Q4 2025 TE Connectivity PLC Earnings Call

Speaker #3: Kate, I think we're ready to go.

Sujal Shah: Kate, I think we're ready to go.

Speaker #4: Everyone , thank you for standing by . And welcome to the Te connectivity fourth quarter and final results . Earnings call for fiscal year 2025 .

Operator: Everyone, thank you for standing by and welcome to the TE Connectivity fourth quarter and final results earnings call for fiscal year 2025. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press STAR one again. 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. Please go ahead.

Speaker #4: At this time , all lines are in a listen only mode . Later , we will conduct a question and answer session . If you would like to ask a question during this time , simply press star followed by the number one on your telephone keypad .

Speaker #4: If you would like to withdraw your question , press star one again . 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 #4: Please go ahead .

Speaker #3: Good morning , and thank you for joining our conference call to discuss Te Connectivity's fourth quarter and full year results . And outlook for our first quarter of fiscal 2026 .

Sujal Shah: Good morning and thank you for joining our conference call to discuss TE Connectivity's fourth quarter and full year results and outlook for our first quarter of fiscal 2026. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts. During this call we will be providing certain forward-looking information. We ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning 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. Now, please note that we are making a change in our non-GAAP reporting with the start of our fiscal 2026 year.

Speaker #3: With me today are Chief Executive Officer , Terrence Curtin and Chief Financial Officer , Heath Mitts . During this call , we will be providing certain forward looking information and we ask you to review the forward looking cautionary statements included in today's press release .

Speaker #3: In addition , we will use certain non-GAAP 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 .

Speaker #3: The press release and related tables , along with the slide presentation , can be found on the Investor Relations portion of our website at t.com .

Speaker #3: Now , please note that we are making a change in our non-GAAP reporting with the start of our fiscal 2026 year . The fourth quarter and full year fiscal 2025 financial results that we will discuss in today's call .

Sujal Shah: The fourth quarter and full year fiscal 2025 financial results that we will discuss in today's call do not reflect this change. However, beginning in fiscal 2026, we will exclude amortization expense on intangible assets from certain of our non-GAAP financial measures and this change is reflected in our Q1 guidance. We have recast the financial information of the quarters of 2025 and 2024 to ensure an apples-to-apples comparison of our results going forward and this is provided in the slide appendix and in an 8K that was filed this morning. Also, as a reminder, we will hold our Investor Day event on November 20 in Philadelphia with a product showcase the evening before. We're excited to convey opportunities for growth.

Speaker #3: Do not reflect this change . However , beginning in fiscal 2026 , we will exclude amortization expense on intangible assets from certain of our non-GAAP financial measures .

Speaker #3: And this change is reflected in our Q1 guidance . We have recast the financial information of the quarters of 2025 and 2024 to ensure an apples to apples comparison of our results going forward .

Speaker #3: And this is provided in the slide appendix and in an 8-K that was filed this morning. Also, as a reminder, we will hold our Investor Day event on November 20th in Philadelphia with a product showcase.

Speaker #3: The evening before . We're excited to convey opportunities for growth and further value creation for our owners , and are looking forward to seeing many of you at the event .

Heath Mitts: Further value creation for our owners.

Sujal Shah: We are looking forward to seeing many of you at the event. Note that we will also have a live webcast for those who are unable to attend in person. Finally, during the Q&A portion of today's call, due to the number of participants, we're asking everyone to limit themselves to one question, and you may rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments.

Speaker #3: Note that we will also have a live webcast for those who are unable to attend in person , and finally , during the Q&A portion of today's call , due to the number of participants , we're asking everyone to limit themselves to one question and you may rejoin the queue if you have a second question .

Speaker #3: Now let me turn the call over to Terrance for opening comments . Thanks . . And thank you , everyone .

Terrence Curtin: Thanks Sujal and thank you everyone for joining us today. Before I get into the details on the slides, I do want to reinforce a few key takeaways upfront. First off is that our strong momentum is continuing with quarterly and full year records for sales, earnings, and free cash flow in what continues to be an uneven macro environment. We also continue to demonstrate the strategic positioning of our portfolio benefiting from the secular growth trends in a number of our businesses, and we'll talk about these as we go through the discussion of our results today. We also continue to demonstrate operational resilience with our global manufacturing strategy where we have invested heavily to ensure in-region support of our customers, and we are set up for this strong performance to continue into fiscal 2026.

Speaker #5: For joining us today . Before I get into the details on the slides , I do want to reinforce a few key takeaways up front .

Speaker #5: First off is that our strong momentum is continuing with quarterly and full year records for sales , earnings and free cash flow in what continues to be an uneven macro environment .

Speaker #5: We also continue to demonstrate the strategic positioning of our portfolio , benefiting from the secular growth trends in a number of our businesses .

Speaker #5: And we'll talk about these as we go through the discussion of our results today . We also continue to demonstrate operational resilience with our global manufacturing strategy , where we've invested heavily to ensure in-region support of our customers .

Speaker #5: And we are set up for this strong performance to continue into fiscal 2026 . We expect to continue executing on our long term value creation model , and we'll click down and provide more details at our Investor Day next month .

Terrence Curtin: We expect to continue executing on our long-term value creation model and we'll click down and provide more details at our Investor Day next month. With that as a backdrop, I would like to get into the presentation starting with Slide 3 and I'll discuss fiscal 2025 results and our guidance. For the first quarter of fiscal 2026, our fourth quarter sales were above our guidance at $4.75 billion, growing 17% on a reported basis and 11% organically year over year. Both segments contributed to our sales being above guidance. We also saw orders increase in both segments to $4.7 billion and this was an increase of 22% year over year and it was up 5% sequentially. We delivered adjusted earnings per share of $2.44 that was above our guidance due to the strong execution by our teams and increased 25% versus the prior year.

Speaker #5: So with that , as a backdrop , I would like to get into the presentation starting with slide three , and I'll discuss fiscal 2025 results and our guidance for the first quarter of fiscal 2026 .

Speaker #5: Our fourth quarter sales were above our guidance at $4.75 billion , growing 17% on a reported basis and 11% organically year over year .

Speaker #5: Both segments contributed to our sales being above guidance . We also saw orders increase in both segments to $4.7 billion , and this was an increase of 22% year over year .

Speaker #5: And it was up 5% sequentially . We delivered adjusted earnings per share of $2.44 . That was above our guidance due to the strong execution by our teams and increased 25% versus the prior year .

Speaker #5: Adjusted operating margins were 20% , increasing 130 basis points year over year . And lastly , in the quarter , free cash flow performance continued to strong momentum that we've seen throughout the year and was $1.2 billion in the fourth quarter .

Terrence Curtin: Adjusted operating margins were 20%, increasing 130 basis points year over year. Lastly, in the quarter, free cash flow performance continued the strong momentum that we've seen throughout the year and was $1.2 billion in the fourth quarter. Let me transition to full year results. Full year sales were record at $17.3 billion, growing 9% on a reported basis and 6% on an organic basis. In our Industrial segment, we saw 24% reported growth benefiting from bolt-on acquisitions that we made this year. On an organic basis, segment growth was 18% and capitalized on a strong demand for artificial intelligence and energy infrastructure applications. In Transportation, we continue to demonstrate our strong global position with strength in Asia that drove content growth from increased data connectivity and growth of the electrified powertrain in that region.

Speaker #5: So let me transition to full year results . Full year sales were a record at $17.3 billion , growing 9% on a reported basis and 6% on an organic basis .

Speaker #5: In our industrial segment , we saw 24% reported growth , benefiting from bolt on acquisitions that we made this year on an organic basis .

Speaker #5: Segment growth was 18% and capitalized on the strong demand for artificial intelligence and energy infrastructure applications in transportation . We continued to demonstrate our strong global position with strength in Asia that drove content growth from increased data connectivity and growth of the electrified powertrain in that region .

Speaker #5: We achieved record earnings in fiscal 2025 adjusted operating margins were essentially 20% , expanding 80 basis points year over year , and adjusted earnings per share was $8.76 , increasing 16% versus the prior year .

[Analyst]: We.

Terrence Curtin: Achieved record earnings in fiscal 2025. Adjusted operating margins were essentially 20%, expanding 80 basis points year over year, and adjusted earnings per share was $8.76, increasing 16% versus the prior year. Driven entirely by the strong sales and margin performance, we continue to demonstrate the strengths of our cash generation model. We delivered free cash flow of over $3 billion with conversion levels of well over 100%. This strong cash generation gave us the flexibility for record capital deployment with over $2 billion returned to shareholders and $2.6 billion used for bolt-on acquisitions during the year. As we look forward, order levels support our outlook for double-digit growth in the first quarter. We are expecting our first quarter sales to be $4.5 billion, reflecting sequential seasonality that we typically see and increasing 17% year over year on a reported basis and up 11% organically.

