Xcerra's (XCRA) CEO Dave Tacelli on Q1 2017 Results - Earnings Call Transcript

| About: Xcerra Corporation (XCRA)

Xcerra Corporation (NASDAQ:XCRA)

Q1 2017 Earnings Conference Call

December 01, 2016 10:00 AM ET

Executives

Mark Gallenberger - Chief Financial Officer

Dave Tacelli - President and Chief Executive Officer

Analysts

Patrick Ho - Stifel

Craig Ellis - B. Riley

Edwin Mok - Needham & Company

David Duley - Steelhead

Tom Diffely - D.A. Davidson

Operator

Good day, ladies and gentlemen. And welcome to the Xcerra First Quarter Analyst Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to CFO, Mark Gallenberger. You may begin.

Mark Gallenberger

Thank you. Welcome to Xcerra Corporation’s first quarter fiscal year 2017 conference call for the period ending October 31, 2016. Joining me on today’s call is Dave Tacelli, CEO and President. After my introductory comments, Dave will discuss the Company’s performance for the first quarter and discuss the business outlook. Then, I will provide further detail on the Company’s financial performance during the first quarter as well as provide guidance for the second quarter of fiscal year 2017.

We will take your questions after our prepared remarks. A replay of this call will be made available through December 4, by dialing 855-859-2056 and the passcode is 19762256 or you can visit our website at xcerra.com. As a reminder, the only authorized spokespeople for the Company are Dave Tacelli, Rich Yerganian, and myself. In addition, the Company will be participating at the 2016 Midtown CAP Summit Conference in New York City on December 8th.

Now for our Safe Harbor statement. During the course of this conference call, we will make forward-looking statements regarding Xcerra’s business outlook for the future financial performance of the Company. We wish to caution you that these statements, such as projected revenues, net income or loss, earnings or loss per share, operating expenses, gross margin, cash flow, non-GAAP measures and breakeven targets are management’s current predictions and that these statements are subject to known and unknown risks and uncertainties that could cause actual results or events to differ materially from those stated or implied. The statements provided during this call represent the Company’s estimates as of this day and the Company assumes no obligation to update them after this call. Please refer to our Safe Harbor statement in our earnings release for more information on important factors that could cause actual results to differ.

Now, onto the call. Dave?

Dave Tacelli

Thanks, Mark, and good morning everyone. On today's call, I am going to cover some key points from Q1, go over our progress with several initiatives in our Semi Test Solutions business. And then talk about how 2017 is what we believe is shaping up a very good year for the Company. What are some of the key points or key takeaways from Q1? Although, revenue was only up 2% year-over-year, there was solid growth in our Semi Test solutions business, which more than offset the weakness in our electronics manufacturing business with Semi Test solutions up 13% offsetting electronic manufacturing solutions, which is down 28% year-over-year.

Even inside our Semi Test business, there were some interesting swings. We had a very weak quarter in our RF PA market, and I'll talk about that later. But that was more than offset by a strong demand in other product areas including shipping 10 systems for flat panel display drivers to a couple of different customers. We also during the quarter had record Diamondx revenue. And what I would say right now is there is early indications that happened late in Q1 of a recovery in our electronics business particularly in our PCB test area.

As we look out in Q2, our fiscal Q2 is typically a seasonally weak quarter for the Company and for the industry, but this year based on several factors like flat panel display and customers we believe coming back to capacity in the PA areas. And our EMS business starting to build back the momentum, we're able to hold revenue relatively flat at the midpoint of our guidance. As I'll remind everyone, we continue to stay focused on the high growth, high volume markets such as mobility and a wide range of devices, automotive, everything from controlling and sensing applications to infotainment, and the new and emerging area of Internet of Things and a wide range of applications in that area.

Doing a little bit deeper dive into those markets, you can see an expanding list of high volume devices. In automotive, we have a wide variety of control, safety, entertainment and sensing applications. In the communications and mobility space areas like touch controllers, RF PAs, and a wide range of other RF type applications are actually ramping into volume. We also see a wide variety of sensor and display drivers as they're going into devices and end applications everywhere, along with a wide variety of MCUs and power management devices, so an emerging range of applications across the markets that we're focused on.

