安費諾 (APH) 2002 Q2 法說會逐字稿

Good morning and welcome to the Amphenol Corporation's second quarter operating results conference call. All participants will be able to listen only until the question and answer session. At the request of Amphenol Corporation, this conference is being recorded. If there are any objections, you may disconnect at this time. I would now like to introduce your moderator for today's conference, Mr. Edward Jepsen. You may begin when ready sir.

Thank you and good afternoon everyone. My name is Ed Jepsen, the CFO of Amphenol. And together with Martin Loeffler, the CEO. Amphenol's second quarter 2002 results were released this morning. I'll provide some financial commentary on the quarter, and Martin will give an overview of the business and current trends. And then we'll have a Q&A.

The second quarter was an excellent quarter, considering a challenging business environment. Sales for the quarter were $271,000,000, compared to $274,000,000 in the second quarter of 2001 or a decline of one percent. The sales decline includes a positive currency effect of $3.3 million. Breaking down sales into our two major sectors, the connecter-interconnect business, which comprises 85 percent of our business, was down one percent compared to a year ago. With declines in communication markets and a modest decline in industrial markets, substantially offset by double digit growth in the aerospace defense markets. Our coaxial cable business for broadband networks, which comprises 15 percent of our business was down four percent from a year ago due, primarily, to the slow down in international markets.

Operating income or

, for the quarter, was $45,000,000 compared to $51.6 million last year. The operating margin was 16.6 percent, compared to 18.8 percent last year and 15.7 for the first quarter of 2002. The operating margin was down from a year ago, primarily, because of the lower volumes and continuing pricing pressure. The margin was sequentially up from the first quarter, primarily, because of the increased volume. On any comparative basis and considering the economic environment, profitability continues to be very good, primarily because of the aggressive programs of cost control and the continuing development of new higher margin application specific products.

Interest expense for the quarter was $12.8 million, compared to $14.1 million last year, reflecting lower rates and lower debt levels. Other expense was $1.6 million, compared to $1.2 million last year. Tax expense was $10.5 million at an effective rate of approximately 35 percent, equivalent to the rate last year after adding back goodwill amortization. Diluted earnings per share was 46 cents a share, down from 53 cents a share a year ago. In 2002 we adopted a new goodwill accounting standard, which had the affect of eliminating goodwill amortization. On a

basis, EPS in the second quarter of 2001 would have been 61 cents per share under the new standard.

Cash flow, as measured by

was $53,000,000 for the quarter, compared to $65,000,000 last year. The balance sheet is in good shape. The cash balance at June 30th was $19,000,000. The accounts receivable

sales outstanding are comparable to the first quarter and the fourth quarter last year. Inventory is down, modestly, from the December 31st balance. The debt outstanding at June 30th was $670,000,000, that's down $50,000,000 from the $720,000,000 at December 31st, 2001. During the quarter we generated a very strong $30,000,000 of cash flow from operations, of such cash flow $4,000,000 was used for capital expenditures.

For the first half of 2002 free cash flow, that's cash flow from operations less capital expenditures, was $66,000,000. The company continues to be a very strong generator of cash. Finally, orders excluding cancellations reflected a positive book to bill ratio of approximately 1.02:1. Again, on balance, it was an excellent quarter with excellent profitability and cash flow in a difficult business environment. Martin.

Thank you very much Ed and good afternoon. Welcome and we really appreciate that you join our conference call on Amphenol. As Ed said, I will review very briefly some highlights of the second quarter and then discuss briefly also the trends and the outlook in the major markets that we serve.

Some of the highlights of this quarter, as Ed said, we're very pleased with Amphenol's result in this quarter. We continue to perform well in a very difficult and challenging business environment. Where uncertainty prevails, especially as it relates to when a robust recovery will truly occur.

We're very pleased with our revenues achievement, as we have been able to, after three quarters of stable revenues, to increase revenues in the second quarter over the first quarter by four percent in constant dollars.

As Ed said, the exchange was favorable so in nominal dollars the increase was about six percent. This increase is due in part to seasonal trends. Now, if we believe in seasonality, this environment where we don't really have a stable and normal economic environment, never the less we believe that seasonality has a role in and an effect - a positive effect, on moving revenues up in this quarter.

