安費諾 (APH) 2014 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.

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

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

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

I would now like to introduce today's conference post, Ms. Diana Reardon.

Ma'am, you may begin.

Thank you.

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

I'm here together with Adam Norwitt, our CEO, and we would like to welcome you all to our first-quarter earnings call 2014.

Q1 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 will then have a question-and-answer session.

The Company closed the first quarter with sales of $1.246 billion and EPS of $0.99 before one-time items exceeding the high end of the Company's guidance.

Sales were up 15% in US dollars and in local currencies compared to Q1 of 2013.

From an organic standpoint excluding, both acquisition and translation impacts, sales in Q1 2014 were up 7% over last year.

Sequentially sales were flat in US dollars and down 5% organically from Q4 of 2013.

Breaking down our sales into the two major components, our cable business, which comprised 7% of our sales was up 4% from last year.

Our interconnect business which comprised 93% of our sales was up a strong 16% from last year resulting from the dual benefits of good organic growth and the impact of our acquisition program.

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

Operating income excluding one-time items increased $234 million from $207 million last year.

Operating margin excluding one-time items was in line with our guidance at 18.8%, down about 40 basis points from last year.

The decline in operating margin is due primarily to the lower profitability level of the Advanced Sensor business acquired in December 2013.

As discussed on our last call this acquisition is accretive on an earnings-per-share basis but reduces the Company's overall operating income percentage as the business currently operates at a lower level of profitability than the average of the Company.

We are very excited about the potential of the acquisition and expect their operating income margins to improve over time based on the combination of their excellent management team, leading technology and Amphenol's strong operating discipline.

From a segment standpoint in the cable segment margins were 12.2% equal to last quarter and down from 13.8% last year primarily due to the impact of market pricing and some impact from product mix.

In the interconnect segment margins were 21% down from 21.4% last year.

The year-over-year interconnect operating margin decline reflects the acquisition impact I just discussed.

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 continues to be a dynamic environment.

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

As we indicated in our January earnings call and as is required under US GAAP, the Company has recorded a one-time acquisition-related charge of $2 million, or $0.01 per share in Q1 of 2014 relating to the amortization of the value associated with acquired backlog for the Q4 2013 acquisitions.

Our interest expense for the quarter was $19.1 million compared to $15.5 million last year.

The increase over last year is due primarily to higher average debt levels resulting from the Company's acquisition and stock buyback programs.

Other income was $4.1 million in the quarter up from $2.8 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 one-time items was 26.5% in Q1 2014 and approximately 26.8% in Q1 2013.

On an as-reported basis the Company's effective tax rate was 26.4% this quarter compared to 21% in last year's quarter.

As previously disclosed Q1 2013 tax provisions included income tax benefits 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.

Such tax provisions were reinstated in early 2013 and under US GAAP the related benefit to the Company was recorded at that time.

Net income excluding one-time items was approximately 13% of sales in the quarter and earnings per share excluding one-time items increased a strong 14% to $0.99 up from $0.87 last year.

On an as-reported basis earnings per share was $0.98 and $0.94 in the first quarter of 2014 and 2013 respectively and included the one-time items previously discussed relating to acquisition charges in 2014 and income tax benefits in 2013.

Bookings for the quarter were strong at $1.310 billion resulting in the book-to-bill ratio of approximately 1.05 to 1 for the quarter.

The Company continues to be an excellent generator of cash and cash flow from operations in the quarter was $203 million, or 127% of net income.

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

From a working capital perspective both inventory and accounts receivable declined about 3% from yearend and stood at $773 million and $972 million at the end of March.

Accounts payable was $480 million at the end of March, down about 13% from yearend.

Cash flow from operations of $203 million along with net proceeds for a January bond offering of $743 million, a reduction in short-term investments of $24 million and proceeds from stock option exercise of $16 million were used primarily to repay outstanding amounts under our revolving credit facilities of $658 million to purchase approximately 1.4 million shares of the Company's common stock for $121 million to fund $54 million of net capital expenditures and $9 million of payments related to 2013 acquisitions.

Cash on hand increased approximately $136 million in the quarter.

At the end of March cash and short-term investments were just under $1.3 billion, the majority of which is held outside the US.

At the end of the quarter the Company had 4.3 million shares remaining under its 10 million shares stock repurchase program which expires in January 2015.

And as we previously announced in January of this year the Company completed a $750 million five-year senior note offering.

The notes were issued at 99.846% of their face value and have an interest rate of 2.55%.

The Company incurred fees of approximately $5.8 million in connection with the sale.

Debt at the end of March was $2.2 billion and net debt was approximately $924 million.

At quarter end borrowings and availability under the Company's $1.5 billion revolving credit facility were $270 million and $1.2 billion respectively.

The Company's leverage and interest coverage ratios remained very strong at 1.9 and 17 times respectively and EBITDA in the quarter was approximately $286 million.

From a financial perspective this was an excellent quarter.

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

Thank you very much, Diana, and I'd like to offer also my welcome to all of you here on the phone today.

As is customary I am going to spend some time to highlight our achievements in the first quarter.

I will then discuss our trends and the progress across our various served markets and then finally I will make a few comments on our outlook for the second quarter and the full year of 2014 and will certainly leave some time at the end for questions and answers.

So as Diana just a detailed we are very pleased to report that the Company exceeded the high end of our guidance in both sales and EPS and achieved a new record in orders.

Revenues in the quarter increased a very strong 15% from prior year and equaled our fourth-quarter record sales level of $1.246 billion.

Orders achieved this new record, $1.310 billion, which represents a book to bill of 1.05 to 1 and certainly bolsters our confidence for the future.

And once again we generated industry-leading operating margins with first-quarter return on sales of 18.8%.

These results once again make me extremely proud of the Amphenol team.

