安費諾 (APH) 2006 Q1 法說會逐字稿

Good afternoon and welcome to the first-quarter earnings conference call for Amphenol Corporation.

Following today's presentation there will be a formal question-and-answer session. (OPERATOR INSTRUCTIONS).

At the request of the company today's conference is being recorded.

If anyone has any objections you may disconnect at this time.

I would now like to introduce today's conference host, Ms. Diana Reardon.

Thank you, and good afternoon.

My name is Diana Reardon, and I am Amphenol's CFO.

I am here together with Martin Loeffler, the CEO, and we would like to welcome all of you to our first-quarter earnings call.

First 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.

The company started 2006 with a strong first quarter.

Sales and earnings per share both exceeded the high end of the company's guidance.

Sales for the quarter were $569 million, up 39% in U.S. dollars and 41% in local currencies over the first quarter of 2005.

And from a sequential standpoint up 12% in U.S. dollars and 11% in local currencies from Q4.

In March 2006 the Company completed the acquisition of the Alden Products, a U.S.-based manufacturer of interconnect solutions for the medical market.

Alden had sales of approximately $20 million in the year 2005.

Excluding the impact of all acquisitions made by the company since January 1, 2005, including the acquisition of TCS, completed in December 2005, sales increased approximately 12% in U.S. dollars and 14% in local currencies over last year's first quarter and were relatively flat sequentially compared to Q4.

Stronger than normal seasonal pattern resulting from strength in both handset and broadband markets.

Sales of TCS in the quarter were approximately $94 million.

This compares with pro forma sales of $99 million in Q1 2005 and $83 million in Q4 2005, respectively.

Breaking down sales into our two major components, the interconnect segment which comprised 89% of our sales in the quarter was up 41% compared to last year.

Sales were up in all major markets and were particularly strong in the wireless handset and IT data communications markets.

Our cable business, which comprised 11% of sales, was up 24% from last year as a result of increases in broadband, cable television markets and the impact of price increases.

Operating income for the quarter was strong at $98 million compared to $77 million last year.

Operating margin was 17.3% compared to 18.9% last year.

The lower margin percentage in Q1 relates primarily to the impact of the TCS acquisition and to a lesser extent the impact of stock option expense.

Excluding these items, operating margin was 19.1% in the first quarter of 2006.

The first quarter includes a full quarter of results for TCS acquired on 12/1/05.

As previously disclosed, TCS has operating margins that are lower than the average of the company.

TCS operating margins were 7.5% in December of '05, and increase to approximately 10% in the first quarter of 2006.

While the acquisition was accretive in Q1 and added approximately $0.03 to earnings per share, it lowered consolidated operating income margins by approximately 1.4% in the first quarter.

We are very pleased with the progress that TCS has made todate both in sales growth over Q4 and in margin improvement.

The timely implementation of profit improvement actions has enabled TCS to achieve double-digit operating margins in the first full quarter with Amphenol.

We continue to expect the implementation of these actions to bring TCS margins up to the average of the company over time.

In accordance with GAAP the first quarter includes $1.8 million of compensation expense related to stock options, reducing consolidated operating income margin by approximately 30 basis points when compared to the first quarter of 2005.

From a segment standpoint in the cable segment, margins decreased approximately 230 basis points from last year and 10 basis points sequentially to 10.5%.

As price increases implemented in 2005 and 2006 were more than offset by a continued increase in material and trade related costs driven by higher commodity and energy prices.

As a result of the significant increase in costs the company announced a price increase of approximately 5% for coaxial cable products for broadband counts that was effective in late March.

Assuming no further increases in commodity costs this price increase is expected to help improve margins this segment beginning in Q2.

In the interconnect segment margins were 19.6% compared to 21% in Q1 2005 and 20.7% in Q4 2005.

Excluding the impact of the TCS acquisition in the first quarter of '06 interconnect margins increased approximately 80 basis points over the first quarter 2005 levels, and were consistent with Q4 2005 levels.

The increase in interconnect margins over the prior year relates primarily to the continuing development of new, higher margin application-specific products, excellent operating leverage on incremental volume and aggressive programs of cost control.

Overall, we are pleased with the company's margin achievement in this challenging cost environment.

Interest expense for the quarter was $10.2 million compared to $5.4 million last year, reflecting the impact of increased borrowings related to the TCS acquisition and higher interest rates.

Other expense was $2.7 million compared to $1.7 million last year reflecting higher fees on sale of Accounts Receivable under the company's securitization program and higher minority interest expense.

Tax expense in the quarter was at an effective rate of 33%, the same as the effective rate for the full year of 2005.

Tax expense in the first quarter of 2005 was 34%.

