安費諾 (APH) 2007 Q2 法說會逐字稿

Hello and welcome to the second quarter earnings conference call for Amphenol Corporation.

Following today's presentation, there will be a formal question-and-answer session.

(OPERATOR INSTRUCTIONS) Please limit yourself to one question and one follow-up question.

Until then, all lines will remain in a listen-only mode.

At the request of this 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.

Ma'am, you may begin.

Thank you.

Good afternoon, my name is Diana Reardon, and I'm Amphenol's CFO.

I'm here together with Martin Loeffler, the CEO, and we would like to welcome everyone to our second quarter call.

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.

We'll then have a question-and-answer session.

The company had a record second quarter, exceeding the high end of the company's guidance in both sales and earnings per share.

Sales for the quarter were $689 million, up 14% in U.S.

dollars and 11% in local currencies over the second quarter of 2006, and from a sequential standpoint, up 6%.

Breaking down sales into our two major components, the interconnect business, which comprised 90% of our sales in the quarter, was up 14% compared to a year ago.

Interconnect sales increased in most of the company's end markets.

Our cable business, which comprised 10% of our sales, was up 8% 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 $133 million, compared to $108 million last year, excluding flood-related charges of $15 million from the prior-year number.

Operating margin on the same basis was 19.4% in '07 compared to 17.8% last year.

The margin improvement relates to increased margins in both segments of the business.

From a segment standpoint, in the cable segment, margins were 12.7%, up 80 basis points from last year, and 70 basis points from Q1 of 2007.

The increase in margin relates primarily to the impact of a higher mix of specialty products and increased production levels in low-cost facilities.

In the interconnect segment, margins were 21.7%, up 160 basis points from last year, and 40 basis points from the first quarter of 2007.

The increase in operating margins relates both to good operating leverage in the company's core connector business, and to margin improvement at TCS, which was acquired in December of 2005.

The achievement of these strong margins in the company's interconnect business reflects the company's continued focus on the introduction and growth of higher margin application-specific interconnect products, combined with a strong focus on all elements of cost.

Overall, we are very pleased with the company's margin achievement.

Interest expense for the quarter was $9 million compared to $10 million last year.

The decrease from last year relates primarily to the reduction in debt levels.

Other expense was $3.6 million, compared to $3.4 million last year.

The increase from last year relates primarily to increases in minority interest expense.

The company's effective tax rate in Q2 was 30.5%.

In the second quarter of 2006 and for the full year 2006, the company's effective tax rate was 33% and 31.5% respectively.

Net income was $84 million, approximately 12% of sales, an indication of our excellent profitability.

On any industry comparative basis, profitability continues to be very strong.

Diluted earnings per share for the quarter was $0.46 per share, up 31% from $0.35 last year.

Excluding, in the prior-year number, $15 million in flood-related charges.

EPS, as reported in the second quarter of 2006, was $0.29.

During the quarter we generated a strong cash flow from operations of $83 million.

Cash flow from operations, along with $31 million of proceeds from the exercise of stock options, including tax benefits, were used for $29 million of capital expenditures, $2 million in the purchase of short-term investments, stock buyback of $38 million, acquisition-related expenditures of $15 million relating to contingent performance-based payments on prior-year acquisitions, $2.7 million in dividend payments, and a $2 million reduction in debt.

In addition, the company's cash balance increased by $26 million in the quarter.

Q2 capital expenditures of $29 million include approximately $4 million relating to the completion of flood-related renovations and equipment at the company's Sidney, New York, facility.

We continue to expect CapEx for 2007 of approximately 3.5% of sales or roughly $95 million.

The balance sheet is in good shape.

Accounts receivable days sales outstanding were 67 days at the end of June compared to 66 days at the end of December.

Inventory was down in the quarter, as expected, with inventory days declining to 83 days from 89 days at the end of March and 85 days at the end of December.

Debt was $686 million at the end of June, compared to $680 million at year end.

The company's leverage and interest coverage ratios remained very strong at 1.3 times and 14 times, respectively.

EBITDA in the quarter was approximately $158 million and we had availability under our revolving credit facility of about $313 million at the end of June.

The amount of receivables sold under our receivable securitization program was $85 million at June 30.

Orders in the quarter were $702 million, a book-to-bill ratio of approximately 1.02 to 1.

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

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

Well, thank you very much, Diana, and good afternoon.