Our agile and entrepreneurial organization continues to react quickly to capitalize on the many dynamic opportunities for growth and strong operating performance that are arising across the ever-changing landscape of the electronics industry.

Before I turn to the specific markets I just wanted to say that our management team's ongoing drive for diversification across the many end markets of the electronics industry has again created significant value for the Company in the first quarter.

In fact, we are truly proud of this great balance across our various end markets which exposes us to every corner of the electronics industry while certainly insulating us from the risk of overexposure to any given market.

Turning first to the military market, our sales in that market represented 11% of total Amphenol in the quarter.

As we had expected, sales were down slightly from prior year and were essentially flat to prior quarter as stronger sales of our products incorporated into military airframe as well as engines were offset by a general moderation of purchasing activities by defense equipment manufacturers.

While there continued to be many uncertainties in the military spending plans of governments around the world we are encouraged to see increasing indications of firming demand in this market.

In particular, our customers are making continued investments in new electronic functionalities in military equipment and we are capitalizing on opportunities for growth that we see in certain developed geographies.

We expect demand in the military market to increase from these levels in the second quarter and we continue to expect moderate growth for the full year of 2014.

Importantly, regardless of overall spending patterns we believe our technology leadership and broad program participation positions us to benefit long term from the expanding adoption of electronics and military hardware.

Turning to the commercial aerospace market, this market represented 6% of our sales in the quarter.

Sales increased a very strong 26% from prior year and 4% sequentially as aircraft manufacturers continued to raise their production levels of new airliners on which we have increased content.

And as we benefited as well from the sales contribution from last year's successful acquisition of Ionix.

We remain very encouraged by our expanding presence in what is clearly a fast-growing commercial aerospace market.

And we are well positioned to capitalize on the proliferation of electronics content on next-generation planes.

In particular these advanced electronic systems are requiring new higher technology interconnect solutions to enhance fuel efficiency and improve passenger experience, all of which creates excellent opportunities for Amphenol.

Looking ahead, we expect sales to increase further in the second quarter as production levels for existing and new aircraft continue to climb and remain optimistic for our overall growth prospects in the commercial air market in 2014 and beyond.

The industrial market represented 17% of our sales in the quarter.

Our sales to this very important market increased a significant 47% from prior year as a result of contributions from the Advanced Sensors acquisition as well as due to strong performance in the rail mass transit, instrumentation, heavy equipment and medical segments.

Organically sales grew a very strong 11%.

Sequentially our sales increased by 24% primarily related to the addition of Advanced Sensors in late December.

We are very encouraged by our broad-based growth in the industrial market.

And it is really a clear confirmation of the Company's progress in increasing our market penetration while also broadening our technology offerings for the industrial market.

In addition, we are very excited by the future opportunities for cross selling of sensors and interconnect products used to protect against harsh environments and to ensure high reliability, in particular in heavy equipment, medical and construction application.

Looking ahead to the second quarter we expect further growth as we increase our penetration of new sensor and interconnect technologies across a wide array of exciting industrial segments.

The automotive market represented 15% of our sales in the quarter.

Our sales increased a very strong 47% from prior year and 23% sequentially as we benefited from the diverse range of new automotive products provided by Advanced Sensors and Tecvox.

We achieved strong 24% year-over-year organic growth driven by accelerating sales of our new products used in infotainment, emissions management and drive train control among other applications.

We are very excited to see the results of our expansion into these and other new high-technology automotive applications as the benefits of our recent acquisitions combined with our long-term organic product development efforts to create exciting new platforms of growth.

Automakers continue to incorporate advanced interconnect and sensor products into their electronic systems in new areas of performance management, fuel efficiency and passenger comfort and infotainment all of which are creating great opportunities for Amphenol in this important market.

In fact, over the last five years these trends have enabled the Company to expand the automotive market from 6% of our total sales to 15% in this latest quarter.

This is just an excellent example of the Amphenol organization really reacting to the expanding high-value opportunities that can arise with advances and changes in electronics technology.

We expect sales in the automotive market to increase further in the second quarter as we continue to benefit from our recent acquisitions as well as from the ongoing expansion of vehicle production and electronic content.

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

Sales were down slightly from prior year and declined sequentially as we had expected by about 29%.

As we have discussed previously our sales of products incorporated into tablets moderated in the second half of 2013 as a result of the reduced content opportunity in certain Wi-Fi only and white-box tablet devices, a dynamic which continues into 2014.

Nevertheless, we were encouraged to have experienced growth in the quarter in sales related to new high-performance smart phones and laptops which partially offset the slowdown in tablet sales.

In the second quarter we expect some further moderation of demand as our OEM customers prepare for new product releases that are planned really for the second half of 2014.

And while we continue to expect sales this year to be down in the mid-single-digit range due to the dynamics we've already discussed we do look forward to a step up in sales in the second half of 2014 as we benefit from our strong technology position on a range of new devices.

In addition, our highly agile organization remains poised to react to and capitalize upon any incremental growth opportunities that may materialize throughout the year.

The mobile networks market represented 11% of our sales in the quarter.

This is a market where we were very pleased to grow sales by a very strong 19% both from prior year as well as sequentially from prior quarter.

In the first quarter we were able to react quickly to a pickup in demand from both base station manufacturers as well as mobile operators.

While our year-over-year growth was particularly significant in Asia we actually grew strongly in all regions on a sequential basis.

Based on our latest feedback from our mobile network customers we now have a more positive view of this market for 2014 as operators in many geographies have increased their spending on LTE and other next-generation networks.

In order to accommodate higher data speeds and to relieve the gaps in coverage and capacity which exist across many wireless systems, we are really encouraged now that the pent-up demand that we have talked about for quite some time for investment and mobile infrastructure is really now beginning to materialize.

Based on this new outlook we now anticipate further sequential growth in the second quarter and expect our sales growth for the full year to accelerate from the rate of prior year.