At the same time, we believe we have very successfully captured new business opportunity during that quarter. And we'll share some of this with you in a minute. We're also very pleased that our sales were essentially up in all major markets that we serve as we compare Q2 to Q1.

As we expected, higher revenues would drive operating margins up. That really happened. Our operating profit margins were almost off a 100 basis points over the first quarter. This is a result of our continued cost reduction programs, as well as the increased volume, which has generated very strong conversion margins.

As it relates to EPS, again as expected, on the six percent revenue increase, we increased EPS in the quarter on the sequential basis by 15 percent. Which goes back to our historical achievements over the last 10 years, where through operational and financial leverage, Amphenol has consistently been able to grow its earnings faster than its top line.

As a result of these strong earnings, our cash flow was also strong. We intend to use that cash flow to further reduce debt as well as to participate in new investments that really grow our top line, as well as pursue strategic acquisitions as we have done in the past.

There are more acquisition opportunities becoming available as we go into this year 2000 and continue to grow through 2002. So, in summary, Amphenol had an excellent quarter with sequential improvements in all its major markets segments and commensurate strong earnings performance.

Let me now discuss very briefly some trends in our major markets that we serve. Overall the communications related markets represented about 52 percent of our total sales in the quarter. Forty eight percent was related to the military, aerospace, industrial and automotive markets.

All these markets have shown some growth. The communications market less than the other markets. Let me start out with the broadband communications markets for hybrid fiber coax network. It represented about 16 percent of our total sales. It includes 15 percent of co-axle cable, and one percent of other products that are sold into the broadband market, including, increasingly, our fiber optic components. We are pleased with the results, as we have stable revenues in co-axle cable in the broadband market. And, stable to the Q1, is for us, very, very significant as the Q1 -- as many of you will recall -- had a significant increase in revenues compared to Q4 -- about 20 percent. So, we were very -- we are very fortunate and are pleased that we have been able to maintain revenues at this high a level in Q2.

The

in the second quarter was somewhat different as in North America our sales grew compared to last year, as in the sequential basis, offsetting some of the more sporadic project-oriented international business.

We anticipate that in the rest of the year revenues will remain at about the same levels as in the first half. Pricing is stable in this marketplace, so that we look forward to actually a good performance in that broadband market segment for the total year.

The wireless telecom and data communication markets represent 36 percent in the second quarter of our total sales. They are comprised -- this segment is comprised of our sales to the internet-related equipment market, wireless infrastructure market, as well as to the mobile phone market.

Let me first talk very briefly about the internet-related equipment market. This market was sequentially down about three percent in sales. The major reasons for the slight decline here was that after a very strong start in the first period of the year through April, there was some slowdown in May in June, primarily driven by transfers of

-national accounts of their manufacturing activity to Asia, as well as some uncertainties that were related to the integration of and the merger of HP with Compaq. Nevertheless, we see very positive activity in that market as inventories in the supply chain are further down, as we are seeing a very significant

activity, especially on the new products for high-speed data transmission -- both over

as well as fiber optics. And we're participating in this area very strongly. So, our outlook for the rest of the year in the internet-related market is positive with some sequential improvement over this quarter -- anticipated for Q3 and Q4.

The wireless infrastructure market had a very good and strong quarter, as sales were up sequentially by 16 percent. This is due to the fact that we are clearly benefiting from the very diverse customer base that we have in this -- in this market segment. Some of the customers have

programs where we have been able to participate during that quarter on quick-turn business. There is no real sign of a strong recovery in that market. We believe that the market, at best, will be flat -- probably down. Amphenol will, however, grow in this market in the year as we see sequential improvement opportunities in the third and fourth quarter in the wireless infrastructure market, due to our position as well as some of the rollout of third generation UMPS base stations that is truly occuring.

On the mobile phone side of the business, we had a very good quarter. We were up sequentially eight percent, the year-over-year 37 percent. This is primarily due to our strong performance in Asia. We have gained strong positions with the Chinese mobile phone manufacturers, as well as the Korean manufacturers, who all seem to have gained market share in the first half of this year. And we are participating with a stronger constant term mobile phone with these manufacturers.

