quarter. The first project is related to sensing. After that, followed by various projects related to imaging. The imaging design mostly is what we call a hybrid lens 6P structure, whereby it's not six pieces, it's really what we call one glass high P design. We are on track to deliver.
Next question comes from the line of Ray Chen from Comantrec. Please ask your question.
Hello, Ben. Hello, Richard. I have a question on gross margin. You mentioned about 3.2% is due to currency, but can you kind of talk about how are the gross margin for each segment in the first quarter and how do you see that moving forward?
Thank you for your question. Overall, I think first of all, we don't split the detailed segments within the non-acoustic, but we are very glad to report that even on a quarter-on-quarter basis, the margins are very positive. There is no big changes to the margins in most of the segments we talked about. Really, the major cost for the overall gross margin drop is not due to one individual product line, it's more really just because of the currency mix and the appreciation Renminbi. As we expand our capacity in optics, as we said before, the economy of scale, and we are on a very steep learning curve, we are improving on margins. Again, the different projects will have different kind of performances.
Overall, we are definitely approaching our target to continue to improve the gross margins and focusing on the related, what we call production yields, etc. In the first quarter, those are very healthy, and there is no adverse kind of problem we see in any one of the product lines.
Okay. More specifically, can you talk about the pricing dynamics for acoustics from a competition perspective? There's a lot of rumors on your new entrants really offering very low pricing. Also with a higher mix of SLS structure, how does that kind of impact your acoustic gross margin?
We have already reached a very high automation kind of process for the new platform, SLS. Again, we are quite happy, we are quite pleased that our production teams people are delivering very good results in terms of yields, in terms of gross margins for the SLS platform. We have high hopes to see that would actually make a strong positive contribution to the overall gross margins of dynamic components as such. Especially in the quarters to come, we are going to continue to penetrate the other first-tier Android models as well. At the same time, I think it's also fair to say we are also ready for stronger penetration in the mid-segment design phones, whereby there is again, no reason that AAC should see any erosion in the gross margins of standalone speaker or receiver.
In terms of price kind of pressure or coming down, I think AAC is very accustomed to price down pressure, but continuously our automation, our already invested automation lines should be able to help us to achieve the margins we are seeking. Hence, right in the beginning of this call, both myself and Ben has reiterated the growth margins of not only AAC as a whole, but also our acoustic business segment. We do not see any strong reason for why we would not be able to deliver a 40% plus growth margin.
Got it. One last question, just to clarify, on the previous question on the full year-on-year growth, the previous guidance was at 25%, what's the latest outlook and what really drove the more cautious tone versus beginning of the year? Thank you.
I said for 2018, we are forecasting a double-digit top-line growth year-on-year basis. I think we have reported a 10% top-line growth in the first quarter. We continue to work on improving the penetration of SLS platforms, improving the optics contribution, et cetera. I think overall, there have been some kind of adjustments to the projects, adjustments to the forecast by our customers. I think as a good practice, we should be updating the latest business environment and the situation. We are still very confident that this year is a growth year, whereby our growth margins should remain. Again, new segments of optics should be going on as planned. The further improvement in the mechanical business with the shipment of 3D cover glass should all help us to be able, realistically, to deliver a double-digit top-line growth. That is for sure.
Next question comes from the line of Kyna Wong from Credit Suisse. Please ask the question.
Thanks for taking my questions. I have a follow-up question on the hybrid lens. May I ask, actually, if Richard, could you quantify how many projects that will adopt hybrid lens or there's some potential to adopt? What's the ramp-up progress versus the plastic lens business? I mean, in the plastic lens, we see the ramp-up progress is quite smooth, the pickup is very strong since last year. What should we expect for the hybrid lens this year and next year in terms of the ramp-up pattern? That would be the first question. The second question is about the haptic solutions. What's the future development in terms of haptic solutions in smartphone or in other new business that we see?
We should say there's no ceiling for the haptic at this moment, or you can see more innovative design that will come in because haptic is one of the very strong and needing products from AAC. Thanks.
Thank you for your question. It's Richard. In terms of the numbers of projects of hybrid lens that we are targeting, we believe around five to six, possibly in Q3 and Q4. Definitely, as we have said, the capacity we have built, we should not be committing to shipments deliver numbers whereby our capacity could not meet customers' requirements. In a way, definitely we also discuss about increasing the capacity to 10 million pieces per month by the end of the year. That very much give us the additional flexibility to catch on new projects if there are customers follow up on great reception, which we do expect very good reception on the hybrid lens capability. As Ben has pointed out, we already have 3D sensing projects and also imaging projects.
I think the very interesting optical performance of hybrid lens with WLG is very well, not only revealed, but actually tested, and it's in a very solid roadmap of user experience and design in the new models to come, not only for this year, but models to come, and hence the exciting user experience that WLG can bring about. I think similar kind of characteristics for haptics for the Android as well. Recently, I think that the industry has received strong enthusiastic reception when smartphones are turning into specialist smartphones for game players, whereby haptics user experience plays a very interesting, innovative, a must-have feature for these game design smartphones. Through that, we believe the user experience whereby the advanced haptic solutions that AAC is so strong, held in IP and also in our manufacturing. We could quickly accelerate the adoption of this design in the Android phones.
