安費諾 (APH) 2002 Q4 法說會逐字稿

Please stand by for realtime transcript. All participants, please stand by. The conference is about to begin. Hello and welcome to the Amphenol fourth quarter and year end conference. At the request of Amphenol, this conference is being recorded. I'd like to turn the meeting over to Mr. Edward Jepsen, executive vice president and CEO. Sir, please go ahead.

Yes, thank you. Good afternoon. Happy new year to everyone.

My name is Ed Jepsen, the CEO of Amphenol, and I'm together with Martin Loeffler, the CEO. Fourth quarter 2002 results were released this morning. I will provide some financial commentary on the quarter, and Martin will give an overview of the business and current trends, and then Q&A.

The fourth quarter 2002 was an excellent quarter, considering the continuing challenging business environment. Sales for the quarter were $267 million. That's up 3% from the $260 million in the fourth quarter of 2001. The sales increase includes a positive currency effect of approximately 8.7 million.

Breaking down sales into our two major sectors, the connector/interconnect business, which comprises 87% of our business was up 4% compared to a year ago, with increases in the major markets of communications and industrial automotive. Our COAXIAL cable business for broad-band networks, which comprises 13% of our business, was down 4% from a year ago as a domestic and international market for cable, for broadband cable television systems continues to be challenging. Operating margin was 16.6 million, compared to -- 16.6% compared to 15.9% last year.

On any industry comparative basis, and considering economic environment, profitability continues to be very good, primarily because of aggressive programs of cost control and the continuing development of new, higher-margin applications specific products. Interest expense for the quarter was 8.8 million, compared to 13.7 million last year, reflecting lower rates and lower debt levels. Other expense was 1.4 million, approximately the same as last year. The tax expense was 11.8 million at an effective rate of approximately 35%, equivalent to the rate last year, adding back goodwill amortization. Diluted earnings per share was 52 cents a share. That's up 41% from 37 cents a year ago.

In 2002, we adopted the new goodwill accounting standard which had the effect of eliminating goodwill amortization. On a pro forma basis, earnings per share in the fourth quarter of 2001 would have been 45 cents per share under the new standard. The balance sheet is in good shape. Cash balance at year end was 21 million. The accounts receivable day sales outstand something comparable to the third quarter and last year, and inventory is down 3 million from the December 31st, 2001, balance. Debt outstanding at year end was 644 million. That's down 76 million from 720 million at December 31st, 2001.

During the year, we generated a very strong 132 million of cash flow from operations. That compares to 119 million in 2001. Of such cash flow, 19 million was used for capital expenditures. For the year 2002, free cash flow, that's cash flow from operations less capital expenditures, was 113 million. The company continues to be a very strong generator of cash. In the fourth quarter, we acquired a relatively small Chinese manufacturer of interconnect products that serves the Asian wireless infrastructure installer marks. The acquisition was approximately $11 million and had no significant impact on fourth quarter results but should make a positive contribution next year.

In addition, as a result of the decline in equity markets and the impact on pension assets, as well as a decrease in the discount rate for calculating pension liabilities, we recognize as a balance sheet liability a pre-tax increase of approximately 66 million in our long-term pension obligations. We do not expect that this will require any significant change in cash flows in 2003. We expect our pension expense will increase in 2003 by approximately $3 million, and that has been factored into the earnings guidance we have provided. Finally, orders reflected uneven book-to-bill ratio were approximately one to one. Again, on balance, it was an excellent quarter with excellent profitability and cash flow, and a continuing challenging business environment. With that, I'll turn it over to Martin for his comments.

Thank you very much, Ed. And thank you, all, for joining our traditional conference call at the end of the quarter. Happy new year to all of you, and we hope that 2003 will give us some more opportunities than 2002 represented.

I will discuss very briefly the fourth quarter and full-year highlights, and then give an overview of the trends and outlook in the major markets that we serve. I'd like to close with some -- providing some outlook for the first quarter and the full year 2003.