In general, we look forward to further long-term strength driven by our broad design and positions on a wide array of base station platforms as well as by our growing positions with a diverse range of global wireless operators.

The information technology and data communications market represented 17% of our sales in the quarter.

Sales increased in this market 6% from prior year which was really led by growth in our products that are incorporated into servers and storage equipment in particular.

Sequentially sales declined as we had expected by 8% due to the normal first-quarter seasonality that we see in the IT market.

As our customers continue to strive for new levels of equipment performance in order to handle what is clearly a dramatic expansion of data traffic, I can tell you that our pipeline of new design opportunities with our next-generation products has continued to strengthen.

In addition, we are accelerating our efforts at working directly with data center operators and IT service providers in addition to our traditional OEM customers.

This is actually very important as demand patterns in the IT market are shifting with certain of such end customers increasingly developing tailor-made solutions to their interconnect architecture.

Looking towards the second quarter while we expect sales to remain at these first-quarter levels in the seasonally lower first half we do remain confident that our technology position will enable Amphenol to continue to perform well into the future.

The broadband market represented 7% of our sales in the quarter.

Sales were essentially flat to prior year and prior quarter as increased demand by international cable operators was offset by a moderation in cable spending by customers in the US.

While the market environment for traditional bulk cable continues to be challenging and the competitive pricing environment in particular remains difficult, as Diana mentioned, we are encouraged to see the emerging benefits of our product and our customer diversification both of which have enabled us to grow our range of broadband customers while offering a more complete interconnect product offering.

Going into the second quarter we expect our sales in the broadband market to increase from these levels and look forward to continuing our strong position in the broadband market.

So in summary I can just tell you that I am extremely proud of our organization.

We continue to execute well in what is no doubt still a challenging and certainly dynamic market environment.

Our superior performance once again is a direct reflection of our distinct competitive advantages, our leading technology, our increasing position with customers across a very diverse and balanced range of markets, a worldwide presence really Amphenol being in all corners of the world, a lean and flexible cost structure and most importantly, an agile and entrepreneurial management team, one that is poised all the time to react to opportunities and to certainly deal with any challenges that may come our way.

Turning to the outlook, and based on constant exchange rates as well as normal seasonal patterns, and in consideration of our strong first-quarter performance as well as our current expectations for the remainder of the year, we are now increasing our guidance and expect in the second-quarter and full-year 2014 the following results.

We expect sales in the range of $1.255 billion to $1.285 billion and $5.110 billion to $5.2 billion respectively.

For EPS we expect in the first quarter(sic-see press release "second quarter") in the range of $1.03 to $1.06 and for the full year $4.25 to $4.34 respectively.

For the full year this new guidance now represents sales and EPS growth excluding one-time items of 11% to 13% and 10% to 13% respectively.

Our entire team is very encouraged by the strengthening outlook in sales and earnings especially given the many dynamics in the global economy.

The ongoing revolution in electronics continues to create for Amphenol tremendous opportunities and I am very confident in the ability of our outstanding management team to continue to capitalize on these opportunities to grow our market position and expand our profitability and thereby ultimately to drive continued superior performance for Amphenol.

Thank you very much.

And operator at this time we'd be very happy to take any questions that there may be.

Thank you, sir.

The question-and-answer period will now begin.

(Operator Instructions).

Wamsi Mohan, Merrill Lynch.

Yes, thank you.

Good afternoon.

Adam, on the guidance just wondering if there are any specific reasons for the sub-seasonal guide that's implying below what you guys have done historically?

So just wanted to get some color on if you saw some particular trends that you might want to highlight the fact from the ones you spoke about?

No, I think it's actually very strong guidance, Wamsi.

I haven't gone back and done a historical analysis of every Q2 compared to Q1.

We think this is actually quite strong guidance.

I think that if you look at the bp that we had in the first quarter where we had expected the first quarter to be more significantly down, I think this is an outstanding guidance that we have here for the second quarter and for the full year and we feel very good about it.

That's about all I would really say.

Okay, thanks.

And Diana, a quick question on CapEx.

Why are we seeing CapEx increasing so much versus last year?

It was only $30 million last year and now it's $54 million, and $50 million-ish last quarter too.

Anything that is changing that is driving the higher CapEx levels?

Sure, in the near term here, Wamsi, if you recall we had this flood back in 2011 in upstate New York and we are, I think as we had mentioned in the past, replacing and rebuilding that manufacturing facility at a much higher piece of land, I would note.

So there is some incremental spending that you see in Q4 of last year, Q1 of this year and then you also see some I think in Q2 as we complete the majority of the construction there.

I think that the CapEx last year was about 3.5% of sales.

I think it will be about 3.5% this year.

So it's really still within our historical range but you are right that those two quarters have been somewhat spiky as will Q2, too.

And then I would expect it to kind of go back down to somewhere around 3% of sales or so.

So the spike really relates to the funding of the replacement of that manufacturing facility.

Okay got it.

Thanks a lot.

Jim Suva, Citi.

Thank you and congratulations to you and your team there at Amphenol.

I had two questions.

The first question is when we think about the integration of the Advanced Sensor business, that's a very attractive market, what is Amphenol doing as far as its efforts to increase the profitability of it?

I think you were pretty clear on the prepared remarks it had the ability to be more profitable and contribute a lot more to Amphenol.

Is it like raw material procurement, is it sharing of R&D, is it moving to low-cost consolidating plants, are you in similar locations?

What are you kind of doing to help out with those margins because it sounds like you have a lot of confidence in visibility that is going to happen.

If you can help us to understand that.

And then the second question is given the changes in the global raw material environment can you help us understand is that impacting your pricing some, is it helping your margins some, how should we think about the changes in raw materials and what your customers are giving feedback to you at Amphenol?

Thank you.

