Ladies and gentlemen, thank you for standing by, and welcome to AAC Technologies' 2016 Annual Results Investors' 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, at which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today and lasts for about one hour. I would now like to present opening remarks. We are happy to have Mr. Benjamin Pan, Chief Executive Officer, Mr. Richard Mok, Managing Director, and Ms. Connie Chin, Head of Investor Relations, with us today. I would now like to turn the conference over to your moderator today, Ms. Connie Chin. Please proceed with your introduction.
Good day, everyone. Thank you for joining AAC Technologies' 2016 Annual Results Investors' Webcast and Conference Call. This is Connie Chin, Head of Investor Relations. Joining me on today's call is Mr. Benjamin Pan, our CEO, and Mr. Richard Mok, our Managing Director. Before we begin, we would like to remind you that the copies of our results announcements, results presentation, and press release are all available from our website, www.aactechnologies.com. We would also like to draw your attention to the following disclaimer. Some information that you may hear during our discussion today may contain forward-looking statements. This information includes revenue, gross margin, operating expenses, other income 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 on future events and developments at the appropriate time.
We will now briefly review annual results and Q4 before we open up the call to questions. We posted the seventh consecutive year of record financial performance. Overall sales rose 32%, and it was mainly due to dollar content growth on our advanced design solutions. The solid growth came from both Dynamic Components and non-acoustic segments, which increased by 29% and 56% year-on-year, contributing 51% and 41% of our total sales respectively. Overall gross profit margin, well maintained at 41.5%. Operating efficiency helped reduce OPEX to 12.4% of sales. Earnings per share was up 30%. Together with the proposed final dividend, a total dividend of HK$1.47 per share for 2016 maintained around 40% payout ratio. Though we largely increased investment on capital expenditures for ramping up non-acoustic segments business in recent years, we maintained a high ROA and a high ROE.
Besides, we shortened the cash conversion cycle from 84 days to 61 days by effective working capital management. For the fourth quarter of last year, we delivered record highs in both quarterly sales and earnings, increased 36% and 43% quarter-on-quarter respectively. Strong momentum from non-acoustic was the main factor of growth, and we witnessed non-acoustic contribution exceeded acoustic for the very first time. Revenue from non-acoustic segments rose 73%, accounting for 56% of total sales. In the acoustic segment, stereo sound and waterproof features dominated and drove Dynamic Components sales up 11%. Thanks to high visibility and good control on operating expenses, OPEX ratio reduced to less than 10% of total sales. Net profit margin improved to 27.4%. Looking ahead, we expect high proliferation of our high-end acoustic solutions will further strengthen our leading position to drive growth.
At the same time, the non-acoustic segments will experience different stages of growth phases. With our strong design and production capabilities, backed by a consistent high level of investment in R&D and technology innovation, we are well positioned to stay ahead of industry and consumer trends and to capture the promising market opportunities. That brings the end of our introduction. We would just like to remind you that we have set aside around one hour for this call. Now, we will start the Q&A session.
Thank you, Connie. The question and answer session will be conducted electronically. As a reminder, each participant should limit the number of questions to two in each round. You will have to queue again if you would like to ask more questions. If you are using a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. Now, if you wish to ask a 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. First question comes from the line of Cherry Ma from CLSA. Please go ahead.
Hi. Congratulations on the fantastic results. I have a follow-up question on Connie's mention of the non-acoustic segment. What is specifically the company's strategy for the RF casing business this year? If you may share some matrices in terms of margin or selling price or volume for last year and this year.
The non-acoustic business this year, we believe has a very strong opportunity for us as the preparation for RF mechanical structures and also haptics. We've been well-prepared for opportunities this year. For example, RF mechanical structures, we are expected to be involved and deliver higher volume and more projects to major Android customers in China, also a possibility of adding a Korean customer. We are well-prepared for that, I think the slight reduction in CapEx is due to the reason that we have accumulated sufficient production capacity to take advantage of the growth of better design metallic casing that will emerge this year. I think overall, 2017, we expect the total of the non-acoustic business actually will exceed the contribution from Dynamic Components as such.
