Ladies and gentlemen, thank you for standing by and welcome 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. 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 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 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.
Thank you. Good day, everyone, and welcome to AAC Technologies' 2016 Q1 Results Investor Webcast and Conference Call. This is Connie Chin. Joining me on today's call are Mr. Benjamin Pan, our CEO, and Mr. Richard Mok, 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 on history. Gross profit margin was certainly stay above 40%. Upgraded acoustic solutions, especially in Android customers, have contributed to the dynamic component 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.
We have three business highlights to share as follows. The first one is about the non-acoustics. RF mechanical together with haptic solutions, the two distinct contributors in non-acoustic business, contributed 26% of sales in Q1. 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 increased market demand for high specifications, acoustic solutions, and rising adoption of speaker 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 RF mechanical projects kick in, and we have raised our annual CapEx by 25% to RMB 3 billion to support this growth. This brings an end to our summary introduction.
Before we move on our Q&A section, please note that 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 plans. Actual results or trends could materially differ from what you hear today. As always, we intend to update you with any new information for all 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&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. Your first question comes from the line of Charima. Please ask your question.
Connie, thanks for taking the question. My first question, it's related to non-acoustic. The revenue in first quarter was down 19% year-on-year. Could we have some color whether both haptics and other segments experienced year-on-year decline? Could you help us understand if our major customer expect further price cuts for acoustic and haptic component in the coming quarter, and if this could negatively impact gross margin?
Hi. I think in our first quarter in the non-acoustics business development, it is a usual, what we call a seasonal first quarter in every calendar year, whereby our business reflect different customers' dates of their product launches. In both non-acoustic, the same applies. I think we particularly have very strong second half last year in non-acoustic and also in terms of, in fact, the whole business segments, three business segments of AAC. It reflects the concentration of different product launches at that base. It's not an unusual first quarter that we see slightly kind of lower numbers for non-acoustic. The second part of your questions, we don't comment on any customer's progress. 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.
In this coming quarters, 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.
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 second quarter. Can you share with us some progress, customer feedback, if possible, and if there's any upward revision to our 20% 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 as expected. We are actively engaged in more than the number of projects that we were doing in the first quarter already. I believe in the two 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. 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.
In this year, we have definitely more than one customer, of which mass production we have already started in, as we said, from April, i.e., in the second quarter already. Overall, it will not be a surprise to us that if we would deliver more than 40% of our total sales revenue be coming over or be contributed from non-acoustic segment. Definitely, the second quarter percentage contribution of non-acoustic, we believe it will be more than that of the first quarter 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. I have first questions regarding that in the presentation, Izzy mentioned about the R&D expenses and also the CapEx will actually increase. Just wanted to understand what that be more specific, what product that's behind the increase for both R&D expenses and also CapEx.
I think in the rise of R&D in the first quarter, first of all, the percentage ratio reflects a kind of lower base of our sales revenue. As we have said before, over the whole year, we will continue to commit to the financial discipline of controlling R&D expenses. The slightly higher 8.9% to sales in the first quarter is by no means an indication of a much higher R&D. We believe over the whole year, we are going to exert the same kind of discipline, and we will see R&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 four technology segments that we have identified, acoustic, RF, mechanical structures, haptics, and optics.
The individual quarterly charges of R&D kind of reflect the extent of R&D activities that are incremental. We believe in terms of R&D engineers, there is a slight modest kind of growth in terms of resources dedicated to R&D, but not to a extent that which are indicating anything problematic. 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 2016 and beyond. Those are mainly for non-acoustic segments.
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RF mechanical
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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, but also new customer this year. The investment in CapEx incurred in RF mechanical will continue. In addition, in acoustic, for example, we like to point out that, for example, one of the PRC OEM, Huawei, in their latest P9 models, we have seen a stereo receiver kind of new design, whereby it's more like a receiver module. 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.
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Benjamin also wants to add 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. Of no kind of when we compare to RF mechanical, I think haptics-related CapEx will be less than the 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. This year, we do not believe or expect to see major CapEx investment in this area.
