安費諾 (APH) 2008 Q1 法說會逐字稿

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

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

(OPERATOR INSTRUCTIONS).

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

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

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

Diana Reardon.

Ma'am, you may begin.

Thank you.

I would like to welcome everybody to our first quarter call.

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

I am here together with Martin Loeffler, our CEO and Adam Norwitt, our COO.

The first quarter results were released this morning, and I will provide some financial commentary on the quarter.

Martin will then give an overview of the business and current trends, and we will have a question-and-answer session.

The company had a great start to the year with an excellent first quarter exceeding the high end of the company's guidance in both sales and earnings per share.

Sales for the quarter were $771 million, up 18% in US dollars and 15% in local currencies over the first quarter of 2007.

From a sequential standpoint, down 1%, a strong performance in a seasonally softer quarter.

Organic sales growth, excluding acquisitions and currency impact over Q1 of the prior year was approximately 12%.

During the quarter the Company completed the acquisition of a French manufacturer of value added interconnect products and electronic packaging solutions for the aerospace market, with aggregate annual sales of approximately $28 million.

We are excited about the growth potential that is created by this excellent addition.

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 business, which comprised 9% of our sales, was up 6% from last year as a result of increases in broadband cable television markets.

Operating income for the quarter was strong at $150 million compared to $123 million last year.

Operating margin was 19.5% compared to 18.8% last year.

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

From a segment standpoint in the cable segment margins were 11.8%, down from 12% in the first quarter of 2007, primarily as a result of the impact of higher material costs.

The company is implementing price increases on certain coaxial cable products of 7% to 8% effective in late April in response to the significant continued increases in material costs.

In the interconnect segment margins were 21.9%, up 60 basis points from last year.

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

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

Interest expense for the quarter was $9.9 million compared to $9 million last year.

The increase over the prior year relates primarily to higher average debt levels in the 2008 quarter reflecting borrowings to fund stock repurchases in the first quarter.

Other expense was $2.1 million compared to $3.1 million in the first quarter of '07 and $3.5 million in the fourth quarter of '07.

The decrease from last year relates primarily to decreases in fees on the Company's accounts receivable securitization program and higher interest income.

The decrease from Q4 relates primarily to a reduction in minority interest expense, resulting from the Q4 purchase of the minority stake in one of our Korean units.

The Company's effective tax rate in the quarter was 29.5%, the same effective tax rate the company had for the full year 2007.

Net income was $97 million, approximately 13% of sales and 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 $0.54 per share, up 26% from last year.

During the quarter we generated a very strong cash flow from operations of $110 million.

This cash flow from operations, along with $127 million in borrowings under the company's revolving credit facilities, and $3 million in cash was used to fund capital expenditures of $20 million, $144 million of stock repurchase, $70 million of acquisition related expenditures, about two-thirds of which related to payment of liabilities recorded for acquisitions that closed in the fourth quarter of 2007, and $2.7 million in dividend payments.

The balance sheet is in good shape.

Receivable days outstanding were 66 days at the end of March, down from 69 days at the end of December.

The translation impact of the weaker dollar added about one day to the DSO balance at the end of March.

Excluding acquisitions, inventory increased 7% from year end to about 87 days, up from 80 days at the end of December.

The translation impact of the weaker dollar added about one day.

The remaining increase in days relates primarily to increases in inventory relating to the company's Mil/Aero and industrial markets in support of Q2 sales levels.

In addition to the advanced purchase of certain materials in the quarter in anticipation of a continuation of higher commodity costs.

Debt was $853 million at the end of March compared to $723 million at year end reflecting borrowings to fund the stock buyback in the quarter.

And the company's leverage and interest coverage ratios remained very strong at 1.3 times and 16 times, respectively.

EBITDA in the quarter was approximately $178 million, and we had $148 million of availability under the company's revolving credit facility at the end of March.

Receivables filled under our securitization program remain the same at $85 million.

Orders in the quarter were $806 million, very strong book to bill ratio of approximately 1.04 to 1 in the quarter.

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 good afternoon.

Welcome to our traditional conference call at the time of our earnings release.

I am very pleased also to have Adam Norwitt with us.