Overall, we are very pleased with the results of Q4 and the full-year 2002, considering the very challenging environment we have been working in, with very little visibility and changing trends. As it relates to the highlights of the fourth quarter, we're very pleased with sales increase of 3% in Q4, compared to the performance of 2001 period. This increase was heavily influenced by a very strong performance geographically in Asia, with Asian sales up 21%, compared to the prior quarter, and from a market segment standpoint, we had very strong performance in communications both in mobile phones and mobile infrastructure activities, as well as in the automotive segment.

Sequentially, sales were essentially flat with Q3, and whereby by the interconnect sales were up about 4% year over year while coaxial sales -- sales of coaxial cable were down sequentially as we expected, since Q4 is usually a seasonally slower quarter. As it relates to profitability, we're pleased to maintain our operating profit margins at 16.6% in the quarter, which were actually slightly off compared to Q3. This is a result of our ongoing stringent cost control measures as well as providing to our customers' value in formal complete interconnect solutions, rather than merchandising components on price. EPS increased 41% over the same period of last year in Q4. Very pleased with that increase. And it increased also sequentially, which was a result of our strong operating performance, but also because of a lower interest expense that we carried in Q4 compared to the same period of last year.

As Ed mentioned, we acquired Few Yan, a Chinese company, that has a strong position in the Chinese market for mobile infrastructure, deployment, and installation, and we expect quite some contribution in 2003 from the small company, and it is excellent product lines and excellent relationships in these markets. With us, I'd like to talk about some of the trends and outlooks we see in our major market.

I'd like to start out with broadband communication. Broadband communication for the full year 2002 represented about 16% of our total sales. In Q1, we were about flat in broadband communication compared to the prior year's period. Essentially, because of a strong contribution from our connect cable assembly and fiber-optic activities in this market, coaxial sales were somewhat down in that period.

For the full year, for the broadband communication segment, was down 10% year over year. We continue to see some slow activity at both North American as well as international operators due to their slowing of investments in that segment. Pricing remains relatively stable in that segment, and we expect in the first quarter here the AT&T systems, or former AT&T systems to increase their activity and upgrades under the comcast umbrella, offsetting some of reduced activity and other (inaudible). So, overall, we expect the broadband communications segment to stay at essentially the same level as in Q4 as we move into the first quarter of 2003. Wireless telecom and datacom was certainly a very difficult market in 2002.

It represented 36% of our total sales in that year and was down for the year about 10%. Sequentially, we see, however, some improvement in that area. We were up 5% in that segment, and on a year-over-year comparison in the fourth quarter, up about 1%. This was primarily driven by our continued strong performance in mobile phones. Mobile phone -- our mobile phone -- sales to the mobile phone market were up about 18% for the full year. This was driven by continued increase in our content per mobile phone as well as in our strong penetration of the Asian manufacturers that all enjoyed very strong sales increases in 2002. For the coming year, 2003, we're very confident that we will continue to see growth in mobile phones as we continue to increase our content per platform and have a very diverse customer base in that market segment.

The second major area of wireless telecom/data com is mobile infrastructure, and mobile infrastructure, we see continued slowness in the market overall, although in the fourth quarter, our year-over-year performance was very strong with an 11% increase. That should, however, not change our outlook in that segment that continues to be modest because of the modest deployment activity of new mobile phone infrastructure networks. Nevertheless, with our broad customer base, with our very broad product offering, and with our global presence, we continue to gain share in the segment and feel confident for the year 2003 to be stronger than 2002.

The third segment in mobile -- in this wireless telecom and datacom segment is our sales to the interconnect-related equipment market. This was the market segment that was down the most, about 18% for the full year, and, however, improving sequentially, was up 6% sequentially in the fourth quarter. We're very confident that our new product introductions into the wireless Lan market is going to be a strong contributor in 2003. We've developed very good new very miniture coax products in that market that relate to very strongly to our antenna offerings, so overall, in this segment, we have confidence that we will proceed well. We have also new design wins at Dell as well as Compaq-HP, and, again, this gives us confidence that this market segment will be stronger for us as we move into 2003, although we do not see a sustained trend of robust improvement in this market yet.

