Q2 2024 TE Connectivity Ltd Earnings Call
Okay.
Operator: Everyone, thank you for standing by, and welcome to the TE Connectivity second quarter results call for fiscal year 2024. At this time, all lines are in a listen-only mode.
Speaker Change: Everyone. Thank you for standing by and welcome to the T E connectivity second quarter results call for fiscal year 'twenty 'twenty four.
Speaker Change: At this time all lines are in a listen only mode. Later, we will conduct a question and answer session to ask a question. Please press star one on your telephone keypad.
Operator: Later, we will conduct a question-and-answer session. To ask a question, please press star 1 on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah.
Speaker Change: As a reminder, today's call is being recorded.
Speaker Change: Now I'd like to turn the conference over to our host Vice President of Investor Relations Soochow Shah. Please go ahead.
Sujal Shah: Good morning, and thank you for joining our conference call to discuss TE Connectivity's second quarter 2024 results and outlook for our third quarter. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts.
Sujal Shah: Good morning, and thank you for joining our conference call to discuss T E connectivity second quarter 2024 results and outlook for our third quarter.
Sujal Shah: With me today are Chief Executive Officer, Terrence Curtin and Chief Financial Officer Heath Mitts.
Sujal Shah: During this call, we will provide certain forward-looking information, and we ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GATT measures in our discussion this morning, and we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at te.com.
Sujal Shah: During this call we will provide certain forward looking information and we ask you to review the forward looking cautionary statements included in today's press release in.
Sujal Shah: 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.
Sujal Shah: Press release and related tables, along with the slide presentation can be found on the Investor relations portion of our website at <unk> Dot com.
Sujal Shah: Finally, during the Q&A portion of today's call, due to the number of participants, we are asking everyone to limit themselves to one question, and you may rejoin the queue if you have a second question. Now, I turn the call over to Terrence for opening comments.
Sujal Shah: Finally during the Q&A portion of today's call due to the number of participants we are asking everyone to limit themselves to one question and you may rejoin the queue. If you have a second question.
Tariffs: Now, let me turn the call over to tariffs for the ecommerce.
Terrence R. Curtin: Thanks, Sujal, and we appreciate everyone joining us today. As I normally do before I get into the slides, I do want to take a moment to provide some performance highlights along with what we're seeing versus our call 90 days ago. We continue to be in a dynamic global economic environment. Against this backdrop, the performance of our markets has been largely consistent with our expectations, resulting in second quarter sales being in line with our guidance with sequential growth in all three of our segments.
Tariffs: Thanks, Joe and we appreciate everyone joining us today.
Tariffs: That's what I'd like to normally do before I get in the slides I do want to take a moment to provide some performance highlights along with what we're seeing versus our call 90 days ago.
Tariffs: We continue to be in a dynamic global economic environment.
Tariffs: Against this backdrop the performance of our markets are largely consistent with our expectations, resulting in second quarter sales being in line with our guidance with sequential growth in all three of our segments.
Terrence R. Curtin: In addition, we experienced improved order levels with sequential growth in orders in all of our segments, and I'll provide you more details on orders later in the call. Our results reflect execution against key items we committed to achieving in fiscal 2024.
In addition, we experienced improved order levels with sequential growth in <unk>.
Tariffs: Orders in all of our segments and I'll provide you more details on orders later in the call.
Tariffs: Our results reflect execution against key items, we committed to coming into fiscal 2024.
Terrence R. Curtin: We highlighted to you our focus on margin performance and the benefits of non-volume-related operational levers to drive margin expansion. Our progress on these is evident in our results, as we delivered 13% year-over-year adjusted earnings per share growth, which was driven by an adjusted operating margin expansion of 250 basis points. Adjusted operating margins were up in each segment versus the prior year, and we expect to continue to deliver strong margin performance through the remainder of this year.
Tariffs: We highlighted to you our focus on margin performance and the benefits from non volume related operational levers to drive margin expansion.
Tariffs: Our progress on these are evident in our results as we delivered 13% year over year adjusted earnings per share growth, which was driven by adjusted operating margin expansion of 250 basis points.
Tariffs: Adjusted operating margins were up in each segment versus the prior year and we expect to continue to deliver strong margin performance through the remainder of this year.
Terrence R. Curtin: With the improvements that we've made, we expect to deliver double-digit earnings growth this fiscal year, driven by a couple hundred basis points of adjusted operating margin expansion, even in this slow-growth environment. The high quality of our earnings continues to be reflected in our strong cash generation model. Through the first half of this year, we delivered record-free cash flow of $1.1 billion, which is up over 30% versus the prior year. And we expect to deliver another year of free cash flow conversion above 100%. With strong cash generation, we have deployed over $1.5 billion so far this year, with $1.2 billion being returned to shareholders, and approximately $350 million being deployed last quarter for the Schaffner acquisition.
With the improvements that we've made we expect to deliver double digit earnings growth. This fiscal year driven by a couple of hundred basis points of adjusted operating margin expansion, even in this slow growth environment.
Tariffs: The high quality of our earnings continues to be reflected in our strong cash generation model.
Tariffs: Through the first half of this year, we delivered record free cash flow of $1 1 billion.
Tariffs: Which is up over 30% versus the prior year.
Tariffs: And we expect to deliver another year of free cash flow conversion above 100%.
Tariffs: With the strong cash generation, we deployed over $1 $5 billion. So far this year.
Tariffs: With $1 2 billion being returned to shareholders and approximately $350 million being deployed last quarter for the shaft our acquisition that'll be in our industrial segment.
Terrence R. Curtin: That will be in our industrial segment. Our cash generation model continues to give us both confidence and opportunities to return capital to shareholders while continuing to support bolt-on M&A activity. So, let me now share what we're seeing in our markets since our call 90 days ago.
Tariffs: Our cash.
Tariffs: Cash generation model continues to give us both confidence and opportunities to return capital to shareholders, while continuing to support bolt on M&A activities.
Tariffs: Yeah.
Speaker Change: So let me now share what we're seeing in our market since our call 90 days ago.
Terrence R. Curtin: Our view of the transportation and markets remains unchanged from our prior view, with global auto production still expected to grow slightly this year, while we continue to expect weakness in commercial transportation and markets, both in Europe and in the Americas. In our communications segment, we continue to see momentum in high-speed cloud and AI applications and are seeing the impacts of the stockpile coming to an end in both of our businesses in this segment. Because of these trends, we expect the communications segment to return to year-over-year growth in our third quarter.
Speaker Change: A review of the transportation end markets remains unchanged from our prior view with global auto production still expected to grow slightly this year, while we continue to expect weakness in commercial transportation end markets. Both in Europe, and then the Americas.
Speaker Change: In our communications segment, we continue to see momentum in high speed cloud and AI applications and are seeing the impacts of the destocking coming to the end and both of our businesses in this segment.
Speaker Change: Excuse me because of these trends, we expect the communications segment to return to year over year growth in our third quarter.
Terrence R. Curtin: In our industrial solutions segment, the picture is the same that we've been saying for the last six months. We see three out of our four businesses continue to have growth momentum. However, our industrial equipment business continues to be impacted by destocking.
Speaker Change: In our industrial solutions segment. The picture is the same that we've been saying for the last six months.
Speaker Change: We see three out of our four businesses continue to have growth momentum.
Speaker Change: However, our industrial equipment business continues to be impacted by Destocking.
Terrence R. Curtin: As we think about the industrial equipment business, we are seeing early indications pointing to a potential normalization later this fiscal year. And then one other thing I'd like to highlight is that we have seen the dollar strengthen against other currencies since our last earnings call, and this is resulting in an increased headwind to growth and earnings in our second quarter, and this will impact the third quarter as well.
Speaker Change: As we think about the industrial equipment business, we are seeing early indications pointing to a potential normalization later this fiscal year.
Speaker Change: And then one other thing that I'd like to highlight is that we have seen the dollar strengthened against other currencies since our last earnings call.
Speaker Change: And this is resulting in an increased headwind to growth and earnings and our second quarter and this will impact the third quarter as well.
Terrence R. Curtin: And lastly, I want to reiterate that our long-term value creation model remains unchanged and is centered around three pillars. First, our portfolio is strategically positioned around secular growth trends, including the adoption of renewable energy, applications for cloud and artificial intelligence, and growth in global hybrid and electric vehicle production. And when you think about the vehicle, we not only benefit from the electrification of the powertrain, but we also benefit from the electronification trends that include increased software-defined vehicle, as well as increased safety and comfort features.
Speaker Change: And lastly, I want to reiterate that our long term value creation model remains unchanged and is centered around three pillars.
Speaker Change: First our portfolio is strategically positioned around secular growth trends, including the adoption of renewable energy applications for cloud and artificial intelligence and growth in global hybrid and electric vehicle production.
Speaker Change: And when you think about the vehicle, we not only benefit from the electrification of the powertrain, but we also benefit from the electronic vacation trends that include increased software defined vehicle as well as increased safety and comfort features.
Terrence R. Curtin: The second pillar of value creation is that we have operational levers to drive strong margin performance through an economic cycle. And our third lever is that we've established a strong cash generation model to return capital to shareholders while investing in bolt-on M&A opportunities. Now, with that as an overview, let's get into the presentation.
Speaker Change: The second pillar of value creation is that we have operational levers to drive strong margin performance through an economic cycle.
Speaker Change: And our third lever is that we've established a strong cash generation model to return capital to shareholders, while investing in bolt on M&A opportunities.
Speaker Change: Now with that as an overview, let's get into the presentation I'd ask you to turn to slide three.
Terrence R. Curtin: I'd ask you to turn to slide three, and I'll discuss some of the highlights for the second quarter as well as our outlook for the third quarter, and then I'll hand it off to Heath, who will get into more details in his section. Our second quarter sales were $3.97 billion, which was in line with our guidance and up 3% organically on a sequential basis, with each segment delivering sales in line with our expectations.
Speaker Change: And I'll discuss some of the highlights for the second quarter as well as our outlook for the third quarter, and then I'll hand, it off to Heath will get into more details in his section.
Heath Mitts: Our second quarter sales were $3 97 billion.
Heath Mitts: Which was in line with our guidance and up 3% organically on a sequential basis with each segment delivering sales in line with our expectations.
