安費諾 (APH) 2016 Q3 法說會逐字稿

Hello and welcome to the third-quarter earnings conference call for Amphenol Corporation. (Operator Instructions). At the request of our Company, today's conference is being recorded. If anyone has any objection, you may disconnect at this time. And now I would like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Thank you. Good afternoon, everyone. My name is Craig Lampo and I'm Amphenol's CFO. I'm here together with Adam Norwitt, our CEO. We'd 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.

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 third quarter with record sales of $1.636 billion; GAAP diluted EPS of $0.71 and adjusted diluted EPS of $0.73. Sales were up 12% in US dollars and 13% in local currency as compared to the third quarter of 2015. From an organic standpoint, excluding both acquisitions and currency, sales in the third quarter increased 2%. Sequentially, sales were up 6% in US dollars and up 5% organically.

Breaking down sales into our two segments, our cable business, which comprised 6% of our sales, was up 14% from last year, primarily properly due to the strength in the broadband market. The interconnect business, which comprised 94% of our sales, was up 12% from last year, primarily driven by the impact of the FCI acquisition, as well as organic growth. Adam will comment further on trends by market in a few minutes.

GAAP operating income and operating margin was $326 million and 19.9% respectively. Adjusted operating income increased to $333 million in the quarter and adjusted operating margin was a new record at 20.3% compared to 20.2% in the third quarter of 2015 and 19.4% in the second quarter of 2016. The significant 90 basis point sequential improvement in operating margin reflects in particular the excellent progress in profitability made by the FCI management team, which they have achieved through the successful combination of their leading technology and the adoption of our strong operating discipline.

From a segment standpoint, in the cable segment, margins were 14.9% compared to 12.5% last year. The increase in margins related primarily to the strong operating execution on the additional volume, as well as the benefit from the favorable impact of commodities.

In the interconnect segment, margins were 22.2% compared to 22.3% last year and 21.2% last quarter. The significant sequential increase in the interconnect operating margins reflects the improvement in the FCI acquisition profitability I just mentioned, as well as good operational execution on the additional volume.

We continue to be 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, which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in a challenging market environment.

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.

The Company has recorded acquisition-related transaction costs of approximately $6 million or $0.02 per share during the third quarter. Interest expense for this quarter was $18 million compared to $17 million last year, reflecting the impact of higher average debt levels resulting from the Company's stock buyback programs.

On a GAAP basis, the Company's effective tax rate was 26.9% and 26.5% for the third quarter of 2016 and 2015 respectively. The effective tax rate for the third quarter of 2016 included the effect of the $6 million of acquisition-related transaction expenses incurred, which had the impact of increasing the effective tax rate by 40 basis points. Net income was a strong 14% of sales in the quarter, and on a GAAP basis, diluted EPS was $0.71 and $0.65 for the third quarter of 2016 and 2015 respectively. Adjusted diluted EPS was $0.73 and $0.65 for the third quarter of 2016 and 2015 respectively.

Orders for the quarter were a record $1.698 billion, an 18% increase over the third quarter of 2015 resulting in a book-to-bill ratio of 1.04 to 1.0.

The Company continues to be an excellent generator of cash. Cash flow from operations was $291 million in the third quarter, or approximately 130% of net income. For the nine months, operating cash flow was $729 million, or approximately 124% of net income. The Company continues to target cash flow from operations in excess of net income. From a working capital standpoint, inventory was $927 million at the end of the quarter. Inventory days were 75, down 4 days compared to June.

Accounts receivable was approximately $1.3 billion at the end of September; day sales outstanding was 71 days, down approximately two days from June. Accounts payable was $651 million at the end of the quarter and payable days were 53, down approximately two days compared to June.

The cash flow from operations of $291 million, along with commercial paper borrowings of $128 million and stock option proceeds of $70 million were used primarily to purchase approximately $121 million of the Company's stock to fund acquisitions of approximately $87 million, to fund net capital expenditures of $47 million and to fund dividend payments of $43 million, which resulted in an increase of cash, cash equivalents and short-term investments of approximately $192 million net of translation.

During the quarter, the Company repurchased 2 million shares; approximately 1.5 million shares remain available under the stock repurchase program through January 2017. And, as mentioned in the earnings release, the Company's Board of Directors has approved a 14% increase in the quarterly dividend on the Company's common stock from $0.14 to $0.16 per share bringing the dividend yield to approximately 1%. This increase is effective for payments beginning in January.

At September 30, cash and short-term investments were $1.017 billion, the majority of which was held outside of the US. And at the end of the quarter, the Company had issued $982 million under its commercial paper program. The Company's cash and availability under our credit facilities totaled approximately $2 billion at the end of the quarter.

Total debt at September 30 was approximately $3 billion and net debt was approximately $2 billion and the third-quarter 2016 EBITDA was approximately $389 million. From a financial perspective, this was an excellent performance. Adam will now provide an overview of the business and our current trends.

Very good. Thank you very much, Craig and I would like to add my welcome to all of you here on the phone today and thank you very much for taking time with us here on a lovely fall afternoon. As Craig mentioned, I'm going to highlight some of our achievements in the third quarter. I will then spend some time to discuss the trends and progress across our diversified served markets, and finally, I will make a few comments on our outlook for the fourth quarter and of course, for the full year of 2016.

I think Craig just went through the numbers, but I will just restate here that the third quarter was really an excellent quarter for the Company. We established new records in orders, sales and EPS, all while reaching the highest level of profitability in the Company's history. These achievements are particularly significant given the ongoing uncertainties that are still present in the worldwide economy. Revenues increased by a strong 12% in US dollars and 2% organically reaching the new record of $1.636 billion and I think Craig mentioned that we booked record orders, nearly $1.7 billion, $1.698 billion in orders, which represented a very strong book-to-bill of 1.04 to 1.0.

