安費諾 (APH) 2008 Q4 法說會逐字稿

Hello and welcome to the fourth-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 you have any objections, you may disconnect at this time.

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

Diana Reardon.

Ms.

Reardon, please begin.

Once again, welcome to the fourth-quarter earnings conference call for Amphenol Corporation.

(Operator Instructions).

At the request of the Company, today's call 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.

Ms.

Reardon, please begin.

Thank you.

Good afternoon.

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

I'm here together with Martin Loeffler, our Executive Chairman, and Adam Norwitt, our CEO.

As previously announced, Adam succeeded Martin as CEO on January 1.

We would like to welcome everyone to our fourth-quarter call to call.

Fourth-quarter results were released this morning.

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

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

The Company achieved fourth-quarter sales and earnings per share that exceeded the high-end of the Company's December 4 guidance.

Sales for the quarter were $755 million, down 3% in US dollars and up 1% in local currencies over the fourth quarter of 2007.

Compared to the third quarter of 2008, sales were down 13% in US dollars and 9% in local currencies.

From an organic standpoint, excluding acquisitions and foreign exchange impacts, sales in the fourth quarter of 2008 were down 1% compared to sales in the prior year, a very strong performance in a difficult economic environment.

At the end of the quarter, the Company completed the acquisition of a manufacturer of Wireless Infrastructure antenna solutions with annual sales of approximately $50 million.

We are very excited about the potential created by this excellent addition to our wireless technology offering.

Breaking down sales into the two major component, our Cable business, which comprised 8% of our sales in the quarter, was down 19% from last quarter and 12% from last year, reflecting the slowdown in spending in broadband cable television markets, resulting from current weak economic conditions and difficult credit markets.

The Interconnect business, which comprised 92% of our sales in the quarter, was down 12% from Q3.

The impact of the economic downturn, customer inventory reductions in response to tighter credit conditions and lower demand expectations and a stronger US dollar resulted in sequential declines in all end markets.

Compared to last year, Interconnect sales were down 2% in US dollars and up 1% on a local currency basis.

Sales declined in the automotive, IT Datacom and industrial markets, and sales increased in the Wireless Infrastructure, Military Aerospace and Mobile Device markets.

The strong performance in a very difficult economic environment reflects the benefits of the Company's diversity and the strength of its technology.

Operating income in the quarter was $142 million compared to $153 million last year and $171 million in the third quarter.

Operating margin was 18.9% compared to 19.7% last year and 19.8% last quarter.

Operating income is net of stock option expense of approximately $4.5 million or 0.6% of sales in the fourth quarter of 2008, and this compares to $4.6 million or 0.5% of sales in the third quarter of 2008 and $3.2 million or 0.4% of sales in the fourth quarter of 2007.

From a sequential standpoint, the Cable margins achieved 11.2% of sales.

This was slightly up from the Q3 level of 11% and down from 12.1% last year.

The achievement of Cable margins in Q4 above the Q3 level is a result of the positive impacts of lower material costs and operational cost reduction actions being offset by the impact of significantly lower sales volumes in Q4 as sales were down about 19% sequentially from Q3 levels.

In the Interconnect business, margins were 21.4% compared to 22% last year and 22.3% in the third quarter of 2008.

The achievement of these strong margins given the current economic environment reduced volume levels -- sales were down 12% from last quarter -- is a significant accomplishment.

Our operating units around the world have reacted quickly and appropriately to current demand levels adjusting all elements of cost.

On a consolidated basis, this has resulted in a headcount reduction of about 6000 people or 17% of our worldwide work force.

Overall we are very pleased with the Company's operating margin achievement and believe that the Company's entrepreneurial operating structure and culture of cost control will continue to allow us to react in a fast and flexible manner to preserve strong profitability in what continues to be an uncertain demand environment.

Interest expense for the quarter was $10 million compared to $9.5 million last year and $9.8 million in Q3.

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

Other expense was $2.7 million compared to $3.5 million in Q4 '07 and $3.3 million in Q3 '08.

Other expense is comprised primarily of minority interest expense, fees on the Company's receivable securitization program and interest income.

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

Effective on 1/1/09 the Company will implement Statement of Financial Accounting Standard number 160, noncontrolling interest.

As a result, minority interest expense will no longer be included in other expense, but will be reported as a separate line on the income statement below net income.

Minority interest expense was $2.8 million and $10.4 million for the fourth-quarter and full-year 2008 respectively.

In addition, minority interest liabilities of approximately $19 million will be classified as a component of equity going forward.

In the fourth quarter, the Company adjusted its 2008 effective tax rate to 28% from the previous estimate of 29%, reflecting the reinstatement of the US R&D credit and a more favorable mix of income.

This resulted in a fourth-quarter 2008 tax rate of 23.9%.

When compared to the Company's previous guidance, this added about $0.03 to EPS for both Q4 and 2008.

For the fourth quarter and the year 2007, the Company's effective tax rate was 28.8% and 29.5% respectively.

We currently expect a tax rate of 28% for the full-year 2009.

Net income was $99 million in the quarter, approximately 13% of sales, a very strong performance on any industry comparative basis.

Diluted earnings per share for the quarter was $0.56, up 2% from last year.

Orders in the quarter was $708 million, a book-to-bill ratio of approximately 0.94 to 1.

