安費諾 (APH) 2004 Q2 法說會逐字稿

Hello.

Welcome to the Amphenol Second Quarter Operating Results Conference Call.

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

Following today's presentation we will conduct a question and answer session.

To ask a question, please press star 1.

This conference is being recorded.

If you have any objections you may disconnect at this time.

Now, I will turn the meeting over to Mr. Edward Jepsen, Executive Vice President and CFO, Mr. Martin Loeffler, Chairman, President and CEO and Diane Reardon, Controller Treasurer.

You may begin.

Thank you and good afternoon.

My name is Ed Jepsen and I'm the CFO of Amphenol.

I'm together with Martin Loeffler, the CEO and Diana Reardon our Controller Treasurer, who, as previously announced, will transition to the CFO position over the next few months.

I would like to welcome everyone to the second quarter 2004 conference call.

The second 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 Q&A.

The second quarter was an excellent quarter in all respects.

Sales for the quarter were a record $387 million.

That is up 27% from the $305 million in the second quarter of 2003.

The sales increase includes a positive currency effect of $8.5 million.

Breaking down sales into our two major components, the connector and interconnect was up 27% 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 12% of our sales, was up 28% from last year as a result of sales in increases in both international and domestic broadband cable television markets.

Operating income or EBIT for the quarter was very strong at $69.1 million compared to $49.3 million last year.

Operating margin was 17.8%, an increase from 16.2% last year as increased margin in the interconnect business more than offset margin pressure in the coaxial cable business as a result of increasing material costs.

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

Interest expense for the quarter was $5.7 million, compared to $7.7 million last year.

Reflecting lower debt levels.

Other expense was $2.2 million compared to $1.7 million last year.

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

Net income, that is operating income less interest and taxes, was $40.4 million or 10% of sales which is another indication of our excellent profitability.

Diluted earnings per share for the quarter was a record 45 cents per share.

Up 50% from 30 cents a year-ago and the 10th consecutive quarterly increase.

Per share amounts reflect the two for one stock split in March of this year.

And the 2003 comparative EPS amount that we are referring to excludes a one-time charge of 8 cents per share in the second quarter of 2003 relating to the write-off of refinancing costs.

During the quarter, we generated a very strong cash flow from operations of $53.9 million.

Of the cash flow from operations, $11.8 million was used for capital expenditures, and the balance was primary used for debt reduction.

Long-term debt was down to $465 million at June 30th.

Since December 31 of last year we have reduced our long-term debt by $67 million.

The balance sheet is an excellent shape.

Accounts receivable increased in line with increased activity and inventory was essentially unchanged from the December 31 amounts other than currency effects in spite of the higher volumes.

Finally, orders for the quarter reflected a positive book-to-bill ratio of approximately 1.01 to 1.

Certainly from a financial perspective it was an excellent, excellent quarter.

With that I'll turn it over to Martin.

Thank you very much, Ed.

Welcome and thank you for joining in at our traditional conference call as we report our quarterly earnings.

I'm very please today to have also Diana Reardon with us who has been working with Ed and me for the last 17 years so she will join these calls in the future.

She is transitioning into the CFO position over the next several months.

I will give you a very brief overview of our most recent achievements, talk a little bit about our second quarter highlights, comment on the trends and the progress in our markets and then comment also on the outlook for the rest of the year 2004.

We are extremely pleased, as Ed said, with the results that we have been able to achieve in the second quarter in the first half of 2004 in all respects.

We continued our trend of superior growth and profitability.

The balance sheet, as Ed mentioned, is in excellent shape, conservatively managed.

Cash flow is excellent.

And we further strengthened our position.

We continued to gain share at important companies in our served markets.

We continued our geographic expansion.

I will comment more on both of these aspects.

We continue to make investments in new products that will continue to drive growth as they are designed in the next generation equipment of our customers.

And in spite of the economic climate we continue our stringent programs of cost control which continue to allow us to achieve excellent profit margins.

Some highlights of the second quarter certainly include our sales increase of 27% over the same period of last year.

This is outstanding growth especially considering that we got much less help really from currency in this quarter.

In local currencies our sales were up 24% to a new record of $387 million in the quarter.

This strong growth was really broad based with excellent sales increase in all of our served end user markets.

