安費諾 (APH) 2015 Q3 法說會逐字稿

Hello and welcome to the third-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 host, Mr. Craig Lampo.

Sir, you may begin.

Thank you.

Good afternoon.

My name is Craig Lampo and I am the Amphenol CFO.

I'm here together with our CEO, Adam Norwitt.

We would like to welcome everyone to our third-quarter conference call.

Q3 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 and then Q&A.

The Company closed the third quarter with record sales and EPS of $1.460 billion and $0.65.

Sales were up 7% in US dollars and 11% in local currencies compared to the third quarter of 2014.

From an organic standpoint, excluding both acquisitions and currency, sales in the third quarter were up 5%.

Sequentially, sales were up 8% in both US dollars and organically from the second quarter.

Breaking down sales into our two segments, our cable business, which comprised 6% of our sales, was down 10% from last quarter, primarily due to a slowdown in spending by cable operators, as well as the effect of currency translation.

The interconnect business, which comprised 94% of our sales, was up 9% from last year, reflecting the benefits of good organic growth and the Company's acquisition program, partially offset by currency translation.

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

Operating income increased to $295 million in the third quarter.

Operating margin increased to a very strong 20.2% compared to 19.9%, excluding one-time items in the third quarter of last year.

This was a year-over-year conversion margin on incremental sales of 24%.

The increase of 30 basis points in operating margins over the prior year primarily resulted from an increase in operating margins in the interconnect business.

From a segment standpoint, in the cable segment, margins were 12.5%, which is equal to last year.

In the interconnect segment, margins were 22.3%, up 20 basis points from 22.1% last year.

The improvement in ROS reflects excellent operating execution, both organically and from our acquisitions, in addition to aggressive cost management.

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

This excellent performance is a direct result of the strength and commitment of the Company's entrepreneurial management team, which continues to foster a high-performance action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in a market environment, which certainly became more challenging as the quarter progressed.

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

Interest expense for the quarter was $17 million compared to $21 million last year, reflecting the benefit of the lower average effective interest rate in the quarter and more than offsetting the impact of higher average debt levels resulting from the Company's acquisition and stock buyback program.

The lower average rate is a result of the note issuance in September 2014, replacing a higher cost note maturity in November of last year and the implantation of the new commercial paper program.

Other income was $4 million in the third quarter compared to $5 million last year and consists primarily of interest income on cash and short-term cash investments.

The Company's effective tax rate, excluding one-time items, was 26.5% in both the third quarter of 2015 and the third quarter of 2014.

On an as-reported basis, the Company's effective tax rate was 26.8% in the third quarter of last year.

Net income was approximately 14% of sales in the third quarter of the year and EPS increased 12%, excluding one-time items, which is an excellent performance.

Orders for the quarter were $1.44 billion, up 8% from last year, resulting in a book-to-bill ratio of 0.99 to 1.

The Company continues to be an excellent generator of cash.

Cash flow from operations was $285 million in the third quarter or approximately 140% of net income.

The Company continues to target cash flow from operations in excess of net income and for the nine months ended September 30, operating cash flow was $708 million or 124% of net income.

From a working capital standpoint, inventory was $888 million at the end of the quarter, approximately equal to June.

Inventory days were 80, excluding acquisition impacts, which is down 7 days from June levels as expected.

Accounts receivable was approximately at $1.2 billion at the end of September, up approximately 7% from June and days sales outstanding were 71 days, excluding acquisition impacts, which is down 1 day from June levels.

Finally, accounts payable was $661 million at the end of the quarter, up approximately 18% from June levels.

Payable days were 60 days, up 5 days compared to June levels.

The cash flow from operations is $285 million, along with proceeds from the commercial paper program of $94 million and proceeds from stock option exercises of $6 million were used primarily to purchase approximately $52 million of the Company's stock, to fund net capital expenditures of $41 million, to fund final payments of $28 million related to previous 2015 acquisitions and to fund dividend payments of $39 million, which resulted in an increase of cash, cash equivalents and short-term investments of approximately $200 million net of translation.

During the quarter, the Company repurchased 1 million shares under its January 2015 10 million share stock repurchase program.

6.5 million shares remain available under the program through January 2017.

At September 30, cash and short-term investments were $1.6 billion.

The majority of which is held outside the US.

And total debt at September 30 was $2.9 billion and net debt was approximately $1.3 billion.

At quarter-end, the Company had issued $852 million under its $1.5 billion commercial paper program.

And the third-quarter EBITDA was approximately $350 million.

From a financial perspective this was an excellent performance.

Before I turn the call over to Adam, I wanted to just make a couple of comments relative to the assumption that we've included in our guidance.

The midpoint of sales guidance for the year has been revised from $5.580 billion to $5.488 billion, a reduction of $92 million or 2%.

About half of this reduction is due to the weakness in the global industrial market.

The remainder relates to moderation in demand in automotive and IT data com market.

We believe this weaker demand is a result of a higher level of uncertainty in global markets as growing turbulence in certain economies has impacted global industrial demand.

This has resulted in increased levels of caution from customers in several of our end markets and has translated into lower demand expectations.

Our fourth-quarter guidance of $1.330 billion to $1.370 billion in sales, or a 6% to 9% sequential decline, reflects the impact of these items.

I would also like to note that the majority of the sequential decline in the fourth quarter is driven by the 20% plus sequential reduction in sales in the mobile devices market due to program timing.

This is consistent with our previous expectation and results in annual growth rates in the high single digits in the mobile devices market.

Given our current expectations of the fourth-quarter sales levels, we're taking appropriate action to adjust our cost structure.

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

Well, thank you very much, Craig, and I would like to also offer my welcome to all of you on the phone with us here today.

As Craig mentioned, I'm going to discuss some trends and the progress a cross our served markets.

