安費諾 (APH) 2004 Q1 法說會逐字稿

Hello and welcome to Amphenol’s first quarter earnings release teleconference.

On today’s presentation there will be a formal Q&A session at that time if you wish to ask a question simply press star 1.

At the request of the company this conference call is being recorded.

I will now turn the conference call over to today’s conference host Mr. Ed Jepsen, sir you may begin.

Thank you and good afternoon to everyone my name is Ed Jepsen I’m the CFO of Amphenol and together with Martin Loeffler the CEO of Amphenol, I’d like to welcome everyone to our first quarter 2004 conference call.

The first quarter 2004 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 first quarter was an excellent quarter in all respects.

Sales for the quarter were $355m that’s up 28% from the $278m in the first quarter of 2003.

The sales increase give a currency effect of approximately $16.2m.

Breaking down sales into our two major components the connecter, interconnect business which comprised 89% of our sales in the quarter was up 28% compared to a year ago with increases in nearly all major end markets and all major geographic regions.

Our coaxial cable business for broadband networks, which comprised 11% of our sales in the quarter was up 27% from last year as a result of increases in both domestic and international broad band cable television market.

Operating income or EBIT for the quarter was strong at $61.3m compared to $45.2m last year, the operating margin was 17.3% an increase from 16.3% last year as increased margins in the interconnect business more than off-pressure in the coaxial cable business as a result of increase in material cost.

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

Interest expense for the quarter was $5.8m compared to $8.1m last year reflecting lower rate and lower debt levels.

Other expenses $1.5m compared to $1.7m last year.

Tax expense was at an effective rate of approximately 34% the same rate as last year.

Income, that’s operating income less interest and taxes and net income, was $35.7m or 10% of sales which is another indication of our excellent profitability.

Diluted earnings per share for the quarter were a record 40 cents a share that’s up 48% from 27 cents a year ago.

Both per share amounts reflect the 2 for 1 stock spilt that we had in March of this quarter.

During the quarter we generated a strong cash flow from operations of $31.8m.

Of the cash flow from operations, $6.7m was used for capital expenditures and the balance was used primarily for debt reduction.

Long term debt was down to $516.6m at March 31st.

During the quarter we also repurchased 530,800 shares in the open market and our weak stock repurchase program that was announced at an average price of 30.45 cents a share (inaudible).

The balance sheet is in excellent shape, the accounts receivable increased in line with the increased activity and an inventory was essentially unchanged from December 31st in spite of the higher volume.

Finally, orders for the quarter reflected a positive book to bill ratio of approximately 1.06 to 1.

It certainly was an excellent quarter from a financial perspective and Martin will talk about other aspects in the business.

Well thank you very much Ed and good afternoon welcome to our traditional conference call at the time of our earnings release thank you very much for joining.

As Ed said I will review some of the highlights of the first quarter then discuss the trends and the progress in our served markets and then comment on the outlook for the rest of 2004 and the second quarter of this year.

First some of the highlights of the first quarter as Ed just said we are very pleased with the excellent result of the first quarter 2004.

We achieved many new records in that quarter.

The quarter itself really confirms the strong momentum that we have developed in our company and in all phases of our business.

The sales in the quarter increased by 28% in US dollars or 22% over the prior year.

This strong growth was a broad based with excellent sales increases in most of our end-use markets and we’ll talk about those in just a minute.

With the highest growth generated in mobile communications market.

Geographically the growth was also broad based.

There were excellent sales increases in essentially all regions of the world.

Both the interconnect and coaxial cable products contributed to that strong growth in almost equal growth rate 28% for one and 27% for the coaxial cable business.

The sales increased also sequentially over the fourth quarter which was the very high quarters fourth quarter 2003 by 4% or in local currency by 2%.

We are particularly pleased with that increase because usually and historically the first quarter was a seasonally lower quarter than the fourth quarter and we believe that this is a very good sign for future performance of the company and bodes well for the rest and the outlook for 2004.

As a sequential increase also reflect our ability to capitalize on improving trends in all of our surfed markets and to gain position through our distinct competitive advantages and our product range technology providing complete interconnect solutions to our customers, our very deep seated customer relationship, global presence and stringent cost control.

Relative to profitability, Amphenol continues to have industry leading operating profit margins and they further expanded in the quarter to 17.3% up from 16.8% in the fourth quarter.

We are very pleased with that increase because it happened despite continuous material cost increases.

