安費諾 (APH) 2016 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 now begin.

Thank you.

Good afternoon, everyone.

My name is Craig Lampo and I am Amphenol's CFO.

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

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

Q4 and full-year 2016 results were released this morning and I will provide some financial commentary on the quarter and full year and Adam will give an overview of the business, current trends, and then we will have Q&A.

We may refer in this call to certain non-GAAP financial measures and may make certain forward-looking statements.

Please refer to the relevant disclosures in our press release for further information.

The Company closed the fourth quarter with sales of $1.651 billion and diluted EPS of $0.75, beating the high end of the Company's guidance and achieving new records of performance in both sales and EPS.

Sales were up 15% in US dollars and 17% in local currencies compared to the fourth quarter of 2015.

From an organic standpoint, excluding both acquisitions and currency, sales in the fourth quarter increased 4%.

Sequentially sales were up 1% in US dollars and organically and 2% in local currency.

Breaking down sales into our two segments, our cable business, which comprised 6% of our sales, was up 18% from the fourth quarter last year, with organic growth as well as the impact of acquisitions.

The interconnect business, which comprised 94% of our sales, was up 15% from last year with organic growth, as well as the impact of FCI as well as other acquisitions.

For the full year 2016, sales were a record $6.286 billion, up 13% in US dollars, 14% in local currency, and 2% organically compared to 2016.

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

Operating income was $339 million for the fourth quarter.

Operating margin was a record 20.5% in the fourth quarter of 2016, compared to 20.2% in the fourth quarter of last year and up 20 basis points from the third quarter of 2016 adjusted operating margin of 20.3%.

From a segment standpoint, in the cable segment margins remained flat at 14.9% compared to last quarter and improved from 12.5% last year.

The increase in margins from last year related primarily to strong operating execution on the additional volume, as well as the benefit from favorable impact of commodities.

In the interconnect segment, margins were unchanged compared to last year at 22.4% and represented a slight increase over last quarter of 22.2%, reflecting excellent operating execution throughout the business and a very successful first year of improving performance for FCI, the largest acquisition in the history of the Company.

We continue to be very pleased with the Company's operating margin achievement, both with the full-year achievement of 19.8% on an adjusted basis, which reflects the impact of the lower-than-average profitability level of FCI in the first half, and in particular, with the consistent quarterly improvement in profitability throughout 2016, culminating in the achievement of 20.5% operating margin in the fourth quarter.

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

Due to careful fostering of such a culture and the deployment of these 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 $18 million compared to $17 million last year, reflecting the impact of higher average debt levels resulting from the Company's stock buyback programs.

The Company's effective tax rate was 26.5% for the fourth quarter of 2016 and 2015.

For the full year, the adjusted effective tax rate was 26.5% in both 2016 and 2015.

On a GAAP basis, the Company's full-year effective tax rate was 27.0% and 26.6% for 2016 and 2015, respectively, reflecting the tax impact of the acquisition-related costs incurred during the respective years.

Net income was a strong 14% of sales in the fourth quarter of 2016.

Diluted EPS grew 19% to $0.75 in the fourth quarter of 2016 from $0.63 in the fourth quarter of 2015.

For the full year 2016, adjusted diluted EPS was $2.72, up 12% over 2015 at $2.43, a very strong performance.

On a GAAP basis, diluted EPS was $2.61 and $2.41 for the full year of 2016 and 2015, respectively.

Orders for the quarter were at $1.669 billion, a 14% increase over the fourth quarter of last year, resulting in a book-to-bill ratio of 1.01 to 1.

The Company continues to be an excellent generator of cash.

Cash flow from operations was a record $349 million in the fourth quarter, or approximately 146% of net income, and for the full year operating cash flow was also a record $1.078 billion, or approximately 129% of net income.

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

From a working capital standpoint, inventory was $929 million at the end of the year.

Inventory days were 76 days, down three days compared to December of last year.

Accounts receivable was approximately $1.3 billion at the end of December and days sales outstanding was 73 days, up approximately two days from December of 2015.

Accounts payable was $678 million at the end of the year and payable days were 55 days, up approximately one day compared to December of last year.