My follow-up question.
Looking forward, as we are on the 2 phase of the learning curve of mechanical structures, we believe we have substantially improved the efficiency of the production process required in delivering different designs to the mechanical structures business. We should be able to enhance our historical yields, and obtain better and better performance. Overall, I think the margins from non-acoustic business, we do see opportunities for them to be improved in 2017.
My follow-up question would be if the RF casing business, the gross margin, has reached the corporate level last year?
I think in 2016, the projects of RF mechanical structures vary in terms of shipment volume and size and designs. Some of the projects that AAC has undertaken and delivered have delivered margins well above average corporate margins. On some of the smaller projects and some of the different design projects, those margins have fallen short of the average corporate margins. It's a portfolio of different performance by project basis.
Good. My second question will be related to Dynamic Components. From my quick calculation, seems like 4Q Dynamic Components growth margin has recovered to well above 40%. I'm just wondering what's the reason behind this increase, and if this will be sustainable in 2017.
The overall acoustics margins, I think in some way reflect our well-prepared for better and stronger specs in the solutions we delivered to different customers. I think in quarter four, again, it's a strong revenue quarter as the numbers demonstrate. We reaped on good, higher efficiency on higher volume. Overall, I think the solutions that acoustics have delivered in 2016, especially in the fourth quarter, have much stronger specs, and thus, some of them have a higher or what we call rewarding ASP for us to manage to get better margins. In the year 2016, it's quite obvious and the trend is very strong that we have entered a phase of renewing or adopting much higher specs for what we call new generation of acoustic solutions.
It's clear that, for example, in the Android phones, these new specs, this new phase of new acoustic performance, have firmly started and commenced with the result of better and higher ASP and opportunity for AAC to deliver even higher growth margins overall for this business.
Thank you.
Thank you for the question. Next question comes from the line of Dennis Chen from Citi. Please go ahead.
Hi, congratulations on the good results. My first question, is it possible to get an update on the 3D glass and lens and CNC machine capacity, please?
而且我们从现在发展来说，我们希望今年全年的shipment在RF module上面，比如casing这样的module上面，超过minimum，大概有30 million的一个shipment，或者做到30 million shipment左右，这是我们今年的一个目标。而且因为随着我们客户端的展开，我们希望我们的RF module能够往高端走，然后随着后面的发展，越来越往高端走，尤其跟3D玻璃这样的一个整合。不光是RF跟casing的整合，我们也希望从结构方面来说，跟3D玻璃整合在一起。那3D玻璃我们是今年才开始投这个capacity。所以从今年的一个进度来说，我认为不会太大，我们的计划大概是到二季度、三季度之间，到一个million的capacity，这样的一个规模。那至于在今年底，和明年我们在3D glass上面要投多大，我们还要看整个市场的一个需求，和本身内部的一个进度，所以这是方面。然后optics上面的话，基本上我们目前的一个capacity规模是在10 million units。那shipment现在从目前来说，还是在2 million units左右，所以我相信在今年的某个quarter，Q3和Q4之间，我们是希望把我们的shipment跟我们的capacity拉平，这个是我们目前的一个目标。
In the three areas, RF mechanical structures, we are estimating something like 4 million pieces per month on the RF mechanical, what we call casing modules. The total annual expecting kind of expectation or volume, should not be less than 30 million units for 2017. More importantly, with our capability of consideration of integrating RF design, not only in the mechanical structures, but in terms of consideration for how 3D cover glass will be a part of the casing. We believe these projects are more likely to be what we call high-end or mid-tier solutions. Those are the plan we have for our mechanical structures in terms of capacity and positioning. In terms of 3D cover glass capacity, I think in this year, roughly around second and third quarter, we should get to not a huge number of production capacity. We estimate around 1 million per month.