The increase of these operating margins were primarily driven by the sales increases in our interconnect business, which reached 18.5% operating income margin, which were somewhat offset by the lower coaxial cable margins in our business.

And we expect these operating profit margins to further expand as we move on in the year 2004.

We generated excellent conversions to profit of incremental interconnect sales.

Our new interconnect solutions and the application specific products provide higher margins and contributions.

We continue to have stringent cost controls programs in place in spite of our expanding sales.

I’d like just to mention that we keep our SG&A very much under control, we are 14.4% in this quarter lower than in the fourth quarter in spite of the expansion.

Hence, we have taken initiatives to pass on some of the material cost increases to our customers.

We are in discussions and have already taken certain price increase actions in the quarter and will continue to do so in the second quarter of this year.

Very pleased with the EPS increase.

It increased 48% over the same period of last year to a record 40 cents per share.

This is after split of our stock price in March.

This is the ninth consecutive quarter of EPS increase.

So more than 2 years now we’re seeing constant increases in EPS and we’re very confident that that trend will continue as we move into the second quarter of this year as well to add a tenth quarter to that.

We’re very pleased also that for the first time in the history of Amphenol being a public company, our net income as a percent of sales reached 10%.

This is a very remarkable achievement because Amphenol continues to be a leveraged company so our 10 % return on sales is after interest expense after taxes and so forth and it is really an achievement which is the direct result of our excellent operating margins as well as our continued effort to reduce debt and certainly take advantage of the lower interest rates that we can achieve with this excellent performance in the company.

We also expect our confidence for the future and for the continued strong growth and profitability that we expect in the future with our stocks play that went into effect in March of this year.

These positive trends just highlighted here and I would like now to continue with a more detailed discussion of these trends in segments.

I’d like to start out with broadband communications for a hybrid fiber coaxial network for the cable operators.

This business represents about 12% of our total sales and it was up 28% over the same period last year.

We’re very pleased with that growth because it was broad based and driven by both domestic and broad based international demand.

We have during this period of this year and already started last year to sensitize our customers through the persistence of these high end material costs.

As we had discussions with our customers to get some relief on these material cost increases and in effect we will put in place the price increase, later in the quarter, of about 5-10% for the coaxial cable products.

We expect the second quarter to be sequentially up in broadband communications over the first quarter and to achieve in the second quarter, another quarter with strong year-over-year sales increases.

That will be the third quarter in a row with such strong sales increases.

Let me continue with Mobile Communications.

We’re very pleased with the strong performance in that market during that quarter.

Mobile communications represent about 20% of our total sales and sales were up 60% in the quarter over the same period of last year, up 53% in local currency.

This outstanding growth was achieved in contribution and good performance in both the mobile phone and mobile infrastructure market.

The mobile phone market was up 36% in US dollars, 30% in local currencies.

This strong growth was driven by several factors.

One was that the demand from our broad based Asian customer base remained very strong, despite the Chinese New Year, throughout the quarter.

There were several new launches of mobile phone models during the quarter which drove the demand with the multi national customers.

And another growth driver was the increased functionality of these mobile phones which gave us the opportunity to have increase contents with new products in these new phone models. (Technical Difficulty).

A very strong growth that we have experienced for example in our hinge business which is more and more in demand as more and more of these phone models are foldable phones and require very, very sophisticated hinge technology that we provide to our customers and there were several others that drove that growth.

In order to continue the support, the strong growth that we expect for the rest of this year and the years ahead in mobile handsets.

We are very pleased to report that we will open two new facilities, twice the size of the facilities that we have in place today, one in Malaysia and one in Tanjin (ph).

This expansion of capacity will help us to continue to achieve above average growth in that segment.

Let me continue with the mobile infrastructure market which experienced the highest growth of any of our segments.

It was up 85% in the quarter, in US dollars, 77% in local currency.

Some of this growth was attributable to the acquisition of the Antel Company that we concluded in the fourth quarter of last year.

Without that acquisition, the growth would have seen in local currency about 56% compared to the same period last year.

So very strong growth and it was really as a result of benefiting from the strong demand of mobile network manufacturers, space station manufacturers as well as sub-system manufacturers like (indiscernible) and combiners worldwide in all regions of the world.

We have clearly developed also new opportunities and new products in that market place and we’re specifically pleased with the progress in penetrating some wider site installation market with our new Integrated Interconnect Solutions which includes space station antennas.