I will also highlight some of our third-quarter achievements and then, finally, I will spend some time to comment on our outlook for the fourth quarter and the full-year 2015 and certainly will have time for questions at the end.

With respect to the third quarter, I'm just so pleased that we are able to report record results here in the third quarter despite an economic environment that has recently grown even more challenging.

We achieved record sales of $1.460 billion, which was an increase of a very strong 7% from prior year in US dollars and 11% in local currencies.

We booked record orders of $1.444 billion with a book-to-bill of just under 1 to 1. And very importantly we equaled in the quarter our highest levels of profitability that we have ever achieved as we reached an industry-leading operating margin of 20.2%.

Our record EPS in the quarter of $0.65 grew a very strong 12% also from prior year.

I think Craig elaborated on our cash flow and we are very proud to have generated $285 million of cash in the quarter.

I think that cash flow is just a great reflection of the discipline and focus of the entire Amphenol management team.

Indeed, in this current highly uncertain environment, our organization did just a really outstanding job in the quarter of maximizing performance in the face of substantial challenges that have emerged in the global economy.

This is yet another confirmation of the strength of the Company's agile entrepreneurial culture.

Turning to the trends in our served markets, I just wanted to say that we continue to be very focused on driving end-market diversification across the Company and once again that strategy supported the Company's strong performance here in the third quarter.

Turning first to the military market, that market represented 9% of our sales in the quarter.

Sales decreased from prior year by 3% in US dollars and just slightly in local currencies as distributors' buying patterns became more conservative and as reductions in both communications and avionics applications were not fully offset by growth that we saw in ordinance engines and rotorcraft.

Sequentially, sales in military were a bit softer than we had expected, falling by 2%.

As we now look ahead to the fourth quarter, we expect sales to increase slightly from these levels and we essentially expect the military market to be flat to prior year for the full year 2015.

Amidst the current moderate spending environment, we remain very confident that our broad technology position and expansive participation across a wide array of military programs positions us very well to capitalize on any spending that gets ultimately triggered.

In the context of the modern, complex, geopolitical environment, military electronics continues to be an enabler for governments who we are seeking to ensure their own security.

As adoption of electronics grows across a broad range of military technologies and as spending increases in geographies around the world, Amphenol remains extremely well positioned for the future.

The commercial aerospace market represented 5% of our sales in the quarter and sales in this market were down 10% in US dollars and 5% in local currencies.

We experienced in the quarter a moderation of demand, in particular related to business jets and commercial helicopters, as well as some reduced demand related to some avionics subsystems combined with a little bit of conservatism in the distribution channel related to that.

Sequentially, sales decreased by greater than seasonally expected 10% for those same reasons.

While we expect a normalization of demand from both our OEM and distributor customers in the fourth quarter, and thus anticipated a double-digit sequential sales increase from these levels in the fourth quarter, we now expect our sales into this market to essentially be flat in local currency for the full year.

Regardless of that flat outlook, we continue to have an outstanding design and position on the newest commercial aircraft with a broad array of connectors, value-add cable and printed circuit assemblies, as well as cable management products.

This strong and comprehensive product position creates a great long-term expansion opportunity for Amphenol.

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

Sales fell slightly in US dollars and were up slightly in local currencies.

While our sales grew robustly in heavy equipment and alternative energy, that growth was offset by significant declines in oil and gas, as well as more moderate reductions in several other segments of the industrial market.

Sequentially, our sales fell by 3% in the quarter.

Looking ahead, we have recently seen some more significant reductions in demand expectations of many customers in the industrial market and this appears to in particular result from turbulence in certain emerging economies, together with the collective impact of the downturn in commodity prices.

Accordingly, we now expect sales in the industrial market to remain at these lower levels going into the fourth quarter.

Regardless of this near-term moderation of our outlook, Amphenol's position across the many segments in the industrial market remains externally strong and our team looks forward to leveraging our wide array of advanced technology interconnect, sensor and antenna products to drive strong performance in the future in the very diversified industrial market..

The automotive market represented 18% of our sales in the quarter.

Sales once again increased very strongly from prior year, growing 29% in US dollars, 39% in local currency and 13% organically, an excellent performance by any measure.

That continued performance in this important market resulted from ongoing momentum of our sales of an ever-growing array of interconnect and sensor products used in automotive electronics, together with the contributions from the Casco and DoCharm acquisitions that we've completed over the last year.

Sequentially, sales were up just slightly from the second quarter.

While we continue to be very pleased to be outgrowing the overall automotive market, we have recently begun to see signs from certain tier customers of a moderation of demand expectations in particular in China.

Accordingly, we now expect a slight reduction of sales in the fourth quarter from current levels.

Normally we would see a slight seasonal uptick in the fourth quarter.

Nevertheless, we retain a very positive long-term view of the automotive market as our broadened product offering of high technology interconnect and sensor products positions us to capitalize on the continued expansion of automotive electronics for many years to come.

I think very importantly we now have really expanded our reach into and our position with automotive customers around the world essentially in all geographies.

The mobile devices market represented 23% of our sales in the quarter and sales in this market increased by an extremely strong 40% from prior year and 51% sequentially as we were able to capitalize on our expected higher levels of production supporting new programs.

In particular, we experienced strong demand related to laptops, accessories and production-related products in support of customer ramp-up.

As we have previously discussed, we anticipate an approximately 20% reduction of sales sequentially into the fourth quarter as volumes are reduced from the peak demand levels we experienced here in the third quarter.

For the full-year 2015, as Craig mentioned, we expect growth to be in the high single digits.

There is no question that the mobile devices market is among the most dynamic in which we participate.

It is really a tremendous credit to our organization that they were able to flex their resources so quickly in reaction to accelerated customer demand and thereby to achieve this excellent performance here in the third quarter.

Long term, we remain confident that our leading technology, our preferred supplier relationships with a broad range of device makers, and the excellent track record of execution of our outstanding agile organization positions us strongly for the future in this very exciting market.