The cash flow from operations of $349 million in the quarter, along with commercial paper borrowings of $37 million and stock option proceeds of $38 million, were used primarily to purchase approximately $96 million of the Company's stock; to fund net capital expenditures of $51 million; to fund dividend payments of $43 million; and to fund acquisitions of approximately $32 million, which results in an increase in cash, cash equivalents, and short-term investments of approximately $181 million net of translation.

During the quarter, the Company repurchased 1.5 million shares completing our January 2015 stock repurchase plan of 10 million shares.

The Company's Board of Directors has authorized a new two-year stock repurchase program to repurchase up to $1 billion of the Company's common stock commencing in January of 2017.

At December 31, cash and short-term investments were $1.2 billion, the majority of which is held outside the US.

At year-end the Company had issued $1 billion under its commercial paper program and the Company's cash and availability under our credit facilities totaled approximately $2.2 billion at December 31.

Total debt at December 31 was approximately $3 billion and net debt was approximately $1.8 billion.

And the fourth quarter of 2016 EBITDA was approximately $403 million, bringing full-year EBITDA to $1.465 billion.

From a financial perspective, this was an excellent quarter and a strong finish to a great year.

Before I turn the call over to Adam, I wanted to make a couple comments relative to our sales guidance for the first quarter and full year 2017.

Our guidance reflects an organic growth rate, excluding all acquisitions and currency impacts, of 1% to 4% in the first quarter of 2017 and 1% to 3% for the full year of 2017.

In addition, the guidance reflects the benefit of our recently announced acquisitions, as well as the offsetting negative effects of current FX rates versus 2016, particularly the weakening of the euro, renminbi, and pound.

This results in a US dollar growth rate of 3% to 6% for the first quarter of 2017 and 1% to 3% for the full year of 2017.

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

Thank you very much, Craig.

I would like to add my welcome to all of you on the phone and in particular I'd like to wish you all a Happy New Year.

As Craig mentioned, I'm going to highlight some of our achievements in the fourth quarter as well as for the full year 2016, and most importantly, I will walk you through the progress across our various served markets.

Then, finally, I will take a few moments to comment on our outlook for the first quarter and the full year of 2017.

As Craig mentioned, we will have time for questions at the end.

Our results in the fourth quarter were stronger than we had expected.

As Craig mentioned, we exceeded the high end of our guidance in sales and earnings and we reached new records in sales, EPS, and operating margins.

Our sales in the quarter grew 15% in US dollars and 17% in local currencies, and that reached a new record in the quarter of $1.651 billion.

Craig alluded to the orders, which were very robust, $1.669 billion and that was a book-to-bill of 1.01 to 1. In particular, we are very pleased with the profitability in the quarter and that new high of 20.5% certainly represents a great achievement for the Company.

Cash flow was very strong in the quarter, $349 million.

I think all of these results really confirm the Company's financial strength.

I can just say as we end the fourth quarter how proud I am of our team.

Our results in the quarter once again reflect the true value of both the discipline and the agility of this entrepreneurial Amphenol organization, who has continued to perform very well despite the many dynamics in the worldwide economy.

And all while driving outstanding operating performance for the Company.

We are very pleased in the quarter that we closed on another outstanding acquisition just recently in the last couple of weeks here in January: Phitek Systems Limited.

It's a New Zealand-based provider of high technology interconnect solutions that are used in in-flight entertainment and passenger connectivity for the commercial air market.

Phitek has annual sales of approximately $20 million.

One thing we are really excited about with Phitek is that they develop their products together with the in-flight equipment manufacturers and airplane builders, but also directly with airlines around the world.

And that represents an outstanding complement to Amphenol's already broad array of products for commercial air applications.

We are really excited to welcome this outstanding new team to Amphenol, and with that acquisition, we remain very confident that our overall 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 them into Amphenol, that remains a core competitive advantage for the Company.

Now 2016, as a full year, I think was just a really outstanding year for the Company.

We expanded our position in the overall market, growing sales by 13% in US dollars and 14% in local currencies, reaching new sales record of $6.286 billion.

Our full-year adjusted operating margins reached 19.8%, which was an excellent achievement given the initially lower margins of FCI, which as you know we acquired back in the early part of January 2016.