We’re excited about such programs announced by, for example Verizon with the data networks that they are building our, the DVDO programs and many other build-outs that are happening at a very rapid pace like in India, in Asia, but also in Europe where we see tremendous incremental growth opportunity for the near term as net continuously upgraded for new services and for capacity needs.

That growth in the near term will ultimately be replaced by growth for the long as three-G networks will go in volume production.

They are very confident to continue to achieve strong growth in that market in the future.

The computer storage and data com equipment market saw a relatively flat performance year-over-year in the first quarter, essentially due to the fact that the demand for high-end products was relatively slow and the demand for the next generation programs and products started out relatively slow in the quarter, but accelerated towards the end and have already strong year-over-year growth in March.

We are very encouraged by our design (Technical Difficulty) in these next generation programs with our new serial box and high speed data interconnect solutions.

We’re very confident that we can expect significant growth, year over year growth in the second quarter and as the second quarter will be significantly up in that segment over the first quarter of this year.

Conditions we will benefit from are further strengthening of the demand of the high-end internet related equipment as well as from an improving pricing environment in that market segment.

Let me continue with other markets outside of the communications related, computer related market, the military and aerospace market which represented about 25% of our sales in the quarter, a very solid quarter for that segment again. 23% sales increase in US dollars, 18% in local currency.

Growth continues to be driven by the new military programs that are continuously into production and are being in production.

And I’d like to stress once again that Amphenol has a very diverse and multiple involvement with these new programs.

For example the delay of the second phase of the EPHA European Fighter Aircraft build-out didn’t really affect our growth because it was offset by a stronger demand for example in the Bowman program, which is a battle field communication program.

So very strong growth driven by new programs, but also the growth is driven by the military operations.

They are increasing demand for replacement parts for ground vehicles and other areas like shelter, stations and so forth which require our products in increasing volumes.

So that is very positive while the commercial aircraft business remains relatively stable at this point in time.

Prepare, preparing a strong future in that market segment by winning on the broad basis designs at the next generation commercial, aircraft and military equipment, which prepares well for our future.

So, we are very encouraged to be in that segment and to have that strong entrenched position which will [Indiscernible] for a continued strong performance in military and aerospace.

The last few segments is really serving and focusing on the industrial and automotive segments.

Industrial represented in the first quarter, 15% of our sales and had a strong sales increase of 30% in US dollars, 23% in local currency.

The major demand drivers in that segment where the mass rail transportation where we had clearly gained in fact resumption as well as in medical instrumentation.

The gain comes especially from taking share away from taking share away from the smaller competitors who do not have the advanced technology that is now required to - - for these markets that we serve.

The automotive market represented 12% of our sales in the quarter and was up a strong 37%, 23% in local currency.

And again the growth here was primarily driven by our leading position in interconnect for safety devices, for the ceramatic electronics and communications and electronics in the car.

We have made major inroads with some new design wins, with new-on-board electronics, with such companies at Opel, as well as other folks with - - other car manufacturers especially in Europe.

We expect both industrial and automotive markets to remain strong for the next quarter and the remainder of the year 2004 as we can anticipate that it will continue to benefit from a better environment as well as take - - continue to share away from the smaller competitors as more sophisticated interconnect solutions will be required.

From a geographic perspective, Amphenol had good performance in all regions.

North America was up a strong 29%, Europe 4%, in local currency 19% in US dollars and in Asia, a strong 37% percent or 33% in local currency.

So, we’re very pleased also with our geographic position here and growth.

If we reflect a moment on the European growth of 4%, we have to consider here that amount - - 4 to 6 % of that growth is reflected in Asia, as much of business is continuously being part of Europe as well as North America into Asia.

So, in summary, Amphenol had an excellent start in the year 2004.

We continue to take advantage of our advanced technology and global presence, to gain position against the many smaller competitors in the very fragmented market.

We continue to benefit from our preferred supplier relationship with the leading manufactures in the diverse markets that we serve and we continue to stringently control our costs in a time when sales grow rapidly, to achieve the operating leverage and the strong conversion margins as we expand our sales.

And we are well positioned to capitalize on the improving demand trends and develop our search markets and to benefit from an improving pricing environment.

And based on these accomplishments in the first quarter, and the positive trends in our business, we are confident and we come with confidence to increase our guidance for the rest of the year 2004.