The mobile networks market represented 8% of our sales in the quarter and although sales declined by 24% from prior year, 19% in local currencies, we were pleased to see a 5% sequential sales growth in the third quarter and that was driven in particular by some increased demand in North America.

Looking ahead, we don't expect any further increase of activity in base station buildout for the remainder of the year of 2015 and in fact, expect our sales to be down slightly in the normally seasonally softer fourth quarter.

This has no doubt been a challenging year in the mobile networks market as operators in many regions have deferred their investment plans as a result of a wide array of external factors.

Nevertheless, I think we all know that the ongoing demand by consumers for expanded coverage and capacity continues to grow significantly.

So given our strong position in the mobile networks market, we remain very confident that, with our industry-leading breadth of interconnect and antenna products, we will continue to participate broadly in next-generation mobile network deployments as they are triggered around the world.

The information technology and data com market represented 15% of our sales in the quarter and sales increased by roughly 3% from prior year and 2% sequentially as stronger sales in server-related products were partially offset by reductions in demand that we saw from networking and in particular storage customers.

Looking ahead to the fourth quarter, customer forecasts have recently reflected some degree of weakening demand, in particular for products used in storage and somewhat for servers.

Accordingly, we now expect our sales to the IT data com market to reduce somewhat from these levels in the fourth quarter, which normally would be seasonally stronger.

Regardless of this near-term moderation of demand, our position in the IT data com market remains extremely strong.

We continue to make outstanding progress designing in our advanced high speed and power products into next generation equipment and at the same time, we are accelerating our penetration of cloud and Web service providers who are rapidly expanding their influence in the IT hardware industry.

We look forward to gaining further momentum in this market long term.

Finally, the broadband market represented 6% of our sales in the quarter and sales in this market were a bit less robust than expected as cable and satellite operators continued to constrain their spending levels with our sales falling about 6% in US dollars and 2% in local currency.

Sales were up slightly on a sequential basis from the second quarter.

We expect sales to remain at or slightly below these levels in what is normally a seasonally slower fourth quarter and we continue to see that many multiservice operators, satellite, and telco customers remain conservative in their spending on network upgrades in particular given the several high-profile industry mergers which either have recently been completed or are still pending, together with the significant currency devaluations that we've seen in certain emerging markets, in particular in Latin America and those devaluations are also constraining spending.

Nevertheless, we remain confident that we will realize long-term success in this market, primarily due to our proven capability to create innovative solutions for our customers in support of the rapid growth of high-speed data delivery.

As we drive further efforts to create these enabling technologies, we look forward to maintaining our leading position in the broadband market.

So just a final word here on the third quarter.

I just wanted to say I am extremely proud of our organization as we once again executed very well in the third quarter despite a heightened level of economic uncertainty in a very dynamic market environment.

Our continued strong performance here in 2015 is a clear reflection of our distinct competitive advantages, our leading technology, our increasing position with customers in diverse markets, our worldwide presence and a lean and flexible cost structure.

Above all these strengths, though, our greatest asset remains Amphenol's agile entrepreneurial management team, who reinforces that high-performance culture every day and in particular who excels in times where markets are more uncertain.

Turning to the outlook for the fourth quarter and the full year of 2015, as Craig and I have already mentioned, we have recently seen increased signs that turbulence in certain economies has begun to impact the outlook for global industrial production and that has resulted in a moderation of our sales expectations, in particular in the industrial, automotive, and IT data com market.

Based on these conditions and assuming that exchange rates remain stable at current levels, we now expect in the fourth quarter and for the full-year 2015 the following results.

For the fourth quarter, we now expect sales in the range of $1.330 billion to $1.370 billion and EPS in the range of $0.58 to $0.60 respectively.

This represents a sales reduction from prior year for the fourth quarter of 4% to 7% in US dollars and 2% to 4% in local currency and an EPS reduction of 5% to 8%.

For the full-year 2015, we now expect sales in the range of $5.468 billion to $5.508 billion, an increase of 2% to 3% in US dollars, 6% to 7% in local currencies and 1% to 2% organically.

We expect EPS for the year of $2.38 to $2.40, an increase of 6% to 7% over 2014, excluding one-time items.

As Craig alluded to, our team is, of course, reacting very quickly to adjust resources in the face of this reduction in our outlook for the fourth quarter.

We remain singularly focused as an organization on reacting quickly to changes in the market environment while continuing to pursue the many opportunities for expansion that are still present in the global electronics industry.

In fact, it is really in challenging times like these that the unique agility and drive of the Amphenol management team is most important.

And with that, I remain extremely confident in the ability of that outstanding team to continue to capitalize on opportunities to grow our market position and achieve superior profitability and thereby to drive continued strong performance for the Company through the remainder of 2015 and beyond.

With that, operator, we would be very happy to take any questions that there may be.

(Operator Instructions).

Amit Daryanani, RBC Capital Markets.

Perfect, thanks a lot.

Good afternoon, guys.

Two questions from me.

One, I guess, Adam, could you just talk a little bit more on the industrial markets in terms of when did you start to see the softness in the quarter?

When I think about the guide, Adam, it's sort of flat sequentially in the summer quarter, but that doesn't seem overly conservative in my head.

So maybe talk about the comfort level that you have that things don't get worse from what you saw in September [in the investment market].

Thanks very much, Amit.

I think with respect to the industrial market, I think what we certainly saw is really more recently towards the end of the quarter and even coming here into October is when we started to see some expectations from customers being revised downward.

I think that we continue to have an outlook in the industrial market that is kind of flat, but we used to have an outlook that it was going up in the quarter.

That's why the change in our guidance, we had a lot of expectations from customers of actual growth going into the end of the year, which now we don't see happening.

In terms of the conservatism of that, I think we've taken due prudence in looking at the expectations from our customers and we feel confident in the numbers that we have now given.