Outside of the communications-related market, we continue to be confident about our aerospace and defense segment, even if it was lower on a comparative basis in the fourth quarter of 2002, overall we grew in aerospace and defense by 4%, in a mixed segment where by commercial aircraft and general avionics was significantly down throughout the year, and we were able to offset this with our strong performance in the military site where we are participating at all major programs. We're very pleased with new design wins here, too, on battlefield communications systems as well as the EUROcopter, as well as some new missile projects, so overall, we anticipate that this market segment will see some low double-digit growth in 2003 moving forward. In industrial and automotive markets, we're also very pleased with the trends as we see an improving environment in industrial market and continued strength in the automotive segments. Industrial/automotive represented about 24% of our total sales in 2002 and was down for the full year by about 3% but sequentially up in the fourth quarter, so we are seeing some improvement in that area, especially with the continued strength in automotive. Automotive was up 8% for the full year and this was primarily driven by our strong performance in new on-board electronics, teletelematic, here in the United States, as well as good inroads in interconnect devices for safety devices also here in North America.

Overall, with improving trend in the industrial segment and the strengths that we continue to see in the automotive segment, we believe that this will continue to be a growth contributor in 2003. So overall, I think 2002, we have seen strength in automotive, in mobile handsets, and in military aerospace markets. So we're very pleased to have such a diverse penetration of markets that allow us to balance the pluses and minuses very well, so that overall, our sales were only down in this very difficult environment by about 4% in 2002 in constant currency, so this is a good performance. It was driven geographically, primarily by Asia, with a full-year period. We were up 14%, while North America and Europe was down 7% and 8% respectively.

We're also, from a year-over-year comparison standpoint, very pleased with our operating profit margins, which remained at 16.4% for the full year, clearly stronger than the average of the industry. We're also very pleased with -- Amphenol continued to be a strong generator of cash. We generated about 130 million of free cash flow in 2002. We have positioned in 2002 Amphenol not only further in Asia where we have developed our presence, which represents now 20% of our total sales, but we have further penetrated our customer base and diversified our customer base further, and we have a number of new design wins, which gives us the confidence to look forward into a stronger 2003.

We believe that Q1 will be modestly up in sales compared to the Q4 2002 period, and that EPS will continue to increase sequentially in Q1 to about 53 cents to 54 cents a share, which would be the fifth quarter in a row for sequential increase in EPS. For the full year, we anticipate that our sales will be up somewhere in the range of 4% to 7%, while EPS -- because of the lower interest rates and strong operating margins -- we believe we will be up somewhere between 20% and 25%, assuming that there will be a reasonable and more stable economic environment. With our strong position, we are looking forward to a stronger 2003, while we continue to be very pleased with the performance that we had in the year 2002. We're looking forward to a good year. Thank you very much, and I would like to open it for questions that you may have at this point.

Thank you. At this time, if you like to ask a question, please press star 1. To cancel your question, that's star 2. One moment while the questions register. Our first question comes from Errol Rudd with Rudd Capital.

Thank you. You mentioned that you expected a revenue increase of about 4% to 7%. Could you give us a very rough parameter as to what your GDP, or GNP is behind -- associated with that 4% to 7%?

Oh, thank you very much, Errol. Happy new year. I would like to respond this way -- That we have looked at the various market segments that we serve. We have also looked at our position that we have in these various markets in terms of customer penetration, in terms of project design wins and so forth, and on the basis of that assumption, and on the basis that we assume that -- the economic climate would stabilize more than it was in 2002 and give us better visibility, on that basis, we have made our growth outlook for 2003 period and much less on, you know, just very general GDP economic assessments.

The thought behind my question is that your -- in your forecast, I was just playing with some of the numbers, with your gain, and close to half the gain that you expect for this year should come from a reduction in interest expense.

That is very true. If we look at the interest expense and look at just the $267 million in sales that we have in Q4, extrapolate that for the next year, you would end up essentially at the same revenue level we just achieved in 2002. However, with a much lower interest rate. So what we're anticipating is that our interest rate will be -- interest expense will be at that lower level that we have in Q4. Actually, will improve a little bit throughout the year 2003 further, and on top of this, we will have some good conversion from our, you know, increased sales, but not more in our assumption that we have right now in the 16.5% to 20% range.

It seems as if one of the most important things you did during the year was not tie yourself to any specific mobile phone manufacturer, but further penetrated that entire market, allowing you to both increase share and revenues. That was a very important deployment. Is that likely to persist in this year?

