Q1 2020 Earnings Call
[laughter].
Ladies and gentlemen.
Thank you for standing by and welcome to the Te connectivity first quarter earnings call for fiscal year 2020 .
Hi, all lines are in a listen only mode. Later, we will conduct a question and answer session. As a reminder, today's call is being recorded I would now let's turn the conference over to our host Vice President of Investor Relations.
Please go ahead.
Good morning, and thank you for joining our conference call to discuss Te Connectivitys first quarter 2020 results.
With me today, our Chief Executive Officer, and parents curtain and Chief Financial Officer, He's mess.
During this call will be providing certain forward looking information. We ask you to review the forward looking cautionary statements included in today's press release.
In addition, we will use certain non-GAAP measures in our discussion. This morning, we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items [laughter] press release unrelated tables, along with a slide presentation can be found on the Investor relations portion of our website at <unk> Dot com.
Also within the industrial segment, we have broken out sales for our medical business separately from industrial equipment.
On slide 17, and on our website you will see eight quarters of historical revenue for the medical business and industrial equipment for your reference there is no change to our segment reporting or those numbers.
Due to the large number of participants on the Q when a portion of today's call. We're asking everyone to limit themselves to one question to make sure. We can give everyone an opportunity to ask questions. During the a lot in time.
We're willing to take follow up question, but ask that you rejoin the queue. If you have a second question.
Now, let me talk to turn the call over to parents for opening comments.
Thank you should not one thank you everyone for joining us today to cover our first quarter results as well as our increased outlook for fiscal 2020.
I was I normally do before we get into the slides I do want to frame out some of the key points that he's an I'll bring out during today's call.
First is that things are playing out as we expected when we provided our original guidance to 90 days ago.
Our expectations of markets in fiscal 2020 is essentially unchanged.
Our order patterns are indicating stability.
In the distribution deciding that we've talked about for a few quarters is trending as we expect.
In addition to the things playing out I'm also very pleased with our execution in the first quarter.
And this is against the continued challenging market backdrop.
We delivered revenue above the guidance midpoint and adjusted earnings per share above the high end of guidance driven by strong operational execution across our segments.
Based upon our strong first quarter, we are raising our full year guidance to reflect the outperformance in the first quarter and we're maintaining a view of the second half that is consistent with our guidance that we gave you 90 days ago.
And then finally, there are two things that we've talked about which you and we're focused on within this mount market backdrop that were operating in.
First is we're going to continue to focus on content growth that will enable outperformance versus the underlying end markets that we positioned t. around and we are continuing to benefit from these secular trends across our businesses.
The second key thing is that we continue to improve our earnings power by executing on cost actions and footprint consolidation plans, which we will expect to generate higher margins and earnings from the first half to the second half of our fiscal year.
Yeah.
So with that as a quick summary, let's get into the slides and let me answer to turn to slide three and I'll get into some of the highlights from the first quarter.
Sales of $3.2 billion exceeded the midpoint of our guidance, representing 5% year on year declines on both reported and organic basis driven by market weakness.
While the number of our markets are challenging we continue to demonstrate content growth across our business and this can be whether it's on electric vehicle, where economist features and transportation next generation aircraft and noninvasive medical procedures in our industrial segment were cloud computing and communications.
By segment transportation was down 6% organically as we expected driven by production declines in both the auto market as well as commercial transportation market.
Industrial solutions sold growth, 1% organically, which was ahead of our guidance driven by continued strength and ATM medical and energy.
And our communication segment declined 14% organically as we expected driven by continued inventory de stocking in the distribution channel, which we've been talking about for a few quarters.
As we've highlighted to you supply chain adjustments take a few quarters to play out and this is happening as we expected supported by our orders increasing sequentially and our book to Bill ending the quarter at one or two and I'll cover that when I cover the order slide and a few minutes.
From an earnings perspective, adjusted operating margins were approximately 16% as we expected.
Adjusted earnings per share was $1.21, which exceeded the high end of our guidance driven by higher sales and execution of our cost initiatives.
On a 5% sales decline adjusted earnings per share declined at a similar rate demonstrating strong operating performance and the benefit of pulling levers to reduce costs in an uncertain market environment to preserve earnings resiliency.
From a cash flow perspective, our free cash flow was very strong during the quarter at approximately $245 million.
And approximately we returned approximately 300 million back to our owners through dividends and share repurchases.
I want to be clear that our capital strategy continues to include capital deployment to build out our portfolio inorganically and capitalize on secular trends to drive future growth.