Terrence R. Curtin: Adjusted earnings per share was ahead of our guidance at $1.86, which was up 13% versus the prior year. Adjusted operating margins were 18.5%, and this was up 250 basis points year over year driven by strong operational performance. We are expecting third-quarter sales of approximately $4 billion, reflecting organic growth on both a sequential and year-over-year basis. The year-over-year growth is expected to be driven by the transportation and communications segments, partially offset by the effect of a stronger dollar. Adjusted earnings per share is expected to be approximately $1.85, and this is up 5% year over year, and it does include a 15 cent headwind from both tax and currency exchange rates.
Heath Mitts: Adjusted earnings per share was ahead of our guidance at $1 86, which was up 13% versus the prior year.
Adjusted operating margins were 18, 5%.
And this was up 250 basis points year over year, driven by strong operational performance.
Heath Mitts: We are expecting third quarter sales of approximately $4 billion, reflecting organic growth on both a sequential and year over year basis.
Heath Mitts: The year over year growth is expected to be driven by transportation and communications segments, partially offset by the effect of a stronger dollar.
Heath Mitts: Sure.
Heath Mitts: Adjusted earnings per share is expected to be approximately $1 85.
Heath Mitts: And this was up 5% year over year and it does include a <unk> <unk> headwind from both tax and currency exchange rates.
Terrence R. Curtin: And just moving away from the financials for one second, we did just issue our Connecting Our World Report, which details our commitments around corporate responsibility. There are a number of initiatives that we're driving internally, and our goals are in line with both our purpose as well as our expectations from our customers. You know, some of the key highlights that I want to bring up to you are that we did achieve a 70% plus reduction in both scope one and scope two greenhouse gas emissions over the past three years. And we also set our Scope 3 reduction targets, and these have been validated by the Science-Based Targets Initiative.
Speaker Change: And just moving away from the financials for one second.
Speaker Change: We did just issue are connecting our world report, which details our commitments around corporate responsibility.
Speaker Change: There are a number of initiatives that we're driving internally and our goals are in line with both our purpose as well as our expectations from our customers.
Speaker Change: Yes, some of the key highlights I want to bring up to you is that we did achieve a 70% plus reduction in both scope, one and scope two greenhouse gas emissions over the past three years.
Speaker Change: And we also said our scope three reduction targets and these have been validated by the science based targets initiative.
Speaker Change: Yes.
Terrence R. Curtin: So with that as a quick overview of the quarter and our outlook, let me get into more details on orders, and that starts on slide four. As I highlighted earlier, we are seeing improved order levels. Our orders were up 6% sequentially to $4 billion, with sequential growth in each segment. And really, this is the first time in a year and a half that orders have been above $4 billion, and our book-to-bill is above one. And we do believe that order patterns are indicating stability in most of our end markets we serve, as well as the consistent service levels that we're providing to our customers. Now, getting into orders by segment.
Speaker Change: So with that as a quick overview of the quarter and our outlook, let me get into more details on orders and that starts on slide four.
Speaker Change: As I highlighted earlier, we are seeing improved order levels, our orders were up 6% sequentially to $4 billion.
Speaker Change: With sequential growth in each segment.
Speaker Change: And really this was the first time in a year and a half that orders have been above $4 billion and our book to Bill is above one.
Speaker Change: And we do believe that order patterns are indicating stability in most of our end markets we serve as.
Speaker Change: As well as the consistent service levels that we're providing to our customers.
Speaker Change: Now getting into orders by segment.
Terrence R. Curtin: Transportation orders grew sequentially despite auto production declining sequentially to a little bit below 21 million units in the second quarter. We saw production in China that offsets incremental weakness in North America. And going forward, we expect global auto production to be roughly 21 million units per quarter as we move through the second half of this fiscal year. In our industrial segment, we saw 7% growth in order sequentially, and this reflects the continued momentum that is offsetting ongoing destocking in the industrial equipment and market.
Speaker Change: Transportation orders grew sequentially, despite auto production declining sequentially to a little bit below 21 million units from the second quarter.
Speaker Change: We saw production in China that offset weak incremental weakness in North America.
And going forward, we expect global auto production to be roughly 21 million units per quarter as we move through the second half of this fiscal year.
Speaker Change: In our industrial segment, we saw 7% growth in orders sequentially.
Speaker Change: And this reflects the continued momentum that is offsetting ongoing destocking in the industrial equipment end markets.
Terrence R. Curtin: And in our communications segment, our orders grew 30% sequentially, reflecting Design with Momentum and Data Center Programs, and about half of the increase is driven by AI orders for delivery in 2025 in our data device business. Now, with that as an overview of orders.
Speaker Change: And in our communications segment, our orders grew 30% sequentially.
Speaker Change: Reflecting design win momentum in data center programs and about half of the increase is driven by AI orders for delivery in 2025, and our data device businesses.
Speaker Change: Okay.
Now with that overview of orders.
Terrence R. Curtin: Let me now discuss year-over-year segment results, and I'd ask you to turn to slide five, and I'll start with transportation. In transportation, our auto business grew 1% organically, with double-digit growth in China offset by declines in North America and Europe. While global auto production levels are consistent with our prior view, we are seeing different dynamics by region. Compared to 90 days ago, our expectations of vehicle production have increased in China with a continued strong outlook for EV adoption and expansion in our content per vehicle.
Speaker Change: Let me now discuss year over year segment results and I'd ask you to turn to slide five and I'll start with transportation.
Speaker Change: In transportation, our auto business grew 1% organically with double digit growth in China offset by declines in North America and Europe.
Speaker Change: While global auto production levels are consistent with our prior view, we are seeing different dynamics by region.
Speaker Change: Versus 90 days ago, our expectation to vehicle production has increased in China with a continued strong outlook for EV adoption and expansion in our content per vehicle.
Terrence R. Curtin: In North American and Europe, OEMs are adapting their mix of production to better align with consumer preferences. Factoring in these dynamics, on a global basis, EV and hybrid production are both expected to increase by 24% this fiscal year and will continue to see declines in internal combustion engine production. The increase in electrified powertrain autos will be driven by increased production in Asia, which is our largest sales region and where our auto team has a strong position.
Speaker Change: In North America, and Europe Oems are adapting their mix of production to better align with consumer preferences.
Speaker Change: Factoring in these dynamics on a global basis, EV and hybrid hybrid production are both expected to increase by 24%. This fiscal year and we will continue to see declines in internal combustion engine production.
Speaker Change: The increase in the electrified powertrain autos will be driven by increased production in Asia, which is our largest sales region and where our auto team has a strong position.
Terrence R. Curtin: And just to give you a reminder, our content per vehicle is one and a half times higher on a hybrid and two times higher on a full electric EV versus an internal combustion platform. We have established a global leadership position across all vehicle platforms at all major OEMs and startups and continue to expect long-term content growth above production of 4 to 6 points. Now turning to the commercial transportation business, we saw a 4% organic decline, and this was driven by the heavy truck market declines in North America as well as in Europe. This was partially offset by a return to growth in China.
Speaker Change: And just to give you a reminder, our.
Speaker Change: Our content per vehicle is one five times higher on a hybrid and two times higher on a full electric EV versus internal combustion platforms.
Speaker Change: We have established a global leadership position across all vehicle platforms at all major Oems and startups and continue to expect long term content growth above production of 4% to six points.
Speaker Change: Now turning to the commercial transportation business.
Speaker Change: We saw a 4% organic decline and this was driven by the heavy truck market declines in North America as well as in Europe.
Speaker Change: This was partially offset by a return to growth in China.
Terrence R. Curtin: And we expect this business to be down sequentially in the third quarter and expect these markets that we serve here to be down approximately mid-single digits this year due to market declines in the West. In our sensors business, the sales decline continued to be driven by market weakness and industrial applications, as well as portfolio optimization that we've talked to you about, where we've continued to organically exit lower margin and lower growth products.
Speaker Change: And we expect this business to be down sequentially in the third quarter and expect these markets that we serve here to be down approximately mid single digits. This year due to market declines in the west.
Speaker Change: In our sensors business. The sales decline continued to be driven by market weakness in industrial applications as well as portfolio optimization that we've talked to you about where we've continued to organically exit lower margin and lower growth products.
Terrence R. Curtin: For the transportation segment, adjusted operating margins were 20.4%, which is slightly above our target levels, and we expect to run at our target margins for the rest of this year. We are continuing to increase our investment in our auto business to support engineering requirements for next-generation vehicles, whether they're around the electrification of the powertrain, high-speed Ethernet for data applications in a vehicle, or miniaturized power and signal products to leverage next-generation architectural shifts.
Speaker Change: For the transportation segment, adjusted operating margins were 24%, which is slightly above our target levels and we expect to run at our target margins for the rest of this year.
Speaker Change: We are.
Speaker Change: <unk> to invest in our investment to increase our investment in our auto business to support engineering requirements for next generation vehicles and whether they are around the electrification of the powertrain high speed Ethernet for data applications in the vehicle or miniaturized power and signal products to leverage next generation architectural shifts.
Terrence R. Curtin: Now let's get into the industrial solutions segment, and that's on slide six. In this segment, we continue to see the trends that we've discussed for the past few quarters. And while sales were down 6% organically at the segment level in the second quarter, we saw growth in three of our four businesses, and we expect continued growth in our AD&M medical and energy businesses. In the second quarter, our AD&M sales were up 17% organically, driven by growth in both the commercial airspace and defense markets.
Speaker Change: Now, let's get into the industrial solutions segment and that's on slide six.
Speaker Change: In this segment, we continue to see the trends that we've discussed for the past few quarters.
Speaker Change: And while sales were down 6% organically at the segment level in the second quarter, we saw growth in three of our four businesses and we expect continued growth in our <unk> medical and energy businesses.
Speaker Change: In the second quarter, our <unk> sales were up 17% organically driven by growth in both the commercial aerospace and defense markets.
Terrence R. Curtin: In medical, sales in the quarter were up 6% organically driven by ongoing increases in interventional procedures. And in energy, we saw organic growth in the Americas, offset by weakness in Europe, with continued strong momentum in renewable applications.
Speaker Change: Our medical sales in the quarter were up 6% organically driven by ongoing increases in interventional procedures.
Speaker Change: And in energy, we saw organic growth driven in the Americas offset by weakness in Europe with continued strong momentum in renewable applications.
Terrence R. Curtin: And then finally, in our industrial equipment business, where we're continuing to see overstocking, our sales were down 28% organically. While we're seeing some stabilization and order patterns pointing to normalization later this year, we still expect to see year-over-year declines in this business for the next couple of quarters as our customers adjust their inventory. On a margin perspective, the industrial segment achieved 15%, which was in line with our expectations given current volume levels in business. We continue to expect segment margins to run into the mid-teens until the industrial equipment business returns to growth. Now, I'd ask you to turn to slide seven and let me get into the communication segment.