With that as a backdrop, you can see how devices in these areas, the automotive, mobility and Internet of Things have enabled our Semi Tests solutions revenue to perform positively year-over-year, going up 13% from 57 million in Q1 of 2016 to 65 million in 2017, more than offsetting this decline in our EMS business. But if you look deeper into Semi Tests, one of the things you'll note as I talked about earlier is our RF PA business really fell off during the quarter, that RF PA business fell off for a couple of reasons predominantly because customers went through a capacity absorption period during that first quarter.

The positive thing is early indications as we exited the quarter and moved into Q2 is that they will begin to meet capacity starting this quarter. This return of capacity buying allows us to hold revenue flat even during a seasonally weak period. Another really exciting thing for the quarter had to do with Diamondx where we achieved record revenue in the quarter on the strength of a wide variety of customers, along with larger configuration mix for the product, as we continue to flush out instrumentation for this product and reach different markets. You can see the chart below that we’ve closed to double our installed base over the last four quarters alone.

The other thing we continue to do is built a major customer list that includes customers from around the world and a wide range of applications. But we maintain a significant installed base in China and Taiwan. So, how is this all affecting 2017 versus 2016? Well, there is a couple of things from this chart, I would like to point out. First, testers to support [as] [ph] processor will be down year-over-year. Again for us, that’s not an area that we’ve play in. The second thing is testers to support the rest of SOC including the high volume markets that I mentioned earlier will be up year-over-year. These include the automotive, mobility and Internet of Things market.

And the last thing that I would like to point out from this chart is the handler market will continue to grow as well, mainly due to the emergence of multiple sensing applications, again another strong point for the Company. So year-over-year, we’re expecting to be positive for us because of the markets we serve and some of the devices that are using our products.

One of the key initiatives for the Company that we’ve been talking about for some time now is the new market area of flat panel display. During Q1, we shipped 10 systems to support this market, all going into production. And I expect to ramp shipments as we go through the calendar 2017.

Another interesting thing in this market, in addition to our success, is that the market is also driving more devices per panel, mainly because of the larger panel size and higher resolution. You can see in the chart here that where panels in the past required between 8 and 10 devices apiece as panel sizes increase and resolution increases those accounts - devices per panel are doubling to 24 panels. What this is doing is driving a higher market for ATE to support this business. And you may ask why are we starting to gain traction in this market? Well it's pretty simple. First, we have a focused instrument for this market, not a focused tester. We’re leveraging the throughput architecture of Diamondx and Diamondx not only installed base, but also the opportunity to add more.

Because we’re not a focused tester, more of a general purpose tester, companies like OSAT that are buying this product to test flat panel display can also use our Diamondx product for a wide range of other applications. And we continue to grow [inaudible] customer base, today with customers in Taiwan, Japan and Korea, and I expect to add customers in China as well in the near future.

Switching gears, I would also say that on a nonorganic front, things continue to be positive, but we will not stray from our strategy, our three-point strategy, and that is intact. We will look to acquire businesses that complement our portfolio, accelerate our growth through using our global distribution and are accretive to earnings. And I will tell you that there is a good pipeline of opportunities in front of us.

What can you expect for the balance of the year? We expect share gains from a lot of different areas. First, Diamondx wins that we’ve already had in our core business or we expect to have will continue to drive growth. We have a wide range of applications and devices at many Chinese fabless customers. And this prompted us, if you remember on the last call, to talk about opening up a development center in Shanghai to support these customers, and we are on track to do that. We see continued growth from Internet of Things in a wide range of areas, microcontrollers, sensors and a host of other RF applications. I haven’t talked a lot in this call about our Wafer Level Chip Scale Package solution but we are first to market. We've now been evaluated at three different customers and although we don’t have a customer decision yet we are ready for production.

Additional business that we will gain from new customers in the flat panel display market along with volume production as we continue to ramp with those we've already won. Another area that I haven’t spent a lot of time on in the call is the expansion of our MT2168 tri-temp pick and place handler. During the quarter, we won two new customers from the evaluations that were underway and we've added additional evaluations that will turn it into new customers over the next six months. On the core side, we see a rebound in the RF PA market, starting as early as this quarter. And as I've mentioned earlier, we are seeing a return to more normal levels in some of our EMS business segments specifically PCB tests. All of these not only adding share, but also helping us to grow revenue year-over-year and giving us a positive look at 2017.

