Earnings Call: Q1 2016

May 12, 2016

To AAC Technologies 2016 Q1 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. I must advise you that this conference is being recorded today and lasts for around 60 minutes. 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 Chen, Head of Investor Relations with us today. And I would like to turn the conference over to your moderator today, Ms. Connie Chen. Please proceed with your introduction. Thank you. Good day, everyone, and welcome to AAC Technologies 2016 Q1 results investor webcast and conference call. This is Connie Ching. Joining me on today's call are Mr. Benjamin Tan, our CEO and Mr. Richard Mokao, our Managing Director. We are pleased to inform you that we have started 2016 with a solid performance. Our revenue and gross profit were up 10% and 8% year on year, respectively even in the challenging business climate. This is also our highest Q1 sales and earnings in our history. Gross profit margin was certainly stayed above 40%. Upgraded acoustic solutions, especially in Android customers, have contributed to the dynamic components sales growth, with sales rising 36% year on year accounting for 66% of total sales in Q1. Sales revenue from PRC customers rose 41% year on year, contributing more than 35% of our total sales. And we have 3 business highlights to share as follows. The first one is about the non acoustics. Iron Mechanical together with Haptic Solutions, the 2 distinct contributors in non acoustics business contributed 26% of sales in Q1, but we see good opportunity for further customer diversification and we continue to build a strong technology foundation for our non acoustic segment. Secondly, about acoustics, we are in a prime position to capitalize on the greater market demand for high specifications, acoustic solutions and rising adoption of ticket boxes in Android customers. Thirdly, is about the CapEx. We expect non acoustic contribution will increase over the next few quarters with more high value RM mechanical projects kick in and we have raised our annual CapEx by 25% to RMB3 1,000,000,000 to support this growth. And this brings an end to our summary introduction. Before we move on our Q and A section, please look at 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 and expenses, taxes, future products and capital allocation plan. Actual results or trends could materially differ from what you hear today. As always, we intend to update you with any new information for future events and development at the appropriate time. As a reminder, we have set aside around 60 minutes for this call. Now we will start the Q and 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 2 in each round. You will have to queue again if you would like to ask more questions. Your first question comes from the line of Cheri Ma. Please ask your question. Connie, thanks for taking the question. My first question is related to non acoustic. The revenue in Q1 was down 19% year on year. Could we have some color whether both haptics and RF segments experienced year on year decline? And could you help us understand if our major customer expect further price cuts for acoustic and haptics component in the coming quarter? And if this could negatively impact gross margin? Hi. I think in our Q1 in the non acoustics business development, it is a usual what we call a seasonal Q1 in every calendar year whereby our business are or reflect different customers' dates of their product launches. In both non acoustic, the same applies. I think we particularly had very strong second half last year in non acoustic and also in terms of, in fact, the whole business segments, 3 business segments of AAC, it reflects the concentration of different product launches at that date. So it's not an unusual Q1 that we see slightly kind of lower numbers for non acoustic. The second part of your questions, we don't comment on any customers' progress, But I believe nothing has changed in terms of potential changes in uplift of any solutions when they are faced with major revise, both in terms of specifications or design or production process. So in this coming quarter, we believe there are still very much very high chances that we will see some potential changes in the different pricing of various solutions, not only in acoustic but in all the different kind of segments of solutions that we offer in RF mechanical structures as well. Okay. And my second question is, in the last conference call, Benjamin mentioned that RF mechanical mass production started in March and with strong ramp up in Q2. Can you share with us some progress, customer feedback if possible? And if there's any upward revision to our 20 percent revenue growth target for this year? Thank you. We are, at the moment, maintaining the guidance that we have set in the previous call for the whole year of 2016. At the same time, I believe, as indicated, our progress in the new non acoustic RF mechanical structures are satisfactory and are as expected. We are actively engaged in more than the number of projects that we were doing in the Q1 already. And I believe in the 2 quarters to follow in the remaining of this