At the same time, we're gaining also content and increased content with the more traditional manufacturers of mobile phones around the world and in Europe as well as in Asia, and this will certainly bode well for us in the future. Some of these components include the joystick that is being moved on mobile phones, connectors for the cameras that are being put on mobile phones, as well as new connectors replacing traditional technology for the displays. We're very pleased with these developments, which gives us a very positive and favorable outlook for this year, that we will grow in Q3 and Q4 in the mobile phone business, even if the market itself will be relatively stable, certainly in dollars, in that marketplace for the year 2002 as compared to 2001.

Let me now switch to the other markets outside of communications. The military aerospace market, which represented 25 percent of our sales in Q2, very strong performance, driven primarily by new programs. The replacement of products for existing equipment that is in the field is still an opportunity for further growth as funding for this has not been fully available. Nevertheless, we see excellent growth opportunities for the future. We have been growing sequentially seven percent in that market, 12 percent year-over-year, quarter two against quarter two of last year, and we continue to see sequential growth opportunities for Q3 and Q4, especially as replacement of existing equipment in ordinance is going to be required; very strong contributor to Amphenol sales in Q2 and so far for the first half of this year, and will continue to be a strong contributor for the rest of the year. So will be the industrial and automotive markets. We have seen that represent about 23 percent of our total sales, sequentially up six percent in this market. We're very pleased with our focus on customers and key customers in that areas with new products that is really driving that growth. It's not the strength through distribution, but our penetration of OEM's that is driving our sales in the industrial market in North American and elsewhere in the world.

In the automotive business, we are also pleased with the continued sequential improvement that we are making here, especially in - with our inter-connect products for safety devices, which are more and more used in cars on the broader basis and in a more multiple basis, as well as with our growth in the telematic market, which is a strong, contributor to growth in this automotive segment. Automotive has been, for many quarters, a strong contributor, including the Q2 was no exception. Q3 and Q4, as we can see it, will continue to contribute to some sequential improvement as well.

So in summary, we have seen a very strong quarter with sequential sales growth, with good conversion margins, excellent EPS growth on a sequential basis. As far as Q3 and Q4, our concerns, we expect that we will see some sequential modest improvement in Q3, as Q3 is usually a seasonally lower quarter and then some rebounds -- further rebounds in Q4. So that we can anticipate for the total year to reach revenues very close to the revenues that we achieved in 2001 and EPS that will be in the range of $1.90 to $2.00 and it's clearly our target to beat the $1.95 that we had last year achieved. So with this in mind and this strong outlook for the rest of the year, which is not counting on any robust recovery in any of the markets that we are serving, by a continuation of the current trends and us, from an internal standpoint capturing these new opportunities. We're very confident and very excited about the opportunities we have in front of us, to achieve these targets and that guideline that I just mentioned. Thank you very much for listening and with this I would like to open it up for any questions that you may have.

Thank you. At this time we are now ready to begin the formal Q&A session. If you would like to ask a question at this time, you may do so by pressing star then one on your touchtone phone and you will be announced prior to asking your question. To withdraw your question you may press star, two. Once again, if you would like to ask a question at this time please press star, one now and the first question today comes from Michael Morris with Solomon Smith Barney.

Yes, thank you. Good afternoon gentlemen, nice numbers.

Good afternoon Michael.

I would like to ask some, I guess, model type questions. Just looking at your year over year comparisons, sales were about level year over year. Last year in June you did about $274,000,000 in sales, your gross and operating margins were higher than your recording today and I just wondered if you could run through the factors? We know pricing is an issue, we know -- you've expanded a little bit, but I just wondered if you could talk a little bit about the factors leading to the declining margins and what -- at what level of sales, given your present position, would you expect to achieve those margins that you achieved a year ago, June?

Well, that is a very loaded question with a lot of components in it. Obviously there was, in this environment, quite some pressure on pricing as you would imagine and that was certainly going on for all of the year 2001 and continued in 2002 and is ongoing. And as a result of this our margins, somewhat, declined but I would like to stress that at 16.6 percent operating profit margin we have still have very strong margins -- comparably strong margin in the industry and as you have seen with some increase -- five, six percent increase in sales, we have been able to achieve and a 15 percent EPS growth or 100 basis points on

and we anticipate that the such strong conversion margins will continue. We have really not made a model yet to say when are we going to be again at 20 percent where we were about a year ago. Which was the highest point where every, you know, segment contributed with very strong operating margins.