The lower book-to-bill ratio in the quarter reflects lower order levels in the second half of the fourth quarter, particularly in automotive and communications related markets, resulting from the previously described broad economic slowdown.

Before I move on to a discussion of cash flow and the balance sheet, I would like to briefly review with you the potential impact of the adoption of Statement of Financial Accounting Standard 141R on the Company.

This new pronouncement called Business Combinations is effective for 2009 and changes certain aspects of acquisition accounting from current practice.

The primary impacts will be the requirement that certain types of expenses previously considered part of the acquisition price will no longer be considered so and will, therefore, be expense in the period incurred.

These costs include transaction costs like legal, appraisal, advisory and accounting fees, any restructuring costs relating to the acquired entity, and any post-closing adjustments to any estimated contingent purchase price consideration.

As a result, when the Company incurs these types of expenses in the future, we would plan to separately disclose such amounts in order to distinguish them from normal operating performance.

The Company continues to be an excellent generator of cash.

Cash flow from operations was $171 million in the quarter.

For the year 2008, operating cash flow was approximately 115% of net income.

Cash flow from operations, cash and short-term investments on hand of approximately $27 million and [$60] million in borrowings in the Company's credit facility were used for $25 million in capital expenditures, acquisition-related expenditures of $35 million relating primarily to the acquisition of Jaybeam at the end of the quarter, and a stock buyback of $150 million in the quarter.

In addition to its strong operating cash flow and cash investments of approximately $219 million, the Company has additional liquidity in the form of availability under its revolving credit facility.

The Company's $1 billion facility is provided by a bank group and expires in 2011.

Availability under the facility was $207 million at the end of the year.

The Company has more than sufficient liquidity to meet its needs.

Borrowings under the facility at year end were $778 million, of which $650 million is swapped to fixed-rates through December of '09 and July of 2010.

The remaining borrowings are at a spread over LIBOR.

The Company also has a $100 million receivable securitization program under which $85 million in receivables were sold at the end of the year.

From a balance sheet perspective, accounts receivable was down 12% from the end of Q3, primarily reflecting the impact of lower sales levels.

Days sales outstanding, excluding the impact of acquisitions, was 72 days at year-end, up two days from September and up three days from prior year-end levels.

Inventory decreased 2% from Q3 levels, and inventory days, excluding acquisition impacts, increased to 88 days at the end of the year from 82 days in September and 80 days at the end of 2007.

The Company will continue to focus on inventory reduction as adjustments to production activity continue in response to lower demand levels.

At the end of the year, the Company recorded an increase in its unfunded pension obligation of approximately $64 million, relating primarily to the reduction in the value of pension assets that has resulted from the equity market declines in 2008.

The unfunded pension obligation at year-end was approximately $166 million.

We currently expect the contribution levels to the plans in 2009 to be about the same as they were in 2008.

Acquisition-related liabilities at year-end were $120 million and relate primarily to contingent performance-based payments on prior acquisitions.

The majority of these payments are expected to be made in the first quarter of 2009.

Debt was $786 million at year-end compared to $722 million last year, about $15 million higher than the end of Q3.

The Company's leverage and interest coverage ratios remained very strong at 1.2 times and 17 times respectively.

EBITDA in the quarter was approximately $175 million.

From a financial perspective, we're extremely pleased with the strength of the Company's execution in a difficult environment.

Martin and Adam will now provide an overview of the business.

Thank you very much, Diana and good afternoon.

Welcome to our traditional conference call.

Thank you all for joining, and I hope it is not too late to wish you all a happy and successful year 2009.

As Diana mentioned, I will highlight some of the fourth-quarter achievements, and Adam will then discuss trends and progress in our served markets and provide comments on the first-quarter outlook.

Some comments on the first quarter first -- fourth quarter first.

It was truly a very difficult quarter in many respects.

But considering the economic environment, we're very pleased with our achievements.

Sales were down 3% in US dollars and up 1% in local currencies compared to prior year.

Our growth in the Military Aerospace and even more significant growth in the Mobile Networks market were offset by reductions in other served markets.

Sequentially the sales decreased by 13% in US dollars and 9% in local currencies.

In the fourth quarter, we experienced a very sudden and severe slowdown in demand across many of our end markets, but particularly in the automotive market and communications-related markets.

As evidenced by these strong results in this environment, we continue to benefit from our strategy to maintain our balanced and diversified market positions and from our investments in performance-enhancing technologies and products.

As Diana mentioned, in the fourth quarter at the end in the last days of the fourth quarter, we completed the acquisition of Jaybeam Wireless.

Jaybeam is a Company that has a strong presence in a mobile network market and will complement Amphenol's strength in that market.

The Company has approximately $50 million in sales.

With operations in the US, UK and France, Jaybeam further strengthens our technology positions and geographic presence in antennas for mobile network infrastructure.

This was a very strong market for Amphenol in 2008, and we anticipate it will continue to be a strong market for us in 2009.

This acquisition of Jaybeam is consistent with our strategy to acquire excellent capabilities, complementary strength.

The acquisition is accretive and brings good management to Amphenol.

We are truly excited about the growth and the profit expansion potential of this Company as part of Amphenol.

We are very pleased to see that our profitability and cash flow remained very strong in the fourth quarter despite the significant volume reduction that we experienced between Q3, which was a record quarter at $860 million to the $750 million in the fourth quarter.