He has been the President of the company, as you all know, since the beginning of last year and has over that period of time very much focused on leveraging our worldwide capabilities among the group so that we can offer a complete, advanced technology offering to our customers.

In addition, he has focused very much on our acquisition program.

And as a result of this we have made a few acquisitions over the last few quarters.

He will be available during the question-and-answer session to answer any question you may have in the trends of the business and relative to acquisitions.

Before we get to the question-and-answer session, I would like to give some highlights on our first quarter results and achievements, discuss the trends in our various market segments that we serve, and comment on our guidance for the rest of this year 2008, and more specifically for the second quarter of this year.

First, some highlights.

We are extremely pleased with the strong start in 2008.

The first quarter results were clearly strong in all respects.

We continued our long-term trend of achieving industry leading growth and profitability.

As Diana mentioned, our sales increases were very strong, 18% growth over the prior year.

And taking acquisitions and currency effect out, a 12% growth is extremely strong growth in the current demand environment, which is really moderate.

As well as in certain markets that we are involved in, in various regions of the world.

We have been able to achieve the growth on a broad basis across all our served markets in all geographic regions, which gives us a true balance in our business.

The strongest growth we achieved in mobile devices, in the mobile infrastructure market, as well as in the military and commercial aircraft markets.

We are very pleased with this broad based growth geographically, as well as in our end markets.

There are three major driving forces towards this strong growth in this environment.

One is that we believe that we continue to gain position through our strong focus on advanced technologies across all our served markets.

We are bringing and developing performance enhancing interconnect solutions to our customers who then can develop and promote to their customers, higher performing equipment on networks, as well as moving up in an upwards comparable fashion to grow into higher performing equipment.

We are benefiting also from our broad global presence.

The broad global presence becomes even more important as certain countries may have slower growth than others; and as true to our global presence we are participating in those markets where there is strong growth that is offsetting some of the areas where there may be slower growth.

Especially we see strong growth in emerging markets like India, Russia, South Africa and other areas of the world.

A third driving force is certainly our successful acquisition program, where we continue to add smaller, medium-sized companies that add technology or geographic presence.

In the first quarter, as Diana mentioned, we added a very fine company, a French manufacturer of interconnect solutions and electronic packaging for the aerospace industry.

That company is very much focused on their French customers at this point in time, and Amphenol can clearly add an expansion opportunity outside of France into Europe and other countries around the world, with the excellent capability that that company offers to its customers.

We are very excited about the growth potential and the nucleus for that kind of value added capability that that company's name brings to us.

In general the pipeline of acquisitions remains strong.

Timing, though, when closings or completions can be achieved is very hard to predict, and therefore we never include any of these acquisitions in our outlook.

Profitability and cash flow also remained strong in the first quarter.

Our margins expanded, as Diana mentioned, to 19.5% over last year despite a continuing, very challenging cost and pricing environment.

EPS increased a strong 26% over prior year to $0.54 a share, and cash flow remains strong at $110 million and we continue to apply that cash to its value creating opportunities, including capital for new products which is a major focus of the company, as well as acquisitions and in this quarter especially, a stock buyback.

The strong profitability, we believe, is a direct result of our excellent operating leverage on incremental sales.

It is also a result of our focus on value added opportunities and the higher end markets that we are serving.

It is also a result of our continued scrutiny of all elements of cost.

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

The overriding theme why we have strong growth again is our focus on technology, performance enhancing interconnect solutions that we continuously develop and our strong global presence that allows us to participate in markets that have strength.

First segment, the military aerospace market which represented 20% of our sales, had a very strong sales increase of 17% over the prior year.

Demand remains strong and healthy, supported in part by major industry military equipment deployment, such as ground vehicles, missiles and weapons systems.

We are very broad participants in that market and our confidence that the strength will continue enhanced further by the increase in new commercial aircraft production.

Throughout 2008, even if we have all heard about the delay of the 787 aircraft where we have a strong content, we have such a broad participation that this delay will not have any material impact on the continued strength in that market segment as we see other companies like Bombardier, as well as Embraer on their regional jets as well as Airbus going very strong.

In the industrial market, which represented 13% of our total sales, we had an increase of 14% over prior year.