We are particularly proud of our operating margins in the quarter, which reached the all-time high of 20.3%, up 90 basis points from the second quarter. As Craig alluded to, this margin expansion resulted from excellent operational execution, including continued progress in improving the performance of FCI. Given this faster-than-expected margin expansion by the FCI team, we now expect the FCI acquisition to contribute $0.18 to our 2016 earnings per share. This compares to our prior outlook of $0.15 for the accretion this year. I can just tell you that we find it especially gratifying to see the benefits of the Amphenol management culture so clearly demonstrated in the performance of our new acquisitions.

Craig also mentioned our operating cash flow, which was a very robust $291 million, and that's just a clear sign of the continued quality of the Company's earnings. And that has then been reflected with our Board of Directors approving a 14% increase in the Company's dividend effective in the first quarter.

I will just say how proud I am of the Amphenol team. Once again, this organization's entrepreneurial agility has enabled the Company to achieve strong performance amidst an uncertain and a very dynamic worldwide economy.

Our financial strength in the quarter also enabled us to make further progress in our acquisition program, as we recently brought two new companies into the Amphenol family. All Systems Broadband, which we closed at the end of September, is a US-based provider of high technology value-add copper and fiber optic interconnect solutions, in particular for the broadband market. All Systems has annual sales of approximately $40 million. This company is a leader in particular for both consumer premises, as well as important central office applications in support of high-speed data and video delivery for the broadband market and it's really an exciting growth area for the Company.

SGX Sensortech, which closed at the beginning of October, is a Switzerland-based supplier of air quality sensors with annual sales of approximately $15 million. SGX, which manufactures at its facility in Poland, is a provider of really high technology air quality sensors that are used in both the automotive and the industrial markets. It's a real pleasure really to welcome these outstanding new teams to Amphenol, our fourth and fifth acquisitions of the year, and going forward, we remain very confident that our acquisition program will continue to create great value for the Company. It is really our ability to identify and execute upon acquisition opportunities, while successfully bringing these new companies into Amphenol that remains a core competitive advantage for the Company.

Turning to our progress across our various served markets, I just want to point out that in the third quarter we continued to have an extremely balanced and diversified end-market exposure with no single market representing more than 21% of our sales. I would tell you this diversification is truly a valuable asset for Amphenol, especially in these very dynamic times.

The military market represented 9% of our sales in the quarter and sales increased from prior year by 6% driven by growth in naval, space, airframe and communications applications. I'd just say that this is really robust performance given the overall military spending environment as this was all organic growth. Sequentially, our sales increased by 7% as we began to recover from the Defense Logistics Agency stop-shipment order that we've discussed over the last couple of quarters.

We are, in fact, very proud of the outstanding work of our military aerospace team who has managed the recovery from the DLA stop-ship so well. We are really fortunate actually to have forged outstanding long-term relationships with both our military customers, as well as our distribution partners and have truly appreciated their patience and close collaboration during this challenging time. In fact, our customers and partners have been extremely pleased with the agility and reactivity of our aerospace team and it just again reaffirms our reputation as the leader in this important market.

Looking to the fourth quarter, we expect our sales to again increase from these levels and we continue to anticipate modest growth for the full-year 2016 and that's even with the impact from the DLA issue. Our long-term leadership position in the military market remains very strong as we continue to have the broadest range of high-technology products designed into virtually all defense equipment. We look forward to building upon this position of strength into the future.

The commercial aerospace market represented 5% of our sales in the quarter. Sales grew by a strong 7% in US dollars and 9% in local currencies from prior year as we realized stronger sales of our products designed into new airplane platforms. As we had expected, sales were up moderately from the second quarter. Looking ahead, we anticipate a modest increase in sales in the fourth quarter, and for the full-year 2016, we continue to expect sales to be flat to modestly up as the impact from the DLA issue, together with lower expected demand for helicopters and business jets, offsets the positive impact that we've seen from growing production volumes of new airplane platforms.

I will just tell you that we remain very encouraged by the long-term opportunity in the commercial air market. With our strong technology position with airplane manufacturers around the world, together with the proliferation of electronics on and increasing volumes of new aircraft platforms, we are very confident for the long term in this exciting market.

The industrial market represented 17% of our sales in the quarter. Sales in this market grew by a very strong 22% from prior year. This growth was driven by contributions from the FCI and Auxel acquisitions, as well as by growth in the hybrid bus and truck, battery, heavy equipment and instrumentation segments, which were in part offset by slower sales in oil and gas and rail mass transit. Organically, our sales in the quarter increased by 2%. Sequentially, sales grew slightly as contributions from Auxel were offset by a normal seasonal moderation of sales that we would typically see in the third quarter.

For the fourth quarter, we anticipate sales in the industrial market to grow moderately from these levels and we continue to expect very strong sales growth in the industrial market for the full year as we benefit from the contributions of FCI and Auxel together with organic growth from a range of exciting segments within the industrial market. We are continuing to build upon our successful diversified industrial business as we expand our high technology interconnect, sensor and antenna products across a broad array of industrial customers around the globe.

The automotive market represented 17% of our sales in the quarter. Sales increased by 11% in US dollars and 9% organically as we made continued progress in penetrating new interconnect and sensor applications in both traditional and hybrid electric vehicles and also accelerated our sales in Asia. Sales were up slightly from prior quarter on typical summer seasonality in the US and Europe.

