安費諾 (APH) 2003 Q4 法說會逐字稿

Hello and welcome to the quarterly earnings conference call.

At this time, participants are in a listen-only mode.

After the presentation we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) Today's conference is being recorded and if you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to today's host, Mr. Edward Jepsen.

Sir, you may begin.

Thank you and good afternoon.

My name is Ed Jepsen, the CFO of Amphenol, and I am together with Martin Loeffler, the CEO.

We would like to welcome everyone to our fourth-quarter conference call.

The fourth quarter 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 we will have a question-and-answer.

The fourth quarter of 2003 was an excellent quarter in all respects.

Sales for the quarter were 342 million; that's up 28 percent from the 267 million in the fourth quarter of 2002.

The sales increase includes a positive currency effect of 17.6 million.

Breaking down sales into our two major components, the connector-interconnect portion of the business, which comprised 87 percent of our sales in the quarter, was up 28 percent compared to a year ago, with increases in all major end markets and all major geographic regions.

Our coaxial cable business for broadband networks, which comprised 13 percent of our sales, was up 29 percent from last year as a result of increases in both domestic and international broadband cable television markets.

In the fourth quarter, we acquired a relatively small U.S. manufacturer of antennas for wireless base stations that contributed approximately 2.5 million in sales to the fourth quarter.

Operating income, or EBIT, for the quarter was strong at 57.6 million compared to 44.4 million last year.

The operating margin was 16.8 percent, an increase from the 16.6 percent last year, as increased margins in the interconnect business more than offset margin pressure in the coaxial cable business as a result of increasing material costs.

On any industry comparative basis, profitability continues to be very good, primarily because of the continuing development of new higher-margin, application-specific products, excellent operating leverage on incremental volume for the interconnect business, and aggressive programs of cost control.

Interest expense for the quarter was 6.5 million compared to 8.8 million last year, reflecting lower rates and lower debt levels.

Other expense was 1.1 million compared to 1.4 million last year.

The tax expense was an effective rate of approximately 34 percent, the same rate as in prior quarters this year, and down slightly from the 34.5 percent rate used last year.

Diluted earnings per share for the quarter were 74 cents a share, up 42 percent from 52 cents a year ago.

During the quarter, we generated a very strong cash flow from operations 54.1 million.

Of the cash flow from operations, 8.5 million was used for capital expenditures, 16.6 was used for acquisitions, and the balance was used for debt reduction.

During the year 2003 we have reduced our outstanding indebtedness by 101.3 million.

The balance sheet is in excellent shape.

Accounts receivable and inventory are essentially unchanged from the September 30th amounts, other than currency effects, in spite of the higher volumes.

Total debt outstanding at year-end was 543 million, and as indicated, that's down $32 million for the quarter and $101 million for the year.

Finally, orders for the quarter reflected a positive book-to-bill ratio of approximately 1.02 to 1.

It was an excellent quarter and an excellent year.

With that, I'll turn it over to Martin for his comments.

Thank you very much, Ed, and good afternoon.

Welcome to our traditional conference call and Happy New Year to everybody.

As Ed indicated, I will just highlight some aspects of the fourth quarter results, as well as results for the full year 2003, and then discuss some trends and progress in our served markets.

We will also comment on the outlook for the full year 2004.

Some highlights for fourth quarter.

As Ed just mentioned, we are very pleased with the results of the fourth quarter.

It was an excellent quota for Amphenol and we closed out a strong fiscal year 2003 through that performance.

The sales in the quarter increased by 28 percent, in local currencies by 22 percent, over prior year.

The good news about this is that we have seen strong growth in all served end markets as well as geographic regions, and I'm going to talk more about this in just a minute.

Sales also increased sequentially over the third quarter by 9 percent in U.S. dollars, 7 percent in local currencies.

The major drivers for the sequential increase in the fourth quarter were mobile communication and high-speed applications for server storage systems and data communication equipment.

On the mobile communications side, the drive was on both sides mobile phones, as well as the mobile infrastructure side.

We'll hear more in detail in just a minute.

Both the interconnect business, as well as the coaxial cable business, contributed to the strong growth in the fourth quarter.

Our industry-leading operating margins further expanded to 16.8 percent, despite a continuing difficult environment as it relates to price pressure, especially on standard products, in most of our served markets.

