安費諾 (APH) 2019 Q4 法說會逐字稿

Hello, and welcome to the fourth quarter earnings conference call for Amphenol Corporation.

(Operator Instructions) 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.

Great.

Thank you.

Good afternoon, everyone.

This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO.

We would like to welcome you to our fourth quarter 2019 conference call.

Our fourth quarter and full year 2019 results were released this morning.

I will provide some financial commentary, and then Adam will give an overview of the business as well as current trends, then we will take questions.

As a reminder, we may refer in this call to certain non-GAAP financial measures and may make certain forward-looking statements, so please refer to the relevant disclosures in our press release for further information.

The company closed the fourth quarter with sales of $2.151 billion and with GAAP and adjusted diluted EPS of $1.03 and $0.98, respectively.

Sales were down 3% in U.S. dollars and 2% in local currencies compared to the fourth quarter of 2018.

From an organic standpoint, excluding both acquisitions and currency impacts, sales in the fourth quarter decreased 8%.

Sequentially, sales were up 2% in both U.S. dollars and in local currencies and up 1% organically.

Breaking sales down into our 2 segments, the Interconnect business, which comprise 95% of our sales, was down 3% in both U.S. dollars and in local currencies compared to the fourth quarter of last year.

Our Cable business, which comprise the remainder of our sales, was down 3% in U.S. dollars and down 1% in local currencies compared to the fourth quarter of last year.

For the full year 2019, sales were a record $8.225 billion, which was flat in U.S. dollars, up 2% in local currencies and down 3% organically compared to 2018.

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

Adjusted operating income was $430 million for the fourth quarter of '19.

Adjusted operating margin in the quarter was 20%, which compared to 21% in the fourth quarter of 2018 and 19.7% in the third quarter of 2019.

From a segment standpoint, in the Interconnect segment, margins were 22% in the fourth quarter of 2019, which was down compared to the fourth quarter of '18 at 22.8%.

This reduction was primarily driven by normal downside conversion on the organic decline in sales as well as the impact of acquisitions, which are currently operating at profitability levels before the company -- below the company average.

In the Cable segment, margins were 10%, which was down compared to 11.9% in the fourth quarter of 2018, primarily driven by volume and product mix.

For the full year 2019, adjusted operating income was $1.645 billion, down 3% from 2018.

We continue to be very proud of the company's operating margin achievements, which reached 20% for the full year 2019, especially given the demand environment.

This 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 any market environment.

Through the careful fostering of this culture and the deployment of our strategies to both existing and acquired companies, our management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance in the future.

Interest expense for the quarter was $28 million and compares to $26 million in the fourth quarter of last year.

The company's adjusted effective tax rate was 24.5% for the fourth quarter of 2019 compared to 25.5% in the fourth quarter of 2018.

The fourth quarter adjusted effective tax rate for both periods excludes the impact of the excess tax benefit associated with stock option exercises.

And the fourth quarter of 2018 adjusted effective tax rate also excludes the tax effect of acquisition-related costs as well as the finalization of the provisional income tax charge related to the Tax Act.

The company's GAAP effective tax rate for the fourth quarter of 2019 was approximately 20.3% compared to 21% in the fourth quarter of 2018.

For the full year, the company's adjusted effective tax rate was 24.5% compared to 25.5% in 2018.

The adjusted effective tax rate excludes the impact of the excess tax benefit associated with stock option exercises as well as the tax effect of both acquisition-related costs and refinancing-related costs associated with the debt tender offer in the third quarter of 2019.

Full year 2018 adjusted effective tax rate also excludes the finalization of the provisional income tax charge related to the Tax Act.

The company's GAAP effective tax rate for 2019 was 22.2% compared to 23.4% in 2018.

Adjusted net income was a strong 14% of sales for both the fourth quarter and full year 2019.

On a GAAP basis, diluted EPS declined by 6% in the fourth quarter to $1.03 compared to $1.09 in the fourth quarter of 2018.

And adjusted diluted EPS declined $0.07 to $0.98 in the fourth quarter of 2019 from $1.05 in the fourth quarter of 2018.

For the full year, GAAP diluted EPS was $3.75, a 3% decrease from 2018 GAAP diluted EPS of $3.85.

And adjusted diluted EPS was $3.74 for 2019, a 1% decrease from 2018 adjusted diluted EPS of $3.77.

Orders for the quarter were $2.200 billion, which resulted in a book-to-bill ratio of 1.02:1.

The company continues to be an excellent generator of cash.

Cash flow from operations was $424 million in the fourth quarter and a record $1.502 billion for the full year or 140% and 131% of adjusted net income, respectively.

Net of capital spending, our free cash flow for the fourth quarter was $352 million, and the full -- for the full year was a record $1.207 billion or 117% and 105% of adjusted net income, respectively.

These are excellent cash flow results and reflect the hard work of the management team around the world in carefully managing working capital amidst the uncertain economic environment in 2019.

From a working capital standpoint, inventory, accounts receivable and accounts payable were $1.3 billion, $1.7 billion and $867 million, respectively, at the end of December.

And inventory days, days sales outstanding and payable days were 80, 73 and 53 days, respectively, all within our normal range.

The cash flow from operations of $424 million, along with proceeds from exercise of stock options of $100 million in cash, cash equivalents and short-term investments on hand of approximately $95 million net of translation were used primarily to repay $366 million in borrowings under our commercial paper programs and other facilities, fund dividend payments of $74 million, fund net capital expenditures of $72 million, fund acquisitions of $47 million, repurchased approximately $43 million of the company's stock and fund acquisitions of and distributions to noncontrolled interest of $18 million.

During the quarter, the company repurchased 400,000 shares of common stock at an average price of $103 under the $2 billion stock repurchase plan, bringing total repurchases for the year to 6.5 million shares or $600 million.

At December 31, cash and short-term investments were $909 million, the majority of which is held outside of the U.S. And at year-end, the company had issued $395 million under its U.S. and euro commercial paper programs.

The company's cash and availability under our credit facilities totaled $3 billion.

Total debt at December 31 was $3.6 billion, and net debt was $2.7 billion.

The adjusted EBITDA for the fourth quarter and full year 2019 was $522 million and $2 billion, respectively.

In summary, this is a strong quarter and full year for the company financially, especially in light of the continued uncertainty across the global markets.

And I will now turn it over to Adam, who will provide an overview of the business and comment on current trends.

Well, Craig, thank you very much, and welcome to all of you to our first call of the new decade here in 2020, and hope it's not too late for me to wish everybody on the call a Happy New Year.

As Craig mentioned, I'm going to highlight some of our achievements here in the fourth quarter and for the full year of 2019.

I'll then spend a few moments to discuss our trends and progress across our served markets.

And then finally, I'll make some comments on our outlook for the first quarter and the full year 2020.

And of course, we'll reserve some time at the end for some questions.

Our results in the fourth quarter were stronger than expected as we exceeded the high end of our guidance in both sales and adjusted EPS.

And that's despite an ongoing environment of uncertainty in the global economy.

Sales were down by 3% in U.S. dollars and 2% in local currencies but reached $2.151 billion.

On an organic basis, as Craig described, sales were down by 8%, and that was largely driven by the significant reductions in the mobile devices and mobile networks markets.

The company booked $2.2 billion in orders in the quarter, and that represented a strong book-to-bill of 1.02:1.

