安費諾 (APH) 2013 Q1 法說會逐字稿

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

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

(Operator Instructions).

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

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.

Ma'am, you may begin.

Thank you.

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

I am here together with Adam Norwitt, our CEO, and we would like to welcome you all to our first-quarter earnings call.

Q1 results were released this morning.

I will provide some financial comments on the quarter and Adam will then give an overview of the business and current trends and we will then have a question-and-answer session.

The Company had a good start to 2013 with first-quarter sales of $1.080 billion and EPS before one-time items of $0.87, meeting the high-end of the Company's guidance and growing sales 10% and EPS 13% over last year.

Sales were up 10% in both US dollars and local currencies compared to Q1 of 2012.

And from an organic standpoint, excluding both acquisitions and foreign exchange impacts, sales in Q1 2013 were up 4% from last year.

From a sequential perspective sales were down 6% in US dollars and 7% organically from a record Q4.

Breaking down sales into our two major components, our cable business, which comprised 8% of our sales in the quarter, was up 14% from last year with sales from a 2012 acquisition offsetting lower sales in our traditional cable products.

The interconnect business, which comprised 92% of our sales, was up 10% from last year as a result of both increased demand and prior-year acquisitions.

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

Operating income was $207 million in the quarter compared to $185 million last year.

Operating margin was 19.2% in Q1, up from 18.9% in Q1 2012, a good conversion margin on incremental sales of approximately 22% from last year.

From a segment standpoint in the cable segment margins were 13.8%, down from 14.5% last year.

The decline in margins from last year relates primarily to a favorable product mix in the prior year quarter.

In the interconnect business margins were 21.4%, up from 21% last year.

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

We are very pleased with the Company's operating margin achievement and 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 clearly continues to be a very dynamic environment.

Through the deployment of these strategies the management team has achieved industry-leading operating margins again in Q1 and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $15.5 million compared to $13.7 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 note offering.

Other income was $2.8 million in the quarter up from $2.2 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, excluding the impact of one-time items, was approximately 26.7% in Q1 of 2013 and Q1 of 2012, and we currently expect the same rate for the full year 2013, again excluding the impact of any one-time items.

On an as reported basis the Company's effective tax rate was 20.9% in Q1 2013 and included income tax benefits of approximately $11 million or $0.07 per share resulting from the delay by the US government in 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 retroactive effect to 2012.

Under US GAAP the related benefit of $11 million or $0.07 a share was reported as a one-time benefit in the first quarter of 2013.

Net income excluding one-time items was approximately 13% of sales and EPS excluding one-time items increased 13% to $0.87 this quarter from $0.77 last year, a strong performance.

On an as reported basis EPS was $0.94 in the first quarter of 2013 and included that one-time tax item that I just mentioned.

Orders for the quarter were a strong $1.120 billion resulting in a book to bill ratio in Q1 of approximately 1.04 to 1.

The Company continues to be an excellent generator of cash and achieved cash flow from operations in the quarter of $180 million or 118% of net income.

The Company continued to target and achieve cash flow from operations in excess of net income.

From a working capital standpoint inventory declined 3% from December and was $712 million at the end of March.

Inventory days were at 86 days, up three days from December and down two days from prior-year levels.

Accounts Receivable was $862 million, days sales outstanding was 73 days, up three days from prior-year levels and one day from December.

Accounts Payable was $446 million at March 31 and 54 days, down two days from last quarter and comparable to last year.

The strong cash flow from operations of $180 million, along with proceeds from option exercises of $39 million, was used primarily for capital expenditures for the purchase of 1.2 million shares of the Company's stock of $85 million, repayment of borrowings under the Company's credit facilities of $18 million, and an increase in cash and cash investments of $79 million in the quarter.

The Company had 8.8 million shares remaining under its stock repurchase program at the end of March and that program expires in January of 2015.

Cash and short-term investments were $1.022 billion at the end of March, the majority of which is held outside the US.

And debt was $1.688 billion, bringing net debt to $666 million at the end of the quarter.

Borrowings and availability under our revolving credit facility were $491 million and $509 million respectively and the Company's leverage and interest coverage ratios remain very strong at 1.6 times and 17 times respectively.

EBITDA in the first quarter was approximately $250 million.

From a financial perspective this was an excellent quarter and a good start to the year.

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

Well, thank you very much, Diana, and let me take this opportunity as well to welcome all of you to our first-quarter earnings call.