And that strong profitability enabled us to generate EPS in the year on an adjusted basis of $2.72, which grew 12% from prior year.

Our acquisition program in 2016 contributed significantly to our performance.

First and foremost, we closed on the largest acquisition in our history, FCI.

We are extremely pleased with the results of FCI in their first year as a part of the Amphenol family.

In fact, what I'm most pleased about is how the FCI team has truly embraced Amphenol's performance culture and, thereby, has been able to drive outstanding improvements in their operating performance.

And that has resulted in a contribution of $0.19 per share to EPS in 2016, well in excess of our original expectations, which you may recall back in January we expected about $0.12 of accretion for the Company.

In addition to this great operating performance, FCI has also solidified its position with customers across many served markets and geographies.

And in particular has made significant progress working collaboratively across Amphenol to expand our total company's collective technology and market strength.

In addition to the acquisition of FCI in 2016, you will recall that we also acquired Auxel, Custom Cable, SGX Sensortech, and All Systems Broadband, as well as Phitek just here in January of 2017.

These excellent acquisitions are already creating significant value for the Company.

And really most importantly, we have now been joined by a great range of talented individuals around the world with these companies and that has really deepened our talent bench across an already impressive management team.

As we think about the Company long term, our long-term mission remains to be the enabler of the electronics revolution.

It's a very simple mission.

Through the organic development efforts of Amphenol's entrepreneurial organization, together with the benefits of our acquisition program, we have been able to expand our partnerships with a broadening array of customers across all of our diversified end-markets.

And this has ultimately resulted in Amphenol's strengthening our position across the many segments of the electronics industry.

While the overall market environment in 2016 remained uncertain and there were, no doubt, many dynamics in the world, as we enter 2017 our management team is highly confident that we have built a platform of strength from which we can drive superior long-term performance.

Now turning to our trends across our served markets, I would just note at the beginning here that as we close 2016 we are really proud of the Company's balanced and broad market diversification.

In fact, even with the significant activity in the last year in our acquisition program, we are very pleased that no market this year exceeded 21% of our sales for the full year.

And this diversification has really two great values.

First, it insulates us from individual market volatility, but at the same time, it also exposes us to the leading technologies wherever they may arise across the electronics industry.

And we think this really creates great long-term value for the Company.

We are also pleased that in 2016 many of our markets realized strong above-industry organic growth rates.

So turning to the specific markets, the military market represented 10% of our sales in the fourth quarter and 9% of our sales for the full year.

Sales were up strongly in the fourth quarter, rising by a bit better-than-expected 14% in US dollars and 15% organically as we recovered from the earlier DLA stop shipment, while also capitalizing on stronger sales of products that go into communications, ordinance, and military vehicle applications.

Sequentially, our sales increased by a very robust 12%.

For the full year 2016 we were very pleased that despite the impact of the DLA stop shipment that was received in the first quarter, our military sales this year grew by 4% both in US dollars and organically.

And that just reflected strong organic performance in many segments of the market.

I am very proud of our military team as they have driven this strong performance in 2016, while also managing through what was no doubt a challenging regulatory issue.

In fact, at the end of the day, we have strengthened our overall market position through a long-term and consistent strategy of offering our customers the broadest range of leading technologies for their next-generation equipment requirements.

Looking ahead, while we expect sales in the first quarter to moderate from these fourth-quarter levels, we do anticipate achieving low to mid single-digit sales growth in the military market for the full year 2017.

The commercial aerospace market represented 4% of our sales in the fourth quarter and 5% for the full year.

Sales in the fourth quarter were down from the prior year by 5% in US dollars and 3% in local currencies, as procurement and support of certain new airplane platforms did moderate from prior year.

Sequentially, our sales in the quarter were flat to the third quarter.

For the full year 2016, our sales were slightly down in US dollars and flat in local currencies as the impact from the DLA issue, together with continued moderation in demand for helicopters and business jets, offset growth that was associated with new passenger airplane platforms.

We are really excited that the acquisition of Phitek broadens both our product offering as well as our customer relationships.

We now have an excellent range of high-technology interconnect solutions for the important area of passenger entertainment and comfort, together with these new direct relationships with airlines around the world.