Speaker Change: And then finally in our industrial equipment business, where we're continuing to see the destocking, our sales were down 28% organically.
Speaker Change: While we're seeing some stabilization in order patterns pointing to normalization later this year, we still expect to see year over year declines in this business for the next couple of quarters as our customers adjust their inventory levels.
Speaker Change: From a margin perspective, the industrial segment.
Speaker Change: <unk>, 15%, which was in line with our expectations given current volume levels and business mix.
Speaker Change: We continue to expect segment margins to run into the mid teens until the industrial equipment business returns to growth.
Speaker Change: Now I'd ask you to turn to slide seven and let me get into the communications segment.
Terrence R. Curtin: In communications, I am excited about a return to year-over-year growth in our third quarter now that the stocking trends are largely behind us, and momentum continues to build a next-gen cloud application. Going forward, we now expect to deliver higher growth from artificial intelligence applications, where we're increasing our investment to support future growth opportunities. Based upon our design win momentum, we expect to double our AI revenues from $200 million this year to $400 million next year and expect to build on this momentum to achieve annual revenues of roughly a billion dollars in the following few years.
Speaker Change: In communications I am excited about our return to year over year growth in our third quarter now that the stocking trends are largely behind us and momentum continues to build a next gen cloud applications.
Speaker Change: Going forward, we now expect to deliver higher growth from artificial intelligence applications, where we're increasing our investment to support future growth opportunities.
Based upon our design win momentum, we expect to double our AI revenues from $200 million. This year to $400 million next year and expect to build on this momentum to achieve annual revenues of roughly $1 billion in the following few years.
Terrence R. Curtin: Just to remind you where we play, we are focused on providing high speed, low latency connectivity to meet the needs of an artificial intelligence workload, and we generate 50% more content in an accelerated compute platform versus traditional compute server. Also, we're working closely with cloud customers as well as leading semiconductor companies with reference to designs that call out TE connectivity solutions. The segment had adjusted operating margins of 17.3%, and this was up 100 basis points over last year despite the decline in sales in the second quarter.
Speaker Change: Just to remind you where we play we are focused on providing high speed low latency connectivity to meet the needs of an artificial intelligence workloads.
Speaker Change: And we generate 50% more content and accelerated compute platform versus traditional compute servers.
Speaker Change: Also we are working closely with cloud customers as well as leading semiconductor companies with reference designs I call out TV connectivity solutions.
Speaker Change: This segment had adjusted operating margins of 17, 3% and this was up 100 basis points over last year. Despite the decline in sales in the second quarter.
Speaker Change: Our teams are executing extremely well and we continue to expect to maintain high teens margin in this segment as we move through the year, while supporting investments for growth.
Terrence R. Curtin: Our teams are executing extremely well, and we continue to expect to maintain high team margin in this segment as we move through the year while supporting investments for growth. As volumes increase over time, we expect to achieve our long-term margin target for this segment of approximately 20%. Now, with that as a segment overview, let me hand it over to Heath, who will get into more details on the financials and our expectations going forward.
Speaker Change: As volumes increase over time, we expect to achieve our long term margin target for this segment of approximately 20%.
Speaker Change: Now with that as a segment overview, let me hand, it over Heath will get into more details on the financials and our expectations going forward.
Heath Mitts: Thank you, Terrence, and good morning, everyone. Please turn to slide 8, where I will provide more details on the second quarter financials. Adjusted operating income was $735 million with an adjusted operating margin of 18.5%. Gap operating income was $692 million and included $3 million of acquisition-related charges and $40 million of restructuring and other charges. For the full year, our expectations are unchanged, and we continue to expect fiscal 2024 restructuring charges to be approximately $100 million.
Heath Mitts: Thank you Darren and good morning, everyone.
Heath Mitts: Please turn to slide eight where I will provide more details on our second quarter financials.
Heath Mitts: Adjusted operating income was $735 million with an adjusted operating margin of 18, 5%.
Heath Mitts: GAAP operating income was $692 million and included $3 million of acquisition related charges and $40 million of restructuring and other charges.
Heath Mitts: For the full year, our expectations are unchanged and we continue to expect fiscal 2020 for restructuring charges to be approximately $100 million.
Heath Mitts: Adjusted EPS was $1.86, and Gap EPS was $1.75, and included restructuring and acquisition and other charges of $0.11. The adjusted effective tax rate was 21% in Q2. And for the third quarter and the remainder of the year, we expect our adjusted effective tax rate to be approximately 22%. Importantly, as always, we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year. Now, if you turn to slide nine.
Heath Mitts: Adjusted EPS was $1 86, and GAAP EPS was $1 75, and included restructuring and acquisition and other charges of 11.
Heath Mitts: The adjusted effective tax rate was 21% in Q2.
Heath Mitts: And for the third quarter and the remainder of the year, we expect our adjusted effective tax rate to be approximately 22%.
Heath Mitts: Importantly, as always we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year.
Heath Mitts: Now if you turn to slide nine.
Heath Mitts: Sales of $3.97 billion were down 5% on a reported basis and down 3% on an organic basis year over year, which is as expected. However, sequentially, we saw 3% organic growth in sales. Adjusted operating margins were 18.5% in the second quarter, expanding 250 basis points year-over-year. This was driven by margin expansion in all three segments on a year-over-year basis. We have been focused on executing on a number of operational levers this year that are not volume-related, and this has enabled strong margin expansion despite the low-growth environment that we are dealing with. Adjusted earnings per share were $1.86, up 13% year-over-year, driven by strong margin expansion. Turning to cash flow, cash from operations was $710 million, and free cash flow was $543 million in the second quarter.
Heath Mitts: Sales of $3 97 billion were down 5% on a reported basis and down 3% on an organic basis year over year, which is as expected.
Heath Mitts: Sequentially, we saw 3% organic growth of sales.
Heath Mitts: Adjusted operating margins were 18, 5% in the second quarter, expanding 250 basis points year over year and this was driven by margin expansion in all three segments on a year over year basis, we have been focused on executing on a number of operational levers. This year that are not volume related.
Heath Mitts: And this has enabled strong margin expansion, despite the low growth environment that we're dealing with.
Heath Mitts: Adjusted earnings per share were $1 86 up 13% year over year, driven by the strong margin expansion.
Heath Mitts: Turning to cash flow cash from operations was $710 million in free cash flow was $543 million in the second quarter.
Heath Mitts: Through the first half of our fiscal year, free cash flow was $1.1 billion, which is up 32% year over year. Our long-term capital strategy remains unchanged, which is to return approximately two-thirds of free cash flow to shareholders and use one-third for bolt-on acquisitions over time. As mentioned earlier, we expect our free cash flow conversion to exceed 100% again this year. Now, before I turn it over to questions... Let me reinforce some of the key points that we are excited about and share how we are thinking about our performance in the current macro environment.
Heath Mitts: Through the first half of our fiscal year free cash flow was $1 1 billion, which is up 32% year over year.
Heath Mitts: Our long term capital strategy remains unchanged, which is to return approximately two thirds of free cash flow to shareholders and use one third for bolt on acquisitions over time.
Heath Mitts: As mentioned earlier, we expect our free cash flow conversion to exceed 100% again this year.
Heath Mitts: Now before I turn it over to questions. Let me reinforce some of the key points that were excited about and share how we're thinking about our performance in the current macro environment.
Heath Mitts: We are delivering margin expansion and EPS growth driven by strong execution on operational levers at the same time, we are investing to support future growth in markets with strong secular drivers, including next generation automotive renewables in the artificial intelligence applications that Terrence just discussed.
Heath Mitts: We are delivering margin expansion and EPS growth, driven by strong execution and operational levers. At the same time, we are investing to support future growth in markets with strong secular drivers, including next-generation automotive, renewables, and the artificial intelligence applications that Terrence just discussed. We are seeing an improvement in order patterns and sequential order growth in all of our segments, indicating stability in most of the markets we serve and giving us confidence in future growth.
Heath Mitts: We are seeing an improvement in order patterns and sequential orders growth in all of our segments, indicating stability in most of the markets, we serve and giving us confidence in future growth.
Heath Mitts: Our communications segment is returning to growth in the third quarter, which reflects both the normalization of supply chains as well as our momentum in high-speed data center applications. And finally, we are demonstrating our strong cash generation model with a balanced deployment of capital. So we remain very excited about the opportunities we have ahead of us to drive value creation for all stakeholders. With that, let's now open this call to questions.
Our communications segment is returning to growth in the third quarter, which reflects both the normalization of supply chains as well as our momentum in high speed data center applications.
Heath Mitts: And finally, we are demonstrating our strong cash generation model was a balanced deployment of capital.
Heath Mitts: So we remain very excited about the opportunities we have.
Heath Mitts: Ahead of us to drive value creation for all stakeholders.
Heath Mitts: With that let's now open this call up to questions. Dennis can you. Please give the instructions for the Q&A session.
Operator: Dennis, can you please give the instructions for the Q&A session? Yes.
Operator: At this time, I would like to remind everyone to ask a question. Press star 1 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, press star 1 to re-enter.
Dennis: Yes at this time I would like to remind everyone to ask a question press star one on your telephone keypad.
Dennis: In order to have time for all questions. Each participant is limited to one question. If you would like to ask a follow on question Star one to re enter to return to the queue.
Operator: Yes, at this time, I would like to remind everyone to ask a question by pressing star 1 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, press star 1 to re-enter to return to the keypad. Your first question comes from the line of Mark Delaney with Goldman Sachs.
Your first question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.
Mark Delaney: Good morning, and thanks very much for taking my question I'm, hoping to better understand the more constructive comments <unk> made on auto, especially as EV industry growth has decelerated in several traditional western auto Oems have announced they're planning to focus more on plug in hybrids at least in the near to intermediate term and shift towards that as more slowly than they previously targeted to video.
Terrence R. Curtin: No, thanks, Mark. And I appreciate the question. And, you know, one of the things that's important when we do this is I always have to remind everybody of our great global position, and we got to keep that in front of us. First off on auto production, what's interesting, even though there have been a lot of moves by various players around the world, if we went back to you in October and said, where do we think auto production would be?
Mark Delaney: Better contextualize, what underpin tes more positive view on auto and to what extent can keep growing or might it be impacted by certain customers needed to take down inventory as they adjust their product mix plants.