We expect the second quarter to be sequentially up over the first quarter.

That is what seasonally - - what we expect and for the full year of 2004, we expect to - - sparing any unforeseen political or economic or even currency changes, that sales will increase from 12 to - - by about 12 to 15% up from our previous guidance of 8 to 11% and we now expect EPS to grow 23% significantly up from our previous guidance of 16 to 21%.

So we at Amphenol are very excited about the many opportunities in front of us.

The first quarter is an excellent start for the company and a very strong first step to reaching record results in the year 2004.

Thank you very much and I would like to see whether there are any questions.

Thank you and if you would like to ask a question simply press star one.

To cancel press star two.

Please standby for the first question.

The first question comes from Matt Sharon at Met Life Partners.

Thank you and good afternoon.

Good afternoon.

And so my question I guess first Martin relates to your--- you talked expansion in Asia if you could give us some more details about what kind of production expansion you’re looking at and what the time table is and also what we can be expecting in terms of CapEx there?

Well that is a very fine question to ask because this capacity expansion is important for us.

Actually it is going to be a very short term.

We have working on expense to capital already in the ---most of it in the first quarter and the fourth quarter of last year as we usually moving into these facilities so we’re not that investing brick and mortar but in equipment and especially the facility in Shenzhen in China is going to be a 60,000 square foot facility essentially dedicated to mobile phone production for primarily Chinese consumption.

Instead of ..with very little export and it will be operational in about two weeks from now.

Actually I’m leaving on Friday for Asia and we’re going to have our inauguration on Monday of this year-end and it’s already fully equipped and we are going to see a running factory at that point in time.

In Malaysia very similar the ---we are moving from our old facility within the next two weeks into a new facility which is about the 40,000 square foot facility and again dedicated it essentially to the manufacture of mobile antennas.

And most of the capital expenditures you have already seen, you know, that will be not a different impact of any significance in the second quarter.

I’ll outline times for these expansions.

Okay could you give us a sort of an estimate observes.

What kind of revenue or run rate that new production will support?

Well, we as you know we are bursting somewhat out of seams.

We have been growing in mobile phones and over the last years and in the last quarters about an average 25% a quarter over the prior year quarter.

And we have also transferred some of the manufacturing from North America to Europe to Asia.

So it will support---continue to support, you know, growth that is on the higher base of about 30%, 35% until we are getting full the end and further grow as needed.

Okay great and then sticking with the mobile phone you’ve talked about these next generation phones basically being positive for you because of the increased content.

Could you give us an idea of the dollar kind a year ago into the next generation phones the dollar content opportunity for Amphenol there.

Dollar contents go up relatively gradually as mobile phone generations change so you don’t see really a set function in this but it is gradually going up quarter after quarter and you know and reaching higher numbers.

We really don’t look at the average but what we are looking here more is at the what kind of total solution we can provide our customers and we have a higher content for example with the Asian manufactures that we have with some of the more traditional multinational companies.

Okay, thanks very much.

Yes, thank you.

Our next question comes from Steven Clarke with Merrill Lynch.

Good afternoon Steven

How you’re doing?

First on the Coaxial Cable, you have an excellent position in Coax but you could not have let a price increase in that industry.

I think, you know, this is an industry which has evolved over many, many years where you have essentially two very strong companies in the marketplace and many other small or local competitive on certain things.

We certainly have not anticipated to lead such a price increase and we expect obviously that these price increases have more (inaudible) final sales.

And then in terms of looking at pricing on the connectors Martin, what area do you see opportunity to do what Molex is doing.

Like what type of product segment would you be most likely to be able to raise prices say over the next 6 to12 months?

I’m not as familiar where Molex has increase or is intending to increase prices.

As you know we don’t have that strong overlap with their product line.

But obviously we have increased prices already, you know, to some extent and announces in the first quarter, military airspace to some extent in certain industrial segments and the opportunity for us is really more now that prices are easing in the internet related marketplace.

That is really where the highest, certainly decrease took place, as far as systems computer where we are very please to see some easing in that area and that’s also where we are taking some initiatives on our side to stabilize that.

Thank you very much.

Thank you Steve.

Our next question comes from Robert Cornell with Lehman Brothers.

Yes, hi Martin.

Good afternoon Bob.

How are you?

Alright.

You know, just following on this whole price issue, I mean, on the connector side again I didn’t hear you talk about the price of or the cost of gold and copper and other component (inaudible) and the connector side going up and that adversely impacting in the quarter I mean.