Jim, I would just maybe talk about the second question first and then Adam can talk about Advanced Sensors.

I think that certainly the environment relative to raw materials is a better environment than what we had seen in a while back.

I think that as you know very well one individual item by itself isn't necessarily the answer relative to gross margin trends.

It's really the balance between pricing dynamics in the market and input costs on a combined basis.

And what I would say is I think that we certainly like this environment better than the environment we had a few years back but we really don't necessarily see it as a headwind, I mean as a tailwind from a profitability perspective.

I would also just point out that if you look at the guidance that we have just given in Q2, Q3, and Q4 and you look at the sequential conversion margins that are incorporated and reflected in the guidance, they are quite strong and they are actually above our target of 25%, which we have for the Company.

So I think the guidance that we've given on profitability and how that profitability is going to trend during 2014 off this new kind of base level that we've established in the first quarter is really quite strong and I think is fully reflective of all of the opportunities that we do see which would include perhaps in certain specific product areas of the business where there may be some small help from those commodity prices.

Adam, if you want to talk about Advanced Sensors?

Yes, relative to Advanced Sensors, let me just say generally first that we are extremely happy with the acquisition so far.

We have owned it just a few days over four months now and as we have always said, what is our first criteria for an acquisition, it's people and it's technology and we feel so good about both of those aspects of this company now that we get to know them certainly more intimately than one does during the process of an acquisition.

So from that standpoint the early returns and our early impressions of the business are just fantastic.

We have also great feedback from customers and we see great collaboration opportunities from a technology standpoint.

As I have talked about before we see really in the future long term that there are great opportunities to leverage our expertise in harsh environment and other interconnect packaging together with the Advanced Sensors expertise across the sensor element and that new technology.

And we still believe with a lot of conviction that that will be true and we still remain very excited about being part of this new growth platform for the Company.

Relative to the profitability we certainly talked about, and Diana mentioned also in her remarks, that this is a company that did come in at a somewhat lower level of profitability in which we have a conviction that over time we will get that up to the level of profitability of Amphenol.

How does that happen?

It starts really with a mindset.

It's not really bringing in people and consultants and things like this, it starts really with a mindset of management to take pride in their product and then to execute on those product opportunities and on the production in a way that is lean and able to really make money.

Ultimately we talk about profit is just selling price minus cost.

And so we will work really on both sides of selling, of pricing, for pride of the product and doing that in a cost-effective way.

Diana has also mentioned in the past that the SG&A levels are somewhat higher than those of the Company.

Those are all areas that the management team is looking at.

And it is really that management team, the existing management team in whom we have so much confidence who is going to drive those things.

Are there going to be consolidations with Amphenol and some of these more traditional synergies that maybe companies in many industries do talk about?

You know that that's not really the way that we approach acquisitions.

We believe that there is tremendous value inside of this company.

We think that they have a fantastic technology and great people.

And no doubt about it we are working intimately with them to find ways to extract even more value from the business.

Sherri Scribner, Deutsche Bank.

Hi, thank you.

Diana, I just wanted to ask, and Adam also, about the strength that you are expecting in the second half.

If you look at the full-year guidance you took the range up to the higher end of that guidance and you seem to be very confident.

I know that you mentioned the mobile devices business is part of the upside you expect in the second but wanted to get more detail and understand if there is some other pieces of the business that you think are going to see some upside in the second half.

Thanks.

Sure.

I think from a market standpoint it's really in the first case it's some of those same markets that Adam talked about that were strong, being strong for the full year and then being strong for Q1.

I think the one other difference that we do expect in the second half, which Adam mentioned, is we do expect sort of a second-half lift to some extent in the mobile device market as based on the knowledge that we have based on our operating unit discussions with customers and so forth.

There are more new product ramps that are expected in the second half.

So Q3 and also Q4 from a sequential improvement standpoint in that market does has some impact when you look at the full consolidated results on a first-half, second-half basis.

Okay, so it sounds like it is primarily mobile devices and then just general strength overall.

Maybe can I also ask about the mobile network piece of the business.

You guys finally are a bit more confident that that is improving.

Can we get a little bit more detail on what you are seeing there?

I know you mentioned LTE and next-generation buildouts, but maybe a little more detail on that would be helpful and if you think that is also part of the second-half recovery.

Thanks.

Thank you very much, Sherri.

We are actually very pleased with the performance of the mobile networks market this quarter.

Last year we were pleased to finally see growth for the first time in I think the better part of three if not even four years in that market and we grew kind of mid single digits, I think 5% growth last year.

And we are very pleased to see that growth accelerating here in the first quarter.

And as I said at the time of our fourth-quarter call, we are cautious always at the outlook in that market because there can be volatility but at the same time we have done a great job over the recent three or four years to position ourselves very strongly such that if the spending cycle would really let loose to some extent we would benefit from that.

And I think right now what we are seeing in many geographies is that the operators are now finally figuring out how to charge for data.

And as they figure out how to charge for data it allows them then to make the investments in the networks that are appropriate to make given this incredible proliferation of high data consumption devices that has been a dynamic that we have all been experiencing for the last half of the decade.

So I think that economics of the market starts to work its way out and thereby embolden the service providers ultimately who have to make the investment decisions to make appropriate investment decisions.

And we are also very fortunate that in this market we have such a broad presence at the OEM, really not leveraged to any OEM, so whoever wins we are pretty agnostic to that.

And at the same time we understand that more and more of the interconnect and the antenna gets specified and decided directly by mobile operators on a worldwide basis.

And so we find ourselves in a very unique position of having that great channel directly to the operators together with a preferred supplier relationships across the board with OEMs wherever they may be.

And I think in the quarter we really started to reap the benefits from that position together with the favorable economics finally allowing operators to spend money.