We talked about a target of 30 million-50 million shipments for Android phones this year. We remain confident of delivering that. Again, I think you can see the range, there's a flexibility, but definitely from the current dialogues and interaction from the customers, we are confident that the haptics adoption of the advanced user experience, again, it's only a first phase in the Android segment.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Next questions comes from the line of Alice Chen from UBS. Please ask a question.
Hi, Pan. I am Richard. UBS, Alice.
In fact, the performance in acoustic gross margins, what we call dynamic components, if we look by line by line basis carefully, our speaker module has performed very well due to the contribution of the new platform and the existing efficiency on a design that we are very familiar with. I think there may be a slight impact from receiver, but there is a very small impact on margin. The major really impact is on the renminbi appreciation.
Okay. Got it. Thank you. My second question is about the acoustic growth. Just want to clarify that. Benjamin just mentioned for acoustic growth maybe lower than the non-acoustic part, but I remember last time we still expecting the acoustic growth could be still driven by these events design. Just want to make sure if the story of this upgraded design for acoustic still intact in the next maybe one to two years.
Yes. I think what Ben was transmitting, it's not the growth as such. I think, both Ben and myself are very confident that not only SLS, but our acoustic upgrade cycle is very strong. We are in the beginning stage of a acoustic upgrade cycle, and the growth is very interesting. I think when we discuss about the portion of the business, non-acoustic and compare that to acoustic, we believe that optics and RF mechanical and haptics have got very strong business foundation. Because those three add together, is most likely that not only for this year, but for years to come, will be a bigger portion than acoustic. In terms of growth, we have meant to say strong growth in acoustic and very exciting growth in the new optics business contributing to the growth of non-acoustic as well.
We didn't mean to say acoustic has slowed down at all. I apologize for kind of confusion. No, acoustic, very strong growth, upgrading cycle, SLS contribute. We are preparing for the second generation of SLS. We are also targeting, we have solutions for improving penetration in the mid-segment as well as to some extent, the lower-end segment of smartphones with AAC acoustic solutions.
Next questions comes from the line of David Dai from Bernstein. Please ask a question.
Hi, Pan. This is Richard. I have two questions here. The first question is, regarding the metal casing, 3D cover glass, could you give a outlook about in terms of unit shipment and ASP, how does it look as compared to last year? Thank you.
Hi, this is Richard. We believe, first of all, as we have said, our CapEx in this RF mechanical structure for this year 2018, is very minimal, as we believe our capacity planning or the related CapEx machinery, we have already invested in the last two, three previous years already. With that in mind, we believe, what we are talking about is a higher utilization of our CNC and related production capacity to be more efficient in terms of shipments, whereby, we are still expecting to deliver something like around 4 million pieces per month in terms of what we call metallic frames or cases capacity, fully utilizing or improving the utilizing of our 7,000 plus CNC machines. We are on target to, again, fully expanding our 3D cover glass capacity, step by step gradual, because the trend of more 3D cover glass design is very strong.
Last year, we reached 3D cover glass 1 million per month capacity. I think most likely, during this year, we should be aiming to double that capacity. With that in mind, the overall segment for RF mechanical structure, definitely with the incremental contribution by 3D cover glass, is in a strong growth. In addition, we expect our gross margins performance to further improve in this segment because of the fact that we have already worked with most of the Android phones last year already. We fully understand our customer. Our customers understand how quickly, how responsive AAC is. We further improve on the management process, focusing on use, focusing on potential kind of steps in automations in between processes. There is no reason, again, that we should not be able to deliver an improvement on the gross margins of the mechanical structure business.
Thank you. The second question I have is, from the presentation, you mentioned that you're exploring new opportunities in smart vehicle, AR/VR, IoT, and robotics. Could you give some examples of what kind of opportunities are there? Also, are these opportunities that we can potentially see some results in the near term, say like one to two years or is it more for long-term, three years or five years? Thank you.
Yes. Thank you for helping us to talk a little bit more about this kind of initiative. Breaking into a new industry definitely takes time for new customers or projects to realize how important the miniaturizations of hardware in order to integrate with new products, not only in the household smart speaker, VR/AR, but also more importantly, to some extent, smart automobiles, as the industry is developing very fast. I would say the cycle of developing smart automobiles has to be quicker than the cycle in the traditional automobile. Hence, with that kind of environment, the miniaturization capability, for example, we talked about SLS platform. We talked about designs that AAC already are thinking how we should make use of what we call the form factor.
Bear in mind the performance required by these clever designers in the smart vehicles, how they should think of AAC capability in turning out customized solution. Although I must stress, these are early stages, it's very important that AAC understand, at the same time for potential customers in this new industry appreciate our R&D, but also our manufacturing capability, for kind of responses, in terms not only in the performance of each segment, but in terms of the different kind of variations and the potential lay changes, et cetera. AAC should be ready. At this time when we mention this, we are in the preparation stage. By no means we are saying we are ready to see a big contribution in our revenue.