What about that scenario?

Well I think the most impact of these material price increases we have seen in the Coaxial cable business, you know that, and you’ve all recall that 80% of a cost is the material there and that has the most significant and immediate impact.

In the connector business you have a material content of about 30-35% and in this area we’re not using just raw material so there’s also processed material, so if you come down to the pure, pure commodity itself, it becomes an even smaller percentage of our total cost and therefore it doesn’t have that significant of an impact, but it has, in the quarter in terms of margin but obviously it has some and that is what we’re trying to recover.

Yes.

You don’t want to put a number on it?

Well it - - it, you know, depends, market segment by market segment, for example, if we pass on the price increase of about 3% through distribution in the military aerospace market, we intend to, you know, not pass a - - you know, participating price decreases in internet and computer related markets and so forth.

So, you know, it is really - - depends on the market segment where we are, we have some longer term contracts on the mobile infrastructure side, but with the cost reductions that we are continuing, I think we can somewhat offset the material cost increases here and see in the later part of this year the effects on price increase in that area as well.

On the mobile phones, it’s more driven not so much by price but by the change of the model, where you price the product essentially for the model kind.

You know, I think you said the connection business something like 28%, how does that ray of gain track through the quarter?

How was - - was January or was February up, was March up in that regard?

That’s a very fine question, we certainly had a very strong March, and much stronger than, you know - - always the last month is always strong but March seemed to have been somewhat stronger than in the past.

The other two months were what we would have expected normally, except the Chinese New Year this year had a much less significant impact than in prior years.

The reason why I asked that question is that some companies and not the connector companies, are talking about March being so strong because of pre-buying and anticipation of price increases - - think that has anything to do with March being so strong?

No, not necessarily because, you know, the back log that we have is usually related to, you know, the military aerospace maybe to some longer term contracts but in the other it is buying and, you know, as we do it also in the coaxial cable business, when the order is being placed - - when the sales is being affected, the new price is affected whether the order was placed early or not.

Did you go to a book-to-bill or a back log number for the quarter.

Yeah we did, book-to-bill was 10 (technical difficulty) but again it is only meaningful in certain areas, because in many areas we’re just booking the order and shipping and you don’t really build any backlog there even if demand strengthens.

You know, for a while and last couple of years we’re talking ordering hand to mouth and now with the strength you’re seeing - - I see people come back and look for longer term, you know, blanket orders on lengthier commitments.

Well I think we’re not at that stage yet, but obviously customers are - - many of our customers are talking bout capacity, because they discuss with us their material requirements next six months and the near term next three months and month.

And they clearly discussed with us whether we have capacity, where that that capacity is available and so forth, so we clearly have these discussions with our customers, they’re very interested in knowing whether we can support them with their growth, which us you know, a lot of confidence that they have increasing demands.

Okay, thanks guys.

Our next question comes Michael Walker with CFFD.

Hi, good afternoon.

Good afternoon Michael, how are you.

Good.

A question on Europe, you said that it was seeing some transfers to Asia, which caused it to be a little bit weak, but I’m wondering what your overall macros, meaning as of Europe, if you see any kind of recovery there - - with demand turning?

Well, that is a very fine question, obviously we have seen some strength in the industrial business - - strengthening in the industrial business.

The automotive business for us is specialty business so I wouldn’t imply any trends, the trend is more electronics is being put into the cars where we are participating, so I’m not too sure that this is a good trend indicator.

Obviously mobile infrastructure in Europe was quite strong for us.

Okay, great.

Second question is about inventories in general.

You had no uptake in your inventories at all, Molex had some based on commodity sectors, I’m not sure if you guys are in the same business or not, but it seems as though there are couple companies at the component level there, trying to get in front of potential demand spikes where their capacity is maxed by building some inventory, it doesn’t seem like you guys are.

I wonder if you could give your spin on that.

Our process here is a little bit different, rather than putting in inventory where we know with our enormous diversity of product, I mean we’re selling about 100,000 different part numbers a year, rather than you know, putting inventory in and not being called off because the item needs to have a little bit different, color or coating or whatever it is, and we rather like to make sure that we understand the demand flow and then have the capacity to remain you know, at the a short - - at a lead time expectable to the customer.