Net income was $57 million or 10% of sales, another indication of the company's excellent profitability.

On any industry comparative basis the company's profitability continues to be very strong.

Diluted EPS for the quarter was $0.63 per share, up 21% from a year ago.

Excluding the impact of stock option expense, EPS was up 23% from last year.

During the quarter the Company generated a strong cash flow from operations of $56 million.

Cash flow from operations, along with $5 million of proceeds from the exercise of stock options were used to fund $20 million of capital expenditures, acquisitions of $16 million, $2.7 million in dividend payments and a debt reduction of $24 million.

From a balance sheet standpoint Accounts Receivable days declined one day to 64 days at the end of the quarter.

Inventory improved from 4.2 times at the end of the year to 4.5 times at the end of the first quarter.

Debt at the end of the quarter was $758 million, down from $781 million at the end of the year.

The company's leverage and interest coverage ratios reflecting the pro forma impact of the TCS acquisition remains strong at 1.8 times and 9.4 times, respectively.

In first quarter EBITDA was approximately $117 million.

Availability under the company's revolving credit facility was just under $300 million at the end of the quarter, and receivables sold under our receivables securitization remained constant at $85 million at the end of the quarter.

Orders for the quarter were strong and reflected a book-to-bill ratio of approximately 1.03 to 1.

Certainly from a financial perspective it was an excellent quarter.

Before I turn the call over to Martin, I would like to provide a brief overview of the assumptions on which the company's 2006 sales and earnings per share guidance were based.

Sales are estimated in a range of $2.3 billion to $2.345 billion or growth over 2005 of 27% to 30%.

This compares to the company's previous guidance of sales growth of 24% to 27%.

This includes sales of approximately $365 to $375 million for TCS.

2006 earnings per share guidance is estimated at $2.64 to $2.72 compared to the company's previous guidance of $2.56 and $2.63.

EPS guidance includes the following assumption; guidance is based on a 33% effective tax rate, the same rate as in 2005. 2006 guidance includes stock option expense of approximately $9.8 million or $0.07 per share. 2006 guidance reflects operating margin at TCS of 10% to 11% for the full year, the company's previous guidance included TCS operating margins of 8% to 8.5%.

After deducting the incremental interest expense on debt associated with the acquisition, this results in accretion of $0.11 to $0.13 per share for TCS.

TCS growth, using pro forma 2005 EPS after option expense is 18% to 22% in 2006 over 2005, up from 15% to 18% in the company's previous guidance.

Martin will now provide an overview of the business and current trends.

Thank you very much, Diana.

Welcome to our conference call.

It has become a tradition at our earnings release, thank you for joining in.

As Diana said I will highlight achievements of the first quarter very briefly and discuss the trends and progress in our served markets and then comment on our outlook for 2006 and more specifically, on the outlook for the second quarter of 2005.

We are very pleased with excellent results and a good start of 2006.

First quarter results are very strong considering the seasonal situation of the first quarter, which is usually seasonally slower.

We achieved new record in sales and earnings, which you heard from Diana, remaining strong momentum of our growth.

Sales were up 41% in local currency over the same period of last year.

And excluding TCS sales increased a strong 18% in local currencies, significantly above the industry growth.

Very pleased with this growth outside of TCS as double-digit growth is not so easy to come by.

The sales were very broadbased, further strengthening our position in served markets and in all of our geographic regions.

Excluding TCS our strongest growth was in the mobile device market.

We increased our sales 63% in that market.

And geographically in Asia, as expected, up about 34%.

The profitability and cash flow remains strong in the first quarter, as well.

We are very pleased with being able to maintain industry-leading operating income margins in a very difficult environment.

While the priced down programs with customers have somewhat eased, there is still a general price pressure persistent in the marketplace.

In addition, material costs, as well as oil and gas related costs, especially transportation costs, continue to escalate.

Copper prices, aluminum prices, plastics, gold -- all have reached new highs just over the last two months.

We are very fortunate to be able to compensate for some of these increases by selected price increases on one side, but especially through productivity gains and efficiency gains in our operations around the world.

And continue to move to lower-cost areas even within China to moving to lower cost areas further to the west.

We significantly exceeded our own guidance in EPS for the first quarter, and we are very pleased with that growth of 21% on a comparable basis which excludes the option expense of 23%, over the same period of last year.

We feel that this achievement is a very strong one as we were able to match the fourth quarter record sales and earnings in that quarter.

And especially by being able to accelerate TCS's performance in the first quarter and pull in some of the benefits that we expected later in the year; already earlier to make an accretive contribution to Amphenol already in the first quarter since TCS was with us.