I am going to spend a few moments to highlight several of our first-quarter achievements and then plan to discuss the trends and the progress in our various served markets, and then finally I'll make a few comments on our outlook for the second quarter as well as the full year 2013, leaving time at the end for some questions.

In the first quarter we were very pleased to report our results at the high end of guidance despite what is clearly continuing uncertainty in the global economic environment.

Revenues increased 10% from prior-year and declined as expected by 6% sequentially.

As Diana mentioned, orders were a very strong $1.120 billion, representing a book to bill of 1.04 to 1 and creating confidence for our future performance.

We are especially pleased that despite the sequential decline in sales we once again generated industry-leading operating margins with a first-quarter return on sales of 19.2%.

With these results I am once again very proud of our agile entrepreneurial organization as we continue to capitalize on the opportunities that are being created by the revolution in electronics and are demonstrating the discipline and drive necessary to deliver strong operating performance for the Company.

Our management team continues to strive for a level of market diversification that once again in the first quarter has created significant value for the Company.

As we look at those served markets, turning first to the military market, the military market represented 13% of our sales in the quarter.

Sales in this market were flat to both prior-year and prior quarter as stronger sales of our products incorporated into both avionics equipment and sophisticated ordnance was offset by an overall moderation of purchasing activity by defense equipment manufacturers.

Not surprisingly, uncertainties in the defense budgets of the US and Western Europe continue to create conservatism among customers in these geographies.

While we expect these uncertainties to continue we are seeing still clear indications of expanding investments in new electronic functionalities in military equipment, as well as opportunities for growth in many developing geographies.

We expect demand in the military market to remain slightly below these levels in the second quarter as well as for the remainder of 2013.

Nevertheless we believe our technology leadership together with a broad program participation positions us to benefit long-term from the expanding adoption of electronics in military hardware.

The commercial aerospace market represented 6% of our sales in the quarter.

Sales in this market increased a very strong 15% from prior-year and 8% sequentially on increased jetliner production together with our expanded content on new airliner platforms.

Despite some widely reported delays in certain new programs we remain very encouraged that new airplane platforms are incorporating innovative electronic features at a very rapid pace.

These innovations require new higher technology interconnect solutions both to enhance fuel efficiency as well as to improve overall passenger experience and usability of the airplanes.

Looking forward we expect sales in the commercial air market to increase further in the second quarter and have overall a very positive outlook for this market in 2013 and beyond.

Our sales to customers in the very diverse industrial market represented 13% of sales in the quarter.

Sales in this market increased by 8% from prior-year as the benefit from last year's acquisition of Nelson Dunn offset overall lower overall market demand in the quarter.

Sales in the industrial market increased by 2% sequentially from the fourth quarter.

While there are certain segments of the industrial market that have been impacted by weaker economies, especially in Europe, we continue to make excellent progress broadening our technology offering while also increasing or penetration of the many exciting growth segments of this market.

In particular, we have made great progress in oil and gas, alternative energy, rail mass transit and factory automation, all of which position us very strongly for the future.

We expect the overall industrial market to strengthen further in the second quarter as new interconnect technologies are adopted across a wide array of these and other applications.

The automotive market represented for us 12% of sales in the quarter.

Sales increased 9% from prior-year and a strong 17% sequentially as we participated strongly in an increase in production volumes of vehicles that are incorporating an increasingly wide variety of new electronics.

We are very excited to see the results of our expansion into new high-technology automotive applications and we are realizing the benefits of our recent acquisitions combined with our long-term organic product development efforts.

No question that automakers are incorporating electronics into more and more new areas of performance management, fuel efficiency and passenger infotainment all of which are creating great opportunities for Amphenol.

We expect sales in the automotive market to increase further in the second quarter as our participation in new programs continues to expand and we look forward to further long-term progress in this exciting market.

The mobile devices market represented for us 18% of sales in the quarter.

Sales increased a very strong 21% from prior-year as our sales of new high-technology products onto new mobile computing platforms more than offset slower growth in mobile phone-related products.

As expected, sales declined 28% from our very strong fourth-quarter results due to the combination of both normal seasonality together with post-ramp reductions in the volume of certain new programs.

We expect a moderate increase of demand going into the second quarter, driven in particular by increasing sales of products for new mobile computing devices including especially tablets as well as laptops and ultra books.

We have a very strong technology position in this important and very dynamic end market due to a comprehensive portfolio of products for mobile devices as well as our preferred supplier relationships with essentially all major device makers.