And so far we have been able to do this, so far we have done that in preparation of demands next - - you know, if we would have waited for the demand in mobile phones to come to us, you know, we wouldn’t have been - - we would have to have expand the lead time and probably lost a business.

We saw that coming last year, we started with the establishment of the new facilities and today we can, you know have with short lead time, satisfy the demand that is growing.

So, then you’re sense of inventory are at a pretty lean level of the cross of supply chain or do you see any build-ups anywhere?

We have seen some in distribution, especially in the military and aerospace industry to support the stronger demands in that area, especially for the war in Iraq and in Afghanistan, I think that is, you know, a kind of a little area, very segmented that we have seen it, otherwise I think inventories remain – certainly in our company relatively lean and we haven’t seen it build up with our customers in any significant way either.

Okay.

And then just on the computing and data com segment.

You talked about next generation products trying to accelerate during the quarter and become stronger next quarter.

Can you tell us what kind of products those feed into and it is a content thing or is it improving demand thing with this product.

Actually it’s a combination of both.

First of all what we have designed aimed well with our new high speed interconnect solutions, higher bandwidth, higher speed solutions, and hope that where the generation of product hasn’t been rolled out yet but is in the process and we have seen really the first time here in March that this is happening, in addition there is the transition from the parallel bus to the serial attached interfaces and I think that is again something where are participating with our new products, but the transition hasn’t come as fast as we, as originally sought by our customers but that is becoming a reality and that will drive our second quarter growth and that concerns both the services and the storage.

We have very strong growth expectations on new riders that are being you know, launched at this point in time.

Okay and then last for Ed, I think you hit your ten percent net margin here for the quarter.

Where do you see net margins going to longer term, can you get far above 10%?

Well I think they will certainly trend upwards because we have good operating leverage and its been last to some degree by the rising material cost on the cable side of the business but we continue to get 25% plus conversion margins in the interconnect business and I would expect that as demand continues to strengthen and we continue to see margin expansion, its hard to put an upward range on it or certainly our goal.

And we talk about operating margins because the interest expense - - if that’s really the one way to exercise more control and I certainly have goals in the 20% range here.

I think those are very realistic over a relatively short time frame.

Great, thanks a lot guys.

Thank you.

Our next question from Dave Peschman with Smith Barney.

Thank you gentlemen.

Just to explore the pull of your guidance a little further.

If I could take your sale that you did and the EPS that you did for this quarter and flat line it, we’re going get to the very high end of your range on both of those items, is there any reason to believe that sales or earnings are going to be flat for the balance of the year.

Well we have increased our earnings, that’s a very good question and obviously the arithmetic is very correct as you make it.

As you know in the past we always have been a little bit conservative with our guidance.

We’re looking for a strong second quarter growth here sequential and year over year and once we have this in our bag, I think the outlook for the rest of the year with some political uncertainties with some uncertainties that we really cannot foresee on currencies and so forth.

And whatever other aspects can happen usually the third quarter is the seasonally the slower quarter.

But I think our visibility is still more in the short term than in the longer term and therefore we prefer to upside our guidance as we go along rather than have to do it the contrary as we go along in the year.

But we are very, very confident that this will be a record year for Amphenol.

Okay and then and you were mentioning the interest to that and being in some amount of debt with that expense.

Can you give us a sense of what that the debt expense might look like for the full year?

And then also can you maybe talk about what the long terms target look like for debt to equity rate where you’d like the debt level to stabilize that?

I think as we continue to naturally leverage on account of the strong cash flow.

In terms of the specific bench marks I can’t give you a particular ones Dave, I think we you see a lot of opportunity for reinvesting in the business to the small add on acquisitions and they’re clearly our preference but there will be a continuing natural (indiscernible) leveraging with the cash flow.

I would expect to see further declines in interest expense so we’re fairly well protected through swap arrangements to litigate any impact that would go into a rate increase environment, so I’m not particularly concerned about that.

With strong cash flow our preference is reinvesting in the business where we get the best returns as reinvesting in the business so we continue to look for those opportunities.

Okay is there a level where you say we’re actually going to stop paying down the debt?

We’re just going to keep refinancing it and actually like you said keep reinvesting in the business is it 30%, 40% is there a dollar amount that you’re targeting or not particularly?

Well the debt equity ratio I don’t think are particularly meaningful because..

I think some of the things we talked about in the past equity is the restructuring we did a few years back.