Speaker #5: Driven entirely by the strong sales and margin performance . We continue to demonstrate the strength of our cash generation model . We delivered free cash flow of over $3 billion with conversion levels of over 100% .

Speaker #5: This strong cash generation gave us the flexibility for record capital deployment , with over $2 billion returned to shareholders and $2.6 billion used for bolt on acquisitions during the year .

Speaker #5: As we look forward , order levels support our outlook for double digit growth in the first quarter . We are expecting our first quarter sales to be $4.5 billion , reflecting sequential seasonality that we typically see , and increasing 17% year over year on a reported basis and up 11% organically .

Speaker #5: We expect adjusted earnings per share to be around $2.53 in the first quarter , and well this will represent growth of 23% year over year .

Terrence Curtin: We expect adjusted earnings per share to be around $2.53 in the first quarter, and this will represent growth of 23% year over year. Now if you could turn to slide 4, let me get into order details. In the quarter, we saw orders of $4.7 billion with growth year over year and sequentially in both segments. On a year over year basis, we saw organic order growth across all regions, and on a sequential basis, growth was driven by automotive, digital data networks, and energy. Touching on the segment, transportation orders increased 9% versus the prior year, driven by auto growth in all regions. In the industrial segment, orders increased 39% year over year, reflecting ongoing momentum in DDN as well as our energy and ADNM businesses.

Speaker #5: Now , if you could turn to slide four , let me get into order details . In the quarter we saw orders of $4.7 billion with growth year over year .

Speaker #5: And sequentially in both segments on a year over year basis . We saw organic order growth across all regions and on a sequential basis , growth was driven by automotive , digital data networks and energy .

Speaker #5: Touching on the segment transportation orders increased 9% versus the prior year , driven by auto growth in all regions . In the industrial segment , orders increased 39% year over year , reflecting ongoing momentum in as well as our energy and ADM businesses .

Speaker #5: Also , one thing to highlight in our orders , we did see order rates improve in the general industrial end markets , and we believe this indicates stability .

Terrence Curtin: Also, one thing to highlight in our orders, we did see order rates improve in the general industrial end markets, and we believe this indicates stability. Now let me get into the segment quarterly results, and if you could turn to Slide 5, I'll start with transportation. Our auto sales grew 2% organically in the fourth quarter, with growth in Asia of 11% being offset by declines in Western regions of 4%. Our growth over market reflects the ongoing regional dynamics that we've seen all year and have impacted our growth over market. As we look forward, we expect global auto production to be 87 to 88 million units in fiscal 2026, with content growth being driven by key wins for our leading-edge products and technology around data connectivity and electrification of the powertrain.

Speaker #5: Now let me get into the segment quarterly results . And if you could turn to slide five I'll start with transportation . Our auto sales grew 2% organically in the fourth quarter with growth in Asia of $0.11 , 11% being offset by declines in western regions of 4% .

Speaker #5: Our growth over market reflects the ongoing regional dynamics that we've seen all year and have impacted our growth over market . As we look forward , we expect global auto production to be 87 to 88 million units in fiscal 2026 , with content growth being driven by key wins for our leading edge products and technology around data connectivity and electrification of the powertrain .

Speaker #5: We continue to benefit from our strong global position and localization strategy , which enables us to serve our global customer base . Turning to commercial transportation , we reported 5% organic growth and this was driven entirely by growth in Europe and in Asia , which was offset by ongoing weakness that we see in North America and in our sensors business .

Terrence Curtin: We continue to benefit from our strong global position and localization strategy, which enables us to serve our global customer base. Turning to commercial transportation, we reported 5% organic growth. This was driven entirely by growth in Europe and in Asia, which was offset by ongoing weakness that we see in North America. In our sensors business, we saw weakness in end markets in Western regions that were partially offset by growth in Asia. For the transportation segment, the team delivered 20% adjusted operating margins for the full year as we expected. The team did a good job of navigating an uneven global production environment. Let me turn to the Industrial Solutions segment, which is on Slide 6. The segment grew 34% in the quarter overall, as well as 24% organically. Digital Data Networks had another outstanding quarter where the business grew 80% year over year.

Speaker #5: We saw weakness in end markets in western regions that were partially offset by growth in Asia . For the transportation segment . The team delivered 20% adjusted operating margins for the full year .

Speaker #5: As we expected , and the team did a good job of navigating an uneven global production environment . So if you could let me turn to industrial solution segment , which is on slide six , and the segment grew 34% in the quarter .

Speaker #5: Overall , as well as 24% organically . Digital data Networks had another outstanding quarter where the business grew 80% year over year . We continue to benefit from increasing ramps from Hyperscaler platforms and for the full year , we generated over $900 million in AI revenue , tripling our AI sales versus the prior year .

Terrence Curtin: We continue to benefit from increasing ramps from hyperscaler platforms. For the full year, we generated over $900 million in AI revenue, tripling our AI sales versus the prior year. This reflects our increased momentum. In our automation and connected living business, sales grew 11% organically year over year, with 3% sequential improvement that we believe reflects stability in general industrial markets. In our energy business, sales grew 83% and included the Richards acquisition, which enables us to capitalize on strong growth opportunities in the North American utility market. On an organic basis, our sales increased a strong 24%, driven by continued increased investments by our customers in grid hardening as well as renewable applications. In our aerospace, defense and marine business, sales grew 7% organically, driven by growth across commercial airspace as well as defense applications.

Speaker #5: And this reflects our increased momentum . In our automation and connected living business , sales grew 11% organically year over year , with 3% sequential improvement that we believe reflects stability in general .

Speaker #5: Industrial markets . In our energy business , sales grew 83% and included the Richards acquisition , which enables us to capitalize on strong growth opportunities in the North American utility market .

Speaker #5: On an organic basis , our sales increased a strong 24% , driven by continued increase investments by our customers in grid hardening , as well as renewable applications .

Speaker #5: In our aerospace , defense and marine business , sales grew 7% organically , driven by growth across commercial , aerospace as well as defense applications .

Speaker #5: And in these markets , we continue to see favorable demand trends coupled with ongoing supply chain improvement . And in our medical business , sales were roughly flat sequentially as we expected .

Terrence Curtin: In these markets, we continue to see favorable demand trends coupled with ongoing supply chain improvement. In our medical business, sales were roughly flat sequentially as we expected. Turning to margins for the industrial segment, our adjusted operating margins expanded by nearly 300 basis points to over 20%, driven by the strong operational performance and benefits of higher volume. I am pleased with the progress our team has made this year supporting the strong growth that we have in this segment. Now let me turn it over to Heath to get into more details on the financials and our expectations going forward.

Speaker #5: Turning to margins for the industrial segment, our adjusted operating margins expanded by nearly 300 basis points to over 20%, driven by strong operational performance and the benefits of higher volume.

Speaker #5: I am pleased with the progress our team has made this year , supporting the strong growth that we have in this segment . Now , let me turn it over to Heath to get into more details on the financials and our expectations going forward .

Speaker #6: Thank you , Terrence , and good morning , everyone . Please turn to slide seven for the quarter adjusted operating income was $943 million with an adjusted operating margin of approximately 20% .

Heath Mitts: Thank you, Terrence, and good morning everyone. Please turn to Slide 7. For the quarter, adjusted operating income was $943 million with an adjusted operating margin of approximately 20%. GAAP operating income was $916 million and included $10 million of acquisition related charges and $17 million of restructuring and other charges for the full year 2025 fiscal. For the fiscal 2025 restructuring charges were $113 million. I expect restructuring charges in fiscal 2026 to be roughly at the $100 million level. Adjusted EPS was $2.44 and GAAP EPS was $2.23 for the quarter and included a tax charge of $0.10 related primarily to the increase in the valuation allowance for deferred tax assets. Additionally, we had restructuring, acquisition and other charges of $0.11. The adjusted effective tax rate was 21.4% in our fourth quarter and approximately 23% for the full year 2025.

Speaker #6: GAAP operating income was $916 million and included $10 million of acquisition related charges and $17 million of restructuring and other charges . For the full year 2025 fiscal , I'm sorry for the fiscal 25 restructuring charges were 113 million , and I expect restructuring charges in fiscal 26 to be roughly at the $100 million level .

Speaker #6: Adjusted EPS was $2.44, and GAAP EPS was $2.23 for the quarter. This included a tax charge of $0.10, related primarily to the increase in the valuation allowance for deferred tax assets.

Speaker #6: Additionally , we had restructuring , acquisition , and other charges of $0.11 . The adjusted effective tax rate was 21.4% . In our fourth quarter , and approximately 23% for the full year 2025 .

Speaker #6: Moving to fiscal 26 , we expect our adjusted effective tax rate in the first quarter to be approximately 22% . With the full year being similar to last year at approximately 23% .