Despite our decline in sales in the quarter, adjusted operating margins held up very strongly, reaching 20%, and the company generated excellent operating cash flow of $424 million in the quarter, really another reflection of the quality of the company's earnings.

I just have to say, I remain very proud of the Amphenol team.

Our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic economic environment, all while driving superior operating performance in the quarter.

Also very pleased to announce that just in the last several days, we closed the acquisition of EXA Thermometrics.

EXA is a provider of high-technology temperature sensors based in Bangalore, India, with annual sales of approximately $10 million.

And while EXA is still a relatively small company, the company strengthens our overall sensor offering and expands our sensor manufacturing footprint to India.

EXA represents an excellent complement to our growing portfolio of sensor products, which have become a core pillar of Amphenol's overall interconnect offering.

As we welcome this outstanding new team to the Amphenol family, we remain very confident that our acquisition program will continue to create great value for Amphenol.

Our ability to identify and execute upon acquisitions and successfully bring these new companies into our family remains a core competitive advantage for the company.

Now let me just make a couple of comments about the full year 2019.

And despite the many challenges in the global economy in 2019, it was a successful year for Amphenol.

Amidst significant organic declines in the mobile devices market as well as moderations in demand in several other markets that we discussed early last year, we are very pleased to have just surpassed our 2018 sales levels.

Our full year operating -- full year adjusted operating margins once again reached 20%.

And this strong level of profitability enabled us to achieve adjusted diluted earnings per share of $3.74.

And very importantly, we generated record operating and free cash flow of $1.5 billion and $1.2 billion, respectively, both of which are excellent confirmations of the company's superior execution, together with our disciplined working capital management.

Our acquisition program created great value for the company in 2019 with 9 new companies added to the Amphenol family in the year.

These acquisitions, which included SSI, Aorora, [Kopek], Charles Industries, CONEC, Bernd Richter, GJM, Cablescan and finally, XGiga, expanded our position across a broad array of technologies and markets.

We're excited that these acquisitions represent expanded platforms for the company's future performance, in particular, because the outstanding and talented individuals that have joined the Amphenol organization.

These new Amphenolians, as we call them, deepen our already strong bench of leaders around the world.

In addition, in 2019, we deployed further our capital by buying back over 6.5 million shares under our share buyback program, while also increasing our quarterly dividend by 9%.

Amphenol's long-term mission is to be the enabler of the electronics revolution.

Through the organic development efforts of Amphenol's entrepreneurial organization, together with the benefits of our acquisition program, we have expanded our relationships with a broadening array of customers across all of our diversified end markets.

This has resulted in the company strengthening our position across the many segments of the electronics industry.

And while the overall market environment in 2019 was highly uncertain, our agile, entrepreneurial management team is very confident that we have built further strength from which we can drive superior performance into the long term.

Now turning to our trends and progress across our served markets.

I would just note that we continue to be very pleased that the company's balanced and broad end market diversification remains a real high-value asset for the company.

No single end market in the year represented more than 20% of our sales.

And we believe this diversification mitigates the impact of the volatility of individual end markets while also exposing us to all of the leading technologies wherever they may arise across the electronics industry.

Now turning first to the military market.

The military market represented 13% of our sales in the fourth quarter and 12% of our sales for the full year 2019.

Sales again grew very strongly from prior year, increasing by a greater-than-expected 30% in the fourth quarter, driven by growth across essentially all segments in the military market, including, in particular, military vehicles, rotorcraft and airframe applications.

On a sequential basis, sales increased by 7%, which is a very strong performance, given the normal fourth quarter seasonality that we've typically seen.

For the full year 2019, we're very pleased that our military sales grew by an outstanding 23% in U.S. dollars and 22% organically, reflecting broad-based strength across virtually all segments of the market.

Our organization working in the military market has worked so hard for many years to strengthen our broad technology position while increasing our capacity to serve customers across all of the segments of this important market.

And I can just tell you that our superior performance in 2019 is a great reflection of the results of their efforts.

Given the ongoing favorable military spending environment, our team continues to solidify our leadership position by ensuring that we execute on this increased demand by supporting the many next-generation technologies that are required for modern military hardware.

Looking ahead, we expect sales in the first quarter to decrease slightly from these fourth quarter levels.

And for the full year 2020, we expect to achieve mid- to high single-digit sales growth on top of our already strong sales levels from 2019.

Turning to the commercial air market.

That market represented 5% of our sales, both in the fourth quarter and for the full year of 2019.

And sales in the fourth quarter increased by a stronger-than-anticipated 15% as overall demand from commercial aircraft manufacturers continued to be robust.

Sequentially, our sales increased by 8% from the third quarter, also a very strong performance.

For the full year 2019, we're pleased that our sales grew by 14% as we benefited from broad design-ins of our next-generation interconnect products on new aircraft.

Looking into 2020, we do expect a sequential moderation in sales from these levels in the first quarter.

For the full year, we expect sales to remain at roughly 2019's levels as increased sales onto new jet platforms is offset by some impact from one program's widely reported production delays.

Regardless of this more muted outlook for 2020, we remain encouraged by the company's strong technology position across a wide array of aircraft platforms and next-generation systems that are integrated into those airplanes.

And we look forward to benefiting from that position for many years to come.

The industrial market represented 19% of our sales in the fourth quarter and 20% of our sales for the full year 2019.

Sales in industrial in the fourth quarter grew by a bit stronger-than-expected 7% from prior year, driven largely by the contributions from our acquisitions completed over the past year.

On an organic basis, sales actually declined by 3% as growth in instrumentation, alternative energy and medical was more than offset by moderations in other segments of the industrial market.

On a sequential basis, sales reduced by 2% from the third quarter, reflecting continued moderation in the overall industrial market, in particular, in Europe.

For the full year 2019, sales in the industrial market grew by 4% in U.S. dollars and were down by 3% organically as growth in medical, factory automation, rail mass transit and oil and gas were offset by moderations in other segments of the industrial market.

We remain very pleased with the company's broad position in the worldwide industrial market.

And while the overall environment in 2019 became increasingly uncertain as the year progressed, we added several outstanding acquisitions, which strengthened our overall position.

Through both our acquisition program as well as our organic innovations, we've developed a very broad array of products across a diversified range of exciting segments within the global industrial market.

We're proud of this success and look forward to realizing the benefits from our efforts in the industrial market for many years to come.

Looking into the first quarter 2020, we anticipate a slight decrease in sales from these levels as demand continues to be uncertain, particularly in Europe.

And for the full year 2020, we expect to realize low single-digit sales growth as we continue to benefit from our acquisitions as well as our organic growth efforts.

The automotive market represented 18% of our sales in the quarter and 19% of our sales for the full year.

Sales were stronger than we had expected coming into the quarter with revenues growing by 8% in U.S. dollars and 10% in local currency, driven by the contributions from our acquisitions completed earlier in the year.

On an organic basis, sales were flat from prior year as slowing vehicle volumes offset increased sales of products sold into new vehicle electronics applications.

Sequentially, our automotive sales increased by 3% in the fourth quarter as we benefited from several new program launches.

For the full year 2019, our sales in the automotive market grew by 3% in U.S. dollars and 6% in local currency but were down by 2% organically, reflecting the benefits of our acquisitions as well as our broad array of new products into next-generation applications, offset by the overall slowing of the worldwide automotive market.