year, we will continue to see an increase of activity in RF mechanical structures. Particularly, I believe there will be a new kind of design of our customer products continue to be launched over the rest of this year. I think as we have said last time, for RF mechanical structures, the business activity of AAC in the year 2015 was surrounded mostly and focused on one customer. And this year, we have definitely more than 1 customers of which mass production will we have already started in as we said in from April, I. E, in the Q2 already. Overall, it will not be a surprise to us that if we would deliver kind of more than 40% of our total sales revenue be coming over or be contributed from non acoustic segment. And definitely, the 2nd quarter percentage contribution of non acoustic, we believe it will be more than that of the Q1 contribution from non acoustic. Thank you very much. Your next question comes from the line of Jasmine Lu of Morgan Stanley. Please ask your question. Hi, thank you. So I have first questions regarding that in the presentation, Eze mentioned about the R and D expenses and also the CapEx will actually increase. So I just wanted to understand what would be more specific, what product that's behind the increase for both IND expenses and also CapEx? I think in the rise of R and D in the Q1, first of all, the percentage ratio reflects a kind of lower base of our sales revenue. And as we have said before, over the whole year, we will continue to commit to the financial discipline of controlling R and D expenses. Is the slightly higher 8.9% to sales in the Q1 is by no means an indication of a much higher R and D. And we believe over the whole year, we are going to exert the same kind of discipline and we will see R and D expenses deliver a lower percentage to sales as we grow into the second and third and fourth quarter and with a larger sales base. We are still very committed on the 4 technology segments that we have identified, acoustic, RF mechanical structures, haptics and optics. And the individual quarterly charges of R and D kind of reflect the extent of R and D activities that are incremental. We believe in terms of R and D engineers, there is a slight smallest kind of growth in terms of resources dedicated to R and D, but not to a extent that which are indicating anything problematic as such. And we also mentioned the increase of CapEx by, I think, roughly around 25% increase to what we have previously announced. I think the incremental CapEx are being allocated mostly to what we have said before, the growth driver of AAC in 20 60 and beyond. So those are mainly for more acoustic segments. Benjamin reiterated the CapEx allocation for this year. Mostly, as we have said before, RF mechanical structure is in an investment cycle stage. We have increasing projects. We have increasing commitments with existing customer from last year and also new customer this year. So the investment in CapEx incurred in RM Mechanical will continue. And in addition, in acoustic, for example, we like to point out that, for example, one of the PIC OEMs worldwide in their latest P9 models, we have seen a stereo receiver kind of new design, whereby it's more like a receiver module. And this is a subject that we have touched upon briefly in our previous call. We are beginning convincingly seeing a new trend that AAC could be an important part of the design in this Android kind of group of new customers, whereby the CapEx of AAC will go towards not only increasing the production capacity by 20%, but also in terms of increasing what we call our investment in the automation of the production process as well. Benjamin also wants to add to the fact that the CapEx allocation will go to haptics as well, but the level of CapEx this year, as we have said in the past, more likely it will be on a similar scale of kind of CapEx activity. And of no kind of when we compare to RF mechanical, I think haptics related CapEx will be less than RF mechanical. Early on, Benjamin also touched upon CapEx related to the optic segments as well. I think AAC CapEx in optic segment has already what we call achieved our basis, and those expenditure have been incurred in the year 2015 as well. So this year, we do not believe or expected to see major related to confirmation that the 8. Something pathetic.9% of R and D ratio to sales is not going to be what we are seeing for the whole year. Basically, this is still the reason of a lower sales base for the Q1. Thank you. So just very quickly to follow on this non acoustic part. So you mentioned about previously for both IFN and also haptics just more like a single customer. So can you give us a little bit of color in terms of the progress of the customer identification, I. E, the number of the budget and also the number of the customer in both products throughout the year? Thank you. I think in haptics, as we said, we have clear influence on the core IPs related to haptics involvement in terms of creating user experience, we are already beginning to see a minority of Android customer adopting the new kind of approach. But nevertheless, I don't think we have reached a kind of