Heath Mitts: Moving to fiscal 2026, we expect our adjusted effective tax rate in the first quarter to be approximately 22% with the full year being similar to last year at approximately 23%. Importantly, as always, we anticipate our cash tax rate to be well below our adjusted ETR. Now if you can turn to Slide 8 for fiscal 2025 performance, we set records in sales, operating, adjusted operating margins, adjusted earnings per share and free cash flow. Relative to our business model, we are delivering on our targets for sales growth, margin performance, EPS growth and cash generation. Sales of $17.3 billion were up 9% on a reported basis and 6% on an organic basis year over year with both organic and inorganic growth driven by our industrial segment.

Speaker #6: And importantly , as always , we anticipate our cash tax rate to be well below our adjusted ETR . Now , if you can turn to slide eight for fiscal 25 performance , we set records in sales , operating adjusted operating margins , adjusted earnings per share and free cash flow relative to our business model .

Speaker #6: We are delivering on our targets for sales growth margin , performance , EPs growth , and cash generation . Sales of $17.3 billion were up 9% on a reported basis , and 6% on an organic basis year over year , with both organic and inorganic growth driven by our industrial segment adjusted operating margins were essentially 20% for fiscal 25 , with margin expansion of 80 basis points year over year , driven by strong operational performance .

Heath Mitts: Adjusted operating margins were essentially 20% for fiscal 2025 with margin expansion of 80 basis points year over year driven by strong operational performance. Both of our segments are running at the 20% level for adjusted operating margins. We would expect further margin expansion as volumes continue to grow. Adjusted earnings per share were $8.76, up 16% year over year driven by sales growth and margin expansion. Now turning to cash, we increased our free cash flow to $3.2 billion in fiscal 2025 which was up 14% or $400 million year over year. Our free cash flow reflects 100% or over 100% conversion to adjusted net income and we remain committed to this going forward. Keep in mind that our strong cash flow generation and cash conversion in fiscal 2025 also included us investing a couple hundred million of increased capital investments to support the growth in our industrial segment.

Speaker #6: Both of our segments are running at the 20% level for adjusted operating margins, and we expect further margin expansion as volumes continue to grow.

Speaker #6: Adjusted earnings per share were $8.76 , up 16% year over year , driven by sales growth and margin expansion . Now turning to cash .

Speaker #6: We increased our free cash flow to $3.2 billion in fiscal 25 , which was up 14% , or $400 million year over year .

Speaker #6: Our free cash flow reflects a 100% or over 100% conversion to adjusted net income, and we remain committed to this going forward.

Speaker #6: And keep in mind that our strong cash flow generation and cash conversion in fiscal 2025 also included us investing a couple of hundred million dollars in increased capital investments to support the growth in our industrial segment.

Speaker #6: So a very good story there in fiscal 25 , we returned roughly 2.2 billion to shareholders through share buybacks and dividends . And we deployed approximately 2.6 billion aligned with our bolt on acquisition strategy .

Heath Mitts: A very good story there. In fiscal 2025, we returned roughly $2.2 billion to shareholders through share buybacks and dividends, and we deployed approximately $2.6 billion aligned with our bolt-on acquisition strategy. Our cash generation and healthy balance sheet give us continued optionality with uses of capital to support investments for future growth both organically and through M&A. As Sujal mentioned earlier, we are making a change to our non-GAAP reporting, and going forward, beginning with the first quarter of fiscal 2026, we will exclude amortization of intangible assets expense from our non-GAAP financial measures. This change is reflected in our Q1 guidance. You will see the historical impact in the recast materials that we have provided for fiscal 2025 and fiscal 2024 in the appendix of our materials. You can assume that amortization impact will be roughly $0.15 per quarter for fiscal 2026.

Speaker #6: Our cash generation and healthy balance sheet gives us continued optionality with uses of capital to support investments for future growth , both organically and through M&A .

Speaker #6: As mentioned earlier , we are making a change to our non-GAAP reporting and going forward and beginning with the first quarter of fiscal 26 , we will exclude intangible amortization expense from our non-GAAP financial measures .

Speaker #6: And this change is reflected in our Q1 guidance. You will see the historical impact of the recast materials that we have provided for fiscal 2025 and fiscal 2024.

Speaker #6: In the appendix of our materials . And you can assume that amortization impact will be roughly $0.15 per quarter for fiscal 26 . Now , before I turn it over to questions , let me reinforce that we continue to execute well in both segments to deliver the record results you see for fiscal 25 , we have positioned the company to deliver strong performance and value for our owners , and we expect our momentum to continue into fiscal 26 and beyond .

Heath Mitts: Before I turn it over to questions, let me reinforce that we continue to execute well in both segments to deliver the record results you see for fiscal 2025. We have positioned the company to deliver strong performance and value for our owners, and we expect our momentum to continue into fiscal 2026 and beyond. We look forward to sharing more about our growth opportunities and our value creation model at our upcoming Investor Day on November 20. Now, let's open it up for questions.

Speaker #6: We look forward to sharing more about our growth opportunities and our value creation model at our upcoming Investor Day on November 20th.

Speaker #6: Now , let's open it up for questions .

Speaker #3: Okay . Thank you . Heath . Kate , could you please give the instructions for the Q&A session .

Sujal Shah: Okay, thank you, Heath. Kate, could you please give the instructions for the Q&A session?

Speaker #4: At this time ? I would like to remind everyone to ask a question . Press start , followed by the number one on your telephone keypad in order to have time for questions .

Operator: At this time, I would like to remind everyone to ask a question, press star, followed by the number one on your telephone keypad. In order to have time for questions, each participant is limited to one question. Your first question comes from the line of Scott Davis with Melius Research. Your line is open.

Speaker #4: Each participant is limited to one question . Your first question comes from the line of Scott Davis with Melius . Research . Your line is open .

Speaker #7: Hey, good morning, Terrence, Heath, and Sujal Shah, and congratulations on a great year.

Terrence Curtin: Hey, good morning Terrence and Heath and Sujal, and congrats on a great year. Good morning, Scott. Hey guys, I have a lead in on.

Speaker #5: Hey, good morning, Scott.

Speaker #7: Hey guys . I got a lead in on the AI stuff because it's just a giant tailwind for you and you're doing a seem to be doing a great job of capturing those revenues .

[Analyst]: The AI stuff is just a giant tailwind for you, and you're doing a great job of capturing those revenues. Last quarter, I think you were.

Speaker #7: But last quarter , I think you were talking about 800 million . You did 900 . I think last quarter you said you thought maybe 26 was a billion .

Terrence Curtin: Talking about $800 million.

[Analyst]: You did $900 million. I think last quarter you said you thought maybe 2026 was $1 billion. Can we mark to market that forecast? Just as importantly, where are you on the scale impact there, where you can get to or above company average margins?

Speaker #7: Can we mark to market that forecast ? And just as importantly , where are you on kind of the scale impact there ? Where where you can get , you know , two or above kind of company average margins ?

Speaker #5: Yeah . So no great question Scott . And you know , you're right on with where we've seen the momentum all year . And in many cases , you know , our customers on the programs that we win .

Terrence Curtin: Yeah. Great question, Scott. You're right on with where we've seen the momentum all year and in many cases, our customers on the programs that we win continue to want more and they want it faster, which is a key element of how you win in this market. You are right. We generated over $900 million of AI sales in 2025. Remember in 2024 that was $300 million. This is really the products that we do that go into AI with the GPUs and so forth. We tripled our revenue in this product set, which I actually think shows the job the team has done to ramp to your question. As we look into 2026, the estimates out there are for hyperscale CapEx to grow about 20% and let's face it, we have strong orders, we have the momentum and we have the design win traction.

Speaker #5: You know , continue to want more . And they want it faster , which is a key element of how you win in this market .

Speaker #5: And so you are right . We generated over $900 million of AI sales in 25 . And remember , in 24 that was 300 million .

Speaker #5: And this was really the products that we do that go into AI with the GPUs . And so forth . So we tripled our revenue in this product set , which I actually think shows how the the job the team has done to ramp to your question , you know , as we look into 26 , you know , the estimates out there is for hyperscale CapEx to grow about 20% .

Speaker #5: And let's face it , we have strong orders . We have the momentum and we have the design win traction . So , you know , we grew $600 million this year alone in AI in dollars .

Terrence Curtin: We grew $600 million this year alone in AI and dollars. I think that's probably the baseline you have going into next year from a level of dollar growth that you should be thinking about right now. The other thing I want to highlight is while we talk about AI, we also have a lot of growth that's happening outside of AI in our Digital Data Networks business. There is business we have that is cloud business that is not AI. That business is running about $500 million right now this year, that doubled versus last year. That's also real momentum. Outside of that, where we play in enterprise and telecom over the past six months, I would tell you we have seen increased momentum there where those applications are growing double digit for us.

