Earnings Call: H1 2017

Aug 25, 2017

Ladies and gentlemen, thank you for standing by, and welcome to the AAC Technologies 2017 Interim Results Investor Webcast and Conference Call. At this time, all participants are in a listen only mode. There will be a presentation followed by a question and answer session. I I'd now like to hand the call over to your host today, Ms. Connie Qi. Thank you. Please go ahead. Good day, everyone. This is Connie Xin, Head of Investor Relations. Today, we have Mr. Benjamin Pan, our CEO Mr. Richard Mok, our Managing Director and Mr. Jack Duham, our Chief Operating Officer joining the call with us. Before we begin, we would like to draw your attention to the following disclaimer. Some information that you hear today during our discussion today may contain forward looking statements. These information include revenue, gross margin, operating expenses, other income and expenses, taxes, future products and capital allocation plans. Actual results or trends could materially differ from what you hear today. As always, we intend to update you with any new information of future events and development at the appropriate time. Now, I turn the call to Mr. Mark. Richard will give you a brief review on our first half Q2 results and some remarks on our outlook before we open up the line to questions. Richard, please. Thank you, Connie. Hi, everybody. We have achieved strong growth for the first half of twenty seventeen. Overall sales rose by 55% year on year to rmb 8,600,000,000, and our net profit surged by 57% on a year on year basis to RMB2.1 billion and both were our record high. We have maintained industry leading profitability with gross profit margin at 41% and net profit margin at 24.6 percent. These solid results were attributed by both dollar content increase because of the technology upgrades and the shipment growth among our key product segments. On the non acoustic segment, sales continued to be strong in the 1st 6 months, increased by 130%, accounting for 48% of our total sales. We have seen both volume and ASP growth in haptics and more Android customers have adopted our RF mechanical solutions. For acoustic, dynamic component sales was up 22% driven by shipments growth and ASP uplift in our miniature speaker modules and receivers respectively attributed to stereo sound and waterproof upgraded features. I can now say AAC has already achieved very successful diversification from purely acoustic into non acoustic solution provider. Furthermore, as of today, our Board has declared to pay an interim dividend of HK0.40 dollars In Q2, the 3 months from April to June, the company also achieved record financial performance. Both sales and earnings rose 47% 45% year on year respectively. We deliver our gross margin at above 40% level. We believe the overall profitability will be improving when the technology and production platforms advance further. The combined sales of haptics and RS mechanical continue to grow. It has grown 74% and contributing over 45% of our total sales. Our leadership in acoustic is further affirmed by delivering 29% year on year growth in dynamic components. With our proprietary designs and manufacturing platforms established, we already shipped our classic lenses to Android customers. Looking ahead, we believe optics business is our significant mix growth driver. We are ready to work with more customers. And we raised our 2017 CapEx to prepare both the growth in optics and acoustic platform upgrade for coming years. We continue to lead in the audio and haptic business and continue to develop competitive RF mechanical solutions for our customers. We believe we are very well placed to capitalize on the growth potential in both acoustic and non acoustic segment globally. That brings an end to our short introduction. Now I shall turn the line back to Connie. Thank you. We would just like to remind you that we have set aside around 1 hour for this call. Now we will start the Q and A session. Operator, please? Thank you. We will now begin the question and answer session. Our first question is coming from the line of Sherry Ma from CLSA. Please ask your question. Hi, Benjamin, Richard, Jack and Connie. Congratulations on the result and thank you for taking my questions. My first question is on the optics business. Is it possible to share with us the progress you have made so far this year in terms of volume, ASP, R and D accomplishment, product offerings or customer relationship, etcetera? And looking forward, what is AEC's vision in the optics segment in the medium term? Would the company cooperate with customer on all product offerings, including 5 megapixel to gain scale and share or only focus specifically on high resolution and unique products? Would AAC price differently compared to competitors? So that's my first general first question. Per month capacity. This month, this is August beginning or soon in beginning September, we are the company is already shipping or have capacity of up to in the range 5,000,000 to 6,000,000 sets per month. The company is shipping 5,000,000 to 6,000,000 sets. And our milestone we have set ourselves is 10,000,000 as we have said in the past. It looks like we will be we are quite confident that we'll be able to achieve that by October time. And the CapEx that we have announced or the increased CapEx we announced will set up or given us further increase in capacity to RMB20 1,000,000 per month and we believe we would attain that capacity by Q1 next year. Of course, all our manufacturing equipment are designed and produced to the specs of 5p, 13 megapixels. This reflects our ambition to be an important player. Furthermore, as we have invested in Kaleido back in the year 2010 and we have very strong conviction that hybrid lens design whereby the sets of lenses will include at least if not more than 1 piece of glass lens. With this hybrid kind of