Ladies and gentlemen, thank you for standing by and welcome to AAC Technologies 2016 Q3 Results investors webcast and conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session, at which time, if you wish to ask a question, you will need to press star 1 on your telephone. I must advise you this conference is being recorded today and lasts for 1 hour. We 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 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 Q3 Results investor webcast and conference call. This is Connie Chin, Head of Investor Relations. Joining me on the call today are 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 presentations, 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 during our discussion today may contain forward-looking statements. This information includes revenue, gross margins, operating expenses, other income and expenses, taxes, future products, and capital allocation plans. Actual results or trends could materially differ. As always, we intend to update you with any new information or future events and developments at the appropriate time.
We will now briefly review Q3 and the nine months results before we open up the call to questions. AAC Technologies has record historical highs in both quarterly sales and earnings for the three months ended 30th September 2016. Overall, Q3 revenue and net profits increased 39% and 50% quarter-on-quarter respectively. In the Acoustic segment, we were able to ride on a significant emerging industry trend for upgrading the audio quality of smart devices, which enable us to drive dynamic component sales up by 25% sequentially. Our Non-Acoustic segment also enjoyed continuous growth momentum with sales up 63% over Q2. Thanks to our strong execution of our strategy and sustained progress of effective cost control measures, Q3 gross profit margin rose to 41.8%, and net profit margin improved to 26.2%. We had solid growth across all major business lines over the nine months of the year.
Revenue and net profits for the nine months rose 24% and 17% year-on-year respectively. Sales of the dynamic components and Non-Acoustic segment increased by 30% and 34% year-on-year, contributing 57% and 38% of our total sales respectively. Overall gross profit margin stabilized at 41.4%. Continued momentum in Non-Acoustic solutions, coupled with our leading technology position of the Acoustic business, delivered these strong results and a 27.5% annualized return on equity for the nine months of 2016. Looking ahead, we expect to drive more technology upgrades in the Acoustic segment in the market to reinforce our competitiveness and strengthen revenue streams in the coming years. We believe our innovative cross-platform integrated solutions, which enables us to further penetrate wider industry segments and sustain long-term growth.
With our strong design and production capabilities, backed by a consistent high level of investment in R&D and technology innovations, 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 with 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'll have to queue again if you would like to ask more questions. If you're 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 and 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. Your first question comes from the line of Arthur Hsieh of UBS. Thank you. Please go ahead with your question.
Hi. Thank you for taking my question. My first question is with regard to the RF mechanical business. I think there has been a considerable concern about your exposure to Chinese internet customer. Could you let us know what is the current situation in terms of the A/R and also in terms of the future product development? That's the first question. The second question is with regard to the future competition in both the acoustic and the haptic product line. I think one of your competitor recently in the results said its acoustic market share has exceeded 50%. Would you agree with that? Do you think that's potential increasing in price competition going forward? How do you defend your current position? Same thing for haptic. Another competitor obviously claims they're much better in automation.
It would be great if you can share your view about those two products' market development. Thank you.
Hi, Arthur. It's Richard. I think in your 2 questions, you've actually touched upon 3 areas. Namely in the 1 of the Chinese-specific customers, then the acoustic outlook, and the kind of haptics production competitiveness landscape looking forward. For the CNC mechanical business this year, 2016, I think generally, we have achieved what we have set out to do as of today. Because after all, this is our 1st year of our RF mechanical business, really launching ourselves into, as we have said, for the whole year, 20 projects. Really focusing only on a small number of customers based in China. I think, we have achieved what we set out to do from the early part of this year, which set up a very strong, solid base for us to perform even better, I think, in 2017.
Referring to the specific customer, I believe, on 2 levels. I think, 1st of all, most of our projects with this particular customers have been completed, and on our financial statements, we have, as usual, in common with many of our Chinese businesses, they are in a way adequately covered by collateral or insurance. We believe that this customer have already stated that for 2017, the smartphone business will still be 1 of the major important business that they will embark on. Being an important strategic supplier to them, we believe the current outstanding balances, it should not require outright significant provision. Again, it's a matter of negotiation, reorganizing. At this moment, we are quite confident that the receivables will become good. It's just a matter of maybe it takes a little bit longer than usual.