Yes. And, actually, this is a strategy we're pursuing not only in mobile phones, where we're addressing most of the manufacturers in the world, and we see good platform wins with more content at the winning manufacturers, as we can see them being winning at this point in time, which gives us confidence in that area, but that is not only in the mobile phone area. We have that very diverse and broad customer base in mobile infrastructure in internet-related requirements, certainly in the aerospace -- military aerospace market, and we're growing that customer base in the industrial market web of where -- as you know, most of our sales are still geared through and come through distribution rather than major OEMs, but that is growing, and we're very pleased with that as well. And that is a strategy we will continue next year as well, thank you very much for your question. I'll take another question at this point.

Thank you. Our next question comes from mat shoen with Thomas Weisel Partners.

Oh, yes, thank you, Martin, if I could just follow up on the first question regarding your revenue guidance and outlook for next year, if I remember correctly, in your October conference call, you had talked about -- about 5% to 10%, you know, revenue increase next year, and I'm just wondering if you've gotten a little bit sort of more cautious based on what you're seeing from your customers, sort of what your general thoughts are there?

The 5% to 10% and 4% to 7% is, you know, as far as I'm concerned, so closely related that there's no change in our mindset. The only thing that is really changing is that we would have expected in Q4 the visibility would become somewhat more transparent and better. That hasn't really happened. And I think all of the forecasting that we are doing is based on an assumption that says, well, the climate should become more stable. That is something we haven't seen. So, forecasting is as good as visibility at this point in time, and that is not very good.

Okay, great.

But we are very confident with what we have been doing. I think our forecasts throughout the year 2002 were very reliable, and we have continued to increase our performance quarter after quarter as far as EPS is concerned, and that is something that we feel very confident as we move into 2003 and especially in Q1.

Oh, great. And then, if you could just talk about what you think your inventories are looking like in the channel with your distribution partners, and OEMs, and do you think they're at good levels, or do you think you'll see some inventory refresh kicking in?

Inventory refresh could very well kick in over -- during the year 2003 as distribution and other channels feel more confident. But the confidence comes with good visibility, and that is still not necessarily at the level where somebody's going to out -- go out and procure a lot of stocking packages. In addition, the distribution channels, only important for us in the military aerospace business, here we see good inventory levels we had in 2002.

We don't see any major change here in 2003, and the other major area is in the industrial market, which where I think the confidence has to come back, that investments will trend strongly forward before inventory packages or so would be procured, so I don't see in the near term and short term any significant change as it relates to this. We are counting more in our growth outlook from our own capability of penetrating OEMs and contract manufacturers on a direct basis.

Okay, thank you.

Thank you.

Thank you. Our next question comes from Michael Morris with Solomon Smith Barney.

Yes, good afternoon. Dave Personer in for Mike Morris.

Good afternoon.

Good afternoon. Martin, can you tell us what the company's expectations are for operating cash flow for the full year, and can you give us a sense of how you plan to utilize that cash flow should we expect to see an accelerated paydown of the debt? Or, you know, additional acquisitions like you announced today, or some combination of that?

Thank you for your question. We expect continued strong cash flow generation, that is a tradition of Amphenol also in 2003. That may give us some, you know, more detailed numbers on this. As it related to the utilization of that cash flow, we'll use the best deployment that we can find, and one is clearly and has been for the company to invest in new products, and we'll continue to do this and new capabilities, we'll continue to look for acquisition opportunities as we have announced the one on Foo Yung. We look for these smaller companies, because they have great potential and we can count on the management of these companies, usually, to be very motivated, to be part of a larger company. So that is going to continue. We have amortization payments to make this year, and that -- Ed is going to refer to those in a moment.

Yeah, David, as we described, we had 113 million in free cash flow, after Cap Ex In 2002, and I'd expect we would have at least an equivalent, that level, possibly more, in 2003. We do have roughly 80 million bank loan amortization due in may of next year, the same time. We have the cash flow from operations, as well as we still have a lot of liquidity with $150 million, seemingly undrawn revolvers, so I think the company will, as Martin indicates, continue to be a strong generator of cash, a strong portion will be required for debt amortization, but we still have a lot of liquidity, and acquisitions we have been making have made a lot of sense for us, and we'll continue on that path as well.

