安費諾 (APH) 2012 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) Until then, all lines will remain in a listen-only mode.

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

If anybody 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.

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

I am here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our fourth-quarter earnings conference call.

Q4 results were released this morning.

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

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

The Company closed the fourth quarter achieving new records in both sales and earnings per share with sales of $1.146 billion and EPS before one-time items of $0.94, beating the high end of the Company's guidance.

Sales were up 21% in both US dollars and local currencies compared to Q4 of 2011.

From an organic standpoint, excluding both acquisitions and FX, sales in Q4 2012 were up 15% versus last year.

Sequentially, sales were up 4% in US dollars and 1% organically from Q3.

Breaking down sales into our two major components, our Cable business, which comprised 7% of our sales, was up 40% from last year and 22% from last quarter, primarily as a result of the acquisition closed at the end of Q3.

The Interconnect business, which comprised 93% of our sales, was up 19% from last year and 3% sequentially.

Adam will comment further on trends by market in a few moments.

For the full year 2012, sales were $4.292 billion and up 9% in US dollars and 5% organically over last year, a very strong performance in a challenging market.

Operating income, excluding one-time items, was $223 million in Q4 2012, compared to prior-year operating income of $175 million.

Operating margin, excluding one-time items, was 19.5% in Q4, up 100 basis points from 18.5% in Q4 of last year, and equal to the 19.5% reported in Q3 of 2012.

The Company achieved a good conversion margin on incremental sales of approximately 24% over the prior-year levels.

From a segment perspective, in the Cable segment margins were 13.2%, up slightly from last year and up 80 basis points from last quarter.

The improvement in margin over last year -- over last quarter; excuse me, relates primarily to the favorable product mix from the recent acquisition.

In the Interconnect business, margins were 21.7%, up from 20.8% last year and equal to last quarter.

The year-over-year Interconnect operating margin improvement primarily reflects the positive impacts of higher volume and cost reduction actions.

For the full year 2012, the Company achieved operating income margins of 19.3%, up 10 basis points from last year, achieving a year-over-year conversion margin on incremental sales of 21%.

We are very pleased with the Company's operating margin achievements.

We continue to believe that the Company's entrepreneurial operating structure and culture of cost control allows us to react in a fast and flexible manner, thereby constantly adjusting the business to maximize profitability in what certainly continues to be a dynamic environment.

Through the deployment of these strategies, the management team has achieved sequential improvement in operating margins during 2012 and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $15.6 million compared to $11.1 million last year, reflecting higher average debt levels from the Company's stock buyback program, and the higher interest expense associated with the Company's January 2012 senior note offering.

Other income of $2.7 million in Q4 2012, up from $2 million last year, primarily as a result of higher interest income on higher levels of cash and short-term cash investments.

The Company's effective tax rate, including the impact -- excluding the impact of one-time items, was approximately 26.4% in both Q4 of this year and Q4 of last year.

For the full year, excluding the impact of one-time items, the rate was approximately 26.8%, both in 2012 and 2011.

We currently expect a similar rate in 2013, again excluding the impact of any one-time items.

On an as-reported basis, the Company's effective tax rate was 32% in the fourth quarter of 2012 and 28% for the full year 2012 and included income tax cost of approximately $11 million, or $0.07 per share, resulting from the delay by the US government and the reinstatement of certain federal income tax provisions for the year 2012, relating primarily to research and development credits and certain US taxes on foreign income.

Such tax provisions were reinstated on January 2, 2013, with a retroactive effect to 2012.

Under US GAAP, the related benefit to the Company of $11 million, or $0.07 per share, relating to the 2012 tax year, will be recorded as a one-time benefit in the first quarter of 2013 at the date of reinstatement.

As such, between the two quarters, there's no net impact on the Company from an income statement perspective.

Net income, excluding one-time items, was approximately 13% of sales, both in Q4 and for the full year 2012.

Earnings per share, excluding one-time items, increased 29% in the fourth quarter to $0.94 and for the full year 2012 was up 14% to $3.47, a very strong performance.

On an as-reported basis, EPS was $0.86 and $0.69 in the fourth quarter of 2012 and 2011, respectively, and included certain one-time items.

The 2012 period includes one-time charges of $0.08 per share, comprised of the $0.07 in taxes I just described and $0.01 relating to 2012 acquisition-related transaction costs.

The 2011 period, included one-time charges of $0.04 per share comprised of $0.03 per share relating to the previously reported flood damage at the company's Sidney, New York, facility and $0.01 per share relating to acquisition-related transaction costs for 2011 acquisitions.

Orders for the quarter were $1.125 billion, resulting in a book-to-bill ratio of approximately [0.98-to-1].

The Company continues to be an excellent generator of cash.

Cash flow from operations in Q4 was a strong $207 million, and for the full year 2012 operating cash flow stood at $675 million, or 120% of net income.

The Company continues to target cash flow from operations in excess of net income.

The Company closed the year with solid working capital management.

Inventory was $734 million at the end of December, and inventory days stood at 83 days, down 6 days from prior-year levels.

Accounts receivable was $911 million at the end of the year, with days sales outstanding of 72 days, which was comparable to prior-year levels.

Accounts payable was $497 million at the end of the year from a days perspective, up 3 days from last year.

Cash flow from operations of $207 million, along with borrowings under the Company's credit facilities of $101 million and $26 million of proceeds from option exercises were used primarily to fund capital expenditures of $33 million in the quarter; the purchase of approximately 2.5 million shares of the Company's common stock for $151 million; payments of $72 million related to the acquisition of Tel-Ad; dividend payments of $34 million, including $17 million to fund the January 2013 dividend; and the balance of an increase in cash and cash investments of approximately $50 million.

During the quarter, the Company completed purchases of stock under the existing 20 million share buyback program.

Shares under the program were purchased during the period from January 2011 to December 2012 at an average cost of $52.61.

The Company's Board of Directors has authorized a new open market share buyback program, under which the Company may purchase up to 10 million shares.

The program expires in January 2015.

At December 31, cash and short-term investments were $943 million, the majority of which is held outside the US.

Total debt at December 31 was $1.7 billion, and net debt was approximately $764 million.

At quarter end, borrowings and availability under the revolving credit facility were both $0.5 billion.