Speaker #5: I think that's probably the baseline you have going into next year from a level of dollar growth that you should be thinking about right now .

Speaker #5: The other thing I want to highlight is while we talk about AI , you know , we also have a lot of growth that's happening outside of AI .

Speaker #5: And our business . And there is business . We have that is cloud business that is not AI . That business is running about $500 million right now .

Speaker #5: This year . That doubled versus last year . And then we also that's also real momentum . And then outside of that where we play an enterprise and telecom over the past six months , I would tell you we have seen increased momentum there where those applications are growing double digit for us .

Speaker #5: So I know we spent a lot of time on AI and a lot of early thing was all the all the cloud CapEx went to AI .

Terrence Curtin: I know we spent a lot of time on AI and a lot of early thinking was all the cloud CapEx went to AI. We've seen a broadening out of it. Certainly nice growth in the cloud side as well that is not AI but also seeing nice growth rates and all of that comes together to be that nice 80% growth we had this quarter and we can see that growth momentum continuing.

Speaker #5: We've seen a broadening out of it . Certainly nice growth in the cloud side as well . That is not AI , but also seeing nice growth rates and all of that comes together to be that nice 80% growth .

Speaker #5: We had this quarter . And you know , we can see that growth momentum continuing .

Speaker #3: Okay. Thank you, Scott. Can we have the next question, please?

Sujal Shah: Okay, thank you, Scott. We have the next question, please.

Speaker #4: Your next question comes from the line of Joe with UBS. Your line is open.

Operator: Your next question comes from the line of Joe Spak with UBS. Your line is open.

Speaker #8: Thanks . Hey , Joe . Maybe just to follow on . I mean , you talked about some of the , you know , the high speed interconnect and the data center .

Heath Mitts: Thanks. Hey Joe, maybe just to follow on, you talked about some of the high speed interconnect in the data center. I was wondering if there's also a power element related to AI that's going to help you in 2026, and then just for CapEx in 2026, like you've been close to mid $500 million sales this year to help build out that support. Should we expect similar levels next year to help support that continued growth, or has most of that investment already been made? Thanks.

Speaker #8: I was wondering if there's also a power element related to AI that's going to help you in 26 , and then just for for CapEx in 26 , you know , you've been close to mid five sales this year to help build out that support .

Speaker #8: Should we expect similar levels next year to help support that continued growth or has most of that investment already been made ? Thanks .

Speaker #5: No thanks Joe . And yeah , so first off , let me get into the products . That's a little bit that when we talk about our DM business , you know , clearly the bigger driver is what you get around high speed .

Terrence Curtin: No thanks, Joe. First off, let me get into the product sets a little bit. When we talk about our DDN business, clearly the bigger driver is what you get around high speed. We have, our growth has also been happening around what happens on the power interconnects. Certainly, what we do in helping that power be more efficient from liquid bus bars and things like that that we do with our customers, and also where we do cable connectivity that goes between racks and so forth. The numbers I quoted to Scott include all of that in those categories, Joe. We have momentum across all of them because all of them are key building blocks of how this architecture comes together where you need lower power, no latency, higher speeds, all happening at once. All those products are there.

Speaker #5: But our growth has also been happening around what happens on the power interconnects. Certainly, what we do in helping that power be more efficient, from liquid busbars and things like that, is something we do with our customers.

Speaker #5: And then also where we do cable connectivity that goes between racks and so forth . So when the numbers I quoted to Scott include all of that in those categories , Joe .

Speaker #5: And , you know , we have momentum across all of them because all of them are key building blocks of how this architecture comes together , where you need lower power .

Speaker #5: No latency , higher speeds , all happening at once . So all of those products are there . I don't think one inflects at a higher point than the other as we continue , I think you're just going to continue to get that good momentum that we've had this year with the ramps that we have going and the program wins that we have .

Terrence Curtin: I don't think one inflects at a higher point than the other. As we continue, I think you're just going to continue to get that good momentum that we've had this year with the ramps that we have going and the program wins that we have. Heath, why don't you take the capital side of it?

Speaker #5: He's why don't you take the capital side of it ?

Speaker #6: Sure . And Joe , just , you know , as a point of reference and you have the material there , our capital was up a couple hundred million from FY 24 to FY 25 .

Heath Mitts: Sure. Joe, just as a point of reference, and you have the material there, our capital was up a couple hundred million from FY24 to FY25. That growth was entirely for some of these AI and cloud programs that we've won in both in the past. We're expanding and, or in some cases, adding new capacity altogether for very program specific reasons. There will be some pressure to increase that a little bit as we move from 2025 into fiscal 2026. We don't guide that number specifically, but I would expect it to be kind of in line, maybe just a little bit less than the dollar increase we saw in the prior year. I still think with the revenue growth and the growth that comes out of these programs, we'd still be at the TE average, still in the little over 5% range.

Speaker #6: And that growth was entirely for some of these AI and cloud programs that we've won both in the past . And so we're expanding and or in some cases adding new capacity altogether for very program specific reasons .

Speaker #6: There will be some pressure to to increase that a little bit as we move from 25 into fiscal 26 . We don't guide that number specifically , but I would expect it to be kind of in line , maybe just a little bit less than the dollar increase .

Speaker #6: We saw in in the prior year . So I still think with the revenue growth and the growth that comes out of these programs , we'd still be at the T average , still in the little over 5% range .

Speaker #6: And it kind of depends , because sometimes these programs , the revenue that comes out of these programs can lag a fiscal year or lag when you make those investments .

Heath Mitts: It kind of depends because sometimes these programs, the revenue that comes out of these programs can lag a fiscal year or lag when you make those investments. I know where some of the things the team is contemplating for this year is even investments that we'll make in late 2026 for programs that will kick into revenue for 2027. There's a lot of great momentum there. The key is for us to get up, get operationalize things so we can't be the ones holding our customers back.

Speaker #6: So I know where some of the things the team is contemplating for this year is even investments that will make in 27 to support programs that we've won for or , I'm sorry , investments in late 26 for programs that will kick into revenue for 27 .

Speaker #6: So there's a lot of great momentum there . The key is for us to get up , get operational , operationalize things so we can't we're not the ones holding our customers back .

Speaker #3: All right . Thank you Joe . We have the next question please .

Sujal Shah: All right, thank you, Joe. We have the next question, please.

Speaker #4: Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.

Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.

Speaker #9: Yes . Good morning . Thank you very much for taking my question . I hope you can help us better understand trends by end market beyond including how demand trends have changed over the last 90 days and any early views you can share for fiscal 26 .

[Analyst]: Yes, good morning. Thank you very much for taking my question. If you can help us better understand trends by end market beyond DDN, including how demand trends have changed over the last 90 days and any early views you can share for fiscal 2026. Thanks.

Speaker #9: Thanks .

Speaker #5: No thanks . Mark . And like we've done already in the script , there's going to be some of this . We're going to say , please come to Investor Day .

Terrence Curtin: Thanks, Mark. Like we've done already in the script, there's going to be some of this. We're going to say please come to Investor Day. I'll tell you what we've seen and changed over the past 90 days. Let's build on the orders that we talked about, and you can see the slide. I think one of the things that is a positive is you saw the order growth both year over year and sequentially in both segments. I do think the environment does feel better than 90 days ago. Let me click down a little bit by the segments. First of all, just taking transportation, orders were up both year over year and sequentially in auto. It is one of the things all in 2025 we dealt with, a world where Asia production grew, Western production declined.

Speaker #5: But I'll tell you what we've seen . And change over the past 90 days . Let's build on the orders that we talked about .

Speaker #5: And you can see the slide. I think one of the things that, you know, is a positive is you saw the order growth both year over year and sequentially in both segments.

Speaker #5: So, I do think the environment does feel better than 90 days ago. But let me click down a little bit by the segments.

Speaker #5: You know , first off just taking transportation . You know , orders were up both year over year and sequentially . In auto .

Speaker #5: And it is one of the things all in 2025 . We dealt with the world where Asia production grew . Western production declined .

Speaker #5: We do actually think what we're seeing is some stability that they're probably going to be more even between regions , even though auto production is going to stay in that 87 to 88 million unit range , which is , you know , flattish .

Terrence Curtin: We do actually think what we're seeing is some stability, that they're probably going to be more even between regions. Even though auto production is going to stay in that 87 to 88 million unit range, which is flattish, we also think we're going to continue to deliver content growth over market of 4% to 6%. When you think about what's happening with data needed in the car, what's happening with further creature comfort, things that we all want that drives more electronification in the car as well as just the non-ending growth of electrified powertrains in Asia, all of that continues to give us confidence on the 4% to 6%. When you look at industrial transportation versus 90 days ago, Mark, honestly there hasn't been much change unfortunately.