We continue to benefit from our long-term and consistent strategy of expanding our range of interconnect, sensor and antenna products, both organically and through acquisitions, to enable a wide array of onboard electronics across a diversified range of vehicles made by auto manufacturers around the world.

Looking into the first quarter 2020, we expect sales to moderate slightly from these levels.

And for the full year 2020, we expect a low single-digit sales increase for the automotive market.

And while the overall market remains uncertain, we're confident that our broadened range of high-technology solutions positions us for continued growth in automotive into the future.

The mobile devices market represented 15% of our sales in the quarter and 13% of our sales for the full year 2019.

Sales in the mobile devices market exceeded our expectations coming into the fourth quarter, growing 9% sequentially from the third quarter as our team executed extremely well to satisfy increased demand from customers making both smartphones and tablets.

Compared to prior year, sales were down by 35%, but which was better than we had expected, especially in light of the very strong fourth quarter we had, had in the fourth quarter of 2018.

For the full year 2019, sales in the mobile devices market decreased by 20%.

And as we discussed extensively at the time of our first quarter earnings release, our reduction in sales for both the fourth quarter and the full year were driven really by changes in available content due to architectural shifts and product designs of certain smartphone models.

We're pleased that the team outperformed our previously revised expectations of an approximately 30% reduction for the full year, a great testament to our mobile device team's continued agility in the face of an always volatile market.

Looking into the first quarter 2020, we anticipate a relatively normal seasonal sequential decline of approximately 25%.

And for the full year 2020, we expect sales in the mobile device market to be flat with 2019 levels.

Although 2019 was a difficult year for this market after our record performance in 2018, I can just tell you that we come into 2020 in a great position to capitalize on any future opportunities for growth that may emerge.

Our leading array of antennas, interconnect and mechanisms continues to enable a broad range of next-generation mobile devices.

And while this market will no doubt remain one of the most volatile, our outstanding team working in mobile devices looks forward to continuing to drive value for our customers and for Amphenol into the future.

The mobile networks market represented 6% of our sales in the quarter and 8% of our sales for the full year 2019.

Sales in this market decreased from prior year by a bit more-than-expected 20% in U.S. dollars and 31% organically as we were impacted by reduced demand from both OEMs and operators.

As we discussed extensively back in July, the U.S. government restrictions on sales to certain Chinese entities ultimately resulted in many operator and OEM customers reassessing both their build-out plans and inventory levels, leading to lower demand for our products.

For the full year 2019, our sales were down slightly from prior year but were down organically by 9% as the benefits of our acquisitions completed earlier in the year were offset by the dynamics I just mentioned.

Looking ahead, while we expect sales in the first quarter to increase modestly from these levels, we do expect sales for the full year to be down in the low single digits as the full year impact from the U.S. government restrictions as well as the associated effects are partially offset by increased demand from operators who are beginning their next-generation network build-outs.

Regardless of the challenges that arose in the mobile networks market in 2019, we're confident in the company's long-term position in this important and exciting industry.

Our team continues to work aggressively to expand our opportunity with next-generation equipment and networks.

And as customers plan for their advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers around the world.

This creates a significant long-term expansion potential for the company.

The information technology and data communications market represented 20% of our sales in the fourth quarter and 19% of our sales for the full year 2019.

Sales in the quarter were stronger than expected, rising by 3% in U.S. dollars but down by 3% organically from prior year as the contributions from the Charles Industries and XGiga acquisitions, together with stronger sales of server-related products, were offset by lower sales of products incorporated into networking and storage systems.

Sequentially, our sales in IT datacom grew by a stronger-than-expected 10% from the third quarter as our team capitalized on stronger demand in servers and storage and to a lesser extent, networking products.

For the full year 2019, our sales in the IT datacom market were flat from prior year in U.S. dollars and down by 3% organically, a really strong performance by our team, given the impact of the U.S. government restrictions and the associated knock-on effects we discussed earlier.

These results were a direct result of our team's continued efforts at developing industry-leading products across a wide array of technologies, including, in particular, high-speed and power products.

In addition, our team continued to adapt quickly to the changing market environment, including by capitalizing on the expanding importance of web service providers, a group of customers that grew strongly in 2019.

Looking ahead, we expect sales in the first quarter to moderate from these levels.

And for the full year 2020, we anticipate sales to remain flat to 2019 levels as the full year effect from the U.S. government restrictions are offset by continued growth of next-generation products sold into a wide array of customers, including those web service providers.

We remain very encouraged by the company's strong technology position in the global IT datacom market.

Our customers around the world continue to drive their equipment to ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power.

In turn, our team remains singularly focused on enabling this continuing revolution in IT datacom through their ongoing development of a wide range of next-generation technologies.

Finally, the broadband market represented 4% of our sales, both in the fourth quarter and the full year.

As we had expected, sales decreased by 6% from prior year as spending levels from broadband operators continued to moderate.

On a sequential basis, sales decreased by 6% also from the third quarter.

There's no question that 2019 was a challenging year in this market as our sales declined by 7% from prior year on reduced levels of operator capital spending.

Looking ahead, while we expect sales to moderate slightly from these levels in the first quarter, for the full year, we expect our sales in the broadband market to increase in the low double digits as operators begin to ramp up their network upgrades.

Despite the challenging conditions in the broadband market last year, we remain encouraged by the company's continually expanding range of products, together with our strong positions with customers around the world.

We continue to position ourselves as the most flexible supplier, thereby ensuring that the company can benefit as operators begin to increase network investments.

So just in summary, while 2019 was a challenging year in many respects, I come out of the year extremely proud of our team's performance.

Amidst a very uncertain market environment and in the face of many unexpected dynamics that developed during the year, the Amphenol organization has clearly continued to execute extraordinarily well.

Through our dual-pronged approach of growing both organically and through our acquisition program, the company continues to expand our market position while strengthening our financial performance.

Amphenol's superior performance is a direct reflection of our distinct competitive advantages: our leading technology; our increasing position with customers in diverse markets; our worldwide presence; a lean and flexible cost structure; highly effective acquisition program; and most importantly, our agile, entrepreneurial management team.

Now turning to our outlook and given the continued heightened level of market uncertainty and based, of course, on constant exchange rates, we now expect for the first quarter and full year 2020 the following.

For the first quarter, we expect sales in the range of $1.960 billion to $2 billion and adjusted diluted EPS in the range of $0.85 to $0.87.

This represents a sales increase versus prior year of 0% to 2% in U.S. dollars and 1% to 3% in local currency and a decrease versus prior year adjusted diluted EPS of 2% to 4%.

For the full year 2020, we expect sales in the range of $8.240 billion to $8.400 billion and adjusted diluted EPS in the range of $3.76 to $3.84.

For the full year, this guidance represents both sales growth -- represents sales growth of flat to up 2% and adjusted diluted EPS growth of 1% to 3%.

We're encouraged by the company's performance in 2019, and all of us at Amphenol look forward to driving renewed strength going forward into 2020, even amidst the many dynamics around the world.

I remain very confident in the ability of our outstanding management team to build upon our results in 2019 and to continue to capitalize on the many future opportunities to grow our market position and expand our profitability.

And with that, operator, we'd be very happy to take any questions.