We achieved 18.9% operating income margins due to quick cost reduction actions taken during the quarter, and as Diana mentioned, it was tough, but the significant action was taken and swiftly taken to take out about 6000 employees, a 70% reduction of our total headcount.

This action was swiftly taken so that the remaining workforce remains motivated and focused on the markets that we serve, as well as on the development of new products and technologies, which our customers will definitely need even during this economic downturn.

This swift reaction to the lower demand clearly demonstrates the strength of our dynamic entrepreneurial management team and organizational structure.

As a result of all these actions, EPS increased 2% over prior year to $0.56 a share.

This EPS was certainly supported by a favorable tax rate adjustment in the fourth quarter that added $0.03 a share.

Another evidence of our financial strength is the net income as a percent of sales, which was 13%.

Cash flow remains strong in the quarter at $171 million and was applied toward a variety of value drivers as Diana outlined.

A quick flashback on 2008 as a whole.

We're very pleased with the results of 2008.

We achieved new records in sales and earnings for the full year despite the significant momentum shift experienced in the fourth quarter.

We sustained our long-term trend as an industry in industry-leading growth and profitability.

We've further solidified our position across our served markets through advanced technology innovation and our continued diversification, And we responded quickly to the changing demand environment to preserve strong profitability and cash flow.

And very importantly, we successfully completed the transition of Adam Norwitt to become the Chief Executive Officer of the Company as of the beginning of January.

I'm confident that under his leadership, we will see continuity of the implementation of our successful strategies, and Amphenol can look forward to a very prosperous future under his leadership.

I will continue as Executive Chairman, and it includes to be a corporate officer, as well as the Chairman of the Board, to support our mission to achieve our long-term goals and objectives.

Adam will now comment on the trend in our served markets and on the outlook on the first quarter of 2009.

Thank you very much, Martin and Diana, and I would also like to add my New Year's wishes to all of you on the phone here today.

In my new role, I look forward with a great deal of enthusiasm to lead the outstanding management team of Amphenol to continued success in the future, and the fourth quarter that we have just completed demonstrates once again the value of our strategies, those strategies to pursue market diversification with leading interconnect technology and do that all with an accountable entrepreneurial management structure.

If we look at that diversification and individually look at these markets, I go over those first.

The Military and Aerospace markets for Amphenol represented 21% of our sales in the quarter.

Sales increased in that market a strong 6% over prior year.

Demand remains stable in the Military Aerospace market, driven in large part by continued military equipment deployment and refurbishment, including with ground vehicles, as well as new communications systems upgrades.

We do see that distributors and certain OEM customers have become increasingly conservative with their inventory position in light of credit concerns and general economic conditions.

And thus, while we see that certain segments of the Aerospace markets can be affected by the general economy, we believe that our broad program participation supports a positive outlook for 2009 and beyond.

In this market we are especially excited about our new initiative in South Africa to provide value-add interconnect for military vehicles.

We believe this plants once again another seed in a new geographical region for Amphenol, upon which we can build a further base of operations.

Turning to the industrial market, which represented 12% of our sales in the quarter, sales decreased in that market by 12% from prior year.

In the industrial market, we had OEM program gains in energy-related and rail mass transits applications but which were more than offset by reduced demand in other segments of the industrial market.

While we expect that these growth segments, especially energy and mass transit will maintain momentum into the future, we believe that there is an overall impact of the general economic slowdown to the industrial market which will moderate demands in the near-term.

The automotive market represented for Amphenol only 4% of our sales in the quarter.

Sales declined 34% from prior year in a widely reported and dramatic reduction of demand in that market.

We experienced a very sudden reduction of demand in the fourth quarter with especially pronounced slowing in vehicle production, which was augmented by extended year-end shutdowns that were implemented by most vehicle manufacturers, as well as those other suppliers in the supply chain.

Clearly the near-term outlook for vehicle production levels is uncertain and lower than it has been in the past.

Nevertheless, we remain encouraged by the longer-term outlook in this market due to the increased electronics in cars, as well as our growing participation on new hybrid and electric vehicle platforms.

Turning to the broadband market, this market represented 9% of our sales in the quarter.

Sales decreased 6% from prior year, although currency had a significant impact.

In local currencies that market actually grew marginally.

As expected and as we typically see, demand was seasonally slower in the fourth quarter, and we would expect that seasonality to continue into the first quarter of 2009.

In addition, we believe that credit availability continues to affect customer buying patterns, which do remain somewhat more uncertain than we have seen in the past.

The IT and data communications market represents our largest market in the fourth quarter at 23% of our sales.

Sales decreased in that market a modest 6% from prior year, which was due to reduced IT investments, as well as several moves of inventory reductions that we have seen in the supply chain.

We believe that we will see further slowing of demand in many segments of the IT market.

Nevertheless, we continue to expand our positions in that market with key customers through a broad offering of leading technology complete interconnect architecture.

Amphenol continues to offer the leading-edge, high-speed technologies that continues to draw our customers to Amphenol to work in concert on next generation applications.

The mobile networks market, which represented 15% of our sales in the quarter, increased a very strong 15% over prior year.

We continued to benefit from strong demand in site installations, especially in emerging markets, as well as from a broad presence on high-volume and next generation equipment platforms.

Amphenol has been successful in selling a broad portfolio of products into a broad range of customers in this market, and we believe our technology position bodes well for the future and our participation.