The Company's leverage and interest coverage ratios remain very strong at approximately 1.6 times and 17 times, respectively.

EBITDA in the quarter was $267 million, bringing full-year 2012 EBITDA to over $1 billion.

From a financial perspective, this was an excellent performance.

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

Well, thank you very much, Diana.

I appreciate that.

And let me take this opportunity to thank you all for joining our call and to wish you a happy new year.

I'm going to spend a little bit of time to highlight our fourth quarter, as well as our full-year 2012 achievements.

I'll then discuss the trends and the progress in our served markets, and then finally I'll make a few comments on our outlook for the first quarter and full year 2013.

Then we'll have some time for questions at the end.

I'm very pleased to report that the Company achieved a third consecutive record quarter as we reach new historical highs in orders, sales, and earnings per share, exceeding the high end of the Company's guidance.

It is in particular very satisfying that we were able to achieve these performance records despite the ongoing uncertainties that are still existent in the global economy.

Revenues in the quarter increased a very strong 21% from prior year and 4% sequentially, reaching $1.146 billion.

And the Company booked, as well, a record $1.125 billion in orders, which was a book-to-bill of [0.98-to-1].

We also continued to focus very much on profitability and in this quarter we generated very strong margins, growing [1 full percentage point] from prior year to 19.5%.

I remain extremely proud of our Amphenol team.

It is in the dynamic times like these when the true value of the discipline and the agility of our entrepreneurial organization is most clearly revealed as we have continued to capitalize on the many available opportunities for growth while also driving superior operating performance.

I am also very pleased that we were able to complete our fifth acquisition of the year in the fourth quarter.

We acquired the interconnect assembly business of Tel-Ad Electronics, an Israel-based supplier of value-added interconnect solutions with annual sales of approximately $60 million.

Tel-Ad has a leading position in the very exciting Israeli high-tech market, servicing a wide array of customers in many diverse markets, including, in particular, the communications markets as well as industrial and medical.

This acquisition positions us to participate strongly with the many companies driving tremendous technology innovation within Israel, and we are very excited about the management team and the technology team that comes along with that deal.

The acquisition of Tel-Ad is consistent with our ongoing and successful strategy to acquire complementary companies with strong management, leading technology and excellent market presence.

And as we welcome this strong new team to Amphenol, we remain very confident that our acquisition program will continue to create value for Amphenol in the future.

In addition, our confidence in the sustained financial strength of the Company is reflected in the approval by our Board of Directors of a new 10 million share stock buyback program.

Now, reflecting on the full year of 2012, I think I would just like to say that 2012 was an outstanding year for Amphenol.

Our Company surpassed $4 billion in sales for the first time in our more than 80-year history and achieved new performance records -- $4.292 billion in sales, $3.47 in earnings per share, together with 19.3% operating margins.

We are especially pleased that we have continued to expand our market position growing by approximately 9% in 2012, which appears to be significantly above overall industry growth rate expectations.

And in 2012, we accelerated our acquisition program, adding five new family members to Amphenol in the automotive, the industrial, the commercial air, the broadband, and the IT datacom markets, all creating excellent new platforms for future expansion for the Company.

Our consistent focus on technology innovation and customer support through all phases of the economic cycle have resulted in the Company strengthening our position across each of our important end markets.

In addition, our organization has accelerated the development of innovative interconnect technologies.

These developments have allowed Amphenol to capitalize on exciting new areas of the ever-expanding electronics market, thereby broadening the opportunity for our future growth.

We have a clear mission to be the enabler of the electronics revolution, and that mission has been very successful thus far and will be a great driver of our success going forward.

As we close 2012, we find it very rewarding that the Amphenol organization has again built a new platform of strength, thereby creating optimism for our future performance.

Now, turning to the trends and progress in our various served markets, I'd just like to point out that our results in the fourth quarter once again confirm that the end market diversification of our Company is a tremendous asset, especially given the continuing high degree of uncertainty that's still present in the global economy.

Turning first to the military market, the military market represented 13% of our sales in the quarter.

Sales in this market increased 5% from prior year as we benefited from our position on a range of new programs with high electronics content.

On a sequential basis, sales also increased by approximately 5% on expected seasonal uptick.

For the full year 2012, sales declined by approximately 4%.

Going forward, we expect demand in the military market to remain at roughly these levels in the near term.

There no doubt remains uncertainty in the defense budgets of many developed economies, which may, indeed, moderate our growth opportunities in the military market in 2013.

Nevertheless, we remain very confident that the increasing electronic content in military equipment, together with our broad program participation, as well as strong positions in the higher growth emerging markets, will drive growth in the military market for Amphenol in the future.

The commercial aerospace market represented 5% of our sales in the quarter.

Sales increased a very strong 23% from prior year as we continued to capitalize on increased demand resulting from higher levels of jetliner production as well as from the launch of new airplane platforms.

Sales increased as well from the third quarter, rising 11% sequentially as we benefited from both normal seasonality as well as the acceleration of build rates on certain new platforms.

For the full year, sales grew a very strong 20%.

This commercial air market continues to be exciting for Amphenol as we are taking advantage of what is really a revolution in electronics adoption in planes.

New airplanes are incorporating electronics to create enhanced passenger experience and comfort, new levels of fuel efficiency, as well as ease of operation.

Looking forward, we expect sales in the commercial air market to increase sequentially in the first quarter and continue to have a positive outlook for this market in 2013 and beyond.

The industrial market represented 13% of our sales in the quarter and sales to customers in the diversified industrial market increased 15% from prior year, driven in particular by both our organic and acquisition-related growth, particularly in the energy-related markets.

Sequentially, we did experience a reduction in sales of approximately 7% due to increased levels of economic uncertainty, mostly focused in Europe.

However, for the full year, we are very pleased to have grown a strong 16% overall.

We continued to make excellent progress broadening our technology offering and increasing our penetration of the many exciting growth segments of the industrial market, which includes especially alternative energy, oil and gas, heavy equipment, and factory automation.

We expect the overall industrial market to return to sequential growth in the first quarter and we look forward to strong momentum for growth in the full year 2013 as our new interconnect technologies continue to proliferate across a very diverse range of industrial applications.