Looking to the fourth quarter, we expect our sales to grow from these levels and for the full-year 2016, we remain confident to achieve continued strong growth in the automotive market. We continue to be excited by our long-term prospects in the automotive market as we are still making excellent progress in designing in our broadened range of interconnect, sensors and antennas into new electronic systems incorporated into a wide array of vehicle platforms.

The acquisition of SGX, while relatively small, builds out our sensor productline for air quality applications, an important growth area for the automotive industry. We look forward to realizing the benefits of our strengthened position for many years to come.

The mobile devices market represented 16% of our sales in the quarter. Sales were down as expected by 22% from prior year on reduced sales into all categories of mobile devices with the notable exception of wearables. Sequentially, our sales rose by a strong 17% from the second quarter. Looking into the fourth quarter, we expect a mid-teens sales decline and we continue to expect full-year sales in the mobile devices market to decline by more than 10% from 2015.

Regardless of this still challenging outlook for 2016, we remain extremely confident that our highly reactive and agile organization will continue to secure a strong position in the mobile devices market by capitalizing on our excellent technology positions across a wide range of next-generation mobile computing platforms.

The mobile networks market represented 9% of our sales in the quarter. Sales in this market grew by a very strong 20% in US dollars and 4% organically. This was a bit stronger than expected as we again benefited from the contributions of FCI together with stronger sales of antennas and interconnect products to network operators, particularly in Europe. Our sales moderated slightly from the second quarter. Looking into the fourth quarter, we anticipate a further moderation of sales due to typical year-end seasonality. Nevertheless, we continue to expect to achieve low to mid-single digit organic growth for the full-year 2016, which together with the very strong contributions from the FCI acquisition will result in an excellent growth year for the mobile networks market.

Our strong performance in this market in 2016 is really a direct reflection of our team's unwavering drive to promote our leading technology interconnect and antenna products to OEMs, as well as service providers around the world. And that's regardless of the normal ebbs and flows of wireless capital spending.

The information technology and data communications market represented 21% of our sales in the quarter. Our performance in IT datacom was much stronger than expected in the third quarter as sales grew 55% in US dollars and a very strong 19% organically. This excellent performance was driven by contributions from FCI and Custom Cable, as well as by robust organic growth in servers, storage and networking applications. And in particular, we accelerated our progress in selling into next-generation Web service providers.

Sales increased a very robust 14% in US dollars and 11% organically from the second quarter. Looking ahead into the fourth quarter, we now expect a modest increase of sales from these higher levels. Given our much stronger-than-expected performance in the third quarter, we now expect for the full year growth of more than 40%, which reflects the contributions of the FCI and Custom Cable acquisitions, as well as approximately 10% organic growth.

I will just say that our team focused on the important IT datacom market is clearly doing an outstanding job of positioning Amphenol as the leader with a broad range of customers with the widest array of high technology products. We continue to support our traditional and next-generation customers in their ongoing quest to upgrade their equipment to handle the continued dramatic increases in data traffic.

The broadband market represented 6% of our sales in the quarter and we are very pleased with our sales increase from prior year by a stronger-than-expected 10% in US dollars and 8% organically as broadband operators continue to expand their network buildout activities to enable better network performance. Sales in this market were slightly down on a sequential basis.

For the fourth quarter, we expect an increase of sales with the addition of All Systems Broadband and we now expect to achieve low double-digit growth in the broadband market for the full-year 2016. With the acquisition of ASB, we now have a broader offering of products used in both consumer premises, as well as in the service provider head-end systems, including importantly an array of value-add fiber optic solutions. That newly expanded range of interconnect and cable products, together with our excellent position with broadband operators around the world, positions us very well for the long term.

So just in summary, I want to say that we are extremely proud of the Company's outstanding record results here in the third quarter of 2016. While the global market environment remains uncertain, the Amphenol organization is executing extremely well through our consistent dual-pronged strategy of driving organic growth while pursuing complementary acquisitions. And that strategy is enabling us to expand our market position while also strengthening the Company's financial performance.

And ultimately, the Company's superior performance is really a direct reflection of our distinct competitive advantages -- our leading technology, our increasing position with customers in diverse markets around the world; a lean and flexible cost structure; a highly effective acquisition program; as well as most importantly an agile entrepreneurial management team.

Now turning to the outlook for the fourth quarter and the full year and based on a continuation of current global economic environment and as well as assuming constant exchange rates, we now expect the following results. For the fourth quarter, we expect sales in the range of $1.585 billion to $1.625 billion and earnings per share in the range of $0.71 to $0.73 respectively. This represents a sales and EPS increase versus prior year of 11% to 13% and 13% to 16% respectively.

For the full-year 2016, we expect sales in the range of $6.220 billion to $6.260 billion and adjusted EPS in the range of $2.68 to $2.70. For the full year, this represents sales and adjusted EPS growth of 12% and 10% to 11% respectively over 2015 levels.

We are really encouraged by the Company's strengthened outlook now for 2016 and we all look forward to driving further success going forward despite the many dynamics in the global economy. I remain truly confident in the ability of Amphenol's outstanding management team to build upon these robust results and to continue to capitalize on the many opportunities to both grow our market position and expand our profitability in 2016 and beyond. Thank you very much and, operator, at this time we would be happy to take any questions.

Wamsi Mohan.

Yes, thank you. Adam, your operating margins were clearly outstanding here. Are we in an era where you can see that the de minimis price declines that you have historically seen in this connector industry actually stop and ASPs start to potentially rise driving further margin upside because companies might be willing to pay for the high-performance connectivity that is needed to keep things from blowing up as all of us have heard about? Or is there a natural ceiling here to margins other than the fact that you are trying to balance revenue growth?