While we do expect a seasonal moderation of demand in the first quarter, we're encouraged by continuing momentum in emerging markets, including especially the expected launch of 3G networks in China, as well as new efforts in other emerging markets.

The acquisition of Jaybeam Wireless, which Martin mentioned, adds a new element of high technology, as well as new geographical presence to our participation in the base station site installation market.

The market for mobile devices represented 16% of our sales in the quarter.

Sales in that market were flat in US dollars, but also currency had again a very significant impact with nearly double-digit growth versus prior year in local currencies.

We had a growth of innovative new products which was offset by what we would deem as seasonably atypical reductions in end-demand, as well as by inventory adjustments that were made by operators and OEMs particularly towards the end of the fourth quarter leading into the beginning of the first quarter.

We expect further slowing in the first quarter as customers react to normal seasonality coupled with some fear of softening end demand in the supply chains.

Nevertheless, we continue to be well-positioned with leading technologies across the broadest range of customers and phone model bases so that we will certainly enjoy growth in that market as it materializes.

In summary, I and we are very proud of our organization as we continue to execute well and outperform the market, while continuing to generate strong profitability in what can only be deemed an extremely challenging and slowing demand environment.

In such an environment, Amphenol's distinct competitive advantages will serve us well -- our leading technology, our increasing position with customers in diversified markets, our worldwide presence, our lean and flexible cost structure, and very importantly, in a time like this, our dynamic entrepreneurial management team.

While forecasting market conditions has become even more challenging over the last quarter, we are very confident in the ability of our organization to meet the challenges and to take advantage of the continuing opportunities that we see in front of us today.

Considering the economic conditions, we do anticipate further moderation of demand in the first quarter of 2009 and are, therefore, not comfortable predicting market conditions beyond the first quarter.

Accordingly, we are providing now guidance for the first quarter of 2009 only.

Based on stable currency exchange rates, we expect the first quarter of 2009 the following results.

We expect sales in the range of $650 million to $665 million, and we expect earnings per share in the range of $0.39 to $0.41.

We are very confident in Amphenol's future, and we are very confident that as our organization continues to take the necessary actions to preserve profitability, as well as to capitalize on the many opportunities that we still see to expand our market position, Amphenol will continue to excel regardless of market environment.

Thank you very much for your interest in the Company, and at this time, operator, we would be open to take some questions.

(Operator Instructions).

Amit Daryanani, RBC Capital Markets.

I guess a question on the 17% headcount reduction in Q4.

How much of that reduction was actually just from hourly employees versus full-time?

Could you just talk about what sort of charges we have flowing to the model to reflect this headcount reduction?

Sure.

I think we don't necessarily want to get into the details of exactly all of the types of reductions that were made.

What I would tell you is that we made reductions on an operation by operation basis that were commensurate with the demand levels that we saw.

I will tell you that those reductions would have been both in direct labor and in indirect functions as we felt was appropriate for the particular business.

I think that these actions were taken in response to lower demand levels.

Our operating management has been I think very responsive in terms of trying to adjust the structure to the demand levels that they see.

Whenever you have to make these types of adjustments, particularly with the quickness and steepness of the demand reductions we saw on a month by month basis in the quarter, there are, of course, certain costs that result.

There are inefficiencies as you can imagine.

The factories are also in some cases severance charges that have to be paid.

We believe these costs are an integral part of the operating cost of the business.

We work hard to minimize these costs, and we, therefore, really don't consider them to be one time in nature either for internal or for external reporting.

And so to quantify those now, we don't think really would be an appropriate thing to do.

We certainly did have some costs in the fourth quarter and will most likely have some costs also in the first quarter, and that is considered in the guidance that we gave.

We feel that the margin achievement in the quarter, which was about a 27% negative conversion from Q3 given the level of demand change from the two quarters, was really a significant accomplishment and certainly feel that we have made all the adjustments from an operating standpoint that make sense.

Fair enough.

And I guess maybe if I could just ask another question.

Let's just say if revenues remain around the $650 million to $670 million run-rate for the next few quarters, where do you anticipate margins ought to destabilize for you guys?

I think it is probably hard to think about this scenario, but given all the headcount reductions you guys have done, what sort of revenue run-rate would you need to get back to 20% margins?

I mean you were at 19.8, 19.9 on an $850 million run-rate two or three quarters ago.

Yes, I mean I think you can go back and sort of look at the historical volume levels and where profitability was is always sort of hard to get into these speculations in terms of what ROS levels relate to what sales levels.

I think the ROS level we just achieved in the fourth quarter was extremely strong and I think showed the capability of the business to react to sudden and severe changes in demand.

I think the guidance we just gave for the first quarter further demonstrates the same things.

So our goals have not changed.

Our goal is still 20% ROS and 25% conversion margin.

Clearly in the current demand environment, those goals would be not something that anyone should expect would be met.

But the actions that we have taken we feel have preserved profitability at an extremely high-level, and we will continue I think to be able to achieve very strong profitability irrespective of the volume levels.

But I mean would it be reasonable to think you can get back to the 19.8, 19.9 on substantially or at least lesser revenues than the 850 you did in the past?

I would not -- I mean I think you can see what we just achieved.

In the fourth quarter, you see what we have guided for the first quarter.