Speaker #5: We also think we're going to continue to deliver content growth over market of 4 to 6 , because when you think about what's happening with data needed in the car , what's happening with further , further creature comfort things that we all want that drives more electronification in the car as well as just the non-ending growth of electrified powertrains in Asia .

Speaker #5: All of that continue to give us confidence on the 4 to 6 . When you look at industrial transportation versus 90 days ago , Mark , honestly , there hasn't been much change .

Speaker #5: Unfortunately , we continue to see Europe and Asia have growth and North America still having declines in the truck and Bros and the agricultural area .

Terrence Curtin: We continue to see Europe and Asia have growth and North America still having declines in the truck and bus and the agricultural area. I would say that's one that continues to be uneven, that we're actually really looking for signs when can we get a little bit of a North America pickup. We are not seeing any trends that see that right now. That's one unfortunately probably still feels muddled. In the industrial segment, I will jump over Digital Data Networks like you asked. You look across our end markets, there we are, we're seeing consistent growth across them in energy and we have, you saw the organic growth this quarter of 20% with where we position ourselves in North America and what's happening in green grid investment in the T and D side by utilities, the hardening, the getting it up to current trends and everything.

Speaker #5: So, I would say that's one that continues to be uneven, and that we're actually really looking for signs. When can we get a little bit of a North America pickup?

Speaker #5: But we are not seeing any trends that see that right now . So that's one unfortunately , probably still feels muddled . And then in the industrial segment , you know , I will jump over like you asked .

Speaker #5: But you look across , you know , our end markets there . We're seeing consistent growth across them . You know in energy .

Speaker #5: You know we have you sold the organic growth this quarter of 20% with where we position ourselves in North America . And what's happening in grid investment in the T&E side by utilities .

Speaker #5: The hardening , the , you know , getting it up to , you know , current trends and everything that continues to be very good order momentum there .

Terrence Curtin: That continues to be very good order momentum there. We're also benefiting from utility scale renewables like solar. ADNM just continues, I would say the market continues to move along. You've seen air framers talk about where they're getting their build rates to. It feels the supply chain continues to show improvement, which is good signs. The one that I know we've been pretty hesitant on in our ACL business, which has general industrial, has a little bit of things that touch the consumer. What I could tell you, the factory automation side, which is the bigger piece of it, we are seeing growth in orders across all regions. The business grew sequentially. The areas where we see weakness is things where we have things that go into HVAC, things that go into appliances. That's where we see some weakness there.

Speaker #5: And we're also bending benefiting from utility scale renewables like solar a just continues , I would say the market continues to move along .

Speaker #5: You've seen Air Framers talk about where they're getting their build rates to , and it feels the supply chain continues to show improvement , which is good .

Speaker #5: Signs . And then the one that I know we've been pretty , you know , hesitant on , you know , in our ACL business , which has general industrial , has a little bit of things that's touched the consumer .

Speaker #5: What I can tell you , the factory automation side , which is the bigger piece of it , we are seeing growth in orders across all regions .

Speaker #5: The business grew sequentially . The areas where we see weakness is things where we have things that go into HVAC , things that go into appliances .

Speaker #5: That's where we see some weakness there . So it does feel the industrial piece of that or the business side has , has improved .

Terrence Curtin: It does feel the industrial piece of that, the business side, has improved. Certainly the residential or consumer side has gotten a little weaker. We did have nice growth. You saw that. We think the momentum on more of the industrial side continues to get more traction. That's a little bit of going around the horn as we think about entering 2026. Certainly you see that in our guide with 17% overall growth and 11% organic growth here in the first quarter. The industrial segment still has very good momentum. It feels like we're getting some stability across the transportation segment and a couple markets with questions.

Speaker #5: Certainly the residential or consumer side has gotten a little weaker , but we did have nice growth . You saw that . And we think the momentum on the more of the industrial side continues to get more traction .

Speaker #5: So that's a little bit of going around the horn as we think about entering 2026. Certainly, you see that in our guide with 17% overall growth and 11% organic growth here in the first quarter.

Speaker #5: You know , the industrial segment still and , you know , very good momentum . And it feels like we're getting some stability across the transportation segment .

Speaker #5: And a couple of markets with questions.

Speaker #3: All right . Thank you . Mark . We have the next question please .

Sujal Shah: All right, thank you, Mark. We have the next question, please.

Speaker #4: Your next question comes from the line of 1 million with Bank of America . Your line is open .

Operator: Your next question comes from the line of Samik Chatterjee with Bank of America. Your line is open.

Speaker #10: Yes . Thank you . Good morning . I , I was wondering if you could talk a little bit about margins in two ways .

[Analyst]: Yes, thank you. Good morning. I was wondering if you could talk a little bit about margins in two ways. One is when you look at gross margins, just a few years ago you were in the low 30%. You're squarely in the mid-30% now. How should we think about the potential for gross margins for you and for this industry to actually expand further from here? If you could comment just on the new basis of accounting, how should we think about the adjusted operating margins for both your segments? Sorry, if I could. Does this change in accounting imply any increased appetite around rate and pace of M&A as well? Thank you so much.

Speaker #10: One is when you look at gross margins , you know , just a few years ago , you were in the low 30s .

Speaker #10: You're squarely in the mid 30s now . How should we think about the potential for gross margins for for you and for this industry to , to actually expand further from here ?

Speaker #10: And if you could comment just on the new basis of accounting , how should we think about the adjusted operating margins for for both your segments ?

Speaker #10: And sorry , if I could does this change in accounting imply any increased appetite around rate and pace of of M&A as well ?

Speaker #10: Thank you so much .

Speaker #6: Okay . I will tackle I think you got three questions in one there . But .

Terrence Curtin: Okay, I will tackle.

Heath Mitts: I think you got three questions in one there, Wamsi.

Speaker #5: You're ignoring Sujal Shah instructions .

Terrence Curtin: Wamsi, you're ignoring Sujal's instructions.

Speaker #6: Yes . But no I appreciate you I do appreciate your questions and your interest . So let's talk about margins . First margins for the year .

Heath Mitts: I appreciate your questions and your interest. Let's talk about margins first. Margins for the year.

Speaker #6: You know we this is a bit of a journey that we've been on . I think we were very specific with our comments around transportation going back several years , getting them closer to their margin target of about 20% , largely they're , there .

Terrence Curtin: You know, we.

Heath Mitts: This is a bit of a journey that we've been on. I think we were very specific with our comments around transportation going back several years, getting them closer to their margin target of about 20%. Largely they're there. You know, you're going to have noise in a given quarter. That's going to swing you on both sides of that. For the year they were at 20% and we expect good things margin wise. As we go into FY26, the industrial business has been more of a story around more rooftop consolidations and so forth and taking advantage where we have scale opportunities, particularly when we have shrunk programs like we have going on in the DDN business. We're very pleased with their performance and their jump forward in FY25. As we go into 26, we're going to be balanced with our investments.

Speaker #6: You know , you're going to have noise in a given quarter that's going to swing you another on both sides of that . But for the for the year , they're they're at 20% .

Speaker #6: And we expect good things . Margin wise as we go into FY 26 . The industrial business has been more of a story around more rooftop consolidations .

Speaker #6: And so forth , and taking advantage of where we have scale , opportunities , particularly when we have shrunk programs like we have going on in the business .

Speaker #6: And we're very pleased with their performance and their jump forward in from in FY 25 . Again , as we go into 26 , we're going to be balanced with our investments .

Speaker #6: But we think both of those segments will flow through , you know , on on revenue growth of 30 at 30% or maybe a tad better depending upon the mix .

Heath Mitts: We think both of those segments will flow through on revenue growth of 30% or maybe a tad better depending upon the mix. I think as you do your modeling, depending on what you want to put in there for the growth side, I think 30% is a good flow through math on that piece of it. For the organic growth in terms of gross margins, a lot of that flow through math does come to gross margins and we do get some leverage on our OpEx expense as well. We're running this past year at about 35% gross margins. The amortization change largely affects the gross margin line. When we think about it at the TE level, it's about 100 basis points of margin improvement that flows through at the gross margin line.

Speaker #6: So I think as you do your modeling , depending on what you want to put in there for , for the growth side , I think 30% is a good flow through math on on that piece of it for the organic , for the organic growth in terms of gross margins , a lot of that flow through math does come to gross margins , and we do get some leverage on our Opic opex expense as well .

Speaker #6: So , you know , we're running this past year at about 35% gross margins . The amortization change largely affects the gross margin line .

Speaker #6: So when we think about it at the T level , it's about 100 basis points of of margin improvement that flows through at the gross margin line .

Speaker #6: So at 35% in 25 would be kind of a recasted 20 or 36% . And that's where some of that flow through is going to going to occur .