The automotive market represented 10% of our sales in the quarter and sales increased a very strong 19% from prior year on an increase in overall vehicle volumes, together with growth related to new electronics applications.

In addition, our growth was supported by both the FEP and Deutgen acquisitions that came both at the end of last year and early this year.

As expected, sales were slightly down sequentially in the fourth quarter, due to a moderation of production among some European automakers.

For the full year, however, we are very pleased to have achieved strong growth of 37%, resulting in the end in the automotive market representing now 11% of total Amphenol for the full year of 2012.

We are very excited by the significant expansion of our high technology product offering, resulting from the three acquisitions we've made since 2011.

And, in addition, we continue to invest in broadening our organic technology developments, leading to a growing presence on a diverse range of new automobile electronics.

Looking ahead, we expect stronger demand in the first quarter as our new program momentum continues, and we look forward to strong performance for the automotive market in 2013 and beyond.

The mobile devices market represented 24% of our sales in the quarter.

Sales increased substantially from prior year as our design-ins of high technology-components on a diverse range of new mobile computing platforms led to unexpectedly strong growth of 42% year over year.

Sequentially, sales increased by a greater than expected 15% from the third quarter as customers increased the volumes of newly launched products in order to ensure broad availability in the marketplace.

For the full year, sales in the mobile device market grew by 9%, an excellent performance given the significant dynamics that are still ongoing in this market.

While we believe that we experienced higher than expected demand in the fourth quarter from certain customers, and thus expect a more significant than normal seasonal reduction of demand going into the first quarter, we look forward to our overall growth rates for 2013 to be at similar levels as in 2012.

We remain very excited by our continued strong position in the always very dynamic mobile device market and, in particular, are encouraged by our excellent technology positions across a wide range of new mobile computing platforms which, together with our extremely agile organization, positions us as strongly for the future.

The mobile networks market represented 10% of our sales in the quarter, and we were very pleased to experience strong 24% growth compared to last year's difficult fourth quarter of 2011.

As our excellent design-in positions on new, next-generation base stations, together with sales of our high technology antenna products, drove to these increased sales levels.

Sales in the quarter were flat sequentially on expected seasonality and for the full year sales were still down by approximately 6%.

While we expect a moderation of demand in the first quarter, we do look forward to long-term strength as operators accelerate their network buildouts in order to relieve the pent-up demand for increased coverage and capacity which exists on many networks.

We are well-positioned in this market, due to our broad design-in positions on new base station platforms as well as our strong presence with a diverse range of global wireless operators.

The information technology and data communications market represented 18% of our sales in the quarter.

Sales in this market increased 9% from prior year with strength especially in products incorporated into latest generation servers.

Sales declined by approximately 4% sequentially on an expected slowdown in the momentum of spending by customers across the IT market.

For the full year 2012, our sales increased a strong 8% as we capitalized on our many new design-ins of both high speed and power products into next-generation data center equipment.

We are particularly excited that, with the addition of Tel-Ad, we now establish an excellent design and manufacturing presence in Israel, which is in many ways the silicon valley of Europe.

While we do expect the further moderation of IT-related demand in the first quarter, as we look forward towards 2013 and beyond, we are excited by the potential created by our ongoing new program wins with many new advanced technology platforms.

Our customers continued to push their data center equipment towards new levels of performance in order to handle the rapid expansion of data, which is driven in particular by the many new mobile devices as well as by the continuing spread and prevalence of video on the Internet.

The broadband market represented 8% of our sales in the quarter.

Sales in that market increased a very strong 36% from prior year and 18% sequentially, supported by the addition of Holland, together with an increase in sales of our value-added Cable and Interconnect products.

For the full year, sales expanded by 10%, an excellent performance given the continued uncertainty that has been present in this market.

We expect demand in the broadband market to improve seasonally going into the first quarter, and are very excited to realize the long-term benefits of the Holland acquisition as well as our organic technology diversification efforts.

So in summary, I am extremely proud of the dynamic Amphenol organization as we have continued to execute very well in what is still a very challenging market environment.

Our new record results in both the fourth quarter and the full year of 2012 confirm again the strength of the Amphenol team.

That team, and the superior performance for that team, is a direct reflection of our distinct competitive advantages -- our leading technology, our increasing position with customers in diverse markets, our worldwide presence, a lean and flexible cost structure, and, most importantly, the discipline and agility of our entrepreneurial management team.

Now, turning towards our outlook and based on a continuation of current global economic environment, as well as constant exchange rates, we now expect in the first quarter and full year 2013 the following.

For the first quarter, we expect sales in the range of $1.055 billion up to $1.080 billion and earnings per share in the range of $0.84 to $0.87, respectively.

For the full year 2013, assuming normal seasonal patterns, we expect sales in the range of $4.555 billion to $4.655 billion and earnings per share in the range of $3.72 to $3.84, respectively.

For the full year, this represents sales and earnings per share growth of 6% to 8% and 7% to 11%, excluding one-time items, respectively.

We are very encouraged by this strong outlook in sales and earnings, especially given the continued uncertainties in the global economy.

I am very confident in the ability of our outstanding management team to build upon our new record levels of revenues and earnings per share established in 2012 and to continue to capitalize on the many opportunities to grow our market position and to expand upon our profitability.

Operator, at this time, we'd be very happy to entertain any questions that there may be.

(Operator Instructions) Sherri Scribner, Deutsche Bank.

Hi, thank you.

I was hoping you could do a little bit more into what's going on in the info tech market.

I think you said that business was weak at the end of the quarter.

I just wanted to get a sense of -- is that primarily on the server and storage side; is that primarily on the telecom side?

Maybe you could provide a little more detail.

Sure.

Thank you very much, Sherri, for the question.

Look, the fourth quarter, certainly on a year-over-year basis, was strong and the strength in the fourth quarter was in particular driven by servers, and there are a lot of new release servers where we have an expanded position on those servers with a lot of our new high-speed products as well as -- especially power products where more and more of the efficiency of power in those servers becomes a real selling factor for our customers.

We had anticipated and we had heard from our customers going into the fourth quarter that the overall spending patterns from their customers appeared to be moderating somewhat.

I think we even talked about it at the last conference call that that, of all the markets, appeared to be one where there was some macro global economic impact to that market.