Again, in this quarter, similar like in the first quarter, the mobile communication market, both the mobile phone as well as the mobile infrastructure market, have shown the highest growth in that quarter.

We also have seen geographically a very broad-based growth with excellent sales increase ness all regions.

In North America we grew 25%.

In Europe 16% and in Asia 50%.

Asia continues to be the strongest growth area for Amphenol as we have reported in many of the previous quarters.

We are also pleased that both the interconnect business as well as the coaxial cable business contributed to the strong growth, with 27% and 28% respectively.

On a sequential basis we clearly expected the second quarter to be some what seasonally stronger than the first quarter.

However, you will remember that we reported very, very strong first quarter results and it is remarkable to have the sequential increase on top of that very strong first quarter of 9% in the second quarter.

We're very, very pleased and it really underlines the tremendous strength and catching and gaining the opportunities that we have in front of us in that second quarter.

It really reflects our ability to take full advantage of a more favorable economic climate and to continue to build and gain market position.

We are also very pleased with the continued improvement of our operating profit margins.

They have reached 17.8% as I mentioned, up from 17.3% in the first quarter and 16.2% last year.

I'm very pleased that our conversion margins actually improved and have a tendency to continue to improve in the second half.

The main driver for the margin improvement was again the interconnect business as the coaxial cable business had essentially stable margins as compared to the first quarter.

The price increase that we introduced in the month of June will really have the full effect only in the third quarter.

We expect operating margins to continue to expand as we move forward.

We see good conversion margins in our business.

We see a more friendly and favorable pricing environment than we have seen for several years.

The new interconnect solutions for application-specific products of our customers we are -- we feel that they will continue to produce excellent margins in the future.

And we continue to have our cost control in place.

SG&A just was 14% in this quarter, so even if we expand we continue to control our costs.

EPS was up strongly. 50% in the quarter compared to last year.

To a new record of 45 cents a share.

We're very pleased with this improvement and we also are very pleased that net income as a percent of sales has again reached 10%.

That is certainly a benchmark that is remarkable for any industrial company.

Both of these improvements the EPS and the net income is certainly a direct result of the operating and financial leverage that we have in the company.

Amphenol continues to be also a strong generator of cash.

We generated cash of $47 million in the quarter.

And continue to use it to create value in many ways for our shareholders.

First of all, we continue to spend our cash in investments for new products.

Again, in this quarter, our sales of new products exceeded 20% of total sales.

We continue to expand our capabilities and facilities and geographic presence.

We opened five new facilities in the first half of this year.

Two in China, one in Japan, one in Malaysia and one in Mexico.

We opened a new R&D senor in China especially targeting the local mobile phone market.

Three additional facilities, two in China and one in Estonia are in progress at this time and to be open in the second half of this year.

We continue to look at strategic acquisitions as a very accretive investment of our cash.

We haven't made any acquisitions in the first half of this year but we certainly have several opportunities in front of us and we are confident that one or two could happen in the second half of this year.

And we continue to deleverage our company with the remaining cash that also is accretive to EPS.

So overall, the trends in the business are very strong and I would like now to share with you in a little bit more detail the trends and the progress in the served markets itself.

In broadband communications, that represented 12% of our total sales in the quarter.

We had special in the coaxial cable business ,strong growth of 28%.

We grew also sequentially by about 15%.

We believe that the digital conversion that is driving and continues to drive the growth in both the domestic and at international customers.

The digital conversion, which is leading to more services provided by the cable operators for voice, data and video, is certainly requiring upgrades of the networks where we benefit from.

We have increased the prices of our products 5-10% effective in June which is generally accepted by the domestic customers.

In the international arena, we are not so certain that these price increases will stick.

We expect the sales in broadband communications to remain at about current levels whereby we will see some seasonal modifications or moderations between the third and the the fourth quarter.

Mobile communications segment which represents 23% of our total sales had an outstanding quarter.

We grew 72% in that segment over last year, driven by a strong mobile phone and mobile infrastructure sales.

Let me talk very briefly about the mobile phone segment.

We grew 69% in the second quarter in that segment and the growth had several underlying factors that I would like to share with you.

We have clearly been benefitting from our very broad multinational Asian customer base that all have strong demands but varying demands throughout the quarter.