Welcome to our traditional conference call.

As Diana said, I will just provide some highlights of our second quarter achievements and then discuss very briefly the trends and the progress Amphenol has made in its served markets, and in conclusion, comment on the outlook of the third quarter and for the full year 2007.

First some highlights, we are very pleased with the strong results of the second quarter.

They were actually strong in all respects.

We achieved new records in sales and earnings, and I am very pleased with the ability of our organization to continue our long-term trends on achieving industry-leading growth and profitability.

We clearly continue to strengthen our position in our served markets.

This provides us confidence for a continued positive outlook for the rest of this year and long-term.

Over to sales.

The sales increased 14% over prior year and 6% sequentially.

We are very pleased with this result, as the demand in most markets continue to be generally moderate and mixed.

Though the demand was seasonally stronger, the growth was very broad-based across most of our end markets and included all geographic regions.

The growth was essentially achieved through purely organic expansion, and this clearly reflects our broad, competitive strength in each of the markets that we are serving.

We continue to pursue the opportunities for our strategic acquisition, the pipeline is encouraging.

However, the realization is difficult to predict, especially with the new regulations that we are facing in China.

Profitability and cash flow remained very strong in the quarter as well.

We're very pleased that we could expand our industry-leading margins, operating income margins even further, to 19.4%.

This is an excellent achievement considering that the price pound pressure from our customers continue.

In general, costs continue to rise.

So the result to expand margin is very positive for the company, and reflects our culture of cost control and a very focused approach towards our investments.

We're very prudent with our investments relative to the business we are taking from our customers, focusing on the high end of the business that provides higher margins, and we are continuously pursuing value-added integrated solutions that again provide higher margin opportunities.

EPS in the quarter reached a new record of $0.46 a share.

This is 31% growth over prior year.

As you all may recall, it is our goal to grow EPS at twice the rate of revenues and the second quarter was no exception of achieving that goal.

This reflects on the very strong opportunity in the company to gain operating leverage.

Amphenol remained a very strong generator of cash.

The second quarter was no exception on this with $83 million and we applied this cash to further create value as we move the company into the future.

This sustained performance of achieving industry-leading growth and profitability, we believe, is a direct result of our close relationships to our customers.

It's a direct relationship -- a direct relation and result of our competitive strength in each of our diverse markets.

It's a direct result of our global footprint, where we can reach our customers and the engineering offices of our customers in every corner of the world.

It's a direct result of our ongoing programs of cost controls, which includes redesign of materials of our products to reach a lower cost.

It's a continued expansion in lower-cost areas, and even within China to move the lower cost areas, as inflationary pressures continue in every aspect.

It's a direct result of the development of new application-specific products.

This -- the contribution from these new products, especially in the second quarter were very strong, and we're very pleased to be able to be able to offer our customers integrated solutions that are enabling our customers to develop higher performance, more innovative products, all that creates value for our customers, and thereby higher margins and value for Amphenol.

Our results are also a direct result of our strong entrepreneurial and agile organization.

Now a word to the trends in the served markets of Amphenol.

We are pleased of having the opportunity to achieve double digit growth in essentially all of our major markets on a year-over-year comparison.

We are particularly pleased, also, with our sequential sales increase of 6%, even if there was a seasonally strong quarter, it is pleasing to see that we have achieved growth in each of our served markets on a sequential basis.

The strongest growth on a year-over-year basis in this quarter was achieved in the military aerospace market followed by the automotive market.

Many of you will recall that just several quarters back, our mobile phone business was the strongest-growing area and automotive was relatively flat.

This is a clear reflection of the strengths of the company that is related to its diversity.

Let me talk a little bit about these market segments more specifically.

Military aerospace markets represent 20% of our sales.

The sales increased a strong 32% over prior year.

You all will remember that a year ago, we were hit by this unexpected flood.

If we make an estimate and made that estimate last year that we probably missed about $10 million in that quarter, our military aerospace business would have still been on an adjusted basis, up over 20%, which is a very, very strong performance.

Performances related clearly to a continuing healthy demand environment, but also to our broad participation in defense programs and the growing opportunities represented in the growing commercial aircraft business.

That gives us a very positive outlook for the rest of the 2007 and beyond.

The industrial market, the second market here to discuss, represents 12% of our sales and sales increased a strong 9% over prior year.