Great. I just have one follow-up. Can you give us a little bit of color on what the pricing environment looks like for acquisitions, especially in Asia?

The pricing environment is a real mixed bag. Many companies that come on the auction block, usually, auction block, usually have difficulties, and they, obviously, it's going through a normal auction, but somewhat for these distressed companies, at lower levels than you would usually want companies to see at. As it relates to the companies that we really search out, Foo Yung is one of them, that's not a company that goes on the auction block. We worked with management locally to convince them that this would be a better future for them, to be a part of Amphenol. They are, you know, the prices are such that they are reasonable to be -- for Amphenol accretive, and that continues to be a measure for us in the future. We want acquisitions to be contributive and accretive immediately, at the same time to be contributive from a strategic standpoint. So pricing is a full, mixed bag in all directions. Obviously, everybody wants to have the maximum amount of money, even if the company's distressed, but those are the areas where we usually don't want to participate.

Great, thank you very much.

Thank you.

Thank you. Our next question comes from Merv Francois with Credit Suisse First Boston.

Yes, good afternoon, gentlemen, and happy new year as well.

Good afternoon. Same to you.

Thank you. Martin, can you talk about the work that you've been doing with some of the Asian heads of vendors, you know, how does that represent your base right now, and what do you see in '03 with that customer base?

Thank you very much for that question. We have established in Asia a very strong presence in terms of manufacturing. We have at this point in time three locations. We make, you know, antennas in all forms, as well as most of our components that we sell to the handset manufacturers, which are 17 different product lines, we manufacture them all in China, as well as in Korea, and our penetration into the Asian manufacturers starte a few years back, but clearly accelerated when they started to grow themselves.

This year, we have started to establish a R&D center in Beijing, which allows us not only to have R&D support locally in China, but also have access to lower-cost R&D capability for the rest of Asia and work 24 hours around the clock for R&D efforts in other regions of the world, like in Europe, as well as in North America. As you know, much of the manufacturing of mobile phone handsets has shifted to Asia, especially to China, and we're very well positioned with both manufacturing as well as R&D support to continue that trend. We have quite a higher content with the Asian manufacturers that we have some with the more -- you know, the former North American as well as European manufacturers, but we're increasing that contact as they are -- content as they moving to Asia and have decision making done in Asia for that content. We have a new factory plant in Tanjing this year, and continue to expand just right now in Korea as well.

Would you say that today the Asian heads of vendors are anywhere between 20% and 30% of your overall handset revenue base?

That is about a good number to work with, yes.

Okay. And then, switching real quick to ASPs, can you give us a sense of what do you see ASP lying out here in the first quarter for your connector division?

Overall, the average selling price is very, very much in terms of price reductions and price increases that we can pass along per market segment, so it's maybe a longer discussion, but we see continued pressure in more depressed areas, if you want, like in the communications infrastructure side as well as in internet side, then we see -- and also on the handset side quite some, but, you know, much less in the military aerospace and industrial segments, and also automotive segments where we have even opportunities for price increases.

Great, thank you very much.

Thank you.

Thank you. Our next question comes from Patrick Par with UBS warburg.

Good afternoon, guys.

Good afternoon.

Your net margins have been continuing to improve here, such that you're just about at historic high in a very difficult environment, which is impressive. Can you give me a sense of what the upside could be if the environment improves dramatically? In other words, is there utilization that could rise within your plants, and could we see 10% net margins from you in the next two or three years?

If we look at our operating margins, they have been relatively stable at around 16.5% throughout the year. If you look historically in 2001, our operating margins were at 19%, in 2000, they were over 19%, and I think we had quarters where we had 20%. So I think we still have room to improve our margins again, and that margin improvement will come about -- primarily as you suggested, from better utilization of our facilities.

We will have good conversion margins, because the material content of connectors is relatively small compared to the coaxial cable side, so once volumes pick up, they can make quite a big difference. In addition, as the markets will turn, as we have it in military aerospace and others, there will be certainly opportunities for price improvements as well as we move forward. We're not at that stage. I do not want to suggest at this point in time that that is the case. But there is improvement opportunity moving forward to get back to historical numbers over time.

