安費諾 (APH) 2007 Q4 法說會逐字稿

Hello, and welcome to the full-year and fourth-quarter earnings conference call for Amphenol Corporation.

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

(OPERATOR INSTRUCTIONS).

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

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.

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 fourth-quarter earnings call.

Fourth-quarter results were released this morning.

I will provide some financial commentary on the quarter and Martin will give an overview of the business and current trends.

We will then have a question-and-answer session.

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

Sales for the quarter were $777 million, up 18% in U.S.

dollars and 14% in local currencies over the fourth quarter of 2006.

And from a sequential standpoint, up 6%.

At the end of the quarter, the Company completed two acquisitions with aggregate annual sales of approximately $45 million.

The acquisitions include the purchase of an 80% interest in a northwest China-based manufacturing manufacturer of RF interconnect products for the wireless communications market and a Chinese manufacturer of precision interconnect products for IT and consumer product applications.

In addition, during the fourth quarter, we acquired the remaining 30% ownership interest in one of our Korean manufacturers of handsets related products.

We are excited about the growth potential created by these excellent additions.

Breaking down sales into our two major components, the interconnect segment, which comprised 91% of sales in the quarter, was up 20% compared to last year.

Interconnect sales increased in all of the Company's end markets.

Our cable segment, which comprised 9% of our sales, was up 3% from last year as a result of increases in broadband cable television markets.

Operating income for the quarter was strong at $154 million compared to $125 million last year.

Operating margin was 19.7% compared to 18.9% last year.

The margin improvement relates primarily to increased margins in the interconnect business.

From a segment standpoint in the cable business, margins were 12.1%, the same as last year and down from 12.7% in Q3 of 2007, primarily as a result of lower sales volume.

In the interconnect segment, margins were 22%, up 70 basis points from last year and 10 basis points sequentially.

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 solutions, combined with a very strong focus on all elements of cost.

Overall, we're very pleased with the Company's margin achievement.

Interest expense for the quarter was $9.5 million compared to $9.3 million last year.

The increase resulted from a slightly higher average debt level in the 2007 quarter.

Other expense was $3.5 million compared to $4.7 million in Q3 of '07 and $2.8 million last year.

The increase from last year relates primarily to increases in minority interest expense, partially offset by higher interest income.

The decrease from Q3 relates primarily to a reduction in minority interest expense resulting from the purchase of the minority stake in one of our Korean companies that I referred to earlier.

The Company's effective tax rate in Q4 was 28.8%.

The effective tax rate for the full year 2007 was 29.5%.

In the fourth quarter of 2006 and for the full year 2006, the Company's effective tax rates were 30.3% and 31.5%, respectively.

The lower rates in 2007 primarily reflect a more favorable mix of income and the change in the Company's cash repatriation strategy.

Net income was $100 million in the quarter, approximately 13% of sales, an indication of our excellent profitability.

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

Diluted earnings per share for the quarter was $0.55 per share, up 28% from $0.43 last year.

During the quarter, we generated a very strong cash flow from operations of $133 million.

The cash flow from operations along with $5 million in borrowings under the Company's revolving credit facilities and $14 million in proceeds from the exercise of stock options, was used for $27 million of capital expenditures; $7 million of stock buyback; acquisition-related expenditures of $110 million, primarily relating to the acquisitions that I just mentioned; $2.7 million in dividend payments; and an increase in the cash balance of approximately $19 million.

In conjunction with the Q4 acquisitions, the Company also recorded a liability for additional purchase price of approximately $40 million that will be paid in the first half of 2008.

The balance sheet is in good shape.

Accounts Receivable days outstanding sales outstanding were 69 days at the close of the year compared to 66 days at the end of last year.

The translation impact of the weaker dollar added about a day to the receivable balance at the end of the year.

Inventory days declined to 80 days from 85 days at the end of 2006, and debt was $723 million at the end of the year compared to $680 million at the end of 2006.

The Company's leverage and interest coverage ratios remained very strong at 1.2 times and 15 times, respectively.

Fourth-quarter EBITDA was approximately $182 million and availability under the Company's revolving credit facility was $275 million at the end of the year.

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

Orders for the quarter were $766 million, a book-to-bill ratio of approximately 0.99 to 1.

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

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

Thank you very much, Diana, and thank you all for joining our traditional conference call at the occasion of our earnings release.

I hope you had all a very good start into the new year and I hope it's not too late to wish you all a very happy, healthy, and successful 2008.