Good news is that the margins on our interconnect business, which have good conversion margins, further increased sequentially also in the quarter.

This strong increase is a direct result of our continued cost control programs, the good conversion rates of the incremental business that we generate in the interconnect business, as well as our continued introduction of new products and application-specific solutions for our customers that usually have higher margins.

These positive trends in the interconnect business have been more than offsetting the pressure that we see in the coaxial cable business on our margins.

That pressure comes essentially as a result of the cost increases of raw materials without having yet had the opportunity to pass that on to our customers.

EPS grew 42 percent in the fourth quarter over prior year and for the eighth quarter in a row.

So we had two years of consecutive EPS growth, and as we will hear in a few minutes, we are very confident to continue this strong trend into 2004.

As Ed mentioned, the EPS growth is not just a result of good operating leverage, but it's also a result of our debt reduction as well as the reduction in interest rates throughout the year.

We are very encouraged, actually, by those fourth quarter results because they show that we have certainly benefited from the modest increase in demand that we have seen in some of our market segments, but continue to also gain share against smaller competitors.

We are preparing ourselves also organizationally for our future expansion.

We have named out of the broad members of our management team seven senior members to corporate offices and senior positions in the Company.

They all will lead global businesses and have already led -- but not as corporate officers -- those businesses, and will form the foundation for our future expansion that we foresee in 2004 and beyond.

A few comments on 2003, the full year of 2003.

Sales in 2003 increased by 17 percent, in local currencies by 11 percent.

The interconnect business had a very strong increase of 20 percent for the full year and 13 percent in local currencies.

These sales increases led to a level of sales in the interconnect business which exceeded the high point of the year 2000.

We are also very pleased that our EPS for the year matched the high point and our record level of 2000 -- $2.52 we achieved this year and in the year 2000.

So after a very significant downturn in the tech sector, to get back after essentially three years to the same level of 2000 is very encouraging to see, and certainly speaks for the position that we have today in the marketplace.

All these earnings were strong that we achieved throughout 2003, as they translated in strong cash flow. $156 million of operating cash flow for the year was essentially reinvested in the business for acquisitions, for capital expenditures and new capabilities and tooling, as well as in debt reduction.

All contributed to EPS growth.

So we are, in summary, very excited about the momentum that we have created in 2003 and we expect that this momentum will be carried into 2004, especially as we anticipate that demand will continue to strengthen.

Let me now comment on some of our major market segments that we serve.

First, the broadband communication market for cable television networks.

That segment represents 13 percent of our sales and was up as a segment 18 percent in the fourth quarter over prior year.

The growth in the fourth quarter was essentially driven by the continued capital spending of the operators here in the United States at the same level as in Q3, essentially, which is somewhat unseasonal.

Usually it tapers off after Thanksgiving, you see, in North America and is really slow in December.

This year, November and December continue to be strong and therefore we see that stronger performance.

Operating margins, however, in that segment continued to be under pressure, as I said, because of the material price increases that in this segment have not been passed on to customers.

We have heard, though, that in other segments of the cable business, for the LAN market and other areas of the cable business, cable companies have increased their prices due to these material cost increases they have experienced, especially in copper and in the plastic material.

So we can hope that also in our segment such price increases should happen over time.

On the other hand, we expect demand in broadband communications to be relatively at the same level as in 2003, and expect that to continue until systems operators really step up capital spending.

Right now, we are more in a maintenance mode opposed to in a buildout mode.

Next segment, the wireless telecom and datacom segment, which represents 38 percent of our total sales, had an excellent quarter and also an excellent year.

This segment is comprised of our sales to mobile phone market, the mobile infrastructure market, as well as to the computer storage system and data communication market.

Let me start out with the mobile phones.

Mobile phones were up -- the sales to the mobile phone market were up 17 percent in local currency, 23 percent in U.S. dollars in the quarter compared to last year.

For the whole year, this segment was up 15 percent in local currency, 22 percent in U.S. dollars.

This is a very strong performance compared to the performance of the industry, and it is really driven by strong participation of Amphenol across a very diverse customer base in North America, Europe, as well as in Asia.

We expected to achieve a very strong quarter this year because the fourth quarter is a seasonally strong quarter and we are very pleased to see that that really carried through.

Much of our product goes into a new phone models, and we are very encouraged with the increased product content in those new phones, with the price (ph), that some of that increased sales is certainly offset by some of the price pressure that we experienced also in that segment.