And I think, as we go into the first quarter, we continue to see and hear from our customers that, in general, the outlook from the various IT managers around the world is not really any more positive and has not turned more positive.

And that's why we have given guidance going into the quarter that we would expect some degree of further moderation.

But whether that is in servers or networking or transmission or storage, that's not necessarily so clear to us sitting where we sit today, but the overall budgeting and the overall spending among the IT managers of the world appears to still be somewhat conservative.

That all being said, we have done a great job this year in ensuring our position across the board, because, as you may know, the IT industry has one other characteristic that is relatively new this year and in the prior couple of years, which is the level of competition among the equipment makers has truly ratcheted up.

Whether that is from new entrants or people who are traditionally involved in one segment now getting into other segments, there is just a real tremendous dogfight going on in the IT industry.

We don't bet on which of those dogs is going to win the fight.

We have worked very hard to ensure a strong position across the board among all of the major manufacturers of IT hardware and data center hardware.

In my mind, the demand for data, driven by video, driven by these mobile devices, that continues to create a tremendous level of end demand eventually, that will eventually demand some of this equipment to be produced.

And we have very, very strong positions across the board there.

That's very helpful.

Thank you, Adam.

And I just wanted to quickly ask about the automotive segment.

You had commented that you thought that segment would be weak in the fourth quarter, and it was driven by Europe.

But you suggested in the guidance that maybe that is getting better, and I'm just curious about that, considering some of the comments we have heard about auto and the US maybe being a bit softer.

So I just wanted to get your overall thoughts.

Thank you.

Sure.

No, no.

Well, look, I mean, we should not be a bellwether for automotive.

Obviously, our position on automotive, it's 11% of sales, which we're very proud of, and it's a lot more than it used to be, is not necessarily reflective of the whole market for interconnect and auto.

But what we have seen very clearly, and we see that with the optimism that we have going into the first quarter, is that we have been working a lot on a lot of new electronics for cars.

Those are going into cars which are being built and where the build rates are going up going to the first quarter.

So it's a combination of new programs that we have successfully designed into; a combination of those products that we are selling into also, also selling well in the end market.

So whether that is a broader industry trend or an Amphenol-only trend, I'm not here to say either way.

But certainly, what we see from our customers and the programs that we are designed into, is that there is a good expectation going into the first quarter.

It was no surprise to us that we saw in the fourth quarter some slight decline in that market given all what we have seen in Europe, which still is the majority of our sales into the automotive market.

Matt Sheerin, Stifel Nicolaus.

Thanks and happy new year.

Happy new year to you, Matt.

Question, Adam, regarding the mobility sector, which was obviously up very strong and then you guided down perhaps more than seasonal.

Could you give us an idea if sequentially it looks like just sort of backing into your guidance by end market, it looks like that's going to be down 20%-plus or so.

Can you confirm that?

And then, also, could you give us an idea of the diversification within that business -- tablets versus smartphones -- and customer concentration?

Because obviously there's two very big customers doing well and two ecosystems.

I'm just trying to get a sense of how diversified you are within that segment.

Matt, just to take the first part of your question in terms of the sequential decline, we think it could be about twice normal, and normal what we've seen is somewhere in the sort of 13% to 15% sequential decline.

And we think because of that, that strength in the fourth quarter and what Adam described before, that it could be twice that as we go into Q1.

And maybe Adam wants to talk about the rest of the question.

Yes, and I think just relative to the fourth quarter, we did see great strength there.

There are a lot of new programs launching.

We had good position on those new programs, and it can happen.

We obviously -- it exceeded our expectations in the fourth quarter on the volumes and some of that volume for the fourth quarter maybe would have normally been in the first quarter.

Relative to the diversification, I mean, our position is actually quite diverse there.

You are correct; there is only a few players, but I would say that there is more than two, by the way but there are certainly not 20.

And we have a good position across the board with these players.

Our growth this year -- and the fourth quarter is no different -- has not been driven by phones, necessarily, because I have talked about it in the past that we have seen more of a commoditization of those phones, whereby the value in the phone becomes more the software and not the unique properties of the hardware where we can add value.

Conversely, we have seen in tablets and ultrabooks and what I have really termed mobile computing devices a tremendous amount of hardware innovation, interconnect innovation, antenna innovation, mechanism innovation, whereby our R&D teams around the world, and predominantly in Asia, where they are, have been able to work with customers to truly enable new functionalities in those devices which allow our customers the opportunity to sell more of them.

And so it is really on those mobile computing devices where we have seen more of the growth in the quarter.

We continue to participate in smartphones, but that's not what driving the growth today.

Got it.

Okay.

Thanks very much.

Thank you, Matt.

Happy new year.

Brian White, Topeka.

I'm just curious if you could talk a little bit about the mobile device market for 2013.

I just want to clarify.

You said there would be no growth for that market?

No.

Hello, Brian.

No.

What I said is that our growth in 2013 would be at similar levels as it was in 2012.

Apologies; that was not so clear.

We grew this year by about 9%, and we would expect similar order of magnitude going into 2013.

Okay.

Great.

A lot of the ultrabooks seem to be coming out sometime in 2013, so maybe you benefited from some of the new programs at the end of 2012, but when do you think we'll see the big ultrabook ramp in 2013?

Is it first half or more second half?

Honestly, I wouldn't really be able to say.

I mean, there are products that seem to get released at different times.

And, you know, there are products where you don't even know -- do you call it a tablet or an ultrabook as they come out.

Do you call it an ultrabook when the keyboard is detachable or not?

I mean, that I have a hard time.

So I lump them all kind of into one group now, which is really this mobile computing devices.

And at least, as far as we've seen, those may get released over the course of the year.

It is true that in the fourth quarter, there were a lot of them released and there was a lot of production to support those releases, and I think that's part of what we saw in the fourth quarter, in particular, with a lot of those new releases.

When will they get released going forward?

It's hard to say.

I think companies are constantly changing their schedules.

The big guys are tweaking all the time.

When do they the product tactically?

Do they do it for Christmas; do they do it for Chinese New Year; do they do it for the summer holidays; do they do it for back-to-school?

I mean, there appears to be so many schools of thought about the appropriate timing of a release.

My sense is they are constantly experimenting with this.

So for us to make a guess about when that would be, I wouldn't be well enough placed to make an accurate guess about that.