The following, I'm going to highlight fourth-quarter achievement, discuss very briefly the trends and the progress in our served markets, and comment on the outlook of the first quarter for the first quarter and the full year 2008.

Some highlights of the fourth quarter, we are extremely pleased with the fourth-quarter results and the results for the full year 2007.

We achieved new records in sales and earnings for both the fourth quarter as well as the full year.

We maintained our long-term trend in industry-leading growth and profitability.

We further gained position across our served markets while driving the lower cost and improved margins.

As far as sales are concerned, Diana already mentioned that sales increased a strong 18%, somewhat helped by favorable currency rates.

In local currency, the growth was a very strong 14% over prior year and 6% sequentially.

The growth was very broad-based across all of our end markets and geographic regions.

The growth was particularly strong in mobile devices, in mobile networks, as well as in the military and commercial aircraft markets.

Geographically, our strongest growth area was, again, Asia.

The growth was essentially achieved through organic expansion, which reflects our broad competitive strengths.

We have made two acquisitions in the fourth quarter, which had no material impact on the sales and profit of the Company, but we're very pleased with the addition of these two Chinese companies, and that will broaden our presence in a number of our target markets.

The aggregate sales are approximately $45 million in 2007.

The first Company, which is located in Xian, which is in the northwest of China, brings complementary strengths in our leading rate of frequency and microwave operations.

A particular strength of this new company is in the buildout of the 3G network of the Chinese version TDS-CDMA.

This complements the strength of the Company, where we have leading positions in all other kinds of networks technologies.

The company is also located in a much lower-cost area than many of our other Chinese companies, and thereby, bringing additional opportunities for low cost.

In addition, Xian is an outstanding source of labor, both direct as well as skilled, as they have excellent universities, especially strong in radio frequency and microwave technology.

We're very pleased with that addition.

The second company is located in Shenzhen, where we have already several operations, and they add a complementary range of precision interconnects, which are targeted for the IT and consumer market, including the handset market.

Both of these acquisitions are very consistent with our strategy of acquiring companies with excellent capabilities, complementary strengths.

Both of them will be accretive and they add good management.

We're clearly very excited about the value that we will be able to add to these companies as they become part of Amphenol.

As far as profitability is concerned, it remains strong, as well as cash flow.

Operating income margins expanded from prior year as well as sequentially to 19.7% despite a continuing difficult cost and pricing environment.

EPS increased again a very strong 28% over prior year, to a new record, $0.55 a share.

And cash flow remained strong with $133 million, which was applied in again creating value for the Company in the form of stock buyback, in the form of new capital for tooling for new products, and most importantly, for continuing our strategic acquisition momentum.

This sustained trend of strong performance is a direct result of pursuing our vision of truly making an impact on the digital revolution.

I call it digital revolution because it truly -- we are living in an era where electronics is expanding at an exponential pace.

Not only were electronics used in the past, but in new applications like industrial markets, like markets where electronics had not been used in the past, where we find today embedded electronics, which will continue to drive growth.

The impact we can make as in interconnect company is to develop performance enhancing interconnect technologies so that our customers can develop higher performance equipment, higher performing networks.

This is our goal that we have pursued for many years that has brought value to our customers and maintained very strong margins for Amphenol.

Another part of our vision is to further expand our diversified reach.

That diversified reach is certainly a very extensive growth model on one side as well as mitigating economic changes that can happen in these various market segments.

And we continue to expand our customer base, our markets, the geographies, our geography, as well as our product range.

Another part of our vision is to achieving excellent in execution.

We have done so for many years, and we will continue our strategies of prudent investments that have excellent returns and our programs of cost control so that we can further expand margins.

And most importantly, we continue the developing an entrepreneurial agile organization, which is very, very important, especially in the times of economic uncertainties, so that an agile organization can quickly adjust to economic changes that may occur.

While yet maintaining a very cohesive organization focused to the customers as well as maintaining strong accountability for profits.

With this, I would like to make a few comments on the trends in the markets that we serve.

Military and aerospace market represented 19% of our sales in the fourth quarter and we had a very strong sales increase of 19% over prior year.

Demand remains very healthy, supported in part by major military equipment deployment, such as the MRAP program.

But Amphenol remains very broadly participating in defense programs and we count on also some further increase in the commercial aircraft production in 2008.

So for 2008 in this market, we continue to see strength and a healthy development.

The Industrial market represented 13% of our sales in the fourth quarter.

Sales increased 19% over prior year and we continue to benefit from our focus on the discrete growth segments that we are focused on, oil and gas, as well as geophysical exploration, the rail mass transit market, medical instrumentation, and alternative power applications.