design, we believe it is very good for 3 d purposes, which is capable of keeping a very large aperture, although a small form factor given the trend. For example, the front camera being able to fit in a narrower kind of frame. We believe this hybrid design will give us the required specs. Furthermore, we have plans to increase our capacity. We have internal target schedule that in first half next year most likely achieved in the Q2 next year. For glass lenses, we should be aiming to have capacity in the range of 2,000,000 to 3,000,000 pieces glass lens per month. That means by that time, we should be capable of planning shipment of such hybrid lens sets in the range of 3,000,000 pieces or 3,000,000 sets per month. That is our present preparation for capturing this exciting business opportunity. Thank you for your detailed answer. I just have a follow-up to this question. Is it possible to share with us the range of ASP of your product offering and maybe how much would the hybrid lens be? We believe the current ASP for 5p30 megapixels is in the range of RMB4.50. When that specs goes up to 16 megapixels or 20 megapixels, most likely it would achieve around RMB6 depending upon the volume of projects. So that is the price range that we are setting. And in terms of the hybrid lens structure whereby there we at least 1 piece of glass lenses, the specs of 5P or 6P is likely to set as a minimum around US2 dollars and as a minimum and that could be above US2 dollars So that is the pricing ASP that we are thinking about. And my last question would be on margins. As lens business picks up and fills up the capacity, are we expecting the overall margin of this uptick business to approach the corporate average or corporate target of 40%? We believe with the current range of volume of shipment of 10,000,000 pieces per month, we can achieve above average corporate gross margin. And further, which we are quite confident in a duration of 3 to 6 months that our yield can be further improved. It is not impossible that gross margin of around 50% cannot be achieved. So these are the targets that we have set ourselves. Our next question is coming from the line of Arthur Hsieh from UBS. Please ask your question. Hi, thanks, the management team. Just a follow-up on the camera lens business. Could you share with us what is the key reason for clients to use your lens products? And who is your target competitor? The reason I'm asking is actually even by Q1 next year with monthly capacity of 20,000,000, actually it's still relatively small. And if I try to calculate a contribution your overall business, it's probably still within 5% or probably within 3%. So what is the key position that key reasons why the customers would use your products? And how do you see that to scale up? Thank you. We understood that from our leadership that Acoustic and Haptics that we are a leader in terms of the current landscape whereby we are bringing extraordinary, extraordinary value to our end customer. What your question asked about potential adoption of AAC by customers and our competitors, I believe that there are not that many suppliers in the 5P lens design, whereby we will understand that performance in terms of our production and design and the delivery schedule service would enable AAC to prove that we are acceptable and solid reliable alternatives. Although in plastic lens, these features will not earn us the leader position. But nevertheless, we believe such setup of our special assembly equipment, it will take us it has taken us internally more than 3 years to prepare our proprietary assembly and we would be able to be qualified and accepted by our customer on this area. But more kind of interesting that we already have established a technology frontier with Kaleido, whereby we believe the wafer level glass lens in the hybrid sets will prove to be a new unique user experience that our customer would fully appreciate and become a very important basis for new optical applications and functionalities. The plastic lens, we believe, is an important testimony that we should be able to make sure our transition from a classic lens design to hybrid lens, AAC needs to prove and develop that we are a strong solid designer and also producer in both plastic lens and in wafer level lens in order to come up with hybrid lens structure solutions. We believe with that we would be able to be an important market share significant player whereby with such experience in plastic lens business will earn us the importance of delivering what we called industry standards and performance in order for us to change our manufacturing approach and make sure that in the transition from a classic lens environment to a hybrid lens, there exists our plan and our opportunities in classic lens and also the wafer level hybrid lens sets. Yes. Thank you. I think for the wafer level lens, I have another follow-up, which is for the capacity to ramp up further, is it easy or is it a lot to be more difficult compared with the plastic lens? Say from the current target of 3,000,000, how easy it is for you to ramp up to 10,000,000 or 20,000,000? And separately, to form a total solution, have you came up with the actuator supplier, such as like VCM supplier to help to come up with good solutions? So it's not just the lens, but also it could become a total solution for customers. We believe the wavelengths capacity that we already have established has taken quite a lot of time for us internally to resolve the technical problems that we have faced involving, for example, the end product, we have seen more than 300 small lenses on each wafer. And you could imagine the molding that internally proprietary that we have developed and the tooling work that we need to internally achieve, etcetera. These with the 3,000,000 capacity so far we have achieved, we believe we can test and continue to learn and improve