We continue to benefit from our focus on the discrete growth segments in this market.

We are primarily focusing on the rail market, oil and gas, power applications as well as the medical market.

And all of these markets have seen very good growth.

In addition, we feel that the increased use of electronics in industrial equipment where previously just electrical connectors have been used or power connectors have been used, is also a driving force for continued strength in this market in the future.

The automotive market represented 8% of our sales and grew a strong 15% over prior year, which was essentially driven by ramp ups of some new products.

And we continue to be confident in that the marketplace even if total car production may go down, because we have gained some new customers, which will ramp up later in the second quarter into third quarter of this year.

So again, in automotive we feel that there is a positive trend for Amphenol as we gained some positions, and we are excited about the long-term as increased electronics in the car will certainly benefit Amphenol in the future.

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

Most of our sales in this market is represented by our cable products.

The sales increased 11% over the prior year, which was in line with our expectation in the seasonally, usually slower period.

As we all know, the cable product has very large (inaudible) material as a percent of the total cost and with the continued increase of the material costs and sustained higher level of material costs, we are following a lead price increase in April and May with approximately 7% to 8%, which we have not only announced, but we are implementing as we speak.

We expect the demand to somewhat improve in the second quarter from a seasonal standpoint, but also driven by the continued success of the multiple system operators with their new broadband services.

IT and data communications segment represented larger segment of Amphenol with 24% of its sales.

The sales increased a strong 10% over prior year in a relatively moderate environment, especially in the enterprise market, carrier market somewhat stronger and it was driven primarily by new customers and new product ramp ups.

The building and continuing to build on our distinct competitive advantage, offering a complete interconnect system architecture.

Some of the next generation -- we have been talking about this several times already -- but some of the next generation products which are coming out this year will have increased content, significantly increased content over prior periods since we have brought TCS on board.

So finally, after two years digestion period these results will come through.

And very pleased with this, and that certainly gives us also confidence for the future in this market segment.

The mobile network market represented 13% of our sales and had a very, very strong growth of 28% over prior year in a market that was actually moderately growing.

If we look at the growth of our customers, they are in single digit areas, and we achieved strong growth.

Where is this coming from?

Well, we are participating very strongly in two areas; one, on low-cost base station platforms that have high demands today and we have good content on those, as well as emerging markets.

Emerging markets essentially driven not so much by base station production, but driven by the deployment of mobile infrastructure and installations where we are increasingly strong participant with our antennas as well as interconnect cable assemblies, as well as other connector devices that we are supplying into this market.

We are encouraged by our presence in that market and our achievements in that market.

And from a long-term standpoint believe this will be a strong market as the subscriber growth will continue, especially in emerging markets.

And new networks, higher performing networks are being developed and are going to started to be deployed over the next several years.

In mobile devices, our growth or our presence there was about 12% of our total sales, and sales increased a strong 45% over the prior year in a traditionally seasonally slower quarter.

So drive and the growth was truly driven by advanced technologies, as well as by the participation on a number of well selling mobile devices across a broad customer base.

Very pleased with the technology that we can bring to our customers that help us to grow significantly above markets.

Looking into the future, we are excited about new design wins in this market, as well.

It gives us confidence truly that 2008 will be a strong market, the mobile device market will be strong for Amphenol.

So in summary, we are very proud of our organization as we continue to execute well and to achieve superior growth and profitability in a truly challenging environment.

We continue to see strength in our business despite the generally moderate demand environment and a broadly reported economic uncertain climate.

In such an environment we believe our distinct competitive advantage will serve us well moving forward.

Our increasing presence with our customers in diverse markets, our leading technology, our strong worldwide presence, our lean cost structure and most importantly, our entrepreneurial management style will drive strong performance deep into 2008.

While general economic conditions are uncertain, and while we remain very alert to any changes that may occur in the markets that we serve, we are confident in our ability and the ability of our organization to take advantage of the many opportunities in front of us.

As a result of this, we are confident to raise our outlook for the full-year 2008, and expect the following in sales and income for the full year.

We expect for the full year sales in the range of $3,213,000,000 on the low end to $3,258,000,000 at the high end, an increase of about 13% to 14% for the full year over last year.