I think in your question, you also asked about the change or the outlook for acoustic landscape in terms of price competition, et cetera. I think what we have seen in the 2016 is a very clear, very specific trend for not only the high-end phones to go after migration of higher acoustic performance. We've seen stronger positive feedback from the market on acoustic upgrades, including dustproof, waterproof or dual source stereo sound showing up on smartphones. It has received a very positive feedback from the consumer point of view, and we believe this is only a beginning. In terms of competitiveness, we believe it's not about pricing competition for going into 2017. Rather, it's an ongoing roadmap of delivering what we call customized acoustic upgrades for different customers to continue to bring out differentiation, including acoustic specification performances, which fit into different customers' product design.
I think in the last couple of months, we already seen some very interesting new devices from our customers which have embarked on the acoustic upgrade roadmap. We believe this roadmap actually put challenges on acoustic suppliers, not on the pricing, but on the continued efficiency, continued smart production, and good solutions to bring out the differentiation for customers. At the moment, we don't see any significant change in terms of our leadership in the acoustic upgrades roadmap. We believe 2017 actually give us a very good opportunity to carry on and to show our leadership in the acoustic specs upgrade trend. Finally, I think you asked a little bit about haptics as well. Again, I think the recent launch of the latest haptics solutions has already proven that in addition to a tactile sensation, the haptics actually serves more than that.
It gives more flexibility into the kind of upgrade of product design overall. We believe haptics in 2017 and beyond will continue to challenge capable suppliers from all over the world to prove that they are coming up with differentiating, exciting solutions. Not only to give a haptic feedback, et cetera, but in order to fit into all sort of product designs that our end customers are thinking of. Again, I think 2017, we believe our haptic business will perform well. We do not see any changes in terms of big kind of new competition coming into this market.
Thanks very much.
Thank you. Your next question comes from the line of Cherry Ma of CLSA. Thank you. Please ask your question.
Hi, Benjamin, Richard, and Connie. Congratulations to the fantastic result. My first question is related to the growth outlook. On your presentation slide, you mentioned that the 4 Q peak season is propelled by high demand from diverse customer base and potentially elongating to first half next year. Could you elaborate further on the growth outlook for 2017, please?
Cherry, it's Richard. Thank you for asking that question. Looking ahead, 2017, as I said for the RF mechanical business and also the haptics, I've already described we have achieved a very good base. From thereon, we believe some of our solutions actually which have already been adopted by customers, and some of these customers' products have been launched in the second half. It seems readings from the current momentum, the market is reacting very strongly. Some products are still not immediately available. We believe this kind of sales momentum would actually extend into possibly the first few months of 2017. That's why I think our growth opportunity, despite the current Q4 we are in, is the peak season. Also, I think some of the, what we call tail end momentum, possibly will elongate it into the first half of next year.
I think overall the impact is, for the last few years we have seen first half, second half split, being second half a much stronger kind of tilt because of our customer. In 2017, at this moment in time, I think obviously it's maybe a little bit too early to confirm what will exactly happen. We do see opportunities that the first half, somehow some of the tail end momentum of the second half of this year will extend into the first half, thereby some of the customers will perform quite strongly in the first half next year. That's what we mean by potential elongating into the first half of the 2017.
That's very clear. Thank you. My second question is for haptics. You mentioned on the slide again that there's a clear wider adoption. I guess that is beyond your key customer in North America. Is this referring to Chinese customers starting to adopt haptics? What do you think the adoption rate could be in 2017?
I think the adoption of haptics by Android customer have not spread all throughout the portfolio of Android customers. We already have seen some Android customers picking up some sort of haptic solution in the year 2016 already. What we are seeing, due to the kind of effects of haptics on not only on helping on creating user experience, but on the design of the device. I think some of the Android customers have kicked up or raised their level of conversation on how sophisticated or how strong the haptic solutions that delivered by AAC can actually deliver further than as I described, as a pure tactile effect in addition to vibration. Some of the customers I think, as I said, have already adopted solutions in 2016.
In addition to these existing customers, there are some other Android customers have expressed more kind of deeper conversation as to what are the potential user experience of the haptics. Overall, I think in the first question, I think I've said that we do expect in the year 2017, haptics business for AAC should still perform well, i.e., I think we should still see some growth in the haptics business in 2017.
Thank you, Richard
Thank you. Your next question comes from the line of Wei Chen of Goldman Sachs. Wei, please ask your question.
Thanks. Congrats on the strong showing of third-quarter results. I'm interested to get more information on lens and 3D glass business in terms of capacity and revenue contribution. Looking at your third-quarter results, the other revenues still remains very small, very similar to second quarter. Can you talk about some of the timing of these new businesses and also the capacity you're planning for 4Q and also into 2017? That's my first question.