Now, let me turn over and talk about our full year guidance briefly I'll come back towards the end of the call on get into more details about it.
For the full year. This does reflect the upside in our first quarter and a view of the second half that is consistent with our prior view.
We now expect sales at $13.05 billion.
The sales guidance assumes organic declines for the year, 1% to 3%.
On a year on year basis, our sales guidance reflects a decline of approximately $400 million.
Half of this is due to currency exchange rates and the other half is driven by the market weakness and distribution inventory de stocking, which we discussed with you last quarter.
We are raising the low end of our adjusted EPS guidance to get to a midpoint of $5 in 10 cents.
This midpoint continues to include 30 cents of year over year headwinds from currency and tax impact, which is the same as our guide from last quarter.
While we can implement some market environment I am pleased that we continue to execute on leverage which we can control the driver cost reduction and footprint consolidation plans, while continuing to invest in the long term growth and our content opportunities.
As we discussed last quarter, we expect to generate improvements in both margin and earnings per share as we move from the first half to the second half of this fiscal year.
So with that as a backdrop of our first quarter results, let me get into order trends are not as should in turn to slide four.
For the first quarter, our book to Bill was 1.0 too and this exceeded one for the first time since the second quarter of 2019, and reflection improving supply chain as well as stability in certain end markets.
Organic orders were down 2% year over year, but we did see orders growth sequentially signaling stabilization in some of the key markets.
When I talk about orders I want to talk about them on a sequential basis. As this helped lays out the foundation for quarter, two guidance and how we're thinking about the shape of our year.
And transportation orders declined slightly sequentially as we expected driven by North America, and this was offset by growth in China.
In Europe , and transportation orders were essentially flat on a sequential basis.
And as we think about the market. We continue to expect global auto production to be stable at a run rate of approximately 21 million units per quarter through fiscal 2020.
Turning to industrial.
Our orders grew sequentially across all regions and the growth was driven by 80 nm as well as medical.
In the communications segment, we saw strong sequential order growth in both appliances and data devices reinforcing our expectation of growth in the second half.
And as we talked about the distribution channel from an overall basis and certainly the channel impacts Rcs segment, the most as well as our industrial equipment business and industrial.
Our orders declined 10% year over year, as we expected, but more importantly, we saw orders growth grow double digit sequentially and it reinforces our view of the inventory normalization that we expect by the end of quarter to and will drive sequential growth as we get the second half of the year.
So with that being a summary of orders, let's get into the segment performance and I'll start with transportation that begins on slide five.
Transportation sales were down 6% organically year over year as we expected.
Our auto sales were down 3% organically driven by global auto production declines.
Once again, we continue to outperform auto production due to content growth driven by the increase in electric vehicles as well as autonomous features and vehicles.
In our commercial transportation business sales were down 16% organically driven by weakness in North America in Europe , and this was partially offset by growth in China as a result to China six emissions adoption as well as content gains by us.
And sensors.
Our sales were down 11% organically and this was driven by the weakness in the commercial transportation.
And industrial end markets.
And auto our sensors revenue was flat year over year. Despite production declines on it reflects the ramp so the new design wins that we've been talking about for a number of years.
Okay.
Mark in perspective, adjusted operating margins were 17.4% as expected down year over year on lower volumes.
So, let's turn to industrial solutions segment and that start on slide six.
For the segment sales grew 1% organically year over year and this was above our expectations.
Three of our businesses in the segment, so very strong growth, which was partially offset by ongoing weakness in the industrial equipment market.
Our aerospace defense and marine business delivered another very strong quarter, 9% organic growth driven by content growth and new programs in both commercial aerospace as well as defense.
As Sushil mentioned earlier, we are now breaking out our medical business from our industrial equipment business to give you greater visibility to another area of growth within TV.
Just as a reminder, in medical we serve both the interventional and surgical imaging markets.
And the key area of focus from an application perspective, our areas around minimally invasive medical products.
What's great here is we are a partner of choice to Premier Oems and our technology enables customers to build the medical devices at save lives as well as reduce costs.
What's really nice level, we built here is that our engineering capability as well as track record of quality medical expertise and broad technical offering really differentiate GE in this market.
From a performance perspective in the quarter the medical business grew 7% and it was driven by growth entirely by interventional applications and this trend is one that's going to continue to drive growth quite some time for us.
In our energy business had very nice quarter. It was up 12% organically and this growth was being driven by investments in renewable energies as well as infrastructure upgrades in certain parts of the world.
Okay.