Obviously the management team at TCS has done an outstanding job; they contributed $94 million of sales in the first quarter, significantly up over the pro forma fourth-quarter sales.

The sales increase of TCS was very broadbased in their main core markets, wireless networks, Datacom and information technology.

The growth was spread across a very broad customer base, which is certainly something that you would like to see.

The book-to-bill ratio at TCS was also positive, which is encouraging for the future.

But most important, the management team was able to move up from single digit margins in the fourth quarter achieved, to a double-digit 10% margin in the first quarter of this year.

And that was achieved primarily due to higher volumes, but also by accelerating many of the cost reduction programs that we anticipated to kick in somewhat later this year and will carry throughout the year.

Cash flow as Diana said was also strong in the quarter with $56 million.

We continue to use and apply this cash to a variety of options that optimize overall returns, and that includes our acquisition strategy.

After the acquisition of TCS we haven't stopped looking into our pipeline for a small add-on acquisition.

And we are very pleased that we were able to bring Alden Company into our family.

Alden essentially meets all of our acquisition criteria that we always have; excellent management, totally complementary productline and a complementary strength in the market and products.

In the medical market that is certainly a plus market and a growing market for Amphenol.

Alden has not contributed a lot of sales in the first quarter since we were acquired in March of this year and has annual sales of about $20 million.

But we are excited about the potential of the company for the future.

Let me now talk a little bit about the trends and the progress in the markets that we serve.

As expected, the performance in the military in the aerospace markets continued strong.

Sales increased 14% in local currency the first quarter over prior year.

Our unmatched capability in offering complete integrated interconnect solutions to our customers has resulted in wins of significant new programs.

These are multi-million dollar programs that we have been able to win in the first quarter, which will carry us strongly into the future.

And that combined with our broad program participation in general, we continue to have a very positive outlook for this market segment.

The industrial market continues also to expand strongly.

Our sales increased 17% in local currency over the first quarter of last year.

And we expect a continuation of this trend in the industrial market as we continue our strategic focus on the discrete segments of this industrial market, the transportation market, the medical market.

As well as the factory automation market and the leading manufacturers in each of these markets around the world.

The automotive market remains somewhat soft.

Our sales were essentially flat compared to the same quarter of last year, but we are very excited about the approvals of several new products of next generation car models that will roll out in the second half of this year.

And the increasing electronics in cars in general, which certainly gives a good potential for stimulating future growth in that area.

We experienced excellent growth in the broadband communication market over HFC networks.

Sales were up 28% over the same period of last year.

This is an excellent growth, and it is just an indication of the strength in the marketplace where the triple play of the operators continues to generate strong demand for -- at the subscriber level -- and strong demand as a result for our product.

Nevertheless, this is a segment that continues to be impacted most significantly by material costs and transportation cost increases.

We have introduced a price increase in March again following the price increase in December; still material prices continue to escalate and certainly do not necessarily totally offset these material cost increases in that segment.

We have so far seen that the price increase in March in the domestic market holds, and international market is still to be seen whether all the price increase will be able to maintain it.

In general that market is expected to continue to be strong in the second quarter, as well as for the rest of the year.

We are very pleased with the progression of our growth in the information technology and datacom market.

You will remember that last year, the beginning of the year, we reported single digit growth and talked about the rollout of next generation products, which will include our interconnect product.

I am pleased to say that our growth in that segment was 22% over last year, and we are very pleased to truly see the rollout now happening of these next generation equipment which includes our new interconnect technology solutions.

We also continue to penetrate new customers in that area and in the combination with TCS we have a lot of potential and we're able to strengthen our position in these markets.

These markets, the datacom and information technology market is now the largest market served by Amphenol, representing about 25% of our sales in the first quarter of 2006.

Sales in the mobile network market also increased, excluding TCS, by about 5% in local currency the first quarter.

This increase is significant as we clearly see that the network market continues and the expansion continues especially as it relates to site installation markets at a relatively moderate pace in the first quarter.

But we anticipate that to strengthen as 3G networks are clearly being rolled out and as the voice and data traffic increases over time.

We see excellent potential, especially in combination with TCS that has a strong position in that and complementary position to Amphenol in that market.

We see significant potential in this market for the future.

In mobile device market we achieved exceptional growth for a seasonally slower quarter.

Sales were up 63%, as I mentioned earlier.

We are very pleased with that growth because it is just the result of our very diverse customer base and many phone and handset models that we are involved in.

A few of these models had such significant sales increases in the first quarter and we participated in that sales increase.

Another driver for our growth was our increased product content that we have been working on for some time and talked to you about.

And we also see a significant proliferation of our product into new mobile devices such as laptops happening.