Thank you for asking that question. We believe this year we have very good preparation internally, including further R&D design work on plastic lens and wafer level lenses. In addition, we've briefly talked about the potential of assessing our capability to go into the market of supplying or delivering 3D cover glass. I think as of today, we are on track. We are now preparing some what we call meaningful mass production projects on both 3D cover glass and the lens. I think in 2017, we have intention to be qualified or to be making shipments on both lenses and 3D cover glass. What we are doing now is preparing to get on to establishing production capacity. Possibly it will be small projects to start with, but significant in terms of design, in terms of production efficiency.
Overall, we are looking at, in 2017, small percentage, single-digit % contribution to our revenue. We do hope to commence mass production in the year 2017.
Understand. Just a follow-up, can you also elaborate on the profitability of the lens and 3D cover glass business comparing to your current return profile? I mean, you're doing very well. You're delivering over a 27% return on equity. How does these new businesses enhance or dilute your returns going forward?
When we looked at investment into new projects or what we call sustainable platform, in the past and as you have observed our historical performance on the financial returns, for example, for the first nine months of this year, we delivered something close to 40% of our revenue coming from what we call new non-acoustic business, whereby the investment profile for this new business are different. We have maintained a respectable, what we call return on equity on an annualized basis as of today. We do intend to maintain and keep that return on equity ratio when we looked at opportunities in the new segments like lenses and 3D cover glass.
What is important is that we believe the strategy of investing or opening up our internal capabilities on technology platforms have remained unchanged. These should be sustainable platforms. There should be quite clear roadmaps to differentiate, to bring or to deliver differentiating solutions to the market, and the financial margins that we are after. I think if we look at the current margins that we are delivering, including from contributions from what we call new business non-acoustic lines, we have insisted on delivering about 40% gross margins. In fact, I think for the first nine months, we delivered something like more than 41%.
Including in our assumptions and our targets, I think both lenses and 3D cover glass, we do intend to leverage on the invested resources in not in the last two years, but I think we make our investment back in the year 2009 in order to gain knowledge about design and production of wafer level lenses. At the same, and also we have invested in a Japanese lens design company, at least five years ago already. Those preparations are beginning to be paying out. We believe one of the messages that we have repeated, reiterated rather, is that in AAC, we should have our own unique proprietary in terms of design and kind of automation production in terms when we approach 3D cover glass and lenses.
First of all, we intend to fully leverage our existing automation knowledge in the acoustic, but we will apply this to automation production to make sure that even in the first phase or the first year of us launching into what we call smaller mass volume projects, we should be able to deliver these margins. These margins, when we embark on expanding the business, we would be able to maintain the return on investment. It is important also to, again, to repeat the messages that in the past, our CapEx investment in the Optics segment has not been the largest portion of our annual CapEx budget. Rather, we have been watching the development of our production capability.
When we now say we are ready to see optics delivering mass volume production projects, again, we are also expecting to improve on our production processes, our production efficiency, our production return as we expand our business. That's the way we are preparing to maintain our return overall. It is important that 2017 would still remain as a kind of start, first phase, first year, for us in the new optics business. When the opportunity arise, when our capability reach a level that we are confident, we will be making more CapEx investment and to leverage the automation production approach and to maintain the margins that we seek or we have sought in the past.
Okay, understand. I really appreciate the detailed explanation, Richard.
Thank you. Your next question comes from the line of Dennis Chan. Thank you. Please ask your question.
Hi. Congratulations on another good quarters. Can we talk about fourth quarter a little bit more? I understand that fourth quarter is a traditional quarter. Can we quantify the growth a little bit? My understanding from what Richard just mentioned is that we're seeing some haptic model, but it's not widely adopted yet. For RF mechanical, we're positive and we achieve our target. We don't expect to take any provisions this year. Can I understand that the momentum that extending into first half of next year, would that come from the acoustic, then? Would that be the correct way of understanding it? Thank you.
Thank you for your question, it's Richard. I think first of all, I think 4Q would be a very strong quarter. I think we expect to see kind of double-digit percentage growth on a Q-on-Q basis, very strong fourth quarter. As of today, we are now like mid-November, we don't see any kind of changes to our expectation. I believe early on, we have already given a full-year forecast. I don't think we do not see any changes to that either. When we talk about business elongating into first quarter next year, I believe I referred to the sales momentum, tail-end sales momentum of some customers' products. I've also mentioned that some products are still not immediately available.