With that, I'll now turn the call over to Mark for some detail on the financials. Mark?

Mark Gallenberger

Thanks, Dave. So revenue for the quarter came in at $80.1 million with gross margin at 42.9% and our non-GAAP net income was a $0.01. So even though our revenue came in at the lower end of our guidance, our EPS was actually at the high end of our original company guidance. The gross margin was ahead of our target model, which was primarily driven by favorable product mix inside the tester group, and for the quarter we generated positive EBITDA of approximately $3.5 million, which is now the 11th consecutive quarters in a row.

Moving onto our revenue split by our two reporting segments, 81% of our revenues came from our Semiconductor Tests Solutions business while the 19% came from Electronics Manufacturing Solutions. This split was also the same as what we presented last quarter. Looking to the right part of this slide, our capital versus our recurring revenues, as expected our recurring revenue held up better versus our more volatile capital equipment revenue stream, and as a result our recurring revenue increased to 49% of total revenue versus 45% last quarter.

And moving onto our business model, you can see that our Q1 results were ahead of our updated business model, and if you recall last quarter, we did update the business model to reflect the successful transition of a portion of our fixture services manufacturing to Jabil Circuit. And so if you recall one of the things that we updated was the gross margin by 1 percentage point. So, even with the quarter's results compared to the updated business model, we were still ahead of our target model. That was driven, as I mentioned before by better margins in our tester group.

We also had some lower SG&A expenses inside the quarter such as less outside services for tax and RE as well as less commission dollars. And then finally, we also had some favorable FX that ramped through our other income line, which is below the operating income expense or operating income line. So all-in-all, you can see that we are about $2 million a little bit better than the model at $80 million in revenue.

Moving on our GAAP, non-GAAP results, the purpose of this slide is really to show what our ongoing operating performance is by excluding some of the non-operating items that we incurred between the quarter. One of the main things that we do exclude is the amortization of purchase and tangible assets, which is running approximately 2,000 per quarter. And inside this quarter, we had a small restructuring charge which was related to some moved cost and some people cost related to be moving some of our repair center activities from Milpitas to our Singapore operation, and that amounted to approximately $100,000.

And the bottom of this table, you can see that we also removed our stock based comp expense which is $1.5 million for the quarter, and you can see how we reconcile that back to our target model. And that’s how we get to the 2.1 million of non-GAAP operating income, and that compares favorably by about $2 million.

Moving onto our EBITDA results, as mentioned before, we had 2.5 million of EBITDA for the quarter. And on accumulative basis, we are now approaching a $100 million of since we have acquired the Multitest and ECT assets from Dover Corporation, two or three years ago. And for Q2, we expect to generate about another $3 million of EBITDA.

And moving onto our business outlook for Q2, we expect revenues to be in the $77 million to $81 million revenue range, and that would be -- compared to last quarter that would be revenues up 1% to down 4% or as Dave had mentioned before, essentially flat quarter-over-quarter. And then when you compared this guidance to our actual results from a year ago, this would suggest that our revenues would be up 10% year-over-year.

So that concludes our prepared remarks, and at this point, we would like to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Patrick Ho with Stifel. Your line is open.

Patrick Ho

Thank you very much and nice work on the quarter and outlook. Dave, in terms of the display driver IC test business, I think in the past you have talked about the opportunity being $5 million to $10 million in your fiscal year '17. Can you give us any update particularly following this strong quarter? And maybe as a follow-up to that, is this growth that you are starting to see coming from one big customer going into production or is it coming from multiple customers?

Dave Tacelli

Good question, Patrick. What I would say in that $5 million to $10 million spread based on what we have delivered in Q1 and what we expect for a ramp, I would expect that we will get close to the top end, if not exceed the top end of that range. It is a couple of customers that we started to ship to already for production. It's not just one. They are different OEMs. The interesting piece is both of those OEMs are doing business at one OSAT in Taiwan. But as we flush out what's going on in Korea, and what I expect to happen in China, I think we're going to open up additional subcontractors for the product and additional drivers of the product as we go through the next couple of quarters. So, couple of customers driving production now, I would expect by the end of this fiscal year to have four customers driving production.