Thanks, Mark and I appreciate the question.
I know one of the things that's important when we do this is I always have to remind everybody our great global position and we got to keep that.
Mark Delaney: In front of us so.
Mark Delaney: First of all on auto production.
Mark Delaney: What's interesting, even though theres been a lot of moves by various players around the world. If we went back to you back in October and said, where do we think auto production would be.
Terrence R. Curtin: We still think it's slightly up this year. There are going to be around 86 million vehicles made on the planet this year. And we have seen, you know, increases in Asian production, both in China as well as outside of China, because we do have a strong position in Japan and Korea as well, that have offset some of the weakness that you've seen here in North America, as you have some of these consumer preference shifts.
Mark Delaney: We still think it's slightly up this year, it's going to be around 86 million vehicles made on the planet This year.
Mark Delaney: And we have seen increases in Asia production, both in China as well as outside of China, because we do have a strong position in Japan, and Korea as well that have offset some of the weakness that you've seen here in North America. As you have some of these consumer preference shift.
Terrence R. Curtin: The other thing is when you think about what we've always called the e-mobility category, which includes hybrids, plug-in hybrids, and EVs, because we get very nice content on all of them. You know, we expect it to be about 25 million units a year still. And, you know, versus where we were earlier in the year, that's probably only off about 300,000 units when you look at it on a global basis.
Mark Delaney: The other thing that is when you think about what we've always called the E mobility category, which includes hybrids plug in hybrids and Evs, because we get very nice content uplift on all of them.
Mark Delaney: We expect it to be about 25 million units of shares still and versus where we were earlier in the year and thats, probably only off about 300000 units. When you look at it on a global basis. So net net on a global basis EV production and adoption is still happening.
Terrence R. Curtin: So, net net, on a global basis, EV production and adoption is still happening, and EVs and plug-in hybrids and hybrids are about 30% of all the vehicles on the planet today that are coming out. And I said on the call that both categories are going to grow about 24% this year. Now, by region, you know, the trends in China are full steam ahead. EV production, EV adoption across all types, whether it's plug-in hybrids, you know, hybrids. And we have a very strong position there. We've talked to you about what we do with the locals. We have a strong position with the multinationals.
And then evs and plug in hybrid and hybrids are about 30% of all the vehicles on the planet today that are coming out.
Mark Delaney: And I said it on the call both categories, you're going to grow about 24% this year.
Now by region.
Mark Delaney: Yes, the trends in China are full steam ahead.
Mark Delaney: EV production EV adoption across all types, whether it's plug in hybrids hybrids.
Mark Delaney: And we have a very strong position there we've talked to you about what we do with the locals we have a strong position with the multinationals and as I said on the call our content per vehicle as EV adoption continues in China is just going up.
Terrence R. Curtin: And as I said on the call, our content per vehicle as EV adoption continues in China is just going up. You know, in the Western world, you do have the adaptation that I talked about. And it's really creating more of a shift from EVs to PHEVs and hybrids. And we have to realize that shift is important for us because that does help as you move from an ICE vehicle to any of the EV categories. We get content increase.
Mark Delaney: In the Western World you do have the adapting that I talked about it's really creating more of a shift from evs to ph Evs and hybrids and we've got to realize that shift is important for us because that does help as you move from a nice vehicle to any of the EV categories, we get content increase.
Terrence R. Curtin: And all the regions are expected to see double-digit EV growth this year. So while there's been some things that have shifted around, certainly as people make choices about what models they like versus what they don't like, you know, it's really been driving content growth. Now, the last thing is, you know, we remain confident around our four to six points of outperformance, and we're always going to caution you, like we do every call, please don't look at it on a quarterly basis, you know, because there are always swings that can occur.
Mark Delaney: And all the regions are expected to see double digit growth. This year. So while there has been some things that have shifted around certainly as people make choices about what models they like versus they don't like.
Mark Delaney: It's really been driving content growth.
Mark Delaney: Now the last thing is we remain to be confident around our 4% to six points of outperformance and we're always going to caution you like we do every call. Please don't look at it on a quarter basis.
Mark Delaney: Because theres always swings that can occur.
Terrence R. Curtin: But we expect content growth to be in that four to six points. And it's also important to say that content, in the four to six points above production, EB is the biggest driver, but it's not the only driver. Electronification of the vehicle, the data, and Ethernet that goes in for autonomy, that you need for software-defined vehicles, that's a driver, as well as all the other electronics that go in. So all of them drive the content increase.
We expect content growth to be in that 4% to six points and it's also important to say content in the 4% to six points above production EV is the biggest driver, but it's not the only driver.
Mark Delaney: Electronic vacation of the vehicle the data.
Mark Delaney: Internet that goes in for autonomy for that unique for software defined vehicles, that's a driver as well as all the other electronics Echo and so all of them drive the content increase and while there may be some shifts between evs and hybrids the content growth that we get on either of those categories, whether it's one five.
Terrence R. Curtin: And while there may be some shifts between EVs and hybrids, the content growth that we get on either of those categories, whether it's one and a half times or two, we're going to drive content growth for us. And that's why we feel so constructive about the four to six points of outperformance, and we expect we'll be there this year. So, I know that's probably more than you wanted, Mark, but I appreciate the question.
Mark Delaney: Five times or two we're going to drive content growth for us and why we feel so constructive about the 4% to six points of outperformance and we expect we'll be there this year.
Speaker Change: So I know, it's probably more than you wanted mark but I appreciate the question.
Speaker Change: Alright. Thank you Mark can we have next question. Please.
Speaker Change: Your next question comes from the line of Luke junk with Baird. Your line is open.
Luke L. Junk: Good morning, Thanks for taking my question.
Luke L. Junk: Gary I was hoping you could just double click on what order pandered, they're telling you right now about market health and especially Destocking would be most interested in what it says about the trajectory of communications from here, especially legacy applications. In addition to what you already spoke to with respect to AI as well as <unk>.
Operator: Alright, thank you Mark. Can we have the next question please? Your next question comes from the line of Luke Junk with Baird. Your line is open. Good morning, thanks for taking the question. Terrence, I'm hoping you could just double click on what Order Pandards are telling you right now about...
Operator: Your next question comes from the line of Luke Junk with Baird. Your line is open.
Speaker Change: As we look for that bottom in industrial equipment and thank you sure no. Thanks Luke.
Terrence R. Curtin: Sure. No, thanks, Luke, and I appreciate the question. Yeah, as I said in my upfront comments, yeah, I can't stress enough.
Speaker Change: I appreciate the question.
Gary: Yes, as I said in my upfront comments.
Terrence R. Curtin: This was the first time in six quarters or a year and a half that we had orders above $4 billion and a book to bill above $1, and you see the sequential growth in every segment. And the stocking, which we always told you really was in our communication segment and our industrial equipment segment, I would tell you in the communication segment, you know, we don't we believe the stocking is over. Not only from the order activity we see, but I would also say things where we go through our channel partners, and we've seen orders improve year over year there, as well as revenue trends where they're selling.
Gary: I can't stress analysis was the first time in six quarters or a year and a half that we have orders above $4 billion and our book to bill above one.
Speaker Change: And you see the sequential growth in every segment.
Speaker Change: And Destocking, which we always told you really was in our communications segment and our industrial equipment segment I would tell you in the communications segment.
Speaker Change: We don't we believe the stockings over.
Speaker Change: Not only from the order activity, we see but I would also say the things where we go through our channel partners and we have seen orders improve year over year there.
Speaker Change: As well as the revenue trends of where they are selling through so I would say the stocking in the communications segment.
Terrence R. Curtin: So I would say the stocking and the communication segment is over, and you're going to see that segment return to growth next quarter, as I talked about. The one area that we continue to see the stocking is in industrial equipment. I think it was evident in our results and in the commentary, and that's going to be with us for a couple more quarters. That started later.
Speaker Change: <unk> is over and Youre going to see that segment returned to growth next quarter as I talked about.
Speaker Change: The one area that we continue to see the stocking is in the industrial equipment I think it was evident in our results in the commentary and thats going to be with us for a couple more quarters that started later, we're still seeing areas, where I do think we're in a bottoming cycle, they're both what we see and what are.
Terrence R. Curtin: We're still seeing areas where I do think we're in a bottoming cycle there, both what we see and what our channel partners see. We're starting to see some light in China and also the Americas, but there are other areas in that industrial space in Europe that remain weak. So, you know, I do think that's very important to keep in front of us, but I do think we're starting to see some light at the end of the tunnel.
Speaker Change: Channel partner see we're starting to see some lights in China and also the Americas, but theres other areas in that industrial space in Europe remained weak so I.
Speaker Change: I do think that's very important to keep in front of us, but I do think there is we're starting to see some light at the end of the tunnel.
Terrence R. Curtin: And outside those areas, I think you see stability and growth. And I think those sequential order momentums that we see, that you can see on the chart, really prove that. And that's what we get excited about, that the stocking's over. The stocking has masked some of our content growth as we've worked through it. But I do also think as we work through this year and get to 25, it'll be a nice tailwind that that's finally behind us.
Speaker Change: And outside those areas I think you see stability and growth and I think the sequential order momentum that we say that you can see on the chart really prove that.
Speaker Change: And that's what we get excited about at the stockings over Destocking has masked some of our content growth as we work through it but I do also think as we work through this year and get to 25 it'll be a nice.
Speaker Change: Tailwind that that's finally behind us.
Speaker Change: Okay. Thank you Luke next question please.
Speaker Change: Your next question is from the line of Amit Daria <unk> with Evercore partners. Your line is open.
Operator: Okay, thank you, Luke. Can we have the next question, please?
Operator: Your next question is from the line of Amit Daryanani with Evercore Partners. Your line is open.
Amit Daryanani: Thanks, a lot good morning, everyone I guess.
Amit Daryanani: I'd love to kind of get your perspective, AI is going to be a very focused everyone. We just talked about some fairly strong revenue trajectory as we go forward that you expect to see can you maybe just spend some time talking to us about what exactly are you only providing when it comes to AI solutions and any sense on where the opportunities right now across <unk>.
Terrence R. Curtin: AI is really a very big focus for everyone. You just talked about some fairly strong revenue trajectory as you go forward that you expect to see. Can you maybe spend some time talking to us about, you know, what exactly are you really providing when it comes to AI solutions and any sense of where the opportunities right now are across, you know, processor companies like NVIDIA versus cloud providers that might be running their own infrastructure? And what does the conversion to revenue look like as you go forward from here? Thank you.