I think in a way that has reiterated and reaffirmed AAC's now, our diversification and our customer portfolio strategy has worked very well because different momentum of our customers have surfaced in the different kind of quarters. We expect some quarters to drag over to the following quarters. In this particular case, in this forthcoming case, we are talking about a year-end cycle which leaps over to the following year. It could be any quarter slipping into the subsequent quarters. It's not a strange surprise that our business kind of have this impact by the sales or what we call tail-end sales momentum of our customer. I believe that in Q1 next year, I think particularly strong segments will be our acoustic and haptics as well. Then again, I think we have discussed the pattern of RF mechanical business.
They are much more kind of evenly spread out. The RF mechanical business, especially, I think, we still have kind of what we call opening up new customers projects to do, and they are possibly some projects have already started in this quarter. I think some will be starting in Q1. RF mechanical business does already have a kind of spreading out evenly effect pattern anyway. That's why I think 2017 in terms of looking at first half against the second half, we do still expect a stronger second half, but maybe a less kind of tilt to the second half. After all, in summary, I think the impact, the contributions to that factor comes from all three segments, the acoustic, haptic, and the RF mechanical business.
Got it. Thank you. Can I just get a quick update on our CNC machine capacity plan again? I remember last time we updated on our CNC, how many we outsource, how many we have, et cetera. That's it from me. Thank you.
I think we are embarking on how to fully combine the resources of the business strategy. As we said earlier this year, some CNC capability we have assisted. We outsource some of the non- core activities. I think we do have also mentioned that when the appropriate time comes when we review our strategy going forward, maybe we would consider adding more machines, et cetera. As of today, we have a total number count of around 4,000, I think more than 4,500 to 5,000 CNC machines. Going forward, I think we are still going to increase gradually these machines, I think at a level not as fast as in the pace we have seen earlier this year.
Sorry, just to clarify, 4,000.
Yeah
5,000 include the outsourcing partner or it does not.
Cover the whole.
the outsourcing partner?
It doesn't. These are the machines that we owned.
Got it. Thank you.
Thank you. Your next question comes from the line of Sam Li of Credit Suisse. Please ask your question.
Benjamin. Richard, thanks for taking my question. My first question is about the non-acoustic business, about the seasonality in second half. Of course, we know every year it's going up quarter by quarter. I'm just wondering, for this third quarter and fourth quarter in 2016, comparing with last year, would it be more lean towards the fourth quarter or it's just as normal seasonality? That's my first question here. My second question is about gross margin trend. Would it be better to have a little bit more color by segment? I mean, the gross margin trend for each segment. Those are the two questions for me. Thank you.
We expect fourth quarter, actually, the sales pattern to remain similar to previous years because I think, in acoustic, the projects in 4Q would not kind of any significant new projects embarked or starting in Q4. I think we will also continue the, what we call haptics momentum over to the fourth quarter. The contributions from acoustic and haptics, the growth in the fourth quarter remains very strong. I think the variant here is the RF mechanical structures. As we have said earlier this year, the RF mechanical business will kind of be more even, and we did already said that, I think, over interim periods. The second half, we are still going to fulfill some of the new customers, and we're going to penetrate and start new business.
In the fourth quarter, we would have ended some of the projects that we started early this year, but we will continue on starting new projects. The 4Q momentum, in terms of RF, when we compare to last year, we could say the RF has contributed a little bit more. Q4, as I have just said, the Q-on-Q growth for the fourth quarter is a strong double digit. Partially, the additional incremental growth will be due to the new business of RF mechanical structures.
Can I ask a little bit more here? What about the haptics business? Seems like the client shipment is a little bit delay due to the supply restriction in certain component. Does that reflect in our shipment or it's pretty similar to last year?
We would not like to comment on specific incidents, but I believe, like most other projects that AAC embarked for major customers, for major projects, I think AAC does have the strength to accommodate any changes in shipment volumes or variation, or any changes in the customer mix overall in the smartphone market. When we look at our capability or our arrangements for production, we don't do this internally on a short-term basis, and I think it's for the benefit to demonstrate that AAC does have the capability to deal with any kind of requests or accommodate any customers or any changes in projects, no matter they are the acoustic or the new non-acoustic business as well. I think it reflects kind of capability of AAC. I want to carry on answering your questions about the potential kind of margins of the different business segments.