In the industrial equipment business, our sales were down 15% organically driven by both weak market conditions and factory automation applications as well as this unit is being impacted by distribution inventory de stocking.
From an earnings perspective, adjusted operating margins were down as we expected due to the cost from footprint optimization activities and as we talked before we continue to remain on track with our multiyear margin expansion plans for the segment.
So with that I'd like to turn to slide seven and let me get into communication solutions.
Data devices sales were down 15% organically in our clients business sales were also down double digit organically and these were in line with our expectations.
We saw demand driven weakness across all regions, along with ongoing knowing inventory de stocking in the distribution channel.
As a reminder, the segment has the highest percentage of our business going through distribution. So they will always have a greater impact from channel dynamics and the other two segments.
As I mentioned earlier, which really nice as we did see sequential growth in orders for both of these businesses, which gives us confidence of growth as we move into the second half of our fiscal year.
Margins in the segment were 12.1% and they were impacted by the volume driven sales decline and we expect to return to mid teen target margins in the second half as distribution channel normalizes.
Be more in line with market conditions.
With that wouldn't turn it over to key to will go through the financials and some more detail and I'll come back and cover guidance.
Thank you Terence and good morning, everyone.
Please turn to slide eight well, we'll provide more details on the Q1 financials.
Adjusted operating income was 502 million with an adjusted operating margin of 15.8%.
GAAP operating income was 471 million and included 24 million of restructuring and other charges and 7 million of acquisition charges.
We continue to expect fiscal 2020 restriction charges to be similar to fiscal 19.
Adjusted EPS was $1.21 down 6% year over year and as Terrence mentioned on a 5% sales decline adjusted EPS declined is similar rate.
Demonstrating our ability to execute on multiple levers to drive earnings performance.
GAAP EPS was seven cents for the quarter, but that included a tax related charge of one dollar five which was related to the impact of the Swiss tax reform that we've talked to you about last summer.
This was a noncash charge.
We also had restructuring acquisition and other charges of nine cents.
The adjusted effective tax rate in Q1 was 18.6% and for the full year. We continue to expect an adjusted effective tax rate of around ATM to 18, the half that's unchanged from our prior view from 90 days ago.
Importantly, we expect our cash tax rate to stay well below our reported DCR for the full year.
Now, let me turn to slide nine.
Sales of 3.2 billion were down 5% year over year on both the reported and organic basis currency exchange rates negatively impacted sales by 43 million versus the prior year.
Adjusted operating margins were 15.8 as expected.
As Terrence mentioned, we expect margin expansion from the first half the second half the year as we see benefits of sales growth in the cost actions, we've initiated over the past year.
I continue to be pleased with the progress we are making in driving improvements to our cost structure. The team is executing well, but we still have work to do on our footprint optimization plan as discussed in the passes the multiyear journey, but I feel that we're on track.
In the quarter cash from continuing operations was 411 million up 25% year on year free cash flow was 243 million and we returned 297 million to shareholders through dividends and share repurchases in the quarter.
Our balance sheet remains strong and we expect cash flow to remain strong.
Which provides us the flexibility to utilize cash to supporting organic growth investments to drive long term sustainable growth, while also allowing us to return capital to shareholders and continued to pursue bolt on acquisitions.
We're seeing the benefits of the levers and our business model to help mitigate the impact some weaker sales on our margin and EPS performance and as you should expect we will continue to balance our structural cost actions with our long term growth investments to ensure sustainability in our business model.
So with that I'll turn back to Terence to cover guidance.
Thanks seats, and let me get into our guidance and I'll get into the second quarter, which is on slide 10.
As I mentioned earlier.
Our markets are playing out as we expected in than we laid out for 90 days ago.
Driven by the order patterns that we see in quarter, one that I covered earlier, we do expect second quarter revenue of 3.1 billion to $3.3 billion and adjusted earnings per share of $1.22 to $1.28 per share.
At the midpoint. This represents declined to reported sales of 6% overall and organic sales of 5% year over year reflects the weakness in the end markets and the ongoing effects of de stocking in the distribution channel.
We do expect gross sequentially from the first quarter. The second in both sales and adjusted earnings per share and that is a view that give us confidence about stabilization.
By segment, we do expect transportation solutions to be down low single digits organically and it's mainly going to be driven by the weakness in the commercial transportation market.
And with mid single digit declines in global auto production.
Industrial solutions is expected to be down low single digits organically with continued market weakness and industrial equipment being partially offset by growth in medical defense and energy.