Patrick Ho

Right, that's helpful, and maybe moving to the InCarrier of side of things for a second, I know in the past you talked about how the evaluation and the qualifications and how long it takes given it’s a new product out there for a lot of customers. Can you give us an update on some of the efforts there and why these evaluations typically take a little bit longer to get customers on board ahead of production?

Dave Tacelli

Yes, it's interesting. About 90 days ago, I think I laid the card on the table that we’d have the first order by this conference call. And based on the evaluation that we had in front of us and what was left to complete in that evaluation, I was pretty confident that we would pass with flying colors and we did. But as any new process in this space goes, as you go through the process not only are we learning a little bit, but the customers are learning as well. And when the customers learn what they tend to do is they tend to place several additional pieces into the evaluation, as an example one of the things that this last evaluation the customer did, was wanted to go to a higher resolution camera, which takes a little bit of time to buy and install on the products, not a complicated process but just adds time to the evaluation.

So, we're learning, they're learning, the good news is we passed every piece of the evaluation that they put in front of us, and we're able to accomplish several other I'd call additional pieces to the evaluation during the current quarter. So, I was pretty pleased with the team and what they were able to accomplish. The positive thing is, it's ready for primetime, it's ready to go, it's ready to put into production, it’s just a matter of the customer kind of checking all the boxes and making sure that when they move a high volume product to this new process that there are no flies in the ointment. So, shame on me for kind of putting a 90 day window on it, should have known a little bit better about that, but I can say the team has done an excellent job in getting the evaluations done to date.

Patrick Ho

Great, and final question from me, as you see the Chinese IC market growing indigenously how do you see and maybe this question is more for Mark, how do you see the infrastructure build for Xcerra on a going forward basis as that marketplace also grows?

Dave Tacelli

So, I'll take a piece and then Mark can comment as well, but the infrastructure piece that we're putting in place is really a very, I'd say small group, 10 to 15 of highly skilled system engineers that support customers in their designed processes. Customers like HiSilicon who feed into the Huawei food chain, customers like Spreadtrum, RDA and there's many-many others. So, I don't think it's a huge number of people, I think it's the skill set of the people that are really important, and it's the location that's also critical, like having those people local, in country, speaking the language, being able to talk about how to use our products to best match that the design.

Mark Gallenberger

Yes, and I guess the only thing I would add to that is you know those expenses and those investments, they are being pulled by the customer demand. So, it’s not a situation as we were making these investments and we’re hoping that we build it, and they will come. It’s more really just the opposite where because of our success in China, we’re getting a lot of call from customers to make these investments. And so, as our revenue and as our share continues to grow in that region, we’re going just naturally see some of those investments get directed into that location. And so, I would not expect any changes to the business model whatsoever because as we get more successful. we’re just going to naturally make more of those investments as required.

Operator

And our next question comes from Craig Ellis with B. Riley. Your line is open.

Craig Ellis

Thanks for taking the questions guys and congratulations on the above model gross margin performance in the quarter, nice to see. I will just start off with a follow-up to Patrick’s question on Wafer Level Chip Scale Packaging, so clearly you have done a lot of work with your customers and you’ve got the product in excellent position. So Dave, what do you think the window is for this product to get designed in to catch the production cycle that’s coming in 2017? Is it really the fiscal second quarter or do you have till the fiscal third quarter to hit the capacity needs that your customers would have for next year’s new products?

Dave Tacelli

The difficult part is it depends on what product they want to put on it. How comfortable they are? Is it part of an existing product that they want to migrate over first or they got a fall back solution or is it a brand new product? That’s one thing. The second thing is, our solution also lends itself to being able to handle return material. So, even if they use another process, but they get returns from their customer based on the fall out, which is really one of the key reasons to go to this kind of process. Our system can handle that, those I’ll call rejected material, RMA material where the potentially other solution in the market can.