(Operator Instructions) And our first question is from Amit Daryanani from Evercore.

I have a question and a follow-up.

I guess to start with, when I look at the calendar '20 EPS guide, I think the implication there is that incremental operating margins are around 5%.

I want to make sure, A, I'm getting that math right.

But if so, what is the delta versus the historical target that you guys have talked about in the 25% range?

Yes.

Thanks, Amit.

I actually don't think your math is right.

If you look at the implied guidance, which is the kind of 1% to 3% on the EPS for the full year growth and 0% to 2% on the revenue growth, what that would really imply is a little bit under our normal kind of conversion margin going into 2020.

And I guess I would kind of stress that we really think that's an impressive profitability conversion considering that we still do have some drag related to the acquisitions that we have done.

And even though we have made some progress there, we do still have some work to do in regards to some of the acquisitions.

As you know, there -- they are done throughout the year, so we're not -- there is some time to get those up to the average level of profitability.

And -- but if you take those out, actually, we're converting well above our normal range.

And that would also just reflect the actions that we've taken that aren't reflected -- the cost of which aren't reflected in 2020 as well as other actions that the company's really done a great job of to ensure the bottom line profitability and really these low rates of organic growth that we're guiding to in 2020.

So really happy with the conversion and ultimate profitability implied in our guide.

Perfect.

And I guess, Adam, on mobile devices, when we think about the flat guide for calendar '20 sales, and I realize it's early in the year for you guys, just help me understand the delta between the guide here versus what you guys did last year or guided for last year.

Does that essentially reflect that you don't see any negative change to your allocation opportunity in calendar '20?

Is that really the message there?

Or is there a bigger message in terms of which in the content will be as well in calendar '20?

Yes.

Well, thank you, Amit.

And I think every year, we get into that discussion about our guidance for mobile devices with good reason.

It's a very difficult market to guide to, and you'll remember our -- my track record over a number of years is not the greatest at being accurate.

All that being said, we came into last year with an outlook of being down in the mid- to high or high-teens.

And in fact, we ended up even though we adjusted the guidance down early in the year, but our team ended up really doing a great job in the second half and ended up for the year down in mobile devices by 20% and in fact, 19% in local currencies.

So we were kind of spot-on last year, which was a first in a many year period.

I think our flat guidance is based on what we see today.

I think our team has done an excellent job of positioning ourselves well, making sure that we're present on lots of different new platforms, that we're getting at least our fair share, if not more than our fair share of a variety of allocations and that we're working on lots and lots of different mobile devices.

And I think that last point is a very important one.

People talk a lot about mobile devices in terms of just a phone or a smartphone or something like that, but there is an extraordinary array of devices more and more, which becomes smart devices, and ultimately, one calls them a mobile device.

I mean I was just, as you know, out in Las Vegas 1.5 weeks ago at the Consumer Electronics Show.

And seeing that, essentially, everything has become smart.

You cannot find a category of a thing that one uses in one's life and not find at the Consumer Electronics Show a smart version thereof.

And these smart devices ranging from frying pans to drink mixers to things you put on your wrist to exercising devices and of course, to smartphones and tablets, laptops, wearables, headphones, all of those things, these continue to create new and wonderful opportunities for our company to find ways to grow as our products can help our customers make their products better.

And that remains.

And I'd just remind everybody, our philosophy in mobile devices, our philosophy remains that we will participate in those products where we can help our customers add value.

And just the constant growth of the types of products that are out there, I think, creates a good opportunity for us.

All that being said, it's a very volatile market.

It's a very, very hard to predict market.

And as we sit here today, just in the third week of January of 2020, flat is what we see.

And you can bet our team will do everything they can to capitalize on any incremental opportunities that may arise.

Our next question is from Mark Delaney from Goldman Sachs.

I had a question and a follow-up as well.

I guess first, on the macroeconomic environment.

Adam, you talked about how some of the events that transpired in 2019 around export bans and tariffs caused some challenges in revenue in certain markets and certainly understand some of those factors remain in place today.

But with the Phase 1 trade agreement being put in place between the U.S. and China, are you seeing that translate into improved order rates in any areas?

Yes.

I mean look, we're very happy if the world's 2 largest economies can work their way towards a more peaceful coexistence economically.

And so I think from that perspective, we applaud that there is this Phase 1 deal in a very macro standpoint.

All that being said, if you look at really what the Phase 1 deal really means, it does not roll back, for example, the vast majority of tariffs.

And you'll remember well, Mark, List 1, List 2, List 3. I mean those tariffs are all still in place, and those are tariffs that our team has done a fabulous job of managing through in 2019 and before, and we'll continue to manage through them going into this year.

The restrictions that are really part of a national security discussion as opposed to part of a trade discussion, none of those restrictions have really gone away.

So I wouldn't say that there are tangible benefits of the Phase 1, but I think there's a huge intangible long term, which I very much applaud, which is that it's progress.

And hopefully, that will lead to more progress, which will lead to really resolving some of the more insidious parts of the trade war that have gone on so far.

Got it.

That's helpful.

My follow-up question was around the margin integration topic that was previously discussed.

And maybe you can help us understand or remind us how long it typically takes to integrate acquisitions in past situations?

And then along those lines, I remember in 2019, there were some higher-than-normal integration spending that was done, and to Amphenol's credit, does not strip that out of non-GAAP earnings.

But are there any higher-than-normal integration expenses that are planned in 2020 SG&A that's maybe a part of that margin conversion rate that was mentioned?

Yes.

Sure.

Actually, I'll start off with this kind of second part of your question first.

I guess I wouldn't -- these weren't -- these costs that we talked about in the third quarter really had nothing to do with integration spending related to acquisitions.

It really is related to the fact that based on the current demand levels and -- that we saw coming into the third and fourth quarter, that we -- our general managers around the world, those that really saw a reduction, these are the things that we talked about, really had adjusted their cost levels.

And there's -- in some cases, this means headcount-related activities, and there's a cost to that.

And that's really what we saw in the third quarter that isn't recurring neither in the fourth quarter really of any significance, nor in our expectation from a guide perspective in 2020.

I mean I say that with a caveat that that's based on the current demand environment.

If there was some sort of an additional drop down or step down in the current demand environment, of course, we would take quick action, and there could be some costs related to that.

But certainly, that's not our expectation and not included in our guidance.

In terms of the margins in regards to acquisitions and how long it takes us to get those margins up to the company average, I guess, I would say that it really is very dependent on the specific acquisitions.

Over the course of history, we've had ones as short as months and 3 to 6 months or so as it relates to companies like FCI and others that we've had.

And then we've had that take -- some have taken years, and it really just depends.

So I wouldn't necessarily say that would nail down and say it's within one.

There was a median to that or anything of that nature.

So -- but we are -- I think we have a pretty good track record regarding to doing that, the management team is very committed to getting the margins up over some period of time.

And we do have an expectation.

With that being said, there will be a bit of a drag on our margin in 2020, albeit not as significant as there was in 2019.

And if you look at our 2020 sequential margins kind of going throughout the year in terms of implied guidance where we start in the first quarter in terms of where we end up for 2020, you would see that there is expectation of some improvement, which is partly from acquisitions and partly from just the underlying actions that we take from an organic perspective.

The next question is from Wamsi Mohan from Bank of America.