Clearly, if we start off looking at acoustic. Acoustic, as we have said, AAC is definitely affirmed to be the established leader to deliver solutions to differentiating products or acoustic specs, and we believe the trend will continue in 2017 and beyond. If we look at the potential specs upgrades, which is the major factor when we consider changes, percentage uplift on the ASP, we do see our automation production are well-suited for the acoustic upgrade product. We don't really expect any kind of adverse changes to the margins of our acoustic business. Again, as you recall, we have already established Vietnam facility, whereby we are implementing different kind of production process and delivering different pricing solutions from our Vietnam facility.
AAC not only is now firm as a leader of the acoustic spec upgrade, but also in terms of our capability to deliver different quality production solutions. We do have the alertness to move very quickly as well. That would help us not only to maintain the margins, but we will seize opportunity, if they arise, to uplift the margins on acoustic. You will possibly note that, within our acoustic dynamic components business, we always have talked about different transformations of different standalone components. For example, the receiver going into a higher spec design and the speaker turning out to be a stronger kind of performance, et cetera.
On the overall, although our automation production works kind of differently for different product lines, our overall margins are well-maintained by our capability, by applying knowledge and production process to each of the lines. Acoustic business, we are very confident that going further, definitely for the year 2017, and most likely, in the years after 2017, our margin definitely should be able to see well above 40%. In the newer acoustic business, after all, we are comparatively to the acoustic segment. We are still in the beginning phases. There are rooms for improvement. We will continue to strive. AAC so far, as we have seen for the first nine months, we are still at the combined business of new and old business. We're still managing to deliver margins of about 40%.
We do expect to work hard at that.
Thanks for that. Just a final follow-up. You mentioned about the revenue guidance for fourth quarter. What about the gross margin for fourth quarter? Still expect it to be stable, a little bit higher, and still guide the full year to be a little bit higher than last year?
Sam, thank you for this question. I think, as in the past, when the peak quarter comes, we will strive to uplift the margins. I think there are also other challenges happening in the fourth quarter as well, because as I mentioned, we have already kind of been delivering a platform started well, fully stretched out in the third quarter. Maybe some of the automation benefits are less obvious to climb further in terms of efficiency percentages. Our fourth quarter margins, we believe we will strive to lift them. I think the room of lifting up further, a lot of percentage are limited. Possibly, I think, we will be able to definitely, if not improve, but maintain similar margins.
Okay. Thank you.
Thank you. Your next question comes from the line of Jasmine Lu of Morgan Stanley. Please ask your question.
Hi. Thanks for taking my questions. First question. Just wonder, I think that next year, for the smartphone, the industry-wide, I think the biggest trend is that the most of the customers that you have is shifting to AMOLED plus the glass casing design. Just want to know that, what does that imply for your major product line from acoustic, haptics, and even in terms of the RF mechanical solution, in terms of the design and also the pricing trend? That's my first question.
Thank you for your question. The changes in design materials that our customers choose for the end products, in our track record and our observations that in the past have led to higher kind of design inputs and more complicated production process. I believe, you mentioned about glass casing design, there are possibly more than the glass casing design that comes into place. Perhaps, we heard about other different materials like ceramics, et cetera. Whatever, I think the customers are working on in generating a better user feel, which is after all creating overall to a user experience. I think you mentioned about acoustic, haptics, and RF mechanical structures. To some extent, optics as well. These four segments have clear functionality and value that user identify for creating or putting up with replacing a new device.
The glass casing design, along with other designs, first of all, will challenge AAC to come up with different solutions. Different solutions meaning overall, a consideration for raising the specs, use of different materials to integrate well with the new materials also the chance of redesigning the form factor. I think those are the issues that our end customer will recognize, that suppliers or capable suppliers are investing or preparing for good quality efficiency production. With that, possibly come along opportunities of raising ASP. From raising ASP and coming up with higher specs, usually, AAC could further prove we are the leaders, not only in acoustic, but in terms of coming up with interesting solutions, such as more integrated solutions that we are helping our customers with their casing and better with antenna design.
Also, we mentioned the fact that in haptics, not only are we delivering a vibrating tactile effect sensation, but in fact, we are helping customers to think about different potentials of the use of haptic solutions. Glass casing design, internally, I think we are one of the better well-prepared suppliers to take advantage of this change in design. It will challenge us, not only in terms of our design capability, but how we can leverage on existing, what we call core production competency, and apply them in new solutions. I think, from our various interactions on different segments or projects we embark with customers, we sure are placed in a very advantageous position that we understand the roadmap of our customers in thinking about new design.