We just looked at the traditional measures of leverage and the leverage ratio and the interest coverage ratio, we’ve excellent ratios and we’re right on the cusp of investment grade and I think that’s a good position for us to be in.

I would envision staying at that level.

Leverage I think has been a significant benefit to shareholders and the earnings performance, the earnings acceleration we’ve had and so I would expect that to continue to be a component of our financial structure.

Okay just one more quick question on the tax rates, so you’ve been guiding at 34% essentially for the foreseeable future does that already account for the increased production coming in out of Asia?

Or should we expect that tax rate could move lower over the next call it four to eight quarters?

I think that’s reasonable for the foreseeable future Dave, because we’re repatriating a lot of that cash to pay down the debts so that sort of has a big influence on our effective rates.

Okay great thank you very much.

Our next question comes from Patrick Karr with UCF

Good Afternoon Martin, good afternoon Ed.

Good afternoon.

I might have missed one of the numbers but Martin did you sight in the storage and enterprise (indiscernible) data com segment, what percentage of your total that was?

Looks like it might have been around 27% of sales is that correct?

Total it’s about 16%, up total sales, a lot safer from the way it was over the past several quarters 16%.

Okay so sticking with the segment your four year guidance is obviously a lower growth rate year on year than you posted in first quarter in just about all of them.

So where would I expect to see growth on a year over year basis decelerate on a segment basis?

Or is there certain ones that are going to grow less than others?

By any measure to have a 28% growth is a very significant growth and we all have to understand that we’re coming out of a slow period of recession, even if you have had sequential increases here we’re going to compare ourselves against stronger quarters as we come along.

So it’s not necessarily that the demands is slow in comparison to what we have in the first quarter but obviously there are some comparative measures that go into effect as well.

The outlook by no means should represent a diminishing confidence in our ability to continue to take advantage of the demand trends in the business which are positive and good, in most segments strong as well as we continue to gain share.

We have the ability and as I said earlier we’ll see a very strong second quarter and up and well revised as necessary our outlook as we go along as we have done in the past.

We have always kept a little bit more conservative look at that.

Okay I know you’re enthused about your prospect on all of them Martin but is there any chance you could just say rank them in terms of where you would expect to see the highest growth rates for the balance of the year?

I think the mobile phone business will continue to be strong as we have seen it and we’re going to experience above average growth.

Mobile communication slows somewhat 60% gross without the acquisition 77% is somewhat an exceptional growth because all manufactures of (indiscernible) station which is running at full cylinders if you want at the same time.

Which from an experience stand point is not always the case because not everybody participates to the same extent.

We have a broad customer base and we’ll have significant above average market growth rate in that area but to sustain a 60% growth may not be the case.

I think we will continue to have similar growth rates in the military aerospaces we have experienced it.

Also in the automotive business just the same 23% growth in local currencies is probably a very ambitious goal relative to the opportunities but we--- again because of our opportunities in the new electronics department we’re going to have strong growth rates there.

Whether it’s as sustainable as the 23 % is another you know question that we have to ask our selves.

In our industry you know to have this kind of growth rate is truly exceptional.

We’ll see strong, strong double digit growth as we go into the next quarter.

Because we are confident with what we see in the near term.

The longer term has still some variables that carry some uncertainties.

But we’re very confident about our future.

That’s great, another segment type question.

You gave the growth rate in your various geographies.

Could you remind us what percentage of your business right now comes from each of the three geographies North America, Europe and Asia?

I’ll give you too some rough numbers here the North America is about 50%, Europe is about 30%, Asia is about 24% of the total.

And then you may have other countries which we call the rest of the world South America, South Africa and those countries which make up the rest.

Okay good alright so 20, 30 and 24 is a 104 % but -- .

50, 25, 25 I think is the --.

Okay that’s better.

I’m sorry.

That’s okay and then one final question.

We’ve heard a lot about increasing metal prices and petroleum prices do you see any pull cost to you?

You sited metal prices is a factor in the margins in the collect business.

On the interconnect side, these pose any kind of a problem to you and how do you deal with them?

Aside from just hedging?

They, all cost increases, material cost increases, always pose some you know problems because they put some pressure on the margin.

And you know we’re with dealing with these situations differently and again the correction of cable business is affected by both not only the metal but also the plastic material, more heavily because 80% of the cost is in material.

And as I mentioned on the connector side much less 30, 35% is in material cost.

And again this is not pure raw material but processed material.

And as processed material you talk also to your vendor because they can have cost reductions and so forth.