Adam, appreciate your comments around mobile devices, but just normal seasonality would imply mobile devices would be up quite significantly on a year-on-year basis.

So should we conclude that there's just not enough visibility at this point to make that statement about how those trends are going to be at the back half of the year?

Or do you actually expect seasonality to be sort of sub-seasonal this year?

And I have a follow-up.

Yes.

I mean I don't know that the normal seasonality -- I mean, normal is what in the mobile devices.

There -- we -- I think our guidance would imply that there is still a strong second half pickup in our sales in the mobile devices in 2020.

Is it as strong as it was this year?

No, but I think that if you look this year from Q4 to Q1, we were down by more than 50%.

And so every year in mobile devices has a little bit of a different cadence across the quarters depending on how things go.

We had that extraordinary quarter in the fourth quarter of 2018.

We then had a very significant more-than-half reduction sequentially into Q1 of 2019.

This quarter, we anticipate a relatively modest sequential reduction in the first quarter, let's call it, a more normal sequential reduction in the kind of mid-20s.

And so I wouldn't say that there is any sort of big categorical difference in terms of how that cadence goes across the year.

Okay.

And then we've seen some semiconductor companies talk about a near-term bottom-end demand in place.

I'm wondering if you view any lead time movement indicating anything similar for you?

Or how you would categorize the broader demand environment as you're entering this year?

Yes.

I mean I'm not maybe as good at finding where are bottoms and where are tops.

And part of that may be because distribution is a relatively small proportion of our sales and I think there are plenty of companies who have relatively high distribution content who maybe see that a little bit more clearly on sell-throughs and inventory levels and all that's associated with distribution.

I think the overall demand environment remains very uncertain.

I'm pleased with how our team did in the fourth quarter.

I'm especially pleased that we had a positive book-to-bill in the fourth quarter, which gives me some sense of confidence.

At the same time, there are a few of our markets where the first half of last year has a very difficult comparison to the first half of this year.

And for one, I would point out mobile networks, where, clearly, we will see in the first half of this year because of all the dynamics that we already have discussed a few times, we'll see that market being down relatively significantly in the first half.

And that has some impact on the overall outlook for the year.

But are we at a bottom?

I think it really depends by market.

And I think it's not always easy for us, sitting where we sit, to pick are we or are we not at the bottom.

The next question is from Craig Hettenbach from Morgan Stanley.

First question, Adam, just on the automotive market.

If you can just touch on, kind of from a production perspective, how you're seeing things at the start of this year.

And then you mentioned a couple new programs, so any highlights you'd call out from a content perspective that are important for this year?

Yes.

I think the auto market, clearly, as we went through the course of last year, and we talked about this a lot in the middle of the year, we did not see a recovery in the auto market that we had anticipated would have come in the second half.

And that ultimately kept our performance more muted than we would have liked.

Now all that being said, I think that we were, in the fourth quarter, as I mentioned, flat on an organic basis.

For the full year, just down by a very small amount, organically.

And that's in a worldwide automotive market where, you probably know the numbers better than I do, but I think it's like 6%, 7% volumes down.

I think there's lots of different forecasts for what the automotive market will be in 2020, but none of them seem to be so rosy in terms of the outlook.

I think our team, we don't go about forecasting our business by saying what is production and what is content.

But I think, very clearly, with our outlook to grow in the low single digits in 2020, I think that continues to represent gains in content by the company.

And as it relates to new programs, I mean, we are always working on lots of new programs that, in particular, are dealing with new electronic systems in the car, things like electric drivetrains, things like new emission systems, things like new passenger comfort and infotainment systems.

And when we looked at our performance in the fourth quarter, that was not clearly driven on a sequential basis, where we grew 3% on a quarter-to-quarter basis.

That was not driven by auto volumes.

That was really driven by some of these new programs that we've been working hard on for a number of years starting to ramp up.

And we would expect to see some of that to continue into 2020.

Got it.

And then just a follow-up on mobile networks.

You talked about just some of the uncertainty, kind of a ripple-through effect of the Huawei restrictions.

Any signals you're getting from operators in terms of just how they're feeling about the pacing through this year?

Yes.

I mean operators don't give you the longest-term forecasts, and that's one of the things about being in the service provider market.

And we know how to work in service provider markets, we've gotten very good at it over the years.

And forecasting in a service provider market is not so easy.

And I think the operators are -- some of them are still of the mind to say, "Let's wait and see how this whole thing shakes out vis-à-vis, which vendors can we use and not use, in particular, in places outside of the U.S."

I think, in the U.S., the problem does -- isn't related necessarily to that because that's pretty well defined.

But it's more in the U.S., you continue to have uncertainties around corporate combinations and the sort of, is the equipment ready and is the economics around 5G there to support significant investment increases.

And I think those are still yet to be seen.

But look, we expect in 2020 to see some next-generation network build-out, not enough to offset the comparisons that I talked about in one of the prior questions.

But certainly, we do expect to see that with some of our operator customers around the world.

And to the extent that they decide to accelerate those or that the economics become more clear or the supply base becomes more clear, we will be right there to support them whenever they need us.

The next question is from Samik Chatterjee from JPMorgan.

Happy New Year to you guys as well.

If I can just kind of clarify, I think you said in industrial segment you expect growth in 2020.

Is that an expectation on the organic sales as well?

And if so, kind of which are the geographies you're seeing improving trends?

And what's your latest assessment of the inventory situation there?

Yes.

So I think the answer is, yes, we expect some modest amount of organic growth in the year in industrial.

I think across which segments, it's a little hard to say that in advance, no doubt about it.

I mean we had good momentum in industrial, finishing the year in instrumentation, alternative energy and medical.

I mean those all seem to have continued outlooks of favorability, but it's very hard to forecast which of the many segments of the industrial market are going to ultimately drive the result.

Relative to distribution and the sort of stock positions and all of that, I think we did see over the course of the year in 2019 relatively significant reductions in industrial distribution between the first half and the second half.

I don't say that we have a big recovery for that embedded into our numbers.

I think a lot of distributors are waiting and seeing to see, ultimately, when is the end demand going to come back in those markets which they serve.

All that being said, what we feel very good about in the industrial market beyond just our core position, we've made some outstanding acquisitions over the course of the last year, which have really built our product offering and our penetration into those various segments of the industrial market in a real significant way.

And so our team is working very hard around the world to leverage those new product offerings to make sure that we can continue to become ever more important to our customers.

And to the extent those customers ultimately have more demand to fulfill, I think that will be a real tough choice for them to work with in 2020 and beyond.

Okay.

And if I can just follow-up on the cash flow.

Craig, how are you thinking about kind of operating cash flow for 2020, given that you had a sizable improvement here going from 2018 to 2019?

Are there more kind of working capital benefits that we should expect in a flat operating profit environment in 2020?

Sure.

Thanks.

No, I mean, the company certainly has historically been and continues to have a very strong cash flow generation.

And I think in years where the organic growth is a little bit lower, such as 2019, we would expect to generate stronger-than-average cash flow versus those years that we grow really strongly organically, such as 2018, where the cash flow is a little bit lower than the average.

I guess what I would say about the expectation in 2020 is I wouldn't expect any significant change from kind of the average cash flow conversion that we typically have.

It's -- so I would expect that same kind of rough -- within the range of 100% of net income, free cash flow conversion in the 90s, mid-90s, maybe, in that range and over 100% kind of from an operating cash flow perspective, which basically is what we would expect over the longer term from a cash flow generation perspective.