genuine open platform stage where the Android customer will immediately adopt the new design immediately over the next couple of months. But then again, I think we will see more Chinese customers, for example, in the second half of the year to launch into using more the new generation haptics approach. But in terms of growth, we believe in the haptic salmon of AAC as we control the major core IP and production know how, we believe will be the strongest contender in any uplift from the Android customers. Thank you. And in terms of RF mechanical structures, we have a very strong clear advantage as being the front mover in combining and not only design solution into a very complex casing structure, whereby I think a lot of our existing and new customer appreciate both the design and also the quality of coming to AAC and adopting the solutions of design and delivering quality in the casing. As we have said, I think Q2, we will see or we are already expected to deliver a handful of projects, mainly from the Android customers again. And in the Q3, we believe the number of customer will grow from the second quarter and in terms not only by customers, but also in terms of shipment volumes as well. And I think gradually over the quarters, we are able to kind of widen or broaden the range of our design segment solutions towards different segment, I. E, I think in more and more projects will be evenly spread out in the different pricing of the final models that our customer are introducing throughout this year. Your next question comes from the line of Ken Lee from Jefferies. Please ask your question. Thank you for taking my question. So first of all, on the acoustic side, I think first quarter you're already seeing 36 percent year on year increase in the revenue, excluding MEMS. And I think your peers' guidance for the full year is something like double digit growth, but you're also talking about this stereo upgrade. So are you seeing more than just like 10% growth for the acoustic revenue for this year? This is my first question. I think we will confirm that definitely on a year on year basis. Regarding the increase in specs to bring about an increase of user experience, a double digit growth is expected for the acoustic business. Double digit can mean 10% or 99%. So would you be able to give us a more precise range? I think as in the past, acoustic is a very important driver of our customers' design of new product launches. I think so far we're in the second quarter. We are already prepared for quite good growth, not only in the Q2. I think in terms of the quantum of this double digit, I think by the end of the second quarter, whereby we would have clear kind of vision of the new kind of numbers of those volumes adopting this higher specs, I think that will be a better timing to disclose more about progress of our different customers adopting a stronger, higher value acoustic solution. Thank you. And my second question is regarding same quarter, would you be able to give us some guidance on the Q2 revenue and gross margin? Thank you. Definitely, I think we are prepared to look at the potential of activities that we are already doing and we are expected to commit it to our customers. I believe in the Q2, on the top line, we should be able to deliver a double digit on a Q on Q measurement basis. But please do not ask me to define the quantum of this double digit. But on the margin, I think, as you know, in the past that we aim to improve not only because of higher volume of business, but we continue to learn and improve our production basis on expecting to get better use, get better performance in our usage of new equipment. Hence, I believe there is a strong opportunity for us to improve on what we call the base from the margin that we delivered in the Q1. But nevertheless, I do not think at this stage it's very easy in terms of delivering a big jump in margin because of the fact that I think we are talking about new non acoustic business and in terms of different cycle of our major customers and major product launches. I think the only commitment I can deliver at this moment in time that our management, our production people will work very hard to improve all sort of use that we are expected to be able to deliver. But nevertheless, I think we are as we see the growth of non acoustic business as well, I think we will be more kind of prudent to as we have done in the past to deliver what we call a sustainable performance rather than a one off jump in any kind of performance parameters. But overall, we believe this year in 2016, our gross margin should not be worsened or we should be able to deliver the similar kind of range of gross margins that we have done in 2015. Benjamin added the fact that in the differential jump from Q1 to Q2's performance, as we have said, RF mechanical structures, we are stepping up in delivering more projects in the Q2. The second major kind of factor for event in the Q2 is we are seeing a more clear or obvious upgrade in the new models that the Android group of customers are delivering over each quarters. And the acoustic upgrade in performance, it's more clear and clearer. And