As I talked about we saw great growth in Asia and certainly the LTE buildout in China has not been an insignificant benefit, but we saw strong growth really in every geography on a sequential basis.

And that was something that traditionally you don't see in this market.

And of all the signs that make one feel a little more positive about the spending environment that is one that I would really latch onto because normally these markets work in kind of countercyclical fashion, there's sort of only so much that goes on across the world and Asia builds a lot and North America doesn't build and vice versa.

But in this case we really saw strong performance across the globe and I think of all the things that gives me and us and our team really the most confidence.

Shawn Harrison, Longbow Research

Hey, afternoon.

Two questions.

The first is on the IT datacom business.

It sounds from your comments, Adam, that market is slowing a bit and I know you guys have outperformed the market in 2012 and 2013.

Maybe you could just comment on where you think growth rates are going over the next 12 to 18 months.

And then the second question is just tied to liquidity and cash flow.

You guys I think had one of the best operating cash flow quarters for first quarter that I can remember.

You've got probably about $1.5 billion of liquidity.

Are there bigger deals out there that are becoming available or is it going to be a number of smaller deals, maybe just your bandwidth to handle a lot of incoming deals as well as a management team?

Look, Shawn, relative to the first question on IT datacom, I think we feel very good about our performance on the year-over-year basis in the quarter we grew 6% in the quarter.

Last year you may recall we grew that market by 7% in a market that arguably was really down last year.

And I think when you look at OEM results and other data points it's hard to say that that was a market that was up.

On a sequential basis the first quarter is usually down and the second quarter usually is also not a strong seasonal quarter in the IT market.

You tend to see a little bit more in the second half.

I think there are a lot of dynamics in this market and it is a market where you've got to really stay on your toes.

When you look at who is really making decisions, where the spending is happening, what is happening to IT budgets, it is a very delicate market in that respect where some of the traditional spending patterns are really being turned on their heads.

And that's why I talked -- I made some mention of the fact that if one is really just going to sell through the old channel of OEMs as one has done for a long long time in the past, that can be a very very difficult market.

And I think to our credit we have worked really in a number of different areas in the IT market.

So we are not just focused only on the traditional OEMs, we are working directly with data centers, we are working directly with service providers where there is some shifting really of the balance of power in the decision making around the electronics and the configuration of those electronics.

What does that mean really for the rest of the year?

I think at this stage it's a little hard to predict.

And thus I think our outlook is a very prudent outlook saying that we have this kind of flat performance in the first half followed by a second half that will be up by some amount.

Ultimately what is that going to leave the IT market for the year?

I think it's a little too early to say.

We wouldn't have the conviction about that that I think we were able to develop around the wireless infrastructure market.

Relative to acquisitions and certainly I'll let Diana speak to any liquidity question specifically, but relative to acquisitions and the scale thereof we have always had an appetite for acquisitions regardless of size.

And so as we look out at the universe of companies that one day may become available, we do not apply a criteria which is size of that company.

We have made acquisitions that are very small and very productive new platforms for the Company and similarly we have made very significant acquisitions like the Advanced Sensors one that we made last quarter, or in the fourth quarter which was really the second largest in the history of the Company.

So to that extent there are good companies that are available in the industry that are, not available but are out there in the industry that may one day become available really of all different sizes.

And I don't think that there is really any change today in the nature of the size and scope of the acquisition opportunities and our pipeline for acquisition remains very strong.

We remain in great dialogue with a number of good companies and as I always say, we remain wholly unable to predict when those will come, which ones will come when.

What I can tell you is when they do come, as they did with us in full force last fourth quarter, we will be poised and ready to take advantage of those opportunities.

Amit Daryanani, RBC Capital Markets.

Thanks a lot.

Good afternoon, guys, and congratulations on a nice quarter.

Adam, I was wondering if you would just talk about some of the initial feedback or thoughts you have on the Sensor portfolio after having it under the Amphenol umbrella for the last few months now.

Are you seeing better cross-selling opportunities at this point and if so where do you think the cross-selling opportunities are more attractive, is that the industrial side or the automotive side?

I mentioned earlier, Amit, we have a very positive impression.

Again we've only owned the Company, they have only been part of our team for four months and a few days here.

So it is still early but we are extremely excited about what we have seen so far.

And I think in particular we are excited from a technology standpoint.

They just have outstanding technology and even more outstanding individuals supporting the development of that technology.

So the interaction that happens and has happened really early on has been kind of our engineers to their engineers.

And I say their probably for the last time because they are ours just like our other engineers are.

And I think we have seen good opportunities and I would say we have seen them across both of the end markets that you describe.

Obviously within the industrial markets that's a lot of submarkets, everything from medical to heavy equipment, construction and many many other segments as well as in the automotive market.

I think one of the premises, one of several premises that we had with this acquisition was that there is a value to the interconnect packaging of the sensor product and there is just no question about it, we do see that.

Now, what does that generate in the short-term?

One can never be too overconfident about changing things from a technology standpoint so quickly with customers.

But the early returns with those customers, the early dialogues that we are having, and I personally have been involved in some of them, they are very very positive.

And I am very confident that long term that will be a tremendous advantage that we have as we go about slowly over a long time period here building a new platform of growth with the Sensor business.

Got it.

And I guess, Diana, when I look at the guidance that you guys have now especially with the next three quarters beyond the March 1, it looks like you are looking at convergent margins being sequentially being somewhere in the low to mid 30% range for Q2, Q3, Q4.

Could you maybe just talk about what is driving this better conversion margin from the historical trend?

I assume GE sensor integration has something to do with it, but maybe if you could talk about the couple of big levers that is driving that that would be helpful.

Sure, I think that as you point out and as I think I said in response to another question, you're right we do have higher conversion margins in those three quarters in our goal.

I think that we have, if you go back historically, especially in the Q2 time frame had convergent margins that were more in that range, so I think there is a combination of factors.