We believe that the proliferation of the embedded electronics in new industrial applications will continue to drive growth in those market segments in 2008 combined with our own ability to focus on customer penetrations in our target markets.

The Automotive market represented 7% of our sales.

Sales increased a strong 14% over prior year.

Since most of these sales are made in Europe, our local currency sales in that area was really 4%.

We expect a moderation in the car production in 2008, but certainly have opportunities to offset these moderations with new customer wins at Mercedes, at Fiat, at General Motors with new products which are already approved and further geographic expansion beyond Europe.

Broadband Communication over hybrid fiber coax networks represented 10% of our sales.

Sales increased 6% over prior year.

As expected, the demand slowed during the fourth quarter.

Q2 has seasonally slower network build carriers.

Typically, we would expect demand to rebound towards the end of the first quarter, primarily driven and continually driven by the success of new broadband services of the multiple system operators.

The IT and Data Comm market represented 23% of our sales.

Sales increased a strong 11% over prior year in a generally slower demand environment.

We continue to build on our distinct competitive advantage of being able to offer a complete interconnect system architecture.

This has brought us substantial new design wins with our especially new high-speed product, not only with the backplane and backplane assemblies, but also for new I/O connectors as well as cable assemblies, a total package that is really unmatched in the industry.

We believe that in spite of a more moderate demand environment, we will have opportunity for further expansion in this market due to our competitive product range and strength.

Mobile Networks represented 12% of our sales in the fourth quarter, and increased a strong 16% over the prior year in a market which continues to be growing at mid single digit numbers.

We expect demand in 2008 not to accelerate beyond those levels.

However, we continue to build on our ability to expand in emerging markets like India, like Africa, and to increase our content in high-growth platforms for new cellular base stations.

In Mobile Devices, we had sales that represented 16% of our total sales in the fourth quarter.

We had a very, very strong fourth-quarter close in Mobile Devices with sales increasing a strong 42% over prior year.

We benefited clearly from a seasonally improved demand situation, but to a large extent, the growth was driven as a result of the successful introduction of a broad range of very innovative new products across several customers and many new platforms of mobile phones and mobile devices.

We're very pleased with that strong growth since one of our major customers, actually the second-largest producer in the world, had continued to see softening in their own areas, which certainly impacted our sales.

So we were able to offset this decline with very strong growth elsewhere.

We expect continued growth in 2008 with a more traditional seasonal demand pattern, which will see the first quarter somewhat slower than the first quarter, and then accelerate again in the second quarter into the fourth quarter of 2008.

We believe that we have the ability to continue to grow as we continue to develop very complimentary, innovative products for that market segment.

In summary, we are extremely proud of our organization for enhancing our market position across all of our served markets while maintaining strong profitability in a challenging environment.

Looking forward, we expect the moderate demand and difficult cost pricing environment to continue as we have seen throughout 2007 in certain of our end markets.

Looking forward, we will also assume that currency rates will remain relatively stable.

While we continue to hear and read about an increasing general economic uncertainty, we certainly believe that we have not seen any major impact in the demand patterns that we have seen so far.

And therefore, we have remained cautiously optimistic about the short-term and very confident for the long-term outlook for continued growth and profitability as we can build on a much expanded platform of growth.

These assumptions are really reflected in our strong guidance for 2008, which assumes sales increases to continue at about twice the rate of the expected industry growth and continued leverage for improved profitability.

For the full year 2008, we expect sales in the range of $3.1 billion to $3.175 billion of sales or a 9 to 11% sales increase.

Our EPS we assume and guide to be in the range of $2.18 to $2.25 a share or a 12 to 16% increase.

In the first quarter, we expect a seasonally slower period than the fourth quarter, but in line with our historical experience.

We expect sales in the range of 740 million to $755 million and EPS in the range of $0.50 to $0.52 a share.

We're very excited about the future development of Amphenol and confident in our ability and the ability of our organization to meet the challenges of an increasing uncertain economic environment and to take advantage of the many opportunities in front of us.

With this, I would like to open up this session for any questions you may have.

(OPERATOR INSTRUCTIONS).

Will Stein, Credit Suisse.

Thank you.

I'm just trying to make sure I understand your guidance.

I know you've been -- you've addressed in your comments, Martin, but I just want to make sure I understand.

You are guiding essentially for a sequential decline of about 4% at the midpoint and from the top line.

Normally we see down 1%, and plus you have some acquisitions that I think you closed at the end of December.