We are very good from an operating standpoint, but I think to expect us to achieve 20% ROS levels at this volume level would not be a reasonable expectation.

Fair enough.

And just finally, you guys talked about the balance sheet being in good shape.

But just given the Nortel bankruptcy yesterday, could you just talk about the A/R, and if you could give any exposure you guys have to Nortel, if you could just quantify that?

Sure.

I mean Nortel is certainly a customer for us in a couple of our markets.

I would tell you that on a consolidated basis we would not expect their bankruptcy filing to have a material effect on us.

We are a supplier of high-technology products to Nortel.

We're certainly working with them as they looked to work themselves out of the current situation that they are in, and we certainly hope and wished them much success in that process.

But the event of the bankruptcy itself would not have a material effect on us.

Jim Suva.

Citi.

Congratulations on a great (inaudible) environment.

I have one question and a quick follow-up.

When we look at the reduction to rightsize the work force with the labor and the employee reductions which are always difficult to do, can you talk a little bit about the linearity of how those progress?

It seems like the second half of the quarter deteriorated from macro conditions a little fast, so we should we expect that the full benefit was not reached in calendar Q4 and going ahead that there may be some or synergies from that?

I think as you say clearly we saw some change in demand patterns during the quarter, which is why we revised our guidance on the fourth of December.

So it is true that the headcount reductions would have mirrored what we saw from a demand standpoint.

So yes, there were more taken out towards the end of the quarter than there were in the beginning of the quarter.

But what I would tell you is that those reductions came as we saw demand come down.

So I think there is some relationship between appropriate cost levels and appropriate demand levels, and we moved into the first quarter now with guidance that indicates a further reduction in demand.

So I think that we have made appropriate adjustments as demand has declined, and there were some more adjustments made early in the first quarter.

And so certainly there are pluses and minuses in the income statement that result from that.

I think again we view these as a normal operating costs when you have to take these kinds of actions.

So I don't know that we want to be adding and subtracting things to the income statement as a result of that.

I think our guidance in the first quarter reflects the fact that we have adjusted headcount appropriately to volume levels.

As I said before, there is some cost certainly that is associated with that, but that is already reflected in our guidance.

Okay.

And a quick follow-up regarding the 144R change, can you may be given us a -- because I sense some investors may be a little concerned now that the earnings volatility from your reported versus your guidance each quarter may see a little bit more volatility now that we will be expensing the legal and transaction costs.

Can you may be let us know if maybe last year or say 2008 of what those transaction costs would have been or how much of an EPS impact those would be so we can prepare for a magnitude of potentially some more volatility?

Yes, I think it is hard to know exactly what the costs will be because obviously it depends upon how many transactions are done and what the size of those transaction would be.

I mean typically on the smaller transactions the amounts are not huge, but it could be in the range of a couple million dollars.

It really depends upon how many transactions there are and what their size is.

I think what we plan to do is as we incur these expenses, we will spike them out.

We will tell you what they are, and hopefully that will help from an understanding standpoint.

And they will not, therefore, be just mixed in with operating results.

Great.

Thank you very much and congratulations.

Steven Fox, Bank of America Merrill Lynch.

I think you mentioned a couple of times you viewed it as a slowing demand environment.

I was curious, I know you're not providing full-year guidance, but are there certain markets that you feel going into this quarter are more stable than others, and which ones -- do you have a worse sense for that could be more volatile, say, over the next couple of quarters?

Yes, thanks very much for the question.

I think certainly there is a real diversity in the various markets.

I think that we feel stable in terms of the Military Aerospace market and industrial market.

We think that what we hear from customers is especially relative to mobile devices and wireless in general that there is usually some seasonal softening in Q1, and we would expect that to hold true if not even a little more this year with inventory corrections.

And relative to the IT and data comm markets, that one also seems to have a combination of end demand, as well as some inventory corrections, which lead that to be somewhat slower than you would even normally see in a given year.

And just around that industrial, where would you rank that in the group?

I think industrial is somewhat more stable on a sequential basis.

Okay.

And then secondly, just Diana, I know that you touched on receivables, but when you look at collections or terms with your customers, are you seeing any problem collecting at this point?

Would you say that the credit environment is not going to have a major impact on your ability to collect from your customers?

How would you characterize the tight credit environment at this point?

Sure.

I mean I don't think it will have a major impact, but clearly it does have some impact because I think there's a tendency certainly for everybody to want to pay slower because of the environment and keep as much of their own cash as they can.

You know, we had a couple of day increase in DSO at the end of the quarter.

I still feel pretty good about what we achieved given the global nature of the Company.

But I think we are certainly paying a lot of attention to receivables, and our operating people are measured, as you know, also on cash.

And in times like these, I think it is appropriate to pay a little bit more attention.

But I would not expect that we would have a major deterioration relative to collections.

William Stein, Credit Suisse.

A couple of quick ones.

First, extending the credit question, any issues relative to suppliers or competitors in the quarter?

I guess if your question is, do we have any risks with suppliers going out of business, I think none that we would deem material.

As many do, we have a multiple sourcing strategy with all of our suppliers, and we also maintain a balance of capabilities both in house, as well as outsourced so that we can flex that outsource capability when necessary and bring it in-house when appropriate.

So we don't see any material risks with suppliers.

Obviously we keep close to all of our suppliers to make sure of that and I think you said relative to competitors as well.