Certainly I know the sequential volume increases as we go along here with growth during the year is a factor.

I think that the environment in general from a margin standpoint is probably slightly more supportive than it has been in the prior years in terms of that balance of pricing and cost.

I think when you get into the second half of the year there is some contribution in there from some expected improvement in some of the acquisitions that have come in later in 2013, certainly not up to the average level of the Company yet but as we go through those quarters there's some improvement that we are expecting.

In addition we have got a market or two in there that had been sort of flat to down for a few years that is starting to come back.

I think in general we've got some positive trends in the business from an operating management standpoint.

I think we've got a high degree of confidence throughout the Company in achieving these higher levels of conversion margins and we actually feel pretty excited as a team to be able to now incorporate those into our guidance for the remainder of the year and really start to build back as we get into the second half of 2014 to levels when you compare it to the prior year that would be exactly where we would want them to be as a company, as a whole.

So those are I think the main factors, Amit.

That's realy helpful.

Thanks a lot and best of luck guys.

Mark Delaney, Goldman Sachs.

Thanks very much for taking the question.

I was hoping first you could elaborate a little bit more on the outlook in mobile devices.

I understand there is some new wins.

If you could help us understand what sorts of products those are in, if it's antennas or connector products.

And then maybe related to that if you could talk about what the opportunity is in the consumer wearables market?

Well, Mark, thank you very much for the question.

As I discussed, our outlook at this stage for the mobile device market would certainly be to have in the second half a pickup based largely on some new programs and a wide number of new programs.

And as you could imagine I'm not going to talk specifically about anything at this stage.

But just let it be said that these new programs are really broad across the broad range of applications that we participate in and we participate in everything from smart phones to ultra-books to mobile computing devices which include things like tablets and e-readers.

I'm not going to comment about other specifics, that's really not prudent given interactions with customers and the various confidentiality that there is.

Okay.

That's helpful.

Thank you.

And then for my follow-up question, I was hoping to talk a little bit more on the Advanced Sensors business and really centers more broadly if you could talk about what you think the potential growth rate of that business is in terms of revenue growth?

And then if there are other parts of the sensor market you'd like to expand in be it consumer or other types of the sensor end markets.

Thank you very much.

I think as I have said we believe that this acquisition, which is big for Amphenol but really small given the overall size of the broad sensor market, is very exciting for us.

If you look at the broad sensor market, what is the real number for it but we have heard numbers in the range of $50 billion in size, roughly the same as the market for connectors.

And with our $225 million in sales that puts us in a certainly a small, for us significant, but it's small on a relative basis.

So where is the growth going to come from for us?

I think there is going to be a lot of opportunities for growth and is that going to be in what market?

Today we are stronger with the Advanced Sensors business in the industrial and automotive markets, we think there are tremendous opportunities for growth in those markets.

One can imagine that we would be very interested in pursuing other markets where high reliability, harsh environment, the packaging of the products would be a part of a very compelling sales proposition to customers.

Are we going to end up getting into consumer sensors and other things?

I think that's not something that necessarily would be at the top of our list and it certainly wouldn't be for us a high priority at this stage but I'm not going to close any doors long term.

We will see.

We are still learning about the sensor market.

It is a very exciting market and it's a market where I think I have mentioned before what excites us so much about it is the makeup of that market just reminds us so much of the connector market circa 15 or so years ago, a market where you have just tremendous diversification, a market where you have tremendous technology innovation where you are making a product which ultimately is a small component in a broader more complex system.

But it's a component that is very critical whereby if that fails things don't work in the overall system.

And thus you can embed inside that product outstanding degrees of technology which ultimately allow you to realize strong returns and the kind of returns that we want to make as a company.

Ultimately, what is the growth rate going to be of that business?

We wouldn't have bought it if we thought it was going to grow and we have certainly strong targets of our own growth.

We are achieving strong growth today and we don't hold any operation or division in Amphenol to a lower standard than we hold collectively to ourselves.

So we would certainly expect and drive that organization to grow at least as fast as we can grow as a company.

And then long term we look to grow organically, we will look to grow inorganically through acquisition.

We're going to be very opportunistic on one side and very methodical on the other side to really get to know the market from our position of strength and expand ourselves, again, just as we have done in the interconnect market for the last decade and a half.

And I think that's the real opportunity across the Advanced Sensors business long term.

Thank you very much.

Amitabh Passi, UBS.

Hi, thank you.

Adam, I guess first question for you was book-to-bill, 1.05, most of your commentary on most of the end markets is quite constructive going to the second quarter yet you expressed a level of caution in the macro environment.

I just wanted to see if you can flesh it out a bit more.

Did you see or are you still seeing a lot of volatility order, week to week, in terms of incoming orders?

Did things soften as the quarter progressed?

Just any incremental insight in terms of why the sort of hesitation and the caution still.

First of all to answer your question about the quarter, the quarter progressed actually very nicely throughout the quarter.

It wasn't that there was any incremental weakening.

I think the end of the quarter was strong.

The beginning of the quarter was strong and February included Chinese New Year.

So you can imagine you have a little bit of a dumbbell kind of a quarter there.

And I think that was not abnormal and there was certainly no change in how we finished the quarter to drive.

We feel that this is actually very strong guidance and if you look at the guidance across the course of the year as we've talked about it certainly does strengthen throughout the year.

I think when we look at the book to bill which was extremely strong I would tell you that some of the bookings come in what I would term more of a longer-cycle businesses, things like industrial and aerospace and military.

And those don't always convert immediately within the 90 days following the quarter in which they were booked.

And so that's about maybe the only thing I would say to add a little more color to the timing of the orders.

But I will just tell you we feel that this is actually very strong guidance and a very strong outlook going into the rest of the year.