So I want to make sure I understand.

You are saying you are not seeing weakness in your customer forecasts, but you are taking an opportunity to provide somewhat more conservative guidance because of the economic data you are seeing.

Do I have that right?

I think this is a very good question.

It's a very broad question because there are so many variables that go into this consideration of giving some guidance.

Obviously, we haven't seen any significant change in the demand patterns.

However, seasonally, we have seen a very strong quarter for mobile phones and we believe that this will slow down in the first quarter somewhat.

We have seen the slowdown in the broadband area seasonally and we expect that not to ramp up before the end of the quarter, so those are just two quarters.

Network buildout, we also feel that there's some uncertainty more than normal, not that we have seen a change in the demand pattern, but there's more uncertainty expressed even by our customers, what that will be.

So three of these major segments that we have certainly have voiced some concerns.

And for that reason, we are just a little bit more prudent in the guidance.

In addition, just to make sure relative to the comparison between fourth and first quarter, the fourth quarter was a very, very strong quarter and as such, you can say, you know, yes, it's 4% down against this very strong quarter.

But in average, I think we have seen, depending on the strength of the first quarter, somewhere between zero and 5% declines historically.

So it's certainly not outside of the norm what we would usually expect.

That's very helpful.

Thank you.

Just one follow-up.

I appreciate your mentioning the MRAP program in the industrial -- rather the aerospace and defense end market.

What are you seeing from that program today as far as the order patterns?

That's been somewhat of a controversy in the news as to how fast it's ramping currently and when we might see the orders fall off.

Are you concerned that that may be -- drive a very strong first half with a fall-off in the second half or are you seeing different demand patterns there?

Certainly a very important program.

Thank you for the question.

MRAP obviously has been driving growth already in 2007.

At this point in time, the military and Defense Department cannot get enough of these vehicles.

So we haven't seen any indication that there would be a slowdown.

The only question mark which is out there is how many additional vehicles will be funded throughout 2008.

But right now, we had strong orders in the fourth quarter for deliveries in the first quarter.

The first quarter is already very solid on this.

And in addition, I would like to stress again MRAP is just one of the many defense programs that Amphenol is supporting.

So change is -- and usually those are not massive changes amongst these programs, do not usually have a material impact on the continued strength that we see in that market.

Understood.

Thanks very much.

Amit Daryanani, RBC Capital Markets.

Thanks a lot.

Good afternoon, guys.

I had a really quick question on the acquisitions, it looks like we're paying about three times sales for these two deals.

It seems a bit more expensive than what we've historically paid out.

Could you maybe just talk about the margin profile of these companies and the growth expectations?

Sure.

A portion of what we paid in the fourth quarter, it has to do with the purchase of the minority interest of one of our Korean handset companies.

That was a fairly large company, so there's a good chunk of what we paid in the quarter that relates to that deal, which reduces minority interest but doesn't add sales.

So I don't think the profile relative to earnings multiples that we paid for the two companies that are new acquisitions for us was significantly different than what we paid in the past.

All right.

And then, just in terms of the margin profile of the revenue growth rate of these companies, are they in line with Amphenol?

I'm trying to see if they are accretive to the overall numbers or --?

I think as Martins said in his comments, we expect both of the acquisitions to be accretive.

So they, as you know, the range of margin profiles vary some, but these are certainly both companies that we expect to be accretive.

All right.

And then just (technical difficulty).

Mark [Hassenberg], Nottingham Capital.

Good afternoon.

As I get older, I can't remember things as well as I used to.

The first quarter of last year, as I recall, was a very, very strong quarter.

I think it was up like 40%.

Is that correct?

Last year was an exception as last year we grew essentially a little bit over the fourth quarter.

And the whole seasonality of 2007 -- I'm glad that you asked that question -- is somewhat distorted from historical patterns because we had sequential increases every quarter in 2007, which was driven a lot by new product introductions, as well as some real big wins throughout the year.

We're not forecasting similar situations in our guidance, but the potential of the Company has grown and as such, these potentials still exist for us to continue in 2008.

But I recall -- I mean being a very strong quarter it's a very difficult comparison.

Do you remember why?

It was just the roll-out of new products?

Last year we had a continued strength in the mobile phone market in the first quarter that we didn't have usually, and that was one clear aspect of it as well.

In addition, we had some rebound from the flood at that point in time, so those are maybe some two major elements that contributed.

That's right.

I forgot about the flood.

Okay.

The other thing -- the checks I've done particularly with distribution show that inventories are low, inventory turns are high, that the customers haven't loaded up with product.