So, we’re actually handling it from two ways, we may get business handing RMAs to start, we may get business where we’re taking a piece of production that's already done. I don’t think that a customer is going to launch us on a brand new product right away just because of what I’ve seen and learning about how they go through this manufacturing change. What I can say though is part of our plan, we still expect somewhere in the range of 3 million to 5 million in fiscal 2017, related to the sales of I’ll call sales for this process.

Craig Ellis

That’s helpful and clearly the flexibility of the two plays to your favor. Moving on and just following up on some of the comment on the PA market, can you talk a little bit more about, what you’re seeing there, the breath of the improvement? And is it something that will just typically be in response to the post fourth quarter, calendar fourth quarter capacity absorption? Or is there something else that more company specific at play and as we assess what’s happening with part of the supply chain where we’re seeing an unusually broad move to leading edge baseband on the part of Chinese baseband manufactures? Is the China market part of what you’re seeing drive renewed strength in that business?

Dave Tacelli

So, I'll talk about the weakness first and then kind of go to the strength. I think the weakness, if you look at our data over the last five to six quarters. PA business for us has been a pretty healthy piece of business across a wide range of customers and a wide a range of geographies. I think what we saw in the last quarter or so is we had so much business and capital that was deployed, you had to go through a slight absorption phase, number one. Number two, one of our significant customers in that space also purchased a lot of upgrades, which gave them more capability, higher throughputs, so even though we had some revenue in the last couple of quarters on upgrade that actually slow their capital buying. So that was on the, what I'll call slowdown side; on the uptick side, we're starting to see it from multiple customers. We started to see it as exited Q1 late in October. We're starting to see some orders start to roll in already in the quarter. Those orders are for this quarter and next, and we're seeing it in a couple of different geographies. We are seeing it out of China, and we're seeing it out of the United States as well.

Mark Gallenberger

And I would just add to Dave's comment is that, what's company specific is the fact that we're the dominant supplier in the RF PA market because of our dominance whenever you see a broad base recovery in the space, we're going to obviously be the biggest beneficiary of that rise in demand across the board.

Craig Ellis

And that's helpful color guys. And then lastly and maybe this one is a little bit more from our bit. We've seen just looking to last few weeks, a continuation and a reacceleration dollar appreciation versus numerous currencies. Can you refresh our memory on some of the key geographic revenue exposures that the Company has? And as you look at year-over-year trends with the dollar, how are we shaping up and what's baked into guidance for the fiscal second quarter?

Dave Tacelli

Yes, it's a great question. We have seen the euro weaken against the dollar and that's where our largest exposure would be, and so we had significant headwinds backed year and a half ago when we saw the year ago from about 138, down to the 110 or even 105 range, it did recover back up to about 110 to 113, now it's backed down to about 106. So, there will be a bit of a headwind there, but not a significant as what we saw a year and a half ago, that's when we saw approximately $40 million of revenue headwinds for the entire fiscal year or about $10 million per quarter. I clearly don’t see that significant of an impact, but when you see -- when you see it comes down about three or four percentage points, there is some of that headwind. But that's already factored into the guidance that we had given for the quarter.

Operator

Our next question comes from Edwin Mok with Needham & Company. Your line is open.

Edwin Mok

So, first I want to dive into little bit on Diamondx, obviously, you've highlighted FPD driver as a good opportunity. What other end market or products are driving the growth in Diamondx shipment?

Dave Tacelli

Several different markets; one, we are seeing is a microcontroller and the more complex microcontrollers with things like RF front ends, the good news for us is that’s actually increasing the revenue per box because we are adding more instrumentation. The other areas in power management, we've added instruments over the last 12 months to handle high parallelism power management type devices. That’s giving us additional opportunities and a wide range of customers. Sensing applications, we are seeing companies not only by our handling solution which is the primary source of revenue when we go to MEMS or sensors, but also customers and a lot of different geographies when they to high volume or adding our entire test cells. So, they are adding the testers as well. So that’s just a few of the areas of strength. I could point out automotive. I could point out set-top-box, several other areas. But those -- the first three I highlighted are probably the biggest drivers.

Edwin Mok

Actually, that’s helpful. And then maybe move onto China, anywhere you can quantify either this exit that you put in and how do you think that would translate to revenue or and anything you can quantify your position in China and [Indiscernible] where you think you can drive growth there?