Really, I think our plan to look beyond that in the years 2018 and 2019, I think we are prepared to grasp what the market situation and the customer demand, and to adjust or increase that capacity accordingly. This year, I think 1 million capacity per month is what we are planning for. Finally, in the third area of optics, we do have installed capacity of 10 million units per month, but at this moment, we are still on the learning curve. We are talking about shipment volume on a monthly basis, 2 million.
What our plan is as we approach third quarter in this year, we like to kind of minimize the gap between the shipment volume and our capacity. We like to be able to think that the opportunity is for us to fully utilize the 10 million capacity, and deliver that shipment volume at the same time.
All right. Thank you. My second question is that we see many Android phones adopting stereo features and waterproof features. Do we have a rough estimate on the adoption of stereo and waterproof features in Android phone this year? Any rough figures is fine. Just to clarify, for our mechanical segment, we right now still have between 5,000 to 6,000 CNC capacity? That's it for me. Thank you.
从今年立体声和防水的，在smartphone的发展来说，我们今年大概会看到100 million左右这样的一个stereo phone，看到AAC的一个shipment会产生在Android系统，或者主要集中在中国，或者除掉韩国那一大块，我们大概会看到100 million左右。所以我刚刚讲，我们现在的价值的提升，实际上我们在Dynamic Components上面做两件事，一个是防水和立体声，传统的我们的结构，我们在提升我们的技术水平。然后同时我们推出一个全新的结构，声学的performance在stereo上面会有大幅度的提升。从今年来看，在100个million中间，大概会超过10 million使用全新的结构，而且在这个结构上面，AAC有比较强的定价能力。我们基本上在看说一套的价格会超过四块美金，大概在接近RMB 30不到这样的价格。但是因为今年是第一年开始，有些客户已经开始采用，从我们的评估来说，声学的performance有很大的区别。所以今年这个shipment大概会在10 million左右。而且我们希望随着Android系统声学效果的要求会不断提升，同时也有防水或者力提升这样的一个要求。我们希望这样超过四块美金这样的结构的shipments的比例，在今后的几年中间能够不断提升，为我们将来真正过渡到这种miniature size的这种Hi-Fi打下很好的基础。
In the Android phones, we estimated this year 2017, what AAC would be doing, mainly addressing what we call the Android phone system in the PRC, i.e.
Ignoring or in terms of below shipment volume, we think 100 million units in this new type of waterproof and stereo sound solutions. Out of this 100 million, what is most interesting is that around 10 million, it's based on an enhanced or new design, whereby the stereo performance is much more noticeable, much more interesting in terms of user experience. We believe with this new design, this higher stereo user experience, AAC does have a much stronger power in terms of pricing. We like to think this kind of solution could fetch up to $4, roughly RMB 30. This 10% or 10 million shipment will be a very interesting starting point for this to kind of increase overall percentage in the stereo and waterproof system in the years following. I.e., we do believe the trend for ASP of a stereo waterproof system continue as we base ourselves finding, creating a stronger user experience. This is a very interesting kind of base for AAC to firmly establish us as the leader in terms of delivering what we call and what we have described in the past as a miniaturized kind of Hi-Fi system capable of incorporating in the smartphone design.
然后在RF mechanical CNC这个capacity上面，我刚刚讲过，我们今年的目标差不多是稳定在4 million per month这样的一个产能，差不多就在5000台CNC机器左右。我觉得AAC的目标在RF mechanical上面，不是说去跟行业或者竞争对手去拼我有多少台CNC机器。我们主要的还是说我把RF跟金属结构件，然后下午甚至跟3D玻璃，甚至跟我们将来推的刚刚讲的miniature Hi-Fi这样的声学的用户体验结合在一起，看我们提供这样的一个技术方案给客户，看到底能够带来一个什么样的价值。所以我要讲，我们在RF mechanical上面，我们的追求目标是，我们应该会有行业里面最高的通过智能化，最高的生产效率，最高的良率，甚至是在某些新技术的处理方面，我们应该有跟新的材料的结合，有最好的技术，这是我们追求的。我们在这方面，我一直强调，我们并不会去追求最大的市场占有率。我们想提供给这个行业的还是这样的一个mechanical和RF整合，甚至将来跟声学Hi-Fi整合的这样的一个技术平台，然后在这里面再提供给客户这样价值的同时，来获取AAC想要的价值。
We have mentioned that we are prepared for a monthly capacity of 10 million, whereby to.