We have had major design wins in the first quarter in that particular segment and we will see incremental sales coming from that area in the second and third quarter, fourth quarter of this year.

We are excited about the future in the mobile handset market.

Now a few words to the outlook for 2006 and especially for the second quarter.

Based on the positive trends in all of our served markets and the confidence we have in our strong competitive position and the excellent organization that we have -- and also the confidence that we have gained with the TCS organization over the first quarter of this year -- we have increased our guidance for the full year significantly as Diana just outlined.

The guidance for the second quarter includes a significant sequential increase both in sales, as well as in earnings over the first quarter results of this year.

We expect the second quarter sales in the range of $580 to $590 million in sales, which is a 31 to 33% increase over prior year.

And we expect second quarter EPS in the range of $0.66 to $0.68 per share, which is an [18%] to 21% increase over the same period of last year if we exclude the effects of the stock option expenses.

TCS is assumed and estimated to contribute somewhere between $0.03 and $0.04 per share in the second quarter.

Amphenol had an outstanding start to 2006, and we are very pleased with the overall performance but especially with the contribution of TCS, that has been accretive essentially from the first full quarter that it has been part of Amphenol.

I think with the size of that acquisition we are very, very pleased to be able to report this no restructuring charges anywhere noted, and so we look forward to a very strong future in 2006.

We are excited about our capabilities and our near-term and long-term potential for continued growth and profit enhancement.

Thank you very much, and with this I would like to open it for questions.

(OPERATOR INSTRUCTIONS) Sean Harrison, Longbow Research.

Good afternoon.

My first question has to do with TCS and just kind of the revenue growth outlook provided, the $365 to $375 million guidance looks like you're indicating kind of flat sequential growth throughout the rest of the year, and I was wondering if I'm missing something or if you're already including maybe some business divestitures in that forward guidance.

That is a very fine question.

If you look at the historical pattern of TCS, I think our outlook is really very strong.

The pattern and seasonality of TCS business used to be a strong first half and a kind of lower second half.

Now considering our outlook here we are actually planning not for a lower second half of this year, which has been the historical situation.

So I think we are somewhat optimistic in the outlook for this, and that is based on obviously the opportunities that we see in the cross selling between Amphenol and TCS moving forward.

And my follow-up has to do with the 10% EBIT margin achieved in the quarter.

I was wondering, maybe, if you could elaborate on the synergies you're able to achieve three quarters faster than expected.

And maybe kind of your outlook in terms of TCS achieving the corporate average EBIT margins, the timeframe, it has been pulled forward as well?

There is, obviously, a lot of content to this.

We are very pleased with the margin improvement.

And as you know, many of these margin improvements depend on just pure cost reduction efforts and expense reduction efforts which can be implemented shorter term.

And those have been implemented.

We have been able to implement this, and that included also some headcount reductions at the site.

We also have been able to have a better conversion margin because we had higher volumes over there and lower expenses that also certainly contributes to the margin improvement.

And some of the cost reduction programs where we thought we needed maybe a faster or longer-term approvals got already implemented.

So we are getting the impact somewhat earlier already, and obviously have a lot of other programs and initiatives underway to further improve the margins.

I wouldn't say that the margins will reach Amphenol's margins by the end of this year.

And I don't even want to give a timeframe to this.

I don't whether anybody says ever how fast the Roman Empire would have been built, but clearly there is the goal to do and to get them to that level.

And we have a lot of initiatives going on with regard to this.

Just have set up a new facility in China for them, which will start operations in the second quarter.

So things are moving along very, very fast.

And one element to this faster move is also that TCS associated with an equipment manufacturer may have had some slower action programs than they have with the connector manufacturer that does (indiscernible) business has already the presence in some of these lower cost areas and things can just move a little bit faster.

But it is important in such an acquisition to get to know the business well and to understand it such that you can implement these actions quickly.

So we are very confident in moving these margins up moving forward.

Amit Daryanani, RBC Capital Markets.

Just following up on the TCS accretion, clearly looks like it is happening faster than you initially thought.

But can you just talk about where you are foreseeing TCS margins to be flat to maybe up 100 basis points through 2006?

Is that just a reflection that you've realized all the low hanging fruit and incremental saving is tougher to come by?

I think you just said it in the best words.

I couldn't say it better.

Obviously there are certain things that you can achieve faster.

The others will take some longer to set up factories.

You have to get approvals for new manufacturing processes in a different country and so forth.

We don't know how fast they go, we go as fast as we can, and we are confident that margins can be further improved.

And just a follow up, looking at the June quarter seasonally that tends to be fairly strong.

Just looking at your end market exposure where do you see having strong momentum getting into Q2 at this point?