We have heard about some inventory build throughout the quarter with the Asian manufacturers which we were able to offset with stronger sales to the multinationals.

Most of that inventory build has been flushed out as we have seen orders to regain momentum with these Chinese manufacturers.

We have a strong participation with the launches of new mobile phones throughout the quarter which again was a strong driver for our growth.

And we clearly see increased confidence due to the increased functionality of phones which again is a fine driver for our growth in that segment.

We expect in the second half to continue to grow above market in that segment as we have done for so many quarters before.

The mobile infrastructure market had outstanding growth in that quarter. 75% increase over the same period of last year.

We benefited from strong demand for network upgrades and expansion to 2.5G networks.

We anticipate that these upgrades will continue in the second half and continue to drive growth in the short-term.

We see, however, also a gradually increase of 3G deployment which will certainly add to our growth this year and more importantly next year.

We are very excited about our progress and are participating in the mobile infrastructure market for installation and site installations with our new products in and antennas as well as the jumpers that are used in that segment.

Excellent growth coming -- additional growth coming from that part of the market as well.

Overall, the mobile communication market had an excellent quarter.

We continue to see strength in that area for the rest of the year.

I'm also very, very pleased about the computer storage and data com equipment market.

Where we had only flat to single digit growth in the past, we returned to strong growth with 12% over the same period of last year.

As I mentioned at the last call, we expected new programs and next generation equipment being rolled out with our new interconnect solutions.

That clearly has driven the growth in that quarter and we expect that to continue as we move forward.

We're very excited about our new products to support the new series bus and high-speed data interconnects.

We is have signed a license agreement for the so-called Air Max next generation back plane connector system from the FCI, adding a signature complement to the product portfolio moving forward.

This back plane connector system is capable of going up to more than 12 gigabit per second data speeds exactly in line with our thrust to participate in high-speed arenas in that particular market.

We expect that the technological change will continue to drive growth in the second half of this year and 2005.

In the military aerospace market, no surprises, another very strong and solid quarter in that segment. 16% sales increase over the same period of last year.

The military aerospace market represents 24% of our total sales.

The growth was driven primarily by new military programs and a modestly improving commercial aircraft market especially for commuter jets as well as in the air bus industry.

The military operations continue to generate complementary revenues as well.

We are well prepared and entrenched in new designs for next generation equipment as well so that the long-term as well as the short-term outlook for that segment remains very strong.

Industrial segment, which represents 15% of our total sales, had also strong growth. 23% growth over the same period last year.

We have seen continued market share gains in that segment against smaller, less technically advanced competitors in that segment, especially in mass rail transportation as well as factory information and medical instrumentation.

We continue to see that market remain strong for us.

Also the automotive market had substantial strength.

It represents 10% of our total sales in the quarter and was up strong 20% over a year ago.

The growth was driven by the new electronics in cars.

Especially the further expansion of the safety devices into new technologies as well as the telematic electronics and other onboard electronics.

We are excited about new design wins with onboard electronics that will continue to drive growth in the automotive segment in the future.

So in summary, we are very pleased with the results and progress the company has made in the second quarter following the strength of the first quarter so that the first half of this year really was an outstanding performance.

We continue to take advantage of our advanced technology and our global presence to gain position against the smaller and less technically advanced companies in a very fragmented industry.

We continue to benefit from our preferred supplier relationship with the leading manufacturers in our diverse markets.

We continue to control our costs to achieve excellent conversion margins as we move forward.

And we continue to dynamically adjust our resources towards the emerging opportunities in the markets that are in front of us.

We are really excited about the opportunities that we see.

Based on that, you know, very favorable outlook in our served markets and based on our ability to further gain position against the smaller companies, we have again increased our guidance for the rest of the year 2004.

For the year 2004 we now expect sales to increase between 19-22%.

Significantly up from our previous guidance of 12-15%.

We also upped our guidance on EPS to grow 35-40%, significantly up from our previous guidance of 25-30%.

Considering that the third quarter usually is a seasonally slower quarter and the fourth quarter has significant or less working days that we enjoy in the quarters of the first half, this second half outlook is a very, very strong outlook for the company.

We are very excited about the many opportunities that we see in front.

We're very confident that we can achieve that range that we have given now, this increased outlook, which is certainly leading to a new record year for Amphenol.