usually, with a higher demand in acoustic performance, AAC will be able to deliver what we call a pricing capability factor. And with such, we believe that would help us to deliver a kind of stronger growth from on a quarter on quarter basis than in 2015. Benjamin also talked about the split between second half and the first half for 2016 this year. There are 2 factors which will kind of propels a kind of a wider split between first half and second half because I think in the second half, the Android tab will have much very interesting activities in terms of new product launches from the second half. And as we have said, the RF mechanical structures activities are growing on a quarter on quarter basis. And by I think by quarter by the 3rd quarters and the 4th quarter, our RF mechanical activities will be contributing a lot to AAC. And hence, it will not be a big surprise that the split between first and second half could be one of the kind of quite prominent or quite strong compared to previous years. So you talked about the very back end over the second half. And for the full year, you're looking for 20% increase in revenue. And in the Q1, we are seeing like 10%. So sometime down the road, we should be able to see year on year increases to exit 20%, do we think we are at this turning point for the Q2 or we need to wait until Q3? I think at this stage, I think we are facing different growth opportunities in RF mechanical structures. We are quite busy with new projects in the Q2 already and continued momentum in 3rd Q4. And our design teams and our factory CapEx are all prepared for such growth. But nevertheless, I think the second factor that Benjamin mentioned about upgrade in acoustic specs do kind of present another very interesting opportunity for AAC. And I think we remain confident as I think the earlier questions have asked us about the guidance about growth for this year. Nevertheless, I think we are still around May and we only are now delivering results for the Q1. At this moment, I don't think we are at any stage to kind of adjust any guidance that we have given. So but then again, it doesn't mean we will be complacent and be happy about or satisfied about what we have target, what we have set out to target to achieve. But I think at this moment, there are still kind of challenges as well as opportunities. Thank you very much. Thank you. Your next question comes from the line of Michael Sun of JPMorgan. Please ask your question. Hi. Thank you for taking my questions. I have a follow-up question regarding the CapEx. Just want to know the reasons why the CapEx compared to 2 years back. Is this because of any demand change or any technology change? Thank you. The Benjamin explained the fact that the CapEx related to Acoustic reflects mainly the new technical changes requirements, But some part of the new incremental CapEx are related to adding automation lines, which reflected increased demand. But overall, our CapEx investment in acoustic comes from a change in technical design. So for the RF, are we adding more CNC machine? We are seeing as we have disclosed in the past, 2015 is the starting year for our RF mechanical structure business, which involve really a majority of comes from one customer. And this year, the RF CapEx are confirmed to be incurred on purchase of CNC machines. So my second question is regarding acoustic or dynamic components. So in the Q1, Chinese brand already contribute around $900,000,000 revenues. And just now, Benjie mentioned that there would be a sequential demand improvement throughout the year. So can we see the strong growth momentum from Chinese brand in Acoustic will be increased each quarter throughout of this year? Thank you. Yes. I think Benjamin confirmed that on a quarter on quarter basis, the growth in Android demand on new acoustic solutions really comes from a stronger acoustic performance. And it's expected that it will last on a quarter on quarter basis. So yes, we do believe acoustic performance is going to improve on a quarter on quarter basis and mainly from Android Camp. Thank you. Your next question comes from the line of Alice Chen of UBS. Please ask your question. Hi, this is Arthur Xie from UBS. Can you hear me? Yes, Arthur. Hi. Thank you. So first is just to follow-up on this acoustic product. Is there any way that you can share with us for the Q1, how big was the contribution of the new design? Like within the total acoustic sales, was there already quite a meaningful percentage? And how much higher would be the profit margin for the new design? Like is it like 1 or 2 points? Or is it like more than 5 percentage point kind of difference in the margin rate? In our Q1, I think our speaker box and speaker actually creates significant contribution to our revenue, which is a kind of meaningful strong demand from Android customers. For example, I believe some of the new customers in the Android some of the customers in the Android camp, we actually are delivering much higher ASP on much improved technical kind of performance on their flagship models. Both speaker box and speaker did very well to reflect this acoustic demand. The