10 million per month.
Not only 10 million, 4 million.
4 million.
I beg your pardon. 5,000 CNC machines for a 4 million per month capacity, whereby all along we are saying that we are focusing not on market share, but in terms of the positioning of how to integrate the use of 3D cover glass and new material as an interesting design value to our customer. Based on that, we like to believe AAC has a proprietary approach in terms of enhancing yield and automation and in terms of arranging for automation production process in delivering that business, even for consideration of use of new material in the design. That would be a sustainable approach on how to deliver the best important RF mechanical structures positioning in the business in a sustainable way, but not focusing on number of CNC machines.
Got it. Just to clarify your answer, 100 million means stereo plus waterproof, right? It does not mean 100 million waterproof plus 100 million stereo. Most phones, they don't have both features, for China smartphones.
In the 100 million we mentioned, mostly will be stereo sound capability. A smaller proportion will be waterproof. We're talking about a total number of 100 million.
Got it. Thank you.
Thank you for the questions. Next question comes from the line of Ken Hui from Huatai. Please go ahead.
Thank you for taking my question. My first question is regarding your sale done on Heptagon. Can you give us some color if you are going to book any gain in this quarter and after the transaction, what is your percentage of ownership in ams? Going forward, is that going to be just a passive investment or there is any cooperation opportunities? That's my first question. Thank you.
In the disposal of our investment in Heptagon, mainly we are getting a portion of the proceeds in cash and a portion of the shares of the acquirer. With the nature of the disposal, the shares in the acquirer are subject to a lock-up period. No profits have been booked in the quarter or in the period reflecting the sale disposal. I think ams, the acquirer, is a very interesting company, whereby I think on the news of the acquisition of Heptagon, its share price have reflected some gains already. For AAC, I think on our books, subject to the lock-up period, we are in a flexibility after the lock-up period to either sell on the market or retain a meaningful kind of shareholding to it. Nevertheless, I think our resulting shareholding in ams is maybe around 1%. It's not a huge percentage of the listed company.
To some extent, I think we understand the design capability that Heptagon brings to the acquirer. In a way, I think subject to the lock-up period, following the completion of the lock-up period, we have the flexibility to review the capability of the acquirer and to either realize the investment. At the same time, we already have received cash proceed from the disposal.
Thank you for the question. Next question comes from the line of Sam Lee from Credit Suisse. Please go ahead.
Hello, can you hear me?
Yes.
Yeah, great.
Hello.
Hi, Benjamin, Richard , Connie. First, congratulations for the very great earnings. My first question is about the competitive landscape for acoustic and haptic in 2017. For example, we all know that acoustic will have a meaningful upgrade in 2017, no matter in Chinese or overseas clients. There are also new competitors coming in. I know our official answer is to maintain a major supplier position, but I would appreciate if Ben can give a little bit more color from the technology or manufacturer side, for both acoustic and haptic. Thank you.
包括我们自动线的design和标准也全部在按照这个去构想。所以我是希望说在Android系统，随着我们这样新的平台的推出，用三到五年时间，把我们现有的对手的一个所谓的自动化的努力把它淘汰掉，这是我的基本的一个想法。因为这个行业，尤其我们这个行业，不是说像那些做电阻电容的，或者是做一些很标准的元件的，你可能去外面买一套，一碰到回来，你就像照相这个傻瓜机一样，你就会很成熟地应用，每一家都没有区别。所以这个是我们这个行业不同，或者是AAC作为这个技术的leader，要努力来避免的。所以这个是一个不同。我觉得任何除了Android系统或者以外的客户，当然有些design是客户在design，但是如何去提升声学的这个performance，这个我觉得是共同的。然后在提升声学performance的同时，到底要下一步采取什么样的technology，我觉得这个也是不是说客户control这个design，我们就不要去考虑的东西。所以我认为这个行业不管是Android系统也好，还是Android系统以外也好，我们这个行业如何避免它不仅仅是一个简单的assembly，是我们努力的一个方向。
In the past, we have established ourselves in acoustic solution as a leader, but clearly not only what we call in the different systems. For example, in Android system, we have in the past what we call control influence and set up the acoustic performance standards in mobile smartphones. Whereby in doing so, we are not talking about delivering that capability in the next 12 or 24 months. Really, it's a longer technical roadmap of development, require us to leverage historical research and also new ideas of a timeframe of three to five years. What is also important is that we are undertaking this path irrespective of different customers perception or what they thought they have the control or the design of such acoustic capability.