We are all looking forward to achieving that record in the year 2004.

Thank you very much.

And I look forward to any questions that you may have.

Thank you.

At this time, if you would like to ask a question please press star one on your touchtone phone.

You will be asked to record your name.

To withdraw your question, please press star two.

Once again, to ask a question, please press star one on your touchtone phone.

One moment, please.

Currently at this time our first question comes from Patrick Parr of UBS.

Good afternoon, guys.

Good afternoon, Patrick.

How are you?

I'm good.

How are you?

A couple of quick questions.

Martin, you made a comment that the pricing environment is improving.

I was wondering if you would quantify that a little bit as far as how bad things had been and how you see them getting better?

Well, the situation is very different market to market but to generally talk about the coaxial cable we have increased as you know 5-10%, in that range.

Our prices, which will not totally offset the cost increases that we have seen in the material side.

We have on the standard products the ability to increase prices somewhere between 1 and 3% in most of our served markets.

On application-specific products that can be, you know, somewhat higher but it is really not a price increase in that sense.

It is just a different pricing that we allow ourselves to move forward on these application-specific product.

Okay.

Second quick question.

Your book to bill, I think you said, was 1.01.

That's, correct.

Yes, that's, correct.

I mean that considering the growth that you have that sounds low.

I'm wondering what that number means and how useful it is fand there is a trend at all there?

I'm very glad that you asked that question because much of our business is really business that is directly entered in the form of orders and then the shipment is made, so we have, you know, an in/out within the same quarter.

Most of the backlog build or backlog increases we would experience in essentially two areas.

It's in the military aerospace and industrial area where we clearly have seen strong, strong orders in the first quarter for longer term programs.

These usually repeat in the second half.

So there is no indication of trend change because of the change of book to bill between the first and the second quarter.

Okay.

And then a final question.

You made a comment on the handset market having I guess seen some inventory build at least with your domestic Chinese customers.

You say that's flushed out and you say that you expect to outgrow the market in the second half of the year.

What is the assumptions you are basing on for market growth and in handset at least from your customer base?

Well, I think the growth is expected to go from some where around 510 million phones or so last year to about 600 million phones this year so that's, you know, in terms of units the growth that is expected.

Our growth this year has been very, very strong.

We grow over 30% in the first quarter.

We grew this quarter 69% of the previous year, and we expect to continue to outgrow that growth that is expected, especially we are citing here dollar sales and that is certainly not the kind of price increases possible in that segment.

It is very, very competitive than in some of the other segments.

So we continue to grow our share, especially through content increase as I mentioned earlier.

Do you think that your year on year growth in that segment for the second half can be better than the first half?

I wouldn't want to speculate that it is -- it is strong as it is right now.

But our, you know, continuing to gain share with the content increase will continue.

The comparisons on the other hand get more difficult as we had certainly a strong third and fourth quarter last year so from a growth standpoint it may be -- comparison standpoint it may be some what different.

From a trend standpoint I think there is no change, that we will continue to grow and to expand in dollar sales strongly.

I great.

Thank you very much, guys.

Thank you.

Thank you.

Our next question comes from Bob Cornell of Lehman Brothers.

Good afternoon.

Good afternoon, Bob.

HI, just a couple of questions.

How did the quarter develop.

What were the rates of growth in April, May and June?

Were they all about the same?

Do you accelerate through the quarter?

Do you see some moderating in growth.

In any trend that you saw?

That is a very fine question because there were some moderations win the quarter.

The April was actually the strongest quarter followed by relatively slower may and then June accelerating whereby June was some what a little bit lower than April but close to the April numbers.

So it was a little bit dip in May.

Right.

Yeah.

Also on the geographic strength, I mean the numbers you gave, North America 25, I mean but then Europe 16.

Is that before or after after currency in Asia?

This is in U.S. Dollars.

The growth in Europe in local currency was certainly less.

It was 19 -- about 9%.

Um-Hmm.

But currency helped much less this quarter than the previous quarter.

In the previous quarter we had about $16 million in additional sales, if you want, on a comparative basis in this quarter only $8 million on the higher revenue number.

Right, now, in your guidance evolution from the 12-15 to 19-22, I mean where would you look to say the outlook changed?