EPS, we expect in the range of $2.26 to $2.31, an increase of 16% to 19% over 2007.

I would like to point out that both in sales and in EPS the low end of our new guidance is meaningfully above the previous high-end of our guidance that we gave a quarter ago.

For the second quarter 2008 we expect sales in the range of $805 million to $820 million.

I truly love these numbers.

This is going to be a new record for the company's history to get to over $800 million in the quarter.

I remember the time when the total Company had not even half the sales of that level.

So it is really exciting for Amphenol.

EPS, we expect in the second quarter in the range of $0.57 to $0.59 a share, a strong increase over the first quarter performance.

So we are very encouraged about our past achievements, but we are equally excited about our potential to continue to create value.

With this I would like to open it up for any questions that you may have at this point.

Thank you.

(OPERATOR INSTRUCTIONS) Amit Daryanani, RBC Capital Markets.

Thanks a lot.

Good afternoon, guys.

Just looking at your organic growth you had 12% organic growth this year, when I look at the full-year guidance and kind of back out acquisitions and FX, it looks like you're looking about 9%, 10% organic growth for the full year.

Why the deceleration in organic growth?

Are you guys seeing some softness in the back half of the year or the rest of the quarters?

Could you talk about that?

We just delivered a very strong first quarter.

We are very confident about the growth in the second quarter, and as we always look into the future economic conditions are somewhat uncertain, and therefore we are looking with some more prudence into the second half.

Whereby we don't see any reason for this but at the same time to go and guide very high without in such an environment may not be the most prudent thing to do that this point in time.

Is there upside?

Obviously we are always looking for this but I think at this point in time we have a very strong guidance for the year.

Fair enough.

And I guess, Martin, one of the things investors seem to always be concerned about is organic, on organic basis operating margins seem to have been peaked at Amphenol.

Can you just talk a little bit (inaudible) the targets -- if you hit the 20% margin goal you have on a corporate level -- what sort of margin would the connector business run at?

And by extension if you could just talk about the acquisition pipeline, and are we more inclined to do bigger deals versus continued bolt-on deals at this point?

You have a lot of questions here, consolidated I am sure that some are mine of many of the others.

First of all, on the margin side I think Diana mentioned it on the interconnect business our margins are above the 21% level.

As you all know, we have operations that perform at a higher level, and it is certainly continues to be our drive to go at the higher level.

The environment at this point in time in the short-term is certainly a very challenging one with pricing environment where the customer still not have realized that there is a pent-up need to raise prices over time.

But in other industries we have already seen explosive increases in pricing.

We will probably see some moderate ones in the connector industry starting to release somewhat the pressure that came from the (inaudible) from the materials and commodity prices in the past.

So we are confident in our own abilities.

It is remarkable to be able to achieve these high levels of margins with the kind of pressures that we had on price which were more price reductions rather than price increases in the past.

And at the same time having to absorb these material costs which is a tribute to the fact that we have good cost reductions on an ongoing basis in place, and we run a very lean organization.

So as far as the acquisitions are concerned, we are looking and researching always these smaller companies that we can find ourselves.

And they have been good additions for Amphenol and will continue to be so.

We haven't seen yet any bigger ones coming on the market, but if they come, please let us know.

We are always interested.

All right.

Thanks a lot, and congratulations on the quarter.

Matt Sheerin, Thomas Weisel Partners.

Thank you, and good afternoon.

A question for Martin and Diana regarding the materials costs.

You talked about price increases in the cable business.

Are you -- it just sounded like you said that you may increase prices on the connector business.

How successful or what is your ability to do it within some of those segments.

And if you could talk about some of the raw materials specifically on gold, copper, other things that you've seen going up and what is the lag effect between what you see from your -- spot prices and your suppliers hitting you with those costs?

It is a very broad question.

Thank you very much.

Let me just respond relative to the cable side that you asked earlier.

Obviously we have announced a price increase.

These price increases, the 7% to 8% will mitigate some of the material cost increases that we have seen.

It doesn't really offset them because material costs have all gone up over the last 2.5 years very significantly, and certainly changed the margin potential in that business so far.

But certainly it gives us some opportunity at this point in time as material costs just have gone higher and stay at that higher point.