Excellent and then just as a follow-up, Diana for you, with respect to OpEx and interest expense for the second quarter, can you give us maybe just incremental insight in terms of what you are assuming in terms of how OpEx trends and interest expense?

Sure.

Interest expense will be somewhere around $20 million or so a quarter in Q2 and Q3 and then will come down in Q4 when our notes are retired.

From an SG&A or OpEx standpoint, the list that you see in the first quarter is really that acquisition impact that I talked about on the operating income line.

So that is sort of been reset as we have had a full quarter of consolidation for the acquisitions that have somewhat higher SG&A levels, as I think Adam mentioned before and I think I mentioned on the last call.

As we look into the remaining quarters of the year we would expect a more normal Amphenol pattern as we look to more tightly control those expenses including those of some of the acquired companies.

And I would expect as a percentage that SG&A will start to come down and would grow at a slower pace than the sales growth from a sequential perspective.

Okay.

Perfect.

Thank you.

Mike Wood, Macquarie.

Hi, thank you.

I saw one wireless carrier offering free 4G LTE data with the Wi-Fi service.

Is that a sign that you're seeing the stability in the mix between Wi-Fi only tablets and 4G tablets.

Can you comment on what you have seen there?

Yes, I am not close enough to know what carrier and how that is but I think that if there is one thing that is happening and it is that carriers are looking if at all possible to offload this tidal wave of data from their cellular networks which are quite expensive to Wi-Fi networks which certainly have much much lower operating expenses to them.

And so you will see some of the major carriers in North America who are really trying at all that they can do to bundle that kind of a Wi-Fi hotspot accessibility for free together with their more sort of mobile broadband that really has to run over the wireless base station.

So other than that I don't know that I would have any further insight to that specific offer that you mentioned.

Again, what I would just reiterate is what we are seeing is that the kind of conviction of the carriers broadly to spend money seems to be strengthening at this time.

And that then translates ultimately into their willingness to spend capital on a more aggressive schedule which ultimately we can enjoy some of the benefits of.

And I think that part of that willingness is that they are figuring out how to charge.

I am a perfect case study or canary in the coal mine, if you will, on this.

I had for so many years this wonderful grandfathered unlimited data plan with my carrier who I have been a phenomenal customer for so many years.

And then I got a device and it didn't actually have the option of mobile broadband and I wanted to tether it.

And here they said well if you want to tether it you have got to give up your unlimited data plan.

And there I am kind of stuck between the two millstones here to make that decision and ultimately I did give up my unlimited data plan.

And I think I'm not the only one that has been going through that kind of a calculus.

They are being very very astute, I think, the operators at figuring out how to migrate people off these plans and thereby start to charge for the data at the same time as they are trying very hard to move people into different means of accessing that data.

And together that is a very favorable result I think for the overall market and one which we are able to capitalize upon.

Great color on that.

Now that Advanced Sensors is part of the portfolio for four months is it too early to tell or are you seeing the deal pipeline grow now that you have this larger served market?

Yes, I think it's early and we are not going to comment specifically about which acquisitions are in our pipeline in which markets.

But it's certainly something that long term we will keep our eyes open for and no question about it our ability to acquire companies is really a very special advantage of Amphenol.

It's a real organic advantage of the Company, in fact, that because of our unique organizational structure we are able to bring companies in a very undisruptive fashion.

And because of our very lean approach to acquisitions we're able to do this very very quickly, we are able to react when the opportunities are there.

And that ultimately does position us really as an acquirer of choice, or the acquirer of choice in the industry.

And I think as we expand our platform and start looking outside of connectors toward sensors from an acquisition standpoint those same benefits that we bring to bear over the last decade and a half in our very successful acquisition program we see no reason to think that those same benefits cannot also pay dividends in the acquisition, in the potential acquisitions in sensor company.

Great, thank you.

Steven Fox, Cross Research.

Hi, good afternoon.

Just one question from me regarding the wireless infrastructure market.

Adam, you talked about how some of the sales are coming closer to the carrier's decision.

Is there a way to break that down in terms of how much of the cable assemblies that you may be doing are related to that decision process?

And then what does that do from a lead time standpoint or visibility into your business as a whole in terms of looking at wireless infrastructure?

Thanks.

Thanks very much, Steve, for the important question.

I'm going to demure a little bit and I would rather not talk very specifically about how much of our sales are to carriers and how much are to OEMs.

That is something we like to keep in our knowledge and not in the pocket of our competition.

But what I can tell you is that our growth in that market is actually very balanced between the OEMs and the installation and the carrier business.

And some of the installation business is working directly with carriers, some of that is working with the sales teams of the OEMs.

And no question about it, the requirements when you work with a service provider as opposed to an OEM are very different.

And that's true if you are talking about wireless, it's true when you talk about broadband, it's true as we see that migration happening in the IT datacom market.

Carriers have very very different requirements and very different priorities than do OEMs.

Ultimately an OEM has a job which is to run their factories as efficiently as possible and thereby be able to solve -- to be able to support their customers.

It is a somewhat more predictable business that they have when you're running factories and they don't want to have that massive volatility in their factories.

As opposed to a carrier, often times what the carriers care most about is the crew is ready and able to set it up, are the parts all there on time?

Because if it is missing one bolt or nut or clamp the crew can't climb up on the tower to put everything back together again.

And so there is certainly a premium put on responsiveness and on the agility of the organization to deal with that.

And I think this is one of the reasons why we have been so successful.

We talk so much about the agility of our organization and how we are able to adapt very quickly to the different requirements of various markets.

And I think this is a perfect example of that where we have organizations who have been used to that sort of more sort of steady drumbeat interaction that you would have with an OEM who have really retooled themselves to interact with an operator and deal with the operator on their own terms because you can't force them to deal with you on your terms very successfully.

You've got to adapt.

You've got to be agile.