In the longer kind of R&D roadmap we have set ourselves, we have, for example, mentioned just now I think in the answers to the previous questions, in delivering a new design of delivering a stronger stereo user experience. This is one of the what we call key performance indicator that we recognize that by stages, one by one gradual, we get closer to a genuine Hi-Fi miniaturized acoustic solution. Hence, this is the way that we believe the existing kind of acoustic capability can be further improved, can be enhanced. Of course, this is all backed up and supported by, for example, when we talk about the new design, we already have 20 plus patents in relation to that design, which will firmly set out the path that we could take and elaborate to get closer to the Hi-Fi miniaturized acoustic performance.
What is also important to take note is that we have set up a strong automation capability, not only to improve the, what we call the link between design and production and the efficiency of the production process so we can bring such benefits to our end customer. Also it is important to recognize that in the design and the mass manufacturing process, the industry or the solutions that we are delivering is not a kind of standard. It's not a result, or it's not something that a standard set of equipment can deliver. We have important roles and ideas to contribute to make the production process completely. It's not related to pure kind of simple assembly process.
Hence, the automation and the production process is a key differentiator in establishing us to get by stage by stage success in getting to what we call miniaturized Hi-Fi technical capability.
Yeah. Great. What about the haptics? Any new progress in our, I don't know, automation or whatever technology capability side?
Haptics，其实大家都明白，一直是两条路径。那现在我们大量生产的路径我就不说它了。我觉得在Android系统，因为这个还有很多操作系统，你要用户体验很多操作系统改变或者什么。但是我可以讲说，因为AAC我们有自己的一个技术的设计，然后有它的一个可以达到一个很好的用户体验。我们从今年2017年来说，我们大家可以至少看到三到五个million shipment，当然这个数量还是很少，但是我们可以看到，我们的销售价格差不多是在$3.50甚至$4以上的。这个至少说明在Android系统已经有一些用AAC主导的这种IP的或者结构设计的产品，有比较强的用户体验，今年会出来市场。当然，在后面随着操作系统和软件这方面的一个改变，会不会有更大的数量的shipment产生，我觉得这个还是要到2017年以后，我们才能看到。In the haptics kind of business development, we've seen very clear signs of taking the haptics experience to a higher level by the Android phones.
All along, I think AAC, we believe we already have established a strong proprietary design, whereby we create very interesting user experience. This year, overall, we believe a range around 3 million to 5 million of units may be shipped in 2017. We believe such solutions, they fetch higher ASP prices like $3.50-$4. Clearly, I think the software and the operating system will continue in Android system to evolve, to affect the user experience from haptics. I think it will be in the following year, after 2017, after this year, that we see kind of clearer or stronger adoption of haptics in the Android phones.
Great. Can I still ask my second question?
I think one more question from you, please, because we still have a couple of people.
Yeah. Great, because that one was a long one. My second question is about gross margins. Can you give some rough guidance on gross margin for each segment? I mean, it's still not about the detailed numbers. I actually would like to understand the technology design or cost structure changes underlying. Thank you.