Dave Tacelli

[Indiscernible] try to quantify, how these would help. What I can say is, if I look globally at my market share for SOC test, China for us runs four to five points above my global market share today. And a lot of that has to do with the types of applications, the cost of test profile, being involved, having a very, very good partners in Spirox who has helped dramatically for us to drive that business. And now the next phase of growth for us is customers pulling us in, putting direct resources on the ground to support their next phase of growth.

So, as Mark stated earlier we are not putting these resources in and hoping the business comes, these are customers saying we had a lot of new designs, we want to work with you on. We want to be as efficient as we can. And today what we have to do is send people over on a regular basis. What we have decided to do with customers, at customers request is go to a more direct presence, so we can cut the cycle time down and get them as production faster, get them using the equipment in a more efficient way. And I would translate that the intrinsic value as like trends like that into again higher growth or higher market share in China, it's hard to put a number on that though.

Edwin Mok

Lastly just for Mark on your guidance, what are you baking in terms of gross margin or OpEx guidance?

Mark Gallenberger

In terms of gross margin for the guidance is 43%.

Operator

Our next question comes from David Duley with Steelhead. Your line is open.

David Duley

In one of your slides in your presentation, you show us the year-over-year decline in the RF PA testing business; it looks like I don’t know $13 million or $14 million kind of decline on a year-over-year basis. When do you -- I guess the question is, when do you think you get back to the run rate here? I realized that this would typically be a strong quarter. So, I am not expecting you to quarter of the year to jump back to this level on the RF PA business. When do you think we kind of get back to a normal run rate in this business whatever that might be?

Dave Tacelli

I think you will see a significant return in Q2. So think in that January quarter, but I think if you would try to smooth out that run rate, I think you'll see the ramp over the next couple of quarters. So the April and July quarter, you'll start to see us get back to that normal run rate. That's what I expect based on what customers are telling us.

David Duley

And in the presentation that whatever this $13 million or $12 million kind of quarter level that would be in the more stronger seasonal quarters of the year as you just mentioned the April, July quarter?

Dave Tacelli

That is correct Dave.

David Duley

Okay, good. And so there's no reason to think that we wouldn’t be back in this calendar year to that run rate, I guess is what I'm really poking at?

Dave Tacelli

It's hard to say exactly, if I were to give you more normalized numbers, they'd be lower than that. But it's not out of the question that we could start approaching those numbers as we go through this calendar year.

David Duley

And I think this number that you presented in the chart here where it's like 12 million or 13 million on a quarterly basis, that was when you had a couple of big customers kind of buying in large volumes. So, I guess we may not want to set the bar that high, but we certainly expect the business to come back to healthy levels in the April and July quarters I guess it's really what I'm poking around on.

Dave Tacelli

And that is a correct assumption, that's our assumption as well based on the information we have.

David Duley

Okay, on the same chart you show a decline in the EMS revenue on a year-over-year basis, and I think you talked about the segment being weak for a couple of quarters now. Why do you expect it to get better? And I guess first of all, why has it been weak and then why do you expect it to get better?

Dave Tacelli

Yes, if you go back when we acquired the assets from Dover, this business and I'll call this the PCB test business was a little bit out of sync with what we had been used to in the Semi Test business, where Semi Test had drifted down the PCB test stayed strong for like six quarters in a row. And I think it's just related to timing and absorption of capital into that market.

We're starting to see more customers come on board. We're starting to see more activity. It sounds like a broken record in China. We're starting to see even more activity in Europe and North America, and customers starting to add capacity again I've talked about adding capacity, which gives us the confidence that this business is now kind of at an inflexion point to start reversing and going positive again.

The other major piece of the business is our fixture business, and I think for the first couple of years, we made strategic decisions to exit some of the lower margin pieces of the fixture business, and what we're seeing now is kind of a stabilization, it's at a new run rate, but a stabilization and we're expecting that to continue to grow based on investments we've made to grow that business specifically in some other geographies outside the United States.

Mark Gallenberger

And the point that I’ll highlight on the PCB test business is the fact that you know we are the largest provider of flying probe test technology. And there has been a technology trend with the smaller pads and the shrinking of those pads requirement for more accuracy in which you give with one probe versus grid array. So, the flying probe technology has actually been approaching to some extent on the grid array business, and so that we feel confident that that trend is going to continue, which should drive additional growth for us in calendar year '17, for our PCB test business.