the process whereby there are opportunities to further improve yield. But at the end, the equation, as we have said, we would prefer that the mix of our capability would be kind of emphasized on the stronger proportion in the hybrid landsets and only a small portion of what we call pure plastic landsets And that is our arrangement. We understood or we understand the importance of future excitement in designing these lens in parallel with capability of VCM, Bosco Motor. As you understand, AAC has always come up with success and leadership in acoustic and also haptics based on our knowledge on what we call electromagnetic designs and dynamics. We affirm that internally we are and we have long and resourceful in this consideration of the movement of these lenses in order to come up with exciting designs to generate the user experience. So we confirm that our capability in the natural magnetic design and our previous invested experience in related DCM would definitely put AAC in advantage in considering this important future trend how VCN could be an important part of the hybrid handset. Our next question is coming from the line of Sam Lee from Credit Suisse. Please ask your question. Thank you. My first question is still about the Lens business. What we are seeing is that we understand that glass material spherical objects has always been of interest to designers of hybrid lens whereby hybrid lens because using glass sphere structure in this hybrid lens structure will give them alternative or different reflective features and that could be of interest to optical applications designer. The user experience has always been sought after of these hybrid LAN structure, but the cost of making these glassware objects has not been successful in terms of their costing. What is of definite interest of AAC Business is we are investing in a design and also a process whereby we see substantial interesting methods of lowering cost and make these waiver level aspherical structure to become realistically affordable. And with that, we believe AAC is an important kind of component in creating a realistic costing structure for this design to take off. Your question about glass is a lot heavier material and it may cause problem for motions to be created by or movement created by VCM. We have some studies to prove or to assert that as long as there are no more than 2 pieces of these glass lenses, the movement or the design of the VCM will remain intact. And I think that is a very good basis for designs to be based upon. The hybrid lens kind of application will from user specs will naturally find its way into these new devices such as driverless automobiles or AR devices or the new generations of smart mobile devices, smartphones. We believe that when we talk about long term, a period of in the next maybe 7 to 8 years, that's long term for us. We believe the applications or the business of integrating the VCN and such hybrid lens and using wafer level lenses could have potential to become our number one business. That's what we have thinking at this moment. Our next question is coming from the line of Le Pin Huang from CICC. Please ask your question. Thank you for taking my question. So first is, what will be your next quarter guidance in terms of revenue and gross margin? So if you start to ramp up the new business, do you see your margin were on the uptrends improvement? Thank you. Thank you for your question. We believe that for the whole year, the company's guidance that we have earlier this year has remained, I. E, has no change to our annual guidance. We no longer will talk about quarterly performance. So do you think that because your margin was slightly declined this quarter, so do you think it a turning point because of your new business ramp up? Do you think the margin will be improving from the in the next few quarters? If we look at the patterns of previous year, there is no reason this year, in this current circumstances that we should see differently, I. E, declining trends in our margins. And secondly, I think as I have said earlier, the whole year's guidance has remained as this is. We can confirm that this is the balance that we are expected to be delivering. Our next question is coming from the line of David Tai from Stanford Bernstein. Please ask your question. Hi, Panjong, Richard calling in. I have two questions here. One is a follow-up on the Lens business. Regarding your the margin outlook is great. I'm just wondering whether that is that hinges on hybrid lens or is it regardless of whether it's plastic or hybrid lens? And also the hybrid lens ASP of above $2 is actually quite expensive. So I'm wondering what would the first wave of applications be like? Is it for dual camera? Is it for real camera or 3 d camera? We understand again that if the hybrid LAN design is to be installed or is for the purpose of acting as the main camera on the back of the device, it will surely be capable of creating better optical performance and maybe larger what we call aperture, etcetera, in order to give better optical performances. We believe the minimum US2 dollars possibly is a base to reflect potential bettering of optical specs. And we the reason why we also think it's a market acceptable benchmark is because the current cost of the previously described spherical glass object has been or is still is very costly to be made. So on that basis, we believe what we have described is a very realistic pricing indicator for this hybrid lens to be considered as a major camera or major what we call optical system. Thanks. What about the margin? Does the margin of over 40% or even 50% hinge on the mass production of hybrid lens? In the early stage of our business or wafer level lens, we believe that our proprietary design and production will enable us to deliver very good gross margins already. But more importantly, like what we have achieved