As well, yes.

I mean I was looking at some industry participants who were talking about some smaller companies going away.

I guess I would like to hear if you're seeing that, and if so, whether those might be kind of private-label suppliers or if they are more OEM customer-facing competitors?

I think what I would say to that is it is true that in a market like this, just as it was in 2001, maybe even more so this year with the credit situation, is there are some competitors, small, medium, large who may have challenges.

What we have seen is among customers what I would deem a real flight to quality.

And by quality I mean flight to strong financial companies, and this really plays well for Amphenol.

I think we're being recognized increasingly by our customers for our financial strengths, which normally you would not advertise so much your financial strength to a customer who wants a price reduction.

But in this environment it turns out that that is really a positive to many, many customers.

So I think from a competitive standpoint, it is a positive for Amphenol that there may be these risks, and there are these risks, and we certainly are going out to be in front of the customers as frequently as possible to show them our continued strength and vibrancy even in a difficult market environment.

Just a quick one.

I was wondering if you could comment on the M&A pipeline, and with regard to Jaybeam, did it contribute anything in the current quarter?

I think just to answer your last part first, as Martin mentioned, we closed it really right at the very end of the quarter, so there was no contribution to the results in the fourth quarter.

Our pipeline as always continues to have a lot of names on it, and we think it is a very good pipeline.

Again, we have very little ability to predict when entrepreneurs and sellers in the end want to sell their companies.

I think we see still strong opportunities, and we continue to focus very heavily on that M&A pipeline, and we hope to continue to complete deals in the future, but really are unable to say when that would be.

Carter Shoop, Deutsche Bank.

Relative to expectations back in October, did any end market actually perform better than what you're expecting?

And then also if you could comment on maybe which the one or two weakest end markets were versus original expectations?

Do you may when we gave our guidance and October before we had revised it in December?

Correct.

I think it is safe to say that none of the markets performed better than we had expected in the fourth quarter.

This economic environment seemed to have somewhat of a more all encompassing impact.

So I think that we did not necessarily see.

And then in regards to the one or two end markets that were even weaker than the others relative to expectations back in October, did any stand out?

Well, I think, as Diana mentioned, the automotive and the Mobile Devices markets in particular seem to have a more pronounced slowdown in the quarter, which we mentioned also in December and certainly materialized as our revised expectations forecast.

Okay.

And then in regards to 141, based on expectations right now, what kind of purchase price adjustment would you expect to see in 1Q '09 from already completed acquisitions?

There would not be any adjustment from already completed acquisitions.

What I mentioned the rules regarding -- we sometimes structure our deals with contingent earnout payments, which allows the entrepreneur to have a featured participation in the management and performance of the business.

In the past those amounts would go to goodwill once they were known.

The new rules that will be effective essentially requires you to estimate them at the acquisition date, and then to the extent they are different, that difference would hit the income statement.

But that is only effective for acquisitions that would be closed on 1/1/09 or later, so previous acquisitions would not be affected.

Okay, that is helpful.

Thank you.

Shawn Harrison, Longbow.

Just getting back to the acquisition pipeline, have you seen valuations start to come in on any I guess on the companies you're looking at yet, or is that still kind of a point of contention?

No, I think it is safe to say that market multiples have certainly declined somewhat over the last year.

I think entrepreneurs and company owners recognize that, and they are certainly -- we would have somewhat different expectations for valuation.

And that being said, we're not always buying companies that would be necessarily publicly traded companies.

These are small companies where there is usually a meeting of the mind on valuation, and we have not been the company in the past who has overpaid for acquisitions certainly.

And so I think we still look very prudently at price.

But the context of the market environment certainly puts more downward pressure on it than upward.

Okay.

And just looking at cash flow usage in 2009, maybe if you could kind of ballpark where you think CapEx would be?

And then secondarily, if my math is right, maybe there's 4 million shares left under the repurchase authorization.

Would you look to re-up that if you completed that, say, during the first half of 2009?

Sure.

I think from a CapEx standpoint in the last couple of years, we probably spent around 3.5% of sales.

I would think that in the current environment, it could be more like 3% of sales type of spending.

So we may spend at a slightly lower level with most of that spending being tooling and test the equipment things like that that have to do with new product development.

In terms of the stock buyback program, I think there is a little less than 2 million shares left, and I think we will be in the near-term taking a look at the program.

Okay.

The second question just has to deal with both raw materials, as well as the pricing environment you are seeing.

From what I have been told, it sounds like there were some price increases that came through the interconnect market to begin the year.

But maybe your expectation for connector pricing during the first half of 2009 as well as the full year?

And then I guess the benefits, when would you expect them to roll on from the lower copper cost that started to roll off significantly in the middle of 2008 has continued before leveling off here recently?

Sure.

Relative to raw materials, I mean certainly we have seen certain commodities come down, not all.

We're still mindful that gold is a very important commodity for the connector industry and for Amphenol, and that has remained in the sort of 800, 850 level.

But there have been significant declines in others -- copper, aluminum and some of the petrochemical derivative products.

We have started to see some flowing through of the benefits.

Certainly we have inventories in stock, and we have to work with our suppliers to achieve those.

It is a very high-priority for our management team to achieve gains on raw materials with our vendors.

Many of the products that we buy are not actually just raw materials, but rather they are materials that have had some conversion or some value-add to them.