And then communications, we expect to be down low teens organically driven by continue inventory de stocking in the distribution channel.
So please turn to slide 11, and let me get into the full year guidance.
As I covered earlier, we expect full year sales of $13.05 billion at midpoint and this will represent year over year declines in reported sales of 3% and on an organic base was 2%.
We are continue expect year over year headwinds of approximately 30 cents from currency exchange and tax rates and note that most of the year over year tax headwind will occur in the second half.
Let me get into some more color on our segments.
That are included in our guidance.
In transportation, we expect to the year to be down low single digits organically.
We expect our organic auto sales to be flat to down slightly for the full year.
And as I mentioned earlier, we continue to expect a global auto production run rate of approximately 21 million vehicles per quarter, resulting in mid single digit global production declines for fiscal 2020, which is consistent with our prior you view.
We expect content growth to enable us to continue to outperform declining auto production.
We also expect our commercial transportation business to outperform high single digit market declines in that market due to content growth and share gains this year.
In our industrial segment.
We expect to grow low single digits organically with growth in defense medical and energy, partially offset by declines in industrial equipment.
And finally in communications, we do expect to be down mid single digits organically with both data and devices appliance is being impacted by the continued broad market weakness in inventory de stocking in the distribution channel.
Once we work through the inventory adjustments in the first half we do expect to move back to positive year on year organic growth for the second half the year in our communication segment.
So before I get into questions. Let me just recap the key points that we made today and I'm sure we'll talk more about in Q Annette.
First we have built a strong portfolio with leadership positions in the markets we serve.
This portfolio that we built is performing significantly better than last time, we went through a market downturn.
This is evident in our quarter, one results, where we delivered sales and adjusted earnings per share ahead of guidance and our operating execution enabled us to raise our guidance for fiscal 2020.
The second key point are things are playing out as we expected when we provided our guidance 90 days ago.
Our expectations of markets in fiscal 2020 is essentially unchanged our order patterns are indicating stability and distribution destocking is trending as we expected given us confidence in the sales and earnings grow sequentially in the second half.
The third key point is around content.
And content growth as enabling outperformance, even declining markets and is helping to buffer the market conditions were seeing.
We're going to continue to benefit from secular trends, whether its electric vehicles autonomy next generation aircraft minimally invasive medical applications factory automation or cloud computing.
And these trends are going to be with us for a long comp.
And finally, we are executing on what we can control through our restructuring plans across all of our segments and we're focused on this to ensure we get greater leverage and earnings power when markets return to growth.
So with that I do want to thank our employees around the world for their continued strong execution as well as our continued commitment toward our customers and a future that a safer sustainable productive and connected.
So sushil with that.
Thank you Amy you.
Yes.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad in order to have time for all questions. Each participant is limited to one question. If you would like to ask a follow up question. Please press star one answer that Kim.
Your first question comes from the line of Wamsi Mohan with Bank of America Wamsi. Your line is open.
Thank you Terence nice performance in a pretty tough end market here. So can you maybe talk a little bit in a little bit more detail what your assumptions are for the year.
For the for the various end markets and with some color on on on job geographic.
Elements as well thank you.
Sure. Thanks, Wamsi and yes during the call I used the word stable a lot I also said challenging so if your questions very fair.
There's markets that had been struggling are going to continue to be strong their medical certainly defense energy in UK heard that a lot and they're in our industrial segment.
But when I used the word stable at really says you know some of the supply chain things are working off like we saw in distribution, but there still are markets that are challenging.
Auto production, we expect to be down mid single digit I talked about that around the 21 million units a quarter, where reposition ourselves on content will help get us down to closer to flat on the year versus a negative.
Production environment.
The industrial transportation space, certainly that space is one where north America.
Heavy truck rolled over and we're being impacted by that but we do expect that market to be down high single digits for the year because of also how we're positioned in China you got Euro six submissions. You also have strong content gain we have in that market and thats going to buffer to get us nice separation there.
The other area I would say that I think is going to continue to be challenging and see factory automation and industrial equipment market, that's a market that.
Clearly being impacted by capital spending on the planet.
Our business both has the underlying market is going to continue to be challenged and but we also have some inventory de stocking so how I would frame and similar to how we framed at 90 days ago was we don't see a world where our market there and get a lot better. This year, we see some of these supply chain effects working.
Through through March basically the end of our second quarter, and we're going to get our normal seasonality. So I would say the market for plant I'm glad we have the content opportunities we have to offer some of it and we'll start seeing some some growth in some of the markets later in the year once the channel effects catalog.