It is a wonderful response that I can give you, in this regard, our growth has been very broadbased in the first quarter across all of our market segments.

And in several we have achieved, as I mentioned double-digit growth.

We feel that this strength will continue in most of those market segments.

Obviously the handset market was somewhat exceptional.

I don't expect the handset market to really top that out more significantly in the second quarter again.

But obviously all the other markets have good growth characteristics and underlying strength.

Michael Walker, Credit Suisse First Boston.

Just a quick housekeeping question first.

I think some of the year-over-year comparisons you gave on the end markets excluded TCS and were also in constant currency.

I wonder if you could run down the year-over-year growth, including TCS in that at the normal currency (inaudible).

I'm happy to do this.

Maybe we can do this offline a little bit because it is a lot of numbers, and we are getting a little bit confused if we have so many numbers.

But I want to just point out one thing for clarification.

I excluded TCS in the growth that I gave you in the information technology market, as well as in the wireless network market because those are the two markets where TCS essentially is playing.

So when I told you about the growth in -- let me just find the growth I have here.

You said 22% for the enterprise and 5% for wireless ex TCS.

Both are ex TCS, yes, that is correct.

Do you know what those are including TCS?

Yes, the information technology would be over 100%.

It is not very meaningful but we have the exact numbers.

The information technology is about 139%, and the wireless infrastructure market would be up about 50% over the prior year in U.S. dollars.

That gets me there.

This is from our perspective it is a meaningful comparison to compare it apples-to-apples so that we know what we really achieved, and that is the reason why I gave you these numbers in that form.

Okay, and my second question is on the cable business.

Surprised to have seen that grow sequentially.

I think seasonally it tends to be down in the first quarter or maybe I am wrong about that, actually the fourth quarter.

But can you just tell us if you're seeing kind of a rebound at all in kind of cable operator spending that is driving that?

Is there any reason you can start to get enthusiastic?

I know the margins are tough.

I know the pricing is tough, but just from a spending standpoint is there a reason to be getting enthusiastic about that business?

We have always been very positive about that market segment.

We went through ups and downs with this business, strong cash flow business.

And I wouldn't suggest that there is an acceleration of the spending.

What we see, though, is that the operators are more successful in signing up subscribers for the triple play especially here in the United States.

And as such there is just more of the drop cable required than in the past as you just hook up these new subscribers.

In addition we have introduced a few new products that are used for high-definition TV as well as for the digital services that also have contributed to that growth.

So it's not just selling all the same products that we had in the past but a series of new product lines that we didn't have in the past, and that is certainly contributing as well.

Matthew Sheerin, Thomas Weisel Partners.

Good afternoon, Martin.

Just a couple questions on your core connector business.

You have had some -- obviously some very strong growth and nice margin expansion over time.

It stalled a little bit in the first quarter due to seasonality and also due to the rising material costs.

Going forward, how should we think about margin expansion there?

Could you talk about the price increases in the core connector business, what kind of success and what your plans are there going forward?

Certainly.

Obviously, we are very pleased.

In the core connector business, we have almost 22% operating margins, and that is a very strong margin.

So that excludes option expenses, if I gave you this number.

I think this is a strong operating margin in its own right.

To be able to maintain at that level takes a lot of input on the side of productivity gains and so forth because material certainly is not helping.

We had launched a few price increases in certain market segments, but obviously the pressure continues.

So what we really have been able to achieve is an easing of price-downs from our customers, especially in information technology in the wireless infrastructure market and in mobile handsets.

That is where you have these kinds of pressures.

While in the industrial and in the military aerospace market, obviously there were some price increases favorable, but they are minimal.

I think if you talk about 3 to 5%, and that is not even across the board but in select areas, that would be probably the magnitude of what can be really passed through at this point in time.

There are still a lot of hungry manufacturers out there that offer the product at those same prices.

So we feel that margin expansion is possible.

Margin expansion is possible because we continue to work hard on our infrastructure, on our cost levels, on our cost reduction programs and now our manufacturing methods in general.

And obviously, we're talking with our suppliers relative to distinguish between the pure commodity price increase and the material cost increase.

And there's a difference, because materials that we buy are not just fuel commodities, except Gulf.

There's a lot of conversion and converting costs included.

So this is where we have our discussions with our suppliers to keep that somewhere in check, but it is hard to do and especially in the cable business where you have 80% material content.

So that is where it certainly hits the hardest.

But we are very confident that margin expansion over time continues to be possible.

We have not reached a ceiling.

Okay, great, and just a follow-up question.

Are you seeing any impact either positively or negatively from RoHS, these environmental laws that kick in Europe in the summer?

Well, RoHS have kicked already in earlier this year, late last year.