But I would tell you that we're extremely happy about the cash flow generation.

And in 2019, we certainly deployed that, given all the acquisitions that we had and certainly, the share repurchases.

So I think it's really a strategic advantage of the company generating this level of cash.

And I think the 2019 cash flow that we generated was just an example of that, and we're really proud of that.

The next question is from Shawn Harrison from Longbow.

Double-digit growth in the broadband business is something, I guess, I haven't heard for a while.

So maybe, Adam, if you could delve into why the operators are finally looking to spend here in 2020.

Yes.

Shawn, sorry, either I misspoke or you misheard because I said -- I think I said low single-digit growth in broadband.

So I apologize for that if it was my misstatement.

Okay.

So low single-digit growth, never mind on that.

Which is still good, given the last few years.

Correct, correct, considering the history.

Okay.

Then moving on, then, the IT datacom business a flattish organic growth.

If you exclude the entity ban impact, where would you expect to see organic growth in that business in 2020?

Yes.

I mean that's a little bit hard to say.

I think we feel very good about our position in the IT datacom market.

Clearly, the first half has a more magnified impact because of the various effects.

And it's not just the ban itself, but also the knock-on effects that we discussed, I think, pretty extensively back in our second quarter discussion.

So I -- what would it be, organically?

I don't know, low single digits, something like that.

If I sit where I sit today, which is the very beginning of the year, thinking about a market that is not always the easiest to forecast, maybe something like that around those levels.

But no doubt about it, there are parts of that market where we continue to make great progress irregardless of what's happening in the overall environment.

And I mentioned our progress that we've made in web service providers, which had really great growth last year, double-digit growth organically in an environment where those customers, that part of the IT datacom world is really striving for a real step function increase in bandwidth and processor capability in order to support just all what is being supported, a lot of which is, as you know very well, getting people to watch videos on their phones and tablets and over-the-top on their TVs at home.

And that extraordinary increase in video traffic continues to drive just a lot of demand for the next-generation higher-speed products.

So what will that ultimately be?

It's hard to say at this stage.

I think the guidance that we've given to be flat for the year is a very good guidance, given all the dynamics.

And obviously, our team is going to work very hard to outperform that if they can.

The next question is from Matt Sheerin from Stifel.

A question, Adam, regarding your sensor business.

You seem pretty excited about that small acquisition in India.

You've made several acquisitions over the years.

And I know there's a mix between both industrial and auto.

Could you update us on where you stand there in terms of revenue run rate, the end market mix and also how much are you seeing in terms of traction with doing complete subsystems for customers that include both the sensor and the interconnect technologies?

Yes.

Well, thanks very much, Matt.

Look, we are very excited about our sensor business.

And yes, it's a very small acquisition and maybe I sound a little more excited than the scale of it.

And I think the reason for that is a fewfold.

Number one, it is our first acquisition that we've made in India of a private company.

And it gives us a new base of low-cost manufacturing at a time when diversification of low cost seems to be not a bad idea in many respects.

And I think this EXA will really be a fabulous base for us to support the world, which they do already.

And in addition, it gives us really a direct, on-the-ground access to the Indian market for sensors, which we have not had before.

So that's something that's very new.

And we would really anticipate in the future that, that team will become a beachhead for us in a very, very important market, in particular, in the industrial market, but also in automotive, mil aero and otherwise.

In terms of where do we stand in our scale in sensors, we're a lot bigger than we were before.

We don't talk publicly about exactly what the size of our sensors is, but you can piece that together relatively well by looking at the disclosed sizes of all of our acquisitions and knowing that we've grown our sensor business organically at a relatively robust pace during that time period.

What do we look forward to in terms of that sort of value-add offering?

I can tell you that now that we are 6 years in to having owned our first sensor company, which was the GE Advanced Sensor acquisition, we see a lot of opportunities with customers to give them a total solution of interconnect and sensor products, which ultimately allows them to simplify their approach to their vendor base to have one company on whom they can rely for that total system and especially a company that has that harsh environment capabilities that we have had for so many decades, in fact, the whole history of Amphenol.

And I think that, that proposition, which was originally more of a hypothesis when we acquired the Advanced Sensors Business 6 years ago is clearly a platform for us for long-term growth in the sensor and the interconnect market.

And we look forward to taking advantage of that for many years to come.

The next question is from Will Stein from SunTrust.

Congrats on the strong Q4 results, including the inventory performance.

That said, Adam, I'm wondering if you can comment on inventory conditions in the channel.

I know you're not a huge user of the channel, but any view into that category's inventory levels?

And similarly, at your direct customers, any visibility that you could comment on?

Yes.

I think the inventory conditions in the channel, again it's a relatively small proportion of our sales, just 15% of our sales through distribution.

And we get some visibility across that 15%.

I'd say that the inventory positions are healthy.

I would say that they are relative to the end demand of the market.

So we have some proportion of our distribution, which is in the military market, where there's very robust demand and where we've done a great job of satisfying that demand, and so maybe inventories have come a little bit up in that area.

And conversely, we've seen them come a little bit down in areas like the industrial market.

But I wouldn't point to any significant kind of disruptions that we would see there in inventory.

Relative to our direct customers, there's no question, and we talked about this at the -- in the middle of the year, that our customers following, in particular, after the events of the second quarter between the U.S. and China, a number of our customers looked at their overall inventory position and decided that maybe they had a little too much.

And I'd say that those positions as best as we can tell because we don't have any visibility that's a real visibility.

But at least the anecdotal evidence is that they -- those positions are working down into a little bit more of a healthy environment.

That's helpful.

If I could have one more, I want to revisit the mobile device end market again.

I know this is very difficult to forecast, so you've provided us with a view that's flat year-over-year.

But there are some pretty big architecture changes coming this year or at least those are anticipated relative to 5G, certainly, maybe Wi-Fi 6, we'll see more of that as well.

And these sorts of architectural changes drive potential for a step function different content from various companies, including Amphenol.

I'm wondering when we should expect to hear about any sort of update.

Or when does Amphenol have some better visibility into what the content situation looks like?

Is that a during Q1 sort of event?

During Q2?

Any clarity on that would help.

Yes.

I mean look, we always struggle with this here in the first quarter, Will, as you know, coming up with a guidance and knowing when we have clarity.

I think we usually have decent clarity, at least in our design-in position, sometime into the second quarter.

But look, I think the guidance that we've given is based on a very, very rigorous look at all of our design-in positions and the outlooks from the customers, obviously, taking some with grains of salt.

In terms of the next-generation architectures, I mean, the good news about these architectural changes, whether that be 5G, whether that be Wi-Fi 6 or something else, the good news about them is they tend to stack on each other as opposed to replace something else.

Because if you take 5G as an example, you will not buy a phone if it only works for 5G.

You will not buy a tablet if it only works for 5G because the 5G networks are going to be relatively minimalistic up until -- for a number of years to come, and thus, it has to be an additional functionality in that device, which has then backwards compatibility to 4G network, LTE, to 3G.

And you know what?

Sometimes you're driving through a part of the country and some of those parts of the country seem to even be in Connecticut, where you don't even have 3G.

You have 2G or Edge or whatever they have to call it.

And the phone got to work.