Based on our strength, continue to serve more than half of the world production of phones with our products, as well as our broad customer base, we are very encouraged that we will carry on with a strong momentum into the year 2004 in this segment.

The mobile network infrastructure market also had a very strong quarterly performance.

We were up 44 percent in local currency, 52 percent in U.S. dollars.

As Ed mentioned, we acquired a small company, Antel, making the antennas for mobile infrastructure.

They contributed with about to 7 to 8 percent to that growth.

So most of the growth really came from our gaining position across a broad customer base, as well as from strengthening of demand that we have seen in the quarter, especially for GSM network upgrades as well as additional CDMA buildouts.

With the acquisition of Antel, we have added another product range to our product range that helps us further penetrate the mobile infrastructure installation market.

We have already a very strong position in the mobile OEM market, making the base stations themselves.

And with this acquisition, we expand into the mobile installation market, which gives us additional opportunities for the year 2004, and we anticipate that 2004 will be another strong year, especially driven by the buildout or upgrade of existing networks rather then a broad-based replacement of networks with 3G systems.

The last segment in this wireless telecom data segment is our computer -- participation in the computer storage and data communication market.

A sequentially very strong quarter.

This is a segment where this year we have enjoyed essentially only single-digit increases in Q1 and Q2, improved in Q3, and Q4 really topped all the quarters with a 17 percent increase in local currencies and 20 percent increase in U.S. dollars.

Driving that growth in the fourth quarter was certainly a modestly improving demand for enterprise hardware and our strength in complete high-speed interconnect solutions for service and storage systems.

This really excellent position, especially on the new changeover to the serial (ph) system architecture, where we have developed the connectors, the cable, as well as the complete interconnect system, which is showing very, very strong interest by our customers -- OEM customers, as it relates to the cable, many of our competitors view Amphenol as the one who has the right cable for that high-speed market.

We are very encouraged by the sequential improvement in this market and by the stream of new products that we have been able to bring to our customers for their next-generation products.

As they are growing with these next-generation products, we believe that this segment will remain strong for the year 2004.

Let me now switch away somewhat from these commercial and communication related markets to the military aerospace market.

There we -- it represents about 24 percent of our total sales.

We had another very solid quarter, with a 19 percent growth in local currency and 25 percent in U.S. dollars.

For the year, this whole segment was up 12 percent in local currencies, 18 percent in U.S. dollars.

So a very strong performance in military aerospace, primarily driven by the funding and the growth of new programs like the European fighter aircraft, like the BOWMAN Program, like the upgrades here in the United States of several of aircraft and so forth.

And we have achieved that growth in spite of a very slow commercial aircraft market.

So there is certainly opportunity for even stronger growth if that market comes back to life.

And we are working very intensively with the commercial aircraft manufacturers to design in new products in the new Airbus 380, 420 (ph) aircraft as well as in the Boeing 7X7.

And we are winning excellent and extensive design presence in those aircraft.

We are also on the military side excited about our design wins in new programs like the JTRS, like the JST, that have increases in content.

So we are very pleased with our inroads in those programs as well to secure a long-term future positive outlook in those markets.

Amphenol, as you know, is the market leader and we have had two years of strong growth in that area, double-digit growth.

We expect that 2004 will not change that kind of momentum.

The last two segments are really the industrial and automotive market.

Together, they represent about 25 percent of our total sales -- the industrial segment 15 percent and the automotive segment 10 percent of our total sales.

In the industrial segment we have achieved strong growth. 24 percent year-over-year in the fourth quarter.

For the year, we were up strongly 16 percent.

That was mainly driven by our new value-added solutions that bring to the market using our own components for these value-added solutions.

With a trend to more sophisticated solutions in the industrial market, especially in the medical instrumentation and factory automation markets, we have done very well.

In the fourth quarter specifically, we have seen good growth, which is more market share gain than growth of the market itself in mass rail transportation, and we anticipate that growth in mass rail transportation with the new products that we have introduced will continue also into next year.

The automotive segment had another good quarter, 25 percent up in the quarter, 44 percent in U.S. dollars.

And for the year, we were up 15 percent in local currencies, 34 percent in U.S. dollars.