The last point that Benjamin wants to reiterate is related to confirmation that the 8 point something %, 8.9% of R&D ratio to sales is not going to be what we are seeing for the whole year. This is still the reason of a lower sales base for the first quarter
Thank you. Just very quickly to follow on with the non-acoustic part. You mentioned about previously, for both RF and also haptics, just more like a single customer. Can you give us a little bit color in terms of the progress of the customer diversification, i.e., the number of the projects and also the number of the customer in both products throughout the year? Thank you.
I think in haptics, as we said, we have a 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. 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. 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. In terms of growth, we believe in the haptics segment of AAC, as we control the major core IP and production know-how, we believe we'll be the strongest contender in any uplift from the Android customers.
Thank you.
In terms of our mechanical structures, we have a very strong, clear advantage as being the front mover in combining 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 second quarter, we will see, or we are already expected to deliver a handful of projects, mainly from the Android customers again. In the third quarter, 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.
I think gradually over the quarters, we are able to kind of widen or broaden the range of our design 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 Hui from Jefferies. Please ask your question.
Thank you for taking my question. First of all, on the acoustic side, I think first quarter, you're already seeing 36% year-on-year increase in the revenue, excluding MEMS. I think your previous guidance for the full year is something like double-digit growth, but you're also talking about this stereo upgrade. Are you seeing more than just 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%. 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 second quarter. 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 the volumes adopting these higher specs, I think that would be a better timing to disclose more about progress of our different customers adopting a stronger, higher value acoustic solution.
Thank you. My second question is, regarding second quarter, would you be able to give us some guidance on the second quarter 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 expecting to commit it to our customers. I believe in the second quarter, on the top line, we should be able to deliver a double digit on a QoQ measurement basis. Please do not ask me to define the quantum of this double digit. 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 deliver in the first quarter.
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 their 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 yields that we are expected to be able to deliver. Nevertheless, I think as we see the growth of non-acoustic business as well, I think we will be more prudent, 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.
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 first quarter to second quarter's performance, as we have said, in our RF mechanical structures, we are stepping up in delivering more projects in the second quarter. The second major kind of factor for event in the second quarter is we are seeing a more clear or obvious upgrade in the new models that the Android group of customers are delivering over each quarter. The acoustic upgrade in performance, it's more clear and clearer. Usually with a higher demand in acoustic performance, AAC will be able to deliver what we call a pricing capability factor.
With such, we believe that would help us to deliver a kind of stronger growth 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 two factors which will kind of propels a wider split between first half and second half, because I think in the second half, the Android camp will have much very interesting activities in terms of new product launches from the second half. As we have said, the RF mechanical structures activities are growing on a quarter-on-quarter basis. I think by the third quarter and the fourth quarter, our RF mechanical activities will be contributing a lot to AAC.
Hence, it will not be a big surprise that the split between first and second half could be one of the quite prominent or quite strong compared to previous years.
You talk about the very back-end-loaded second half, for the full year, you're looking for a 10% increase in revenue. In the first quarter, we are seeing 10%. Sometime down the road, we should be able to see year-on-year increases to exceed 20%. Do we think we are at this turning point for the second quarter, or we need to wait until the third quarter?
I think at this stage, we are facing different growth opportunities. In our mechanical structures, we are quite busy with new projects in the second quarter already and continue momentum in the third and fourth quarter. Our design teams and our factory CapEx are all prepared for such growth. Nevertheless, I think the second factor that Benjamin mentioned about upgrade in acoustic specs do kind of present another very interesting opportunity for AAC, 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, we only are now delivering results for the first quarter. At this moment, I don't think we are at any stage to kind of adjust any guidance that we have given.
It doesn't mean we will be complacent and be happy about or satisfied about what we have set out to target to achieve. 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 JP Morgan. Please ask your question.
Hi. Thank you for taking my question. I have a follow-up question regarding the CapEx. Just want to know the reasons why CapEx compared to two years back. Is this because of any demand change or any technology change? Thank you.