in the past, we believe there are further rooms to improve, such as with the outcome of improving news further. And there is no reason why gross margins could not be raised further. Our next question is coming from the line of Anne Lee from Nomura. Please ask your question. Hi, Ben, Richa. Thank you for taking my question. My first question is, could you give us an update on your CapEx? And if if possible, can you give us a rough breakdown regarding how much for upticks and how much for the rest of other business? Yes. We indicated something like just over RMB3 1,000,000,000 earlier this year for the whole year 2017 CapEx. It looks like we will be incurring 50% more. I think the total annual CapEx for 20.70 could be around RMB4.5 billion, of which, again, I think majority, approaching 50% will be applied to the new non acoustic areas, whereby I think as we discussed, I think optics will be the largest out of that almost 50%. And the next smaller portion, around 15% may be allocated to what we call mechanical structures, including 3 d covered glass in the RF mechanical structure business and the remaining 2 haptics. So that leaves our Acoustic business, we believe out of that RMB4.5 billion maybe less than 1 first will be around reserves for CapEx related to acoustic production. So as in our previous years of CapEx, we also focus on building our infrastructure related to production and also the upgrading and installing new R and D, what we call specialist machinery. That remains something like maybe a quarter of the total CapEx annual budget. So I think that gives a very all rounded indication that AAC continues to focus on our core competency on these technology platforms. Sorry, Richard, just follow-up. You stated that roughly about 30% of the total CapEx will be using Optics and that's the major reason for you to raise your CapEx of around RMB 3,000,000,000 to RMB 4,500,000,000. Is that correct? Anne, I would if I cause any confusion, let me repeat that. The total 2017 CapEx is RMB4.5 million. And I said up to 50%, up to 5 0% is allocated to the new non acoustic areas. So within that 50%, Optics is the largest of the new non acoustic business. And I said 15%, 1 5% is going to be reserved for RF and 3 d covered glass. I didn't say 30% for optics. Out of the whole 2,070 CapEx, maybe around 20% is up there. Around 20%. And then may I know how much of those 20% is for plastic and how much is for the molding sorry, the wafer level glass? I think it's well balanced because as we discussed earlier in this phone call, we have plans to make sure we expand our production capacity. But then just explain clarify that when we consider the CapEx investment for lenses, when we incurred and planned production capacity for plastic lens, they naturally become part of the capacity required for shipment or designing, producing hybrid lenses solutions as well. So for us, the logic is when we look at a balanced approach, we are referring to these transition stage whereby the plastic capacity will become part of the required capacity to ship hybrid LANs capacity as well. Okay. Our next question is coming from the line of Kaylee Huang from Daiwa. Please ask your question. Thank you, Benjamin and Richard for taking my question. I have 2 questions here. The first question is, could you a little bit more about gross margin for dynamic product in first half? It seems the gross margin has some pressure for the Acoustics side. And what's the outlook given we do expect to see some upgrade in terms of spec for acoustics? So second half, do we expect the gross margin will recover for dynamic components? I think in each quarter, the average corporate gross margins of our acoustic business, it's strongly related to what we call the customers shipment schedule in that quarter. So when we have different shipment cycles that our end customer manage in the second quarter, our Acoustic Solutions will the gross margin for the Acoustic segment will vary accordingly. What we are seeing is that clearly AAC has always described it, the ASP or the gross margin situation to some extent, we can leverage on specs upgrades and the volume of individual projects in order to drive or to obtain better and better margins. So each quarter, we are still working on leveraging our automation production to deliver what we call the best margins, not only for Acoustic segment as well. So when we look at fluctuations between quarters, what we have seen as a result is a demonstration that AAC is the leader in the design and also fully leverage on automation production based on the different customers' delivery in that quarter. And again, as we have said, there's no reason that like previous year that we have come across any reason to stop AAC from delivering improving gross margins on a quarter on quarter basis as we've seen as we will be ready to prepare higher specs and better ASP acoustic products. Thank you. I could have a follow-up question regarding this one. I think in your slide you mentioned you have increasing market share in speaker box with stereo and the waterproofing spec upgrade. Could you share what's about the adoption for the like China brands or Android brands in terms of pure or waterproofing specs? And what's the outlook from here to next year? We are seeing very excitement opportunities in the acoustic segments for Android phones. Internally, we are prepared to see something like 20% year on year growth for acoustic business in the Android phone. And for that reason, along with the specs upgrade opportunity of stereo phones and tighter, higher specs in dust and waterproof. We are seeing similar kind of strong trend that AAC could demonstrate our understanding of automation, mass volume production to drive up gross margins. Definitely we are prepared to see better and better gross margins, which we have done this year compared to last year. The gross