You've got to be able to call 911.

You got to be able to make at least a phone call, even if you cannot watch your Netflix movie at the same time.

And because of that, these devices become more complex.

They may add some type of architecture of a 5G, whether it's antenna or the whole signal path associated with it.

But ultimately, it increases the complexity, which creates opportunities for us, all things being equal.

Now I say all things being equal because every new device has a different cut of how they're going to architect it, a different approach, and that's why you have to be so flexible and dynamic and innovative as a supplier into that market.

But I think those are things that our team has really nailed down for many, many years.

And so what that 5G will bring, I think, at a minimum, it doesn't make things worse.

And can it create opportunities?

I think, certainly, it can.

And the same goes with something like a Wi-Fi 6, which maybe will slowly take over for the higher speeds that it entails, and that can create new opportunities for us over the long term.

The next question is from Deepa Raghavan from Wells Fargo Securities.

Adam, a question for you first.

Do you -- overall, do you feel fundamentally better about the macro environment than you did 3 or 6 months ago?

And does the guidance contemplate some of the cycle recovery prospects in automotive, industrials or semis?

I mean you touched on this earlier, but my question is, does the guidance -- does the guide contemplate any sort of recovery expectations similar to what you might have seen in prior historical cycle recoveries?

Well, to your first question, do I feel better than 3 to 6 months ago, yes, I mean, 6 months ago was not the most fun, having dealt with everything that we faced in Q2 and the relatively sudden impact of the restrictions and the various aspects of the trade war and other knock-on effects.

So yes, I guess, I feel fundamentally better than I did at that time.

Does our guide contemplate a recovery?

I think arithmetically, you can apply some sort of normal seasonalities and see that, yes, I mean, our second half is assumed to have some growth compared to the first half.

Now that's not so odd for us.

We do typically have a second half that's stronger than the first half.

We had that in this last year.

Even without the impact of the acquisition, there was growth in the second half.

But I think that, for sure, we have some expectation.

Is that a recovery with a capital R?

Or is that a normalization?

Or is that us also expanding our position on a variety of new programs?

I would call it a good combination of all of the above.

Got it.

My follow-up is with Craig.

Craig, does the full year EPS guidance contemplate share buybacks?

You've always talked about free cash -- 1/3 of free cash flow is being deployed towards share buybacks, where possible.

In the recent past, you've done 15% -- 50% or more, the last few years.

But you've got this M&A going on, which I understand.

But what's embedded in the full year 2020 guide?

Yes.

Sure.

Thanks, Deepa.

Yes.

So the 2020 guide does reflect some small level of repurchases that we would expect to do under normal course.

I guess I would also say that, also, what it reflects is that our share price is where it is.

And not to get into the dynamics of how weighted average shares are calculated, but there is a impact when the share price is higher, that actually increases your weighted average shares, that does have some offsetting impact to the share repurchases.

So I guess in terms of how we would think about that is that there is some impact of both of those reflected in our guidance.

The next question is from Joseph Spak from RBC Capital Markets.

I just wanted to quickly go back to the guidance.

If we look at both the first quarter and the full year revenue guidance at the midpoint, it's about 1%, yet, the guidance would imply the margins are a little bit softer in the first quarter than maybe the rest of the year.

I know there could be some seasonality or maybe mix related, but is there anything specific we should be thinking about or what gets that higher in the -- later in the year?

Yes.

No, I think the margin in the first quarter, I think, reflect the fact that we're sequentially organically reducing by the 7-ish -- on the high end, the 7-ish percent sequential quarter.

And that does bring with it a little bit higher-than-normal conversion.

On the downside, we talked about that in 2019, where maybe close to a 30% decline.

And we're kind of in the 25% to 30% sequential decline from a conversion perspective into the first quarter, which just normally brings with it a little bit lower margins.

I think if you then look at the full year kind of implied guidance, as I mentioned earlier, we do expect some increases thereon from that, maybe even a little bit higher than typical going into the rest of the year, which again, as I mentioned before, reflects work that we're doing in the base business as well as maybe some progress from an acquisition profitability perspective.

And just as a follow-up on aerospace.

You mentioned the 737 MAX.

I don't know, I guess, technically, you were more diplomatic, I guess I just mentioned it.

But can you just give us some indication of what you're really considering there in your guidance, just so as we continue to follow the news and headlines there, track how it should impact your outlook?

Yes.

I mean look, I think, first of all, just for the overall outlook of the company, there's not a program, including the one you mentioned, that is material to our overall outlook.

But in that market, commercial air, which did represent for us for the full year just 5% of sales, one significant program can have some modest impact on your outlook, and that's what it has had here.

I mean our overall presumption is consistent with probably what everybody has read publicly in terms of timing.

And I wouldn't say much more than that.

The next question is from Jim Suva from Citigroup Investment Research.

Happy New Year to you and your team.

And I have one question that is actually kind of the same question for both Adam and Craig.

And that is, as you look at 2020, what's kind of maybe the 2 or 3 variables or swing factors or end markets or items that you're really focused on?

Maybe, a, for Adam on the sales side and then, b, for the profitability side for Craig.

Like, for example, does the integration cost really something you're really focused on from a margin perspective or the challenges in the aerospace or mobility for the sales side?

I'm just trying to figure out what's the top couple variables that you're kind of more -- most keenly focused on for 2020 that could directionally go much better or potentially be some more risk.

Well, thank you very much, Jim, and Happy New Year to you as well.

Look, I mean, 2 variables, end markets, I mean, we're focused really on making sure the company performs regardless of what risks emerge for us.

I think we saw in 2019 many things that came about that we did not anticipate.

And to categorize in advance, well, that could happen or this could happen, that's not how we operate the business.

The way we operate the business is we try to be prepared, regardless.

And so I can tell you that our team fully expects that, in 2020, there may be unexpected external things that happen.

And occasionally, some of those external things that happen can have some sort of effect on Amphenol, and it's up to our team to really make sure that, that doesn't have any financial harm to the company.

And what you see in our results in 2019 is clearly that our team sprung into action quickly, dealt with whatever came our way, managed effectively and ultimately brought the company out of 2019 in a stronger position than we had come into it.

And I think that's the whole mantra for Amphenolians worldwide is we cannot necessarily control the environment, but we can control our agility in the face of that environment.

And that's true inside of each of our markets.

If in military, there were a decline in spending, well, our team would deal with it.

We would manage it.

And by the way, we would have just outstanding presence with customers who we have pleased so well during the course of this latest expansion.

We would do a fabulous job of that.

We just talked about aerospace.

I mean in the industrial market, we have such a great position now because of the acquisitions that we've made and the various new product developments that we are ready for whichever end market goes up, and we're ready to deal with it if there is something that would happen within those segments that would not be as favorable.

And I could go through each of the markets in that way.

I wouldn't say that any of our markets, sitting here where we sit, has a different kind of risk of something external happening.

I would, of course, say that some of our markets are a little easier to predict than others.

The mobile devices being the one that's the hardest to predict on one side and maybe the military being the one that is a little bit more certain because of the length of the lead times and the spending patterns.

But I didn't answer your question in terms of 2 variables, but I can tell you that our team is focused on dealing with any variable that would come our way.

And then maybe, Craig, I'll let you talk about the...

Yes, yes.

No, sure.