Most importantly, I think this is something that we started, and so far, active interactions with new potential kind of market players have been very positive, have been healthy, and we will continue to report and talk about this. I think at the end of the day, I think differentiation of what capability that AAC can bring to miniaturization in acoustic, in the optical sensor, in the haptic design, which gives the user experience required in these new segments. It's something that AAC understands very well. I think both Ben and myself and our sales marketing team are working very hard on this to make sure this potential is captured at an early stage.
Next question comes from the line of Kylie Huang from Daiwa Capital Markets. Please ask your question.
Hello, Benjamin, Richard, and the IR team. This is Kylie from Daiwa. I have two questions here. The first question I just want to clarify. Benjamin mentioned actually the business contribution from the non-acoustic will be still higher than acoustic this year. Given it seems acoustic actually grows still very strong. I want to clarify in terms of non-acoustic, between different segment like haptics, Mechanical, and Optical. Each business will still have a growth this year or some business actually will be more advantage to offset the other segment growth?
Yeah. This is Richard Mak. When we talk about the growth trend from each of these segments, clearly in the first quarter, acoustic has done very well. We are very confident, and we are pleased that the SLS platform will continue to contribute to a very good growth in this year. Nevertheless, for example, in optics, we are starting from a very low base compared to last year, and we are expecting for optics to deliver a single-digit contribution to our revenue. Again, we have some numbers that we talked about for the haptic shipments for Android phones. They will play a very important part in contributing to the growth of haptics for Android phone. Not only in the second half, but in the second quarter and thereafter.
We are expecting the non-acoustic segment kind of business to have a more kind of what we call evenly growth achieved throughout this year. Whereby at the background of that acoustic growth, can be kind of more project customer-related. Overall, we are seeing a double-digit growth of the whole company should be contributed in that kind of proportion, whereby by the end of this year, we should see the combination of three business segments kind of add together, awaiting the acoustic.
Okay. Thank you. My second question is about the pricing environment for the optics. Could you give us an update about the plastic right now, blended pricing? Also for the hybrid lens, given it's likely we will start to have shipment in second quarter or third quarter, could you also give us an update for the likely pricing ahead?
No. As we have said, we already started plastic lens shipment last year. In this first quarter, we continued to improve and recorded more businesses. So far, we have not seen, I think it will be confirmed by analysts like yourself, there have been no kind of significant price drop or price changes to plastic lens solution. We don't expect that to change in the short term, whereby I think the plastic lens is still very much in demand. It's all about suppliers coming up with good quality, good yield, et cetera, and AAC is very well positioned to deliver that. I think for hybrid lens solution, before we have kind of quoted something around a US $2 range for every lens solution. We are sticking to that kind of price level.
Last question comes from the line of Laura Chen from BNP. Please ask a question. Hi, Laura, your line is open. Please ask a question. Your last question comes from the line of Brian Li from BNP Paribas. Please ask a question.
Hi, Ben and Richard. Thanks for your presentation. Just want to have something to follow up. Just want to clarify that, the slower growth is actually coming from haptics volume or ASP? Could you give us some color on in terms of the volume or ASP change? In terms of the Android haptics, does that also contribute towards the margin decrease on the haptic sector? Lastly, the final questions come, is there any decision from the management thinking of applying hedges on the FX to smooth out this FX volatility that we're experiencing this sector this quarter? Thank you.
Hi, this is Richard. Thank you for your question. At the moment, we have not split out the margins by haptics or by other mechanical, because I think we are not at the stage to be able to do that yet. Nevertheless, as we said, in the haptic solution for Android, as it's becoming more sophisticated, as the performance become more kind of specific, the ASP for the Android haptic solution has been on an increasing trend. We expect that continue because, from the previous design to a, what we call, eight axes, there's no reason for ASP to drop. Correspondingly, as we have shared before, in manufacturing process and in the design, the haptics component is very much a electromagnetic kind of design and component, whereby AAC is very strong in terms of design and also in the automation return process.
Again, we do not expect any variation to our good high gross margins that we can achieve for these haptics, especially in the new Android business and all these advanced solutions. You asked about potential hedges to renminbi appreciation. I think at the moment, there is not much a kind of perfect solution for that. I think as we maybe have announced already previously, when we have seek kind of what we call borrowing facility, when we faced with a floating interest rate situation, we have used what we call fixed rate swap to kind of tie down the cost of borrowing. Whether we would continue to do that, I think that depends on whether there will be new kind of facility that the company enters into.
I think it's a situation that myself, as in charge for the financial aspects of the group, will seek internal review and also professional advice on this matter. Again, as you understand, hedges only work in one way and it's still a kind of risky instrument. As we have said in the past, we are not very comfortable. In the past, we have not entered into any speculative kind of financial instruments at all. When we have a very clear picture of how exchange rates evolve, to some extent, it will be my job to consider that.
Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to the host today for closing comments.
We have to process the development in different business segments, and we are able to create appreciation and increase the return of shareholder by focusing on our effort for long-term growth. Thank you for all joining us today. We will speak with you again at 22nd of August for our second quarter results of 2018. Thank you. Good day.
Thank you for your participation, and this concludes today's conference. You may go ahead and disconnect.