Okay. And then, relative to the defense market, is your assumption for double-digit growth there premised upon some activity, let's say, in Iraq, or is that up side from your current forecasts?

Well, this is what is part of our -- our assumptions here, when we give the guidance of 4% to 7%. They can fluctuate by market segment. We can't be that precise. Nevertheless, in the military aerospace segment, we see continued strength on the military side itself, and we have seen some improvement in the general aviation market. So not in the commercial aircraft market at Boeing itself, arrow specials is at about the same level, so the real they gating factor is the improvement of the general aviation market, and here we have seen some improved order activity in the fourth quarter, which gives us some confidence. In addition, the procurement level in the second half of 2002 for military spending wasn't very high, so, again, here, the assumption is the procurement will increase in 2003 over 2002. There was total spending, but not necessarily component procurement, and that is where we have some data and information, the procurement on component spending will increase in 2003, and that goes into this assumption.

And that excludes any extras (inaudible)

yeah, that excludes those kinds of things as well.

Great, thank you.

Thank you.

The next question comes from Jerry Lample at Merrill Lynch.

Hello, Martin.

Good afternoon, Jerry. How are you?

Great. Hey, help us out understanding margins. When we look at this year, what's going to help margins widen and what's going to put pressure on margins if we look at each business unit or product area?

Yeah. Thank you. It is certainly very difficult to predict what will happen in every specific area.

Yeah.

But we're very confident with our margins on the mobile phone handsets. We have good penetration, good acceptance, very low-cost manufacturing, and here, actually, the improvement will come from the fact and the possible improvement will come from better factory utilization. We have grown this year by 18%, and we believe that we will continue to grow in that area further and have further improved utilization of our assets, because we are increasing our contents, and, therefore, we have more to produce in that area. The other one is military aerospace where we believe that margin improvement is possible, not only from a factory utilization standpoint but from a pricing standpoint. We are pricing project programs, where we have proprietary positions, where it is somewhat easier to price them in just the commodity area. As it relates to the other segments, we believe that there will be some improvement on the internet-related equipment market. I said -- I talked about some wins at Dell.

I talked about wins in other areas, especially on the wireless LAN market, which, again, will lead to more utilization of our factories. And the last thing is, we will continue our trends of moving towards lower-cost manufacturing. Most of our production -- volume production today is already -- has already moved to Asia, and there is some residual areas where we can still move and will move in 2003, which allows for more margin expansion. And so, our trends to go to lower-cost areas will continue. And, in addition, we see, also, opportunities to widen the margin through procurement itself. You know, our vendors and so forth will have to continue to, you know, work with us on pricing as we do with our customers, so from an overall standpoint, those are some of the areas where we'll continue to focus on to widen our margins.

And what needs to happen to reach -- achieve the high end of your sales?

I think when we were at $1.3 million in sales, that's when we got to those levels. So volume will make a difference, if volume comes up, margins will also continue to come up.

Ok, thanks, Martin.

Thank you, Jerry. Thank you.

Our next question comes from Mark hasenberg with Nottingham Capital.

Good afternoon, and happy new year.

Good afternoon Mark. Happy new year.

Thank you. There's been a lot of conversation about the movement of handsets to the Asian markets and your strong position there and how you've been benefitting from it. What is happening away from the handset area? The other markets that you're in in terms of their move to Asia, how well are you positioned there with the customer and with manufacturing, and where do you see that going over the next two to five years?

I'm happy that you asked that question, Mark, because as it relates to internet related equipment, a lot has also been moved to Asia. Much of the design is being done, but then manufactured outside of the United States. If we look at Cisco, for example, you know, that is a typical example of, you know, much of the manufacturing is not done here, while designs and procurement is done here.

Right.

In the United States. It's very well positioned with them. Last year, in the fourth quarter of this past year, three of our factories have gone through approvals and have been approved by Sony, have been approved by, you know, Cisco for additional manufacturing. We were approved previously, but now it's also our RF plant and cable assembly plant is approved, so, you know, we have achieved more approvals over the year 2002 with our China factories, and the same has been done by contract manufacturers, who are very well positioned from that standpoint that we are ready to go as soon as demand is increasing in that area. On the wireless infrastructure side, the same has happened. A lot has moved Asia for procurement and local sourcing, and, again, here we're very well positioned in China, especially to supply those -- those manufacturers locally.