It was primarily driven by our strong position in the safety devices and Telematix, and we have made inroads in new onboard electronics for engine controls as well as environmental controls in cars.

The outlook for the automotive business remains also positive because more and more of these new electronics will be used in the car using our connectors.

Very briefly from a geographic standpoint, for the interconnect business, we had strong growth in North America -- 29 percent in local currencies, in Europe with 3 percent, and in Asia with 25 percent.

Europe certainly had the most currency effect to the Company, where the growth in U.S. dollars was 19 percent compared to the local currency growth of 3 percent in the fourth quota.

So we were very pleased with our regional performance as well.

In summary, we have clearly to state that Amphenol entered this year seeing challenges and difficulties from an economic environment, from pricing environment, but 2003 turned out to be a very strong year for the Company, matching the results essentially of the strong year 2000, the record year 2000.

We continue to take advantage of our advanced technology and global presence to gain position against essentially smaller competitors.

We are excited about our new products that will continue to create momentum and additional profits in 2004, and we believe that through our diversity in geography and end-user markets, we will strongly benefit as the economy further improves.

With this encouragement by our own results as well as the enthusiasm that we have moving forward, we were pleased to also announce our stock split, which will certainly benefit the trading as well as the volumes that we have in our stock for the future and create benefits for our existing and future shareholders.

Based on our momentum that we have created in 2003 and the outlook that we have for -- positive outlook that we have for 2004, we believe that for the year 2004, we will be able to grow the business -- and that assumes stable currency and some improvement in the economic -- continued improvement in economic environment of 8 to 11 percent in sales, with an increase of EPS of about twice that amount of 16 to 20 percent over the year 2003 level.

So we look forward for another strong year 2004, as we have closed a really outstanding year 2003.

With this, I would like to open it up for questions.

At this time, we will begin our question and answer session. (OPERATOR INSTRUCTIONS) Scott Craig from Morgan Stanley.

Just a couple quick questions here.

Martin, when you look out into 2004 and you see your growth at the numbers you just put out, can you describe how you think the mix by end market, if that changes at all?

And then secondly, a question for Ed.

Just on the working capital metrics, Ed, you guys have done a good job of getting the cash cycle down.

What are your goals more near-term and then as we kind of exit 2004 on the cash cycle?

Thanks.

Thank you for this question.

As I mentioned, our growth was very broad-based in 2003.

We do not anticipate that the mix will materially change in this growth except in a few areas.

We have seen some strengthening in the mobile communication market, especially mobile infrastructure market, and in the computer storage/data communication area.

I think those markets have the potential to be driving some further growth in 2004 than they have in 2003.

On the working capital side, the basics (ph) at receivables and inventory receivables we have held, adding back the receivable facility, at around 65, 66 days.

And based on the benchmarking we have done, we think that's pretty good for a global company selling into a number of world markets.

I would expect to be able to those levels.

Inventory, I think we can continue to make further improvement.

We actually had -- excluding the currency effects, we did, in spite of the increase in volume, were able to reduce inventory for an operating level.

And our goal there is to -- and I think it's realistic in the short-term -- if we get inventory of 15 percent of sales and then I think we can further improve from that.

On the payables side, I think we obviously work to stretch those.

Sometimes there are tax payments and other things have an influence.

But I would not expect any significant change from the ratios we have on the liability side.

Thank you.

Matt Sheerin from Thomas Weisel Partners.

Good afternoon.

Just a question regarding your margin structure.

You pointed out that you are now at peak EPS and also peak revenue numbers, yet you are below your peak operating margin in 2000.

I am just trying to get an understanding of whether you can achieve that number again, how much of that is based on the coax business improving in terms of pricing and margin, and then also what leverage is left in the connector business there?

Thank you very much.

The margins that we have obviously are not at peak levels like in 2000.

However, if we look at the interconnect business, which relates to about 87 percent of our total sales, we are very close to the same number.

While in the coaxial cable business we are very distant from the level that we have been able to achieve in 2000, where material costs were different and also the pricing level was different.

So obviously, the coaxial cable business has impact on the total margin, but we are very encouraged by the opportunities that we have in the interconnect business, which represents the great maturity of our business, where we can achieve good conversion margins.

I think as demand levels increase, usually pricing pressures ease somewhat as well.

And we believe that there is great room because the material content in connectors is about 35, 40 percent, and as such, there is good conversion opportunity to good profit margins.