total acoustic performance in Q1 will expect it to be carried over to the Q2 as Benjamin has already confirmed that this demand for stronger acoustic specs will continue to grow. In terms of gross margins, I think as we have indicated that acoustic, we are kind of what we call the performance setter, which we set the highest required industry standards, not only for previous design, but for the new kind of overall acoustic performances. And our confidence in allocating incremental CapEx in the automation will definitely present opportunities for gross margins to continue to improve. Hence, we believe in acoustic segment this year, the Android Cam will be a very important group of customers presenting such opportunities. I guess, well, my question actually can be boiled down to, was it still enjoying a bit lower margin rate than the company average during the Q1? And do you foresee the kind of improvement will lift it to above the company back to above the company average at some point for the rest of the year. For Acoustic, in the Q1, as I said, the upgrades in acoustic solutions already kind of have materialized. The overall gross margins for Acoustic is very much within a very close range of our average corporate, I. E, they have already been reflected the stronger kind of specs and to some extent, the good production efficiency on transforming to the higher kind of complicated acoustic performances are materialized. And it doesn't and our work on improving margins on acoustic doesn't stop in the Q1. But then again, I think we need to be able to cope with a lot more kind of what we call different platforms as we are serving a kind of wider number of customers within the Android Cam as well. So the standardization will be a kind of testing of how quickly we could make use of our knowledge in automation and apply the automation efficiency to the different solutions that we offer to each of these Android customers. Thank you. So on the RF mechanical, I think I have a similar question. So back in the Q1, was the margin rate already also around the company average? And as you expand the capacity, would you be able to meet the demand? Or do you still need to outsource? And how do you maintain the overall profitability as you roll out more RF mechanical business? I think for RF Mechanical, as we have said in this call, I think that 2015 served us with a very good kind of approach and production process. But overall, I think we are still kind of learning and we are still in the beginning phase of active mass production of RF mechanical solutions. Thereby, when we see a kind of less active Q1 for RF mechanical, we will I think the margins will be impacted by the volume in the Q1. But nevertheless, as we have said, when we are ready, when we are more prepared to offer different pricing or what we call technology content solutions in the RF mechanical structures and be able to bring in more customers within the Android Cam, we are expected to learn from what we have already done in the past and continue to improve on the margins. And as we have said in the 2015 annual results call, I think our overall non acoustic margins, we have already been able to deliver a very close range to what we have set out for the whole corporate. So RF mechanical structures would by no means be a drag on our margins, but nevertheless, in the 3rd and final quarter, as we grow our RF mechanical structures, we should continue to benefit from the learning curve, the higher area of better efficiency use. We have not changed in terms of our strategy of what we call focusing on the core parts of RF mechanical structures value, I. E, at the appropriate processes or the appropriate processes, whereby we believe we are quite comfortable to ask outside suppliers to perform. That will give AAC a lot of flexibility in focusing what we call are the core value in the RF mechanical solutions. So that strategy would remain. Thanks very much. Your next question comes from the line of Dennis Chen from Citibank Taipei. This is Dennis Chen from Citigroup. I have a question on RF mechanical. Is it fair to say that we have a relatively strong pricing power in RF Mechanical given that there's not a lot of competitors who are able to do the integrated solution right now. And if the existing antenna and or casing competitor want to get into this business, what kind of entry barrier would they face? AAC has started to assemble our antenna team of people quite long ago. And design and the winning of being recognized as an antenna supplier comes from the fact that it's a gradual recognition of not only design capability, but also internal production process preparation. So the current value of integrating or what we call focusing on the quality of the final, for example, 4 gs antenna capability design combined with a difficult higher metallic content casing present a uniqueness in the current bargaining or value delivering stage to our customers. But nevertheless, we recognize this as an opening of demonstration of further kind of alternative innovative RF solutions that we can bring to customer on a sustainable basis. It is not our business model to