If I could ask one other question. On the cable side, you know, smaller part of the business today but hopefully one with still some (inaudible), the comcast acquisition doesn't seem from other sources to have caused much movement, they still seem to be in the planning stage rather than the procurement stage. Is that correct, and do you see opportunity there for them to start moving forward as the year progresses?

As it relates to Comcast and AT&T systems, we're confident our orders will break loose in the near future. There's a pent-up demand on this. I think it's at this point in time not even in the planning stage. It's really in an approval stage where a lot of orders are awaiting approval from, you know, the new owners and the ones that give the okay for this, but there's pent-up demand, and as soon as approvals are being given for the builder, I think there will be opportunity in the coaxial cable side as it relates to the rebuild cycle of AT&T systems, because we all know that these are the less filled out, or less upgraded systems and we see a good opportunity in this area for our coaxial cable business in the future. And when I say in the future, I mean in their in future.

Okay, thank you.

Thank you. Our next question comes from Jeff Beach.

Yes, good afternoon, Martin and Ed. I have two questions, first on the broadband side, you were talking about an up tick at AT&T, Comscope, everybody else has plans to reduce their spending. Where do you think you'll shake out in terms of your market share with most of the players down except for -- except for spending on AT&T? You see any kind of a shift at all between you and Comscope?

Thank you very much for that question. We have clearly been, as far as pricing is concerned, very stable. As far as market share is concerned, also relatively stable between the two companies. It depends only in which companies, one or the other, has a stronger presence, and whether that customer is then, you know, in the building mode or not building mode.

I don't foresee in the near future a dramatic shift in any market share between the two companies. I think as far as -- we're pretty much, you know, divided up here North America where we participate, and, as I said, the fluctuation can only come relative to the deeper penetration of one of the other, that respective companies have. The international markets remains pretty soft overall as well, and I don't foresee any market share shift there, also to a major extent, even if Comscope is manufacturing in South America today, we have started manufacturing down there as well. So, again, we're on a more equal footing in that part of the world as well. So I don't foresee major changes in shifts.

All right. Second, can you talk a little bit about the economic strength or weakness in Europe and how it's impacting some of your different operations there, and do you see an upturn coming in the near future?

We haven't seen any strong signs in upturns, neither in North America nor Europe, of any robust nature. So we are more relying on our own strength, how we can penetrate accounts, how we can develop the new products for them at a fast pace, so that they can bring out the new product fast. And more specifically in Europe, the only trend that we have seen, especially in the automotive segment, that many of the manufacturers going more and more towards the east, you know, manufacturers start to -- have started to manufacture in the Ukraine, in Romania and other parts where we haven't seen manufacturing in the past, just to lower and continue to lower costs, so there is a trend to go more towards lower cost areas in Europe, but as it relates to a robust upturn, I wouldn't suggest that that has happened at this point in time. We continue to see it, you know, moving along at about the current levels that we see.

And can you tell us what the acquired sales were of this Chinese connector company?

The sales in 2002 were very small, were less than $1 million, because we just added it in -- really in December to our portfolio of companies.

How about annualized sales?

Annual sales are somewhere in the range of $10 million to $12 million.

All right, thanks.

Yes, thank you.

Thank you. Our next question comes from Larry Harris with HC wayen.

Yes, thank you. If I could just follow up on the coaxial cable with AT&T/Comcast expected to approve orders in the near future, maybe some of the other domestic operators expected to be soft. Do you anticipate any significant change in terms of your mix between semiflex and drop cable?

In 2002, drop cable certainly was a major portion of our activity, because, you know, we are looking at hooking up subscribers. You have seen the enormous increase and have heard about the enormous increase of subscribers for cable modems, last year about 40% or more growth in that area, and more digital services, so there goes a lot of subscriber hooking up, and that has certainly driven our drop cable activity more than the semiflex activity. We anticipate that at this juncture that there will not be a major mixed change because AT&T may pick up some of the other, and (unintelligible) may not have the same activities, so I don't foresee a major change in mix of our products moving into 2003 compared to 2002.

Thank you very much.

Thank you.