Heath Mitts: At 35% in 25 would be kind of a recast at 36% and that's where some of that flow through is going to occur. If you think about the split by segments, which is another part of your question, it's in the schedule that we have in there for you that recast it and it shows the segments recasted by quarter going back to prior eight quarters. You can see that relative to what our actual results were. It's heavier weighted towards the industrial segment because obviously the amortization exposure expense load comes from the acquisitions. We've simply been more acquisitive on the acquisition front in the industrial segment over the past few years inclusive of the Richards deal that we completed earlier this year.

Speaker #6: If you think about the split by segments , which is another part of your question , it's it's in the schedule that we have in there for you that recasts it and it shows the segments recast by quarter going back to prior quarters .

Speaker #6: So you can see that relative to what our actual results were . But it's it's heavily weighted towards the industrial segment , because obviously the amortization expense load comes from at the the acquisitions .

Speaker #6: And we've simply been more quisitive on the acquisition front in the industrial segment or the past , over the past few years , inclusive of the Richards deal that we completed earlier this year .

Speaker #6: In terms of your third or fourth question on M&A , you know , listen , I think we've been trying to be we're going to talk more about it on our in our in our Investor Day here in about three weeks in terms of just overall capital deployment .

Heath Mitts: In terms of your third or fourth question on M&A, I think we're going to talk more about it in our Investor Day here in about three weeks in terms of just overall capital deployment. I don't want to, but I'd say it's fair to say that we are excited about our bolt-on opportunities in front of us. Bolt-ons don't always mean small. They come in all shapes and sizes, just as we completed in FY25. We completed a harder deal that was a little bit smaller, but then with the Richards deal, which was much larger. Our appetite ranges depending upon the business and the opportunity to create value there. Certainly, the optionality that I commented on earlier about free cash flow and the optionality that that provides gives us some confidence that in some ways we can be a little bit more aggressive.

Speaker #6: So I don't want to , but I'd say it's fair to say that that we are we're excited about our bolt on opportunities in front of us .

Speaker #6: Bolt ons don't always mean small . They come in all shapes and sizes , just as we completed and FY 25 , we completed the deal .

Speaker #6: That was a little bit smaller . But then with the Richards deal , which was was was much larger and our appetite ranges depending upon the business and the opportunity to create value .

Speaker #6: There . Certainly the optionality that I commented on earlier about free cash flow and optionality that that provides gives us some confidence that , you know , in some ways we can be a little bit more aggressive , but we're going to be smart with our with the , you know , with the investments that we make .

Heath Mitts: We're going to be smart with the investments that we make. Stay tuned and I look forward to seeing you in a few weeks, man. Thanks, Wamsi.

Speaker #6: So stay tuned . And I look forward to seeing you in a few weeks . Thanks , Ramsey .

Speaker #3: Okay . Thank you . Can we have the next question please .

Sujal Shah: Okay, thank you, Wamsi. Can we have the next question, please?

Speaker #4: Your next question comes from the line of Amit Daryanani with Evercore ISI . Your line is open .

Operator: Your next question comes from the line of Amit Daryanani with Evercore ISI. Your line is open.

Speaker #11: Yep .

[Analyst]: Thank you very much. I just had a couple questions. Just on the Digital Data Networks segment, broadly, Terrence, on the AI side, it sounds like $1.5 billion revenue run rate is sort of what you're comfortable with. I'd love to understand. Do you see this growth coming more from end demand, end units, or is there a share gain narrative as well as some of these programs are starting to mature, perhaps the share is getting more in your favor. I'd love to just kind of understand the levers behind the growth you see. On Digital Data Networks XAI, your growth over there actually being really impressive, north of 40% I think this year in fiscal 2025, which is much better than what the end markets are there. What's driving this growth on Digital Data Networks XAI as well? Thank you.

Speaker #12: Thank you very much . I just had a couple of questions just on the segment broadly , parents on the AI side , it sounds like 1.5 billion revenue run rate is sort of what you're comfortable with .

Speaker #12: I'd love to understand . Do you see this growth coming more from end demand end units , or is there a share gain narrative as well as some of these programs are starting to mature ?

Speaker #12: Perhaps the share is getting more in your favor . I'd love to just kind of understand the levers behind the growth . You see , and then on XII , your growth over there has been really impressive .

Speaker #12: North of 40% . I think this year in fiscal 25 , which is much better than what the end markets are there . So what's driving this growth on DD and EXi as well ?

Speaker #11: Thank you .

Speaker #6: Yeah .

Speaker #5: So twofold one Amit sorry and good morning . The 15I guess you're you're adding the AI and the cloud piece together . So I just want to make sure where that comes from .

Terrence Curtin: Yes, twofold. Amit, sorry and good morning. The 1.5, I guess you're adding the AI and the cloud piece together. I just want to make sure where that comes from. Honestly, that's program ramp wins. Like we've always told you, we have a nice position with the hyperscalers. We have to play everywhere there and these are ramps there. I think our share has been pretty stable, but really benefiting from the technology and where we're co-designing with our hyperscale customers that in some cases have their own GPUs. Outside of AI and cloud, what I would tell you, if you take this past quarter in enterprise and cloud, we grew about 15%. On things around the edge and IoT, it was a similar number in the double digits. What you see is, I do think it's the bump down effect that's happening in CapEx.

Speaker #5: And honestly that's program ramp wins . Like we've always told you . You know we have a nice position with the hyperscalers . We have to play everywhere there .

Speaker #5: And these are ramps . There . And I think our share has been pretty stable . But really benefiting from the technology and where we're co-designing with our hyperscale customers that in some cases have their own GPUs outside of AI and cloud .

Speaker #5: What I would tell you , what we saw and just if you take this past quarter in enterprise and cloud , we grew about 15% .

Speaker #5: And , you know , on things around the edge and IoT , you know , it was a similar number in the double digits .

Speaker #5: And what you see is I do think it's the bump down effect that's happening in CapEx . You know , our product set is very broad .

Terrence Curtin: Our product set is very broad. When you deal with high speed things, they do cascade down over time. I do think you sort of have lines do blur between AI and non-AI. The key thing, this cloud CapEx, the key element is that that's the number we keep an eye on, which is growing 20%. I think it's getting that bump effect that cascades down. If you remember like a year ago, we all just thought all the cloud CapEx was only going to AI. We're seeing that broaden out. Clearly, as you added some of my numbers together, you have those lines blurring. It's really created that really strong growth that we've had, that not only in the quarter we grew 80%, but basically we grew that for the year organically.

Speaker #5: You know , when you deal with high speed things , they do cascade down over time . So I do think you sort of have lines do blur between AI and Non-ai .

Speaker #5: And the key thing , this cloud CapEx that the key element is that's the number we keep an eye on , which is growing 20% .

Terrence Curtin: It was in the AI, the cloud that's non-AI, as well as we're starting to see pickup here in the past couple of quarters on the enterprise, the telco, as well as IoT and edge.

Sujal Shah: Okay, thank you. Amit. Can we have the next question, please?

Operator: Your next question comes from the line of Luke Junk with Baird. Your line is open.

[Analyst]: Good morning. Thanks for typing questions. Terrence, wanted to circle back to transportation and the orders in particular. You'd mentioned that you'd seen order growth in all regions this quarter. I'm just wondering, relative to auto outgrowth, especially that has been more weighted to Asia and China recently, would you say this might portend a more balanced outgrowth algorithm? I think you spoke to production being more balanced in the West, but what about some TE specific dynamics as well?

Terrence Curtin: No thanks, Luke. First off, you are right in my comments. We've had this out balance of production this year, and that has created a little bit of headwind because our mix, I mean our content per vehicle is higher in the West, you all know that. That has created a little bit of pressure where you've seen our content outperformance be a little bit lighter than our four to six. As we look forward, as we work through these Western declines and they become more flattish, I do view you're going to see content per growth in every region that contributes above that to get to the four to six. Certainly, there's different opportunities in different regions. The electrified powertrain is driven out of Asia. Data connectivity is in every region. Certainly, feature sets are different that drive electronics in the vehicle.

Terrence Curtin: The key thing is different by region, but the key thing you have to realize in every region, all of them are increasing. It's just the rate of increase. Net net, we do think you'll see content growth over market be more even this year. Certainly, there'll be a little anomalies just due to the trends are very different in region. Thanks for the question, Luke.

Sujal Shah: Thank you, Luke. Can we have the next question, please?

Operator: Your next question comes from the line of Samik Chatterjee with JP Morgan. Your line is open.

[Analyst]: Hi, thank you for taking my question. This is strategy. I just wanted to ask on implied margin guidance for F1Q. Based on my calculation, even after adjusting for the change in non-GAAP calculations, the implied margins are close to 21%, which is robust expansion relative to F4Q. Can you please highlight the drivers which are driving that margin expansion there? Thank you.