Amit Daryanani: Companies like Nvidia versus cloud providers that might be running their own infrastructure.
Amit Daryanani: And what is the conversion to revenue looked like as you go forward from here. Thank you.
Terrence R. Curtin: Yeah, no, you know, and I made some comments about that. So I do appreciate the question. And, you know, the one thing that's a little bit different that we talked about today in the prepared comments was that we typically always talk to you about design when there is momentum, and that's continued. But, you know, we did give you more highlights about where revenue goes for here. And, you know, we told you all year, as we were seeing the ramp in AI, we were going to do about $200 million in revenue this year in AI applications, and certainly 60% of that would be in the back half. That really hasn't changed.
Speaker Change: Yes, no no and I made some comments on that so.
Speaker Change: I do appreciate the question and the one thing that's a little bit different that we talked about today on the prepared comments was we typically always talk to you about design win momentum and Thats continued.
Speaker Change: We did give you more highlights about where does revenue go for here and we told you all year as we were seeing the ramp in AI, we were going to do about $200 million of revenue this year.
Speaker Change: Applications.
Speaker Change: And certainly 60% of that would be in the back half that really hasnt changed.
Terrence R. Curtin: But when we look at the design momentum that we have, and also the expectations of what we're hearing from our customers, like I said on the call, we expect that 200 million to essentially double next year to 400 million. And we actually see a path that could get up to a billion dollars a year a few years after that. So we're actually seeing traction with the design wins, our teams, and the investments we're making to ramp it both from engineering and operations, you know, are in place to drive it.
Speaker Change: But when we look at the design win momentum that we have and also expectation and what we're hearing from our customers like I said on the call. We expect that 200 million to essentially double next year to $400 million and we actually see a path that could get up to $1 billion a year a few years after that so we're actually seeing that.
Speaker Change: Traction with the design wins, our teams the investments, we're making to ramp up both from engineering and operations.
Speaker Change: Our in place to drive it.
Terrence R. Curtin: And like you said, there's an ecosystem that's here, and that ecosystem, when you look at our engagements, they're with hyperscale customers, some of who are developing their own AI solutions. We also have to work closely with semiconductor companies, including both the processor companies and the other semi-players that make acceleration chips and other silicon solutions. So when you look at it, we have to play with everybody in that ecosystem, and our teams are doing a nice job.
Speaker Change: And like you said.
Speaker Change: When you have the services area.
Speaker Change: There is an ecosystem that is here.
Speaker Change: And that ecosystem when you look at our engagements there with Hyperscale customers, some who are developing their own AI solutions. We also have to work closely with semiconductor companies, including both the processor companies and the other semi players that make acceleration ships and other silicon solutions. So when you look at we have to play with.
Speaker Change: And that ecosystem and our teams are doing a nice job.
Terrence R. Curtin: And then as important is, as you work with them, how do you get on reference designs that then are really ready to deploy offerings that do allow further cloud customer deployments. And, you know, our sales are across the entire ecosystem. It's not with just one.
Speaker Change: And then as important is as you work with them. How do you get on reference designs that then are really ready to deploy offerings that do allow further.
Speaker Change: Cloud.
Speaker Change: <unk> deployments.
Speaker Change: And our sales are across the entire ecosystem is not with one so I'd like the breadth that we have and that's really driving the momentum that we have.
Terrence R. Curtin: So I like the breadth that we have. And that's really driving the momentum that we have, from a product perspective. Where you start, it starts with the socket that's right up against the GPU. You can have things that are on the board, and then you also get into things that are really a cabled backplane, where you have things that are very important to make sure you don't get latency, and you keep the high speed going to really make sure that cluster can really crank at the speeds they need to do LLM. So NetNet is pretty broad in the products we play with, and it's just really, in many cases, what we did on the cloud, moving up to the next level of performance in this application.
Speaker Change: And from a product perspective.
Speaker Change: Where you start at it starts with the socket, that's right up against the GPU.
You can have things that are on the board and then you also get into things that are really a cabled back claim where you have things that are very important to make sure you don't get the latency and you keep the high speed going to really make sure that cluster can really crack at the speeds they need to do the LLS. So net net it's putting for.
Speaker Change: Rod and the products, we play and it's just really in many cases, what we did on the cloud moving up to the next level of performance in this application.
Operator: Okay, thank you, Amit. Can we have the next question, please?
Speaker Change: Okay. Thank you Amit can we have the next question. Please.
Operator: Your next question is from the line of Wamsi Mohan with the Bank of America. Your line is open.
Speaker Change: Your next question is from the line of <unk> Mohan with Bank of America.
Amit: Is open.
Operator: Yes, thank you. Terrence, I appreciate all the comments here on the prior question around AI.
Wamsi Mohan: Thank you Terence appreciate all the comments here on the prior question around AI, if I could just ask a quick clarification on that how are you thinking about your share in these high speed low latency applications and from my question. I was wondering if you could comment a little bit beyond fiscal 'twenty four it seems like Destocking is coming to an end.
Terrence R. Curtin: If I could just ask for a quick clarification on that. How are you thinking about your share in these high-speed, low-latency applications? And for my question, I was wondering if you could comment a little bit beyond Fiscal 24. It seems like destocking is coming to an end. Your orders are bouncing back a fair amount over here, and you mentioned stability in some of the end markets as well. Any early thoughts on how Fiscal 25 is shaping up from a growth and margin perspective? Thank you so much.
Wamsi Mohan: Your orders are bouncing back a fair amount over here and you mentioned stability in some of the end markets as well any early thoughts on how fiscal 'twenty five is shaping up from a growth and margin perspective. Thank you so much.
Terrence R. Curtin: Yeah, so when you think about share in AI applications, it would be similar to the share we have in cloud applications. So I think when you look at that, and we talked about that a lot, the momentum we had when we went through the cloud during COVID and the momentum we had across a broad set of customers, I think you can expect similar share type thoughts on that for the AI applications, once again, being broad.
Speaker Change: So when you think about share.
Speaker Change: And the AI applications it would be similar to the share we had in cloud applications. So I think when you look at that and we talked about that a lot of momentum we had when we went through the cloud during COVID-19 and the momentum we had across broad set of customers. I say you can expect similar share type thoughts on that for the AI applications and once again be abroad.
Terrence R. Curtin: When you look at 2025, I guess the first thing is, it'll be nice not to talk about the stock market. So that has been a headwind. I know we're not the only one that deals with it.
Speaker Change: When you when you look at 2025 I guess the first thing is it'll be nice not to talk about the stocking.
Speaker Change: So that has been a headwind I know, we're not the only one that dealt with it.
Heath Mitts: But that will be something that turns, and you're starting to see it, you know, and see us, and that'll help IS. So I do think that'll turn into a headwind front to be, honestly, a tailwind as we get rid of that. And you know, what's nice is we're going to start seeing that in communications already later this year. And I do think we have to wait until the end of our fiscal year to get there with the industrial equipment business.
Speaker Change: But that will be something that turns and you're starting to see it.
Speaker Change: And see us and that'll help so I do think that will turn into a headwind to be honestly to as a tailwind as we get rid of that.
Speaker Change: And what's nice is we're going to start seeing that in communications already here later this year and I do think rapid weight towards the end of our fiscal year to get there with the industrial equipment business.
Heath Mitts: The other thing as we look at 2025, you know, there's going to be, if you just start with transportation, you're going to continue to have electric vehicles, the broad category that we put everything in, continue to grow in the world. And I think you can continue to look at four to 6% growth on top of that. I wouldn't say we view it's going to be auto production is going to boom in 2025.
Speaker Change: The other thing is we look at 2025, there's going to be if you just start with transportation Youre going to continue to have electric vehicles. The broad category that we put everything in continuing to grow in the world and I think you can continue to look at 4% to 6% growth on top of that I wouldn't say, we view it is going to be <unk>.
Speaker Change: Production is going to move in 'twenty, five, but I think youre going to continue to see an area, where autos below peak, where we are today and then we're going to get the content benefit on top of it that I think we've proven to you.
Heath Mitts: But I think you're going to continue to see an area where auto is below peak where we are today, and then we're going to get the content benefit on top of it. That I think we've proven to you. The AI element, you know, is a big driver as we go into next year. So, you know, we quantified that for you. And then the other area that I just think has been masked a little bit by what's been going on in industrial equipment is, remember, our three businesses that are in industry.
Speaker Change: The AI element.
Speaker Change: Big driver as we go into next year.
Speaker Change: So we quantified that for you and then the other area that I, just think has been masked a little bit by what thing going on industrial equipment is remember our three businesses that are in industrial base.
Heath Mitts: They continue to have growth momentum, whether it's renewables, whether it's what we're doing in medical around interventional procedures, whether it is the recovery in commercial aerospace as well as what's going on in defense. So those types of growth that we're seeing this year, we do think they're going to remain in growth into 25. So I do think 25 does set up nicely. Heath, I don't know if you want to talk from a margin perspective at all.
Speaker Change: <unk> continue to have growth momentum, whether it's renewables, whether it's what we're doing in medical around interventional procedures, whether it is the recovery in commercial aerospace as well as what's going on in defense. So those types of growth that we're seeing this year. We do think they are going to remain into growth into 25. So I do think 25.
Speaker Change: It does set up nicely.
Speaker Change: I don't know if you want to talk from a margin perspective at all sure <unk> Z and I. Appreciate we appreciate the question.
Heath Mitts: Sure, Wamsi, we appreciate the question, you know, obviously we're in the early stages; we're not ready to guide for our FY25, which starts, you know, October 1st. But I do feel good about the progress that we've made on margins. We've talked a lot to this audience about our target margins, which we really look at by segment. The transportation margins, target margin of 20%. We got there a little sooner than even we were internally expecting.
Speaker Change: Obviously, we're in the early stages, we're not ready to guide for FY, 'twenty, five which starts October one.
Speaker Change: But I do feel good about where the progress that we've made on margins we've talked a lot too.
Speaker Change: This audience about our target margins, which we really look at it by segment.
Speaker Change: The transportation margins.
Speaker Change: <unk> margin of 20%, we got there a little sooner than we even internally we were expecting.
Heath Mitts: The price actions have been effective, and they've been sticky. The footprint consolidation work that we've done, and then we've exited some low-margin product lines, and the health of that business is very strong. The auto side of that is driving most of that, but even our commercial transportation business within that, which is, as you know, a high-margin business, is holding its head even in negative growth environments. We feel good about where we are achieving in FY24 and where our jumping off point is for the end of 25. The margin side of communications is really a volume story.