go for short term growth and over kind of short term solutions. We have a long term business model whereby, for example, in our acquisition of WiseBry, a U. S. Antenna tuner company will help us to build even stronger, even more efficient design in the current in the roadmaps of 4 gs or 4 gs plus solutions of different casing material as well. We believe the current pricing does indicate something that AAC is able to offer on a very competitive basis. But at the end of the day, our business focus on a sustainable capability of offering efficiency, quality and specifications performances. And hence, that's why I think in previous questions, we talked about the margins that we have enjoyed overall for the 2015, the margins we enjoyed for RF mechanical structures in Q1 and the 4th and the ongoing CapEx investment in this business segment kind of demonstrated our commitment, our seriousness and our confidence in not only becoming RF mechanical structures, not only becoming a growth driver for AAC in the couple of next quarter to come, but become a genuine kind of important innovative technology contributor in the overall RF space as such. Got it. The second question is that I remember we mentioned before that we will buy around 40% to 50% of the CNC machine we need in our mechanical segment. And I'm going back to my notes. And I remember last year, maybe we have several 100 CNC machines, etcetera. Is it fair to say that with this CapEx increase that we just mentioned, we may be tripling or quadrupling our CNC machine this year versus last year? We have said in the past, Benjamin was referring to previous conversations that we are in possession or we are building up our total number of CNC machines to around 2,000 units and of which we will be able to not only fully utilize these 2,000 units of machines, but in the vicinity, in the surroundings of near to our production basis, we will be able to manage what we call arrangements. But at the end of the day, it is very, very important that AAC will control the what we call the yield and production process and which means that our we are very much performance focused on such overall performances of the solutions that we are delivering to the customer. We are forecasting that for this year, our capacity for RM mechanical structures, we will be able to deliver something like 6,000,000 pieces on a monthly basis. And from that position, we are very well placed to look at the future design or changes in materials requirement and continue RF transmission requirements for us to further benefit from our knowledge in RF mechanical structures. Your next question comes from the line of Kylie Wong of Daiwa Capital Markets. Please ask your question. Hi, Richard and Benjamin. Thank you for taking my questions. I have two questions. One is regarding acoustic. I noticed in Q1, your speaker box actually accounts for 13% of revenue. Even we use a Q on Q base or year on year base, it seems a quite strong improvement. So I'm just wondering, this is driven by violent growth or actually small new designs that we have some ASP upgrade? Benjamin referring to the gradual stronger clear trend of adoption of speaker boxes design. In the majority of smartphone devices, which cost more than RMB1 1,000 and most of them are already adopting some kind of speaker box design. And for smartphones which are lower than RMB 1,000, I think we are also quite confident that there is a strong change in terms of using a speaker box design. But clearly, for those price range of speaker box, there is an obvious trade off between performance and the ASP of the speaker box solutions that these customers are adopting for this lower end range of solution. We do see a kind of what we call a 1 month gap between our preparation for production capacity or production changes in preparation for the newer, the stronger structural design. Nevertheless, we expect by around quarter in Q3, something like 90% of our production will already be prepared for the new structural design. So that is kind of the pattern that we expect the market of our Android customers are going to shift over to a stronger value or stronger performance or what we call the new structural design speaker boxes. In addition to speaker boxes, we have already mentioned that for Android Cam, for example, the Chinese customers, Huawei, are already adopting a receiver module to deliver a stereo performance in terms of their smartphone device. That trend will further affirm the trend for Chinese Android phone customers to deliver a new structural design for acoustic solutions. And AAC with our CapEx investment, we are preparing to take advantage of such opportunities. Thank you. But I just wanted to clarify, actually my question is regarding speakers, rather than speaker box. I noticed speaker actually account for 13% of our Q1 revenue. But if I recall, right, Q1 should be around 8 percent only. So I'm just wondering wireless speakers, which supposedly might decline over time because more customer migrate to speaker box. But in Q1, we see speakers actually quite strong. I think the major reason is again comes from the Android camp in China. We