But we are very confident that we can get back to higher profit margins over time, as volume increases. As most of the contracts that we have established, have had advanced pricing. Pricing based on higher volume that we have not yet achieved. But as these volumes come, combined with our continuing cost reduction programs, we are very confident that margins can be at a higher level than they are today.

But I would like to point out that 16.6 percent in its own right, are really high margins.

And I would just say amen to that, Martin. Believe me, we're not complaining about those margins. We're much impressed. We're just getting - trying to get a since of the leverage in your model.

Sure.

If I could ask a second question, it would be, in general, could you discuss your footprint in Asia? You mention that you're gaining a lot of traction there, particularly in mobile funds.

Could you talk about the dynamics that you see in your customer base of production moving to China, of perhaps shifting constituencies in who you sell to, i.e., either Taiwanese manufacturers or the North American EMS companies? Are there trends that you could talk about in that connection?

Certainly, I'm happy to. As you will recall, we have made significant investments to establish ourselves in China with all of our technologies. Starting out with low frequency connectors, fiber optics, radio frequency connectors, as well as engineered cable assemblies.

With all these technologies present in China, and therefore support both local Chinese manufacturers as well as the multi-nationals who are moving their

. The OEM's as well as the contract manufacturers.

And we're dealing, actually, and having business with all of them. We have a focus not on one of these - on a singular basis, but we focus on the multi-nationals who transcript business. And we try to capture that business that is being transferred and sometimes even more because some of the traditional connector manufacturers may not have that presence in China. And therefore, we are gaining.

That just has happened with

, as one example, where, you know, they absolutely wanted to have certain supplies in China. And we were very fortunate to be able to support them with exactly the technology that they needed in order to capture some business.

At the same time, we are focusing on the local manufacturers who have been usually supplied by Chinese component manufacturers. And we have focused on them, especially the mobile phone manufactures like TCL, like

, that are very, very strongly coming up.

Last year they produced roughly maybe three million phones themselves. They sold six million, but some of them were imported. This year they have a run rate of 15 to 20 million phones and certainly that has done very well for Amphenol as we have had very early design status with them.

Similarly in Taiwan, where we are working with these so called

, very intensively. They have weakened a little bit in the month of May and June, but I think this is just a transition period where they will restore, you know, normal activity in the third and fourth quarter.

So, overall, we are focusing on OEM's that transfer business, as well as on the local manufacturers there. And we have excellent presence with manufacturing, design and marketing to capture those business opportunities.

Great. I just have one final one, Martin, which I think is a quick one. It sounds like you've talked about a lot of fairly new products today, particularly in the mobile phones and industrial and auto, and also

. Has the level of sales that's coming from new products at Amphenol changed materially over the past 12 months, or is it still about ...

It is growing again, Michael, and there was a period where the new products really were lower than historic at about 15 or 14 percent of total sales, and then getting back up to about 20 percent of sales. The reason is that some of the new programs and generation of products that our customers are launching are really being launched, so that really these new product sales materialize, while in the very slow period, much of the new generation products were not necessarily being launched, and therefore the sale of new products was lower. And that also will contribute to improving our margins as the percentage of application-specific products will increase over time, again.

Sure. OK. That's great. Thanks so much.

Thank you, Michael.

The next question comes from Matt

with Thomas Weisel Partners.

: Yes. Thank you. Good afternoon. I'm just -- you talked a little bit about the linearity in the quarter for the internet equipment business, and I'm hoping you can give us sort of the same sort of order patterns and sales patterns for the rest of the business. And then also, concerning sales through distribution -- wondering what that was like relative to the rest of the business and what the distributors are telling you in terms of

.

Good afternoon. Thank you very much. That - I'll elaborate a little bit on the distribution side as well. Linearity in the quarter -- usually we don't have, you know -- obviously there's always a push towards quarter-end to do more -- but we didn't see any unusual situations in any of the other market segments except that internet-related market, which was somewhat strong in the first four months than it appeared to be in May and June. But, again, that is a mixed situation, and maybe it's just the situation because some of our customers transferring business. I don't want to put too much emphasis on this. As it relates to distribution -- distribution was not very strong, actually, especially on the military aerospace side. When I say that "not very strong," you know, maybe compared to the first quarter, about five percent lower. And the reason for this is that some of the funding of that part of the business that is required to fund existing equipment hasn't been released by congress at this point in time, and therefore, the distribution sales continue to be a little bit slower than they were earlier in the Q4 and Q1, but that will come back as soon as this bill is passed. In aggregate, it's just a plus for Amphenol, because if distribution comes back stronger, obviously it adds on to the already very strong

business as well.