Shawn Harrison, Longbow Research.

Hi.

Afternoon.

Two questions, first on the mobile networks business.

It seems like you are maybe a little bit cautious here short-term, but you had a good 2012.

How do you see growth in that market, I guess, coming around for 2013, particularly given that it looks like China may start spending again on wireless infrastructure?

Well, thank you very much, Shawn, and good afternoon to you as well.

I think we had a good fourth quarter in wireless infrastructure.

I wouldn't say that we had necessarily a good 2012 -- at least my personal assessment of it.

I mean, to be entirely honest, the market was slightly down in the year.

That's clearly not our aspiration for that market.

There's an old saying, one swallow does not make a summer, and I think we are appropriately cautious about that market.

The dynamics of that market have certainly been very challenging over, really, the last 7, 8 quarters as I think that economical models that the operators are facing, when do they spend the money; how much do they spend; what do they spend it on -- they are still wrestling with that.

The benefit that we got in the fourth quarter, clearly there was a comparison to a very difficult fourth quarter last year, but in addition, we have not sat on our heels during these difficult quarters in mobile infrastructure.

Rather, we have gone out and relentlessly tried to get design-in positions of a lot of new technologies on new base stations in particular, but also in spreading our wings with more of the operators with our antenna products.

I think we've done a great job of that.

We see that in the fourth quarter where this is really driven by a lot of these new base station platforms.

We see, going forward that, to the extent that they sell these new smaller, call it, microcells, with the different architecture going up onto the tower, for example, that we will be very strongly positioned.

But I think it's too early to call it a full-on recovery of mobile infrastructure.

We remain very, very close to the customers and we are really the only company in this industry who hit close on both sides.

I mean, we are very close with the OEMs; we're very close with the operators.

So rest assured that, when those opportunities come, we will really be there to participate; but, again, it's too early to call one strong year-over-year growth quarter a successful trend, and we remain still very cautious about that market.

But hopeful that, as the year goes on, we can start to see good momentum there.

Okay.

And then as a follow-up -- I don't mean to nitpick on the fourth quarter, but Interconnect incremental margins were maybe a little lighter than you would typically like to see.

Was that more just a function of mix, because it looks like the guidance for 2013 you're back to more of a normalized incremental EBIT margin?

Yes, look, I mean, I think that not every quarter is going to be exactly the same incremental margins as every other quarter.

And so we do have this 25% conversion margin goal, but I think when we look at the margins that we've achieved, both in Q4 and both for the full year 2012, we feel really good about the margin achievement.

We achieved a 24% year-over-year conversion margin in Q4, hitting 19.5% ROS and 21% for the full year 2012.

As you point out, in our guidance, we have what we would consider to be good conversion margins and are guiding to increased ROS and to be guiding, I think, to increase ROS given the ROS levels that we are already at.

You can see that the whole team is really committed to getting more margin expansion.

And I think that's really saying something, given the levels of profitability that we are at.

So I think that the fact is just that we are probably not going to hit 25% incremental margins each quarter, but I don't think that should take anything away from the achievements that we've had from a profitability perspective.

Steven Fox, Cross Research.

Thanks.

Good afternoon.

Two questions from me.

First of all, just one clarification on the mobile networks side.

Adam, for the full year, are you guys saying that you think it can grow -- you can grow your business in mobile networks, or is it still too tough of a market?

I'm not totally clear on that.

And if you are growing, how you are doing that?

And then, secondly, just looking back at some of the acquisitions -- maybe not the one you just announced, but maybe the previous four or five -- is there anything you could just talk around the synergies that you may have realized, either the acquisitions you bought benefiting your business or vice versa, or how you've sort of gotten more out of what you've invested in the companies to begin with?

That would be helpful.

Thanks.

Well, thank you very much, Steve.

Relative to your first question, on mobile networks, our guidance assumes really not very substantial growth in the mobile networks market for the full year.

I think I explained the basis of that in the prior question.

But we certainly will look forward to targeting any incremental opportunity to actually drive growth.

Our hope, and certainly a goal, would be to have growth in that market, but today we are not guiding to any of that growth.

Relative to the prior acquisitions that we've made, and that is five for the year, you know very well that we have, what I would call, a relatively unique approach to acquisitions, which is we don't acquire companies with the hope to change them.

We don't go in and change management.

We don't go in and completely revamp their systems or change their sales force or any of this.

Rather, what we do when we make these acquisitions, first, we let them settle down because it's always for the people something very different to be acquired by a global company.

But, second, and most importantly, is we sit down with them and we identify where are those opportunities that we could create for you some new open doors.

And I can tell you that, with all of those companies that we have acquired, we've had those dialogues; we've had some success.

It's not always quick.

It's not something that we kind of force-feed to the organizations because we want to make sure that the transition is smooth.

We want to make sure that we are not upsetting kind of something that we didn't even see within the company ahead of time.

You never know how delicate the balance is of an organization of a company that's been acquired.

But, no doubt about it, we have opened doors to all those companies that we have acquired.

I mentioned earlier, we have an automotive company; we have an industrial focused in oil and gas; we have a company in the broadband sector; we have now the IT datacom; we had the commercial air acquisition.

And for each one of those, we have seen great new opportunities for expansion for those companies.

And, in addition, with several of them, we have really seen that the combination of the products creates for our existing customers a more compelling reason to buy both of the products.

In particular, I'll mention, we made this acquisition in the broadband market of Holland in the third quarter, and that has been really outstanding in not just broadening our product offering into the cable market, but also broadening our presence with the non-cable TV companies -- the satellite, the telcos, the companies overseas, where Holland had a very strong position.

And so you find out that those customers would also like some of the products that we had before and our customers would like some of the products that Holland brings in.

And that's really a model for how we approach these acquisitions.

But we are not going in to try to realize some sort of immediate cost synergies or things like this.

I'm very proud that, in all those companies, the management team is still the management team.

And we have every intention to keep it that way for a long time to come.

Great.

That's very helpful.

Thanks, again.

Thanks, Steve.

Happy new year.

Happy new year.

Mike Wood, Macquarie Capital.

Hi.

Good afternoon.

Hi.

That afternoon good.

We touched on most of the segments, except military, commercial aero in the Q&A.