Otherwise, we wouldn't be giving them, obviously.

But I think we continued to perform in the industrial market very well last quarter and we continued to really expand our market position, but not at the levels that we would've thought coming into the quarter.

That's helpful.

I guess just on the mobile devices side, it did somewhat better than you guys thought obviously in the September quarter and it's going to be down 20 in December.

I'm just curious how do you think of seasonality as you get into the March quarter?

I don't mean to get too far ahead, but is that essentially a [pull-in] of seasonal so March should not be down as severely anymore?

How do I just think of that segment?

Did you have a 10% customer this quarter?

Yes, thank you very much.

I think just with respect to the third quarter, the trajectory that we saw in the market was maybe a little bit better in the third quarter than we had thought.

But, in general, the trajectory that we are seeing here in the second half is what we had expected to see.

I think it's still premature to talk about what we would see in the first quarter and I think it's still premature to talk about the nature of which customers we have at what percentages at this time.

I think the reaction of our team here in the third quarter is something that I think is just so important to emphasize.

When we see that we were able to grow the sales by the amount that we were able to grow, and you can imagine on the flipside going down by 20% here in the fourth quarter, you remember last year or this year in the first quarter, our sales were down by 30%.

I think it's just a real great testament to the organization that they were able to capitalize on the upside that we knew was coming in this case and adjust to the variations in that market going into the fourth quarter.

Whatever the first quarter will bring, no doubt about it, the team will maximize performance and also ensure a secure bottom line going into the first quarter.

William Stein, SunTrust.

Thanks for taking my question.

Adam, I just want to synthesize some of your comments and relative to the last question, when you say that -- I forget exactly what the wording of the press release and the comments were -- but I want to distinguish bookings from billings.

Am I correct in looking at or reading everything that we have read and listening to the call that it's bookings that sound like they eroded more in the September month and into October as well.

Is that sort of the linearity we should think about for bookings?

I think it's a little tricky to look at bookings and how do bookings reflect on the subsequent quarter, in particular when you have such a strong mobile quarter.

As you may recall, Will, our mobile business essentially books as it ships, so it's not a book to ship kind of a business.

And so in a quarter like the third quarter where we did have a very strong sequential growth in our sales from mobile, the bookings, in fact, followed and we had a book-to-bill in the quarter of just under 1 to 1.

What I would say is that, as we went through the quarter, that 1 to 1 got a little bit less into September and into the expectations that we saw here in October.

So I think from that standpoint, the trajectory during the quarter, clearly, at the end of the quarter, that 1 to 1 ratio eroded somewhat and that was one of the signals of the expectations of demand for the customers going into the fourth quarter.

That's very helpful color, Adam.

And then maybe one more on the automotive end market.

We have seen some weakening data from China in the earlier part of Q3, but much more recent data has been more positive in response to a stimulus, presumably, in China.

I'm wondering is this lag that we are seeing, what looks like a lag in your business where you had strong Q3, Q4 outlook is weaker, do we take that as just a normal lag through the typical direct supply chain or is this a lag because of distribution or is there some other explanation?

Thanks very much.

Thank you.

I think that, as you termed it, the weakening from China, I've said before, even if our business in China has grown significantly from where it was and in Asia has grown significantly from where it was before, we're still not a great bellwether for what is happening in China.

I think that we have started to see, as the quarter drew on, some pullback in demand from customers in Asia and in China specifically.

Is there a lag due to normal direct supplier versus distribution?

What I can say is we don't do a lot of sales through distribution in the automotive market globally and that includes also in China.

What is the kind of lag through the various tiers because we're not selling in general directly to automotive OEMs?

You can imagine that there could be some lag there.

I don't know.

There has been a lot of talk of the recent stimulus in China and the reduction of VAT taxes on certain things and what does that translate into.

What types of cars, what types of OEMs are benefiting from that?

That can all have some impact and I think, again, our position is not as broad as to say that we are a perfect reflection of what's happening in China.

What we see from our customers just of late has been some reduction in the expectations that we would have had.

Traditionally, the Chinese market, and we're just getting to know the Chinese automotive market a little bit, it tends to be more of a second-half-loaded market than does the rest of the worldwide automotive market, which tends to be more of a first half-loaded market.

I think where you normally would have seen a buildup towards that higher level of demand, I think maybe you see a little bit less of a buildup towards those higher levels of demand even if the demand is not necessarily falling off, but it may only be kind of a flat end demand.

That's one theory that one could ascribe to that.

But, again, we are not a great representation of the totality of the Chinese automotive market.

Mike Wood, Macquarie Security Group.

Thank you.

First question just on the auto segment, relatively slight decline seen in global auto production over the past few months.

And it looks like you are pointing to a low single-digit growth for Amphenol in that segment in the fourth quarter.

That's a much narrower content expansion than we've seen in the past.

Curious if there's something in there that's kind of making it look smaller than you've typically seen or is this just what may be now normal from a content expansion in that segment.

Sure, look, I think what's implicit in our guidance for the fourth quarter is kind of a high single digit local currency expansion over prior year.

I think we just had a fabulous quarter in automotive, 13% organic growth, 39% in local currency in the third quarter, and I think we continue to outperform the overall automotive market.

We continue to have a conviction that we will continue to outperform the automotive market overall.

What is growth in units versus what is growth in content versus what is growth in Amphenol?

I think that will remain to be seen in the coming year and years to come, but our position continues to expand.

We continue to leverage the acquisitions that we have made, as well as the organic developments that we have made and we certainly feel that our ability to expand in the room for us to continue to expand in that space is not limited at this stage.

Great.

As a follow-up, the resource adjustment that you discussed in your prepared remarks, would that take time to fully be implemented?

Should we expect it in the first quarter to sort of all flow through in the incremental margins?

I think that we always take very quickly action in Amphenol when we see demand changes.