: So, your direct sales to the

aerospace segment continues to be strong then?

Absolutely, very strong. I think, you know, with a 12 percent increase in Q2, with a 13 percent in Q1 over the last years' comparable quarters, those are very, very strong growth rates.

: Yeah. And just one follow-up concerning pricing: if you can -- I mean know that it's been under pressure, but, as the volumes ramp up here, and you get sort of the larger EMS companies coming back to replenish stocks, does that tell in terms of what pricing is going to do?

Well, pricing will continue to be under pressure. But as you know, our focus is primarily on getting a very early on involved with the development of new products, for next generation products, which usually have better pricing characteristics then just a lot of the very mundane commodity products where we're not playing as much. Nevertheless, there is a lot of capacity available amongst connector manufacturers, and therefore, obviously pricing will be tense and continues to be tense. The coaxial cable side is different. I think we see a quite stable pricing in that area. And if I say that, I would not see that this is going to be a major impeding factor, because we have put it into our model to further increase our margins in Q3 and Q4.

OK, great. Thank you.

The next question comes from

with Prudential Securities.

Good afternoon gentlemen. I don't know if you've covered this already, but could you give us a percentage or quantify how much came from application-specific production of I guess newer generation technologies.

Yes, we have very briefly discussed this, thank you for this question. The way we measure new products and application-specific products is that within the window of two years, a product that I introduced within the window of two years are classified as these new products. And as I said, historically we've had about 20 percent of our sales in this category. It was somewhat slower and lower in 2001, but is getting back to these more historical levels, to the 20 percent, which is driven, as I said earlier, by the fact that customers are starting to really launch their new products.

And then if you haven't seen pricing firm in the other areas of your business, is that indicative also of lead times not having improved at any significant level.

Well lead times have actually reduced very dramatically over the last several months as we continue to ask for the actual on the part of OEM's, especially if you were to have preferred supplier relationships, there is a very short window of delivery, as we are connected over computers to indemn the tier management system, we have visibility of what their needs are, and they expect that this is being delivered within a very short period of time. Therefore, we oversee the book-to-bill ratios and backlogs that we have seen in the past is not going to repeat itself, because usually you see the order, you book the order and ship it very rapidly. So that is an ongoing trend. Also in the military aerospace arena, where lead times have come down very dramatically, especially driven by us and to our efforts.

OK, and one last question. A couple of distributors have pre-announced and one in particular had said that they had seen and overhang as far as inventories in the gray markets. Are you being impacted at all by this?

We haven't seen an impact on our business on that at this point in time. There was quite some in maybe nine, 12 months ago, so six months ago even in the coaxial cable side where there was some overhang. But much of that has flushed out.

Great, thank you very much.

Thank you.

The next question comes from

with Morgan Stanley.

Thank you, good afternoon.

Good afternoon. How are you?

Doing well. Martin I wanted to ask you, in one of the, sort of hallmarks of business these days in very poor visibility, and I guess we all struggle with that at this time. I wanted to know just from your opinion, really, by when do you think you will have a good view as to the fourth quarter and if seasonality will be normal in the fourth quarter? And along those lines, what are the key variables that we should be watching to really know what can drive meaningful improvement there or a possible disappointment there that would cause you to come in at the lower end of the EPS range?

Thank you very much, very difficult question. I wished I had a crystal ball, but ...

We all do.

We all do probably, but I think there's one sign that is very good for us. We have seen three quarters in a row of stable revenues and we have seen the second quarter sequentially improving. If I would look at our normal business environment and a stable business environment, that's exactly what we would have expected that the second quarter is a little stronger than the first quarter, so there may be -- you know, as we have bottomed out -- that level reached where we say, we are in a -- you know, kind of a normal environment and if -- obviously, with a lot of still surrounding uncertainties that are, you know, political of nature and in some instances, you know, social nature and so forth so there are difficulties and variables that are very difficult to really put into our model. But nevertheless, those indications of the second quarter and what we see in the third quarter so far gives us the confidence that we are in a period of gauging that is a little bit more stable.