I think overall, as we've seen, for example, in acoustic business, in this call, it's quite clear that there is a new phase of higher acoustic performance fetching higher ASP. Overall, we believe acoustic margins, there is a strong opportunity for AAC to deliver even improved margins than in 2016. We expect that, for example, in the second half of this year, overall gross margins may be able to perform better than the margins in the first half. In terms of non-acoustic business, I think we have delivered messages that we are quite confident that the CNC and the mechanical structure shipment volume will be greatly improved or increased, and thereby with our capability of integrating RF design into these high-tier and mid-tier solutions. We believe ASP and again, our higher level of the learning curve will again present us with opportunities of delivering better margins.
I think overall, from what we have just described in haptics, I think it's clear that as smartphones develop more sophisticated haptics response, even in the Android system, with a range of $3.50-$4 solution. I think AAC definitely has such opportunity to deliver better margins that we have delivered in non-acoustic business compared to 2016. Overall, I think these margins from our quarter results announcement, not in a way reflect the business, the product mixes, and the different stages of customers' new launches in each quarter. Overall, we believe in the past, our quarterly improvement in margins reflect how we continue to focus on improving the overall performance, not only in acoustic, but overall in the new non-acoustic business as well, especially when we talk about in 2017, the new non-acoustic business kind of outweighs the contributions of acoustic business.
Good. Thank you. Actually, I have more follow-up. Actually, last year, I remember for haptics, we did some outsourcing, which affected our gross margin. This year, I don't know whether we can reduce that kind of outsourcing and can help a little bit our margin.
I think outsourcing is an interesting way to kind of help us to determine what is the best penetration position and what types of capability when we are entering into something that require higher CapEx. When we have sufficient knowledge about, or when we have developed sufficient proprietary internal capability of such business, we are in a way much more kind of knowledgeable about the different
processes involved in delivering a solution. outsourcing is something that we are comfortable with. again, I think the overall consideration is whether outsourcing will be relevant or meaningful in terms of us developing a sustainable capability of reaching a higher margin. I think in some of the business, it makes sense for a certain short period of time, but there may be opportunity for outsourcing, maybe a slightly longer-term feature when we approach a business. I think for one thing is sure, AAC constantly focus on the technology capability of each of the solutions that we are delivering to the customers. I think outsourcing is something that, I wouldn't say it's not a relevant consideration, but our focus is still to develop leading and differentiating technology to bring user experience.
Thank you for the question. Next question comes from the line of Jasmine Lu from Morgan Stanley. Please ask your question.
Hello, can you hear me well?
Yes.
Okay. Thanks for taking my question. I'll be very quick. First of all, since now it's already approaching the end of March, I just wonder whether management team can give us sort of guidance for the first quarter and maybe a little bit for second quarter, especially there's a lot of the talk concerning about China's mobile demand. That's number one. Secondly, will be the OPEX. In Q4, we saw this operating leverage extension, given that absolute level or the OPEX actually didn't really increase that much. How should we think about the trend into 2017? Thank you.
I think, in the first quarter of 2017, as we know, it's a seasonality that the first quarter of a new year usually will show decline from the top peak previous fourth quarter from the previous year. I think this year, 2017, we should be able to see a very strong first quarter. I think the decline would be much smaller than what we have seen in the previous year quarter-on-quarter decline. First quarter, I think it will prove to be a very interesting, very solid, good base for us to deliver 2017 performance.
Secondly, I think, in terms of leverages of OPEX, I think in the fourth quarter last year, I think the 3 components in OPEX remains to be the general administration, the administration marketing, and also out to a larger extent, the R&D expenses that we focus on as a discipline to make sure individual R&D resources are well allocated not only in the new areas, but on old areas as well. I think, yes, in 2017, there may be opportunities for us to obtain further leverage, but I would believe that being the R&D is a very important feature, and as we see new solutions in new businesses continue to take its places. We believe such leverages may not show big kind of drop in ratio of OPEX, but nevertheless, there is a good opportunity for us to do better.
If you look at the R&D expenses only, what would be the ratio that we could apply for the next maybe one or two years?