I think, for those who have followed the Company for many cycles, you know that doesn't take us to sit back and wait for kind of a news headline that says things are bad.

We look case-by-case across our 90 operating units and as we see demand decline or demand expectations decline from customers, we take immediately action.

And so there's not necessarily a lag from when we start to see it to when we start to take action.

We take the action right away and we do that action in order to secure our conversion margins going into that time.

I think if you look at our guidance here in the fourth quarter, it's a very strong guidance from a bottom-line standpoint.

I think that is reflective of our normal operating approach, which is to take quick action in the moment as soon as we are seeing the problems from customers.

Matt Sheerin, Stifel.

Yes, thanks, and good afternoon.

So just following up on that question, Adam, regarding your approach to taking costs at the operating level, obviously, reacting to near-term order trends.

But as you look and obviously visibility into Q1 is going to be tough here, it seems like we are seeing a bit of a pause from customers and typically getting into the December quarter, it's very back-end -- sorry -- front-end-loaded.

So do you get a sense at all that this is a pause and you may start to see, in markets like industrial and auto where you typically see things pick up in March, that you may get signs that we will see that following a pause?

Will you continue to take costs as though it's going to flatline here and be weak for a while?

Yes, I think we don't bet on the future when we see this.

I think that's just a hallmark of the Company.

So we're not guessing where Q1 is going to go, for example, in the industrial or the automotive market.

We are taking the action in what we see today and we do that in a very prudent, but also a very aggressive fashion and that's something that we do if we think that it's a one-quarter or a two-quarter or whether that is a significant downturn in the economy.

We try not to differentiate because once you get into the business of making cost reductions by guessing where the future is going to be, you never make them in a timely fashion and that has always been for us a principal that we follow regardless.

Whether that's a one quarter, a one month, a two quarter, or one year, we believe in our company that you've got to take those actions quickly and then you get out in front of customers rapidly to make sure that you are driving incremental sales and expending your market position.

If you end up in a situation where that is a longer time period, you are ahead of the game and you're out there with customers already while your competitors are sitting in conference rooms trying to solve the structuring that they are trying to do.

That's just not how we approach these matters.

And I think the fact that we do that with these 90 general managers around the world, it's not a big thing.

We're not sitting here at headquarters saying, all right, what percent of headcount do we take out?

We are talking 90 times to 90 GMs and several of those have some different expectations than they used to have.

Well, what are you doing about it?

It's a very simple, straightforward thing and most of the time, we don't even have to ask.

They've already done it and we just get to them and we have a confirmatory discussion that, yes, we did what we needed to do and let's move on and get some orders.

Okay, that's helpful.

Just regarding the mobility business, I get the guide after a very strong September quarter, but you understand that smartphones is a chunk of your revenue there, but obviously you are doing wearables, notebooks, tablets.

Could you go through some of those sectors and talk about performance, how you are positioned there and how you are seeing demand trends?

Sure, look, I think we have a very strong position across the mobile devices market and I pointed out that, in this quarter, we especially saw strength from a lot of next-generation laptop products, which have become much more connected devices now.

I think everybody is seeing that there was this kind of wave of tablets that came over the last three, four years and there seems to be now kind of a back to the future here on October 21 of 2015, a back to the future of -- to the laptop where the laptops are becoming more an integral device and I think we have spent a lot of time making sure that we are well-positioned on these next-generation products.

In addition, we have gotten a lot of progress on accessories and accessories, everything from wearables to smart devices and there's a whole kind of range of things that you can't really put into a category anymore.

I think we had talked last quarter about the fact that, in addition to that, we have worked with customers on working with them in their production ramp-ups and helping them with products that can support their quick ramp-ups.

I think across the board we are working in every opportunity with customers in the mobile devices market and it really rests on kind of two pillars.

One is that we continue to please our customers and not disappoint our customers from the standpoint of technology and we continue to exceed their expectations in terms of execution.

And in that market, that ability to execute time and time again when they need you is something that means they keep coming back for more regardless of what the product is, what the end product is, what our product is that we are selling.

And that is something that we continue to emphasize so strongly with our team and I think ultimately was one of the reasons we were able to perform so strongly here in the third quarter.

Jim Suva, Citi.

Thanks and congratulations to you and your team at Amphenol.

Two questions, and I will give them both kind of at the same time.

First of all, on the mobility side, and maybe my numbers and memory is a little inaccurate or old, I had thought that this quarter mobility was going to be up kind of close to say 40%-ish due to seasonal and I think I heard you say maybe it was up 50%.

So it sounds like -- was that stronger than what you thought and then for the full year, you'd mentioned unchanged?

Does that mean kind of a decline for Q4, comes down a little bit bigger or does it take up the full year up a little bit more?

And then my second question is I believe Amphenol recognizes sales on sell into the distributor -- I'm sorry -- into the assembler.

So a large OEM may place orders.

Is it truly based upon your reduction in your forecast upon end-market demand or is there an inventory buffer that we could think about?

Or is it like a multi-quarter adjustment?

Just trying to get a feel on this recent slowdown of does it have a multi-quarter impact due to both the assembler as well as the end product.

Thank you.

Sure, thank you very much, Jim.

I think with your first question with respect to mobile devices, we expected sales to be up sort of approximately 40% or a little bit more than 40% and they were a little bit better than that.

I think you are correct in pointing that out.

Maybe the fourth quarter is little bit worse, but it's not meaningful compared to what the other things that we talked about.

I think that relative to your question about timing, we, obviously, recognize our sales when we sell them to the person who places the order to us and the person who places the order to us is sometimes the OEM if they are building it and sometimes it's a contract manufacturer if they are building it.

In many cases, we deal with contract manufacturers in particular in the markets that are more related to information technology, communications markets and whatnot.

Is there an inventory buffer?

Is there an inventory correction?

We don't have great visibility into the inventories of that supply chain.