I guess there's a lot of things, obviously, we will be thinking about as we move into 2020.

I mean one of them will continue to be our acquisitions and bringing the profitability level up to the average of the company.

I mean we did 10 acquisitions over the last 13 months here and certainly made more before that.

And we are continuing to spend a lot of time to ensure that we're making the right decisions and helping those operations make those decisions to ensure that, ultimately, we get to that -- to get those profitability levels up.

And that's something that probably we will spend a disproportionate share of my time on and along with all the other things that we typically do during the year that some of which Adam just mentioned in his prior comments.

So anyways, again, I apologize for not talking about many, many different things because we'll probably be on the phone for way too long here.

But from an M&A perspective, that will continue to be one of the things I'll spend time on.

The next question is from David Kelley from Jefferies.

Just one quick follow-up on the earlier automotive discussion, I'll pass it along.

With CO2 emissions regulations ramping this year, are you seeing any meaningful change in content opportunity in Europe as customers are shifting their mix to electric vehicles?

Yes.

I mean I think, David, that all these regulations, whether they be CO2 emissions regulations, whether it be like PM 2.5 kind of regulations, Euro 6, the China version thereof, I mean, all these regulations tend to create dislocations, which requires then new technology solutions to meet with those regulations.

And I think, by and large, those are always great inflection points for our organization to take advantage of them with our new enabling technologies.

And so I wouldn't just confine it to that universe of CO2 emissions in Europe, but rather just broadly, as we see more regulatory impact in the automotive market, those do create opportunities long term and one that our team is well positioned to take advantage of.

We've done a great job on working in electric drivetrain over -- around the world.

The biggest market for electric drivetrains has been at least so far in China, and that's a place where our team has just done a fabulous job of positioning ourselves.

So it's really great harsh environment, high-power interconnect solutions, but that's something we're doing really around the world.

And so from that sort of micro example of electric drivetrains, we're very well positioned.

Each platform, you can't say that, universally, it is a positive when something goes from a combustion to an electric drivetrain.

But by and large, technological shifts like this are good because they create those inflection points and opportunities for new technology.

The next question is from Joe Giordano from Cowen.

Just for me to start on the Huawei restrictions, is there -- how do you view the risk of permanent share loss to like local supply if that was like lifted over the next couple months?

Like is that a market that we should think comes back for you guys?

Or is it just -- it's been fulfilled locally, that's unlikely to change again?

Look, I mean, I think it's a broader question and it's one that we've, I think, talked about in prior calls, which is not even just specific to one customer, but is there a kind of a nationalistic purchasing that can happen in the world, including in China, but not exclusive to China because of the nature of the various trade disputes that have happened over the last 2, 3 years.

And I think what I've said consistently and we continue to absolutely maintain is that it may happen that the world becomes a more local world as opposed to a globalizing world, and our team is ready for that, regardless.

And I think that's the real essence of how we operate in China, how we operate in India, how we operate in the U.S. or elsewhere is we do that with local teams who give real localized support for their customers.

And because of that, the original restrictions, we were able to work through them and continue to support customers because we're not exporting technology.

We're complying, obviously, with every law from the first minute those laws are implemented.

But our teams are really developing, supporting, covering the customer, ensuring the quality, doing everything in a local fashion really around the world.

And so to the extent that one day, one country decides that they're not going to buy from just American companies, we're still an American company.

But I can tell you that our people are giving local support as if they were a Chinese, an Indian, a Macedonian, a German company as well.

And that's a real differentiator for our company.

And so as long as we can offer our customers truly special products that ultimately solve their problems and if we do that in a localized way, I'm confident that we'll be able to minimize any impacts from any of the geopolitical dynamics that have gone on here during the course of these last few years.

And then -- that's helpful.

And then last for me on the device.

I know we talked about device a lot.

I just want to make sure I'm clear on something.

When you're -- when you say you're -- it's impossible to figure out like a guide for this, I fully get that.

But is your uncertainty at this point in the year around volumes of those phones that might ultimately be produced or whether or not you're on these platforms in the first place?

Is that still like in front of you?

I know a major company is coming out with something in March and then multiple later in the year?

Like do you know if you're on those?

Or is it just we don't know what the volumes -- have no idea what the volumes are going to be?

Yes.

It can be -- at this early in the year, it can be a combination of all of the above.

I mean, our team is working on new programs all the time.

But sometimes those programs, they change pretty soon before they're released.

You'd be surprised how dynamic the designs of consumer products can be, and so you're not fixed until they're really starting to build the things and ship them in volume.

And so our team continues to work very hard to maximize what our position is.

In January, where we sit, it's not so easy to be able to tell exactly what's going to happen, even if we have a pretty good read on it as good as we can have here in January.

But look, no doubt about it, our team has demonstrated the flexibility that we're going to go out there and win absolutely everything that we can possibly win.

We're going to maximize our allocation, given the -- our discipline on cost and on price.

And we're going to make sure that we can execute on whatever our customers put in front of us.

Our last question is from Steven Fox from Cross Research.

I just had one big picture question, Adam.

If I think about the organic sales growth decline you had in the quarter, I would imagine there's a lot of other companies in the fragmented industry getting in that are doing a lot worse.

So on one hand, I guess I'm wondering what you think about some of the smaller companies, how much they're struggling now, if it's temporary or secular.

And then on the other hand, given that you're looking for no growth again in earnings this year, and I understand the broadband comments and the positive trend there maybe in the second half.

But like when do we start thinking about this market as being the market you have to live with and maybe see a change in strategy?

Yes.

Well, look, I mean, how are other companies doing here in the fourth quarter, smaller companies, I can tell you, if you don't have the diversity of Amphenol, if you don't have the reach of Amphenol, the breadth and the balance of Amphenol, the depth of technology, 2019 is not an easy year.

There's no doubt about it.

So I can imagine that, that could have been a tough year for many, much tougher than what we saw.

I mean you look at our whole performance for the year, we were down by 3% organically in the year.

That is essentially the impact of mobile devices.

I mean mobile devices was down 20% for the full year, and it was 17% of our sales in 2018.

Just the math of it is that represents just a bit more than 3% organic growth.

All the other markets start to balance themselves out.

And I think that's a testament to the diversification of the company.

Now look, going into 2020, I can't hear you perfectly, Steve.

But what I think you said is that we don't have earnings growth this year, but we have guided to 1% to 3% earnings growth and 0% to 2% U.S. dollar growth this year.

And I think if we go back a year ago, it's not materially different than the guidance that we had coming into 2019.

I think it's a prudent guidance.

It's a guidance that reflects the still highly uncertain environment, and it's one that also reflects great efforts by the team to drive cost improvements, to drive value with our customers and ultimately to drive a strong performance.

And to the extent that there are opportunities for us to do better than that environment in the year, you can bet for well that everybody around Amphenol, all 74,000 of us, are going to jump on those opportunities with full vigor and energy and thereby execute on them.

So I think it's actually a very strong outlook from that perspective, given the overall environment that we're in and the strong conversion, as Craig talked about.

Operator, are there any more questions?

We show no further questions at this time, speakers.

That's wonderful.

Well, thank you all very much.

And again, despite Joe's reference, I will once more wish you all a Happy New Year and wish, in particular, that you have a great start to 2020.

And we look forward to speaking with you all again here in about 90 days.

Thanks so much.

Thank you.

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