I know you have a pretty good window into what's happening in the military area through your distributors.

What is your feeling about inventories in the marketplace?

Our feeling relative to our major distributors is that they have neither overstocked nor understocked at this point in time.

They are just approximately at the same levels that they have always been.

We haven't seen a material change in any of that at this point in time, with our type of product.

Matt Sheerin, Thomas Weisel.

Thank you.

Martin, I would like to just ask a question regarding handsets, which you've had very strong growth and big share gains there.

Could you give us an idea of your exposure to the various players by percentage?

For instance, what the top five players represent as your percent of handset share?

And then, looking into '08, do you additional opportunities for share gains?

And are you seeing dollar content, your dollar content, improve because of the new products you discussed?

Well, thank you very much.

Handset business is a very important part of our business as it has grown over the years and expanded in just diversity.

You ask about percentages relative to various customers.

Obviously, we almost are proportionate with our sales with the ranking of these major customers in the marketplace.

In addition, we are serving those that are not usually on the map like several of the Chinese manufacturers that are growing as well and the Taiwanese manufacturers and so forth.

So the essence of our mobile phone business is that we're very broad, very diversified in terms of customer base, almost prorated according to the ranking they have in terms of sales.

And in addition, that we have a very broad participation within each customer on models, which gives us tremendous diversity and therefore we were able to go through the year 2007 strong as one of the major players in that market really had a downturn and we grew the business very strongly throughout the year, certainly in excess of the market.

Okay great.

And then just my second question just regarding your EPS growth for the year, you've consistently been growing EPS at double or nearly double your revenue growth and your guidance implies that that is slowing.

And obviously when you are at record operating margins in your interconnect business, that we would expect that to slow.

But given the slightly lower growth rate that you are looking at, is there much leverage left in that business?

And what kind of target -- I know you're at 22+%.

What kind of targets should we be looking at?

I'm glad that you asked that question because if I go back to the guidance that we have given last year, we also had a guidance that was much more cautious prudent, because there were uncertainties at that time voiced as well and we have been able to further expand our margins.

And there are still opportunities.

I mentioned we have now -- we're going into from low-cost to lower-cost areas like the west of China.

We're starting a new factory in Vietnam this year.

We continue to look at our costs in the high regions.

We now have increased our presence in lower-cost areas to 72% and there's still room to go further.

So I think we're taking continuously the actions and therefore have been able to expand margin in 2007, which was a very tough environment relative to material, relative to the price demands.

And we don't think that this will change in 2008.

Therefore, we are just somewhat more prudent, but nevertheless we're driving similar programs that will continue to have the potential to further expand margins in the future.

As you know, our goal is certainly to get to the first -- to the 20% and then to go beyond there.

And there are several of our groups and operating units are beyond that level and we certainly have the ability to bring others along.

Steven Fox, Merrill Lynch.

Good afternoon.

Can you talk a little bit more about pricing?

You mentioned that you had some pricing challenges during the quarter, but you also had some really strong markets.

So I was just curious where specifically you're seeing the pricing and what do you expect in 2008?

And I had a follow-up after that.

This is very important and close to our hearts, the pricing side relative to the communications and information technology markets.

That's where it really resides, where apparently capacity was built by certain other players in that marketplace and there is a kind of eagerness to fill up that capacity, which certainly puts the customer in a good spot to ask for price reductions and continue to ask for price reductions.

We certainly see that pressure and account for those with continued cost reductions.

And also, with other methods that include to package our integrating capabilities that the Company has, which gives us a clear strength in that area to maintain even expand further margin, especially to pick knowledge.

We see clearly that our application-specific products and where we bring new technologies, we have the opportunity to create value at our customers and higher margins for us.

And that is continued -- will continuously be the drive for 2008 as much as we can do that.

Obviously, we have also constraints and so forth and we have -- just prudent in kind of providing outlook and guidance relative to the extent of margin expansion at this point in time.

But nevertheless the effort will continue as you have seen it has continued throughout 2007 with excellent results.

Thanks.

And then just as a follow-up, obviously we are all worried about what the impact is going to be on a lot of businesses depending on how the U.S.

economy does.

But Martin, can you talk a little bit about any kind of contingency plans you might have in place if things do get worse and how you've reacted in past downturns?

This is a very important question because I remember very clearly in 2000 going from 2000 to 2001 within a period of just a few months, we had not only implemented contingencies, but we were already on a pace to saving significant costs at that point in time.