Terrence Curtin: Yeah. Hey Samik, I'm going to have Heath answer that question on where sequential margin goes sequentially Q4 to Q1.

Heath Mitts: First of all, as you know we don't guide a specific margin target. However, I think it's fair to say with the breadcrumbs that we've given you on various things with tax rate and so and implied what our EPS guide is and our revenue guide, you can assume that we're going to see an increase in margins modestly, sequentially, probably more driven by transportation which tends to have the highest auto production number in the first in our calendar in our fiscal first quarter each year and neutral or maybe flattish in industrial. I don't want to get into guiding margin rates but I think that'd be a fair assumption.

You can assume that um you know we're going to see an increase in margins modestly sequentially. Um probably more driven by Transportation which tends to have the highest Auto production number in the in our calendar, in our, in our physical first quarter each year.

Sujal Shah: Okay, thank you. Can we have the next question, please?

Um and and and neutral, or maybe, you know, flat Edge in, um, in industrial. But I don't want to get into uh to guiding margin rates but I think that'd be a fair assumption. So

Okay, thank you. Can we have the next question, please?

Operator: Your next question comes from the line of Mark Delaney at Barclays. Your line is open.

[Analyst]: Hi Terrence, I know you kind of answered the question about the growth in DDN AI, but I think I heard you say the cloud business doubled to $500 million. Can you tell me what's driving that? I assume it's cloud companies pushing their on premise customers to the cloud, and they seem to be growing at 20%. Just wondering how much visibility you have in this business because it potentially could be a multi-year runway. What sort of growth assumptions should we assume, sort of medium term.

Terrence Curtin: Yeah, first off, Guy, you are right. The comments I made in to Scott's question really had to do with our cloud revenue, which is in non-AI applications, was about $250 million last year and it was up to $500 million this year. I do think it's about the infrastructure being upgraded and not everything has a GPU, but you do have cloud data center. There are other things going in it that are being upgraded and we're benefiting from that. You have very high-end compute that's happening on the side, on the high-end side. You're going to have cascade down that we're benefiting from our broad product set. I do think we're going to continue to benefit from that growth trend going forward.

So, I know, uh, you kind of answered the question about the growth in ddmx AI, but I think I heard you say the cloud business doubled to 500 million. Um, can you tell me what's driving that? I assume it's, um, Cloud companies pushing that on premise customers to the cloud and they seem to be growing at 20%. So just wondering how much visibility you have in this business because it potentially could be a multi-year Runway, what sort of kind of growth consumption? Should be assumed sort of medium term.

Terrence Curtin: It may not have as much content as we have on AI, but it's going to have a nice growth rate to it because certainly connecting GPU to GPU like we do today, that's more of the AI element. You don't have that product in there, but certainly you have the high speeds needed in these next-gen servers that the cloud needs.

Yeah, so first off guy, you are right. You know, the comments I made in um to Scott's question really had to do with, you know our Cloud Revenue which is a non AI applications was about 250 and last year and it's was up to 500 million this year. And I do think it's about, you know, the infrastructure being upgraded and not everything has a GPU. But you do have cloud data center. There's other things going in it that are being upgraded, and we're benefiting from that. So clearly, you have very high-end compute that's happening on the in side, but on the high-end side. But you're going to have Cascade down that we're benefiting from from our broad product set. And I do think we're going to continue to benefit. Uh from that growth Trend going forward. It may not have the

As much content as we have on AI, who is going to have a nice growth rate to it because certainly connecting GPU to GPU, like we do today and that's more of the AI element you. You don't have that product in there but certainly you have the high speeds needed in these nextg servers that the cloud needs.

Sujal Shah: Okay, thank you. Can we have the next question, please?

Okay, thank you guy. We have the next question, please.

Operator: Your next question comes from the line of Colin Langan with BofA Securities. Your line is open.

Your next question comes from the line of calling langon with Wells, Fargo. Your line is open

Terrence Curtin: Oh great. Thanks for taking my questions. Just to follow up on the outlook in autos to grow 4 to 6% over market. I mean, any way to frame the challenge from EV adoption slowing down in developed markets, is that sort of going to keep you at the lower end of that range or even below that range given some of the pushbacks in some of those products, or is that kind of offset by other factors? No, when you look at it, I think you know clearly when you have EV adoption, the biggest driver of it is Asia and that's full steam ahead. You have less adoption elsewhere in the world where you have, you're not going to fully be, you might be going to a hybrid, which gives us a content increase but not the total content increase you have in a full electric.

Oh, great. Thanks for taking my question. I just to follow up on, on the Outlook, in Autos, to grow 4 to 6% over Market. I mean, any way to frame The Challenge from EV adoption slowing down in developed markets. Um, is that sort of going to keep you at the lower end of that range or even below that range? Given some of the push backs and some of those products or is that kind of offset by other factors.

Terrence Curtin: The element that you have to remember is I need you to think about what's happened to content not only in EV but outside. Think about the Ethernet connectivity that you need in a car for autonomy, for the sensor suite, for everything else that needs to happen in a car, for software updates over the top. All of that's being put in and we benefited from that, had really nice growth this year on it. That's going to be a key driver, almost just as important as what we've gotten out of evidence. The other thing that comes into the safety features, the comfort features, everything else that's getting added to the vehicle also adds content. We actually view it's going to be more balanced.

You have less adoption elsewhere in the world where you have you're not going to fully ease, you might be going to a hybrid, which gives us a Content increase. But not the total content increase, you have in a full Electric

The element that you have to remember is I need you to think about what's happened to content. Not only in EV, but outside. Think about the Ethernet connectivity that you need in a car.

for autonomy, for the sensor suite, for everything else that needs to happen in the car, for, um, software updates over the top,

Terrence Curtin: When we're at Investor Day here just next month, we'll spend more time on this to make sure everybody has a clear picture of how we see the content growth going forward.

Sujal Shah: Okay, thank you. Colin, we have the next question, please.

All of that's being put in. And we benefited from that had really nice growth this year on it and that's going to be a key driver. Um, almost just as important as what we've gotten out of Eevee, and then the other thing that come into the safety features, the comfort features, everything else that's getting added to the vehicle also adds content. So we actually view it's going to be more balanced and, you know, when we're at investor day here, just next month, we'll spend more time on this to make sure everybody has a clear picture of how we see the content growth going forward.

Thank you, Colin. We have the next question, please.

Operator: Your next question comes from the line of Asiya Merchant with Citigroup. Your line is open. Great. Thank you for taking my question. Can you just talk a little bit about the book to bill specifically? I think in Industrial given the strong momentum you have, you know, Digital Data Networks and as well as some of the other segments that you talked about. Is book to bill below 1 here? I think I calculated it to be 0.96. Is that a metric that investors should focus on and how we should think about that relative to your guide? Thank you.

Your next question comes.

Comes from the line of the CM Merchant, the City Group. Your line is open.

Terrence Curtin: Thanks for the question and good morning. I would say that you have to look at order levels, and the one element you get always this time of year is we do have sequential seasonality. That's very normal, especially in our Industrial segment. You have factories that shut down around holidays in the western part of the world. In many ways, if you look back over time, you will always see we have a step down Q4 to Q1 due to this factor. It's almost like we have one less week of business due to how people leverage their production planning. The element is, you know, $4.7 billion of orders in the fourth quarter against a $4.5 billion guide for the first quarter is very helpful.

Great. Thank you for taking my question. Um, can I can you just talk a little bit about the book to Bill specifically? I think in industrial, uh, given the strong momentum you have, you know, ddn and as well as some of the other segments that you talked about is book to Bill below 1 here. I think I calculated to be 0.96 is that um a metric that investors should focus on and how we should think about that relative to your guide. Thank you.

No, thanks for the question and good morning. I would say you have to look at order levels and you the 1 element, you get, always this time of year is we do have sequential seasonality. That's very normal.

Terrence Curtin: I know the book to bill takes current quarter, but what's really nice is the trend you see going into a sequentially slower quarter just due to seasonality is really how you should look at it.

Sujal Shah: Okay, thank you, Asia. Can we have the next question, please?

Especially in our industrial segments, you have factories that shut down around holidays in the western part of the world. So, in many ways, and if you look back over time, you will always see. We have a step down quarter 4 to quarter 1. Due to this factor. It's almost like we have 1 less week of business due to how people leverage their production planning and the element is, you know, 4.7 billion dollars of orders in the fourth quarter against a 4.5 billion guy. For the first quarter is very healthy. So I know the book to Bill takes current quarter but what's really nice is the trends you see going into a sequentially slower quarter. Just due to seasonality is really how you should look at it.

Operator: Your next question comes from the line of William Stein with Truist Securities. Your line is open.

Okay, thank you AIA. Can we have the next question, please?

Your next question.