We have -- about 11% of our sales goes through distribution in the quarter and I think there we have some degree of inventory visibility, but relative to our sales that go into contract manufacturers across the communications market, there, I can't tell you that we have a good read on what their inventories are.

We know only what you know through publicly available information and is that representative of an inventory correction or an inventory buffer?

I think it's hard for us to say at this point.

Thank you so much.

Craig Hettenbach, Morgan Stanley.

Thanks.

First question, any update on the timing expected for the FCI transaction?

Thank you very much, Craig.

No, I don't think we have any news to report on that.

As we talked about last time, we would expect that the deal would close by the end of the year.

We are still in the regulatory approval process and that regulatory approval process is essentially now in the hands of the China antitrust regulators.

As I think all of you know, that is a real black box in China.

We're doing everything that we can to expedite it, but it is not something that is necessarily easy to predict.

To the extent that any news or updates comes, we certainly would let everybody know.

At this time, we don't have any reason to think that it's any different, although that it remains in that black box.

Got it.

And then just a follow-up on M&A more broadly and just thinking through the pipeline, anything to be said in terms of periods of disruption like we are seeing now or when demand comes in, do you see there will be opportunities to be more opportunistic or how are you seeing the landscape for M&A as you go into 2016?

Thank you very much.

Look, we are very pleased with our M&A progress this year.

We've closed three deals; we've announced the fourth.

We continue to have a really great pipeline of acquisitions that we are pursuing and we continue to have great availability to pursue those acquisitions financially.

Does one quarter of a little bit of economic uncertainty create a different dynamic in the market for acquisitions?

I don't think so.

When we've looked back over time periods that were even more severe than this, 2009 or others, the fourth quarter of 2011, it's not that sellers miraculously stand up and say I'd sell my company to you quicker or cheaper.

That's just not the dynamic that we see.

We deal with very patient sellers and we are a very patient buyer.

And we take a very long-term approach to these things and so some either corrections in the equity markets or uncertainty in the overall economy, that doesn't tend to drive acquisition activity any differently for us.

If you look over the years, we have had years which are very strong economic years where we've done lots of deals.

We've had other years where we've done fewer deals and the same can be said of less strong economic years.

I would not anticipate that there will be any meaningful change to the dynamics, but what I would just emphasize again is we have a very strong pipeline and an outstanding track record here of being the acquirer of choice in this industry.

And as we look out over the interconnect and now the sensor industry for acquisition opportunities, we remain very confident that we will find more acquisitions for the long term.

I think I would just add here acquisitions for the Company is a real organic capacity that we have.

There are some years where our acquisitions will be at about that target that we have of generating about a third of our sales growth and there are other years where it can be more or less.

I think what you see this year with our current guidance that, at the high end of guidance or at the midpoint, we would be somewhere 6%, 7% growth in local currencies and acquisitions would make up a little bit more than half of that in this year.

We have had other years where they've made up a little bit less than that, but I think overall it's the combination of the organic growth that we achieved together with the acquisition growth that ultimately creates great value for the Company and allows us to continue to expand our position with customers across the many markets that we serve.

Sherri Scribner, Deutsche Bank.

I just wanted to ask on the fourth quarter your commentary on the different sections almost seems to suggest that we are seeing moderation and caution almost across the board throughout most of your segments.

I think in all of the commentary for 4Q, you've guided to relatively flattish or slightly down obviously with the exception of the devices market.

I know you called out industrial, automotive and infotech and data as being particularly weak, but I was hoping to get some additional granularity on what you are really seeing in terms of where the weakness is coming from.

Is it coming mostly from commentary from the disties?

Is it specifically US-based?

Is it Europe-based?

Any additional commentary on sort of what you are seeing would be helpful.

Sure, thank you very much.

I think you are correct in one sense, which is we do see slight changes across many of our markets.

I think what both Craig and I talked about though is that the predominance of the change that we see and the change that's reflected in our guidance at the midpoint is really coming -- roughly half of that coming from industrial and the remainder coming from auto and IT data com.

Not to say that we don't see small changes in the others and I think you are correct in saying that more of those are negative than are positive.

That's a reflection of this overall market environment, which, as we've said, appears to be more uncertain now than it was before.

I talked about the fact that, in automotive, for example, we see that -- we see more of a reduction in expectations coming out of China.

So that clearly has some geographical influence to it.

As it relates to the industrial market broadly, there's no doubt about it that China and other emerging geographies, there has been some sort of stepdown in the expectations or in the actual growth that is occurring in those markets and that has kind of a knock-on effect across the industrial market.

Whether that is in things like heavy equipment or whether that is in areas like medical or oil and gas, there's no doubt that that feels like it is a little bit of a broader geographical spread of where our customers are, but the origin of where that uncertainty comes may come more from those emerging markets as kind of the trigger to that weakening that we've seen in the expectations of our industrial customers.

And I think the IT market is not wholly unrelated to that either in that when you see an emerging market some reductions, typically the IT market has a very strong fourth quarter.

That tends to be seasonally the strongest quarter as budgets flush and other things happen and I think the moderation that we've seen there can also be somewhat linked back to that overall economic sense that may have started in the emerging markets that says that maybe there's not going to be that pop of spending coming here at the end of the year in those places and then that has a carry-on effect through the overall market.

I think if you want to pin it on a geography, I wouldn't pin it specifically on one country like China or Brazil or Russia, but there's no doubt that collectively across the emerging markets there appears to be a less sanguine view of demand going into the fourth quarter.

I mentioned also in my prepared remarks relative to industrial that the downturn in the commodities markets has obviously been very severe.

Everybody is well aware of what has happened there and I think there have been some well-reported knock-on effects of that across the industrial market and what that means for equipment and all of that.

One could even look at something like oil and gas and draw a link to helicopters.