As far as the other segments are concerned, I would like to ask Adam maybe to give some comments relative to those.

Relative to commodity pricing in the connector business, obviously we see all of the same commodities going up that you do; copper, gold and plastics.

We really look at it in two ways.

One is to look at pricing, and we are certainly taking strategic pricing decisions across all of our businesses in those areas where there is room to do so.

Obviously subject as Martin said to this kind of pent-up inflation.

At the same time our operations are taking quite a look at redesigning of products and trying to design out the materials that are creating these headaches.

Okay, and just given some of the softness in some of the end markets, although it sounds like you're still taking share, but is it more difficult to ask customers for price increases when we have seen some spot softness in some areas?

Always difficult question to raise with a customer, the price, in good times and in difficult times and there are certainly hungry situations.

But I think we should also always consider the situation that pricing goes along with the right pricing.

New products that we are introducing which doesn't directly head-on compete at that point in time on a kind of a standard product.

So that is one element that we have an advantage over others that we have these higher value added performance enhancing products, that give us higher margin potential as we go so that we do not have if, if pricing is an issue to battle every day on just commodity prices alongside with commodity suppliers.

I think our drive for value added solutions is certainly helping our margin even in this difficult environment.

Okay, thanks, and just my follow-up regarding your handset business where you've had very strong growth; could you talk about where you've seen that market share growth?

Is it within some specific handset customers, or have you seen dollar content issues, or have you been just aligned with the right brands here that are taking share?

That is a very good question.

Adam is very close to this, and maybe you want to answer it.

Absolutely.

I think our growth in handsets really comes from having a very broad spread across all the platforms.

I couldn't point to one specific platform or program.

Our strategy in handsets has been and will continue to be to really gain design wins on all of the major platforms at all of the major OEMs.

And certainly we've broadened our presence on the build and materials with the portfolio of products which include connectors, hinges and antennas.

And especially on smart phones, which we see good growth on.

But in general we try to be present on all of the platforms.

Thanks very much.

Steven Fox, Merrill Lynch.

You mentioned a couple interesting second half opportunities in new programs on the auto side, and also broadening out with TCS products and I guess just getting more content.

I was wondering if you could just expand on that and give us a handle on how significant that could be for the second half.

I think the importance of this is not necessarily the significance in revenues, but the significance that what we intended with TCS to do is not just continue the business as is, but clearly create opportunities for more integrated solution.

I am just very excited about the fact that we have seen programs at some major North American customers, as well as international customers where that has broken in and where we see the design wins in those generations.

There will be a startup in the second half of this, but also going into 2009, which will help us moving forward.

So this is where the excitement comes.

On the automotive side it is different, on the automotive side we clearly won a few additional customers with new products where we half a ramp up starting in the second half, which clearly can contribute to our automotive growth in the second half.

Probably offsetting some of the moderation of the car production in general that may happen in the United States or elsewhere in the world.

That is why we are a little bit prudent at this point in time to see how that shakes out with the car production in general.

But the excitement is that we have added two significant customers that we didn't have before.

Is the auto win still related mainly to safety or is it expanded into other parts of the vehicle?

The initial one that is starting up in the second half of this year is related to the safety devices principally.

But other ones that we won is on the hybrid side that really will go into 2009, into production probably only in 2010.

But we have created a very, very broad presence in that emerging opportunity in the automotive market with a variety of new products and a variety of customers.

Thank you very much.

Aaron Husock, Morgan Stanley.

I was wondering if you could talk a little bit about your operating expense leverage.

I was impressed that you were able to hold down your dollars at SG&A in the March quarter.

Do you think you can hold that relatively flat in dollar terms as you keep growing the business or is there a need to spend on SG&A?

We look at SG&A from a return on investment standpoint the same way we look at every other dollar that we spend.

So we are certainly careful in terms of when we add expenses.

And I think you see some of that in the fact that the SG&A rate has come down over the past year to around that 13% level.

However, when the business expands and we are projecting expansion in Q2 as an example, expenses like R&D and sales and marketing, we would expect some growth in those because they do have some relationship to the volume of the business.