What we do is in good years we build flexibility into the Company that allows us to reduce costs if necessary individually.

In addition, we keep lean throughout the good terms so that we don't have to take massive restructuring tasks on in moving facilities and all of those that would slow down the process of staying close to the customer.

And we have reacted -- been able to react extremely swiftly.

Our organization is an entrepreneurially structured organization with our 60 operating units around the world where each general manager every day is tasked to remain lean and adjust to the market conditions that are -- this is not just an [amorphous stake] where a mandate has to come.

You have to reduce X% of your head count.

So we do this on a daily basis to adjust.

Carter Shoop, Deutsche Bank.

Good afternoon.

For the first question, I was hoping, Martin, that you could talk a little bit about the end markets for 2008; the commentary you added was very helpful.

I was wondering if you'd take it maybe one more step and maybe rank some of the end markets that you see the most growth coming out of and maybe name one or two that you are the most cautious about in regards to percentage growth terms in '08.

That's a very good question.

We have -- we are serving about seven markets.

The ones that are related to the communications and information technology, the areas which I essentially -- the broadband market, the information technology market, the handset market as well as the infrastructure -- mobile infrastructure markets, Data Comm markets, those are all what I would suggest have a kind of a pattern of more moderate growth, whereby, for handsets, we still believe that a double-digit growth is, at this point, clearly an opportunity, while the others will be more in the single digit markets.

While the industrial as well as the military aerospace market clearly have continued stronger growth potential than the others.

Great.

That's very helpful.

As a follow-up, could we talk a little bit about the acquisition pipeline?

You closed two deals in the fourth quarter.

Could you talk a little bit about the opportunities you guys see on a near-term basis over the next six to 12 months, how many companies are you in current discussions with now?

We are in continuous discussions.

If I would tell you that one acquisition that we did we dated for the first time, the one which we just concluded in the fall, we dated for the first time in 2001.

So it goes back for a long period of time and it is very difficult to predict which one will close at what point in time.

But nevertheless, the pipeline is certainly one that we continue to try to develop moving forward and hopefully some of the bigger companies will also become available as we believe the fragmented nature of this industry will continue to benefit Amphenol.

Aaron Husock, Morgan Stanley.

Thanks for taking my questions.

Most of my questions have been answered.

But I was just wondering if you could comment a little bit more on why the operating margins in the cable business were down sequentially and then also give us some guidance on the tax rate for 2008.

Sure.

The tax rate for 2008 we believe at this point will be about the same as 2007, which is 29.5%.

We did work very hard to reduce the rate about 2% in 2007 and achieve that.

There are, maybe as you know, some tax law changes in China which actually put upward pressure on the rate, but we believe that we can maintain the same rate at 29.5% in 2008 and that's what's included in our guidance.

Relative to the cable margins, the lower volume in the quarter certainly had an impact on margins and I think that probably was the most significant factor.

From a cost standpoint, aluminum was probably a little bit lower, but plastics have continued to be under pressure and do there was really no help let's say in the quarter from that standpoint.

Great, thank you.

Shawn Harrison, Longbow Research.

Hi, just a point of clarification on your inventory commentary earlier.

What your statement was regarding distribution, does that apply to what you are seeing at the OEM and EMS level as well?

Yes.

We haven't seen any significant buildup in those areas.

What we don't know usually at this point of time is how many of the mobile phones that have been produced are still in the pipeline.

We have little visibility on this.

But looking at the demand that we have seen, it is very much, so far in two weeks, is very much in line with what our expectation is.

So there shouldn't be an overhang that hampers that area.

Otherwise, we haven't seen any change in the inventory builds neither at the EMS companies nor at the OEMs.

Okay.

And then just getting back to an earlier statement in terms of ranking the -- ranking the growth by end market, does that also apply to where you think you can gain the most market share in 2008?

Or would there be certain markets where you think share gains are greater for you than others?

I think we have been able to gain in most of our end markets.

I think the broadband market is probably an exception to this, where market shares are relatively stable.

But in most other markets, we have been able to continue to gain our position and I think that will continue.

Which one has the greater potential than another is really early to tell.

Jeff Walkenhorst, Banc of America.

I'm wondering if -- well it looks like the share buyback, you took your foot off the gas a little bit in the fourth quarter and maybe the stock did have a nice run, but only $7 million worth of activity versus I think $35 million in the third quarter.

And I know that there wasn't a whole lot remaining on the buyback program, but is that something that you think, given the increased economic uncertainties, is that something that you might remain more cautious on?

Or is this something that you might become more active on?