We are compliant with RoHS at this point in time, and we don't see a negative impact coming from that area.

We have planned that long in advance, and we have not seen any negative impact at this point in time, and don't foresee one in the future.

And no signs of any inventory build, either at distributors or customers because of that?

We have worked very closely with our distributors in those areas and at the customer levels, that is a different situation.

I don't foresee certainly any returns from there nor do we have inventories that are of any significance.

I'm not saying we have no inventories, but we are well provided for all but what that entails.

Okay.

Thank you.

Steven Fox, Merrill Lynch.

Good afternoon.

The first question on your handset business, when you look out to the rest of the year, it sounds like new models out of some of your key customers is going to drive a lot of the growth.

Can you sort of update us on how much -- how dependent you are on those new models and what's the opportunity to outgrow overall the handset demand for this year?

Thank you, Steve.

Good afternoon.

We have clearly had a very strong first quarter.

We had a very strong year last year.

With the diversified customer base and a very, very broad product range that we have to offer, we clearly participate in many of these new programs and models at the handset manufacturers.

And what is really rewarding to see is that some of our efforts in designing new products are proliferating actually into areas where we originally have never participated in like in laptops.

Laptop is going to contribute in the second quarter and third quarter quite some significant dollars to our growth in the mobile device market, PDAs as well.

So with our antenna business as well as the connector business, the hinge as well as the lenses that we have, we have such a broad product range where the customer comes to us for integrated solutions.

So we believe that we will continue to be able to outperform the industry, because our content is increasing.

And there's a broad proliferation of our products among so many models, statistics would say that we will hit certainly some of the runners as well.

And then on the automotive side of things you mentioned that you have new programs ramping up towards the middle of the year.

Is this an especially strong year for Amphenol with new wins in auto, or is it a typical type of middle of the year ramp?

It is actually somewhat typical, but it is a little bit different as there is a true technology change in safety devices occurring.

We were able to develop these new products as are required, and usually they have much longer cycles.

We were running a generation that was introduced maybe four years ago, and that is coming to an end.

And we won several of those, and actually expanded some of the wins beyond the customers that we usually have some business.

So that gives us some confidence that really there is growth potential, growth in the second half and certainly for the future.

Thomas Dinges, JPMorgan.

Good afternoon.

I wanted to touch on the ASP increase and the characterization that you had around that for the broadband coax business.

You had mentioned that the increase was pretty well received by the domestic operators but on the international side it is still a little bit undecided as to how that's going to roll out.

Has there been a major shift in the amount of business that is now international in that segment, and is this in necessarily in terms of domestic taking the price increase in international pushing back a little bit more, is that any different than what you have seen over kind of the last couple of successive price increases that you have made in that business?

And then I have a quick follow-up for you.

This obviously is an important question for all of us.

Obviously no customer ever receives a price increase well, but it was more accepted I would suggest in the United States than it seems to be in international markets.

The ratio between -- in our business the ratio between international and domestic business has not shifted and changed dramatically over the last year I would suggest.

So there is no change relative to this.

Is there a change in pattern of acceptance?

Usually the international market is less accepting price increases because there are some domestic suppliers where you don't really deal with the kind of duopoly that we have in North America in international market.

And you have just to pay attention to these other suppliers, especially of flex cable in this market and therefore it is not as obvious in that area as it is in others.

As long as two leaders in those markets continue that effort in international market I think we will prevail.

But it is probably a little bit more of an effort than it is in the United States.

Just back on the handset content question that came up earlier, is there any way that you can quantify across maybe a broad range of what you've seen sort of in successive models over the last year to 18 months that if perhaps maybe you have had a benchmark of a couple dollars of content a year two ago.

And now you're looking at something that is maybe 25 and then some models could be as much as 50% higher?

Is that a fair characterization, or is it maybe in sort of a 20-ish% range?

I would say it is even in that lower range on one side.

However, values of some components go up.

So if you -- it depends on what kind of components you are really selling.

If you sell area antennas that have a different value than internal antennas and that have different values than certain very commodity type area connectors and so forth.

So it is somewhat typical to say if you have hits with some more higher value products, which is an interconnect solution where you sell a hinge with a cable assembly and the connectors that go through it with it, obviously you have immediately in that model a much, much higher content.

Then just to put that into the mix, which you don't have in all the models, is maybe not a fair characterization of the situation because that can fluctuate.

So I rather like to see total sales as a measure for it related to the handset that we are providing products to and that has actually grown.

We have sold in the first quarter of this year, not all the numbers are out, but in the first quarter of this year again to more than half of the world production our products.

Carter Shoop, Deutsche Bank.

Can we talk a little bit about the restructuring charges that you guys took in the first quarter for the TCS acquisition and then what you anticipate to take the second quarter?