Where we've seen a reduction in our commercial air, in particular in helicopters, which is an important -- was an important growth part of that, well, the largest single purchaser of commercial helicopters is, in fact, the oil and gas industry.

You can bet that they are purchasing a few less helicopters these days then they were.

So I think there are some linkages from that that have some of those knock-on effects that you alluded to, but to find just one golden goose here in terms of what's causing that, that I wouldn't be able to do.

Okay, I think those comments were helpful.

So thank you for that additional color.

Also, just on the automotive market, that's been a strong growth driver for you over the past couple of quarters.

Can you talk a little bit about what you saw in the quarter in terms of auto production and what you are expecting for 4Q given that things are softening a bit and what's the outlook longer term?

Thanks.

Sure, I think we have never tied too much our results to just unit production and I think that's very simply put because we see the opportunity to grow in the electronics in the car.

We see a lot of electronics growing and we continue to outperform unit production just growing last quarter organically by 13%.

Clearly, that's well in advance of any unit production numbers that have either come out or expected to come out at this stage.

So I wouldn't tell you that we have a good view on what units are going to do here in the fourth quarter.

This is not where we have focused on.

I think we focus on servicing our customers at the various tiers of the automotive industry and based on the information that we've gotten from them going here into the fourth quarter, we have adjusted our expectations accordingly.

But I don't think we're a good read on what is the unit going to be in the automotive market.

Shawn Harrison, Longbow Research.

Good afternoon, Adam.

First question, I just wanted to -- I guess the trends in the IT markets that you are seeing, the incremental weakness here, is there any reason to suggest that it's also not affecting the FCI business?

So when that comes on board, the revenue run rate that was highlighted at the time of the acquisition announcement is maybe a bit more -- a bit lower or a bit more challenged to the growth dynamics?

Sure, look, I think that what we see in the IT data com market is probably not different from what others will see in that market and FCI being another player in that market, would they see some of that?

That may very well be.

I think the fact is we don't buy FCI for just their performance here in a quarter or two.

We acquire that company with a long-term view that is a very positive long-term view of the benefits that come from the combination of Amphenol and FCI.

And if there is something happening in the market in either the short term or the medium term, that doesn't change at all our expectations for the Company, nor our confidence that that's a great thing for Amphenol.

Okay, then as a follow-up, I know it's tough to ask you to look out into 2016 and use a crystal ball, but are there end markets where you expect growth to be challenged or maybe potentially limited to no organic growth in 2016 given the trends you are seeing currently?

Look, I think the crystal ball is not easy to exercise right now.

I think we have just taken our expectations down here in the fourth quarter and I have talked a lot about why that is.

What is that going to turn into as the calendar page turns into January?

It's too early to say what that would be.

I think that I mentioned in each of the markets those areas where we see that the Company still has great potential and great position and as we look into next year, will there be some markets that will perform better than others and others that will perform worse than the rest?

No doubt about it.

That's the beauty of the diversification of the Company.

I think at this stage though it's too early to give kind of a prognosis about what may be starting here on January 1.

Fair enough.

Thanks as always.

Steven Fox, Cross Research.

Thanks.

Good afternoon.

Adam, just first question real quick.

I know you've given a lot of color on the markets, but when you think about the different distribution channels that you've cited as maybe showing some weakness, are there any that you would say were overinventoried or would you say it's a fairly good reflection of demand?

Any color there would be appreciated.

I think we may have seen some slight inventory adjustments in the quarter in a few of those.

The areas where we have more distribution is industrial, commercial air and military.

Those are the three markets where we have the most distribution presence.

We have some limited distribution presence in others.

But I think there was also sellthrough and we certainly saw in the sellthrough side that orders that sell through in that limited visibility that we have across that 11% of our sales certainly started to moderate as the quarter went on.

So I don't know that there was significant inventory movement at that stage.

Okay, great.

Then just specifically on the auto expectations just relative to what the Company was thinking 90 days ago and now.

I guess it would be interesting to sort of understand how much maybe was sort of Amphenol-specific on where you had expected maybe programs to ramp that are delayed, whether they were mid-model upgrades or new models, etc.

and how much was just pure unit demand.

If there's any way to sort of provide color on that, it would be appreciated.

Thanks.

I think the best I can say is virtually all of the changes that we have seen in the automotive market appear to be just generalized forecast reductions from customers.

These were not due to program delays and certainly not due to losses of business that we had.

That was just overall forecasts coming down from customers.

Now forecasts can come down because of units, they can come down because of take rates.

They can come down because of mix of units and the types of cars that are there.

I think I mentioned in China, for example, that there is -- while it's true that there are various stimulus programs that people have talked about, there's also some talk about the mix of cars and whether those are higher content or lower content cars that are being stimulated in China.

That's one example maybe of an area where even if units are at a certain level, if the overall mix of the size of the cars and of the feature sets of those cars is different, well that would naturally have some impact on us in the short term.

So I think that we certainly would not point to anything where we were losing or where there was a delay per se.

It's just the forecasts are coming in lower.

Mark Delaney, Goldman Sachs.

Good afternoon and thanks very much for taking the questions.

The first question was on M&A.

I was just hoping you could clarify if you closed any acquisitions in either the third quarter or quarter to date that you can point to.

And then related to that, if you could just update us on the M&A landscape.

And I know there's been some discussion on the topic already, but I was hoping you could talk about the potential size of acquisitions that may be out there and just given that Amphenol is now a much larger company than it has been historically, if there's either enough small deals or larger deals that are potentially available that can move the needle and still support the overall revenue growth as it has in the past.

Sure.

Thanks very much, Mark.

We didn't close any deals in the quarter or announce any deals in the quarter.

We certainly would let you know when and if we do.

I did mention we have already closed three deals so far this year and we've signed another one, the FDI deal.

I think we feel very good about the M&A landscape.

We have made over the last five years I think some 22, 23 acquisitions, maybe 25 Craig reminds me and we have a really fabulous execution ability on those acquisitions.