So we believe that we can further improve our margins and that will be the main driver for our EPS growth in the year 2004.

Because we have done a lot on the financial side increasing interest rates and so forth.

So that is included in the outlook that we have that we are going to improve our operating margins moving forward.

Okay, great.

On pricing, you talked about pressure on the mobile handset side.

Have also seen that in your other businesses in the fourth quarter and what kind of trends do you see as demand improves?

Do you see prices stabilizing at some point?

We are foreseeing pricing to stabilize at some point.

We don't know exactly when that point is, but so far obviously there is still a lot of capacity and hungry competitors, where pricing is still somewhat under pressure.

I wouldn't point to one area more than another.

Obviously, the military aerospace segment doesn't see the same pressures that we have in some of the more commercial areas, like the mobile phone market.

But I wouldn't say that this is stronger than it was before.

It was there.

We continue to develop the new products that have higher margins and thereby get a very good mix, which allows us to achieve these high margins.

Thanks very much.

Steven Fox from Merrill Lynch.

Good afternoon.

A couple questions on the wireless segment.

From an infrastructure standpoint, is there any way to break out end demand trends from your share gains, get a sense for what the market is doing, either year-over-year or sequentially?

And then from a handset standpoint, how much seasonality do you expect in the March quarter?

First of all, on the trends, what we know is that from our customers and the broad base of our customers, that the market at best was flat in the year 2003.

Now being flat doesn't mean necessarily in unit volumes.

I think unit volumes for certain of our customers have grown in the year 2003, especially transceiver units -- not basically base station units, but some package more transceivers into a base station, and as a result, there may not be as many base stations produced but more transceivers.

And some of them had actually production that was at least at the level of 2000 or even higher.

However, the price points that they have to sell their base stations has come down very dramatically; therefore, they are not achieving their 2000 year sales levels.

And our pricing has also come down somewhat, but maybe in a different way.

As such, I would characterize it that we have certainly gained share, which is probably the major proportion of our growth in the year 2003 opposed to demand growth.

And also maybe the customer mix -- I mean, some customers have done better than others.

On handsets, Martin, I assume you're expecting some seasonality in the March quarter.

On the handset side, obviously it's usually a fourth quarter strong than the first quarter.

We may see some slowing in the first quarter on the handset side because there is an enormous preponderance in Asia.

Asia just ended their Chinese New Year here, and we will see some seasonally slowing.

But that is nothing new; that is how we compare ourselves against the first quarter of 2003 and we will have positive comparisons.

Thank you very much.

Mark Hassenberg (ph) from Nottingham Capital.

Congratulations.

Yesterday, RF Micro Devices reported numbers, which I believe -- I don't follow the company -- were better than expected.

But the CEO cautioned about the March quarter, but then explained that he didn't think it was an industry issue, that there was a technology change and he was stronger in one technology rather than the other.

And there has been speculation today that the industry might be in fact be slowing down and also that inventories might have built and didn't sell through in December.

Your statements do not sound like that at all.

What are your feelings on that and what kind of data points do you have that give you the high conviction that we are still moving forward?

Very good question.

We actually -- on the inventory side, we almost believe that the inventories are at a lower end than we would normally expect at that time of the cycle.

So inventory, but there may be certain segments, we don't know and have at this point not data points that say have all mobile phones, for example (ph), being sold at this point in time and will there be a flushing out required.

We don't have a data point on this.

What we see, though, is the forecasts that we get from our customers which gives us good encouragement about the quarter.

Also, our new product introduction and acceptance as well.

We are well aware of technological changes that are happening, especially on the storage system and service sides, going from parallel to serial interfaces.

And I think here we are extremely well positioned, but this will be somewhat a displacement market, but it may not go as fast as everybody thinks.

Thank you.

Michael Morris from Smith Barney.

Good afternoon, gentlemen.

We have noted your great progression over the last two years.

Martin, you noted that you have had eight quarters of sequential EPS growth.

We didn't really hear any specific commentary about your March quarter -- I know there have been questions touching on the topic, but when I look at your financial outlook, if you simply flat-lined your December quarter, you would quite comfortably reach your guidance for the year.

So I was just wondering is there anything anomalous in the December quarter that made it exceptionally strong, or should we expect a seasonal downtick perhaps in the March quarter, or any commentary on the March quarter specifically would be very helpful.