Obviously there are variable that we cannot predict. You know, the stock market as it has over the last two weeks here, you know, being very volatile with a significant downward trend, you know -- a 1,000 points. I mean, these are all variables that are very difficult to put into our model. As far as what we see from our customers, it's important that these customers will come back to a profitability level and a cash flow level that allows them to make investments, that will allow them to deploy new equipment for new services and those will be the right indications for us to see that there is a robust recovery when those profitability levels that our customers and the cash flows are being reached again.

OK, thank you.

Thank you.

Can I ask one quick one on the coax?

Yes.

Just wanted to know if you had a better view into any of the plans at AT&T broadband, if you expect there to by any possible any upside from that business when the

deal closes or if you think that the opportunity there is going to be stretched out?

Well, we are certainly doing business with AT&T broadband, we're doing business with

and we, at this point in time, do not see any major interruption in their -- both of their businesses because of that pending merger. When they really merge and when that will happen is certainly not totally clear, at least not to us. We'll see what the affects will be. We have a very strong competition and they are a very fine company that participates in both of these companies as well, very strongly and so we'll see how that will shake out. We certainly will be very prudent as far as pricing concerned and very reasonable in what we're doing and not to disrupt these mergers that have occurred previously amongst these broadband network providers and I think no major changes have occurred as a result of this, in market shares between us an our competition.

OK. Thank you.

The next question comes from

with HC Wainwright.

Yes. Thank you. Good afternoon.

Good afternoon.

With respect to the broadband or

fiber business, do you provide a sense of what the book to bill ratio was? I think you mentioned that company wide it was about 1.02.

Yes. In the coaxial cable business itself, it was a little bit less than 1.1, you know, putting the cancellations in that sometimes happens, it's very close to our 1.1 ratio.

Which you would usually expect in that business, because usually you don't build up backlog unless there is shortage like we had it in the year 2000.

Right. And with respect to the mix of drop cable versus

, did you see any, you know, changes in the quarter? Or anticipate any changes going forward?

Now that has been relatively stable and usually when there is a little bit more international business it's a little bit more drop cable than

, but those are minor changes. I would suggest that we are in a very stable situation at this point.

Great. OK. Thank you.

Thank you.

The next question comes from

with

Capital Partners.

Yes. Focusing again on

fiber. Have you seen any change in other cable operators build out plans, given the challenges at

?

The only thing would we have noticed, maybe in June a little bit of a holding position. Say, what does this all mean if this can be related to each other. I don't know whether it was.

But certainly as we look into the first two weeks of July, everything is back to that stable environment that we have discussed earlier. I think we haven't seen any material change because of the

situation, at all.

And again, I just want to confirm that - I'm a little late to the call, but that you feel that pricing continues to be rational and, you know, there isn't, let's say, an overhang from over builders? You know, dumping product on the marketplace again.

We haven't seen any more of this overhang in the marketplace. Pricing is stable. Pricing is rational and we feel very confident that this will continue for the rest of this year.

Thank you very much.

Thank you.

The next question comes from

with SAC Capital.

Hi. I have a couple of them. The first is, extending on what

had asked before, you talk about good indications for Q3 and Q4. Yet at the same time you're talking about lead times are getting shorter.

The first part of this is I wanted to ask, could you give me a little bit of sequence on how lead times have unfolded throughout the first half of this year, first quarter, second quarter? You mentioned that that was shorter, but I was wondering if you could give me a little context.

And the second part of the question is, with lead-time so short, I'm still unclear on how you remain so confident for the back half of the year.

Well, the lead times, we haven't changed lead times, or lead times haven't changed abruptly from eight weeks to four weeks. Twelve weeks to six weeks. But they are progressively being shortened because of the improved in the communications and the interconnections between customer and supply. And as that is happening, we feel that, you know, they are progressively

the lead times, but it doesn't change necessarily, you know, the outlook for us because, as far as we are concerned, we used not to have too much in the pipeline that was seen during that traumatic downturn that happened in 2001. In the beginning of 2001, we were not stocked with a lot of inventory that had to be flushed out. Maybe some of the distributors and some of the customers were in other areas, but as far as Amphenol was concerned, we really didn't have to deal with that issue very much as it relates to inventory. And therefore, I don't think it will be an issue relative to the Q3 and Q4 moving forward.