You've got to react to the realities of the market that you are trying to be successful in and I think that we have done that.

So yes, are lead times sometimes shorter?

Is there a little bit more volatility in the installation market?

You don't know.

They have a crew of four people going to a tower and one of them calls in sick, they don't go that day, they don't need the parts.

Or it snows and they don't need the parts, or there's a storm and they need even more.

But that is something that we've been doing for a very very long time in Amphenol.

You know that we have had our broadband, our cable business for a very long time.

That has always been a service provider business.

So many of the things that we know in dealing with service providers through the broadband market we certainly are able to use as methodologies and approaches in dealing in the wireless infrastructure market and on a more recent basis in the IT market as those same dynamics come about.

Thanks very much.

I appreciate the insight.

James Kisner, Jefferies.

Hi, guys.

Thanks for squeezing me in there.

Just regarding the conversion margin discussion and also just the improving materials cost environment, I'm just kind of wondering knowing you guys manage to a bottom line, but might you expect to see some of that improved contribution margin to come from improvement in gross margin?

We've got a couple of years here where you have not hit 32%, more closer to 31% now, might we see some improvement in gross margin?

I think as you point out in your question, we really do manage to the bottom line and it's been a very successful strategy for us.

We have a very diverse business and the components of that bottom line, whether it's gross margin or SG&A, do vary some depending on the particular type of product, the type of market, the type of technology.

And so I think over time we may see some positive conversion on both lines but from our perspective the most important thing is how the conversion looks on the bottom line.

And I think we will continue to manage the business that way and we just don't guide specifically to what gross margin or what SG&A are going to do in a particular quarter.

I think I said in response to the SG&A question that we would expect SG&A as a percentage of sales to come down some as we move along and sales grow during the year.

And we do expect to see very strong conversion margins on the bottom line as we move through 2014 and we are certainly very excited about that.

But exactly where the mix comes out at the end of the day we couldn't really say at this point.

And we do believe we get the best performance by making sure that all costs are managed no matter which lines they appear on and we will just continue to conduct ourselves and talk about it in that fashion.

Okay, great.

This is a follow-up.

Are there any particular financial hurdles you guys look at in acquisitions, return on investment capital or IRR?

If you can't talk numerically perhaps just give us conceptually how you evaluate it if there's any kind of actual financial criteria other than just sort of strategic opportunity for revenue synergy.

Anything you can do to help us out there would be great, thanks.

I think we look at a lot of things.

I think Adam talked a little bit about acquisitions earlier on the call.

If think we look to pay a fair price for a business that has the potential to perform the way that Amphenol does as a total company.

And so we look for a business with good management, good technology that has the potential for what we would consider above average growth and above average profitability.

And we look to make the assessment as to whether or not we think the seeds for that are there when we go through our acquisition review process.

We don't have hurdle rates or specific pinpoint financial metrics because each acquisition is really it's own, has its own potential and is also at its particular place relative to a financial performance criteria.

Some are better than our average, some are below our average and so each individual decision is really made as it makes sense for that particular opportunity.

All right.

Thanks, guys.

William Stein, SunTrust.

Thank you for taking the question.

Two quick ones.

First, if we can get an update on your view on organic growth for the year.

I think previously you had a 1% to 4% view.

I'm wondering if you are giving any update on that?

And then Adam I have a follow-up on the wireless infrastructure business.

Sure, the organic growth, Will, is about 4% to 6% in this current guidance for the year.

Great.

And then on the wireless infrastructure side, Adam, you have in the past talked about -- you said a lot about this end market, some of which was different from what some of the other component companies in particular some semiconductor companies have been talking about for a while.

One of the things that you highlighted is typically you don't get all regions working at once and now you're starting to see that in addition to this outside strength in China it sounds like.

So this kind of begs the question, is this a peaking year and we should expect that in 2015 some of this business rolls off and we go to a more normalized level, or do you see it more as a new base off of which we are going to see still more growth in the future?

How can we think about that growth going forward, please?

Thanks very much for the question.

I think it's really too early to talk here about is this going to be -- what will be the trend going into 2015 and beyond.

I think we already feel pretty good that we are able to give a prognosis, a positive prognosis for what is usually quite a volatile market already for the next three quarters to say that we feel that that is going to continue to have a stronger position, a stronger growth rate than we had expected going into the year.

So I wouldn't be able, in all honesty, in any position to be able to tell you what is 2015 going to be.

What I can tell you though is this.

As I have said, over the last three years we have put a lot of effort into this market even if it was a market that was not growing architecturally, that was not growing from an investment standpoint.

We continued across the board to work to expand our position in the wireless market and I think part of the reason why we had such strong performance here in the first quarter, and I don't know ultimately is the market growing at what rate, I think there have been maybe one data point earlier today which may have been slightly contrary to our results, but clearly our growth in this market is a very substantial one.

And I think that is really a realization of some of the benefits of those efforts that we have made over the previous years to really again expand our position with OEMs, to broaden our technology, the range of technologies onto these new forms of wireless base stations and to expand the depth and the range of our penetration with wireless operators.

And so I think regardless of what happens in the market going forward that position does not go away.

It's not like we have a peak in terms of our position in the marketplace.

Ultimately what is going to happen with the spending, only the few people who were out there who make capital decisions in the wireless market, they are going to be the ones who are going to ultimately have to vote with their wallets here on what the trend is in the spending.

But our position in this market is extremely strong, stronger I would argue that it has ever been in the past.

And with that that gives us good confidence for this year and certainly I believe that going forward we will continue to have a very very excellent position in that marketplace.

Great.

Helpful.

Thank you.

Thanks so much, Will, and I think that was our last question.

So I'll just take this final opportunity to thank all of you for your time and attention today and to wish all of you a very happy and hopefully warm spring here around the world.

Thank you so much.

We'll talk to you next quarter.

Thank you.

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