The mobile networks market represented 10% of sales in the quarter.

Sales increased a robust 13% from prior-year primarily due to stronger sales of our sell side installation products and decreased by 3% from the fourth quarter on normal seasonality.

We are encouraged to have now realized two consecutive quarters of year-over-year growth in the mobile infrastructure market as operators in certain geographies have begun to increase their spending on LTE as well as other next-generation networks.

It remains, however, too early to predict a full recovery in this market.

That being said, in the second quarter we do expect a further increase in demand as operators continue to ramp up their network buildouts in order to relieve the gaps in both coverage and capacity which continue to exist in many wireless systems.

We look forward to further long-term strength in the mobile networks market driven by our broad designing positions on new base station platforms as well as by our strong position with a diverse range of global wireless operators.

The information technology and data communications market represented 19% of our sales in the quarter.

Sales in this market increased by 5% from prior-year led by growth in our products incorporated in particular into servers and storage equipment.

Sequentially sales declined by 5% due to continued moderation in procurement activity by customers in the IT market together with normal seasonality.

As our customers continue to strive for new levels of equipment performance in order to handle the dramatic expansion of data traffic, our pipeline of new design opportunities with our next-generation products has strengthened significantly.

In particular we are working with many customers to help them design new systems that can handle the tremendous expansion of video traffic while at the same time reducing overall power consumption.

We expect demand to strengthen from these levels in the second quarter as sales of these new high performance products accelerate.

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

Sales increased a strong 14% from prior-year as the benefits of the Holland acquisition made in the fourth quarter offset a moderation in demand by US and international cable operators.

Sales were down slightly from prior quarter on customary seasonality.

We are very encouraged to see the emerging benefits of our product and customer diversification which combined with the Holland acquisition has enabled us to grow our range of broadband customers while at the same time offering a more complete interconnect product offering.

This expanded offering has been very well received by our customers in the broadband market.

We expect sales in this market to increase by somewhat more than normal seasonality in the second quarter as we benefit from new customer wins.

And we look forward to excellent long-term performance in the broadband market.

In summary with respect to the first quarter, we are extremely proud of our organization as we have continued to execute well in what continues to be a very challenging and dynamic market environment.

Amphenol's superior performance is a direct reflection of our distinct competitive advantages, our leading technology, our increasing position with customers across our many diverse markets, the Company's worldwide presence, a lean and flexible cost structure, and most critically our agile entrepreneurial management team.

Now turning to our outlook for the second quarter and based on constant exchange rates as well as normal seasonal patterns, we now expect in the second quarter, as well as for the full year 2013, the following results.

We expect sales in the range of $1.115 billion to $1.140 billion and $4.580 billion to $4.655 billion respectively.

We expect EPS in the range of $0.92 to $0.95 in the second quarter and $3.76 to $3.85 for the full year respectively.

For the full year these results would represent sales and EPS growth of 7% to 8% and 8% to 11% respectively.

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

The ongoing revolution in electronics continues to create for our Company a tremendous number of opportunities.

I am confident in the ability of our outstanding management team to continue to capitalize on these opportunities to both grow our market position as well as expand our profitability and thereby ultimately to drive the continued superior performance for Amphenol.

Thank you very much.

And, operator, at this time we would be very happy to take any questions.

(Operator Instructions).

Amit Daryanani, RBC Capital Markets.

Thanks a lot.

Good afternoon, guys.

Just two questions from my side.

One, broadly could you just maybe just touch on the demand trends you saw in terms of linearity in the March quarter just in terms of did March end up on a soft note or were things fairly stable throughout the quarter?

Thank you very much.

I think the first quarter was not different from most first quarters where January was a strong month.

February with Chinese New Year, as you can imagine, was not as strong and the quarter finished very well in March.

So nothing really abnormal in the demand trends.

Fair enough.

And then maybe if I just look at the capital allocation (inaudible), you guys are sitting on a little over $1 billion of cash on hand, the debt level is obviously manageable.

When you think about future capital usage, and I realize M&A is a key part of it, can you just talk about maybe is it realistic for you to sustain the buyback pace of 1 million shares a quarter on a fairly consistent basis for not just 2013 but potentially longer term as well?

I think that we don't guide to incremental share buyback when we give guidance for the Company.

I think that what we've said in the past would still be consistent as we look out into the future and that is that we do try to have a balanced approach to the deployment of the Company's financial strength.