Internally, we are well prepared on the R&D and the design and new material and production process, and also some of the arrangements of our existing production facilities to take advantage of these opportunities.
Thank you, Richard. My second question is more specific for the 3D cover glass. Just wonder whether you can just update a little bit in terms of the exactly CapEx that we already put into this product line and also the guidance for next year. I think you mentioned the call earlier, that you would start from the small project initially. Is that fair to say that the customer that you are engaged right now is following what the RF mechanical solution that started from the internet-based OEM? Thank you.
We believe internally we have plans to establish production monthly capacity of half a million in the first two quarters next year. Whether we will continue to embark on further investment or expansion, we are really looking at how the Android market will kind of develop, falling on the new designs. Possibly, you mentioned about OLED design. In OLED design, we should also pay considerations for its scarcity. I think the supply kind of will affect the overall availability of the solution. That would also impact on adopting our 3D glass solution as different as a market. Our consideration for 3D glass, I think it's not being impacted as such, but really it's part of the available opportunity when the OLED is limited to become the front cover.
Our 3D cover glass focus is, I think next year our plan is to supply it as the back casing rather than a full-blown solution for the front display. We believe most likely in the first half of next year, the interaction or the inter-bedding designs of how RF mechanical will interact with 3D cover glass, which require some of the metallic kind of mechanical structure business, will continue and be much more sought after overall in the second half, and further could elongate it into the first half of 2018. Our consideration for expansion of our investment in the 3D cover glass, to some extent will not be altered by opportunities like the change of the OLED design. We still have opportunities to grow that business.
We have seen a valuable business that contribute by what we call or what, Jasmine, you describe as internet phone company this year. That we believe by Q4 this year and first quarter next year, AAC will have already successfully penetrated in most of what we call the Android portfolio customers. That would be a very interesting kind of situation for AAC to be at. Because in our first year this year, we don't really have the luxury or the time to cherry-pick different kinds of projects. I think in the year 2017, definitely we will have more resources to carefully assess in different kind of business opportunity that we could embark on the RF mechanical business. But I think we are still expecting our capacity with the around 4,000, 5,000 machines that I mentioned earlier. Our capacity next year, possibly around 40 million pieces-50 million pieces.
I think in the first half, we are still focusing on what we call metallic casing projects. Gradually, I think in the second half, the market will call for or create opportunities that AAC can participate, whereby these projects will be mixed with 3D cover glass design as well. Hence, looking at the growth overall, I think seeing the RF mechanical business this year, going forward, no longer is kind of dictated by internet phone company as such, but really is how AAC have proven itself to be a solid supplier in this space, and be able to have penetrated every potential customer in the Android phone and ready to kind of also to be an important contributor in the new design involving glass design.
Thank you.
Thank you. Your next question comes from the line of Ken Wei of Waive. Please ask your question.
Growth into 2017. I think same time last year, you were able to tell us that you saw 20% growth in revenue for this year. Are you able to tell us some specific number again for next year? That is my first question.
Ken, thank you for asking that question. I think you're right in saying so. I think we are ready to talk about that as well. I think most likely 20%.
Okay. Thank you. Then my second question is related to the product mix. I think so far this year, for the first nine months, your acoustic and non-acoustic business, the growth are similar, about 30%. Should we expect quite even growth between these two segments into next year, or you will expect some changes in terms of the product mix?
I think in 2017, we are still expecting these three segments to contribute growth overall. I think the largest percentage growth expecting is the RF mechanical business as we have talked about during this phone call. The opportunities to deliver exciting solutions to all Android phones in China, including outside China as well, actually. I think that would be our largest base growth percentage-wise. In terms of acoustic, as we have discussed, we believe the upgrade trend will continue to last. We are still very hopeful for quite a significant growth, but it's very difficult to give you exact percentage number. Possibly, I would say it's an interesting growth percentage that acoustic can deliver in 2017 as well. CEO would like to see the contributions from non-acoustic business to be more than the acoustic business for 2017.
Just to clarify, that is for full year basis, right?
Yeah. Correct.
Okay. At the same time, you also expect growth in acoustic. Would you be able to tell us whether you are able to see double-digit growth in acoustics for next year?