Any color on that would be helpful.

Thanks.

I think that in the fourth quarter, we had a fair amount of acquisition activity, part of which was funded from cash that we had accumulated in foreign locations, but a portion of which also was funded in the U.S., about $110 million in the quarter.

So that had some influence on the stock buyback activity in the quarter.

It still remains an important element for us in terms of use of our free cash flow.

You are right, that the program is low in terms of the remaining number of shares and I think that you will see us do something about that shortly.

So it hasn't changed relative to its priority for our cash flow.

It's just that we tend to balance each quarter relative to cash demand.

Okay, so it would depend on the acquisition needs and other cash uses, so I guess working capital perhaps too?

Yes.

And in terms of priority, the share repurchase I think remains higher than potential dividend increases.

Is that correct?

Or is that --

I think we'd like to have a lot of different things in our bag and I think all of those things are certainly things that we look at and consider.

Yuri Krapivin, Lehman Brothers.

Good afternoon, everyone.

Martin, question about growth in Asia.

As you noted that your growth in Asia is outstripping growth in North America and Europe.

For other electronic component manufacturers, that sometimes creates a problem in the sense that Asian market tends to be more competitive and lower margin business.

So the mix becomes less favorable.

Are you experiencing a similar issue at all?

That's not our experience, Yuri.

We don't have necessarily that kind of gradient says that we have in North America or Europe higher margins that we have in Asia.

Asia, we have good margins because we have competing like the low-cost manufacturers on a similar basis.

Yes, they are pretty aggressive, but we are also focused on those areas where we can provide value as opposed to just selling commodities.

And I think that is what is the strength of Amphenol, what we continue to pursue also in Asia and not just in the high-cost regions.

To maintain these higher margin levels, we have to bring new technologies.

Also those companies in Asia, especially those who want to expand their profile and their products into new geographic regions outside of China and outside of their region into where higher quality, higher demands of performance is required.

And that's where they're looking for companies like Amphenol, where we can provide value.

Okay, great.

And can you comment on your capital expenditure plans in '08 as well as expected stock options expense?

Sure.

The stock option expense would be around -- we estimate at this point around 16.5 million versus about 12.5 in 2007.

The capital expenditures, the last couple of years, we've spent around 3.5% of sales.

That was a little bit influenced by some of the flood-related spending that we had and repairing our large military plant in upstate New York.

So I think in 2008, we probably would be looking at something more like 3% of sales, which is maybe in the $95 million sort of range for CapEx.

Brian White, Jefferies.

I'm wondering if you could talk a little bit about Xian and the price difference between Xian, Shenzhen, and inland like a Chengdu.

If you mean the cost, labor cost difference, the labor cost difference is quite substantial.

It ranges, depending on what kind of labor force you are looking at, operators at a higher scale level, so, but it can range between 15 and 30% in terms of price difference -- in terms of cost difference between the south of China.

In addition, you don't have necessarily expenses like you have in Shenzhen, which is with dormitories.

You're dealing in those areas in the East as well as in the South more with a trench in labor force while in Xian and in Chengdu, you really have the labor force right available where they are at home.

And so you don't have to provide all of this extra for them, which certainly lowers cost as well.

In addition, what we are so excited about is about Xian socially, but also to some extent, Chengdu is the universities that are there bringing out a lot of talented people.

That gives us new opportunities, very new opportunities, to grow in engineering, in very skilled areas of the Company and transfer those to a lower-cost environment.

And that is certainly an area that we are attacking in 2008 as one of our elements to further being able to protect and grow our margins.

And Martin, how big is the Xian plant?

And if you could make a quick comment on what you are going to be producing at the Vietnam plant and how big is that?

When does it ramp?

In Xian, we have about sales of about $25 million and are quite backward integrated including plating.

So we're doing the plating in RF in-house in this facility, which we don't usually do very much.

As far as Chengdu is concerned, we have at this point in time, roughly 450 people and that will grow probably at least by 50%, maybe even more as we go through this year.

Jim Suva, Citigroup.

Great.

Thank you very much.

When we look at your operating margins, which, by the way, congratulations, are at all-time highs, and we know that Q1 will come down due to lower sales and mix and such like that.

If we look at full year '08, the potential to increase '08 over '07, is it mostly due to top line sales, lower raw materials, better efficiency?

What are the real levers to potentially even get things better than they are now?

Thank you.

Thank you very much.

We have a lot of variables that can help us.

Obviously, you mentioned all of them already and all of them are a focus of the Company.