As you mentioned, the acquisition program clearly is a number one priority because it provides the best both top-line and bottom-line growth potential for the Company over the long-term.

But we have over the last few years certainly been active from a stock buyback program and also we will consider and continue to look at the dividends.

But I think if you look back and look at the way that we have deployed the stock buyback in the past few years; it would not be an unreasonable assumption to think that we will probably continue that.

Again barring whatever capacity we think we need to sustain the acquisition program in the future.

Matt Sheerin, Stifel.

Thank you.

I just wanted to ask a question, Adam, regarding your commentary on the defense area where that is obviously going to be weak this quarter.

And then you said that you expected it to be down for the year.

Do you expect to see a flattening out in terms of orders particularly as we get through the fear portion of this sequestration or do you expect it to be even weaker?

And then as a follow-up to that, as you see this weakness are you taking any cost-cutting actions in place in order to preserve the margins in that business?

Thank you very much, Matt, for the question.

I think what I meant to say in the prepared remarks is we would expect it to be slightly down in the second quarter.

We expect it to be at those levels throughout the course of the year.

We don't expect a quarter-by-quarter continual reduction in demand.

I think that the market has been soft for some quarters in all the anticipation of what has been going on in the government spending arena with sequestration and otherwise.

Now you can bet that our actions at the factory level, at the organizational level, at the SG&A level are appropriate given the amount of demand that we have seen.

And that organization is extremely agile.

They have taken the actions to reallocate resources to higher growth areas, to remove those resources that are not necessary whether in the factory or otherwise.

And that is something that we will continue to do always in Amphenol in real-time.

I mean if you just look across the Company on roughly a 6% sequential reduction in sales, in the first quarter our headcount was also down by about 6% in the quarter.

So that is something that we always as a Company -- we don't wait for the market to tell us otherwise.

Our general managers are constantly reacting in real-time to whatever changes in demand may come.

If demand moves up in military, if it were to do that, then they would make appropriate adjustments on that side as well.

Okay, great.

And is it fair to say that on the margin side that the commercial aerospace part of the business has a similar margin profile, so as you expand that, that should offset any of the margin weakness from the defense side?

I think we make good money in all of our markets.

And so I think there is certainly a distinction if you look from a segment perspective between the cable business and the interconnect business that we are talking about -- interconnect is, I think, what we're primarily talking about.

With these markets the change in market presence historically has not had an impact on margin and we wouldn't expect that going forward.

Jim Suva, Citi.

Thank you and congratulations to you and your team there at Amphenol for great results and outlook.

When we think about your Company is faced with an interesting decision contemplating you're at all time high cash levels right now, which is a great situation to have, but unfortunately banks like Citibank aren't paying a lot of interest rate these days.

So can you talk a little bit about -- you did not make any M&A acquisitions this quarter.

Did anything slow down on the acquisition pipeline or anything with the taxes or the sequester that impacted the M&A?

Or should we just say that it just happens to be an item based on the calendar and how timing happens to roll out with M&A?

Thank you very much for the question.

We are very proud that the Company continues to be a great generator of cash.

And as Diana said, our top priority for that cash continues to be the M&A program.

Last year we had a very successful year in the M&A program.

We made five acquisitions in five totally different markets which added tremendous, tremendous new platforms of growth for the Company.

And you know after having followed the Company for so many years that acquisitions are not coming regularly every quarter, every month or whatever -- they come on a very irregular basis.

We work them through our pipeline, but at the end of the day, when you get ultimately the seller to decide to sign the paper and close the deal to us, that is something that is very hard to predict.

And I'm not going to tell you that we will close a deal every quarter like we were fortunate to do last year, but we still have a very, very robust pipeline of acquisitions.

You mentioned the tax issue from last year whereby maybe on the margins there may have been some sellers who, if they were already destined to sell at some point, the coming tax changes of 2012 or the year end of 2012, may have on the margin pushed them slightly over the edge.

That was not, though, such a major driver of why we were able to do those acquisitions.

We are constantly working with companies in a variety of industries across the real breadth of the markets that we serve to incubate that acquisition pipeline.

And that is something that we continue to do and where we continue to believe that there is great opportunities for further acquisitions in the coming quarters and years.

Whether those will come in the second quarter, in the third quarter we can't tell you right now.

But certainly at such time as we do that you will be the first to know and we will be very proud to have those.

The Company, Amphenol, remains today in this industry what I would call the acquirer of choice.