What end markets or what geographies?

I think we have seen a very broad-based growth in all segments.

We believe that the markets that, you know, growth that we have seen will continue to be strong in mobile communication both on the infrastructure as well as in the mobile phone side.

We -- comparisons may be different in the third and fourth quarter against the last year.

But from a trend standpoint I think the strength will continue in -- in all of the market segments that we serve about at the levels that we have seen at this point in time.

Not necessarily in percentage I would like to stress that, because of the comparisons that we have.

But from a -- from an absolute dollar standpoint clearly continue to see the strength.

Internet equipment, the storage systems, computer area, has started to strengthen in the sense of new rollouts of new equipment and that is very encouraging with the products in that area.

Would you go over that again?

What area of the internet hardware?

What is going on there?

Well, this is storage systems, servers, data communication equipment.

And we have seen from our standpoint the strengthening of demand because of the rollout of new technologies and new programs as we have anticipated it.

And I think that will continue in the -- in the third and the fourth quarter.

Is that one of the reasons the North American market picked up, showed this kind of growth?

That certainly is one of the reason in North America as well.

A couple of other questions.

You talked about the inventory flushout.

I didn't quite catch what you said there.

The inventory issue and then it got flushed out.

What happened and where it was.

There was some inventory build-up of Chinese handset manufacturers in the quarter and, you know, there was some during the may period, some slowdown of ordering from those manufacturers because of that inventory.

We feel that much of that has been flushed out already because we have seen a reinstatement of the same order rates that we have seen prior to that inventory build-up

Final question.

I mean, Ed or Martin, you mentioned that you felt margins could continue to expand.

I thought I heard you say that.

Is that the right.

Margins can continue to expand because I think we have the better pricing environment.

We have the volumes certainly help us generate excellent conversion margins.

And as I mentioned we are rolling out a lot of new application specific products which have some what better margins than the standup products which again will contribute to margin expansion.

That's enough questions for me.

Thank you very much, Bob.

Thank you.

Our next question comes from David Martin of Deutsche Banc.

Thank you.

Congratulations on a good quarter.

Martin, I wanted to go back to one of your comments regarding acquisitions.

You suggested there may be a few transactions forthcoming in the second half.

I wonder if you would caulk through with us kind of our strategy, what types of markets would you be potentially pursuing and if you could comment at all on scale of potential transactions that would be helpful.

Thank you very much.

Obviously it always has been part of our strategy to make some of these tuck-in acquisitions and we are working on many of those all along and throughout the whole year.

There is no particular market segment that we have more priority than others.

Some tuck-in acquisitions come up opportunistically and also through our research.

There is no particular market segment.

Wherever it is complementary to the product line and to our geographic presence is that is where we will look closer to make these acquisitions.

And the range that we are looking it is always some where between the $10 million and $40 million companies.

It is not the big companies.

Just a few other items.

If you could, remind us what your Cap Ex budget is for the full year and then secondly on repurchase activity, you had initiated this program I think back in January, you bought back some stock in the first quarter but I don't believe any in the second quarter.

Has there been any change in strategy?

No, there has not been any change of strategy responding to the second point.

Maybe Ed wants to make a comment on this because the program of the stock purchase was really designed for specific purpose.

David, the purpose of the stock buy or the primary purpose of the stock buyback was to offset the effects of the stock option exercises and there wasn't really any option exercise in the second quarter.

On the Cap Ex, for the six months we spent $11.8 million for this quarter and for the 6 months close to $18 million.

I think for the full year we will still be in the range of 35-40 million.

That's all for me.

Thank you.

Thank you very much.

Thank you.

Currently at this time we have ten further questions.

If you would like to ask a question press star one.

The next question is from Steven Fox of Merrill Lynch.

Hi, good afternoon.

Good afternoon, Steve, how are you?

Good.

First question would be on the Times Fiber business.

Could you just sort of break down international versus domestic.

Any difference in trends there in the quarter?

No, actually our domestic business remains strong and a growth a little bit above 20%.

International market had a little bit stronger growth on a comparative basis so that the total ended up to be 28%.

And the breakdown remains roughly what we had before somewhere between 65 -- 60-65% domestic business and the rest international.

In terms of the served markets could you comment on sequential trends in terms of revenues by served markets?