margins of acoustic business in Android. Our next question is coming from the line of Yincheng Cai from Morgan Stanley. Please ask your question. Okay. We believe the computer landscape actually for Acoustic Androids is very interesting because AAC has been focusing or has been demonstrating that we are a leader in not less than 20 years in terms of proving that it is important in acoustic design. There is a lot of very interesting variations to technology design, which could bring end customers into a better kind of concept of delivering acoustic performances. For example, we already this year, we've mentioned that we have a completely new approach or new design structured, strong performance speaker box, whereby we believe the ASP would fetch 30% higher than what we call good stereo speaker boxes. And most likely, we believe that kind of adoption of these new design would be as high as 100,000,000 pieces on a year basis very quickly next year. And it's more important that with this demonstration of this new design, we are expecting that the adoption of this new design could be an increasing proportion of our acoustic high tier solutions and that could bring further kind of dollar terms improvement or increase in contributions in revenue. But like what we have said earlier in the call, for the RMB 4,500,000,000 CapEx that we have for this year, something like RMB 1.3 around RMB1.3 billion is located for Acoustic segments. So we continue to believe that not only having a new design in bringing out acoustic performance, but also the automation process that AAC proprietary developed and invested in will bring the value of these acoustic new designs to the customers. This actually kind of proves wrong or and put us in a very big contrast that AAE strongly believes that there is a lot of technology in acoustic design and whereby the continuous or sustained demonstration of our leadership and our continued investment in this segment is exactly the opposite of where our industry competitors just ignoring and that has been an important of us extending our leadership over the other suppliers. Technology platform. Mobile, male technology platform We continue to see a continual abort to this year from previous business investment in RF mechanical and we have put or classify or group what we call 3 d Cover Glass under RF Mechanical Business. That is to say that it will we believe the trend or the value of technology platform of integrating 3dcoverglove as an important RF metronical design, it's a definitely opportunity that AAC could demonstrate our preparation for. For example, we believe in the pending arrival era of 5 gs antenna network, the current trend of metallic casing possibly could be replaced for stronger preference for 3 d covered glass, whereby the metallic design will become a more like a mid metallic frame. Such kind of trends AAC already is studying and it's preparing for. But in terms of efficiency and further improvement in our internal capability, we are continuing to develop stronger automation in terms of the processes, whereby we are installing more kind of more precision a precise robotic arms in potential kind of work processes whereby there are structured design, AAC is coming out with what we call standard units to help to control or improve what we call production use and streamlining the production processes. And of course, AEC strength is in coming up with better and better kind of precision manufacturing requirements. We believe from all these aspects, we have a very strong chance still to improve the profitability of RF Mechanical's business as it stands. But nevertheless, what is important is that the 3 d cover glass design will remain a kind of potential trend for designer and our end customer to consider how they raise different structural design in order to cope with the 5 gs network requirements in installing many, many more antennas. The current 1,000,000 capacity for 3 d covered glass, we believe most of it will be related to the back cover. Of course, there will be a smaller proportion dedicated to the front. But what is important there is we are applying our understanding and our business model that we are developing what we call a proprietary sustainable kind of and creating a technology platform, which is strongly integrated to our end customer technical requirements for future materials to be used in the antenna or 5 gs era. In such a process, we have already kind of invested and developed our own internal molding technology and our own actually molding equipment to come up with the design and control of process necessary to prove that AAC has a unique final leader in leadership approach like all the technology platforms that AAC enjoys assessing. We believe the control or the knowledge of developing a technology platform strongly integrated to user experience applications by our end customer is a key. And hence, we will continue to follow and work in that framework. Our last question is coming from the line of Nati Chen from JPMorgan. Please ask your question. Hi management team. This is Nati from JPMorgan. I have two questions, hopefully very straightforward. Number 1 is regarding your RF casing business. I understand that previously, I mentioned I was pretty vocal about this business and probably owns about 5000 to 6000 of CNC machines. But judging from your CapEx, it doesn't look big for this business. I'm wondering whether this is just for maintenance CapEx or do you still plan to expand the capacity further for especially for the metal frame? And if not, why not? Because it seems to me that your haptics and RF segment margin was pretty strong in first half, much stronger than second half. Was it more because of haptics or was it more because of RF mechanical margin increase? Thank you. The importance for RF casing or what we call mechanical business is really about integrating the