From a geographic perspective, so hopefully that helps from a geographic perspective that the wamsi.
But it wasn't interesting environment, and I'm, probably going to talk much more around sequentially.
We saw China was a little bit better.
Coming out of our first quarter sequentially.
Europe was a little bit worse, and North America was was relatively sideways. So its other things that are very much around how do we see things.
From a stability perspective, our book to Bill was above one in all regions. We were 1.2 overall, which as I said on the call was a first time, we were above one gives us a view that things are working through it and getting a little bit more back to parity. So no means we built in backlog which is good.
As we get into the second half the year.
Okay. Thank you want me we at the next question. Please.
Our next question comes from the line of Christopher Glynn with Oppenheimer. Christopher Your line is open.
Thank you good morning.
Just wondering if you're seeing any interesting changes in the cadence around design cycles.
In electric vehicles.
China any you come to mind, various the baseline expectations for the development of that market.
Thanks, Chris and when you look at Whats intriguing is we've always talked about.
Electric vehicles and electric vehicle production is probably going to go from about a little bit over $6 million 6 million units, sorry to over 9 million units.
And this year is going be really one that's driven by Europe , China, we sort of view and when I do electric vehicles. Many of you know I include plug in hybrids and hybrids and that number it's not a pure NPV number tested as the broader thing and really what we're seeing is we're seeing a year, where China will be sideways they had.
Some of the stimulus come off from a production, but Europe is going to be the real growth driver.
And you're seeing it with the CEO to regulations, we aren't seeing any changes in designs. We are still of the opinion. If you take the two mega trends that we have in automotive around electric vehicle as well as autonomy features our customers are prioritizing electric vehicles ahead of autonomy, we're going to benefit from both of those trends, which I think is.
As a unique proposition that we have but the electric vehicle trend is helping drive the content of Fry talked about and we're not seeing any change and design cycle settle if anything they are trying to get their designs Don at quicker rates than traditional combustion engines.
Okay. Thank you Chris Graves next question. Please ask your next question comes from Craig Hettenbach with Morgan Stanley Craig Your line is open.
Yes. Thank you Terry can you provide an update just on the automotive sensor design pipeline in any particular sensor types that you're seeing traction with within automotive.
Yes, so a couple of things Craig. Thanks for the question first of all when you look at our sensors results. You know you see really 75% of our sensors business from a revenue is still sort of point of that heavy vehicle as well as the industrial markets and some of our growth we sold this quarter looks very good.
Similar to what we sold our industrial equipment in commercial transportation in our core connector products.
Our auto sensor revenue was flat, so certainly getting outperformance versus the mid single digit declines were talking about and the ramps are continuing to happen as we thought were being impacted by slower.
Environment, but the traction we've talked to about and the pipeline Weve talk to you about continues to remain intact and right now it's really all about production.
It is impacting you know why we're not seeing more growth other than flatten that market.
Okay. Thank you Craig we have the next question. Please. Your next question comes from then line of David Leiker with Baird. David Your line is open.
Good morning. This is Erin Wilson back on for David.
I will follow up question on me through the end autonomy discussion theres been some talk any industry about architectural changes what are you seen with respect to Ian autonomy trends and how did the architectural changes impact content growth for TV.
Thanks, Aaron and I will build on.
The question I talked about earlier so.
Number one is we feel very good about our content growth opportunities in our content growth opportunities you have to realize all starts where we're just our need to go in the car where does signally singling need to be in the car as well as when you do with autonomy data and data is the one that is really the low.
Late comer, but when you deal with power and go to electric vehicle architecture, you deal with different power within a 12 goal for 48 volt system that we've lived with her or changing too.
So it's what gives us confidence around this 4% to 6% and as I said for US a bigger driver will be electrification. We also will benefit from autonomy as the data network in the car continues to evolve and architecture in a car always evolves our OEM customers are the ones that control.
The architecture is part of how they differentiate and it's something they own and they typically don't what a tier one control.
But when you look at as those three building blocks Bill and what we see we continue to be encouraged to how that architecture gets evolves and where we're positioned globally. If you think about my discussion earlier about electric vehicles, the trends and the number of units made the world are going to be more in Asia and in Europe and we are.
Leading position in those markets and we're working with the largest Oems on those so nothing has changed around how we think about architecture, where do we play and were what's really nice about t., we benefit from both an electric vehicle is more in the funded the brain OEM customers were autonomy us.
Back a little bit and feel very good about the 4% to 6% we've talked about.