You asked the question, as the Company grows in size, how do we balance small deals versus larger deals?

I think we have demonstrated how we do that.

We continue to strive to find unique entrepreneurial kind of tuck-in acquisitions and we have a strong appetite still for those companies.

In the second quarter, we acquired DoCharm and Procom, both just really outstanding companies in their respective fields.

And those are great acquisitions in that they bolster our capabilities either in a certain technology, in a certain region, with a certain set of customers.

At the same time, we continue to make larger deals and I think we announced the FDI deal.

It was just a year ago September that we made the Casco acquisition, a year prior to that that we made the Advanced Sensors acquisition.

So I think we have continued to find large size transactions, which can kind of move the needle at the same time as we continue to prosecute a great pipeline of tuck-in acquisitions.

And we would view that very much the same going forward.

The Company has just a great track record of M&A and our financial strength enables that at the same time as our organizational structure and our culture enables us to assimilate those companies very smoothly.

I think that's a great advantage for the Company going forward.

Thank you for those comments.

For a follow-up on the mobile networks market, I know 2014 was a very strong year and there's lots of buildouts and so this year is partly impacted by some of the consolidation that's going on at the customer base and tough comps and maybe inventory reductions.

I was hoping you'd just kind of comment what your customers are suggesting this business can be at over the intermediate term.

Is there still growth potential from further LTE buildouts as we go forward or should we expect lower growth to continue in mobile networks as we start thinking into 2016?

Look, I am obviously not a great forecaster of growth in mobile networks, having taken our expectations down twice already this year at both the end of the first quarter and the end of the second quarter.

We do see today, even if we grew in the third quarter on a sequential basis, we don't expect further growth here in the fourth quarter.

I think it's safe to say that our view and the industry's view coming into this year was a more positive view of the mobile networks market than ultimately we think it's going to end up.

The reasons for that have been well written about, whether that is the digestion of last year's outstanding investments that were made, whether that's the variety of mergers and corporate combinations that have either been talked about or signed or executed upon, and there's also other kind of extraneous things that have happened, for example, in China with the anticorruption investigations that have gone on and by all accounts have deferred some of the spending there.

So what does that mean going into next year?

I think it's very hard to give a prognosis at this stage, but I think what's very clear is that this is a market that is ultimately driven by consumer demand.

Consumers who are consuming more and more video on their devices, who are using their devices as kind of a replacement for their desktop, for their television, for their home computer, for their work computer.

Those mobile devices become essentially the linchpin around which we revolve our technology live.

I know personally that I just got a text message two days ago I was not so happy about when my kids blew through my huge monthly data plan and I had to pay another $15 three days ago.

So there's no doubt about it that I don't think I'm the only one blowing through my data plan every month on my family shared data and there is a huge demand, growth in demand for data in the mobile networks market.

How does that ultimately manifest itself in the spending, in the capital spending of the wireless operators around the world?

That is a timing that is very difficult to give a prognosis on.

I think we saw in the third quarter some incremental strength from North America and we were very pleased to be well-positioned for that.

We have not seen that strength in places like Europe and Asia.

There's been some signs of strength in India as an example.

That's a market that we haven't seen a lot of strength in for three, four, five years.

So I think for us, the most important thing is that we are well-positioned and we continue to grow our position in all the places.

When the spending comes we will be ready for it.

We will be well-positioned and we will be the first phone call for our customers.

Wamsi Mohan, Bank of America.

Yes, thank you.

Adam, I was just wondering, with all the consolidation in the IT data com space, do you see this ultimately as a market with an overall shrinking TAM for Amphenol as hardware moves to more commoditized platforms and companies move more to cloud-based deployments?

How do you think about the R&D deployment as it pertains to this end market investing in like high-speed backplane connectors?

Thanks.

Sure, I think the simple answer is we don't think of that as a shrinking TAM, but we do think of it as a changing TAM and we've talked a lot about that.

There's no question that the consolidation is a reflection of a lot of changes in that marketplace.

What used to be OEMs who would make boxes, put them in and shipped them to customers who needed some IT hardware, that has really changed and is in the process of flipping on its head.

It's a slow flip how that happens, that change towards the Web service providers and others, some of whom have taken it upon themselves to design and spec out their own equipment, but it is no doubt an enormous change in that market.

It's actually a very exciting change for a company who can get a pop and ahead of that.

I think that's something that we really have positioned ourselves to do.

The reality is, if we look last quarter in the IT data com market, we grew in local currencies about 4% organically, also about 4% last quarter and I can tell you that a good portion, if not all of that growth came from expansions that we've seen in sales to nontraditional customers.

And so we continue to expand our position with these nontraditional customers in the IT data com market on a global basis and I think that, as that settles out over time, we will have a great position there.

And whether that's in high-speed backplane products, whether that's in power products, whether that's in high-speed cable assemblies and I/O connectors and fiber optics, we have a wonderful product offering there that can service customers regardless of what part of the supply chain that they are in.

No doubt about it, it's a changing TAM, but I would not say at all that that's a shrinking TAM long term.

Thanks, Adam.

Just to follow up on your comment, would you say the nontraditional buyers have a similar margin profile on your products relative to the traditional players?

Thanks.

Look, we make good money on all what we sell.

I think that I would not differentiate between them in terms of the potential.

Ultimately, margin is related to how much value you can deliver to your customers.

And I can tell you that customers across the IT data com market have enormous needs for new technologies.

To the extent that you can enable their new technologies and their needs with your new technologies, then ultimately they are willing to pay a fair price, not a higher price, a fair price.

And then it's incumbent on us to get our costs in the right position such that we can make money on any business that we participate in.

Very good.

I think, operator, it appears that that's our final question.

At this time, Craig and I would like to once again thank all of you for your time today and we look forward to speaking to you again here in about three months.

Thank you.

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