Looking into 2017, we expect sales in the commercial air market to increase from these levels in the first quarter and for the full year we expect sales to increase in the mid to high single-digits as we benefit from the addition of Phitek, while also realizing further organic growth from our strong position on new jetliners.

The industrial market represented 18% of our sales in the quarter and also 18% for the full year 2016.

Sales in this market grew by 22% in the fourth quarter in US dollar and 3% organically as we benefited from the contributions from our acquisitions, which included especially FCI, together with organic growth in the heavy equipment, factory automation, industrial instrumentation, and medical markets.

Sequentially, our sales in the industrial market grew by a stronger-than-expected 6% in the fourth quarter.

For the full year 2016, our sales grew by 20% in US dollars and 2% organically.

And this was driven by benefits from our acquisition program as well as strength in hybrid bus and trucks, factory automation, and heavy equipment, which were offset by still meaningful sales declines in oil and gas as well as some moderation in the alternative energy application.

We are very pleased with our progress in the diversified global industrial market.

We now have a wider range of interconnect and sensor products across a broadened array of exciting segments.

In addition, we have made further progress expanding into new areas of the industrial market, both organically and through acquisition, including in particular with FCI's strong position in embedded computing.

We look forward to realizing the benefits from these expansion efforts for many years in the future.

We anticipate sales in the first quarter to moderate slightly from these levels, and for the full year of 2017 we expect low to mid single-digit growth from the industrial market 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 fourth quarter as well as for the full year.

Sales increased a very strong 14% in US dollars, 16% in local currencies, and 12% organically in the quarter as we continued to make just great progress penetrating a wide array of applications in new electronic systems with carmakers around the world.

Sequentially, our automotive sales increased by 3% in US dollars and 5% in local currencies.

For the full year 2016, we grew by 12% in US dollars and 8% organically, a clear reflection of the Company's ongoing progress in expanding our position across the global automotive market.

We are pleased in particular that we were able to grow organically in all regions around the world in 2016.

Our automotive business continues to benefit from a consistent strategy, which is very simply expanding our range of interconnect sensor and antenna products, both organically as well as through our acquisition program, to enable a wide array of onboard electronics across a diversified range of vehicles made by auto manufacturers around the world.

Looking into 2017, for the first quarter we expect sales to remain roughly at current levels, but for the full year we expect to achieve sales growth in mid to high single-digits.

We look forward to continuing to realize the benefits from our successful automotive business long into the future.

The mobile devices market represented 13% of our sales in the quarter and 14% for the full year.

Our performance in the fourth quarter was a bit weaker than anticipated as sales were down by 27% from prior year and 19% sequentially.

This significant moderation in demand resulted from slower sales in particular of products incorporated into tablets, smartphones, as well as production-related accessories, offset in part by increased sales of products used in new wearable technologies.

Once again, I got to give a lot of credit to our team, who demonstrated really impressive agility in the quarter as they were able to flex their resources quickly in the face of this substantial sequential reduction in sales.

For the full year 2016, our sales in the mobile device market declined by 15% from prior year, with the largest reductions in tablet-related products.

Despite this very challenging year in the very dynamic mobile devices market, our team did a fantastic job in securing strong operating performance in the year, while at the same time positioning the Company for the future through their development of exciting new interconnect and antenna products for a wide array of next-generation mobile computing platforms.

As we look into this year and into the first quarter, we expect a sequential reduction in the first-quarter sales of approximately 20% due to the typical seasonality that we see in the market.

And at this point, for the full year 2017 we expect our sales to be flat from 2016.

Without a doubt, though, I can tell you that our team will remain poised to capitalize on any opportunities that may arise to drive ultimately stronger performance in our mobile devices business.

The mobile networks market represented 9% of our sales in the quarter and, as well, 9% for the full year 2016.

Sales grew from prior year by a stronger-than-expected 29% in US dollars and 10% organically.

This was due to contributions from the FCI acquisition as well as our excellent organic progress in our sales to both OEMs and mobile network service providers.

Sequentially, our sales increased by 6% in what is almost always a seasonally softer fourth quarter and that really reflects the great progress that we made in the market.