I know none of those are called out as onetime restructuring charges but I just want to get a sense on impact to the P&L from the restructuring.

There weren't any restructuring charges in the first quarter related to TCS.

So there weren't any like (indiscernible) or anything like that?

There were some headcount reductions in the first quarter, but they were actions that were anticipated when we bought the company, so there weren't any restructuring charges that are in these income statements.

Okay.

And then --

It is insignificant that we are talking about that.

And then, it is a little bit too early to call TCS an absolute success, but it sounds like it is definitely on the way there.

That said, when do you think you will be in position to make another large-scale acquisition, something like TCS, say something was coming around?

Obviously, we continue to be excited about the opportunities that represent itself in the ongoing consolidation in the connector industry as a whole.

We continue to fill our pipeline with the smaller companies that complement our product strength and our market position.

That is what we are focused on.

If larger companies come up we will hear from investment bankers -- we go here when they are being auctioned off because that is usually the pattern.

While the smaller companies those are the ones that we seek out.

And don't really come through those channels but our own research.

Yuri Krapivin, Lehman Brothers.

Good afternoon.

Martin, could you comment on your leadtimes?

Are the leadtimes gradually stretching or are they stable?

That is a very good question, but obviously a very diverse question because for each market segment you have a different pattern of leadtime.

In general I would suggest to you that leadtimes relatively stable.

We haven't seen a stretching of leadtimes; at the same time we as a company have obviously always as a competitive tool tried to shorten leadtimes, because obviously the customer wants something sooner and you have it, you have the opportunity to price it differently than over normal competitive leadtimes.

But in general I don't think anything has changed there in any significant way.

Regarding TCS, one of the issues is that TCS as I understand it was that there were perhaps too aggressive on price and perhaps discounted too much given how value added their technology is.

Now have you changed their pricing policy as well, is it helping the revenues now?

We have obviously tried to pass on the price increase, but with a longer-term kind of agreements that exists between TCS and the customers, the only thing that partially could be achieved in that area was to ease some of the pricing reductions that have been given out.

But that has more to do with the significant increase in the material costs that have occurred here in some of the raw materials that TCS is buying, gold, (indiscernible) copper and all others.

Those are, they have enjoyed tremendous cost increases and customers were understanding relative to this but otherwise price increases are just not very easy to come by in that segment.

But we have launched a price increase, and we will continue to press for this as material prices dictate to do so.

Jim Suva, Citigroup.

Thank you and congratulations.

I find the acquisition in the medical pretty interesting and wanted to know on your statement of cash flows it shows an outflow of $16 million;

I didn't know, does that include the full amount for this acquisition or is there a little more to come?

And as a follow-on from that how does this fit into your whole product portfolio, and what percent of medical do you have right now?

On the first question most of our acquisitions have and earn out type structure where there is the potential if the business performs at a very high level that there could be some incremental purchase price down the road.

But what you see in the cash flow statement is at this point the full price.

As far as the medical market itself is concerned, we're very excited about that market.

And I would suggest to you that our total industrial market sales is about 13% of our total sales, about 25% is in the medical market.

That is a very rough number.

They can be a little bit higher, a little bit lower but around that in that area.

At this point in time without the acquisition of Alden, but Alden has a very fine complementary productline that fits in extremely well with our productline.

And they have exposure to customers that we don't have and we can carry in the product.

So it is a very fine fit.

Thank you and congratulations.

Kevin Sarsany, Foresight Research.

I have a quick question on TCS margin that you provided about 10%, and I know previously you had talked about margins in the first half kind of being softer than second half because of accelerated accounting.

Did that occur in the first quarter and expect in the second quarter then going away in the second half?

We had some small amounts of amortization in the first quarter, actually in December and also in the first quarter that won't repeat again.

But in the totality of the results they are really quite small.

A second question on the enterprise and computer business.

I think for a while you been talking about anticipating the next generation being part of that, seeing good growth, but you've also talked about it being lower prices and lower margins.

Now that you are seeing that growth in the market, what is the profitability in that segment, and are you doing something that is going to offset that to bring it back up?

That is a very fine question.

We usually don't talk about profitability per segment in very much detail, but I can tell you that the profitability in that segment is close to the average of the company.

And the new product as we have now tooled them for higher volume production as well as (indiscernible) amounts in low-cost manufacturing areas are clearly contributed to the company.

Okay.

Thank you.

Jeff Beach, Stifel Nicolaus.

Good afternoon, Martin.

I've got two related questions.

I may have missed it, but did you give out the organic growth in your interconnect segment?

And then along with it the last two quarters now have seen much stronger organic growth.