I think for 2016, for the whole year, I think it's around 7.5%. In this year, I think as we talk about new solutions, for example, in optics, et cetera, I think we are focusing a range of 7 to 7.5%. Jasmine, when we talk about R&D expenses discipline, we also want to mention that the way we think about the future or the direction of CapEx investment. I think last year we made a substantial investment in our mechanical structures business, and acquired sufficient capacity in preparation for 2017 business. I think as we discuss about our R&D roadmap in delivering a miniaturized Hi-Fi acoustic solution, I think the CapEx this year, there will be a portion that goes in relation to equipping ourselves in preparation for this new structural design in the area of acoustic.
I think this CapEx for 2017, I think mostly will be in acoustic and to some extent, the new optics business.
Thank you.
Thank you for the questions. Next question comes from the line of Arthur Xie from UBS. Please go ahead. Mr. Xie, your line is open. Please go ahead.
Hi, can you hear me?
Yes, Arthur. Hi.
Thanks very much for taking my question. First is just to get your clarification with regard to non-acoustic gross margin changes. I think in the release there are two reasons being mentioned. One is the impact of the product mix and also the increasing production cost that caused the overall gross margin to decline from 50.8% to 40.1%. If we leave along the product mix changes, would you say on a like-to-like basis, did each of the product profit margins still decline in 2016 over 2015? I think earlier, Richard mentioned that the yield rates for the RF mechanical could further increase. Does that imply for the non-acoustic gross margin for this year, it's likely to recover?
I think when we grow our non-acoustic business, clearly we are seeing different opportunities as I have discussed about the efficiency of individual performance of individual projects. Nevertheless, I think in 2016, the RF mechanical structures is still small in terms of the projects that AAC has undertaken. When we describe a change in the margins due to product mix and production cost, we are talking about, for example, whereby some of the solutions that we have delivered in 2016 have higher, what we call, overall costs to some extent, either materials or structural design cost that's nothing to do with the technical design or production capability of AAC. It's a factual matter that some of the customer solutions will have such higher material cost content. Due to the different product mix, it will affect our margins.
Back to the forward-looking kind of expectation on RF mechanical structures. We have understand a lot more. I think this is March, we already have seen our yields on some of the projects that we have done in January and February have improved our previous yields compared to 2016. That is why we are confident that we continue to deliver this kind of production success, improvement in efficiency. Overall on acoustic business, the yields should improve. Whether the overall margins will improve to a greater extent, I think the opportunity is there. Again, I think the margins come from a result of customers' ASP as well. Overall, this is the first quarter.
Nevertheless, I think when we have seen good management track record of us entering and expanding our, not only new business, but our existing acoustic business, as I said, we would believe that our second half margins overall for the company will be better than the first half. To some extent, especially in the year 2017, the new non-acoustic business outweigh the proportion of the acoustic business. It would not be a surprise that our gross margins in the non-acoustic business will be somewhat better than the levels that we have delivered in 2016.
Okay. The follow-up question is with regard to the full-year outlook. Given the efficiency improvement and also in terms of the better scale, second half is likely to be better than the first half. Earlier we also talked about the first quarter could be lower than normal seasonality, that kind of a decline. Would you try to update your full-year outlook, in terms of the sales revenue growth and the margin trend?
I think 2017, as I said, we are happy that this is now around mid-March. It's very likely that we should be able to deliver a strong first quarter. On that basis, I think the overall annual 2017 performance, I think could be something like not less than 25% year-on-year growth in terms of revenue. In terms of margin, I think as I said, the non-acoustic business outweighing the proportion of acoustic contribution. That give us a very good base to deliver better margins. I think, again. As we have seen in the past, our improvement in margins came from very hard work. At this moment in time, I believe there is a good opportunity that we should be able to deliver a slightly better margin.
Whether it's a lot better, I think we will get a clearer picture as we are near August time when we are clear how we've been doing and how we are well prepared for the third and fourth quarter.
That's good. Thank you.
Thank you. Next question comes from the line of Arthur Xie from UBS. Please ask your question.
We already asked.