Benjamin explained the fact that the CapEx related to acoustic reflects mainly the new technical changes requirements, some part of the new incremental CapEx are related to adding automation lines, which reflected increased demand. Overall, our CapEx investment in acoustic comes from a change in technical design.
For the RF, are we adding more CNC machine?
We are seeing that, as we have disclosed in the past, 2015 is the starting year for our RF mechanical structure business, which involved really a majority comes from one customer. This year, the RF CapEx are confirmed to be incurred on purchase of CNC machines.
Thank you. My second question is regarding acoustic or dynamic components. In the first quarter, Chinese brand already contribute around HKD 100 million revenues. Just now, Benjamin mentioned that there would be a sequential demand improvement throughout the year. Can we see the strong growth momentum from Chinese brand in acoustic will be increased each quarter throughout of this year? Thank you.
Yeah, I think that 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. 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 Hsieh from UBS. Can you hear me?
Yes, Arthur. Hi.
Thank you. First is just to follow up on this acoustic product. Is there any way that you can share with us for the first quarter, how big was the contribution of the new design? Like within the total acoustic sales, was that already quite a meaningful percentage? How much higher would be the profit margin for the new design? Is it one or 2 points, or is it more than 5 percentage point kind of difference in the margin rate?
In our first quarter, I think our speaker box and speaker actually creates a significant contribution to our revenue, which is a kind of meaningful, strong demand from Android customers. For example, I believe that 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 we're expected to be carried over to the second quarter, 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. 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 camp will be a very important group of customers presenting such opportunities.
I guess, my question actually can be boiled down to, was it still enjoying a bit lower margin rate than the company average during the first quarter? Do you foresee the kind of improvements will lift it back to above the company average at some point for the rest of the year?
For acoustic, in the first quarter, 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. Our work on improving margins on acoustic doesn't stop in the first quarter. 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 camp as well.
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. On the RF mechanical, I think, I have a similar question. Back in the first quarter, was the margin rates already also around the company average? As you expand the capacity, would you be able to meet the demand, or do you still need to outsource? 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 serves us with a very good kind of approach and production process. 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 first quarter for RF mechanical, I think the margins will be impacted by the volume in the first quarter. 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 camp, we are expected to learn from what we have already done in the past and continue to improve on the margins.
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. RF mechanical structures would by no means be a drag on our margins. Nevertheless, in the third 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. That strategy would remain.
Thanks very much.
Your next question comes from the line of Dennis Chan from Citigroup Taipei. Please ask your question.
Hi, this is Dennis Chan 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? If the existing antenna and/or casing competitor want to get into this business, what kind of entry barrier would they face? That's my first question.
AAC has started to assemble our antenna team of people quite long ago, the 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. The current value of integrating or what we call focusing on the quality of the final, for example, 4G 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. 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 offer short-term solutions.
We have a long-term business model whereby, for example, in our acquisition of WiSpry, a U.S. antenna tuner company, will help us to build even stronger, even more efficient design in the roadmap of 4G or 4G 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. At the end of the day, our business focus on a sustainable capability of offering efficiency, quality, and specifications performances.
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 enjoy for RF mechanical structures in Q1, 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 comes, 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%-50% of the CNC machine we need in our mechanical segment. I'm going back to my notes, and I remember last year, maybe we have several hundred CNC machines, et cetera. 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?
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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 bases, we will be able to manage what we call an additional outsourced capability belonging to third party kind of arrangements. At the end of the day, it is very, very important that AAC will control what we call the yield and the production process, which means that 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 RF mechanical structures, we will be able to deliver something like 6 million pieces on a monthly basis. From that position, we are very well-placed to look at the future design or changes in materials requirements 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 Huang of Daiwa Capital Markets. Please ask your question.
Hi, Richard and Benjamin, thank you to taking my questions. I have two questions. One is regarding acoustic. I notice in first quarter, your speaker box actually account for 13% of revenue. Even we use a Q over Q base or year-on-year base, it seems a quite strong improvement. I just wondering this is driven by volume of growth or actually more a new design, so we have some ASP upgrade.