So I'm curious in terms of the push-out of the spending cut decisions how that has impacted customers decisions.

And, specifically, if you can get into sort of the impact that has on programs that are unlikely to get cut where you would have heavier content on, versus something that actually may get cut.

Sure.

No, that's a very good question, Mike.

Obviously, we watched, like everybody did on New Year's Eve, I don't know which I was watching more -- the ball to drop or the shoe to drop on Capitol Hill, but they were both equally entertaining from some perspective.

You know, look, was it great that they kicked the can here on sequestration?

I think it's fine.

I think there is a consensus that appears to be that this military is not just a line item on a budget, but it's jobs, its technology.

There's a lot of importance that is ascribed to that.

Clearly, budgets are going to be under pressure.

There's already existing budget cuts that are there, but what we have seen is, there's really no change to the status quo of the uncertainty of our customers following the New Year's Eve deal that came.

We'll see, over the next 40 or 60 days, whenever this next fiscal cliff two arrives, what that will bring.

We will be prepared if something does happen that is more negative, but today we are not sort of assuming that the sequestration is going to happen.

Relative to the programs that we are on, I have said it before, that technology and electronics in military hardware is a great methodology for the military long-term to create savings, and we continue to see that.

I mean, we had sequential growth in military in the fourth quarter -- year-over-year growth.

That growth is truly driven by new electronics applications, things like radar upgrades, things like new types of missile systems, new networks that are being put in place, UAVs.

I mean, those type of more bang-for-the-buck electronics continue to be very much the focus.

And when we talk to our customers, which, as you can imagine, is every day, we continue to hear from them that there is a high priority put upon accelerating the pace of the technology innovation in those areas where you can deliver value to the military.

And I don't think that's going to change.

I think some of these long-term programs -- you know, things like the new fighter jet platforms and others -- it doesn't appear that those are going to be wholesale canceled.

Then it becomes a question for the military, do we upgrade the old planes with new electronics or do we buy the new planes that have those new electronics in them?

But either way, we are relatively agnostic to that decision because we have good content on either one of those options.

Great.

And also, your cash balance continues to grow -- it may even be at record levels.

But is the plan there -- or is it the pipeline, the M&A pipeline, looking more robust, or are you likely to, then, dig deeper into share repurchase if M&A pipeline doesn't materialize?

Well, I'll make a quick comment on M&A and then Diana may want to talk a little bit about the other capital structures.

We are very proud to have made five acquisitions this year.

So as a pipeline, we've talked about it last year, it was very strong.

It worked out great for us and not every one of those acquisitions was related to people chasing on taxes.

There was not a tax increase in Israel at year end, but we still were able to make those acquisitions.

Going into 2013, we still have a very robust pipeline and it's one that we continue to put a lot of focus on in growing it.

And we continue to see outstanding opportunities for acquisitions.

Are we going to close every year with five acquisitions?

Of course, we will not, but do we have still a strong pipeline?

Absolutely.

And do we expect to continue that program?

No question about it.

Just to add to what Adam said, at the end of the quarter, if we take the cash balance and the revolver availability, it's about $1.5 billion.

We certainly use a substantial number.

We also have, as you know, very, very strong operating cash flow.

So we have a lot of capacity, to your point, and how we deploy that capacity is certainly an important part of the strategy for the Company.

I can just echo what Adam said that the acquisition program clearly is the number one priority for using that capacity, and he's already really said why that is.

But I think, in addition to that, we have, over the past few years, and I think we will continue over the next few years, to deploy what we would say is a very balanced approach to using that financial capacity that we have.

We certainly do think that stock buyback and the dividend program are both also good options to return value to shareholders.

And I think that to have some balance between all three of them -- acquisitions, stock buyback, and dividends -- is what works best from our perspective.

As you know, we completed the repurchases under the stock buyback program that was set up in 2011 and actually purchased about $1.1 billion of stock over those two years.

Our Board has recently authorized a new program for another 10 million shares that can potentially be purchased over the next two years, and I think you'll see us on a quarter-by-quarter basis, depending on what we see from an acquisition pipeline, look to deploy the same kind of balanced approach that you've seen us use in the last year.

Amitabh Passi, UBS.

Hi.

Thank you.

Diana, first question for you, again, not to nitpick.

If I look at your margins over the last three quarters, gross margin is probably down 50 bps, operating margin is flat.

I was just wondering, is this largely a function of mix with mobile devices ramping?

Is there some other dynamic at play here -- pricing, maybe cost pressures?

Just any help you can provide in terms of what's going on with the margin lines.

Sure.

I mean, and we get this question from time to time, and I know that some folks, the way they run the business, they look at gross margin and they manage that piece, and they look at SG&A, and they manage that piece.

And I think as we have said before, we manage the bottom line, which is operating income, and that has proven to be a pretty good strategy for us.

You know, we have expanded margins in the year 2012.

We are guiding to more margin expansion next year.

I think that mix between what ends up in cost of sales in the gross margin line and when it ends up on SG&A does vary, as you said, by market, by product.

We have markets that are certainly more competitive, like the mobile device market, as an example, where gross margins are lower, but so is the SG&A level because it's a more concentrated market and the volumes are bigger.

So we really look to get that operating income margin potential out of all of our markets and all of the products that we are in, and that's how we manage.

I think we are achieving our goals at using that method, but you may, as a result of that, see some fluctuation from time to time, and I think you have seen that during 2012.

And it is largely due to the mix of the business.

Great.

Thank you.

And then, Adam, just one for you.

On the mobile infrastructure market -- and I apologize if you touched on this -- I was very curious what you are seeing from a geographic basis.

Maybe if you could provide us a high level view of Europe, North America, and Asia Pac.

Sure.

Thanks very much, Amitabh.

No, I think that is an important question relative to the geography of mobile infra.

Obviously, it's not a secret that there have been many of the next-generation buildouts that have been, this year, a little bit more focused in North America.

And I would just tell you that the strength we saw in the fourth quarter was, by and large, driven by North America.

It was not exclusive, but clearly, North America is where we saw more strength.

And I think, going into this coming year, I have heard, like I'm sure you have, that there are some rumblings about some next-generation builds in China.

There's also further builds that are happening in North America.

I've heard a little bit less relative to Europe and was going to be built there.