We continue to benefit from our strategic focus on the diverse growth segments of the industrial market, which include the medical market, the oil and gas market, as well as the rail and power applications applications.

We expect the positive trend in industrial market to continue, especially as we are providing more advanced technology products for the embedded electronics in industrial equipment.

The next market, the automotive market, which represents 9% of our sales, was up a strong 24% in the quarter.

The growth was driven by the successful ramp-up of our next generation of interconnect products for safety devices.

It was also driven by the model year changes with increased electronics in the cars, particularly increased electronics for communications, navigations, and entertainment applications in the car.

We expect these new products to experience expansion, especially in the United States and Asia.

You all will remember that our particular strength used to be in Europe and this expansion in the United States and Asia can help us offset some of the moderating demand that we expect, especially in the third quarter to happen in Europe.

The next market is the broadband communication market over hybrid fiber coax networks, which represents about 11% of our sales.

The sales increased a strong 12% over prior year.

This is a result of healthy demand in that market in the strong build period, as well as earlier price increases that we have over the last several quarters.

We expect this positive trend to continue, especially due to the success of the new broadband services of the system operators and a continued seasonally strong builder period in the third quarter.

In the information technology and data communication market, we also have strong growth.

It represents 24% of our sales and is now our largest segment.

The growth was double digit, 10% over prior year.

The strength in this market and the growth was really driven by the product and customer diversification, as well as the good success that we have with the new high-speed products, which are gaining momentum in the marketplace.

By offering a complete interconnect system architecture from our customers through the combination of the capabilities of our products inside and outside the box, we are clearly winning new designs with customers that bode well for further expansion in this IT and data communication market for the future.

The mobile infrastructure market represents 13% of our sales, and was up also a strong 10% over prior year.

Another market segment with double digit growth.

We believe that we gained position in a generally moderate mobile network market due to our strong position in emerging markets and the participation on high-growth platforms in this market.

The subscriber growth continues, expecting 3 billion subscribers for mobile phones and that growth together with the increased data traffic and the development of IP mobile networks are encouraging indicators for sustained growth in this market.

Mobile devices is the last segment that I would like to discuss.

It represents 11% of our sales.

Sales decreased slightly by 1% over the strong periods of last year, but increased sequentially by about 4%.

We're very pleased with this performance.

We know that some of our customers had difficulties in this market since several quarters, but we were able to offset some of these declines by significant gains at other customers and through our diversification of our customer base.

We have strong new program wins with several of the leading manufacturers in that market, which are very, very encouraging, and clearly will drive our growth for the second half of this year.

We continue to benefit, especially from our diversified customer base, but also from these new product introductions.

They're very innovative and clearly are in high demand, with several of the main manufacturers in that market segment.

So we're very positive about the future in this market segment, even if there is a very mixed performance in the customer phase itself.

In summary we're very pleased with the progress that we have been making in enhancing our position across our served markets, and we're confident in the ability of our organization to continue our trend of strong performance in a generally moderate demand environment, and we are confident that we can continue to capitalize on our leading position in diverse markets, on our superior technology, and many new opportunities that we see in front of us.

As a result of this, we have a very positive outlook for the rest of this year.

And we have been raising our guidance for the full year 2007, one, to adjust for the better than -- better second quarter results, and for a stronger general outlook for the remainder of 2007.

We are now guiding sales for the full year in a range of $2.71 billion to $2.75 billion.

That compares to previous guidance where we had essentially the high end of the last guidance was at $2.715 billion, which is now kind of the low end of the guidance that we have at this point.

EPS is now guided to be in the range of $1.79 to $1.83 for the full year.

Again, that is on the high end of the guidance, $0.03 more than our previous guidance.

For the third quarter, we expect sales in the range of $680 million to $695 million and EPS in the range of $0.44 to $0.46 a share.

The guidance for the third quarter reflects a very strong performance outlook considering that we're entering a seasonally slower quarters.

Actually, the high end of the guidance we are now looking at having sequential increase of sales, which very rarely happens in our business.

So we are very enthusiastic about what we have been able to achieve and we're excited about our future and we look forward, with confidence to another record year for Amphenol.

Thank you very much and with this, I would like to open it up to questions that you may have.

[OPERATOR INSTRUCTIONS] Amit Daryanani, your line is open.

Please state your company name.

Thanks.

RBC Capital Markets.