Yes, well, thank you very much, Wamsi. First on your question on pricing. I wouldn't say that there is a new world order on pricing. This continues to be a very, very competitive market, a very competitive industry. That's natural in an environment where you see commodity prices relatively lower and you see overall economic growth being relatively muted, and that's typically not an environment where you see a truly favorable pricing environment. So, no doubt about it, our teams continue to do battle with competition.

At the same time, as we've always said, if we can create value for our customers through technology, through service, through quality, through appropriate reactivity to their requirements for delivery and otherwise, well, then our customers will always pay us a reasonable and a fair price. And I think that's something that when we look across the Company, our team is just doing an outstanding job of executing on all of those fronts.

So it doesn't mean that there's some new pricing dynamic. I think what it means is that we are executing our way to those new higher levels of margins and we are really proud of those margins. Ultimately, margins is just a very simple calculation, as I always say, of price minus cost and embedded in that is all those things that we talk about.

Now, ultimately, what is the natural profitability of the business? We know what the profitability of the business was here in the third quarter. We achieved 20.3% operating margin. Is the natural profitability higher or lower than that? I don't know that that's something we have ever talked about. We always do talk about the fact though that as the Company grows, we seek to drive conversion margins at a level that will allow us to achieve margin expansion and we've continued to have a focus on those 25% conversion margins. And when you couple that with the strong execution with our acquisitions and in particular with FCI, you get ultimately the performance that we saw this quarter.

Thanks, Adam.

Jim Suva, Citibank.

Thanks very much. A strategy question for Adam and then maybe a finance question for Craig. Adam, on the strategy question, FCI you commented is progressing and integrating better than expected, which is a good thing. The size of that, if I remember right, unless my math is wrong, was the all-time biggest acquisition Amphenol has ever done. And if that's true and it's progressing well, does that give you more confidence that maybe bigger acquisitions are the way to go, or how should we think about that?

And then the finance question for Craig is the coaxial business is hitting some pretty good operating profitability. I know it's due to values, but also copper and aluminum prices have been favorable. Are those margins pretty sustainable, or is there a point where the customer starts asking to, hey, copper and aluminum has come lower therefore they want to give some pricebacks, or is that already built into the results that we are seeing of the improvement in profitability? Thank you, guys and congratulations.

Thanks very much, Jim. Maybe I will let Craig address the cable margins and I will come back to the strategy question.

Sure. Jim, I think certainly we are very pleased with the growth and resulting profitability of the cable segment. As we mentioned in our prepared remarks, the margin improved to 14.9% from 12.5% last year. Last quarter, we were also at 14.9%, I believe, in the cable segment. This 2.4 point increase from last year, it does really reflect the strong operating execution on the additional volume of the team. The segment grew 14% over last year driven primarily by the broadband market. The team has really done a nice job to diversify this business into higher margin products, which we certainly think has helped the profitability in this business and they've been able to maintain a strong pricing discipline.

Certainly there is still pricing pressures within this business as there is with all our businesses, but they've certainly been able to do a good job of changing a bit of the mix in this business to try to increase it. But I will note and I think you mentioned that there has been certainly a favorable impact on commodities and I would say if there was some significant change in the commodity pricing that we'd certainly have an impact on this particular business, which is a little bit more sensitive to commodities than even our interconnect business might be.

So whether or not this is the norm going forward, it is tough to say with this commodity environment we are in here today, but certainly they've done a great job and we expect that. This is certainly a new benchmark for them to build from.

Absolutely. And just with respect to your question on strategy and specifically our appetite for bigger acquisitions, if we just recall back and those like you, Jim, who have followed the Company for a long time will know our criteria for acquisitions has actually been very consistent for a long time. First and foremost, we think about the people and we look for people who are strong entrepreneurs, who have great management talent because we don't have an organization necessarily that has lots of people sitting on the bench waiting to go run these acquisitions.

So number one is the people. Number two is always the technology. We look for companies with really leading edge valuable technology that can allow their customers to drive better products ultimately and then thereby allow us to make better returns. We also look for complementary market positions, and I think in the case of FCI, we had all three of those. What has never been our criteria for acquisitions and continues not to be is size. Now, I will say, it's no doubt about it, FCI was in fact the biggest acquisition that we've made in the history of the Company and we are very pleased so far with the results of that.

Does that drive in us a greater level of confidence about making bigger acquisitions? I don't know that it changes our level of confidence. We had already a pretty good confidence in the model, but I would say that it reconfirms that we believe that the acquisition strength of Amphenol, the program of Amphenol and the competency that we have is really a wonderful strength for the Company and it's a real pillar of the value that we create in addition to all the other things that we do to drive organic growth in the Company. And so it certainly does not take away from the confidence and if the right company came along at whatever size, we would be willing to look at that as long as it fit with those other criteria that we cling so importantly to.

Thank you for the details.

Sherri Scribner, Deutsche Bank.

Thank you. Adam, I was hoping you could give us some commentary on your thoughts on the macro environment specific to the connector market. If you look at your quarter, you had an excellent quarter, but organic growth was only about 2%. Clearly, the mobile devices declines are a significant drag on the growth, but you guys are doing a great job on the IC data side in automotive. So wanted to get your sense about what is the overall demand trends that you are seeing and do you think that improves next year or is that -- are we still going to be in a relatively muted environment? Thanks.

Thank you very much, Sherri. Look, I'm not an expert on the overall macro environment. I will tell you that I don't believe that the macro environment has largely changed this year. It remains relatively muted and uncertain both geopolitically and economically. I think that if you look at just the various companies in the world that at least are public in the various markets that we serve, there is clearly not an overall trend of improvement.