Speaker Change: The price actions have been effective and they've been sticky the footprint consolidation work that we've done and then we've exited some low margin product lines and.
Speaker Change: The health of that business is very strong the auto side of that.
Speaker Change: That is driving most of that with even our.
Speaker Change: Commercial transportation business within that which is as you know a high margin business.
Speaker Change: As <unk> heard even in negative growth environment. So we feel good about where we are achieving in the FY 'twenty four and where our jumping off point is for ended 25 communications is really the margin side of communications is really a volume story and again, if you'd asked me.
Heath Mitts: Again, if you'd asked me six or nine months ago where we'd be running margin-wise at roughly $440 million in quarterly revenue, I would tell you we'd probably be in the mid-teens. As I said here today, we've been consistently in the high-teens this year, so we've effectively raised the floor, and our team's done a nice job within that segment of raising the floor to get to more of a high-teen type of look. And once we budge up over the $2 billion annual revenue rate for that segment, I think we're going to be pushing towards that target margin of 20% for the segment.
Speaker Change: Six or nine months ago, where we'd be running margin wise at roughly $440 million of quarterly revenue I would tell you, we'd probably be in the mid teens and as I sit here today, we've been consistently in the high teens. This year. So we've effectively raise the floor and our team has done a nice job within that.
Speaker Change: Segment of raising the floor to get a more of a high teen type of look and we must be Bud Jeff over the $2 billion annual revenue rate for that segment.
Speaker Change: I think we're going to be pushing towards that target margin of 20% for the segment. So we feel good as we think about that and as a reminder, terrence alluded to this we are hiring to support some of the high growth areas and thats embedded in our run rate, we're not going to call that out as a headwind to us, but we're not starving these businesses.
Heath Mitts: We feel good as we think about that, and as a reminder, and Terrence alluded to this, we are hiring to support some of the high-growth areas, and that's embedded in our run rate. We're not going to call that out as a headwind for us, but we're not starving these businesses, and that's been an exciting area to see. The industrial business, we're hovering in the mid-teens. I expect improvement of significance next year as we go in, but a lot of that is tied to the destocking within the industrial equipment business going away, and Terrence has talked a fair amount already on this call about the time frame of that towards the end of fiscal 24, so I do think there's good opportunity as we go into 25.
Speaker Change: Investment Thats been exciting area to see.
Speaker Change: Industrial business, we're hovering in the mid teens I expect improvement of significance next year as we go in with a lot of that is tied to the destocking and within the industrial equipment business.
Speaker Change: Going away and Terrence has talked a fair amount already on this call about the timeframe of that towards the end of fiscal 'twenty. Four so I do think there's good opportunity as we go into 'twenty five.
Heath Mitts: The other three business units within the industrial segment have been performing well, but it's hard to make up for the drag on the industrial equipment business that's been down double digits this year. So if you add all that up, we're going to exit this year at 18 and change of operating margins up a couple hundred basis points year over year, and we expect to be able to start making normalized improvement on that as we move forward. We talked to the street about our operating model of somewhere between 30 and 80 basis points of margin improvement each year. Certainly, we feel good about that as we start planning for FY25.
Speaker Change: The other three business units within the industrial segment have been performing well, but it's hard to to makeup for the drag on the industrial equipment business Thats been down double digits. This year. So if you add all of that all up we're going to exit this year in ATM and change of operating margin.
Speaker Change: <unk> up a couple hundred basis points year over year, and we expect.
Speaker Change: To be able to start making normalized improvement on that as we move forward, we talk to the street about.
Speaker Change: Our operating model of somewhere between $3 80 basis points of margin improvement each year.
Speaker Change: Certainly we feel good about that as.
Speaker Change: As we start planning for FY 'twenty five.
Speaker Change: Okay. Thank you Amit can we have the next question. Please.
Jpmorgan: Your next question is from of items that make it challenging with Jpmorgan. Your line is open.
Operator: Okay, thank you Wamsi. Can we have the next question, please?
Jpmorgan: Yes, hi, thanks for taking my question.
Operator: Your next question is from the line of Samik Chatterjee with J.P. Morgan. Your line is open.
Jpmorgan: Communication, if you don't mind, you mentioned the capacity investments, you're making in the communication.
Operator: You mentioned the capacity investments you're making in the communication segment, particularly around the AI demand you're seeing. If you can sort of give us some more color about what's the typical lead time between you investing and starting to invest in capacity now. Is that for revenue in fiscal 25, or is that sort of beyond fiscal 25?
Jpmorgan: Particularly around the <unk>, you'll see if you can give us some more color about what's the typical lead time between you investing starting domestic capacity now is that for revenue in fiscal 'twenty, five or does that sort of beyond fiscal 'twenty five what's the typical lead time would be starting to manufacturing and getting back to.
Terrence R. Curtin: What's the typical lead time between starting the manufacturing and getting that to a revenue point? And then, just a side question in terms of what are you seeing customers ask you for in terms of where this manufacturing footprint is? Given the geopolitical situation, is there a preference that customers are expressing about where you invest in capacity, whether it's the Western world or somewhere else?
Revenue.
Jpmorgan: And then just a question in terms of like what do you see customers asking for in terms of where this manufacturing footprint is given the geopolitical situation.
Jpmorgan: That customer with a spread of thinking about where you invest in capacity created whether to the western world a couple of areas. Thank you.
Terrence R. Curtin: Thank you.
Terrence R. Curtin: Thanks, Amit, for the question. A couple of things. I think that's important. As we've been seeing this, we have been investing, and we've expanded operations in Mexico, as well as the Philippines, as well as the existing locations we've had. So from that viewpoint, there were existing, and also the sites that we have, I think, position them as well for the geopolitical options that some of our customers want to have. So when you look at that, I wouldn't say this is just starting.
Speaker Change: Thanks for the question a couple a couple of things I think that's important.
Speaker Change: As we've been seeing this we have been investing and we've expanded operations in Mexico as well as the Philippines as well as the existing locations. We have had so from that viewpoint. There was existing and also the sites that we have I think position us well for the geopolitical.
Speaker Change: Options of some of our customers want to have so when you look at that I wouldn't say this is just starting these investments some of those we started to make a few years ago. As we were thinking about capacity coming on and we're going to continue to build on that and thats flowed footprint capacity as well as like he said Theres also been engineering capacity ramping as well and we will.
Terrence R. Curtin: These investments, some of those we started to make a few years ago as we were thinking about capacity coming on, and we're going to continue to build on that. And that's both footprint capacity, as well as, like he said, there's also been engineering capacity and ramping as well. And we'll continue to do so with the line of sight of the programs we work on. Let's face it, these are programs that we work on with our customers in tandem, as they're trying to work out their architecture to make sure that the connectivity that's needed works in their applications. So that's one of the real positives that we have working in this ecosystem, and you're going to see us continue to capitalize on it. And, like he said, it's included in our run rate.
Speaker Change: Can you do with a line of sight of the programs that we work on let's face. It. These are programs that we work on with our customers in tandem as they're trying to work their architecture to make sure that the connectivity that's needed.
Speaker Change: Works and after their applications. So that's one of the real positives that we have working in this ecosystem and youre going to see us continue to capitalize on it and like he said it's included in our run rate.
Operator: Okay, thank you, Samik. Can we have the next question, please?
Speaker Change: Okay. Thank you can we have the next question. Please.
Operator: Your next question is from the line of Joe Giordano with TD Cowan. Your line is open.
Speaker Change: Your next question is from the line of Joe Giordano with TD Cowen Your line is open.
Operator: Hey guys, good morning. Hey, John. Hey, so do I.
Joseph Giordano: Hey, guys good morning.
Joseph Giordano: Hey, Joe.
Joseph Giordano: Okay.
Terrence R. Curtin: On the AI side, as you kind of build out and invest to support the growth plans of your customers in this space, how do you weigh, obviously, very robust demand and the near term with, Can we is this growth outlook over a multi-year period even feasible? Like can the grid handle building all these things? How do you weigh what you need to invest in now because of what your customers are saying versus your view on is this even achievable for a market over like a short couple of years?
Joseph Giordano: On the AI side, as you kind of build out and invest.
Joseph Giordano: To support the growth plans of your customers in this space, how do you weigh like obviously very robust demand in the near term with like can.
Joseph Giordano: Is this are these growth outlooks on a multi year period, even feasible.
Joseph Giordano: And the grid handle building all these things like how do you weigh what you need to invest in now because of the way your customers are saying versus like your view on is this even achievable for our market over like a short couple of year period.
Terrence R. Curtin: Well, when we work here, Joe, we work with our customers on the programs that they're coming out with and then on the next generation. I would tell you we do work with our customers on their understanding of that market outlook, but honestly, we're focused on nailing the solution with our customers on what the technical requirements they have. So, I would tell you that's what we focus on. That's the way we invest as we work with our customers.
Joseph Giordano: But when we work here, Joe we work with our customers on the programs that they're coming out with and then on the next generation I would tell you we do work with our customers on.
Joseph Giordano: They are understanding of that market outlook, but honestly, we're focused on mailing the solution with our customers on what the technical requirements. They have so I would tell you. That's what we focus on that that's the way we invest as we work with our customers. So from that viewpoint I think that's always been our mindset and it's one of the nice things.
Terrence R. Curtin: So, from that viewpoint, I think that's always been our mindset, and it's one of the nice things about our model that we get the benefit of working with our customers as they understand the opportunity and the ramps that they expect to hit and how we need to support that.
Joseph Giordano: About our model that we get the benefit of working with our customers as they understand the opportunity and the ramps that they expect to hit and how do we need to support that.
Operator: Okay, thank you, Joe. We have the next question, please.
Speaker Change: Okay. Thank you Joe we have the next question please.
Operator: No next questions from the line of Asiya Merchant with Citigroup. Your line is open.
ACI Emergence: Your next question is from the line of ACI emergence with Citigroup. Your line is open.
Terrence R. Curtin: Great, thank you for taking my question. Just, you know, if you could drill down a little bit on pricing. I think, you know, comments in the past have talked about maybe normalizing pricing, and especially as we look at, you know, auto production moving towards, you know, at least this year being a little bit more weighted towards Asia versus North America and Western Europe. How do you guys think about pricing and the margin impact from pricing normalizing, say, as we go into fiscal 25? Thank you.