That is a very fine question.

Obviously, we're a little bit cautious with giving too much of the outlook as we are in registration, as you know.

But let me just mention the first quarter is just traditionally a seasonally somewhat slower quarter than the fourth quarter.

So the fourth quarter wasn't really an anomaly; we expected to be stronger than the third quarter -- it happened that way.

Maybe in some areas, a little bit stronger, especially the coaxial cable side.

But the first quarter being somewhat slower, we assume at this point in time that it will be very close to the fourth quarter performance.

Excellent.

Thank you for that.

My second question has to do with the topic of materials pricing, and you talked about copper and plastics being somewhat challenging in the cable business.

I wondered if you had had more success, if you will, in passing on price increases on the interconnect side or is there a compare and contrast there that you could share with us?

The difference there in that sense between the interconnect and the coax side is that on the interconnect side, you always deal with a different mix, where you can, as you introduce the new product, price the new material prices right into this and explain it with having to pass on an effective price increase.

On the coax side, these are (indiscernible) products that are being sold.

It is the same product that was being sold before, so here you are dealing with a true price increase in that sense.

So the point I want to make, in the interconnect business, it is a little bit easier to deal with those price increases in the sense that we have a turn and churn of our product as we implement and sell on an ongoing basis (ph) these application-specific products.

While on the coax side, we don't have necessarily that latitude.

And here, obviously we are looking for market leadership in that area.

One quick follow-up then.

Are there any rules of thumb -- understanding that you have probably tens of thousands of different part numbers in the interconnect side -- are there rules of thumb pertaining to the percentage of material content and your cost of goods in interconnect versus coaxial cable?

There is a very significant difference.

I mean, coaxial cable, it's about 80, 85 percent, while it is on the connector side 35 to 40 percent.

Thanks very much.

Thomas Gingiss (ph) from J.P. Morgan.

Just a couple of quick ones for you.

Can you talk about what the capital spending plan is for the next year, given that you've been able to really rationalize a lot of the assets that you've had, but you are still expecting some pretty strong growth?

And also, it does seem as if some of the areas that may have been lagging have experienced some growth here.

And then I have a follow-up question.

Certainly.

Capital spending is very important.

We are very selective in where spend the capital, where we get really good returns -- in tooling and so forth.

And we have spent about $31 million this year in this year's -- in this year is wrong -- in the year 2003, and we expect to spend somewhere between 35 and $40 million in the year 2004.

Thank you.

And then as a follow-up, you have mentioned a lot in the various segments about a number of new products that you've come out or new programs that you've won and so forth.

Wondering if you might be able to quantify some of this in terms of the sales growth that you are experiencing, how much of that sales growth is coming from newer products where, as you've already alluded to, you can sort of bake in some of the incremental cost of higher raw materials, and how much is coming from more standard product that's been around, say, use a 2 or 3 year type of time frame, to help us get an idea on a go-forward basis what some of the sensitivity around the margins can be when that as that mix may change a little bit.

As you may recall, we are measuring our new products within a two-year window; some of our competitors have different windows.

We measure it with a two-year window that means introduced and sold within two years.

And then it becomes a product classified on all the others -- the other products, even if we still may at this point in time carry higher margins than products that were there five, six years ago.

The percentage in 2003 of these new application-specific products has increased over the quarters, but in total, they represented for the year close to 20 percent of our sales.

We anticipate that in 2004 that number will slightly increase.

And when I say slightly increase, not with a quantum leap, is only that we continue to measure it in a two-year window.

So products that are three years old would fall out of that measurement and go into the other category, but still have most of the time good margin contributions at that time.

And I would not want to leave the impression that our standard products, many of our standard products, have just very -- significantly lower margins.

We continuously cost reduce them to go in low-cost areas.

We now have about 53 percent of our work force in low-cost areas.

At the beginning of the year, it was 43 percent of our total work force, so we have continuously throughout the year 2003 moved to lower-cost areas, to lower costs, and thereby maintain strong margins.

On high-volume products, we continue to make investments in automation for these more standard products.

So again, here we are making investments and the right moves to keep the margins also strong for those types of products.

Thank you very much.

Keith Dunne from RBC Capital.

Great quarter.

A few follow-up questions.

I was modeling something along the lines of 19 percent margins in the interconnect and 10 on the cable.