How does it look if you look Q1 versus Q2?

Happy to do that.

We had sequential increases in all markets except the automotive market where we had essentially a flat revenue comparison between Q1 and Q2.

Then one last question, Ed.

On the off balance sheet receivable program.

Where does that stand at end of the quarter?

It was down from March 31st, Steve.

It was $68 million is my recollection. $68 million down from $70 million at the end of March 31.

Thank you.

operator, maybe if you could -- if the questioners could limit the questions given the backlog of questioners.

Limit them to one question a person, please.

Thank you.

As a reminder we will limit now to just one question per party.

The next question is from Dave Pescherine of Smith Barney.

Just a question on the application specific margins.

Did just give us a sense of what the operating margins look like for the application specific products versus the more standardized products and maybe give us a sense of how long you really enjoy those higher margins because as I look at the percentage of sales coming from application specific products doesn't look like that has moved all that much.

But it is a moving situation because, you know, the moment you have about 20% of sales or more a little bit more from these new products but this is within the window of two years so after the two years they become not any more classified in that category.

But clearly you have two, three, two to four, you know, year window in certain areas to continue to enjoy the higher margins dependent on the market segment.

You know, it's longer in the military aerospace market and some what shorter in mobile phones because the life cycles are different.

But the margins in application-specific areas tend to be, you know, certainly somewhat higher than in standard products.

I mean that is just the nature of the life cycle and the margin cycle of a product.

And we are driving that very, very carefully so that the mix that we have between those two margins, you know, contributes to higher margins as we have seen as volume increases.

Thank you.

Our next question comes from Thomas Gingiss of J.P. Morgan.

Good afternoon, guys.

Good afternoon.

Very quickly, Martin, you made a comment in your discussions about the broadband market, that I found interesting and hope you can provide a little bit more explanation for it.

You talked about the ASP increases that you had put forth in June and that these were generally accepted by the domestic customers but on the international side you were a little unsure as to whether these were going to stick or not, and maybe you could help us understand a bit was what is going on in that market because you did show very, very strong international growth in that market above what you saw in the domestic market and just wanted to get a little bit more color on that, that's all.

The growth is one thing to mention but obviously the dollar value associated with a 25% growth of 65% of the business is more significant on the international side.

From a dollar side it is very important that the price increase in the domestic market is really carried through.

I think that appears -- it appears that our competition has moved along with -- in market actually has let the price increase here in North America and we have followed and I think that is generally accepted by the customers.

In the international market it is country by country.

Somewhat different as we haven't seen the same discipline in carrying that price increase out in international markets by our competitors as we have seen it in domestic markets.

That is the reason why it is more of a bidding situation, bid by bid than project by project situation rather than in the domestic market where we work with price lists.

Thank you.

Our next question comes from Errol Redmond, your line is open.

Of Redmond Capital.

I wanted to understand more deeply whether the predictability of the business has improved.

That is, as you penetrate deeper with certain customers and you get more application-specific and more new product oriented, do you feel and the book to Bill has improved, do you feel that the predictability going forward from the beginning of the quarter going out to the end and also from several quarters out is -- has changed in the last year or two?

Obviously -- good afternoon, Errol.

The situation has certainly improved in terms of predictability.

Compared to what we have seen in the years 2001 and 2002 where, you know, many of our customers really didn't know where the future was or where the bottom was on some of their declines.

But in general terms the predictability for our business remains, you know, some what in line with what customers and their customers see.

And there are some uncertainties and the uncertainties remain.

We don't know what impact it could be that is a slow -- desire of a slow down in China by the Chinese government.

What the elections will bring.

There are micro-economic situations that bring uncertainty and we she in the stock market.

We see that clearly.

But from our own perspective, we feel very, very confident about our position.

We feel very confident about our ability to continue to penetrate customers and to bring new products so that we continue a strong trend.

Will macroeconomic situation over shadow that?

That could well be the case.

We have certainly good visibility as long as our customers have the same visibility vis-a-vis their customers.

Thank you.

Thank you.

Our next question comes from Michael Walker of First Boston.

Thanks a lot.

I have a question on your revenue guidance.

If you keep your revenues let's say flat sequentially from where they were in June, if you were to do 387 the next two quarters in a row you would still come in at high end of your revenue guidance.