Okay. Thank you aren't we have next question. Please. Your next question comes from the line of Jim Suva Citi investment Jim Your line is open.
Thank you very much can you talk a little bit about the trends that happened in your sensor business, maybe on a year over year perspective, it looks like they may have taken a little bit step down compared to September year over year, and then maybe the content automobiles that you're seeing now I believe you typically.
Viewed long term content growth of kind of four to six range kind of where we sitting at kind of for this quarter and outlook. Thank you.
Sure Jim sanction first off on the sensors question I'll, probably repeat what I said opened earlier you know in the quarter for sensors. We did have our growth was reflective about the 75%, we have and industrial equipment and commercial vehicle.
What we saw in those markets are very similar to what we saw in our connector businesses, which really drove the revenue being down double digit and auto we were flat and that shows the content in the ramps that that we're getting.
And then secondly, Jim the separation around the content growth, we saw all in the quarter and as we're guiding for the year is pretty much right on top of the 4% to 6% and Thats as the these continued to get adopted than the other trends second added to the vehicles youre going to see we expect that automotive will be basically flat to slightly down an a minus single.
Digit production environment, and Thats, where our guidance.
Okay. Thank you Jim way the next question please.
Next question comes from the line of Shawn Harrison with Longbow Research, Sean Your line is open.
Hi, Good morning, everyone in my congrats on the solid execution this quarter.
I believe you already gave an idea of kind of the range of where you expect communications margins to kind of exit the year on a run rate. So hoping we could get an update on where you would expect transportation and industrial margins to takes at the fiscal year.
Thanks, Sean This is Heath I appreciate the question.
Okay.
As you mentioned to see US margins, we feel good about our ability to.
Move into the mid mid teens in terms of where we see those margins.
Thats reflective of the while the hard work the team is doing to mitigate pretty significant top line pressures in that business within industrial we'll see moderate.
You know nominal however, you want to say if margin expansion year over year, that's a multiyear journey as we've talked about within the industrial business on the footprint consolidation side. There are out there are you on this particular quarter. We just finished sometimes we do run into situations, where we have to spend some money in it.
Vance of facilities coming offline.
To get those transitioned correctly and did not disrupt our customers. So at any given quarter you can see some movement within those types of activities, but we still expect industrial to see about nominal margin expansion for the year and I think if you look at over a multi year horizon as well as a trajectory into the next couple.
All of years, you'll continue to see that were on plan within transportation, we're dealing with a couple of different pieces on the top line pressures. The Terrence mentioned earlier, particularly on the commercial transportation side, which is a very profitable business for us that being down certainly has a pinch point for us and.
Then, but thats offset with some of the activities.
Within automotive and some of the footprint moves there now these moves as we talked about in prior quarters take a while particularly the ones outside the us to get offline and so you'll see more of those savings leader in this year and more into.
Slide 21 and 22.
But I would expect the transportation to be able to hold roughly where it is maybe a little bit of expansion as we exit the year.
Okay. Thank you Sean Quinn. The next question. Please. Your next question comes from the line of Depot Red haven't with Wells Fargo Securities. Your line is open.
Hey, good morning.
Hey, Dave question is.
Hey question is on automotive momentum, especially in China can you help.
Talk about some of it and maybe give us. Some examples of just generally just talk to the momentum. There is there any fundamental recovery beyond just easy comps in that part of the region and also how should we think about the plant closures in China, just putting a rent you and your outlook if at all just given this corona.
Yes, thanks very much.
A couple of things So let me take the second part of your question first certainly on the krona virus, so very fluid situation China is important.
And we're very much focused on dealing with a real time and making sure our employees are safe.
That being said first thing I want to highlight is that we don't have.
Operations are factories in the Blue on province, our operations are not in that area and we are in the middle of the lunar new year celebration and that we are running.
Lower ships right now as we speak and we're going to continue to run those lower shifts, but the government has extended the lunar new year few days and then some of the industrial parks. We serve they are actually shutting an extra week and we're going to be do everything in compliance with the government. So net net it is an uncertainty that we have but we have those uncertainty in many parts.
Our business every day.
On China momentum.
We did see production.
Improve in the first quarter and like I said some of my comments already China was a little bit better I would say that was around automotive production Europe was a little worse net net getting to a neutral point for the year.
I think the one thing that we're trying to keep our eyes on is not only what is production, but what our end sales in China, and then sales while they.
Or not declining as a work still are not accelerating so we still have a view that China will play out as we've talked before.
But we did see increased momentum before the lunar new year.