So it is not necessarily a one-to-one relationship between the LME price and the price that we pay.

Nevertheless, we work very, very hard across all of our organization.

It has a lot of management attention to realize gains from those raw materials, and we would certainly expect to see them -- some of them flowing in the first quarter and maybe start to see those already coming from the fourth quarter.

Relative to pricing, we see in an environment like this where total demand falls, you can only expect to see price pressure be exacerbated.

I think there is no question that customers are going to be hungry, and their competitors may be hungry even more.

And so what we will do is we will have a lot of discipline in pricing, but we're going to make sure that our cost is aligned so that we can meet those competitive pricing threats.

And we will continue to do what Amphenol always does, which was to inject technology into our products where we can sell on value rather than just selling a commodity that is priced in a market.

So pricing will be a very important focus for us this year, but it would not be an unreasonable assumption to think that there is going to be significant pricing pressure this year versus the year prior.

Okay.

In your opinion do you think the -- at least the potential for lower raw material cost can offset the pricing pressure element that is likely going to be out there?

It is very difficult to say.

I mean again many of our raw materials do have a lot of conversions in them.

Not every raw material is going down.

But you would expect that we're going to drive very, very hard to have that offset.

We certainly do not want to take that punishment for pricing into our own pockets.

Brian White, Collins Stewart.

I'm wondering on the acquisition if you can give us a little color into the type of technology base stations the products are being sold into?

This GSM, is this some of the TDS/TDMA in China or what exactly is it focused on?

Thanks very much for the question, Brian.

If you are mentioning with Jaybeam and that technology, they are a manufacturer of base station antennas, a business which we have been in for quite some time and have a strong position in North America, as well as in Latin America.

They have Next Generation technology, which is used in third generation systems in many regions, as well as in GSM systems.

The antenna is not necessarily tied to the modulation type, whether that be GSM, CDMA or TDS/TDMA.

And so we have technologies that can enable us to participate really in multiple platforms for Next Generation and current generation.

Okay.

And then on the price, you spent $35 million in the quarter, but that was not entirely for Jaybeam.

Is that correct, or what was it?

There were some payments that related to some prior acquisitions, but the majority of the fourth-quarter expenditure is related to that acquisition.

Okay.

And do we have other payments for Jaybeam in 2009?

There may be some incremental payments depending on performance.

Okay.

And then when we think about 2009 in terms of the different markets, what markets do you feel most comfortable can actually grow, and what markets are you very certain will be very difficult to grow in 2009?

I think we are not giving guidance for the full year this time for a very clear reason, which is it is very difficult to say beyond the next three months what market conditions will be.

I think as we look into the first quarter, we certainly feel better about, for example, the Military Aerospace market and the industrial market than we do about the mobile phones or the IT and data comm markets.

I would not be the one who would stand up and guess where the automotive market is going to go certainly.

But we would hope that that has gone as low as that could go, but it is really hard to forecast that.

I would not want to point to one or another market for the full year, though.

And if we think about the mobile phone market, typically what type of decline do we see in the March quarter, and what do you really expect to see this year?

Yes, I mean I think last year as we looked, I think we saw sort of a 15, 16, kind of a mid double-digit type of decline, and that, I think, was pretty normal type of market trend.

We expect to see something significantly in excess of that.

It could be -- it could be twice that.

I mean, you know, it is just from a demand standpoint certainly not a normal Q1 in any market.

So it could be down 30%?

It is hard to say.

We do not forecast by market, but a normal seasonal trend would be 15%, 16%, and we would expect it to be significantly in excess of that.

Matt Sheerin, Thomas Weisel.

You answered most of the questions, but just to get back to your commentary about inventory and the inventory reduction of customers, particularly in Military and Aerospace where you have a higher proportion of distribution sales, it looked like, as you stated, the distributors were very cautious on inventory.

What was your sense of the sell-through at distribution and your sense of distribution inventories this quarter?

How long is it going to take before actual sell-in equates to sell-through for distribution?

I think the sell-through in distribution was stable.

We have not seen any dramatic declines in sell-through.

I think many of our distributors are just in light of the credit crisis being very prudent with their assets and their balance sheet, and inventory is the number one asset that they carry.

I would not want to guess how their credit situations will be here in the first quarter, but I think we would expect it to stabilize, and I think our expectations for the Aerospace market are to be somewhat more stable here in terms of that relationship.

Okay, great.

Could you just restate what you said the book-to-bill was at the end of the quarter?

Sure.

The book-to-bill was 0.94 to 1.

Orders were about $708 million or so in the quarter.

And has it changed much since then?

We don't report orders in 10-day increments, so I mean -- (multiple speakers)

No, I understand.

I guess -- (multiple speakers)

I mean in terms of Q1, as you probably know, January and February tend to be pretty quiet anyway, and then March is the big month.

So --

So I guess that was my question was related to just the visibility.

We have had a handful of larger semiconductor suppliers announced this week already in the guidance.

We have very, very big ranges because everyone said this could be much more back-end loaded than it normally is even in the March quarter.

And just getting a sense of kind of your comfort level with your guidance where the range really was not that wide.

I think this year Chinese New Year is quite early, so January, no one would expect January to be a real blowout of a month there.

So I think to say that quarter would be more back-end loaded is probably a safe assumption.

Okay.

Great.