And as opposed to going through the individual markets step back and what do you see happening?

Is this strengthening of worldwide economies, or what do you see happening here that is causing this stronger organic growth?

Well, relative to organic growth if we take all acquisitions out -- TCS and the smaller ones that we did last year essentially in the year 2005 -- our growth was 14% in local currencies in the first quarter and about 11% in U.S. dollars, which is comparable to what we achieved in the fourth quarter already.

So I think we are just at the same pattern at this point in time.

I wouldn't suggest that everywhere you have the same situation.

Every quarter you have different kind of growth patterns.

This quarter very strong in military aerospace 14%; last quarter it was 8%.

So this quarter mobile phones up 60%, wireless only 3%.

Last quarter wireless was 13, 15% up or more; this quarter only 5%.

So you have a mix and this is the beauty of Amphenol where you have this diversity of situations that you can mitigate slower growth in certain segments with much faster growth in other segments and this diversity and this focus.

And that focus on these various market segments is very, very important to the strategic success of Amphenol.

And we are focusing on these market segments as if they would be separate businesses because they need different engineering talent.

They need different responses to and leadtimes.

They need different agility in terms of the marketplace and where the customers are manufacturing these products and so forth.

And that particular focus that we have in our company on the global basis gives the strength to Amphenol and gives the opportunity to really balance that growth to these higher growth levels to maximize growth in each of these segments as economic and market conditions allow.

[Errol Rudman], Rudman Capital.

This is Cybil on behalf of Errol.

Could you talk a little bit about TCS?

You said you laid out the growth, but you talked about cost initiatives as well as profit initiatives.

Could you kind of break that down a little bit?

And you said most of the lower hanging fruit is done.

So can talk about your further initiatives?

I would be happy to talk about the further initiatives that we have.

One is that TCS has been historical in more North American based companies.

As such tooling and investments that were made at relatively high costs in North America.

We're shifting that to lower-cost areas where we know that we can get similar tooling done at a much lower cost and obviously depreciation and the cash outlay changes quite dramatically.

Second, Amphenol has today about 16 manufacturing operations in China, and as such we have the opportunity to get more of the production that TCS has into lower-cost areas in that region of the world where they also serve their customers.

Even if they have already a presence today which is a very fine presence both in Malaysia and China that can be significantly expanded beyond what they have and other initiatives.

A third initiative is clearly that we can start increasing the content of Amphenol product on their value added products where they are buying maybe competitive products or where they are not sourcing in low-cost areas.

Again, a very important initiative.

All of these initiatives that I am talking about here are certainly time-consuming because you need approvals, you need new vendors, you need to test it and so forth. (inaudible) in the works and therefore I am saying we're very confident that margins can be brought up in the future, but not obviously overnight.

It will take some time, but those margin improvements have the potential to come.

And I can continue with a whole plethora of other initiatives that we're taking which will take much too long, but they are just normal business practices to see how a North American-based company can benefit from a company that has more of a global reach like Amphenol.

And could you address why couldn't the previous owner achieve any of this?

Is it just because they don't have the manufacturing presence that you have?

It's not so easy for a company that is purely North American-based to say well now I want to be in another country.

I mean you have to start up, you have to have the experience go up.

It is not so easy.

We have been in India for 30 years now, and for us it is easy to say let's set up another manufacturing site there.

For somebody who has never done business in India, it takes an encouragement.

It takes a lot of thoughts, how do you do this, who's going to help you.

It is a high-cost thing.

We can do this relatively easily because we have already experienced -- we went along the experience curve.

So I think Teradyne as a parent company with TCS did a fine job within their own context of how they did business.

Now TCS has access to other opportunities and these are the opportunities they will benefit from moving forward.

If we could have perhaps one more question, operator, that would be great.

Greg Coules, Metropolitan Capital Advisors.

Great quarter.

Martin, I just wanted to know you -- I thought you had said that datacom and information technology is now the largest market segment overall that Amphenol serves.

And if you can sort of drill down what you're sort of including in that.

What we're including in this market segment is essentially service, storage systems as well as datacom equipment like routers, hubs and those kind of products that are produced by datacom companies around the world.

But those are essentially the main market segments that we are serving.

And that sets off the one side mobile infrastructure and --?

Yes, mobile infrastructure, base stations as well as sell side installation products and the mobile phones or mobile device market is the components, the user components.

That are the handsets essentially that the people use to make their telephone calls.

Those are the three distinct market segments.

Well, this I think was the last question of today's conference call.

We thank you very much for your interest in Amphenol, and we look forward to working with you closely as we move forward.

Thank you very much.

Good-bye.

Thank you for attending today's conference.

And have a nice day.