So I wouldn't expect that from a dollar standpoint SG&A would stay flat, but I would expect that as we go along during the year we could as a percentage of sales standpoint see that SG&A expense level continue to tick down some.

And as we see the cable price increases go through, what should we be thinking about as for the cable operating margins?

This is really just a straight offset to higher commodity costs, or could we see that margin, that operating margin get back up to the 12.7 type percentage level where you were a few quarters ago?

12.7 I'm not so sure, but I think we would expect to see some improvement in margin in the second quarter; we will have some increase from the volume standpoint and the price.

We will have some plus although that will be partially offset by higher material costs.

But I would think we would get back some of that margin, probably not up to that 12.7% level though.

Thank you.

Will Stein, Credit Suisse.

I would just like to address the margins in the cable business on a little bit less optimistic tone here.

It is at the lowest level in eight years, and I recognize that that is likely, perhaps almost entirely due to raw materials, but I am wondering with this price increase that is coming in this month should we expect that to keep the operating margin at the level that we saw in this quarter, or should we expect it to rebound back over 12% anytime soon?

I think we just discussed this point, but I would like to just reiterate that obviously we are, as the second in the market, second positioned in the market following the lead of the leader here in terms of pricing, and we have done so in a very disciplined way I think over the years.

Still we haven't caught up with the cost increases in the past, and with this price increase that we are getting, obviously we are hoping to get some margin expansion in the second quarter with the first quarter.

But we don't know what material costs will do in this quarter and quarters thereafter.

But right now we expect that it will mitigate some of those increases that we have seen in the first quarter and therefore we expect some margin expansion in the second quarter.

Diana, maybe you can help us with the buyback.

This is kind of a -- it seems there was somewhat of a change in the cash strategy this quarter, the buyback was much bigger than it has been in the past.

Can you tell us what the current authorization is, what is left, what is the strategy going forward on that?

As you know, we increased the buyback program earlier in the quarter to provide (inaudible) I think the purchase of 20 million shares; there is about 8 million shares left as we exit the quarter.

We increased the program because it looks like there may be some opportunity given markets to perhaps take advantage of a bigger buyback in the first quarter and I think we were able to do that.

So what we buy back in the remaining quarters of the year will depend upon what other needs we see for cash flow and will be largely dependent upon the acquisition program and what we see coming along there.

But certainly the stock buyback is one of the important uses of cash and we will continue to look to see what makes sense between that and executing on the acquisition programs.

Great, that's it for now.

Thank you.

Carter Shoop, Deutsche Bank.

I wanted to maybe touch on Adam's presence here.

He has been in the company as a President for about a year now; obviously with the company a lot longer before that.

And now he is joining the quarterly conference calls, so maybe this is a good time, Martin, to maybe share with the investors your thoughts on management succession.

Management succession is always a topic in any organization.

I think we have made the decision last year to have a chief operating officer.

The company has grown to over $3 billion.

It used to be just five years ago, $1 billion.

It is very natural that Amphenol is expanding its management team.

We have done this also below Adam, as you know with the group executives that we have appointed, which we didn't have previously.

In some areas we have today Amphenol, many Amphenol's that have $500 million,$600 million groups the size of total Amphenol just not at the far distance.

So it is very natural that Amphenol has added resources.

But if you look at the total headquarters, still we are at 42, 45 people still at that and therefore we needed some strengthening at the headquarters [time].

We did this.

In addition, Adam is very much focused on things that have created value over the last 15 months that he has been in charge.

And he will continue to do this as we move forward.

It is important, though, that the investors understand that the management team of Amphenol over time is growing.

It is not just Diana and me and that there are others who contribute very, very strongly to this company and we never had an investors conference, but if we ever had one you would see nine group executives, really talking and speaking very strongly about the company.

Their passion for the business and their understanding of the business, their longevity with the business.

So if we exposed Adam today it is just a small indication of, that the Amphenol team is a very strong and broad management team that our investors can rely on for a long period to come.

And a follow-up question, can you maybe talk about what you see as the largest opportunity on a total dollar basis for share gains on a go forward basis, maybe over the next two to three years?

Is there any market that you are particularly excited about in your ability to gain share versus your competitors?