Good afternoon, guys.

Just a quick question on your operating margins.

You guys have done a pretty good job in boosting them at the pre-TCS acquisition levels.

What are the long-term targets for interconnect margins for this point and what's going to drive the expansion?

Is it a revenue function or are there changes in manufacturing location or procurement strategies that would help us get there?

Thank you very much for this important question.

We ask ourselves always that question, how can we further expand our margins and do you know that this continues to be our goal.

We have opportunities on a broad basis to further expand margins.

First of all, we have the operating leverage with incremental sales.

Second, we work very diligently in reducing our costs and getting -- remaining very lean in the high-cost areas and expanding direct and indirect expenses, if I may express it that way, in low-cost areas, which in total keeps costs lower, and also prepares us for changing environments in the various market segments.

It makes us less vulnerable that way.

We have design efforts going on relative to changing materials that we can also reduce costs and so forth, so there's ample opportunity for further expanding margins as we move forward.

Obviously, we have -- we are close in average now to 20% and obviously that's our near-term goal.

We'll see over what period of time they can be reached, but certainly that is reachable.

And 20% on a corporate level, right?

Yes.

That's 20% on a corporate level.

We have 21.7% on the interconnect side, which is a very significant margin, but it's 90% and all the items I just mentioned apply to the interconnect side, so there's margin expansion there possibly as well.

And just a follow-up on the acquisition pipeline.

Can you talk about what end markets you would look to target at this point?

You mentioned changing regulations in China.

I guess that infers that you potentially have acquisitions in China that are getting held back due to regulatory issues.

Could you flesh that out a little bit?

We have a very fine pipeline and we always look at expanding in low-cost areas like India, China and others and India is certainly included in there as well.

But the regulatory situation there is nothing else than in certain instances you have to go now through the central bureau rather than on a regional basis for approvals and that slows down the process.

We are looking for acquisitions essentially in all of our market segments.

We have no particular intention to exclude one of the market segments.

They are in all of these segments, opportunities, excess to further expand market share, and therefore we will search out those that make the most sense, continue to be accretive and bring us the management as well as the product and the geographic presence that we're always looking for these supplementary and complementary acquisitions.

Matt Sheerin, please state your company name and your line is open.

Thomas Weisel.

Thanks and good afternoon, Martin and Diana.

Good afternoon.

So a question, Martin, regarding your guidance, which is generally pretty positive, particularly when you consider what some of your competitors and suppliers out there are talking about in terms of a more muted demand picture.

Are you seeing signs from customers that end demand in certain markets are picking up, or are there just share issues that you continue to enjoy?

I think it is a certain mix.

Obviously, we have a relatively healthy demand environment in the military and defense area.

We see some good demand in the automotive side as the car model changed and so forth, but in other areas, especially in the enterprise area or let me say in the equipment area for IT equipment, we don't foresee as strong of a trend in the third and fourth quarter as we have seen, for example, last year.

Last year it was exceptionally strong in the third quarter.

Picked up very much so at that point in time.

We don't see that demand and strength in that area this year.

The mobile phone market will remain mixed.

It's now published that some customers of ours have not as strong demand with their end customers that they used to have, and so we have to essentially compensate for these changes somewhere else and we're compensating through new products and that includes some share gain as well.

Overall, I think we have, and we continue to gain some market share across our market segments.

Okay.

Just a follow regarding TCS.

I know you don't break out specific numbers there, but I know early in the year you ran into some issues that customers, particularly a large networking customer that was going through some supply chain initiatives.

Are those initiatives largely behind you and are orders coming back there?

It always takes somewhat longer than originally expected because it flushes out through the whole supply chain and it's a long chain at the end, but obviously we have seen some signs that there's improvement and demand is certainly a much more visible at this point in time and we expect that this is coming to an end.

Others may come along, you never know.

At this point in time, with this particular customer that you are referring to, I think that seems to be coming to an end and we certainly hope that this will come through in the remainder of this year.

By the way, I want to tell you that Thomas Weisel is predominantly visible on TV almost every day with the Discovery team carrying it on the Tour De France.

It's pretty impressive, Thomas Weisel, to see that big advertising.

Thomas Dinges, please state your company name.

You may ask your question.

JPMorgan.

Good afternoon to both of you.

Good afternoon.

Hi.