Thank you. Our next question comes from Allen Metrony with Cooper Beach Capital.

Hi, thank you. Most of my questions have been answered, but have you quantified at all what you think the incremental opportunity can be from Comcast over a two-year period? They've been talking in general that maybe it's $2.5 billion to specifically spend on their upgrade. Do you know what portion of that could accrue to yourselves and Comscope?

We have made internally some assumption on this, but I don't think it would be prudent at this point in time to really factor that all in and give you some numbers at this point, because we haven't seen even the first really being placed in a major way, and we would like to see that happen before we really narrow down some numbers, but maybe at the next conference call, we can talk about this in more detail.

Okay, and one follow-up question, if I can. Sorry I'm spending all the time on the fiber business, but that seems where there can be some upside if things work out. Do you have any insight on when Germany or the U.K. companies may back to spend? I realize there hasn't been movement now, but can you give us your thoughts there?

We haven't had really any news as it relates to the German build-out. There was a discussion about this for a full year, and I think the situation hasn't materially changed, and as it relates to pickups in the international market or in the U.K., I mean, those come project-oriented, and one, you know, sometimes is offsetting the other one so the total doesn't change too much. As far as we are concerned, we see the major upside in our interconnect business, not so much of the coaxial cable business in the near term. And the interconnect business, when we talk about the change from 4% to 7%, the range that we gave, the change from the 4% to 7% is really related more to the interconnect pickup in some of the areas where we have seen significant declines this year, where we can have really upsides, and this is internet-related equipment market, where we have one programs where if they really come through, there is the upside between the 4% and 7% range that I gave, and the same is true on wireless infrastructure.

We have seen a good performance here year over year in Q2, Q3, and Q4. Is this a trend? I don't want to voice that there's a trend. I think we're picking up some market share and gains in that segment, and we anticipate that that will continue. If that continues to the same extent exactly there, we will have some upside to go from the 4% growth to the 7% growth that I mentioned earlier. So, I think it's more an interconnect area than the coaxial cable area, as far as we see it at this juncture.

so you're see somewhat stabilization in coaxial cable but the potential may be at the end of the year for upside if Comcast (inaudible) but really it's going to (inaudible).

that's right.

Thank you very much.

Thank you. Operator we'll take one more question if you have one.

Our final question comes from Sam with Prudential Securities.

Yes, (inaudible) good afternoon.

Good afternoon.

I just wanted to see if you could comment on (inaudible) you saw in the quarter. I know the quarter tends to be front-end loaded. Was that the case here?

I am very happy to take that question, because the fourth quarter turned out to be a very different quarter from the ones that we see usually. Usually, our quarters are more back land, you know, September is strong, June is strong and March tends to be a strong month. This fourth quarter was really the reverse. We started out with a very, very strong October. November was more average, and then December turned out to be a very short quarter, actually shorter than normal than we usually expect, because many of the companies just closed early for the year, and made December a much shorter quarter than we usually have seen it. So it was really front-end loaded and not back-end loaded this past quarter, which is unusual. In our business, it's back-end loaded towards the last month of the quarter.

Okay, great. And then, as far as lead times go, any change there? Are you seeing lead times start to expand a little bit?

Actually, we haven't seen lead time expanding in any way. Actually, customers have still the need for quick-turn business and very low lead times. We've, on our own, have reduced lead times as it relates to the military aerospace market itself, which certainly had some impact in Q4 on a negative impact, because distributors who usually have planned for the 12 to 16-week lead times, have found out that our lead times are shorter and certainly have reduced somewhat in that area, but that had already its impact in Q4.

Okay, good. And then one last question. You mentioned application-specific products in the quarter were up. Would you say that that segment of your business was up as a percentage as far as the mix goes? And then, is that driving margins higher? And then, were there any new products that contributed to the application-specific part?

I think there was nothing unusual in Q4 as it relates to application-specific, relative to more standard products in the mix. I think we continue to introduce every quarter new products which keeps the margins at the higher level and Q4, there was nothing unusual relative to that.

Okay, thank you.

Thank you very much. With this, I like to close this session. Thank you very much for your interest in Amphenol. Happy new year to all of you, and we look forward to a strong 2003. Thank you. Good-bye.