Our track record of having completed more than 50 acquisitions over the last dozen years and the unique entrepreneurial way that we organize our Company is extremely attractive when you talk to outside companies.

And that attractiveness has not changed.

So we look very much forward to continuing to deploy our cash towards acquisitions in addition to the various other levers for cash deployment that Diana has talked about.

When that will come here, again, we will let you know when it happens.

Great.

And then as a quick follow-up, raw material prices have been pretty volatile in the most recent couple of months, whether it be copper or aluminum or those.

Can you help remind us about the ability of cash pass through?

Or does Amphenol kind of benefit when the copper goes down or is it more you purchase and use it and have to manufacture it and you don't see it for a quarter or two down the road?

Just kind of the impact of raw materials for your Company as we think about modeling going forward and the fluctuations of copper, aluminum, what they have been doing?

Thank you.

Sure.

Look, I think it seems in the last few weeks that there has been a pretty big movement down in certain commodity costs.

You mentioned copper, gold.

And I guess we would be the first to applaud and be pleased if such an environment continues and these prices continue to come down.

And clearly if they do come down, once you work through existing inventories that are on hand, clearly there would be a reduction in cost for us and for all the rest of you, those who use those materials.

I think that the impact on margin is a somewhat more complicated equation that also has to do with what happens to pricing and demand in an environment like that.

But what I can tell you is that if there is a margin enhancement opportunity that presents itself, because we do get into a better environment from a commodity perspective, I think that the team here certainly would be the first to capitalize on it and would be thrilled to be in an environment that was different than it has been in the last few years where commodities have really been a big pressure I think for all manufacturers.

So we certainly look forward to hopefully having the opportunity to see those costs stay at a lower level, but the impact on margin ultimately will depend upon also that balance for the pricing environment.

Amitabh Passi, UBS.

Thank you.

Adam, I had a couple of questions on your end markets.

I think you talked about auto sales being up 17% sequentially.

Definitely very surprised to see that number as robust as it was.

It sounds like it is more than just production and content growth.

It sounds like you may be gaining some share or whether there is some program ramps.

We would love to get some color in terms of how we think about that 17% growth.

And then maybe just on your wireless infrastructure segment if you could give us some color in terms of geographic trends and how that is trending between your antenna business and your base station interconnect business?

Thank you very much for the questions.

First, with respect to automotive we were also very happy with the 17% growth.

I mean just remember, our automotive business has been on a great trajectory for the last three or so years.

If we go back to the beginnings of 2009 automotive represented for us 5% to 6% of sales and this quarter it was 12% of sales.

So we have really executed on the strategy that we have been talking about which was to drive organic new product developments, new programs with customers at the same time as we complement that with some very, very nice high technology acquisitions.

And I would tell you that the growth that we saw this quarter clearly was the result -- in addition to a little bit of normal seasonality, it was clearly the result from new programs that are ramping up, share gains that we have been able to capitalize upon with customers around the world and that is something that we feel has the potential to continue as we look forward to an automotive business that has a lot of momentum behind it for Amphenol.

The basis of all of that has been the fact -- and this is not a new topic that I have mentioned in the past -- is really the fact that we see in the car today more electronics applications that allow us to create true value in our interconnect products for our customers and thereby to realize the profitability returns that we would expect to have.

That just was not the case historically in the automotive market and today we just see more and more new applications that are coming out that allow us to really participate.

And we are participating with components and we are participating with real significant interconnect value-add products with customers around the world.

Now relative to wireless infrastructure, we were again very pleased to see two quarters in a row of growth on a year-over-year basis.

I mentioned that the growth driver this quarter was more what I would call the sell side installation products.

These include our antenna products but are not confined to our antenna products, because we also have quite a wide and growing array of interconnect products that go into sites sold both to operators as well as to OEMs.

And so, we actually feel very good about the momentum in that part of the market.

Now ultimately will the operators on a worldwide basis continue to drive spending that we all know is necessary to support the coverage and the capacity of these overly stressed networks, that I think still remains to be seen.

And that is why we remain cautious about that market going forward.

But to the extent that the spending happens our position in the market, both with OEMs as well as with operators, is very, very strong.

Now you also alluded to the geographical trends in that market and I think not surprisingly North America has been probably as a result that -- North America was where smartphones and tablets and whatnot first exploded onto the scene.

North America seems to still be the place that has some of the most robust growth and robust investments in these next-generation networks.

We are hopeful that China will be following behind.