If you look at our Company though in the third quarter -- and you pointed it out very astutely here, Sherri -- if you take the mobile devices, which is no doubt about it a significant decline on a year-over-year basis -- if you exclude that, we grew by more than 7% organically in the quarter. And that is really a testament to the diversification of the Company.

Now, you go back to last year, our mobile devices business was up 13% and other parts of the business were not growing at that rate and I think what you see is the consistency of the performance in light of the diversification of the business. It's true, this quarter, we had just fabulous performance from IT data com, up 19% organically; 55% growth with the benefits of FCI and Custom Cable, and I think that that's just a fabulous performance, but also let's not forget that IT datacom had a few tough years. We've done maybe a bit better than the market, but if you look last year we grew just 2% in IT datacom while maybe the overall market was down.

Our team, despite that 2%, continued to drive aggressively with customers to expand our position, to develop the new and appropriate products, to pivot towards where the growth opportunities and the potential growth opportunities could be, and we were able to realize the benefits of that here in the third quarter and we expect to be able to do so for the total year 2016. But is that a reflection of an improving IT datacom market, or rather a reflection of our team really ferreting out where the growth is in an otherwise muted environment? I personally believe it's more of the latter than the former.

Thank you.

Shawn Harrison, Longbow Research.

Good afternoon, everybody. Two questions, if I may. When looking at the mobile device business, it looked like maybe just demand was pulled forward into the third quarter, but your full-year view didn't change whatsoever and maybe if you could just clarify whether I'm correct in that assessment?

And then second, just looking at FCI and accretion stepping up once again, is the revenue profile of FCI improving, or is the final end target margin assumption of FCI heading up now that you've had it under your belt now for, I don't know, the better part of 10 months?

Yes. So, on your first question, I don't think there was a real meaningful pull forward. We did maybe just a hair better in the third quarter than we had anticipated. I think we've guided to a bit more than 10%. We ended up with 17% and it was plus or minus, but for the full year, we continue to see it as expected. So was there a slight pull forward? Really ever so slight.

The strength that we saw in the third quarter was really predominately from IT datacom and then followed by mobile networks and broadband. We continue to have a similar view of the mobile devices market this year. We've talked about that quite a bit over the last -- in particular at the last call and we continue to have our team poised in case there are opportunities that come about, and sometimes those opportunities do come about, but you never know. It's an incredibly difficult market to forecast and an incredibly dynamic market, but we remain with a very, very strong position with customers across the board.

Relative to your question on FCI, just very simply, the revenue has been really at the expectations that we came into the year with. The improvement in the performance of FCI from an accretion perspective is really improved operating performance and the team has just done an outstanding job, really beyond our expectations. Maybe not beyond our best wishes, but certainly beyond our expectations coming into the year and they continue to drive the Company to a level of performance that I think none of them really thought would have seen in such a quick fashion. And so we really commend them. Just done a fabulous, fabulous job.

Amit Daryanani, RBC Capital Markets.

Perfect. Thanks. Good afternoon, guys. I guess two questions from me. One, on FCI, if I run the math correctly, I think you guys are applying about 15% or so op margins for core FCI at this point, which is still below your corporate averages. Could you just talk about -- do you see room for further accretion provided FCI gets in line to your corporate average margins and if you feel generous, would love to get a timeline on that?

Yes, I don't know, Amit, whether you are referring to full year or the quarter. FCI has gotten pretty darn close right now in the course of this now our third quarter and so they are operating -- they've gotten there faster than we would have expected to our corporate average, but I don't know if you are referring with the 15% to the full year. As I said, we now see $0.18 of accretion with FCI. That compares to the $0.15 we saw before and we are very pleased with where they are today and I think for now we have a really strong business and a platform to go forward with.

Got it. I was thinking of it on an annual basis, but you might be right, it might be on the quarterly numbers already. I guess then, Adam, on the IT datacom side, you are seeing some very impressive growth here versus I think what most other data center companies are talking about. Could you just talk about the sustainability of these trends and is there a way to think of how much of the segment today is probably levered to hyper-scale customers versus the traditional enterprise customers you've had?

Yes. The sustainability -- I think all the markets that we are in are very dynamic and IT datacom is clearly one of those. So are there going to be ups and downs in that market over the coming years? I would bet that there would be ups and downs, but I think what's clear in this quarter is that we have positioned ourselves with the acquisition of FCI, as well as with our organic initiatives, to broaden our product offering and to deepen the technology that we offer to customers. We have positioned ourselves as the clear leader in this space. There's no doubt about it.

And so as we go to customers who are all struggling to deal with these increases in data rates, demanding customers, the new dynamics that come with the Web-scale players in cloud computing and everything that is entailed with that, we become really the first phone call. And I think that that's a wonderful place to be in. So regardless of the ups and downs that may come in overall IT spending, we want to be the leader and we want to be the first phone call, and we want to be the partner for next-generation designs and that's what we have really become here.

In terms of the Web-scale providers, I couldn't quote for you a number which tells you how much it is as a percent of the total, but I will take you it's a really big part of why we are growing at such a fast pace. Is it all the growth? No, certainly not. There are also some really interesting companies that are growing around the world in that space, but it's clearly growing at a much faster pace than our overall IT market and it's starting to be a meaningful part of our business. And our team has just done an outstanding job to accommodate and to pivot towards these new Web-scale companies, which are not always the easiest companies to do business with.

Mark Delaney, Goldman Sachs.