Celebration.
Sort of got it's down to hangs in the supply chain with getting better.
But we got to continue to watch it and our guidance is unchanged with where we were 90 days ago.
Okay. Thank you Dave claim. The next question. Please. Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark Your line is open.
Hi, Good morning, I think for taking my question.
I was hoping the company could quantify where inventory in the channel as relative to historical levels on either dollars or days basis, and when you talk about the restocking in distribution are especially on them in a every rephrase I went when we talk about better trend into the distribution channel in the second half of the year or are you, assuming restock or just that your shipments.
Up to what distributors are doing on or sell through basis. Thanks.
No. Thanks, So first of all we assume theres not restock, we assume it's at parity with demand.
So that's a key point and very good question, when we sit there and what we've looked at.
Our major channel partners or get book to bills above one again, we've talked to them about where needed inventory.
Burned through in their December quarter to get back more integrity and as we told you last quarter. We thought the first half impact was around $100 million, we're about halfway through that what's some of the destocking was going to be across the network. So whats nice is we're seeing at work out as we thought in the first quarter it needs to work through the second quarter.
Trend is right on track and we're actually starting to see a pickup in booking sequentially as I said by 10%. So feels like things are moving as expected and the second half is all about getting to parity with demand not restocking.
Okay. Thank you Mark we have next question. Please. Your next question comes from the line of Joe Giordano with Cowen Joe Your line is open.
Hey, guys good morning.
Curious given your given your like.
Broad breadth in auto and who you work with a new you compete against.
If you had any and what is the Borgwarner Delphi transaction do are not due to the competitive environment in that space.
For us it doesn't really does nothing for us when you look at those two mergers should really dealing with more people dealing with the mechanical side of things in our customer certainly in some areas our customers, but they would not be major customers. So for us that's a net net nothing.
Okay. Thank you Joe we have next question. Please. Your next question comes from the line of David Kelley with Geoffrey Davis Your line is helping.
Good morning, Thanks for taking my question you reference continued strength in defense just wondering if you've seen any incremental softness in aerospace and any impact from the Boeing grounding that we should be thinking about their modeling.
Yes, so a couple of things and thanks for the question certainly we do have commercial aerospace business. When we talk about aerospace and defense and marine that business in our industrial segment about half of its commercial aerospace and it covers.
All of the commercial airframe manufacturers, including Boeing so.
The Boeing.
Situation has impact us on that airframe, specifically, it's probably about a half a point headwind to overall TV growth.
That we're absorbing with the diversity of our portfolio, but certainly that market has got weaker.
Due to the production schedule Boeing has laid out.
A key I think for US is thats, a nice content driver that is Florida transitory and my mind comment it will impact us this year, but when Boeing works through its issues and those planes start at delivered we'll get a re acceleration on the other side. So near term headwind that we've absorbed into our guidance by will become a tailwind.
Once they worked through the issue with the epic.
Okay. Thank you David quit the next question. Please. Your next question comes from the line of Sydney Chatterjee with JP Morgan Your line is open.
Hi, Good morning, Thanks for taking my question. This is out but it's on something.
Well. The my question is in the communication segment, the expectations heading into two indeed, Wendy the mean put a pickup in hyperscale spending and higher sell display the capex towards Fiveg as men. So can you walk us through expectations for spending from these two what because how is that tracking and Canada it'd be in upstate and outlook for 2020 in the segment or would all have piece.
Pending ramps to the thank you.
Well for 2020. Thank you for the question. We certainly have seen hard that segment has been impacted by the distribution channel I would say cloud spending we have seen an improvement in our orders on the cloud side and certainly that's across many of the cloud providers and one of the things. Our team has done a nice job is continue to penetrate.
And broaden our cloud customer breadth. So that is an important growth driver for that segment and we continue to improve our positioning there.
Fiveg is a little bit of a different story fiveg is one.
Were in place would like career, you have very dense networks that and laid out and you get more into the use cases that they're developing in the US fiveg is not moving as quick mainly due to the merger between T mobile.
Thats out there has sort of delayed how does fiveg get investment. So I would say we've seen a pause in fiveg investment here in the United States.
We hope that once that mergers done the operators will invest and then we'll benefit from those deployments. We do play in Fiveg, though on the infrastructure side, we don't plan on the handset side, but it is something thats, a good content opportunity as that spending accelerates.
Okay. Thank you Barbara and we have next question. Please ask your next question comes from the line of William Stein with Suntrust. William Your line is open.