ACI Emergence: Great. Thank you for taking my question.
ACI Emergence: If you could drill down a little bit on pricing I think commented in the past have talked about may be normalization of pricing and especially as we look at.
Auto think action moving to worry.
ACI Emergence: This year being a little bit more weighted towards Asia, we're seeing in North America and Western Europe.
ACI Emergence: I think about pricing and the margin impact from pricing normalizing as we go into fiscal 'twenty five thank you.
Terrence R. Curtin: No, sure. I think when you look at pricing, first off, and you see it in the margin this year, you know, we've finally recovered the inflation that we had during the mega-wave of inflation. And, you know, we caught up on that, and our approach always was, was we were covering costs with our customers. You know, when you still look at this year, nothing has changed with what we told you before.
Speaker Change: No sure I think when you look at pricing first off and you see it in the margin. This year. We recovered finally, the inflation that we had during the Mega wave of inflation and we caught up on that and our approach always was was we are covering costs with our customers.
Speaker Change: When you still look at this year and nothing has changed with what we told you before we expect pricing to be neutral this year at the <unk> level.
Terrence R. Curtin: We expect pricing to be neutral this year at the TE level. So, yeah, we are doing targeted price increases where we have to because we continue to have material inflation on certain metals. Certainly, we're doing things to make sure that we can be competitive, and I don't think you assume that margins go down in a different pricing environment. So, I think you sit there as we look forward, a big element of where pricing goes is going to be around where the material environment is, where copper, gold, resin trading is, the input costs that were the things that we recovered, and they will be the bigger driver of where pricing goes.
So yes, we are doing targeted price increases, where we have two where we continue to have material inflation on certain metals, certainly we're doing things to make sure where we can be competitive.
Speaker Change: And I don't think you'd assume that margins go down on a different pricing environment.
Speaker Change: I think you sit there as we look forward a big element of where pricing goes it's going to be around where the material environment is whereas copper gold resin trading of the input costs that were the things that we recovered and they will be the bigger driver of where pricing goes from here.
Speaker Change: Okay. Thank you Ashley next question please.
Operator: Okay, thank you, Asiya. Can we have the next question, please? Your next question is from the line of Sari Borodinsky with Jeffries. Your line is open. Thanks for taking the question.
Speaker Change: Your next question is from the line of Assai.
Speaker Change: Sorry, Barbara <unk> with Jefferies. Your line is open.
Barbara: Thanks for taking my question you talked a lot about maybe your line of sight to the end of industrial equipment Destocking by year end could you talk through the underlying demand environment. There and then how do you think about the tailwind from Destocking by and as we get into 2025. Thank you.
Operator: No next questions from the line of Sari Borodinsky with Jeffries. Your line is open.
Operator: Sure. Thanks, Harry.
Sure, Thanks, Gary and welcome to the call.
Terrence R. Curtin: And welcome to the call. First off, the demand environment is cloudy because we have had both with and in our industrial equipment business. Just to take a step back and remind everybody, about 50% of our revenue goes through our channel partners, and 50% goes directly to the OEMs. So it is an area where channel partners play a bigger role. I would say when we look at the end-demand environment, there are pockets where you continue to see strength, that wouldn't surprise you, certainly on the process side.
Barbara: First off being the demand environment as cloudy because we have had both with and in our industrial equipment business just to take a step back and remind everybody about 50% of our revenue goes through our channel partners and 50% goes directly to the Oems. So it is an area where.
Barbara: Channel partners play a bigger role.
Barbara: I'd say when we look at the end demand environment. There are pockets, where you continue to see strength that wont surprise you.
Barbara: Certainly in the process side, but there is other areas that right now it is still foggy because we have customers that are working off.
Terrence R. Curtin: But there's other areas that right now, it's still foggy because we have customers that are working off buffer stock that they built up when they were worried about being able to get component supply, as well as our channel partners are doing the same. So right now, we're in the middle of that destock period. But what we are seeing is we're seeing order patterns start to move sideways. They aren't decelerating.
Barbara: Buffer stock that they built up when they were worried about being able to get components supply as well as our channel partners are doing the same.
Barbara: So right now we're in the middle of that Destock period, but what we are seeing is were seeing order patterns start to move sideways.
Barbara: They arent decelerating, we're seeing that both direct and with our channel partners and we're also seeing certain regions, where we see that work off recurring so I think what youre going to have probably is for the next couple of quarters, we're still going to have those impacts as that works off.
Terrence R. Curtin: We're seeing that both directly and with our channel partners, and we're also seeing certain regions where we see that work-life balance occurring. So I think what you're going to have for the next couple of quarters, we're still going to have those impacts as that works off. And then as we get into 2025, you'll actually see that business get back more in line, growing a little bit above the underlying market for factory automation.
And then as we get into 'twenty, five youll actually see that business get back more in line growing a little bit above the underlying market.
Barbara: Factory automation.
Okay. Thank you sorry can we have the next question. Please.
Your next question is from the line of Steven Fox with Fox Advisors. Your line is open.
Steven Fox: Hi, Good morning, Karen Thanks, David.
I was wondering if you could talk a little bit about how key connectivity products into evs help on the cost front for your customers I mean, Tesla, obviously is talking a lot about that lately and on the alternatives does it create any kind of competitive risks as some of your customers realize that they really need to get some of the VEB prices down.
Operator: Okay, thank you, Sari. Can we have the next question, please? Your next question is from the line of Steven Fox with Fox Advisors. Hi, good morning. I was wondering if you could talk a little bit about TE Connectivity.
Operator: Your next question is from the line of Steven Fox with Fox Advisors.
Steven Fox: The next couple of years. Thanks.
Terrence R. Curtin: Well, I do think there's an element that one of the things that we do that even starts before the product is how we work with our customers when they are trying to sit down and do value engineering of how do you get a sub application to a lower cost point. That's very important, Steve, as we move through generations, in every part of the And that's just not on Where does our product cost come in? How do you assemble a car? How do you put the car together?
Steven Fox: While I do I do think there is an element of one of the things that we do that even starts before the product is how we work with our customers. When they are trying to sit down and do value engineer of how do you get a sub application to a lower cost point thats very important Steve as we move through generations in every part of the team.
Steven Fox: <unk>.
Steven Fox: And Thats, just not on where does our product cost come in how do you assemble a car how do you put the car together how does that make sure it has quality.
Terrence R. Curtin: How does that make sure it's quality? And anytime you get into somebody looking at a next generation, and that could be a battery pack, that could be the connectivity on the motor, it could even be, you know, a next generation inlet. So all of those are things that create opportunities where our stickiness and global position play really well, and you know that we have such a strong position in China. I would tell you certainly that you have a cost point that is always a better cost point, and how our global teams bring that to other OEMs around the world due to our strong position is something that we get excited about because I know I say this on this call probably every other call, because automotive is a
Steven Fox: And anytime you get into somebody looking at next generation and that could be a battery pack that can be the connectivity on the motor it could even be on next generation inland. So all of those are things that create opportunities, where our stickiness and global position play really well.
Steven Fox: And that we have such a strong position in China I would tell you is certainly you have a cost point that is always a better cost point and how our global team to bring that to other Oems around the world due to our strong position is something that we get excited about because I know I say this on this call probably every other call Automotives and <unk>.
<unk> business and one of the things that is very important is how those EV scale. How do you bring our technology to do it that helps us scale and thats the opportunity that we've always been excited about with Evs and having some of the consumer choices that are being made also allow our customers get focus to make sure.
Terrence R. Curtin: And one of the things that is very important is how EVs scale; how do you bring our technology to it that helps it scale? And that's the opportunity that we've always been excited about with EVs. And, you know, having some of the consumer choices that are being made also allows our customers to get focused to make sure they're making the right decisions about where their platforms go. So, net-net, that's what our engineers like to do, improving the innovation they can bring. But also, how do you sit there and make sure that we're making it more productive for the world?
Steven Fox: They are making where their platforms go so net net that's what our engineers like to do in improving the innovation. They can bring but also how do you sit there and make sure how we're making it more productive for the world.
Speaker Change: Okay. Thank you Steve can we have the next question. Please.
Colin M. Langan: Your next question is from the line of columns Langan with Wells Fargo. Your line is open.
Operator: Okay, thank you Steve. Can we have the next question, please? Your next question is from the line of Colin Langan with Wells Fargo. Your line is open. Thanks for taking my question.
Colin M. Langan: Thanks for taking my question.
Colin M. Langan: Just wanted to ask on the auto side growth was 1% I think the target is for and I think the market is fairly flat in the quarter long term target is 4% to 6% outperformance.
Operator: Your next question is from the line of Colin Langan with Wells Fargo. Your line is open.
Terrence R. Curtin: Two-fold. We're probably running about three points above production right now. I would say, Colin, in the second quarter, global auto production was negative, so there is it there. We always tell you, don't look at an individual quarter. Next quarter, I think you're going to see very nice outperformance, and for the year, we expect to be in the four to six range. But in any quarter, you get into a lot of little things that some quarters will be above the range. I still feel good about the four to six.
Why the underperformance versus the target in the last couple of quarters.
Speaker Change: Two full we're probably running about three points above production right now I would say Colin in the second quarter Global auto production was negative.
Speaker Change: So there is a there we always tell you don't look at an individual quarter.
Speaker Change: Next quarter, I think youre going to see very nice outperformance for the year, we expect to be in the four to six range, but on any quarter you get into a lot of little things that some quarters will be above the range. So.
Speaker Change: So feel good about the four to six months.
Operator: Okay, thank you, Colin. Can we have the next question, please?
Speaker Change: Okay. Thank you we have next question please.
Operator: Your next question is from the line of Christopher Glynn with Oppenheimer. Your line is open.
Your next question is from the line of Christopher Glynn with Oppenheimer. Your line is open.
Operator: Thanks. Good morning.
Christopher Glynn: Thanks. Good morning, just wondering if you could talk about.
Terrence R. Curtin: Just wondering if you could talk about the kind of complexion and forward kind of drivers, touch on the mix for the commercial vehicle platform. I know you kind of, you know, said kind of similar levels for passenger vehicles would be an appropriate way to think about next year. We can see that that makes sense. Commercial is a little more disparate and complex. So I wonder if you could elaborate a little bit on how you see that market unfolding as you work through some mixed markets this year.
Christopher Glynn: Kind of complexion.
Christopher Glynn: Forward kind of drivers touch on the mix of the commercial vehicle platform.
Christopher Glynn: Kind of said kind of similar levels for.