But, no question that these builds have to happen.

When the time comes when India eventually will fully build out a 3G network, will China build TD SCMA, or will they build LTE or TD LTE or what the format in the end will be.

Will that be China Mobile, China Unicom?

And these are all questions that I think, today, there's not necessarily a certainty to.

But, wherever it comes -- whether that comes in Asia; whether that comes here in North America or in Europe -- we are very well poised to take advantage of it.

But, for now, it appears that North America has been really more of a driver in the fourth quarter, and I wouldn't expect tremendous change in that geographic spread going forward.

Jim Suva, Citi.

Thank you, and congratulations to your team for a great quarter and year.

First a question for Adam and then a follow-up for Diana.

Adam, on the integration, I know that you don't typically buy companies that need to be fixed or something, but I'm just wondering with this integration, since they already have revenues of about $60 million per year, is there anything as far as sourcing or production or lower-cost areas that you can help them with?

Or, is it more truly and integration into the Amphenol portfolio and sharing of ideas and global footprint?

I'm just wondering on the cost side if you guys, since you're so global, will have the opportunity.

And then, for Diana, can you just quickly clarify your EPS outlook for Q1 and for 2013?

Does it include any of the stock buyback that your board recently announced?

I assume the answer is no, but I don't want to be wrong on that.

And any details on why the inventory for Q4 went up, yet sales for Q1 kind of should be going down.

Sure.

Maybe I'll start, Jim, and then Adam can do his question afterwards.

From an EPS guidance perspective, no, we don't forecast any stock buyback beyond what we had done in the fourth quarter of 2012.

So you are correct in your assumption on the guidance.

From an inventory perspective, on an as-reported basis, inventory is up about 3%, but most of the increase is related to the acquisition that we did at the very end of the quarter.

And then, in addition, there was some amount of FX impact on the closing balance sheet.

Without that, inventory is up maybe 1% or so.

Inventory days were actually consistent with the Q3 level at about 83 days, and that's a pretty good level for us.

So if we then look at the guidance for Q1, the sequential decline -- pretty much all of the sequential decline in the guidance really relates to the mobile device market.

The rest of the business, if you would take that out, is relatively flat.

The inventory that's carried in the mobile device market is actually quite low, as you would imagine, given the short product lifecycles and the real fast-changing pace of forecast in that market.

Inventory levels and days are quite low, and so that inventory tends to move in the quarter itself relative to sales volumes.

And so, hopefully, that explains why the inventory in the fourth quarter, perhaps, looks a little odd relative to the guidance for Q1.

Yes, and, Jim, relative to the question about the integration of Tel-Ad, one thing I should say about Tel-Ad is it's not a new company to Amphenol.

We have known and worked with Tel-Ad for many, many, many years.

In fact, they were kind of our representative for some time -- actually, some decades -- in Israel, and so it's a very known commodity.

So what does that mean?

It means that, relative to getting things done with them, we don't have to kind of dance around each other.

We are old friends.

We can speak openly and without any sensitivity and really attack some potential opportunities.

And what those opportunities could be, I think, first and foremost, is to leverage broader technologies into this very exciting market.

I mean, I think I termed Israel kind of the Silicon Valley of Europe.

And the times that I have been there, it's just very true.

You feel like -- everywhere you drive, you see another potential customer, just like what happens when you drive around the San Jose and Menlo Park area.

So step number one will really be looking at technologies and what technologies could we offer them from various other Amphenol operations where they feel that they could get a new leg up in the local market.

But that's not to say that some of the things that you mentioned -- sourcing or low costs -- those opportunities will all be there for them.

But how that will happen is maybe a little bit different than the norm.

We don't have a central procurement organization.

So we're not going to step in with some people from here in headquarters to say, all right, tell us how much you pay for each thing and let's go down the list.

Rather, what we will do is we will open their opportunity for them to visit some of our vendors, to test them to see is that something that they could have some cost or technology benefit from, and it will really be from their initiative, working together collectively in the management team of the group that they're in, in Amphenol.

So I think that there will certainly be opportunities on the cost side, but I would view where the opportunities from especially the technology side to drive greater growth for the Company.

Thanks, and congratulations to your new team.

Thank you, Jim.

Amit Daryanani, RBC Capital.

Thanks a lot.

Good afternoon, guys.

Two questions from me, one on the mobile devices side -- you talked about your business being down 26% to 30%.

Could you just talk about if it's fairly broad-based across all your customers that have seen a bit of a demand downturn, or do you think it's more driven by a few customers that were aspiring to get into this market and they're potentially not as successful as they thought they would be?

Yes, very good question, Amit.

Actually, we see it as relatively broad based.

I think that we had a lot of customers who were doing certain things in the fourth quarter with new products and it appears that their expectations for the first quarter are pretty much, I would say, almost across the board along the lines that we have guided here.

Got it.

And then, as a follow-up, if you could just maybe talk on the cash usage, if one, Diana, you could touch on this CapEx plan for 2013, that would be helpful.

And then, I guess, Adam, when you look at the M&A environment and you obviously had, to your point, a really good 2012, do you think North America, especially as some of these private companies get a taste of higher taxes and eight different directions, they may be more inclined to sell this year versus the past?

Maybe just to start with the CapEx question, in 2013, we think CapEx will be somewhere in the sort of 3.5% of sales range.

It's going to be a little bit higher, still within our normal range of sort of 2% to 4%, but it will be a little bit higher in 2013 because we will be funding the majority of the construction (technical difficulty) facility (multiple speakers) upstate New York.

So I think if you use about a 3.5% (multiple speakers).

Relative to the M&A environment, I think I've said it before that a seller is a seller psychologically first, and then he or she is a seller for more sort of extraneous reasons.

Then, if they are already a seller, and then there is a new tax law change or some other kind of externality that comes along, that could push them over the edge.

Last year, there was an expectation, I think, among many people that tax rates could have gotten even worse than they got.

I mean, there was some talk that capital gains could go and essentially be equalized with ordinary income.

And I would imagine that in North America, in particular, there were some people who saw that and said, well, I was already going to sell at some point in the next couple of years, so I would be wise to sell now.

And I think we made a couple of North American acquisitions and I never asked them if that was the reason they were selling, but there could have been some element of that.