So what I'm wondering is whether you are embedding, I heard what you had to say about seasonality in September and the fewer working days in December, but you did pretty good revenue sequential numbers last year.

I'm wondering if you are assume anything kind of a slowdown in certain end markets in the second half of the year that is leading to the conservative guidance?

I think we a very aggressive guidance.

We do not have a conservative guidance in front of us.

The trend in our business remains strong.

Yes, we have to look at seasonality of the third quarter.

Yes, we to look at what the work days are in the fourth quarter.

But the underlying strengths in our served markets are there and therefore we are very confident with the outlook that we have and we feel that considering also the macro economic situation that this guidance is very strong nor the rest of the year and as we have done in the past we have given prudent guidance in the past.

We continue to give prudent guidance in the future so that we have the opportunity even to upside what we have, you know, what we have guided in the past.

And so we have done that for many quarters and that is going to be continued our strategy to be prudent about what we are saying about the future, because uncertainties remain everywhere where we look even if we feel strong confidence about our own abilities.

Thank you.

Our next question comes from Scott Craig of Morgan Stanley.

Good afternoon.

Just a quick question on the leverage.

You guys have done a good job of dropping dollars to the operating profit line given the sales growth and how much longer can we continue to drop this type of operating leverage before you might have to start, you know, adding incremental costs to the business?

In other words, how long can we keep up this internal operating leverage going?

Thanks.

I think as Martin indicated the driver for the improved margin certainly there is an operating leverage that comes from the higher volumes and that will continue but we're also getting improved margins and operating leverage from the higher percentage of the new application-specific products and that will continue and it -- as Martin also indicated, it is a better pricing environment of which you're going back to comparisons of last year which will offer further opportunities for margin improvement.

We had, I think, a good record of improving margins and have indications I think that that will continue.

If I may add, we have continuously invested in that business.

We are not in the business where we look at step functions.

We have invested, as I mentioned earlier, in five new facilities.

That requires investments.

We are opening three more facilities.

We have done this in the past and will continue on a continuous basis to do so so that we are not really hit by a step function.

That is all included in the improving operating margins and therefore we feel confident that the operating margins will continue because beyond those continued improvement process as opposed to step functions in our business.

Thank you.

Our next question comes from Michael Ellis of Thomas Weisel Partners.

Good afternoon.

I'm calling in for Matt Sheerin.

My question is just regarding your price increases.

I was wondering if those were -- have been put in place to cover rising raw material costs in your interconnect business?

Well, there are two elements to it.

Number one, pricing and just general inflationary pressures have been there for some time.

And throughout the down cycle and when first we saw some economic improvement.

So we have actually clearly seen this in our margins in the past that, you know, cost of -- costs have increase.

Without having the opportunity to put in some prices.

But with the improving economic climate, you know, we are changing some what from a buyers' market to a sellers' market and therefore we have some more opportunities to price somewhat better and therefore, you know have the opportunity to pass some of these material cost increases on to the market.

By far certainly not to the full extent at this point in time.

I mean it is still a very, very competitive environment that we see.

Currently at this time we have four further questions.

The next question comes from [Sam Paruie of Sacovin].

Hi, guys.

Just a quick follow-up.

I was just trying to design for the guidance there.

Are you expecting sales to be up or down in the September quarter or you're not sure?

And then with the price increases kicking in for the cable business, in the September and December quarters should we be expecting gross and operating margins to go up in the September quarter if sales were to be approximately flat?

Responding to the second question, we should clearly see some improvement on the margins in the coaxial cable business as a result of the price increase.

There is no question about that.

In both the third and the fourth quarter.

As it relates to --

The third quarter.

The third quarter seasonality, obviously we have given a guidance that allows for some, you know, slower third quarter which would be the lower end of our range and the higher end of our range would suggest that the third quarter could be very close to what we have achieved in the second quarter and that certainly would be a fantastic achievement for the company.

So we allow in the guidance actually to have that, you know, seasonality flush out and our ability to capture just more opportunities out there.

That is, essentially included in that range of guidance.

So it sounds like the third quarter will be down a tad and then fourth quarter might be up a tad and then the normal seasonality next year.