Europe it still remains to be seen how the economics are going to work out there relative to when that investment schedule will happen.

Ultimately we all know it has to happen and we will be there to participate when it does.

Thank you.

Wamsi Mohan, Bank of America.

Thank you, good afternoon.

Adam, could you perhaps comment on how much of your portfolio you compete with the Japanese connector manufacturers?

And are you seeing any change in their pricing strategies given this humongous move here in the yen?

Thank you very much.

It is a very interesting question.

In all honesty, we don't compete a tremendous amount with a lot of companies from Japan.

As you know, we traditionally don't have a huge Japanese business.

That has not been historically a huge market for us.

And I would tell you that I don't personally have any real anecdotal evidence about pricing behavior because we just don't -- we are not really going head to head so frequently with the more well-known companies in Japan.

Okay.

Thanks, Adam.

And another pricing question I guess, this one on circular connectors.

Have you noticed any change in pricing now that Deutsche has been part of T for several quarters?

Again I wouldn't say that there has been any noticeable change that would be at all meaningful to the Company.

I still go back to the fact that when the company was acquired they broadly talked about that they wanted to increase the margins of the company and we continue to look forward to them trying to do that by being disciplined on pricing.

And so, no, I have not seen any dramatic changes there.

Brian White, Topeka.

Adam, when you talked about some of the new systems in IT and data supporting video, whatnot, I assume you are talking more networking than servers?

To be honest I am talking about both because you are seeing now more and more converged systems, Brian.

And so where servers and storage and networking equipment were traditionally very, very distinct pieces of equipment, that is not always the case anymore.

So I think that some of these next-gen systems, there will be more and more convergence.

We saw strength in the quarter in storage as well as in servers.

We didn't see as much strength in networking in the quarter, but our ongoing design activities are really across all three of those areas.

And I think the fact is video taxes all of them.

You have got to process the video, you've got to store it somewhere and you have got to route it around the world when people want to consume it.

And so, what we have heard and seen with all of our customers across all those equipment verticals is that the nature of data and the volume of data that they need to be able to process in these systems is just mind boggling in many ways.

I mean the logarithmic growth in this video-based data traffic is incredible and we see that whether one is designing a new server, a new storage system, a router, a switch -- you name it, that is sort of the common story that we are hearing from all of our customers.

And we are very fortunate because we have been a leader in high-speed technology and the real core of these IT systems starting with the backplane system that came out of our acquisition with TCS and expanding throughout to I/O connectors, to cable assemblies and beyond.

And our continued drive to create leadership in that market with next-gen systems that push the limits of copper capabilities which is what customers truly want to have has really positioned us well.

We also see that power is an area of all these equipments, again whether that be storage, servers or networking where our customers are struggling with how do they deliver to their end customers a new value proposition which is thus that operating costs will be lower and power consumption will be lower.

And so, we have seen a lot more innovation around the power interconnect bus bar, the power management systems whereby if you can help them drive further efficiency in that system that creates a lot of value for the customer and thereby allows us to capture business at good margins.

Okay, great.

And just on the mobile device market, I want to be clear.

We will see growth in tablets and ultrabooks sequentially in the June quarter but not in smartphones?

I think what we look forward to in the June quarter, we think there can be moderate growth overall in the market.

And as has been the case for a number of quarters, we see more of that growth being driven by what I'd term these mobile computing devices as opposed to just simple phones.

Mike Wood, Macquarie Capital.

This is Adam in for Mike.

Just a quick question.

Can you talk about some of the trends you are seeing in China post Chinese New Year since we have been kind of removed for a while at this point?

I like your name, Adam.

I think in China we have seen I would say normal trends.

I think we were very happy to see just relative to our factories that the kind of typical disruption from a manufacturing standpoint that we saw -- we saw that last year, we saw it probably the year before -- seems to have been a little bit more smooth this year.

And that is reflected also in our customers.

And so, to that extent, because our customers also didn't have these big kind of tumultuous labor turnovers, that allowed our demand to be also I would say more normal in the quarter.

Obviously February is low in China, March tends to be a comeback and that was no different.

Relative to the overall Chinese economy and the overall demand in China, again we haven't seen anything really out of the ordinary or notable beyond the fact that it is still a market that grows at two or three times the rate of most of the developed economies in the west and that creates a lot of opportunities for us in a variety of markets that we participate in there.

Great, thank you.

Sherri Scribner, Deutsche Bank.