David Duley

One final question from me is you gave us some great information about the size of the market and the pieces of the market and how you expect them to grow, and I guess you look at this chart and the part of the market that you address, the non-application processor business is going to show slight growth next year or next calendar year. But your script and your talk about the Diamondx and everything would certainly make me think that Xcerra's plus revenue is going to grow more than this 4% or 5% kind of growth that you’re showing in that overall market, and I was wondering if that’s a fair assumption. Do you think you’re going to gain share in next year? I guess is really the key question.

Dave Tacelli

I guess the point in word I would say is that we’re pretty confident, and we’re basing the confidence level, tie to the number of customers we won, tie to the devices that they're working on, tie to the food chain that they are tied to, also looking at a lot of other things we’re doing, in the China and then outside of China. We also have -- we don’t do a lot of -- we haven't had a lot of discussions about Japan. We've made a lot of positive strides in Japan, starting with a new group of customers, also new market segment like flat panel display. And one of the top providers of flat panel display ICs in Japan is now designing their next generation for Diamondx. So, all that gives us comfort to say, yes, we will, at what rate and the success for those devices will determine the slope of revenue, but pretty confident that we will grow share.

Operator

Our next question comes from Tom Diffely with D.A. Davidson. Your line is open.

Tom Diffely

Dave, maybe just another question on China, obviously, a very strong market for you over the next few years, but as the market moves from an international player market to a domestic market, how does that change your relationships and opportunity?

Dave Tacelli

That’s a really good question. We got to look for every way possible to maximize our position in that market. I think for certain portions of the market having a partner has helped. For other portions of the market, putting direct feet on the ground with our design center, our engineering center is going to help. And I’m sure overtime, if we really want to capitalize on that market, there are going to be other things we may have to look at adding or doing or resources. But the Company is totally focused on accelerating this growth around the world, and China is the huge piece of that. And it’s been a huge piece because as I said early, our market share in China is point better than it is anywhere else in the world.

Tom Diffely

In that, is it with the domestic Chinese players as well as international players there?

Dave Tacelli

Yes, I would say as more with the domestic players in China than the international players. International players, they are making a decision bate and where they are putting product is where they have factories. I’m speaking specifically of the indigenous Chinese companies, the Spreadtrum, RDA, HiSilicon, right and on and on and on.

Tom Diffely

Okay, great. You've also mentioned the RF PA side that you're engaging multiple customers. Curious if you're engaged with more customers than you have been in the past or is it just the typical customers coming back here?

Dave Tacelli

If you look at the RF PA space, you take the top, let’s say 10 players in that space we’re engaged all 10 of them. Occasionally, you see small companies, small startups because we’re now so prevalent in the OSAT world. Those companies, if they're going to an OSAT to get some kind of test on because they have a new PA for a specific device more than likely it's being put on our product. So, we are getting those by default, probably some that we don’t even know.

Tom Diffely

And how many of the larger potential customers are still using an in-house solution?

Dave Tacelli

There are -- excuse me, at least one that I know of. But even that, even though one that is using a large portion of internally built capital has started to deploy some of our products for some of their products in the marketplace.

Tom Diffely

Okay, great. And then finally, Mark, you talked about SG&A being down some of the external contracts pulled in. Is that a onetime benefit or do you expect SG&A to remain at low levels here?

Mark Gallenberger

No. I would expect that really explains the Q1 results while they were little bit better then what we had been guidance. I don’t expect that just to repeat, so I wouldn't be adjusting any models going forward.

Operator

[Operator Instructions] I am showing no further questions. I'd now like to turn the call back to Mark Gallenberger for any further remarks.

Mark Gallenberger

Okay, well, I just want to thank everybody for spending their valuable time with us today. And as a reminder, we will be in New York City next Thursday, December 8th, at the 2016 Midtown CAP Summit Conference. Thank you very much and have a good day. Thank you.

Operator

Ladies and gentlemen, this does conclude the program. You may all disconnect. Everyone have a great day.

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