Thank you. The last question comes from the line of Kate Detiel from CIMB. Please ask your question.
Hi, the management team. There's two things I would like to understand. First thing is Vesper. I want to understand, in Vesper, with their technology, what are the new product that you can bring to the market? The second question is, beside all these things that we have discussed, what is the new product that you're looking at? Thank you.
We made an investment in this company called Vesper as we have a line of business called MEMS microphone. Vesper has the proprietary design, embarking completely, a new way of a sensor design using different materials. We are interested to be participating in a new design, possibly supporting them in terms of presenting to our existing portfolio of customer. We remain as a minority shareholder in this company. Secondly, new products that we are looking at. Since 2005, we are now 11th year of listing. We have added to our capabilities, not only acoustic solutions, but in terms of RF design, optics, and to some extent, making use of our knowledge in acoustic, coming up with interesting haptics user experience, i.e.
Our capability constantly evolve to reflect that we are a very much focused technology on miniaturization solution provider. Our end objective is to create user experience. We've already embarked ourselves on the, for example, optics business, i.e. plastic lens system, glass lenses, capability of 3D cover glass. We are not coming up with products as such. We are coming up with sustainable technology platforms for us to deliver different precise solutions that our customer have in mind for creating user experience. In terms of product, yes, we are constantly coming up with new products. We're looking at new products. What is of most interest to AAC is our road map to develop a platform of technology whereby it embrace our existing and can be integrated to our different knowledge of platforms in the Dynamic Components, in haptics.
For example, I think in this call we've mentioned of integrating, not only about coming up with mechanical cases, but actually the solution is to integrate RF design and the possibility of new material and a more efficient RF design, even embracing new material, ceramic or glass. This is what we call technology platform, whereby, I think product is something that we charge ASP, but more interestingly is new technology capability that constantly AAC would be focusing on. Then again, I think, Ben mentioned and has already described, when we look at, for example, the acoustic roadmap, it's a three to five year long term vision that we design our roadmap and based upon. All these new products or new technology platform is something that is a constant part of our management process that we evaluate, review, and identify new technology areas as such.
In terms of Vesper Technology, can you tell me more about the technology itself, the piezoelectric MEMS, how is it different from the existing technology in MEMS, and what are the advantages in using the piezoelectric MEMS?
Let me try my technical interpretation. Basically, a piezo design has a different kind of structure at the back, and its waterproof capability helps the performance of the piezo MEMS microphones to withstand, for example, humidity. Based on the waterproof capability, the performance of given piezo microphones will be less than one decibel of that range. That is a very important capability in order to come up with a design of array of four microphones or eight microphones to achieve the noise cancellation capability that customers desire. In general, I think to sum it all, waterproof capability of piezo design MEMS microphone.
Thank you. I have no further questions.
Thank you. We have reached the end of our Q&A session. I would now like to turn the floor back over to Ms. Connie Chin for closing comments.
Before I make the closing comments, we would like to draw your attention that we will publish an announcement related to a connected transaction about the acquisitions of about 20% of equity interest in AEC New Power later today. Our INED, independent non-executive directors, has already reviewed and approved this transaction. We believe this transaction can enhance our R&D capabilities, especially of the study of the impact of the battery on the performance on the hardware stack. We recommend investors to review that announcement later on today. Here is our closing remarks. Building technology platforms for miniature solutions to deliver long-term profitable growth has always been our business strategy, which enable us to expand our reach to different applications featured in all different mobile devices.
We are well-prepared to go with a clear solutions roadmap, we will stay focused on technology development to support mobile device makers to improve and create new user experiences. We are confident that we will continue to be the key miniature technological component solution provider around the world. To conclude, I wish to thank you for attending today's broadcast and conference call and for your interest in the AAC Technologies. If you have any further inquiries, please feel free to contact our IR team. We look forward to speaking with you again to discuss the first quarter results of 2017, tentatively scheduled in the middle of May 2017. Thank you.
Thank you for your participation, this concludes today's conference. You may go ahead and disconnect.