are seeing a higher kind of volume we are delivering to the low end of PRC customer. But then again, the speaker is always a trade off between some international customers and the stronger demand for high slightly higher grade speaker. So yes, I think you're correct to work out the percentage of speaker assignments contribution. But overall, I think the revenue and the ASP, we are changing we are seeing a change of customer mix. But to an extent because the trend of using speaker box will continue to be an alternative of using speaker. So I think it's much more practical to combine what we call speaker box and speaker trend when we talk about acoustic performance. Thank you very much. My second question is regarding the haptics. Doug, you mentioned we already see some Android Camstarts to use haptics, still all platform. So I'm just wondering when we will start to see meaningful revenue contribution from haptics adopted by Android Camp? I think the adoption of haptics is also influenced by software as well. When we talk about Android, I think there are different approaches in terms of adopting not only hardware solutions proposed by AAC, not only proposed by a stronger kind of haptics solutions in delivering an interesting user experience, haptics adoption. Because in the Android Cam, as the software is kind of like an open platform, different OEMs have decided to take on different resources to look at creation of user experience related to haptic sensation, it's very difficult to estimate a what we call an infection plot whereby suddenly you see an immediate shift over to haptics. But it is clear that haptics is very much in the limelight of creating new user experience. I think in 2016, we will continue to see newer kind of customers and in their product ranges to see haptics deliver. But whether haptics will immediately be offered throughout, for example, their mid segment models. I think that it's very much driven by software investment as well. Thank you very much. I have no more question. Your next question comes from the line of Wei Chen from Goldman Sachs. Please ask your question. Hi, Richard and Connie. So I think this year feels like a big year for you. Can you kind of articulate the growth is coming from in terms of unit and ASP? Because I think when you are thinking about 20% revenue growth and when we look at your end customers, most customers are declining high single digit to double digits. Can we kind of safely imply that your ASP increase from the spec upgrades over 30%? So that's the first question. I think in acoustic, it's expected that the growth will come from what we call specs upgrade rather than a volume demand because we have talked a lot about not only potential stereo sound, but also in terms of overall adoption towards a stronger speaker box design across the pricing segments of Android phones and that delivers a very strong opportunity for AAC to deliver strong growth, as we have said, double digit growth in acoustic business for this year. Okay. My second question is regarding haptics. So I think haptics last year was a very exciting category. It was growing very fast. It was one of the big driver for non acoustic category. But going to the Q1 this year, we already saw pretty meaningful decline on a year on year basis. So I think the logic prior was that haptic was going to be a multiyear growth story for AAC. But it feels like that's changing. So moving forward, I think this year is a pretty strong growth year. But looking out for the next going to next year or the year after, what would be a multiyear driver for AAC going forward? Has already delivered a significant part of contributions to AAC. Hence, we expect in terms of if we look at growth rates, it's not going to be as exciting as the lower base from RF mechanical structures in 2015. So the growth rate from RF mechanical structure for 2016 is going to be much more exciting than haptics. But nevertheless, we still believe the overall contribution percentage from haptics is going to be a meaningful significant one for 2016 for the fact that we do still believe we are in control or we are in possession of the very much core design and core patents. And when we see the user experience much more kind of generally make relevant and made applicable in the Android camp. This trend will benefit AAC clearly because we have already been experienced and we have very good trial record and also in possession, as we have said, core design. Hence, I think haptics do at this very important of competitive kind of user experience will be will still remain as a very important functionality of not only a couple of customers, but most smartphone OEMs to consider. And hence, we are very confident that haptics investment haptics business will continue to be an important part of AAC's growth. Your next question comes from the line of Ann Lee of Nomura. Please ask your question. Hi, thank you for taking my question. I have one question for Ben. Considering your aggressive expansion in the CNC, would you worry if what is the metal casing trend may have some changes in the coming years? If that really happens, how what will you do