mechanical structure casing with different kind of antenna requirements and also potential 3 d covered glass. And what we have disclosed or discussed in this call, the CapEx mainly are from what we call carry forward investment plans from previous year. We understand the requirement of CNC machines, our business model are different to the other players. What we are going after is not about market share. We are after what we call the value of antenna design in the appropriate high end flagship design, whereby such integrating of the casing with antenna design will become an important kind of demonstration of technology platforms, which is our business model. As we have I think as we have said in the call, the profitability of the current casing business or RF casing mechanical business, the profitability improvement opportunity comes from the approach of turning or applying what we call standardization whereby with standardization we have better use and also quicker response time and also the application of a higher automation level will enable us to create better production yields and obtain better profitability. But at the end of the day, what we have seen, what we have already achieved in 2017, this year, if we look back 1 year ago, we have maybe 2 customers in RF mechanical business. But in this year, we have concluded or we would have completed what we call Android. We have a very strong penetration in the Android group of customers, possibly, namely the top 5 names in the Android segment. AAC is already involved with some of their RF mechanical business. It is our plan that by second half and first quarter next year, AAC would be actively conducting or it'd be more involved with the high end projects of these top five Android names. And possibly in a month's time, we would have very strong footprint in controlling or influencing the antenna design of different casing of these flagship models and with capability of involving different material other than metallic casing that we have seen so far. So that would be a very strong demonstration again of AAC positioning as a technology platform to create value to integrate and offer a new user experience to enable our end customer to take advantage of the upgrading trend in the attending sector. Thank you. It's very clear. I have a second question regarding your acoustic business. Apparently, you mentioned that due to the customers' shipment schedule, the margin was a little bit impacted in first half. But even when I look at the year over year comparison, the margin seems to be lower. I understand you say that there will be some content increase, ASP increase in second half. But I'm just wondering, do you think the competition still growing? And other than relying on the content growth, is there any other way to defend the ASP pressure? That's my second question. And that will be all from me. Thank you. Thank you for your question. As we have said, the technology platforms and the margins that AAC can enjoy really depends upon the leadership we have demonstrated about when there's a spec upgrade cycle. In the past, different periods of upgrade cycles have appeared and AAC has clearly demonstrated our leadership, not only in terms of working with a couple of customers, but we have a very, very strong foothold in most of or in every what we call an important smartphone players in order to deliver the latest acoustic specs. For example, we've seen the trend starting a couple of years ago on delivering stereo sound and dustproof waterproof features. Those features continue to be upgraded. And whenever there are upgrade opportunities, there is associated complications in design and stronger kind of opportunity for leaders to demonstrate that we can work on the user experience. And in those cases, naturally, AAC have demonstrated we can earn better margins. So it's really the different cycles of AAC demonstrating our leadership would impact upon acoustic margins. In the call earlier, we already described that AAC has already firmly established a new kind of set design of a speaker box which will earn ASP of 30% more than the current kind of speaker box and deliver even stronger acoustic experience whereby our end customer would fully appreciate and adopt. And the trend like what we have seen in the past, AAC comfortably extend our leadership gap with our competitors because the fact that the user experience that our end customers see and obtain through AAC's adoption is genuinely a way above, a long way above our competitors. And from that, we have earned very interesting pricing position and earned very interesting margins. We continue we will continue to demonstrate through sustained R and D investment assets in acoustic and also in related automation CapEx in order to deliver such high margins and we believe the acoustic upgrade cycles will continue to emerge. Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Ms. Connie Jin for closing comments. Thank you. Consistent with our commitment to building innovative miniature solutions and multiplatforms for enhancing user experience, we continue to lead in the audio and haptic systems and continue to develop competitive RF mechanical solutions. And in optics, after years of R and D and building up our IP portfolio, we have established proprietary technology and manufacturing capabilities. We are well placed to capitalize on the growth potential in both acoustic and non acoustic segments globally. That's the end for our closing remarks. Thank you all for joining us today and for your interest in AAC Technologies. Should you have any inquiries, please feel free to contact our IR team. We look forward to speaking with you again and discussing our 2017 Q3 results, which is tentatively scheduled in mid November 2017. Thank you. Thank you for your participation. And this concludes today's conference. You may go ahead and disconnect.