But one element that we clearly continue to work is how can we increasingly bring our supply chain, the component manufacturers, material suppliers into the lower-cost areas so that we are self-sufficient in those areas and don't have to have transportation or imports into other areas.

As well as just the move to lower-cost areas.

There was a question earlier about Vietnam and that we see that there is also lower-cost opportunity.

In addition, we are always looking for diversification.

We have today 22 plants in China and obviously we want to diversify and not be only dependent in one country.

Even if China is a very significant growth country, it's the second-largest sales for the Company, represents the second-largest sales of the Company.

So there's good justification of having all these technologies there.

But we want also to be more diversified in terms of lower-cost manufacturing, therefore, we're going to other regions as well.

Michael Walker, Ark Asset Management.

I just had two questions.

The first one is, wondering if you can kind of give an outlook for the cable business.

Growth slowed pretty significantly over the course of '07 and kind of exiting with a 3% growth rate.

Is that a grower next year?

Do you expect the growth to rebound a little bit?

And I assume the margins will stay about where they are.

And my second question is on TCS.

Had the TCS internal margins kind of gotten fully up to speed or are you still bringing those up to where they need to be?

That's a good -- both very important aspects of our profitability, and also growth.

As far as the cable business is concerned, we certainly had some growth which was also related to some price increases that we made prior to that, so it's not all just growth in terms of volume.

So barring any pricing actions or let pricing here, we would expect that the growth would continue in the single digit area for the broadband market, even if we are not forecasting by category.

But that's somewhere where we believe, like many of the other communications areas, we believe will expand in that way.

As far as your other question was concerned, which was --?

I think about the TCS margins.

About the TCS margins, we have never really disclosed the TCS margins except in the first year of our acquisition because today TCS is a different company.

TCS today is responsible also for our I/O connectors, for the complete system architecture that goes into an IT communication equipment.

And as such, margins are certainly somewhat now a blend of other operations as well, but certainly they are strong margins.

If there's one more question, operator, we would take that.

If not --?

Amit Daryanani, RBC Capital Markets.

Thanks.

If I just look back to kind of how you guys have done versus your initial guidance of the last several years, it looks like you've obviously beaten them pretty well, so there's probably some fairly conservativeness built into numbers.

But given macro environment today, could you just talk about what's built in your guidance with regard to underlying connector market growth?

We believe that the connector market for 2008 will be slightly moderated over the 2007 growth.

So we believe it could be somewhere between 3 and 6%, in that range.

Now, I don't have the real forecast and that's the reason why I gave you relative to this broader forecast.

But that's what I think a reasonable expectation is.

Last year, we had an expectation of 4 to 6% and I think the market grew somewhere in the 5 to 6% range in 2007.

So we were certainly not far off last year in our outlook and I don't think we are far off this year to assuming that it will be slightly maybe a point or so lower than it was in 2007.

All right.

And then just the industrial segment, how much of the revenue [there a type] to the residential markets, [are like] commercial spend markets over here?

In terms of housing you mean?

Yes.

There certainly is -- there's some portion of the market that relates to interconnect products that go into heavy equipment, but how much of that then relates back to residential construction would be a little hard for us to estimate.

There are a number, as you know, five or six different segments of the industrial market, medical, real mass transit, natural resource, exploration, alternative power, these types of things.

Probably the heavy equipment piece would be the only one that I can think of that might have some (multiple speakers)

And obviously the drop cable from a cable television setting, is you have to hook up a new home and so forth; that certainly has an impact.

But most of the growth there is not driven necessarily by new housing, but it's largely driven by the new services that [Emerso] are offering triple play and so forth.

So that is a different situation.

But if obviously consumer spending goes down dramatically, that may be an area where some of the consumers don't spend.

This is all speculation.

Right now, our outlook is based on a continued moderate growth in the end markets -- in most of the end markets that I have with some strength in the military and industrial markets continuing.

We have not included at this point in time any economic uncertainties that may arise and may have an impact.

We don't know what the impact is.

We're going to look into the first quarter.

We're going to drive it hard and have from there out a further outlook into the rest of the year.

We believe that the Company is very strongly positioned.

We have a strong platform for growth.

We have expanded capabilities far beyond what we had entering 2007.

So we can build on something that is certainly a basis for strength as we move forward.

Macro economic situation, we cannot influence, but we can react and this is where we are prepared with a very agilent organization.

So we're very confident in our own ability moving forward strong with Amphenol.

Thank you very much, all, for your interest in our Company and we look forward to talking with you as we go along in more detail.

Thank you.

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