That could be the case if you look at normal seasonality, but if you look at our pattern we haven't seen normal seasonalities for many quarters because the revenues went up quarter after quarter last year and continue to go up quarter after quarter this year so we haven't yet reached a point where normal seasonality and normal environment has kicked in.

That is the reason why I'm giving these -- the range as opposed to clearly saying Q3 will be down and Q4 will be slightly up, it could turn out, you know, a little bit differently as well.

You know, who knows in the fourth quarter with elections who knows with deployment of installation market in the fourth quarter it could well be that the third quarter is stronger than the fourth.

We leave that open in that guidance because, you know, there is a little bit uncertainty around it.

But overall I think we going to have a record year for this with the guidance we have given whether we are at the lower end or the higher end.

Thank you.

The next question is from Kevin Sarceny of Lankenburg.

Hi, guys.

A quick question on Asia.

I want to know if you could discuss your mix of business between multinationals and domestics and any trends and any differences in -- in pricing, profits with these guys?

If you are referring to the mobile phone business in Asia, then I would suggest to you that obviously the Chinese manufacturers and Asian manufacturers and Koreans and so forth have clearly gained momentum in that market over the last several years and producing more mobile phones than they have produced before.

They are all our customers and therefore we are participating strongly with them.

However, the multinational customers are continuing their strengths also in that market because they are in size and just volume still significantly more important except the Koreans more important than the Chinese manufacturers so both of these customer groups are very important to us and both have, you know, strong growth characteristics.

Thank you.

Currently at this time we have two further questions.

The next question comes from David Sachs of Hauckey Capital.

One quick question and comment.

Question would be the update on the joint strike fighter program and when you might see revenues starting to show up for Amphenol, and the comment would be to thank Ed for 14 years of terrific service and best of luck to him.

Well, I like to let Ed answer.

Thanks, David.

And I appreciate it and but the results that we are talking about are a team effort and clearly Diana was a very significant part of that team and I'm sure she will do an excellent job so there is no doubt in that part, but thank you for the comment.

As it relates to the joint strike fighter aircraft, we see continued design wins on this.

We at one point in time had about $350,000 per aircraft.

That has more than doubled by now so we continue to do well.

We see the benefits of the designs on the joint strike fighter in other areas.

The upgrade of the F-16 where many of the technologies used on the joint strike fighter on the avionics side are being used and have been used and that has been a significant benefit to us already now and obviously the program is in its development phase and first flight phase so we're not going see a lot of aircraft going to be built until 2007-2008, but as production will start thereafter, but nevertheless the benefits using that technologies in other areas is very important to us including the JTRS system and others where we have more current benefit than we will actually have from the joint strike fighter aircraft.

But that will be a very important program for us.

Thank you.

We'll just take one more question.

Operator.

Thank you.

Currently at this time our last question comes from Robert Starbuck of Schroeders.

Your line is open.

Two questions.

Do you think that there was much, if any, pre-buying before the price increase on the cable side?

And if so, what would your expectation be for the U.S.

Cable side going into the third quarter?

And then secondarily, given the loud noise that we have heard coming out of Asia with distributors of semiconductors and other components moving their inventories around, I was wondering if you could give us any insight into what you see going on within Asia and specifically within China?

Those are a very broad set of questions here.

As it relates to the broadband or coaxial cable business we are moving into a seasonally strong quarter, traditionally seasonally strong quarter for coaxial cable and we expect that the sales in this quarter will remain strong at the same level -- the same seasonally strong as the second quarter.

We do anticipate maybe that the fourth quarter will be some what slower than the third quarter.

That is again more seasonal trends that we see in the coaxial cable business.

So from that side I think we can expect strength in the third quarter.

As it relates to the distribution, I cannot comment really on a broad basis where distribution is moving, inventories and so forth.

What I can tell you, though, is that we see in the main areas where we participate in distribution, that is military aerospace and industrial markets, we have seen tremendous strength in their ordering of our products because they apparently see quite some strength in their end users and that is true not only for North America but also for Europe and Asia.

Whereby in Asia our participation in distribution is more limited than it ns North America and Europe.

With this, I will think we would like to conclude this session and this conference call.

We all thank you for your continued confidence in Amphenol.

We thank you for participating at the call and look forward to talking to you soon.

Thank you very much.

Goodbye.