I think we will try our best to deliver double-digit percentage growth. As I already said, a number for the total percentage we are expecting. I think acoustic is an important part of that. Whether that would be a very high double digit or not, I think we still have to work very hard on. Definitely, a double-digit percentage is what we are aiming for. We believe the acoustic growth opportunity is a very strong factor. Possibly, we will see the growth from the acoustic content in acoustic segment delivering better growth because it's very clear the Android acoustic market opening up and there are still a lot of customers, new projects are not yet close to upgrading, but we've seen success of these upgrading already in 2016. I think that the scope is much larger in the Android portfolio.
Okay. That is very useful. Thank you.
Thank you. Your next question comes from the line of Ken Chui of RHB. Please ask your question.
Hi all. Thank you for taking my questions. Congratulations to the robust quarter results. My first question is, what will be your forecast of the waterproof dual speaker adoption rate among Chinese smartphone brands for next year? Thank you.
We believe that the Chinese Android customers are now very innovative. We have seen them delivering unseen design and innovation. In terms of acoustic performance, I think it's a very clear specific feature that gives functionality. Not only functionality, but define the status of the smartphone. In terms of marketing research, we believe the opportunity is very great because a lot of, not only mid-segment, the high-end Android phones have not really adopted a full waterproof and/or high aspect, what we call dual source solution, stereo sound solution. In addition, I think the waterproof or the dustproof solutions have different grading. I think whereby AAC, again, can have a lot of opportunity, not only opening up the flagship design in flagship models, also in terms of how to propel that momentum in the mid-segment.
I think as of today, only we have better kind of assessment of the adoption of speaker boxes. As we said in the past, maybe the adoption rate of speaker boxes was something like 15%-20%. Now we definitely crossed that majority adoption rate already. It won't be a surprise to us that if the adoption of higher graded waterproof solution would catch up to more than 50% in a very short period of time.
First of all, my second question will be about the RF plus metal casing solution. Based on my understanding, maybe your company has already started deliver a metal casing standalone project with some major Chinese smartphone brands in the third quarter and also the fourth quarter. Will AAC also be providing RF plus metal casing solution as a whole to those customers in the first half of next year and following?
Yes, I think we have already done some projects covering metallic casing. The whole value proposition is that AAC should take a very strong influence on what we call managing the roadmap of antenna design within the casing. We are not interested in just delivering a casing as such. We would add a lot of value in controlling and influencing the antenna and delivering what we call an almost complete antenna casing solution. Most of those involving resolving antenna design problems with metallic content. Going forward, we believe the trend of metallic casing, although with all that screen, et cetera, with potential new design, metallic casing still remains a popular choice among our Android customers, whereby we believe the mid-segment would show that trend. Definitely, we are prepared to embark ourselves on the metallic casing antenna projects in the first half of next year. Cool.
Thanks a lot, that's very helpful.
Thank you. Your next question comes from the line of Jim Liu of Goldman Sachs. Please ask your question.
Hi, Richard and Benjamin. Thank you for taking my question. My question is a follow-up on the lens and the 3D cover glass question. I am curious about the margin, because now AAC delivers very high margin in terms of gross margin. I am wondering, will the introduction of these two products lower the gross margin portfolio? And how about also the R&D expenses? I observe that the R&D expenses in terms of sales is around 7%-9% in the last few quarters. Will these two products increase the R&D expenses going forward? Thank you.
When we are assessing or embarking ourselves on new frontiers of technology platforms or businesses, we are going after what we call the technology element. We believe the path we have chosen would create what we call a standard or the industry standard. Not only creating the industry standard, but to maintain and lead and become the top of that leader industry standard. Also, I think we do recognize that when we are at the early embryonic stage of these kind of new business segments, for a short, brief period of time, the achieved margins may be below what we call our average corporate gross margins.
But we do, after thorough understanding of the technology involved in the design and production, we do are very confident that as we expand the new business, our margin will improve, and we would quickly achieve what we call our average level of corporate average gross margins, and which we have clearly demonstrated in the past. What we want to reiterate when we talk about this issue is that this kind of recognizing the technology value of achieving this level of corporate gross margin, we will not give that up for the sake of chasing after growth, i.e., we believe in generating a sustainable technology good, a high value of our business. We will not just blindly deliver 20% growth for the sake of delivering 20% growth.