Yes, good afternoon and thanks very much for taking the questions and congratulations on the nice report. First question is on mobile devices. So, Adam, I think you guided down double digits for this year; obviously, coming off of a strong 2015. And I think if I recall correctly last year benefited from some of the test equipment sales and mobile devices that were maybe a little bit more one-time in nature and set it up for a harder comp for 2016 in mobile devices. As you look into 2017 in mobile devices, is there anything -- obviously, subject to how the market would grow -- but anything that would make you think you could grow above or below what units would do in that market, either in terms of content, market share, or pricing?

Yes. I wouldn't point to anything with 2017. This is a hard market to forecast in one quarter and to start to talk about what 2017 would be for mobile devices, I would be pretty far out ahead of my skis on that one. What I do know is that we have a very broad position. We've continued to broaden that position this year despite being down and I think that we go into next year from a position of strength. So what does that end up being? We will hopefully be able to tell you with some degree of certainty coming into January.

That's helpful. A follow-up question on mobile networks. Second quarter in a row you guys have done well in that segment. Obviously, one of the big equipment OEMs negatively preannounced and talked about some weakness. Do you think there's a disconnect there that you guys can sustain and maybe you can just help us understand why you're maybe doing better than the European telco equipment company and maybe it's you are coming off of a low base, or it's increased capacity builds, but any thoughts on why you are doing a little bit better would be helpful.

I'm not the expert on why certain companies are doing better or worse. I know that why we did better in the quarter in particular is we saw really stronger growth in our business in support directly of service providers. And we've talked about for a number of years the changing nature of the mobile networks market where our business used to be really an OEM-focused business and really everything that we sold into the mobile networks market was really via those OEMs. And I think the dynamics in the market, the architecture of the system, the real makeup of the market has changed to a pretty big extent whereby service providers are now directly interacting with companies like us; where we are providing a broader range of products, including everything from antennas to a broad range of interconnect products and whereby we are not just rising and falling with the fate of necessarily the OEMs.

We continue to have a very strong position with the OEMs and we continue to support them really very closely and as partners that they are, but we have as well transitioned to having that direct interface with certain operators around the world.

When you work directly with operators, it's also not necessarily for the faint of heart because this is a much more volatile business. I think that we have had to and our team has very successfully made that transition. We've really had to become more agile and more reactive because of the much quicker dynamics that come when you are putting crews out in the field and putting towers up on relatively moment's notice.

We saw particularly strength in mobile networks in Europe and in the service provider this last quarter. Is that going to continue? We had a similar picture I guess in the second quarter. What's that going to be in the fourth quarter going forward? I would expect it would change, but how is it going to change and what's the nature of that change going to be; I think it's a little too early to tell at this point.

Thank you.

Mike Wood, Macquarie.

Thanks for all the commentary already. I just wanted to follow up on two end markets. First, on the network data and IT where you are seeing the better-than-expected results that you called out, I am just curious on your thoughts -- when I think about the weak macro environment that you speak about, I typically think about markets typically being more CapEx-reliant, or more confidence-driven and I appreciate your thoughts that you said a lot of this is Amphenol-specific, but I'm also seeing it across other companies exposed to that end market. So just get your thoughts in terms of are we now seeing a reinvestment after years of just underinvesting in that, or can you just speak about your thoughts there?

Sure. I think you are correct. IT is in part at least a CapEx-driven market. I guess as it transitions more and more towards cloud and service provider, it becomes even more of a CapEx-driven market. I think there's no question that the demand on the network has never faltered whatsoever and that's even over a few years of much more challenging market environments. But what has not changed is the end-user demand, the data traffic, the video traffic going over IP networks, you name it. That is all expanding really at -- continuing at an accelerating pace and so you do develop in certain points pent-up demand, pent-up demand similar to what we have seen in years past in the mobile networks market and I think we've even alluded to the fact that we believe in the IT market there is some pent-up demand.

But then the question comes and that's the Company-specific question. Have you positioned yourself, or repositioned yourself to take advantage of where that pent-up demand is going to come from, and I think that had one remained with just traditional customers, that pent-up demand would not be satisfied through those same channels and you could find yourself really continuing to have a business that was in a more stable, almost languishing environment. And I think our team to their credit has truly pivoted, has truly pivoted towards where the demand and where the pent-up demand was building and where the real demand was coming. And thereby, we see that as a real relative strength of Amphenol in that market.

I haven't seen and I don't think we've all seen yet all of the results that are coming in this area. There have been a few results that have been announced and I think those are some ups and some downs. When all is said and done, maybe we will see that this is a more broad market environment, but is that going to be a 19% organic growth. That I would guess we would not see on a broad basis.

Great. And then switching gears onto auto, I think 9% organic -- I believe you reported 4% organic growth last quarter. Just curious what's driving that step-up in organic growth. Thank you.

Thanks very much. No, I think the automotive business for us did really well this quarter. We are very pleased with the broad basis of that. As I mentioned, we grew 9% organically. We saw particular strength in Asia. I mentioned that in my prepared remarks and we've both made acquisitions and put a lot of focus in Asia on working with global and local companies in Asia, in particular in places like China to make sure that we are positioned in what is really the world's now largest car market. And I think we are seeing some of the fruits of those labors. That was a very strong performance for us there.

And if you look at our overall business today, it is roughly almost even across the various regions. Europe is maybe a bit more and then Asia and North America are roughly the same size, but that's a big change for the Company. If we go back seven, eight years, Europe would have been two-thirds of our business and then the rest would have been North America and just a smidgen in Asia, and today, you see a real balanced automotive business and I think that's both a representation of the market opportunity having changed, but also of our organization having embraced that market opportunity.