I'm sorry. Could quantify what your lead times are currently and then ...

They vary. I mean, we have about 100,000 different part numbers that we sell for a year, and they range from half a year to one day.

So, there's no kind of company average lead time?

No. It wouldn't be meaningful to give you a lead-time for a military aerospace products for big programs, compared to mobile phone products that have totally different characteristics, again, as products that go into the internet-related equipment market and wireless infrastructure market. Automotive market -- I mean there's no backlogs for those. There is just turning as the orders come in. So, it wouldn't be meaningful to do this. I'm very happy to discuss this maybe separately at another occasion to maybe give you some color on how lead times are in the various segments, but it would be probably beyond the scope of this discussion.

OK. How about capacity utilization? Can you talk about capacity utilization today?

Capacity utilization in Amphenol is clearly adjusted by its headcount. As you will recall we have taken headcount very significantly down, and obviously, we can increase our volumes further without adding equipment at this point in time, but we would have to add, certainly, some of our labor workforce to do so. That is very flexible because about 40 percent or 45 percent of our workforce is in low-cost areas where we have some flexibility, which is much higher than in the higher-labor areas.

What should I be thinking about in terms -- you mentioned ASPs look like they stabilize relative to previous price erosion trends that occurred while inventories were sitting on everybody's balance sheets. What do you think I should be thinking about in terms of normal ASP erosions across the company?

It varies from segment to segment. We already said that in broadband we have a very stable pricing environment. Probably the most pressure is the mobile phones because you see yourself that high-value phones that were sold at $500 a piece six months ago are now selling for $200 a piece. So, obviously there is a need for continued cost reduction. That is probably the most price pressure, but the price pressure is usually dealt with by new products and not selling the same product. It's a redesigned product that goes into the next platform that is -- that is lower cost. So, overall, I think at this point in time I wouldn't put too much of this pricing into our model, as I think the overpowering fact will be the volume increases that will drive good conversion margins for the future.

Thanks very much for you time.

Thank you.

The next question comes from Brad

with Vertical Partners.

I Martin and Ed.

Good afternoon. How are you?

Good thanks. My question, some of them have been answered, but let's ask a question about cash flow relating to the 66 million in operating cash flow that's capex for the year-to-date. Can you give us some of the pieces that go into the equation for the full year? Or do you expect that free cash flow number to be in , maybe give us depreciation in capex, full year. Working capital changes perhaps.

It's a little difficult, the same difficulty in forecasting the balance sheet as it is to the income statement, Brad. But capex for the first half of the year was eight million, and I would guess for the full year it won't exceed 20 million. In depreciation and amortization, it should be roughly equivalent for what it was for the first half the year, which is around 17 million. Working capital has been a positive contributor to, we've been able to maintain our days and reduce inventory. So working capital as well as manage our liability, so working capital has been a positive contributor for the first half. And I would expect we hold that. So far for this first six months, it was 17 million contributing to the cash flow from operations. So I would think we'd be able to hold that level for the full year.

purcell. So it sounds like free cash flow will be certainly in excess of net income?

I would expect it would be, yes.

The other question related to the split between automotive and industrial, I think you said revenues were up six percent sequentially, and I assume most of that came from the automotive side. Can you give us perhaps a breakdown between automotive and industrial.

Definitely. The automotive business was up about seven percent, while the industrial business was up about six percent in the quarter on a sequential basis. The automotive business, on a year-over-year comparison, was essentially flat, while the industrial business was down by five percent. And the split between the two is roughly that the automotive business is about nine percent and the remainder to the 23 percent for the total industrial automotive segment is industrial.

OK. Just one last question while I'm thinking of it here. The aerospace ramp for the joint strike fighter aircraft, that doesn't really kick in until - I guess the development program starts in '03 or is it '04?