For the full year 2016 we achieved strong growth of 24% in US dollars and 9% organically, and that is despite a market that has no doubt remained very uncertain.

We are very pleased that our long-term efforts to expand our high-technology position with both mobile equipment manufacturers, as well as service providers around the world, has paid real dividends here in 2016.

We look forward to continuing to capitalize on that strength in the future.

Looking ahead, there remains significant uncertainty in the spending plans of wireless operators around the world and, accordingly, we expect our sales to moderate in the first quarter and for the full year 2017 we expect sales to remain roughly at 2016 levels.

But even though we don't at this time expect the overall spending environment to improve, our broadened product offering positions us better than ever before to capitalize on opportunities that will no doubt continue to arise in the long-term future.

The information technology and data communications market represented 22% of our sales in the quarter and 21% of our sales for the full year 2016.

Sales were stronger than expected in the fourth quarter in IT datacom, rising by a very significant 66% in US dollars and 27% organically; really an excellent performance by our team.

Organically, we grew really in all segments of the IT datacom market, but we are especially pleased with our accelerating progress of our sales into new web service providers, these sort of next-generation customers.

Sequentially our sales increased by 3% from the third quarter.

For the full year 2016 we are very excited to have achieved 45% growth in US dollars and a very strong 11% growth organically in IT datacom.

This organic growth is a real credit to our team's efforts to develop leading technologies, while rapidly pivoting towards opportunities for growth that are being created by the many new customers in the IT market.

Looking into 2017, while we do anticipate a normal seasonal moderation of sales in the first quarter, we expect to achieve mid single-digit sales growth for the full year of 2017.

I can tell you that both our traditional and as well as our new customers in the IT datacom market continue to upgrade their data center equipment to reach new levels of performance.

And that performance is really necessary as they all seek to deal with the rapid expansion of data traffic that's driven in particular by the continuing spread of IP video, as well as by the accelerating adoption of cloud-based computing around the world.

Amidst this real dramatic technology shift we are really excited by our great progress in the IT market.

With the acquisition of FCI, together with the other acquisitions we made this year, such as Auxel and Custom Cable, we've significantly expanded our range of high-speed, power, value-add, and other interconnect products for a broad array of applications in IT datacom.

And we are now positioned stronger than ever in this very important market.

The broadband communications market represented 6% of our sales in the fourth quarter and 6% for the full year of 2016.

Sales in this market were up 15% in US dollars and up slightly organically in what is typically a seasonally softer fourth quarter.

Sequentially, our sales increased by 2%, really with the contributions from All Systems Broadband that we completed in the third quarter.

But looking across the full year of 2016, we are very pleased with our performance.

We grew 10% in US dollars and 7% organically in broadband, and that reflected our further progress in diversifying our broadband product offering into new, high-technology, value-add interconnect solutions, while continuing to expand our position with customers around the world.

For the first quarter we expect a slight increase of sales from the fourth quarter and for the full year 2017 we look forward to achieving low double-digit growth as we benefit from our recent acquisition and also capitalize on our continued efforts to develop new products for broadband operators around the world.

So just to sum up our performance here in the fourth quarter in 2016, I can just simply say how proud I am of our performance and of our team.

While there remain many dynamics in the global economy, the Amphenol organization has continued to execute extraordinary well.

In particular, our dual-pronged approach of growing both organically and through our acquisition program has resulted in Amphenol expanding our market position while strengthening the Company's financial performance.

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

Now turning to the outlook, based on a continuation of the current uncertain economic environment as well as on constant exchange rates, we now expect for the first quarter and the full year 2017 the following results.

For the first quarter, we expect sales in the range of $1.495 billion to $1.535 billion and diluted EPS in the range of $0.65 to $0.67, respectively.

This represents a sales increase versus prior year of 3% to 6% in US dollars and 4% to 7% in local currency, and an increase in adjusted diluted EPS of 10% to 14%.

For the full year 2017, we expect sales in the range of $6.340 billion to $6.5 billion and EPS in the range of $2.84 to $2.92, respectively.

For the full year this represents sales and adjusted diluted EPS growth of 1% to 3% and 4% to 7% over 2016 levels.