Specifically what applications, what types of products -- I can tell you that we've seen in our organic growth really across the board, across many applications. When we think about the automotive market, we don't think of that in terms of a unit of car market. We think of that more in terms of a unit of systems in the car market. And so while you may have in the world 90 million, 92 million, 93 million cars being built, we think of that as some multiple of that in terms of how many electronic systems are being built in those cars and the total number of electronic systems, which ultimately leads to the opportunity for Amphenol, it has been growing at a wonderful pace, and then it rests on us to say what can we capture through technologies such that we can get even a little bit more than our fair share of that.

And that's the building blocks ultimately of this 9% organic growth and by the way, a continued positive outlook into next quarter. The fourth quarter we still believe that there's a little bit of growth on a sequential basis, which is not always the case in the fourth quarter. So I think we have good momentum in our auto business sitting here where we are.

Steven Fox, Cross Research.

Thanks. Good afternoon. Just firstly, again on auto demand in China, how much, when you look year-over-year, was related to tax incentives that are ongoing right now in the region versus you expanding your customer base, and if there's any new product categories or systems areas that you maybe have expanded into and tried to use OEMs in the last year? Any examples there would be helpful too. And then I had a quick follow-up. Thanks.

Sure, Steve. I honestly wouldn't be able to quote you what's the tax incentive base and what's the market base. We are still small in China and in Asia in general. It's a huge market. Our position in overall automotive is still relatively small and our position in Asian automotive is relatively even smaller. And so I think we are able to grow and I think we have grown, not necessarily because of certain tax incentives or otherwise, but I think we are expanding our position with customers.

And in terms of what specific applications, we've done really well in hybrid-electric vehicles. We've done really well in lighting applications where we made a fabulous acquisition early last year and that company's doing really well. We made really great progress in emissions-related systems, transmissions. You name it, there's a whole list of -- a wide range of applications where we're participating and seeing still growth opportunities in Asia.

Great. That's helpful. And then just on the industrial markets, not asking you to comment on the macro at all, actually just curious as you look out maybe a little longer term without putting numbers around say the next few quarters, which of the submarkets in industrial do you feel like you have the best head of steam in terms of your order book based on your wins going forward?

Yes, it's a bit of a tough question. We have seen a lot of volatility across the segments in the industrial market and it's a great credit to the diversification that we are still able to drive performance because when you look at something like oil and gas, which continues to be a negative for us, albeit at a much smaller level, is that going to turn around? I'm not going to be the first one to predict the turnaround of oil and gas.

I think we've had really strong momentum in battery applications and really heavy vehicles and I think we would expect that to have still some legs to it. Done really well in places like in heavy equipment, which is maybe a little bit contrary to the broader market environment. We've seen great progress in areas in heavy equipment, things like diesel engines; things like the transition of mechanical and hydraulic to electronics. So I think those we've done very well in.

We feel good about our medical business, even if the medical business didn't necessarily grow so substantially in the quarter, we've made just great progress in medical over the course of the year and we feel really good about that. I think the others -- there's big segments here like factory automation and instrumentation. Our team has just done a fabulous job of positioning a broader set of products in those areas such that we can get more involved in things like robots and more involved in things like factory control systems and I think that those have good opportunities for the future as well.

Great. Thank you. Sounds like you love all your children equally?

I do, Steve.

Craig Hettenbach, Morgan Stanley.

Yes, thank you. Maybe a different twist on a macro question. Just given the subdued environment, certainly the book-to-bill of 1.04 to 1.0 stands out as very healthy, so anything you are seeing, even if it's the slightest change in terms of customer behavior or anything of note by geography that's driving a little bit healthier bookings?

I don't know that I would point to any specifics either by geography or type of customer. I think our team is really focused on taking orders off the street and there's an aggressiveness with the Company where we know that you can't ship anything if you don't have an order and getting those orders requires you to develop the new product, to get the design-ins with the customers and ultimately then that leads finally to the sales.

I think we had a very strong book-to-bill, which is encouraging. Some of our business is on a very short book-to-bill cycle. You take like the mobile business, that's not a -- that's a business where you book and ship really almost at the same time and we have other businesses like military where you have a little bit longer cycle. And I think we had here good bookings. We had actually pretty good bookings in the IT datacom market, not surprisingly given our performance there.

And I think that the trend from bookings to me, the fact that we had that strong book-to-bill is encouraging for the very long term and it's encouraging for the fact that our customers are willing to commit to us on the new products and with the new technologies that we give them. But I wouldn't -- I don't read a macro inflection point necessarily because of those bookings if that's what your question is.

Understood. I appreciate your color there. As a follow-up, in the automotive space and given your positioning, or increasing position in connectors and some exposure on the center front as well, do you see a path towards integrated-type products, or do you see it developing on a more discreet basis? How is your view of how you might position automotive intermediate to longer term?

Look, we have, across the Company, always had a focus on selling, in addition to components, value-add solutions and that is not a new strategy for the Company. This is actually a strategy that we have had as a bedrock of Amphenol for a long, long time. It's really selling application-specific, value-add interconnect solutions to customers where the underlying basis of that may very well be a very highly designed component, but where in fact the value-add solution becomes the highly integrated and designed-in component for the customer.

When we acquired the sensor business of GE -- and that's now almost three years ago -- we talked a lot about the fact that we felt that long term that would create an opportunity for having integrated sensor and interconnect solutions for customers and I can tell you that we have seen that and we have started to see that and we've started to see some positive momentum coming out of that. But it's not a new thing for us to go to a customer in automotive, or industrial, or any of our markets and work with them to propose a comprehensive interconnect solution for their product.