Well it has started. That's the fact, it has started. There is procurement being made at this point in time. We had some procurement in Q2, and will continue to have procurement later on, on this. But it will go in spikes as we move forward, because they will use that, and then it goes into test planes and so forth, test equipment and trials and so forth. So it will not be a linear situation with this, but it is major program for Amphenol. It certainly is one of the largest programs that we have, but at this point in time it doesn't represent certainly the significant volumes. But what is good about it is that what is developed for joint strike for an aircraft, for

reason, they use in upgrades for F18's and F16's as well. So we see the same product that we have developed for the JSF and to import also for the F22 going into other aircraft as well. And therefore we have some good economies of scale already now on some of these prodcuts. In addition, with our back-plane operation that we are required from

we get much more penetration in new areas of that aircraft as well and gain some leverage.

OK, thank you.

Thank you ...

INAUDIBLE quarter.

Thank you.

The next question comes from

with

.

Good afternoon.

Good afternoon.

Nice quarter.

Thank you.

Just a couple of follow up questions, at this point. You talked a little bit -- you touched on M&A and said you're seeing some more opportunities. I recall earlier in the year you felt that, I think, pricing was bit of an issue given disparities between buyer's and seller's expectations ...

Right.

Has that changed at all, since you've last talked about M&A...

Two things have changed. Number one, that because of the seriousness of the economic environment some companies really do have difficulties and they are up for -- being put for sale, in spite of the environment, in spite of the valuation, just forced by the fact of the difficult environment and the performance they're have in it, so that has changed. The other thing that has changed is that clearly in the minds of some of the people valuations have come down to a level which you can start talking about. That doesn't mean that we would, necessarily, go out and acquire at these levels yet but at least there is a sign that people are willing to talk about different valuations, compared to what they were talking about at the beginning of the year.

Would you say there's a good likelihood that we'll hear something from Amphenol by year end, regarding an acquisition?

Well there are, at this point in time, several opportunities available to us and we are exploring several of those. We are not going to consummate all of them that are available, but one or the other we may and it is also -- it's just a question of strategic fit and value at this point in time and some are -- you know, they are for auction and auctions usually have a tendency to drive up prices and we don't like, usually, to participate in those but at this point in time we are just

looking at opportunities.

OK and last question, I wonder if you've seen in the market -- you know, in the competitive market place any benefit from what's been going on with

? Has there been -- have you had any feedback from customers regarding that competitor?

This is not related only to

, customers have generally concern about the

who have no financial stability and they will, you know, orient themselves towards those suppliers who have financial stability, who have the ability to be there in few years out when they need them for whatever and I think that is happening and that doesn't only relate to

, but I relates also to other companies who have -- who are surrounded by some uncertainties.

OK and then last question for Ed, could you just give me an update on the dollar figure in the receivables program at this point in time?

Yes, on June 30th it was 63.9 -- I believe $64,000,000.

OK, thanks very much gentlemen.

Yes.

Thank you.

operator, take one more question if there is one.

OK sir, one more. We have another question from

with Merrill Lynch.

Yes, just help us with -- Ed, do you have the actual headcount at the end of the quarter, verses the prior quarter?

Yes. We have the headcount, which is about the same as it was at the beginning of the year,

.

The total headcount of the company is 10,900 people, total workforce in all regions.

OK. And some regions it has gone up, like China?

China has gone up, but others have gone down correspondingly. And, you know, as you know there were two small acquisitions that had added some headcount. So really on a - we compare it on a traditional business. So that we have comparison and not zero against a, you know, a new acquisition which brings in people.

How much did these new acquisitions add, in terms of top line, Martin?

In ...

Very, very small.

Very small amount. If we take it out. I mean, that's maybe in the first half, one percent of our sales. Two percent of our sales.

Somewhere in that range.

There's a small antenna company in China, in the

, in the very small amount,

.

OK.

But we have used this. The antenna company today in China, has a lot more headcount than they had at a time of acquisition. But we have eliminated a lot headcount here in Chicago, and transferred much of that business to this antenna company. So the antenna company, per se, today has a lot more headcount than they had at the beginning.

OK. Thanks a lot.

Thank you very much

.

Would you like to take another question, sir?

No. I think we are at the end. I think we have passed about an hour here.

And we'd like to thank all of you for joining us for this conference call and your interest in Amphenol. Thank you very much and we'll talk to you soon. Goodbye.

At this time, the conference has now concluded. Everyone may now disconnect. Thank you for your participation.