[Analyst]: Great. Thank you for taking my question. Want to first recognize very good results on revenue and earnings and the outlook in the same regard. The question I'm going to ask is maybe is not quite as optimistic, but I do want to recognize the great results and outlook on the margins. However, I have this lingering question. You're again beating on revenue. You're beating in this new partly from this new category of AI, which I would expect carries better margins. The conversion margins are not bad, but I think they were a little bit below consensus. If you look to the out quarter, if you don't make that amort adjustment, I think it's the same story. Revenue beat, earnings beat, but margins are a little bit disappointing. From a perspective, is there something dragging on profitability today that you could clarify for us? Thank you.

Great. Thank you.

My question? Um uh, I I want to First recognize, you know, very good results on revenue and earnings and the Outlook and the same regard. Uh, so the question I'm going to ask is, um, maybe is, uh, not quite as optimistic but I do want to recognize the great results and outlook on the margins. However, I I have this lingering question. You're again beating on Revenue.

You're beating in this new party, from this new category of AI, which I would expect carries better margins.

um, the conversion margins are not bad but I think they were a little bit below consensus, and if you look to the out quarter,

If you don't make that amort adjustment, I think it's the same story Red Bull, beat earnings speed but margins are a little bit. Um disappointing from a perspective is there something dragging on profitability today um that that you could clarify for us? Thank you.

Heath Mitts: I'm not, you know, we've kind of been holding this roughly 30% flow through here for a while. I think when you look at our, and there's some bridges I think in the back. When you look at our operational performance and you look at the fourth quarter, the fourth full year 2025, our guide for 2026 year over year, or at least our first quarter guide, I think you can back into a number that's, that's, that has a three in front of it. Certainly amortization change was not done for any reason other than to best better represent kind of our cash profitability of the business. You know, you're always going to have a little bit of noise because between segments and then within a segment, maybe even some mix within a segment. That noise goes both directions.

Yeah, well, I I'm not, uh, you know, we we've kind of been holding this roughly 30%, uh, flow through here for a while, and so I think when you look at our and there's some bridges, I think in the back, when you look at our operational performance, um, and you look at uh, the fourth quarter, the full year, 25, our guide for 26 year over year or at least our first quarter guide. I think you would could come back into a number. That's that's that has a 3 in front of it. So um certainly Amber Shane change was not done for any reason other than to best better represent.

Heath Mitts: I don't get too hung up on that quarter to quarter. No, from a fundamental perspective, there's nothing that drags on us. I would say in certain pieces of the business that are passing on a little bit more tariff pricing. That tariff pricing and the revenue that comes from that does not include any margin behind it. When we do see a spike in some of that tariff pricing, some of those businesses struggle a little bit because you might add, you know, revenue with no margin, but that's just more of a recovery mechanism. That can create noise. I'd say you looked at the schedules that we provided for the quarter, for the full year, and certainly for our guide, you'd see a 30% or so in there.

Sujal Shah: Okay, thank you. Will we have the next question, please?

In certain pieces of the business that are passing on a little bit more tariff pricing, that Terror pricing ran the revenue that comes from, that does not include any margin behind it. So when we do see a spike in some of that tariff pricing, some of those businesses, struggle a little bit because you might add, you know uh Revenue with no margin but that's just more of a recovery mechanism so that that can create noise. But I'd say we you look at the schedules that we provided for uh, for the quarter for the full year and and certainly for our guide, um, you you'd see a 30% or so in there.

Operator: Your next question comes from the line of Shreyas Patil with Wolfe Research. Your line is open.

Okay, thank you. Well, we have the next question, please.

Your next question comes from the line of Shriya Patel with Wolf Research. Your line is open.

Terrence Curtin: Hey, thanks a lot for taking my question. On the AI piece, you're growing very rapidly, run rating at about $1.2 billion. You've talked in the past about this being a three player market. One of your competitors appears to be quite a bit ahead on revenue, maybe three times the revenues that you're doing at the moment. As we think ahead, how do you think about the market share dynamics in this space? Do you see an opportunity, should we be thinking over the long run that this will eventually become a more balanced market share across the three, the three big players? Do you see TE Connectivity as sort of a firm number two over time? I think what you have here, and you said it well, that when you look at the players, it is a concentrated player because what occurs is who can provide this technology.

Hey, thanks a lot for taking my questions.

on the AI piece, I

Doing very rapidly, run rating in about 1.2 billion. Uh, you've talked in the past about this being a 3-player market, uh 1 of your competitors appears to be, you know, quite a bit ahead on Revenue maybe you know, 3 times the revenues that you're doing at the moment. So I I guess as we think a ahead,

How do you think about the?

Market share Dynamics in this space.

Uh, do you see an opportunity should we be thinking over the long run?

That this will eventually become a more balanced uh market share across the 3, the 3, big players or you know, do you see tell as as sort of a firm number 2 um, in in overtime.

Terrence Curtin: When you look at how you have to co-design, ramp to the levels that you've seen us do, it doesn't mean it's going to be a concentrated market. I think we have to continue to look for technology inflections and they are typically going to be the areas where you see opportunities to gain share. We have to compete on technology, we have to compete on ramp with the customers, and we have to compete playing on the ecosystem. I think what's really good is that we provide the technology that shows we can provide it, and we're going to compete every day to try to increase shareholders.

Yeah, I think what you have here and you said as well, that when you look at the Players it is a concentrated player because what occurs is who can provide this technology. And when you look at how you have to co-design, you know, ramp to the levels, that you've seen us, do you know it, it doesn't mean it's going to be a concentrated Market. I think we have to continue to look for technology inflections and they they are typically going to be the areas where you see uh opportunities to gain share, but we got to compete on technology. We got to compete on ramp with the customers and we have to compete plan on the ecosystem and I think well it's really good is that we provide the technology that shows we can provide it and you know, we're going to compete every day to try to increase share.

Sujal Shah: Okay, thank you, Shreyas. Can we have the next question, please?

Operator: Your next question comes from the line of Joe Giordano with TD Cowen. Your line is open.

Okay, thank you, share. We have the next question, please.

Your next question comes from the line of Joseph ganoe with Judy Collins, your line is open.

[Analyst]: Good morning, this is Michael on for Joe.

Terrence Curtin: Hey Michael.

Hey, Michael.

[Analyst]: Previously you mentioned strong content in bus bars and cabling, and also previously other cores, backplane content in particular.

Terrence Curtin: Are there any recent order wins you'd?

[Analyst]: Like to highlight there specifically? What types of customers are.

Terrence Curtin: Seeing the most order activity right now between GPUs, custom ASICs, hyperscalers, stuff of that nature. Thank you. First off, the wins that we have are across the product set, and in some cases we're stronger with certain customers on one product set versus the other. You should assume you get one product set or all product sets with one customer. We compete individually on each one of those product sets that you sort of talk about. That's just reality as we work the architecture real time. The bulk of our wins, when you see the revenue traction we have in the ramp, are mainly with the hyperscalers. We have wins across the hyperscaler group as well as the semi players. The element is the bigger driver of growth for us is the hyperscalers that have their custom TPUs and GPUs.

So, previously you mentioned, um, you know, strong content and bus bars and cabling and you know, also previously other Corners, um, backplane content in particular, you know, are there any recent order wins? You'd like to highlight there specifically, um, and then what types of customers are you? Seeing the most order activity, with right now uh, between gpus custom, A6 hyperscaler, stuff of that nature. Thank you.

So, first off being, you know, the winds that we have are across the product set. And in some cases for stronger with certain customers on 1 product, set versus the other, you should assume you get 1 product set or all product sets with 1 customer. You know, we compete individually on each 1 of those products. That's what you sort of talked about.

Um, and that's just reality as we work, the architecture, real time, you know, the bulk of our wins that when you see the revenue traction we have in the ramp or mainly with the hyperscalers, you know, we have winds across the hyperscaler group uh, as well as the semi players, but the element is the bigger driver of growth for us is the hyperscalers that have their custom um, tpus and gpus.

Sujal Shah: Okay, thank you, Mike. It looks like there's no further questions. We appreciate all of you joining us this morning for the call, and if you have further questions, please contact Investor Relations. Thanks everyone and have a nice day.

Terrence Curtin: Thank you, everybody.

Okay. Thank you, Mike. Uh, it looks like there's no further questions, so we appreciate all of you joining us this morning for the call. And if you have further questions please contact investor relations at te uh thanks everyone and have a nice day. Thank you, everybody.

Operator: Today's conference call will be available for replay beginning at 11:30 A.M. Eastern Time today, October 29th, on the Investor Relations portion of TE Connectivity's website. That will conclude the conference for today. Sam.

Today's conference call will be.

For replay beginning at 11:30.

Eastern time today.

October 29th on the

envisions person. Oh, de connectivities website. That will conclude the conference for today.