And I think there were other acquisitions that were announced in our industry and others.

Will that make this year, now that people have to pay essentially 23.8% on capital gains -- will that make a difference going forward?

It's hard to say.

I think at the end of the day what matters is, do they see for their company a prospect that is positive with Amphenol?

Do they see for their family a desire to inject more liquidity into their estate?

Those are the real important questions, the first of which I think we have done a great job and we've ratcheted that up this year with our five acquisitions of creating a track record and a reputation in the industry, which is very, very strong.

Where an entrepreneur can say to him or herself, hey, I can get the liquidity, but if I join with Amphenol, I can also realize that some of dreams that I and my team have had.

And I think that story, and the compelling nature of that story, is one that will continue going forward.

On the margin, will it be tipped one way or another because of tax policy?

I think that's hard to say, but we feel very comfortable and optimistic about the long-term trajectory that we have in acquisitions and the continued opportunity that we have to find more companies.

Perfect, congratulations on a good year and best of luck for 2013.

Thank you.

Thank you, Amit, happy new year to you.

Wamsi Mohan, Bank of America.

Yes, good afternoon.

It's actually Ruplu filling in for Wamsi.

I just had a couple of questions.

I mean, just on the M&A again, Adam, you've had a very successful program, obviously.

I was just wondering if you could touch on which end markets you now -- going forward, which end markets do you see opportunities in?

Well, I think we made acquisitions in all but two or three of our end markets this year, and that's something that we're very proud of, actually, to have made five acquisitions, each one in a different end market this year.

I wouldn't tell you that that's where we started the year and we said we plan to make in each of those end markets an acquisition.

But we clearly have a very diverse portfolio of companies that we are looking at in our pipeline.

Our priorities are to find companies that have unique technologies; that have a compelling reason for customers to buy those products and a complementary nature to that which we already to precipitate in participate.

And I would tell you that that's across all of our markets.

So I wouldn't say we're only going to do acquisitions in industrial or automotive or commercial air.

I mean, you know, we made acquisitions again in broadband, which is maybe a market that we haven't said is necessarily the highest growth market, but where we feel with that acquisition, now it's able to lever up the growth in the market.

And I think in every one of our markets, there is an opportunity to add that unique complementary technology, that strong management team from an acquisition that can create that lever up on the growth potential for Amphenol in every one of our markets.

So there is not one that I would pick.

Okay.

Thanks for the color on that.

Just on the cable products, it looks like you've had a pretty good sequential improvement in margins.

I was wondering if you could just talk about the pricing environment.

I mean, how should we think about cable product margins as we go through the year?

Yes, I mean, I think there hasn't been a very substantial change in the pricing environment.

Diana mentioned in her remarks that part of the benefit that we saw there was from the addition of Holland who had some higher-margin products, higher technology products.

And I think, going forward, the pricing environment is going to be what it's going to be.

I've always said, we are very disciplined on price and we will remain very disciplined on price going forward, but our strategy is going to be to continue to try to sell higher-value-added, higher-technology products that allow us to not just sort of rise and fall with the tides of the commodities on the bulk cable.

Great.

And, sorry, the last one for me.

Just on looking at the defense and aerospace, defense obviously having there's some possible headwinds because of budget constraints, and aerospace is doing well.

So overall, when you look at the mix of the business, how do you see the defense aerospace segment?

Do you think it becomes a smaller part of the mix as we go through the year?

When you say defense aerospace, you mean the combination of military and our commercial air market?

Yes.

That's correct.

Yes, I mean, I think -- look, those markets had actually, if you look collectively at the two markets in the fourth quarter, they grew 9%.

For the full year, they grew 2%, which is very much in line with what I have been talking about, now, a couple of years, which is that the offset to the budgetary pressures in the military is the electronics that are coming in the military and where we've seen that acceleration of new electronics.

And it is the very high expectations that we would have in commercial air.

And I think that showed itself very clearly here in the quarter where our military aerospace market essentially grew at the level of the total company, even though military, at 13% of sales, commercial air is only 5% of sales.

And, thus, it is truly a good offset -- more than a good offset what commercial air was in the fourth quarter.

And looking forward, I think we would expect the totality of those two markets to continue to show growth.

Clearly, we would expect a lot more growth in aerospace than we would expect in military, but still believe that we have strong prospects in the collective -- the military and aerospace markets together.

Tony Kure, KeyBanc.

Hi.

Good afternoon.

Good afternoon, Tony.

Just a couple of quick ones here.

I'll just say both questions and you can answer as appropriate.

Any notable change in the cadence on demand out of China during the fourth quarter or thus far in the first quarter?

I'm just trying to gauge if you've seen any discernible trend as it relates to the impact from any stimulus programs.

And then, secondarily, if you could just comment on inventory levels at the distribution channel, maybe what the sales outpace was during the quarter.

Thanks for taking my questions.

Well, thank you very much, Tony.

Just relative to your first question on China, I don't know that we have seen any real dramatic change in, as you term it, the cadence in demand in that market or any real noticeable impact of stimulus or the lack thereof.

Clearly, the mobile device sales that we have is almost all to China because that's where all these things are made.

Where they eventually sold to is another question, so that's not something that we necessarily have full visibility into.

So if you were just going to look very strictly, when you have strong growth in mobile devices, you tend to have pretty good performance in Asia and, in particular, in China.

And when you have then a more substantial sequential downturn, you tend to have also a more -- strong sequential downturn in that market.

But beyond that, I wouldn't say that we've picked up any significant signals either way in the China market.

Relative to the distribution channel, I think inventories are just basically stable there.

We haven't seen any big changes either way.

I think distribution is, for us, somewhere around 11%, 12% of sales now.

So it's clearly not a monstrous driver for the Company.

But we certainly keep an eye out on distribution as a reflection of the broader economy and the broader trends.

And I would just say that in the fourth quarter it was basically stable.

No move up or were down in either inventory or eventual sell-through.

Great.

Thank you so much.

Thank you very much, Tony.

There are no other questions at this time.

Well, very good and I appreciate, and we appreciate, very much all of your interest in the Company, and we wish you an outstanding start to the new year and we look forward to speaking with everybody again here in a short three months.

Happy new year, again, and thank you all.

Thank you.

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