I can just say that we are all very encouraged by the continued strong performance of Amphenol in 2016 and we look forward to driving further strength going forward into the future, even given the many dynamics around the world.

I'm confident in the ability of our outstanding management team to build upon our new levels of revenues and earnings and to continue to capitalize on the many future opportunities to grow our market position, while also expanding our profitability.

At this point, operator, we would be very happy to take any questions that there may be.

(Operator Instructions) Amit Daryanani, RBC Capital Markets.

Thanks.

I have a question and then a follow-up.

I guess, first off, congrats on a really good year again for you guys.

Adam, when I look at the full-year guide you are looking at about 2% organic growth.

Can you just help me understand?

Because all the end-markets you went through I think the worst you talked about was a flat assumption for the year; most were up low to high single-digits.

Just what's the context of the 2% organic growth when it would appear that a lot of your peers, a lot of the semiconductor guys are somewhat more positive on end-demand trends?

What are the subtractions that you see that we should be cognizant about?

Look, I think I went through the various markets, and as you mentioned it right away, that we do expect mobile to be flat and I think we have a few other markets where I mentioned single-digit or low single-digit growth.

And at the end of the day, the guidance that we have given represents our outlook sitting here today in the third or fourth week of January, looking out over what we expect for the year.

I think it is still a market that remains uncertain, but we remain very poised to capitalize on any opportunities that may come our way.

And so again, as we sit here and look out over the next 12 months, for us we think this is a very prudent guidance and an appropriate guidance, given the markets that we see.

But we will remain very capable and eager to capitalize on any other opportunities.

Fair enough.

And if I could just follow-up, on the EPS guide -- and I appreciate the FX discussion you guys had on revenues.

Could you just help me think about how much is FX and commodity headwind for you guys in the March and 2017 guiding that's embedded in the numbers you outlined today?

Sure.

From a FX perspective we see -- certainly we talked about that in my prepared remarks in regards to the 2017 guidance that there certainly was some strengthening of the dollar that had some impact of offsetting the positive impact of acquisitions.

And more specifically, the impact of the dollar strengthening in 2017 versus the average 2016 range was roughly 2% I would say, which reflects -- which is reflected in our current guidance.

So that really is the FX impact on the full year and it's not so much different for the first quarter.

In regards to commodities, we certainly -- as we've talked about this before, there certainly has been recent increases of some sides and certain commodities in particular; copper.

It's difficult to say what the impact will be in the future, but as we have said before, the ultimate impact really depends on the balance of the input costs and the pricing environment.

And that balance tends to somewhat depend on demand levels.

So I think there's certainly some risk that the additional inflationary pressures could provide some pressure from a commodity perspective.

But I think our strong entrepreneurial management team will keep a close eye on all these input costs and do their best at balancing -- capitalize on any opportunities and minimize any cost increases at whatever to maximize profitability of the Company.

Matt Sheerin, Stifel.

Just a question regarding FCI.

As you pointed out, Adam, more accretive than you thought; did a great job of integrating that.

So it sounds like, in terms of incremental cost savings, that has kind of played out, but as you look at cross-selling opportunities, particularly in your -- the datacom market, industrial, and then also through distribution, where are we there in terms of opportunities for incremental growth?

Thank you very much, Matt.

You are absolutely correct; we are very happy with the performance improvements of FCI, whether those are cost savings or pricing discipline, whatever it is.

As you know, to us, profit is price minus cost and I think the team has really embraced that very comprehensive approach to profit improvement without just saying, well, we're going to improve one line item here or there.

They really did embrace the Amphenolian approach to it, which is, look, everything is up for grabs here and let's just make the bottom line perform better.

Just a lot of credit to the FCI management team, the people who were there before and who are there still today.

In terms of the cross-selling, I'll tell you when I look at the markets where FCI has a significant presence and I look at our overall performance this year, even from an organic perspective -- take a market like an IT datacom where we obviously had very, very strong performance in the fourth quarter, 27% organic growth.

We had 11% organic growth on a full-year basis.

I can tell you that I would think some portion of that -- some impact of that has come from the fact that together with FCI, we have today really the broadest offering into that market: the leading technology, the best footprint to support customers wherever they may be in the world.