Martin, I wanted to follow-up a bit on the margin question, but just ask it specifically on the cable side and broadband side, because that's obviously an area you guys have been quite aggressive with your competitors at opportunistically going after price increases.

You've been able to lift the margins considerably in that market, even in the face of materials costs.

And we have seen materials cost start to move up again here.

What is the expectation as you move into the next couple of quarters and opportunities for you guys to try to move prices up to capture some of that material cost increase that you're potentially going to see?

And I have another quick follow-up for you.

Well, this is a very important consideration that we always have, as in the cable business we have still lower margins than the interconnect business.

It's certainly one we would like to move up.

I don't see in the very near term, the opportunity of further price increases, except maybe some punctual areas, but not on a broad basis.

In addition, the aluminum prices have come down and went up a little bit, so it's relatively stable, you can say, at this point in time.

Plastic prices continue to be certainly a concern.

But we are continuing other areas to explore and to implement and that is to go to lower cost areas and find new sources of supply for the material that gives us lower cost and so forth and that can help us and will help us in the future to move margin somewhat in an upwards direction.

It's going to be more of a slow process rather than a rapid process.

Okay.

Then a quick one for Diana.

On the cash cycle, if we look at it on a year-on-year comparative basis, did move up probably a few more days than I was expecting, and it looks like the DSO level is probably settling in a little bit higher than where it was for most of last year.

One, is this a level that's probably to be expected as you look out going forward; two, I'm guessing and maybe just confirm this for me.

Is the major reason for this just the shift of more product being shipped and manufactured in the lower-cost regions where payment terms can sometimes be a little bit longer?

Thanks.

We look at days without the sale of receivables.

When we look at it, it's within a day or so of the range that we run it.

It does get impacted somewhat by how much of the sales were in the last month of the quarter, and sometimes also gets impacted by what day of the month the quarter close occurs on.

So I don't see really a permanent shift up in days.

Perhaps a day or so high, but I do think that we'll stay within that range of 65 to 67 days and that's kind of where we ended on Q2.

We don't really see that as a significant shift from a cash standpoint.

Okay, thank you.

Steven Fox, please state your company name.

You may ask your question.

Hi, good afternoon.

Merrill Lynch.

Just getting back to the margin question, I was wondering, Martin, if we could look at it a little differently.

Your businesses almost doubled over the last three years and I was wondering, given how the business has changed, whether that has affected the conversion margin opportunity, so that you maybe can get better conversion margins if we wanted to look out over the next couple of years helping margins.

Is there any way we could discuss that a little bit?

Thank you very much, Steve.

That's an interesting angle to look at in terms of margin.

Obviously, if you have a more condensed infrastructure, you can leverage more, but the real leverage in our business comes not so much, how much more you can absorb over fixed costs, because we keep our costs as variable as we can, but at the same time, the margin improvement comes from providing value to the company -- value to the customers.

And value in form of integrated solutions and that is where the TCS and where the combine of the TCS and our other businesses come to bear, where we see design wins, where we bring a complete interconnect architecture to the customer.

The same as in the military, where we have back planes, flex springs, rigid flexes as well as the assemblies that go along with the back plane assemblies, as well as all the IOs.

So some of our customers call us to make us a supplier because we are providing 80% of the build material and that provides value.

They don't have to go to somebody else and that is helping our margins.

So both on the commercial side as well as on the industrial and environmental side, we have developed that capability of this integrated solutions, which has the ability to cut out some of the margins that otherwise or the safety net, so to speak, if you have more suppliers, allows us to make higher margins and the customers to get higher value for a total lower cost.

Okay, that's very helpful.

Then just a quick follow-up.

You mentioned the next quarter for European auto, demand would be weak.

Are you just talking about seasonality, or is there something in end demand you were highlighting?

This was not end demand, just seasonality.

Thanks very much for clarifying that.

Okay, great.

Thank you.

Thank you.

Carter Shoop.

Please state your company name and you may ask your question.

Deutsche Bank.

I want to touch base on the competitive pricing environment.

Can you discuss roughly what percentage of your business competes directly against a [Molex or Tyco Electronics] and can you discuss the overall pricing dynamics with both of those competitors.

Thanks very much.

An interesting question, not very easy to answer.

Obviously; with Tyco, we are having a much broader interface in the marketplace, if you want, than we have with Molex.

Molex is much more complementary.