But are we suggesting that we are now over 20, given the peaks in interconnect was 21.

Can you give me some kind of color if it's materially different than 19 in the interconnect and 10 in the cable group?

We haven't really disclosed the specific margins in those areas.

We have the average of 16.8 percent, or 16.5 percent for the year, 16.8 percent for the fourth quarter.

And obviously, the coaxial cable business is significantly below that average at this point in time and thereby the connector business is somewhat higher.

But it is not at the 20 percent level at this point in time, but we are working towards it.

Is it fair to say that the cable margins were less in the fourth quarter than the third quarter?

No, they were about the same.

Okay, great.

That helps.

I mean, they were about the same level of revenues as well.

Okay.

And as we look at the SG&A, that actually went up a little bit more than I would have expected.

Is there something in there that may non reoccur, some year-end things that we can look at that materially coming down in the first quarter?

Clearly, the acquisition probably contributed some, but can you clarify that?

Certainly.

The SG&A is at a really a very controlled basis.

It is 14.2 percent of our sales.

So we continue to control it very strongly, but a major effect obviously in the fourth quarter was currency.

Currency doesn't favorably impact SG&A as you translate the Euros into dollars.

That in conjunction with, as you mentioned, some of the acquisition, which was maybe minor, that's certainly driving it.

We are not adding a lot of expenses as you go up (ph).

We are prudent investors, not only in capital but also in talent and people.

So we are not going out and adding other workforce on a prorated basis to our sales increase.

Quite the contrary.

We would like to add the better conversion margins by not doing that.

And thirdly, on the acquisitions, you mentioned $16 million or so that were spent on acquisitions, 16.6, and 2.5 million in sales.

Was the whole 16.6 for this U.S. antenna company and what would their annualize sales be?

Can you give us any color on their margin structure?

The bulk of that was spent on the antenna company in the annualized sales, so it's roughly onetime sales.

And the margin structure, is it similar to your interconnect group now or is this more -- did you find another one like the turnarounds that you did so well with Insilco and PCD?

This is a fine company that already has good margins, but we would expect to be able to enhance them as well.

They're presently a little bit low the corporate-wide average.

My last question, if I can.

Martin did a great job of going over all the various end markets.

But can you just kind of run through -- it was I guess 13 percent was broadband.

How did you split out Internet equipment -- how much of that was a percent of sales?

Let me go back to this.

We have always the (indiscernible) telecom and datacom represent 38 percent, whereby the Internet related market represents 18 percent of that 38 percent and the mobile communication part is about 20 percent.

Thanks very much.

Jeff Beach from Stifel, Nicholaus.

Two things.

First, your 54 million, I think cash from ops, can you -- net income and depreciation doesn't add up to that, so was there a shrink in working capital?

Can you expand on the other source?

Ed is going to look it up right now.

And in the meantime, back on pricing increases in the coax market.

If you're looking at flattish sales this year, do you think you will be able to initiate to hold price increases to start getting some of your margin back?

Well, usually the market leader, which is CommScope, is initiating pricing actions and not the ones that are following.

So we are looking here for price leadership in that area, and until that happens we continue to have a more stable outlook for the moment.

We have seen, though, that they have increased prices in other segments of the business and other cable companies have, because they all have a high percentage of material costs tied up in their total costs, and therefore are sensitive to material cost increases.

So we expect that something may happen in that area.

But we have no signs, no indications at this point in time.

The balance of the cash flow from operations, including income, depreciation and amortization, came from pushing the liability side too (ph).

All right.

Thanks.

Patrick Parr from UBS.

Good afternoon, guys.

Two questions.

Touching on the guidance question again, again if you take your December numbers and you were to go flat -- hold it flat for the March quarter, that would still imply sort of relatively zero if any sequential growth for the rest of the year to kind of come in at the high if not above your guided range.

So, Martin, is it just your conservatism showing through here or is there something more in the works that we don't see right now?

As you will recall throughout the year 2002 and 2003, we have given guidance and at the appropriate moment we have increased some of the guidance going forward.

There are still uncertainties in the marketplace.

We are well positioned.

We feel strongly about the future, but obviously the real strengthening on a broad basis of demand hasn't yet occurred.

That is something we really would like to really see before we go the next step.