On one hand, the customers really want it because they are all under pressure to accelerate their design process, to do more with less, in many ways reducing their own R&D spending such that they don't have to spec each of those little products and, in addition, it gives them a sense that they have ultimately what I've called before that one throat to choke where rather than patchworking together something, a solution, they can come to a company like Amphenol and we can sell them really a complete interconnect solution and they can feel the comfort that one company stands behind that whole solution, from a quality perspective, from a cost-reduction perspective, from a delivery perspective, all the things that matter to those customers. It gives them essentially the single throat to choke and I think that the customers like that. It makes their life a lot easier. It makes it easier for them to design the products, and ultimately makes it easier for them to sleep well at night knowing that they are going to be able to ship their products on a timely basis with the right quality.

So I think that it's not a new strategy, but it continues to be a core part of our strategy in automotive and in our other markets.

Great. Thanks, Adam.

Brian White, Drexel.

Yes, Adam, I'm hoping you can update us a little bit on what you are seeing in the sensor market and some of the growth trends relative to Amphenol at large.

Yes, we are really pleased with the sensor market. I would tell you that organically sensors are probably growing a bit better than our overall organic growth rate and I think that's a real good thing. We came into the sensor market never with the statement that it will be a faster-growing space, or a more profitable space, but we think it always has the potential to be at least as good as the rest of Amphenol. And I'd say that we were right about that sense. We see the sensor market as a truly diversified space and so there are pockets in the sensors which are in some areas which aren't doing as well and there are pockets in areas that are doing better and that's a little bit a microcosm of all of Amphenol.

You'll remember, Brian, at the time we acquired the GE Advanced Sensors business, for us, one of the most compelling things for that company was its diversification, the fact that it operated in industrial and within industrial, it operated across a number of different subsegments of the industrial market, as well as operating in the automotive market. And we are really pleased that we have that diversified company because it's getting us also a picture of what the sensor demands are in those markets so that we can then think about ourselves, our sensor strategy.

And when we talk about the acquisition that we made in the quarter, it's a small acquisition, SGX, but there's no question that we saw in our activities and sensors a real trend towards this requirement for air quality-sensing applications both in automotive and in industrial applications. And so when we found the right company, we were very eager to bring them into the Amphenol family to round out and to strengthen our technology position in sensors.

So I think in a nutshell we feel really good about it. I think it's performing better than the average across the Company and continues to have great potential for us long term.

Adam, what's the takeaway on telecom infrastructure in China? Obviously, at large for the Company, it did well in the quarter? How did China perform?

Yes, China did okay. I think that the -- and China and Asia in general we don't, in our numbers, necessarily split those out. As I mentioned earlier, in mobile networks, we saw the strongest growth in Europe and, in fact, I will say that the vast majority of our growth in mobile networks organically came in Europe, especially in our service provider, direct-to-service provider business.

And I would say in Asia it was relatively flattish on a year-over-year basis and in addition on a quarter-over-quarter basis. Obviously, our total mobile networks market grew very strongly in the quarter in particular with the contributions from FCI. We have a lot of strength in Asia that FCI has brought us and so we have just outstanding position in Asia and Asia is a really large part of our mobile networks market, but it was not necessarily the growth driver organically in the third quarter.

Great. Thanks.

William Stein, SunTrust.

Great, thanks for squeezing me in. Adam, congratulations on a very strong quarter and a great outlook. I just have one small question in the industrial end market. You seem to continue to be doing reasonably well in that end market. We are getting more, I should say, muted or cautious data points from some of the industrial OEMs. Do we ascribe that to Amphenol's typical, stronger ability to find the growth, or do you think perhaps we just haven't seen the whole picture in that end market yet and as we get more data points perhaps it won't look as problematic?

Yes. Again, industrial is a really big market. I think Steve Fox said earlier, do I love all of my children equally and I do indeed. The industrial market for Amphenol, as I mentioned earlier with Steve's question, it's a really broad market. We have a lot of position in a lot of different subsegments. I don't know that we are always the best canary in the coal mine for whether that is a positive or a negative trend in the overall industrial market. What I know is that our team is pretty good at ferreting out these opportunities as they may come.

You don't think of an industrial team as being agile. It's almost by definition the opposite. You think of industrial as being this stayed, stable organization, slow lifecycles, long design cycles, all of that. So I will tell you our industrial team is a pretty dynamic group of people and so when they see things like oil and gas being down for now, and it's running on the end of its second year of really tough performance, they don't just sit back and take their medicine. They go out and they look for new opportunities to find growth wherever they may be.

And I think the overall industrial market, if you think about just the biggest trend that is existing in broad industrial, it is this electronification of systems that previously would have been hydraulic and -- or mechanic or nonexistent in their functionality. And I think we see that really across all of the segments that we are in and then it's a question of just making sure that you have the right solutions, whether that be a discrete connector, discrete sensor, an antenna, an integrated interconnect solution, an integrated sensor and connector solution. Whatever it may be, you have to really make sure that you are tailoring your approach to that customer and you are really knowing the customer, knowing the market.

It's a very marketing-intensive business, actually, the industrial space because there's just so many potential customers across these dozens and dozens of subsegments and staying on top of that and pivoting towards where the right segments are, that's really important. I know there are big industrial giants in the industry and they may have certain trends at one time or another, but I don't believe that we are necessarily a proxy for those trends.

Great. Thank you.

We show no questions at this time.

That's great. Well, listen, we really appreciate everybody's time this afternoon and we wish you all a pleasant conclusion here to 2016 and I can't believe to say it, but we will see you all in 2017. Thanks very much for all your time today.

Thank you.

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