We have seen both of them very good in the marketplace in general, because both of these companies sell on value, similar like we are doing and obviously, there are always bidding processes where you ask about pricing and where it is competitive.

But in general, there's a very good behavior in the marketplace and that I think will continue unless demand drops very dramatically, at which point in time, more competitive situations will come up.

As far as Molex concerned, obviously, we're competing in the back plane area with.

But it's here the drive for the next generation products where we have certainly and traditionally had a head start, which gives us already the early win positions.

And whenever you are in earlier, you have a better position than if you have -- if you come later on.

Okay, that's helpful.

As a follow-up, can we focus a little bit on TCS and discuss how far along we are in regards to both the cross selling opportunities, kind of selling inside and outside the box, and also in regards to reducing the cost structure there?

Well, we are actually not anymore referring to TCS as a separate operating unit, in that sense, but I can tell you that we have been moving along very well with providing TCS lower cost capability factories in China at lower-cost areas have been very much in full swing since some months now and we're very pleased with that.

They have new access to sourcing for tooling as well as materials, which again helps improve margins.

And as I mentioned earlier, TCS together with the Amphenol IO side all together which is included in a division which is the information technology and communications division of Amphenol are now offering our customer this complete system integrated system architectures, which I have referred to earlier which are driving design wins in the future, especially in the high-speed area, and that is a very successful undertaking and we will see these successes turning into revenues in the next several quarters as design cycles take six months to one year or even sometimes longer on the equipment side.

Shawn Harrison.

Please state your company name and you may ask your question.

Hi.

Longbow Research.

Good afternoon.

Good afternoon.

My first question has to deal with just any inventory corrective pressures maybe you're seeing in the supply chain, either through distribution at the EMS level or at the OEM level, if you could just comment on that?

As far as distribution is concerned, and we very rarely talk about distribution, because distribution represents only 15% of our sales, but as far as distribution is concerned, which are relevant in certain markets that we serve, in industrial, military, and defense markets especially, inventories as far as our markets are concerned are at good levels, healthy levels and supporting the growth that we enjoy in those markets.

So I don't see any correction in that area.

As far as other market segments are concerned, obviously, there's always a question with these hubs and so forth, how much inventory is in those hubs, but we have a very close control over those and make sure that not too much closing to these so-called hubs for our customers, so that we are not getting overinventoried.

So as far as we look at these hubs today, they are healthy and shouldn't raise any concern of any decreases or any need for decreases in the near term.

Okay.

My second question just has to do with free cash flow usage.

If my math is right, it looks like you'll probably generate close to $200 million in free cash flow this year.

I was just wondering if you could prioritize how you look at spending of that free cash flow, whether it's debt reduction, accelerating share repurchases, or is there some earmark for potential acquisitions?

I'm so pleased that you mentioned all the options and we are certainly pursuing all the options.

The first one that we always look is at new equipment, tooling and so forth to support the development of these new products.

These new products truly are driving growth.

I'm very, very pleased, especially in this quarter to say, to have that strong organic growth here without any acquisition help and that is just growth from within, with new products, with bringing to our customers new opportunities for themselves, because we are providing them innovative solutions.

I think that is an important part of our investment and will continue very strongly.

Obviously, acquisitions is the other one that had good returns in the past and will have good returns in the future as we will conclude some of these acquisitions in the future.

Another area is obviously always stock buy backs and Diana spoke about those, and debt reduction, certainly, but they don't have the same kind of returns as the first two, and certainly that's the ones that we are pursuing the most at this point in time.

Yuri Krapavin.

Your line is open.

Please state your company name.

Lehman Brothers.

Good afternoon, everybody.

Martin, you mentioned application-specific products and systems several times during this call.

Can you update us what percentage of your total sales these application-specific products currently comprise?

Well, this is obviously always a question that is important to be answered.

Application-specific products and new products we define in a window of two years of the introduction, and especially this quarter we had in excess of 20% coming from these new products and very pleased with that continued effort in that area.

Obviously, over time, these application-specific products will become more of a product that becomes a standard over time.

Then the cycle rebegins again to have the next generation of application-specific products so that in the mix, you can have and enjoy these higher margins.

So to say today how much is purely application-specific, how much is purely standard is always a kind of a moving situation, but nevertheless in the mix, for the margins that we have, we could certainly assume that the big majority of our products are in the category that bring value to our customers and thereby can be characterized as application-specific, even if they're not just used by one customer.