And therefore you know what is really related to pure, pure commodity, copper and gold and so forth, has become a smaller percentage.

And we feel with that – you know raising some prices with our customers and get some recovery make our own cost reductions in other areas in the business and also ask our supplier to make cost reduction as they convert the commodity into a product that we can use.

Okay very good thank you.

Thank you.

Our next question comes from Zack Craig with Morgan Stanley.

Good afternoon.

Good afternoon.

Can you help us a little bit on the working capital side of things.

If you were to hit your target as you work through 2004 how does that affect your working capital ledger compared to where they are now?

I think that the receivables side I think we’ll continue to expand with the growth.

But in terms of any sales outstanding with you adding back to the account receivable facility which was 70.1m at March 31 works out to a day sales outstanding around 65, which we hold in that range for some period of time.

I would expect that to continue.

On the inventory side we hope the inventory relatively constant with increasing volumes and I still think there is opportunity to score for us to improve our inventory ratios so that the expansion in the business won’t be reflected at a proportional increase in inventory and thereby helping the fund to -- reducing the amount of investment and working capital.

On the payable side I would guess (indiscernible) I would say pretty much comfortable where they are right now in a ratio basis.

Ok then Martin, can you describe how the mix is changing with these higher margin products with the application specific and the inter-connect solution.

Are they becoming a greater portion of your sales that you need to quantify that for us to help us understand mix changes?

Obviously we’re driving these applications specific products but at the same time when we introduce these applications specific products there as a group of products which become more standard as well.

So there is a change in the two and obviously in the growth case of specific products become more important.

In this quarter for example the percent of new product was 25% of our total sales where our more normal situation is like 20% in relatively good times and not the 25%.

But you know due to the higher growth in that area and much of the growth driven by really some new generation product that were rolled out by our customers it became somewhat higher.

And do you think in the near terms of that 25% number is a sustainable number or you know when do we start to gradually go back down to the 20% normal?

I think – I know if you go down to the 25% normal obviously – first of all for the second quarter where we see a lot of new product again being rolled out I think that’s a good number to assume for the near term again.

As it relates to the longer term I think the 20% is better but then also we’re on a better pricing environment so that some of, for all the products so we are then able to capture some margin back there.

And therefore the margin expansion as volumes increase we’ll also increase at that time.

Okay thank you.

Thank you.

Operator take one more question please.

Our next question comes from Keith Dune with RTC.

Just under the wire, great quarter guys.

Couple of follow questions one on a dollar basis you know the SG&A did go up a little bit higher than I would have expected and you had such great performance with that.

Perhaps you could help me understand that better.

Did we help maybe increased our reserves to protect on uncertainties in the future or what drove that beside just you know sales variable number?

Actually our SG&A as a percentage of sales compared to the fourth quarter came down.

So we’re actually very pleased with controlling our expense in the first quarter of this year very strongly.

Because obviously you have some variable expenses in SG&A as it relates to sales and marketing.

But and also to engineering new product engineering and we’re making the investments.

But again we leverage (indiscernible).

Couple of quick follow ups.

It sounded like at one point you were saying that military, you may have seen some inventory build up to the (indiscernible) but then again you mentioned then that you expected that to continue growing.

If the later is correct there was a build up (indiscernible) it will continue growing?

No what I said is that and meant to say that distribution for the support of some of the military operations these types of products that was a build up in inventory in order to support that we believed that it will remain stable at that higher level at this point in time.

You mentioned margins and connectors were about eighteen –five could you give us a little color on what the margins were in the quarter on the cable side of the business?

On the cable side it was less than 10% in the quarter.

And two last ones I didn’t hear a question earlier on Cap-ex for ’04.

What are you looking at for the full year of Cap-ex and do you have any color on what you’re expecting for gross cash flow from operations this year?

Yes the Cap-ex for the year was indicated to be in the $35m range for the full year of 2004.

And cash flows from operations because the growth of the business will require some investment working capital.

I think will be roughly comparable to what it was last year maybe a little stronger.

But because – for right now I love to see cash flow similar to last year.

Right thanks very much guys good job.

Thank you very much and thank you all for listening in to this conference call, for your interest in Amphenol and continued confidence in our company.

Appreciate it very much and we’ll talk to you at the next release at the latest.

Thank you, goodbye.

That concludes today’s teleconference.

You may disconnect and have a great day.