Thank you.

I was just looking at your book to bill of I think it was 1.04 for the March quarter.

And that is -- typically a book to bill above 1 is a positive indicator.

But you guys typically see a book to bill above 1, decently above 1 in your March quarter.

How indicative do you think your book to bill is this year of strengthening trends for you as we move into next quarter and for the year?

Sure.

I think as you pointed out it is normal for us to have a good book to bill in the first quarter.

And if you would go back over the last probably four or five years probably 60% of that time the book to bill was probably 1.03 to 1.0 kind of range.

So I wouldn't say it is an abnormally high book to bill ratio but I would on the other hand say it certainly is strong orders.

I think the order level is up something like 9% on a year-over-year basis.

And so it is I think a positive sign that does confirm the sequential increase in sales that you see in our guidance in Q2.

So I wouldn't say again it is not an abnormally high book to bill, but certainly it is a good one and I think that supports the Q2 guidance.

Okay, that is helpful.

And then just looking at your segments.

Adam, I think most of your commentary was for seeing sequential improvements in all of the end markets with the exception of military.

Can you give us some sense of where you expect a bit more strength, which segments do you see as being a bit stronger in the second quarter as we move through the year being above that -- I think you guided to about 4% sequential increase in revenue.

So which segments are going to be above that corporate average?

Thanks.

Thank you very much.

I think maybe in order of where we would see the strength, I think I mentioned that we expect in broadband for example to see somewhat substantially more than typical seasonality.

And that is something that we feel very good about given all the benefits that I talked about with the recent acquisition and the product expansion.

We would expect industrial to have good performance sequentially.

Aerospace continues to look also like a market that would have good performance.

And the IT market actually, we anticipate that market probably performing a little bit better than the average in the quarter sequentially.

Shawn Harrison, Longbow Research.

Two questions.

When considering the cable business, margins are up from the back half of 2012.

How much of that improvement is a function of market conditions relative to just the contribution from the M&A?

I think that there is some contribution from both I would say in those numbers.

There is some diversity relative to the product mix in the traditional business prior to the contribution of the acquisition.

And I think if you would look at the sequential improvement as an example between Q4 and Q1 where we did have a good improvement in margin, that primarily was a stronger mix of our traditional cable products.

If you would look in the back half I think there probably is more -- the back half of 2012, probably a little bit more contribution from the acquisition which does have in general a higher ROS level than some of our other products.

Okay.

Then as a follow up, if I do my math correctly and assuming the midpoint of guidance for the year, it implies you have to do something like $1.2 billion of revenues in the September and December quarters to reach the midpoint of the sales guidance.

I guess what would be the biggest drivers in the back half of the year for 2013?

Last year it was definitely mobile devices.

Is that the same level of thinking?

And maybe other end markets that would be up significantly too?

I think that the communication markets in general tend to be stronger in the second half of the year without getting into a discussion of specifically which one.

And to nail down a trend for each quarter for the full year by market would probably not be something we'd want to get into.

But I think in general we would look to see a continuation of really what we are guiding to in Q2 which is a strengthening in most of the communications related markets in the back half.

Mark Delaney, Goldman Sachs.

Thanks very much for taking the question and congratulations on the good quarter.

I was hoping you could elaborate a little bit more on some of the recent trends that you have been seeing and maybe comment specifically on orders so far in the quarter.

And then if you are seeing any changes in customer behavior such as expedites or pull-ins?

I wouldn't tell you that there is anything of note.

We have given guidance here for the quarter and for the year and I think the orders in the quarter so far certainly would support that guidance.

And by the same token I would say that behavior of customers in the month of April compared to the month of March, we haven't seen any notable changes.

That is helpful.

Thank you.

Then as my follow-up question, there has been a lot of change in the mobile device market whereas some of the smartphones are getting larger and some of the tablets have been getting smaller.

Can you just talk about the opportunity from you from the changing mobile device ecosystem?

This is an ecosystem, as you term it, that changes constantly.

And so we have seen, the more than a decade that we have been having significant business in this market, that there is always change, there is change in form factors, there is change in functionality, there is change in what functions are integrated into those systems and that is no different.

No doubt about it.

As you said, there are certain phones getting bigger, there are certain tablets getting smaller, there are new tablets coming, there are ultrabooks which start to behave like tablets, there are laptops that start to behave like ultrabooks.

You can get your head spinning when you start talking about the dynamics in that market, which is why we look at it much more simple.