with those CNC capacity? I think on further analysis of the potential changes in the trend of pure metallic casing, I think it's unlikely what Ben is saying is it's very unlikely that it will be a reversal to the use of plastic. And there are 3 potential considerations on changing a metallic casing design. For example, a glass approach or what we call a ceramic approach or finally a liquid metal kind of approach, whereby in these three approaches, there are still involvement of a lot of what we call CNC work, but they may deal with different processes, they may deal with different design or deal with the different usage of materials. But nevertheless, our consideration of owning 2,000 machines and outsourcing and controlling 3000 to 4000 machines of third parties, delivering enabling us for a 7000000 to 6000000 to 7000000 capacity on a monthly basis. That kind of capability would put us in a very good position for us to take advantage of our existing competency in combining the antenna design with such mechanical changes in the casing or for future design of the different devices. Hence, our importance for the CapEx investment, for our experience and our commitment to deliver such volume of business will enable us to or to establish us firmly as a leader in this very important trend, in this very important business segment. Thank you. The other follow-up question is, how many years you used to depreciate those CNC machines? We depreciate over 5 years. Okay. And my second question is for the Android smartphone, you mentioned about the quarter over quarter growth penetration for the new design for acoustics. May I also considering the margins should also improve because of the new platform? Benjamin uses the illustration that in acoustic, whereby in over the period of last 10 years, for example, although there has been slight increase in prices that customers can offer such as like in the range of 10% increase in ASP. But nevertheless, the performance requirement has caused a very difficult challenge in keeping or maintaining the cost of such new design components, I. E, the customers wanted a very sharp jump in performance, but the prices that they offer reflected only a modest increase. And that's why AAC through our internal investment, through our internal kind of automation built up know how that we are able to combat or to compensate that we continue to be an important leader so that we continue to provide and deliver margins and be ahead of our competitors in terms of delivering the big jump in the specs required by customers. But at the same time, we are capable of delivering a very high level of margins through the use of internal R and D design and R and D automation. That has been the base that AAC continue to grow as a demonstration of our design and our automation production capability throughout this increasing trend of performance requirement from customers. The execution to reflect ever changing increasing acoustic performance kind of present AAC challenges and opportunities at the same time. For example, we started off acoustic business delivering what we call speaker and receivers, single body design and the adoption of speaker boxes. Throughout those changes, AAC has been always been interested in investing in how we could utilize R and D capability, not only in design, but also in improving production efficiency in order to pass some of those cost saving advantage so that our customer by pursuing a higher acoustic performance can deliver an innovative user experience. AAC's business model kind of work along with our customers in delivering innovative user experience. And as we have said in this call, when we see changes in major thinking about performance of standalone receiver turning a receiver into more like a receiver module, such trends are here to last and such trends provide ample opportunities for AAC to demonstrate our capabilities, not only in design, but also our kind of core strength in turning that challenge in to an efficiency whereby we are delivering a complete solution in terms of pricing, in terms of better specs, in terms of sustainable design in delivering a stronger user experience. And I think those are the foundation of AAC kind of core investment and core business strategy, and we will continue to pursue. And we hopefully will try to leverage that, continue to grow our acoustic dominance, making use of this important change. Thank you. I have no questions. 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 Chen for closing comments. Thank you. We maintain a strong commitment in building technology platforms for Mini Nature Solutions aimed at delivering sustainable profit growth. We will continue to focus on advancing technology and R and D capabilities in order to deliver innovative products enhancing user experience and enjoyment. At the same time, we constantly strive to offer a wider range of solutions catering for different customers' requirements. To conclude, I wish to thank you for attending today's webcast and 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 our 2016 interim results tentatively scheduled on 26 August 2016. Thank you.