Christopher Glynn: Passenger vehicle would be appropriate way to think about next year, we can see that that makes sense commercial's, a little more disparate and complex. So wondering if you could.
Christopher Glynn: Elaborate a little bit on how you see that market unfolding as you work through some mixed markets. This year.
Terrence R. Curtin: Yeah, so, you know, to your point, I'm going to go down here and talk a little bit about how we look at commercial transportation because, obviously, that market has three major drivers for it. Certainly, the on-road truck and bus, what's happening in agriculture equipment, and also construction equipment. They're the three big levers. And when you think about that globally, and you know, production and our revenue, about half of our revenue is truck and bus. What we're seeing on truck and bus right now is that America is in Europe, and we, actually, China and Asia are recovering. So they were weak last year.
Christopher Glynn: Yes, so to your point I'm going to I'm going to go down here, a little bit of how we look about the commercial transportation because.
Christopher Glynn: Obviously that market has three major drivers to it yes, certainly the on road truck and bus.
Christopher Glynn: What's happening in agriculture equipment and also construction equipment. They are the three big levers and when you think about that globally and production and our revenue about half of our revenue is truck and bus.
Christopher Glynn: What we're seeing on truck and bus right now is.
Christopher Glynn: Americas and Europe weak.
Christopher Glynn: Actually China and Asia has is recovering so they were weak last year. So what we're actually seeing is very much.
Terrence R. Curtin: So what we're actually seeing is very much a China-positive market that we expect will continue, certainly the Western world down. And we even said in the call, we expect next quarter will be down a little bit sequentially due to some of these dynamics. On the agriculture and the construction side around the world, that is, that is slow everywhere around the world.
Christopher Glynn: China positive market that we expect will continue certainly western world down and we even said in the call. We expect next quarter will be down a little bit sequentially due to some of these dynamics.
On the AG and the construction side around the world that has that is slow everywhere around the world.
Terrence R. Curtin: Certainly, you get into financing rates and things like that, that's a little bit different. And we expect that that'll run through this year. And we think that early next year, we'll get into a more constructive environment than we're in right now. But right now, we think if you take all of them together, the global market is probably minus 5% this year, plus or minus a little. And we would think that it will get more constructive into 25.
Christopher Glynn: Certainly you get into financing rates and things like that that's a little bit different and we expect that that will run through this year.
Christopher Glynn: And we are thinking that early next year, we'll get into a more constructive environment than we're in right now, but right now we think if you take all of them together.
Christopher Glynn: The global market is probably a minus 5% this year plus or minus a little and we would think they will get more constructive into 'twenty five.
Speaker Change: Alright. Thank you Chris the next question please.
Speaker Change: Your next question is from the line of Matt Sheerin with Stifel. Your line is open.
Matthew John Sheerin: Thank you good morning.
Operator: All right. Thank you, Chris. Could we have the next question, please? Your next question from the line of Matt Sheerin with Steeple.
A question on the energy markets within your industrial growth you've had strong growth. The last few quarters is what it looks like it slowed in the March quarter, and we are hearing some pockets of weakness from other parts of the supply chain Whats your outlook for both near term in terms of long term.
Operator: Your line is open. Thank you. Good morning. I had a question, Terrence, on the energy markets in Africa.
Operator: Your next question is from the line of Matt Sheerin with Stiefel. Your line is open.
Terrence R. Curtin: Yeah, no, sure. Thanks, Matt.
Terrence R. Curtin: And on energy. You know, what I would say is we're still very constructive on it. I think what you see in our results here is we continue to see the US and America are very strong. We also see global renewables where we play, and we do utility scale renewables. We do not do residential renewables. We see that very strong.
Speaker Change: Yeah sure. Thanks, Matt.
Speaker Change: And on energy.
What I would say is we're still very constructive on it.
Speaker Change: I think what Youll see in our results here is we continue to see the U S. In America is very strong. We also see global renewables, where we play and we do utility scale renewables, we do not do residential renewables.
Terrence R. Curtin: The one pocket where I say we see a little bit of softness is around the utilities in Europe. I do think that's an element of the business that I talked about in my prepared comments that, you know, we've been in a little bit of where I think utilities are bringing down inventory a little bit. But certainly with the grid maintenance that everybody's investing in around the world, I think that will return to growth. So we're still constructive on global energy, and our business is very much Europe and the United States, the bigger elements of where we play.
Speaker Change: We see that strong the one pocket, where I say, we see a little bit of softness is around the utilities in Europe I do think that's an element of the business that I talked about.
My prepared comments that we've been a little bit of where I think utilities are bringing down inventory a little bit.
Speaker Change: But certainly with the grid maintenance at everybody's investing in around the world I think that will return to growth. So we're still constructive on global energy and our business is very much Europe, and the United States and the bigger elements of where we play.
Operator: Thank you, Matt. Can we have the next question, please? The next question is from the line of Shreyas Patil with Wolf Research. Your line is open. Hey, thanks so much for taking my question. As we look out past this year, and we think about some of the growth drivers in electrification, AI,
Speaker Change: Okay. Thank you Matt next question please.
Speaker Change: Your next question is from the line of <unk> Patel with Wolfe Research. Your line is open.
Patel: Hey, Thanks, so much for taking my question.
Patel: As we look out past this year and we think about some of the growth drivers.
Patel: Vacation AI renewables, you've also got cyclical recoveries in parts of communication and eventually industrial equipment, how do we think about the sustained organic growth for <unk> overall in the past you've talked about 4% to 6% organic growth over time I'm just curious how to think about what a reasonable framework for the <unk>.
Operator: No next questions from the line of Shreyas Patil with Wolf Research. Your line is open.
Terrence R. Curtin: I still think that's the right way to think about it. Certainly, we're going to have cycles; you take a year like this year, where, you know, we are more flattish than growing up to four to six, but there will be areas exactly around the points you made where you could have some destocking or, you know, type effects that may be a headwind one year that'll come back and be above that in the future. But I do think the four to six is the right way to think when we think about the portfolio that's being constructed.
Patel: It should be.
Patel: At this point.
Patel: I still think that's the right way to think about it.
Patel: Currently we are going to have cycles, you would take a year like this year where.
Patel: We are more flattish than grown up to four to six but there will be areas exactly around the point you made where you could have some destocking or.
Patel: Type of effects that may be a headwind one year that will come back and be above that in the future but.
Patel: But I do think the 4% to six is the right way to think about when we think about the portfolio that's constructive.
Operator: Okay, thank you, Shreyas. Can we have the next question, please?
Speaker Change: Okay. Thank you <unk>, we have the next question please.
Operator: Today's final question will come from the line of William Stein with Truist Securities. Your line is open. All right, thanks.
Speaker Change: Today's final question will come from the line of William Stein with <unk> Securities. Your line is open.
William Stein: Alright, thanks, so much for fitting me in.
Operator: All right. Thanks so much for fitting me in. I'm going to ask yet another question about AI.
William Stein: Im going to ask yet another question about AI.
William Stein: <unk> my industry checks reflect it there is really about three companies that have meaningful content here in <unk>.
Terrence R. Curtin: Terrence, my industry checks reflect that there are really about three companies that have meaningful content here, and TE is one of those three. There are a couple, two others. Can you talk about the competitive dynamics among these three, maybe your defensibility and your opportunity to push into their spaces? And also, what makes the three of you more capable than others that sort of protects you, that maybe protects you against new entrants into this very attractive category? Thank you.
William Stein: <unk> is one of those three theres a couple of two others.
William Stein: Can you talk about the competitive dynamics among these three.
William Stein: Maybe your defensibility and your opportunity to push into their spaces and also what makes the three of you more capable than others that sort of protects.
William Stein: Maybe protect you against new entrants into this very attractive category. Thank you.
Terrence R. Curtin: No, thanks. Well, first off, I think there's an element here when you deal with high speed; the three of us all have a very good capability. And you know, when you sit there, you know, we're all different; some of us have different scales than others. But I do think that is the uniqueness, when you're getting to the speed levels of where these chips are going to GPUs are going to TPUs, you're dealing with speeds that are very unique.
Speaker Change: No. Thanks will so first off being I think there is an element here when you deal with high speed. The three of US all have a very good capability and.
Speaker Change: And when you sit there were all differently some of us have different scale than others, but I do think that as the uniqueness when youre getting to the speed levels of where these.
Speaker Change: Chips are going to Gpus or go into the Gpus are going to you are dealing with speeds that are very unique that is a very technical innovation that.
Terrence R. Curtin: That is a very technical innovation that I think we all do well. And so I think it is a competitive space between us. I also think that you continually move up the technology curve, and you also have the ramps that our customers expect to bring them to life. These are all very important to our customers. And that's why we even said earlier to the question that I answered, I expect our share to be similar to what it was in the cloud.
Speaker Change: I think we all do well.
Speaker Change: And so I think it is it is a competitive space between US I also think that you continually move up the technology curve and you also have ramps that our customers expect to bring them to life are all very important to our customers and thats why we even said earlier to the question that I answered I expect our share to be similar to what it was in the class.
Terrence R. Curtin: So I think it's very important how we make sure what we do, and the connectivity space, really makes sure we enable the AI path because we do play an important role in it to really make sure it comes to life. And that's what we get excited about. Well, it's a great opportunity we have, certainly, and it's a great opportunity for the industry to capitalize on as well.
Speaker Change: Good.
So I think it's very important.
Speaker Change: How we make sure what we do in the connectivity space really make sure we enable the ipass could we do play an important role in it to really make sure. It comes to life and that's what we get excited about <unk>.
Speaker Change: So it's a great opportunity we have certainly it is a great opportunity for industry to capitalize on as well.
Operator: Okay, thank you, Will. I'd like to thank everybody for joining us this morning on the call. If you have any additional questions, please contact Investor Relations at TE. Thanks again, and have a nice day.
Speaker Change: Okay. Thank you will.
Speaker Change: I'd like to thank everybody for joining us. This morning on the call. If you have any additional questions. Please contact investor relations at GE.
Speaker Change: Thanks, again and have a nice day.
Operator: Today's conference call will be available for replay beginning at 11: 30 a.m. Eastern Time today, April 24th, on the Investor Relations portion of TE Connectivity's website. That will conclude the conference call for today.
Speaker Change: Today's conference call will be available for replay beginning at 11 30, a M. Eastern time today April 24th on the Investor Relations portion of Te connectivity website that will conclude the conference for today.
Speaker Change: Okay.