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Benjamin referring to the gradual stronger, clear trend of adoption of speaker boxes design. In the majority of smartphone devices, which cost more than 1,000 RMB, Most of them are already adopting some kind of speaker box design. For smartphones which are lower than 1,000 RMB, I think we are also quite confident that there is a strong change in terms of using a speaker box design. 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 one-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 in the first quarter, something like 90% of our production will already be prepared for the new structural design. 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 camp, 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. AAC, with our CapEx investment, we are preparing to take advantage of such opportunities.
Thank you. I just want to clarify, actually my question is regarding speakers rather than speaker box. I notice speakers actually account for 13% of our first quarter revenue. If I recall right, first quarter should be around 8% only. I'm just wondering why the speakers, which supposedly might decline over time because more customer migrate to speaker box, but in first quarter, we see speakers actually quite strong.
I think the major reason 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. The speaker is always a trade-off between some international customers and the stronger demand for slightly higher-grade speaker. Yes, I think you're correct to work out the percentage of speaker segment's contribution. Overall, I think the revenue and the ASP, 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. 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. Benjamin mentioned we already see some Android camp start to use haptics or still old platform. I'm just wondering when we will start to see a 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 in the haptics adoption. In the Android camp, 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 haptics sensation. It's very difficult to estimate what we call an inflection point, whereby suddenly you see an immediate shift over to haptics. 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.
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.
Ben, Richard, and Connie. I think this year feels like a big year for you. Can you kind of articulate the growth that is coming from in terms of unit and ASP? 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 increased from the spec upgrades over 30%? 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 to towards a stronger speaker box design across the pricing segments of Android phones. 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. 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. Going into the first quarter this year, we already saw pretty meaningful decline on year-on-year basis. I think the logic prior was that haptic was going to be a multi-year growth story for AAC. It feels like that's changing. Moving forward, I think this year is a pretty strong growth year. Looking out going to next year or the year after, what would be a multi-year driver for AAC going forward?
Haptics, I think last year has already delivered a significant part of contributions to AAC. 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. The growth rate from RF mechanical structure for 2016 is going to be much more exciting than haptics. Nevertheless, we still believe the overall contribution % 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.
When we see the user experience much more kind of generally make relevant and make applicable in the Android camp, this trend will benefit AAC clearly because we have already been the experience and we have very good track record and also in possession, as we have said, core design. I think haptics do at this very important of competitive kind of user experience will still remain as a very important functionality of not only a couple of customers, but most smartphone OEMs to consider. Hence, we are very confident that haptics investment, haptics business will continue to be an important part of AAC's growth.
Okay. Thank you, Ben. Thank you, Richard for your comments. That's all my questions.
Your next question comes from the line of Anne 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, what if the metal casing trend may have some changes in the coming years? If that really happens, what will you do with those CNC capacity?
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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. There are three 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. Nevertheless, our consideration of owning 2,000 machines and outsourcing and controlling 3 to 4,000 machines of third parties, enabling us for a 6 to 7 million 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, 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?
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We depreciate over five years.
Okay. My second question is for the Android smartphone. You mentioned about the quarter-on-quarter growth penetration for the new design for acoustics. May I also considering the margins should also improve because of the new platform?
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Benjamin uses the illustration that in acoustics, whereby over the period of last 10 years, for example, although there have been slight increase in prices that customers can offer, such as in the range of 10% increase in ASP, 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. That's why AAC, through our internal investment, through our internal 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.
At the same time, we are capable of delivering a very high level of margins through the use of internal R&D design and R&D investment in 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.
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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 receiver single body design, and the adoption of speaker boxes. Throughout those changes, AAC has always been interested in investing in how we could utilize R&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. 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 into a efficiency, whereby we're delivering a complete solution in terms of pricing, in terms of better specs, in terms of sustainable design in delivering a stronger user experience. I think those are the foundation of AAC core investment and core business strategy. 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 question.
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 Chin for closing comments.
Thank you. We maintain a strong commitment in building technology platforms for miniature solutions aimed at delivering sustainable profit growth. We will continue to focus on advancing technology and R&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. Should 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 26th of August 2016. Thank you.