As we look at that market and how we have always approached that market is we will participate in the market where we can create value for our customers.

Where there is value in the innovations that we make through our interconnect, our antenna, our mechanism products that we sell into that market, whereby we help to make the customer's product better and if we can do that for the customer then ultimately they will pay us a reasonable price for the product and we can have good progress with that business.

That is what we have been able to do in particular on a lot of these new devices and as more new devices come out, mobile computing devices, to the extent that they need innovation, and I think it is a sure bet that somebody is going to need that innovation, then we will participate and have a good opportunity for growth in that market.

But what it will be in the next quarter, in the coming quarters, it is virtually impossible to predict with any degree of certainty very far down the road what that's going to be.

But at the end of the day I think one can rest assured that the innovation is going to be required by our customers, whoever they may be at the time, in order for them to sell the latest generation of products to their customers and thereby be successful.

That is really the measure for us in terms of how we participate in that market.

Obviously it is a very important market to the Company, one that is a very dynamic market and it is one where we have been extremely successful in the back of that very simple principle.

Steven Fox, Cross Research.

Thanks.

Just two quick questions.

First of all you mentioned, Adam, that you are expecting to see some benefits from new electronics functionality on the military side.

Is that something that is going to occur this year or is this something that you are working on designs maybe for next year?

And then secondly, I was just curious if we could get an update on just any changes or advances in your manufacturing footprint going through this calendar year.

Obviously you are well positioned in China; I don't know if there are other changes we should think of relative to India, Mexico, etc., but it would be great to get an update there.

Thanks.

Thank you very much.

Appreciate the question.

I mean, relative to new electronics in the military aerospace market this is something that has been ongoing.

And the fact is without our participation in some of these new electronics even in the first quarter our performance would have been much worse than it was.

I mean the overall spending environment is clearly not a favorable environment.

And so, it really is on our shoulders and on our organization around the world to continue to drive leading innovation.

We are very fortunate though because we have such a broad position and such a reputation as the technology leader in that market that customers come to us when they need to create those innovations.

And now the military equipment manufacturers, they've got to differentiate.

They cannot just live on a rising tide anymore, rather they've got to create these kind of more bang for the buck new technologies for their end customer, whatever government that may be around the world.

And so we have seen tremendous participation in that.

We've seen new radar systems for example in the US and Israel, early warning and missile defense radars, things like that where new electronics have been incorporated which allows us to offset what would otherwise be budgetary pressures in that market.

That has been a benefit for us in the first quarter, we believe it will continue to be a benefit for us going forward long term.

And when does that drive growth or not?

Obviously there is an overall budgetary environment which we would fight against, but that gives us a tremendous, tremendous opportunity to have success regardless of the budgets.

Relative to our manufacturing footprint, you know we operate a lot of factories around the world because we have a very unique organizational structure.

And just to remind everyone, that is a structure whereby we have individual operating units with general managers who truly run accountable businesses around the world.

Part of being accountable is being flexible and we pride ourselves on a constant degree of flexibility in how we make things and where we make things.

These aren't decisions that Diana and I are making here in Wallingford, Connecticut.

These are decisions that get made on the ground in real time depending on the needs of our customers and the requirements of the various dynamics of costs that are coming.

So to that end, yes, we continue to operate in China; I think we have today 28 factories in China, we have significant people in China.

But by the same token we continue to strengthen in Mexico, in India, in Eastern Europe and we continue to prospect for new locations to support customers around the world.

And so, it is an ongoing very fluid manufacturing footprint for Amphenol as we seek to continue to have that very flexible approach.

At the same time I should just say relative to China, yes, the costs in China have gone up and, yes, the renminbi continues to appreciate, but we also have a lot of customers and a lot of business in China.

China is a tremendous market for the Company.

And so I cannot imagine very easily a scenario whereby one would move production, say, to Mexico to re-export back to China.

That is not something that probably would make a lot of sense.

At the same time though we are seeing some movement of production back to North America, predominantly to Mexico, where that makes sense for customers in this market.

So it continues to be very dynamic and we will continue to approach that with a degree of agility that we think is really typifying the Amphenol management style.

Great.

I appreciate that update and good luck in this quarter.

Thanks.

Thank you so much, Steve.

And if there are no other questions, we appreciate everybody's interest in the Company and hope that you also have some of the first signs of spring that we are seeing here in Wallingford, Connecticut.

Thank you all very much.

Bye-bye.

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