We are participating in seven major markets today that are all global markets, and each of these markets has its opportunities.

And each of these markets has its up and downs.

And each of these markets for us represent a continued opportunity for growth.

Why, because we are applying the same methodology to each of these markets.

That means we are looking for technology, the high-end of value added that we can bring to our customers in each of these markets.

We have tailored our resources to really compete in each of these segments as almost a distinct business, and that gives us the competitive advantage.

Even if the overall strategy is the same, technology and global presence driven and complemented by acquisitions.

Yuri Krapivin, Lehman Brothers.

Martin, a question with respect to the wireless infrastructure market.

I believe that when you set your original guidance for '08 back in January, you expected that segment to grow maybe mid single digits.

Given the overall muted tone of the markets and now in the first quarter obviously you grew much stronger than that, up 28% year-over-year.

So has your outlook for that particular segment changed materially as far as full-year '08 is concerned?

I would like to ask Adam to respond to this; however just as a quick note, when we talk about the moderate growth, I think I may have not expressed myself clearly last time when I said the market is growing in single digit numbers.

It wasn't really a reference to ourselves, and the market continues to grow in single digit numbers.

Why are we doing so good?

Maybe Adam, you want to respond to that.

What we really see in the wireless infrastructure market is two areas.

One is in emerging markets where those markets, especially China and India, have done very well for us.

Specifically on the cell site installations.

And we've made a lot of efforts over the last several years to design in new interconnect solutions on to new base station platforms.

And we are fortunate that many of these platforms this year specifically, some of these lower-cost modular base stations have seen volumes a bit in excess of even what the OEMs had forecast.

So with both of these we see in this market quite some strength in the first quarter and a relatively good outlook going forward.

Great.

And then in the automotive market growth was 15% year-over-year; a big chunk of that is probably currency translation.

Can you give us the growth rate ex currency?

Sure.

I think about maybe two-thirds of the growth or so was foreign exchange, roughly.

So maybe it is 5%, 6% sort of without currency.

Okay, thank you.

Jeff Beach, Stifel Nicolaus.

Another question back on the wireless networking.

Moderate growth, you've expected, but what do you see as the trend of growth in the industry as we go through 2008 into 2009?

I'm hearing about a lot of increased deployments that are entering the market.

Jeff, I think what we see in the market is continued among the OEMs, moderate single digit growth.

But a shift really in some of the platforms, the platforms that are beneficial for us.

So as I said, we see more low-cost base stations going into emerging markets like India, like Africa, like China.

And we see also some acceleration of next generation platforms.

We've seen many of the OEMs releasing, for example their LTE platforms for base stations, and we work very hard to make sure that we have broad penetration on these, as well.

All right, thank you.

Shawn Harrison, Longbow Research.

Just a follow-up on the acquisition environment.

Maybe you could touch on what end markets you are seeing maybe potentially more opportunities or what end markets you'd like to expand your presence in over the next 18 months through some strategic acquisitions.

We are happy to respond to this.

Adam has been working very diligently on this pipeline.

Just in general we are interested in complementing our strengths in each of the market segments.

So we are not singling out one or the other, but obviously fiber-optics is an area that becomes more and more important for us in the future.

The value added, especially in the aerospace and in the industrial markets, is important.

Our presence in the value added on the communications related market is already strong.

So we are expanding those, thus the acquisition of [Sayfay] in the first quarter this year.

But Adam has more insight to this even to give you more color on this.

Our acquisition strategy hasn't changed.

We continue to look for companies with good management and with good market positions and good technology.

And I think that doesn't confine to one or other of the seven markets that we see.

But as Martin said, there are certain markets where there may be more opportunities and where we can focus our efforts.

Industrial market certainly is one where we have some focus, as well as in these value add markets that Martin mentioned.

Within the acquisition opportunities are you seeing more possibilities with smaller players that are maybe having greater difficulty with the raw material cost environment, and so they are looking to get out in this type of marketplace?

I don't know if that has been necessarily a driver.

I think every entrepreneur has different motivations for when he or she is going to sell the company.

But we certainly see interest from many entrepreneurs at this time to join Amphenol for many of the reasons that we've seen in the past.

Customers are reducing their supplier base.