And then just lastly, on the cost-cutting program and the headcount reduction, did you do that based on an internal budget for revenue expectations for this year, and at what level -- or what kind of drop-off in sales would you require another round of cuts?

I think to understand how we go about this, our management structure is based on people in the field who run operations who talk to customers and run factories at the same time, and they will adjust their costs based on what they hear from their customers.

And so we're not taking sort of a macro view on things and making decisions about total headcount.

Rather each individual operation is looking at the market situation that they face in the here and now, and they are not guessing where it is going to be three or six months.

But rather they see what they see with the orders that are flowing in the door, and then they take appropriate actions to make sure their organization is slightest for that level of business.

We're not looking out three months, six months ahead on a macro basis and saying what should we look at.

Okay.

That is helpful.

Amit Passi, UBS.

I just had a couple of questions.

The first one was, where would you say the upside surprise was relative to your guidance that you gave, your revised guidance in December in the quarter that you just reported?

I think what I would say is that everybody in the Company worked very hard.

We certainly had a challenge internally to do better, and everybody really rallied strongly in the organization to make sure that we could secure our position with our customers and ship products to them.

And I would not necessarily point to one or another market that would do that.

And there is just a tremendous amount of uncertainty in the market at the time that we gave the guidance as well, and we feel very good that our team was able to have a strong push to finish with these good results.

Okay.

And then I guess my second question, Diana, for you.

In the past you have talked about priorities with respect to using your cash or managing your capital structure.

I'm just wondering in this environment would debt paydown move up with respect to your priorities relative to acquisitions and buying shares, or is it pretty much the same order with your emphasis being on acquisitions first?

I think the emphasis definitely is on acquisitions first.

I mean this provides the best short-term and long-term return for the Company.

It is a very important part of our strategy.

The Company I mean is just a really terrific cash flow machine.

We generated a lot of cash from our strong profitability.

I think we have availability under our revolver.

We have cash.

We have certainly sufficient resources to not have to change the priorities for the deployment of that cash.

Okay.

And just my final question.

I might have missed this.

Could you disclose the number of shares you bought back in the quarter?

In the quarter we bought back about 6 million shares.

Sanil Daptardar, Sentinel Asset Management.

Could you comment on the shares as to where and in what areas you might have gained shares and which areas you may have lost shares and also on the competitive means in terms of your designs?

Yes, I think we feel strongly that we have gained position really in all the markets that we participate in.

I would not point to one to say that it was a share loss.

I think certainly our technology, which in all of our markets is the basis of how we expand our position with our customers, we continue to have a strong focus on innovation and technology.

What we see is that in bad times, customers demand even more a partner who can enable their technologies so that they can continue to innovate their products because they need also to gain share.

So these are the times where we believe that our technology position can truly be even more of a differentiating factor than it has been in the past.

Okay.

One question on the material cost.

You mentioned that you still have some inventory left of higher material cost.

When do you think that may flow through the P&L and when you might start to see the benefits of lower material costs actually helping your margins?

Is it like in the second quarter of this year or the third quarter of this year?

I don't think that anyone should expect sort of a windfall to come through margins from lower material costs.

I think that as Adam said earlier, pricing environments and cost environment tend to go hand-in-hand.

We're also in an environment with lower demand.

And so I think these things on balance tend to wash out.

I think that margins are managed through a large number of different types of cost reduction actions by ensuring that the new product development and the high-technology products that we worked so hard on keep flowing into the sales stream.

So those things I think are the things that drive margins.

We may have some lower material costs.

We may also have more price pressure as we move throughout the year.

So is it reasonable to assume that the margins may have been flattish in that case?

I think we do not talk about margins specifically.

We have given guidance for the first quarter that has an certain inherent profitability level in it, and I would look at that and our historic performance if you want to look at the margin trend.

Operator, we would take maybe one final question at this moment.

Amit Daryanani, RBC Capital Markets.

I just had a couple of follow-up questions.

At least on the acquisition front, you all have talked about cash being extremely important to everyone at this point.

So given that, what is the appetite to do possibly a larger deal like Teradyne versus continuing to do smaller deals than we typically have done at Amphenol?

You know, I think it would really depend upon the opportunity that presented itself in the widest possible range.

I mean what business was available, what price it was available at, how we viewed it from a complementary technology standpoint, what avenues we may have in terms of how to finance that price.

So I think that from a strategic standpoint, we certainly would look and consider whatever opportunities came along and try to make a good decision as to whether they meet our criteria and want to move forward with them.

And then just the inventory number, it was down about 2% sequentially.

How much inventory did you guys get from the Jaybeam acquisition, and also what was the drop organically on a local currency basis?

Yes, the 2% drop that I talked about was on a consolidated basis, and our days I think went up about six days.

So that may give you some sense of -- that day computation is without the acquisition.

So that may help in terms of trying to do that math if you want to find out an exact number.

Perfect.

And then just finally, I think you guys talked about FX being flat in Q1.

I assume that means sequentially it is going to be flat, which would mean year-over-year, it is still about a [$25] million headwind.

Is that a reasonable assessment?

That is probably a reasonable assessment.

Thank you all very much.

We truly appreciate all of your interest in Amphenol, and I wish you once again a very happy and very successful 2009.

Thank you.

Goodbye.

Thank you.

That does conclude today's conference.

You may disconnect at this time.