Thank you.

My second question is related to the new product developments in two areas in the handset market and in the automotive market.

In the handset arena, historically your focus has been on the hinges and antennas, and by the same token in the automotive market, I believe historically you focused on the safety applications.

How are you broadening your product offerings in those two end markets to address new applications?

This is certainly a very broad question, but if I look at just the mobile phone market, certainly, we have been focusing on some of the new opportunities that include hinges and the corresponding electronics that goes interconnect solutions, they go along with it and antennas as well.

If I look at the total business, they are not making up the majority of the business.

We are very proud in our product portfolio, which includes connectors and other devices to go in mobile phones.

We continue to look on a broad basis, because there are continued changes in how mobile phones are being put together and what functionality requirements are, which are always bringing up new demand of devices.

If we look at just certain connector devices of the past, a year ago, two years ago, even if it has the same application, it's a totally different product today in terms of its scalability, in terms of its size, in terms of its functionality and so forth.

We have developed products for one of the new entrants into this market that are based on some of our historical products, but in essence are totally new.

So we continue to focus on a very broad basis of products, a very broad basis of customers in the mobile phone market because only then we can kind of go through with good performance through the very much up and downs in this market relative to model changes, relative to customer performance changes and so forth.

Diversity in product, diversity in customers is key in this market to us.

As far as the automotive market is concerned, obviously, we have been traditionally in the safety device market, but we have branched out into new applications in the communications area, navigations area, as well as entertainment parts of the car where more and more electronic is being brought in, as well as in engines.

If you look at diesel engines and so forth, a lot is being developed in those areas that hasn't been done before.

If you look at the distribution of diesel engines today compared to many years ago, alone in Europe, 50% of just normal cars are equipped with diesel engines and not anymore with traditional engines.

So there's tremendous shift and opportunity and the same is in power applications in the car as well as far as batteries is concerned and so forth.

Much change there as well.

So there's continued opportunity for getting involved in the automotive business on a much, much broader basis, and that's what we're doing.

Todd Peters.

Please state your company name and you may ask your question.

Hello.

I'm with American Century Investments.

Good afternoon.

Hello.

I wanted to expand a little bit more on your automotive business, because your commentary where you saw good year-over-year growth, I think you said 24%, is some of that growth coming as a result of current products on the new platforms or new platform wins, is it domestic, is it on the transplants, is it overseas?

I think it's a combination of all what you're saying.

It has been certainly related to the generation of -- or to the introduction of new generation of interconducts, the safety devices, but it has also been very much related to the utilization of more electronics and the new car models, especially the low-end car models where previously that electronic was not used so you can say it is based on similar products that were used in the high ends of cars, which are now proliferating on a much broader basis on the lower end of the cars as well.

But it is also a host of new products that we have been able to introduce to the market that has been driving that growth

Do you think that you're increasing your share in the automotive space, or just growing within an expanding market?

I think it is more growing within an expanding opportunity, because we are really not taking market share away from the traditional suppliers to the market.

We are not trying to make "me-too" products from the automotive market where there are entrenched competition, high-priced competition, and so forth.

That's certainly not what we are trying to do, but we are trying to really participate in the expansion that is happening in the car.

Thank you very much.

Thank you.

Jim Suva.

Please state your company name.

You may ask your question.

Great, thank you.

It's Jim Suva of Citigroup.

Congratulations.

Thank you very much.

A quick question.

This time of year, it's always, people begin to wonder about the slowdown in Europe.

Martin, earlier you mentioned Europe is slowing for the automotive pretty normal as expected.

Can you talk about some of the other end markets, both in Europe as well as broader based of how you see your bookings and demand outlook?

Well, it is a very traditional situation that in Europe and also to some extent in North America, the third quarter is a slower quarter.

We are very confident at this point in time that we can perform very well.

Actually, as I mentioned earlier, the guidance at the high end would suggest a sequential increase, and it is related to the strength that we see in most of the other markets and offsetting opportunities that we have relative to the regional demand seasonality that will definitely come, but the mobile phone market with the new products that we have has good opportunities as well as military and defense market as continued strong opportunities, the industrial market as well.

Less maybe in the equipment market in the third quarter, but still an improvement opportunity.

So it is mostly across the markets and we have in certain ones stronger opportunities to offset some of the seasonal slowing.