We think we have a very strong outlook -- EPS going up twice the rate of growth, and we have given a broader range so there is flexibility.

Okay.

That's fair.

So both you and your other large U.S.-based independent connector company have reported very good growth for '03.

I guess 17 percent for you.

How much do you think the connector market grew in '03 and what kind of number are you sort of budgeting for the market in '04 and therefore, what multiple of the market do you think you are growing and intend to grow in the future?

It is very hard to really assimilate all the details of the market.

But with the data that we have, we believe that the market grew maybe at a rate of 4 to 6 percent in the year 2003 in U.S. dollars.

In U.S. dollars.

So we grew significantly more in U.S. dollars.

We continue to believe that we -- and we have outperformed the industry for 15 years in a row now, I think at the average of the industry.

And I think we feel that we can continue to do this.

To say at what rate that will be the assumptions for next year is that the growth is about 5 to 6 percent, 5 to 7 percent, depending who you ask for next year.

We essentially assume double the growth in our outlook.

Recently, and probably historically, you have kind of picked up market share from the smaller, undercapitalized companies.

Does that continue to be the case here recently and --?

This is really our strategy.

We feel that there are many companies out there that just do not have the global presence, do not have the technology to be able to serve the customers' needs of today, which is increasing in complexity, which is increasing in miniaturization, and increasing in every technical aspect, as well as in logistics aspect.

And some are just not financed the right way either to be able to support larger demand.

There is a lot of risk involved in just working with some of the smaller companies.

And as such, we believe the strategy to look at some of the smaller players in our segments is a good strategy.

It has been successful throughout the last upturn and downturn and we will continue on that path.

Final question, I haven't run the numbers yet on your cash flow projections based on the other assumptions here, but the intention is still to continue to pay down the debt?

And if so, is there a target you can communicate to us, Ed?

I think that's fair that I will continue to pay down debt, but the priority is to reinvest in the business and make the type of add-on type of acquisitions that we've done, as well as to invest in new products and programs.

But there is a natural deleveraging that's taking place and will continue.

There is not a real specific goal that we have.

We feel very confident with where we are today.

On the other hand -- and with the financial structure of the Company.

And the rewards to paying down debt are much smaller than making investments in new tooling and acquisitions like we have done.

And our leverage and financial ratios are excellent in terms of interest coverage and leverage ratio.

Operator, we will take one more question, please.

Michael Walker with CSFB.

A question on the other expense line -- that's come down pretty precipitously the last three quarters.

I was just wondering what's in that and how we should model that?

In the third quarter, we had the cost of the secondary that took place in the third quarter, so that accounts for a big reason for the drop between the third and the fourth quarter, as well as foreign currency transaction gains and losses.

We had some losses, I believe, in the third quarter -- very difficult to model, but I think there were some losses in the third quarter and some gains in 2 to $300,000 magnitude in the fourth quarter.

I think the major components of that on an ongoing basis are the agency costs and agency arrangements on the receivable facility that we have and minority interest.

I generally think of other expense absent the foreign exchange transaction gains and losses and other ups and downs, such as the cost of the refinancing to be in the $1.5 million range on an ongoing basis.

Second question is I wonder if you could just comment on Europe as a geography.

It has tended to lag the U.S., I think, in recovery.

What is your sense as to whether it's starting to turn from an economic standpoint?

They are certain market segments that certainly have shown some strengthening in Europe.

But we also have to say that a lot of business moved out of Europe, moved out of North America, with the multinational companies and therefore there is some shift that is towards Asia happening, as well.

So we have to take this into account when we look at the other regions.

But there are certain segments that are improving in Europe, and we know that is lagging.

With the strong Euro, the lag may be a little bit longer.

That is something to look at.

My last question is do you have a lot of excess capacity still?

What's your current utilization and when do you figure you'll hit kind of a very full capacity run rate?

We certainly can expand further in our sales.

We are right now also expanding, especially in Asia, some of our facilities, where we don't have enough space, and that is happening as we speak.

We are on the right track in terms of shifting capacity to the right regions and what is required and where we produce.

I think that will continue, and as we increase capacity, this manning (ph) level more than machine and tooling.

Great.

Thank you very much.

Thank you very much and thank you all on behalf of Amphenol for your interest in our Company and your continued support.

We wish you a Happy New Year.

Goodbye.

Thank you very much for participating in today's conference call.

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