We do expect when we expand into new business, not only we can deliver that growth, but we would be able to gradually become the industry standard setter and consistently creating, delivering the margins that we have done so in the past. For example, when we talk about 3D cover glass, the molding equipment design, we own that. We have developed a capability from our investment in a company called Kaleido years ago, whereby it's a proprietary AAC design. We believe this is a differentiating uniqueness that enable us to differentiate or even to perform better than our competition in this area in terms of production yield, in terms of efficiency, and in terms of scalability, flexibility. Yes. That is the consistent expansion strategy AAC has done in the past and will continue in the future.
Okay. Thank you, Benjamin and Richard. That's very helpful. Just one more quick follow-up. Can you give any guidance on the operating expense range for next year?
I think when we grow our business, clearly as we have said in the past, financial discipline to control costs in terms of our operating expenses, which comprises including an element of research and development. In the past few years, we have stuck and held tightly to this discipline, and we do not intend to change that discipline next year when we grow our business. In terms of OPEX ratios, we do not expect you to see any big changes.
Okay. Got it. Thank you.
Thank you. Your last question comes from the line of Sam Li of Credit Suisse. Please ask your question.
Thank you for taking my question again. A little bit more follow-up on the relative to the margin question. I think company has already give very clear guidance on RF mechanical business, especially on the revenue side. What about the growth margin trend and the cash flow control? How to protect What protections we did or we will do on the receivables and how to control the cash flow risk. Relative to this, I know it might be a little bit early, but do we have a little bit visibility on next year's CapEx plan? No need for detail number, but roughly like meaningfully below this year or just slightly below, something like that. This year is really a peak in history. Thank you.
Thank you for your question. I think definitely in the past and when we looked at our positions with various customers, financial discipline is something that we have stressed, especially if we have looked at the way we have maintained our gearing and also when we talk about how we open up new business accounts, et cetera. When we looked at the CapEx, not only for next year, but in terms of for the last few years, we've seen gradual increase to reflect our grabbing opportunities in the new business segments.
We have stressed the fact that most of our approach to production, if we could avoid invest in what we call specific short-term one-off machineries or what we call specific usage of machineries, what we like to do is to apply our production integrating with design, how we could make use of what we call all machinery and turn them into more general uses. In the past, I think as you recall, we discussed about when we embark on an automation program. They've lasted three years, but what we have achieved in the end is not automation specifically for one customer project, but overall automation capability that enables us to apply the skills to new acoustic platforms and also to apply to core segments.
In terms of CapEx, I think to some extent, we are watching how we could continue to maintain the return when we embark on new projects when we expand. Then again, I think in the past, as you have seen, our track on gearing, we keep a very tight control on that. Including the CapEx, I think next year. We haven't talked about, but we are focusing on how we could leverage on already existed invested CapEx resources and how we could generate good returns from that. Next year budget CapEx, at this moment, we are talking about maybe a smaller amount than the 2016 level. I don't have a final figure yet, but definitely we are talking about maybe something of the region less than CNY 3 billion, that kind of range.
That should enable us to deliver the growth we have talked about in this call.
Understand. That's very helpful. For the RF mechanical gross margin, Benjamin talked about the scale effect before. Does that mean we can look for a little bit upside for gross margin for RF mechanical next year, whereas probably the near term had been?
I think we have also indicated that RF mechanical business is not exactly what we call a platform kind of arrangement production. We are talking about more projects of customized solutions, and each of the projects has a finite kind of timeline, whereby machines are arranged almost to the last minute so that we can complete projects and start new projects. Each project has its own challenges. As we progress, as we go up the learning curve, we do hopefully could generating better, what we call use and production arrangements, et cetera. Whereby hopefully all these will generate into better financial returns. Then again, each project is different to the next one. We will strive. We believe the current margin of above average corporate margins is achievable overall for the 2017 new project that we are embarking on.
Great. Okay, just to double-confirm, you mentioned about expect the RF mechanical business to approach corporate average gross margin. Am I right?
Correct.
Okay. Thank you. Clear enough. Thank you.
Thank you.
Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Miss Connie Chin for closing comments.
Thank you. Building technology platforms or innovative solutions to deliver long-term profitable growth has always been our business strategy, which enable us to extend our reach to different applications, featuring all different mobile devices. We are well-prepared for growth with a clear solutions roadmap, and we stay focused on technology development to support mobile devices to improve and create new user experiences. We are confident that we will continue to be the key future technology enabling solution provider around the world. To conclude, I wish to thank you for attending today's webcast conference call and for your interest in 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 2016 annual results, tentatively scheduled at the end of March 2017. Thank you.
Thank you for your participation, and this concludes today's conference. You may go ahead and disconnect.