Great. Thanks for taking my question, an earlier question addressed automotive networks and one of the things that seemed more prominent this year at CES was.
The emerging changes in network architecture and cars, specifically, you see you consolidation and automotive networks transitioning to more sort of hierarchical one with domain controllers can you comment on how this might affect.
Revenue and margins and maybe mix of cabling versus connectors. Thank you.
No certainly so for personal yes, it's important that when you say cables and connectors and we're not harness maker and so.
As harnesses get rationalize certainly there's people that are in the water side are going to get more.
More impact than us because as you even get into more consolidated DC use onel architectures, the interconnects get absolutely more complicated which play to the strength of which we have so these architectures have continued to evolve.
Whether you go to zone or you go to centralize compute in a car. These are things that how do you continue to get the connection points the sensing points around.
Or things that are part of our 4% to 6%.
This will continue to evolve our OEM customers will be the ones that make those architectural decisions on what you see at CES and what's really nice is how we engage with our OEM customers on our design, we know as those architectural changes are occurring so when we think about 4% to 6% that does assume how the.
Architecture will will evolve and what's really nices.
I remember when we talk about architecture and people just want to talk about SAR, it's really nice at the content trend, whether it be electric vehicle or autonomy compute architecture in the car are things that people are really talking to us about and that's what we do and that's what's driving some of the growth trends for TV.
Okay. Thank you will equate. The next question. Please your next question comes from the line of Matt Sheerin with Stifel. Your line is open.
Yes, Thanks, and good morning regarding your positive commentary turns on the medical market and the nice growth there how much of that is adoption of newer technologies and upgrade cycle. If you will versus share gains and I know or assume most of these products came from the Craig Craig Ghana acquisition from 2016.
So any commentary on how that acquisition has been going for you. Thanks.
I think when you look at the growth.
It's a combination of things that we acquired but also how we continue to bring the capabilities TV and print ahead.
If you look at that that business that business is approaching $800 million and Creganna was a little bit over $300 million. When we bought it and you know we continue to put the capabilities of TD and down that together and we've also had the design center set up where the innovation occurs around interventional devices.
What is what is nice is it is a mix Matt to your question and also whats nice is it's not just therapies that where you sit today that we all benefit from but it's also about the therapies in the future of other areas in the heart, where they want to take interventional procedures, where they still can't take them today.
And Thats the innovation that we continue to work on with the largest customers in the world that are focused on this so it is a combination new programs existing programs and whats nice is with what we built we really have to door open with our customers and bringing our engineers and to work on the next generation therapies that on the largest companies.
Medical device companies on World and working on so it's really nice that's going to drive the high single digit growth that we talked about today and it's been driving.
Okay. Thank you Matt we have the next question. Please gentlemen, your final question comes from the line as Joseph Spak with RBC capital markets. Joseph Your line is open.
Hi, Thanks for taking the question turns just.
Bigger picture yesterday, we heard a company talking about how as automakers move to two new in electric.
Platforms. The connector catalog so to speak is opening up for them because they require these new types of interconnect products and I think you've hinted that the moat could widen as you move towards electrification is new platform. So just really want to better understand how you think that business evolves as platform shift and maybe an example are two of what you're doing to reach.
Pain and enhance their competitive positioning with customers.
Well I think one thing Thats important when you deal with electric vehicles and the penetration. We have is one of the things around electric vehicles, we have to beyond that so you're still add even if we get to the 9 million units. We have this year, it's still a small part of an 84 million market and one of the things both from the relationships that we have.
You also have to get the global scale to continue to bring the cost points of the electric vehicles down and we view we were part of that equation. So how do you get to standardization and while certainly different people are driving different technologies overtime, we still have to get to a vehicle that people can afford.
Without subsidies long term and when I think about what we have done historically through our global customer reach as well as the breadth of technology. We bring I think we're one of the ones that are best positioned to capitalize on that and also making sure we scale. It and that's one of the things that are OEM customers and certainly other people still have some challenges.
How did they scale electric vehicle and we've basically view, we get to help them do that so that's the breadth. We have you see it in some of the global Oems that are calling more platform versus individual model and there is some of the customers that we have very good relationships with an design wins with that we're going to help them solve that.
Problem and then we can also take it like we do with the rest of our connector portfolio into other areas to make sure that we bring productivity to the electric vehicle as well.
I'll get nor margin.
Okay. Thank you Joe.
Looks like there is no further questions. So thank you for participating in the call. This morning, if you have any other questions. Please contact investor relations at Ti. Thank you and thank you everybody.
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