The globalization demands on a small enterprise are just too challenging for them to tackle that on their own.

So we are able to help them in many of these respects.

Two quick follow-up questions.

Maybe if you could comment just on what you're seeing in inventory positions at both distribution and at the contract manufacturer level.

And secondarily, just looking at the debt to cap ratio maybe what would you be comfortable in taking that up to?

Let me just take the first question relative to inventory.

Diana is going to focus on the second one.

The inventory side on distribution, I think in general is in line with the business levels that we have.

There may be one or the other distributor who has bought a little bit more in the fourth quarter and phasing that out, but this is very isolated.

I don't want to say that this has any impact of materiality on the company.

At the contract manufacturers we don't see at all any buildup of inventory at this point in time, as far as our products are concerned.

I couldn't comment on any other products.

So I don't think that there is -- if business levels remain at that level, a risk relative to inventory.

From a debt to cap standpoint I think we don't have a specific level in mind.

Clearly we have had more leverage in the past than we have today.

If the right opportunity came along from an acquisition standpoint we would certainly evaluate that in all of its aspect at that time, and that would include taking a look at how we would fund that and a portion of that could perhaps be leveraged.

Thanks a lot, and congratulations on the quarter.

Jim Suva, Citigroup.

Can you quickly give us a little more details?

I found this acquisition very interesting in the aerospace sector.

Is it in the commercial side, in the military side, and it seems like it is pretty small.

Do you view this as an opportunity really to get some good synergies and much bigger scale and scope from this?

It is a very fine company.

Actually I was just there a week ago, and a very fine management team and excellent technology.

And has really provides a nucleus for excellent expansion beyond what they are doing.

And Adam knows the company well.

He has acquired it so maybe you want to comment on this.

This Company certainly has a strong presence among European aerospace companies, and specifically in the helicopter and other aviation areas.

We view it as a platform.

It is not a huge company, but it is certainly a platform for us to expand our value add activities in the aerospace.

And to get some of those capabilities and move them into other regions.

Great.

And as a follow-up, a slightly different topic but when you talk about product price increases are rolling out in April, as opposed to immediate when you announce it, how do you prevent prebuying and customer stocking ahead of that?

The cable prices actually are implemented on all products that aren't shipped.

So ordering ahead but not taking delivery of the product doesn't allow one to escape the pricing change if you want to look at it that way.

Great.

Thank you very much, and congratulations on a great quarter.

Amit Daryanani, RBC Capital Markets.

I just had a few quick follow-ups.

Diana, on the tax rate, do we expect it to stay on 29%, or is there room to take it down through '08?

I think 29.5% is what we guided to at the beginning of the year.

It is still I think what is included in our guidance now.

We are certainly working on the tax rate.

There were, as you may know, tax law changes in China that have increased the rates there, and that is certainly a pretty big headwind in terms of trying to get the rate down more, but we continue to work on it.

Fair enough.

And then just from an acquisition perspective, when you guys talk to the potential candidates out of the pipeline I am just curious given what is going on in the markets right now.

Are you starting to see valuations start to compress because of lack of private equity interest?

And conversely are you seeing some of these private companies become apprehensive given what is going on in the end market and just saying, you know what, I will deal with this potentially selling my company two or three years later when things stabilize?

I think in general you have a combination of what you have said, but maybe Adam you want to give some more comments on this.

I think a lot of the companies that we follow through our acquisition pipeline there isn't necessarily among the entrepreneurs such a dramatic reaction to the markets that are out there today.

Certainly there are some companies that are held by financial sponsors and those sponsors may be less inclined to divest them in these market conditions.

But in terms of the tuck-in acquisition program, we haven't seen noticeable changes in terms of either the parties that are competing for those deals or the motivations of the entrepreneurs.

Many of these companies are not through auction processes.

So they are actually companies that we really have incubated the relationship with them.

So the availability of private equity capital into those deals is not so material.

Got it.

Thanks.

I show no further questions.

Well, we are glad that we could answer many of the questions that you had on your mind.

Again, we had a strong quarter, and we continue to work hard to make second quarter even stronger than this one.

We thank you all for your interest and look forward to talking to you in more detail.

Goodbye.

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