Great.

As my quick follow-up, when we talk about military and aerospace being about 20%, can you remind us what the breakdown is between, say, the military versus the commercial aerospace?

And with now both Boeing and Airbus doing new program ramps, could we see that potentially shift a little more to the commercial side?

Yes, well, obviously those two are ramping, but 2007 will not yet be that strong ramp as we can see.

Maybe it's 2008, 2009, especially if you look at the 787 and so forth.

We will see an increase there and a shift, but obviously the defense side we expect also to remain relatively strong, but there could be a few percent point shift within this and right now we have maybe a percentage which is about 70/30 in that marketplace, maybe 65/35, something in that range between the two and there could certainly be a few percentage point shifts, but it's not a radical shift that will happen 2007.

But as we go into 2010, there could be a more significant shift and we are well positioned for that.

Jeff Beach.

Please state your company name and you may ask your question.

Stifel Nicolaus.

I was going to ask for you to expand a little bit on two markets.

The one you just talked about, military and aerospace to start with and the last two quarters, you've seen a material pickup in growth occurring.

I wondered if you can pinpoint where this very strong growth, even adjusting for the flood last year is coming from.

It sounds like it's military and if there's something specific.

And then in the follow-up in the mobile infrastructure, I would like you to discuss your position in China.

I know in the last couple of years you've talked about picking up and supplying a lot of Chinese local manufacturers and whether that is still gaining momentum and maybe give us a sense of how important this business is on the mobile side.

This is a very comprehensive question.

Let me start out with the military aerospace side.

Obviously, we have some military operations going on which certainly creates some demand that may otherwise not be there.

But new programs are also supported.

A big portion of that growth is certainly gains in share relative to the ability of Amphenol to propose and to provide complete integrated solutions that I mentioned earlier.

Starting from the back plane, the assemblies, to the IO connectors is giving us the ability to capture more of the bill of material.

So a portion of that growth is certainly related to share gains in that marketplace.

As far as the mobile phone market is concerned, obviously in order to have that level of business that we have today in Amphenol, you have to be strong with the leading manufacturers.

And the leading manufacturers are today all the multinational, whether they are Asian multinationals or North America and European multinational companies.

That's where the volume is, that's certainly where the growth opportunity is at this point in time.

That doesn't mean that certain Chinese manufacturers remain important but there was a lot of shift in the Chinese manufacturers as well.

If I look at today with [Nova] and Huawei are building today more phones than the ones Chinese manufacturers that build mobile phones just a few years back.

So obviously we have adjusted ourselves and adapted to those who build the more phones in China today than they build and they continue to be important.

But on a relative scale, on a relative scale, they're still much smaller than these multinationals and we are focusing on the broad basis, because all of this is important for us.

You never know where these companies end up in acquisitions and mergers and so forth.

And what about a quick comment on the mobile infrastructure?

The mobile infrastructure market, we had good opportunities as we designed in product sometime back to be on several platforms.

Some have not had a lot of success, others had a lot of success, and fortunately we're on a broad basis present and today we're on those who have really strong success and many of these platforms that have strong success today are the ones that have low cost, because much deployment is going on in low-cost areas or let me say is going in developing countries where a low-cost infrastructure is important.

Whether that is in Africa, whether that is in India, in those countries, obviously the infrastructure builders and operators there are looking for the lowest-cost opportunity.

We are very fortunate to be on such platforms that are being deployed in such high volumes in those areas today and have a lot of success with it because we have a big portion of the bill of material.

And that has allowed to us gain a position and share in that market and we continue to develop and win new business with new design wins in that infrastructure market, which gives us good confidence for the future as well.

I think we have time maybe for one more question, at that point in time.

Thank you.

Amit Daryanani.

You may ask your question.

Please state your company name.

RBC Capital.

I just had a quick follow-up question for Diane.

Maybe I missed this, but could you talk about what tax rate are you guys expecting for Q3 and remainder of 2007 in your guidance?

Sure.

The guidance includes about a 31% tax rate, slightly up from the 30.5 in Q2.

All right.

Thank you.

Sure.

Okay.

With this we conclude our conference call at Amphenol today.

We would like to thank you very much for your interest and for all your questions.

I'm sure there will be follow-up questions, we'll be happy to answer.

Thank you very much for joining.

Good-bye.

Thank you for attending today's conference and have a nice day.