And without being able to pinpoint what a number would be, I can tell you that they have had already a positive impact really in that important market, which was for them really a very significant market.

And the same when I look at our performance in a wireless infrastructure: up 10% organically in the quarter, up 9% for the full-year.

Certainly a higher level of performance than we had anticipated coming into 2016.

And there again, without being able to pinpoint an exact arithmetic impact that they had had, I think we have had clearly benefits inside of Amphenol on having had them.

As it relates to distribution, there's no doubt about it that our relationship with distributors today is a broader, more strategic relationship across multiple markets than it was in the past.

You know well, Matt, our legacy and distribution, which comes from our harsh environment -- mil, aero, and industrial products -- we were never traditionally viewed as a core partner in the IT datacom market and in those types of connectors which in addition are being repackaged into embedded computing in the industrial market.

I can tell you today wholeheartedly that that has changed.

And what will be the benefits for that?

Sometimes those benefits take a while to leach in to the relationship in terms of actually selling through and accelerating the sellthrough, but no question that already our seat at the table with these distributors is more significant than it has been in the past.

And I would expect and be very confident that long term that would deliver good results for the Company.

Okay, great.

Just as a follow-up just quickly regarding the guidance on mobility to be flat for the year, but down 20% sequentially; implies that you are going to be down year over year to start the year.

So are you expecting it to be more backend-loaded where you've got some visibility perhaps into new program ramps in the back half?

I think your math is correct.

I think we do expect in the first quarter to be down a bit year over year and that would imply that later in the year we would be up.

As always, we forecast on the basis of what we see today.

This is a market that is one of the least visible markets.

In fact, it is the single least visible market that we have to give guidance on.

You will remember that I'm not very good at giving guidance in the market.

Two years ago I guided it flat and we were up 13%.

Last year I guided it flat and we were down 15%.

I'm hopeful that I will be closer to the former than the latter this year, but right now what we see is that it will be flat.

The 20% or so down that we see here in the first quarter is actually a little bit less than it was down last year.

You will remember that in Q1 of last year we were down something around 32%, 33% from the fourth quarter of 2015.

Now obviously we are down from a lower level, because we were down quite significantly on a year-over-year basis, so that shouldn't surprise anybody.

But it is very normal in that market that you have a year-end that is a little bit stronger, a second half that is a little bit stronger; and that's what happened this year.

If we look at our second-half performance in 2016, we were still up in the midteens compared to the first half, but that compares to a prior year where we were up by a more significant amount.

And I think our guidance right now would imply that our second half would be up a bit more compared to our first half than we saw here in 2016.

Shawn Harrison, Longbow.

Just the mobile networks business, I think it beat almost every quarter your expectations as 2016 progressed.

Maybe if you could just talk about regionally where the upside came from exiting the year and maybe why you can't see growth again in 2017.

I think you're correct.

I forget if in the first quarter we beat, but I think we basically beat throughout the course of the year.

And no doubt about it, as we look to the full year and our performance, we did not anticipate to perform at the levels that we did here for the full year.

If we just look at the quarter and for the year from a regional perspective, we did grow in the quarter organically in every region, but I would tell you that our strongest performance in the fourth quarter was in Europe.

We had really excellent performance.

That was both with OEMs as well as with operators, so interconnect products as well as antennas that we sell in the mobile networks market.

And we feel really good about that.

It's not necessarily the most robust spending environment in Europe and I think our team did a great job.

On a full-year basis, again Europe was leader in our overall performance, growing quite robustly on an organic basis.

So I think that was really excellent -- excellent really opportunity that we were able to capitalize upon to grow, which we didn't necessarily see coming into the year.

I think as we sit here today and we can only look at the spending outlook of our customers.

And all what we have heard, either from reading that publicly or from otherwise interacting with the customers, is that it looks to be a relatively muted spending environment this year.

There's not big new systems being built, 5G is probably still a little bit on the horizon and so that's where we stand today.

All that being said, just like I said with mobile devices, this is a market where sometimes that spigot can get turned on when you least expect it.

It's important for us as an organization to be poised and ready.

And part of being poised and ready here is having done the work with our product development to make sure that we have the right products for the next generation systems that our customers are ultimately going to invest in.

And that extends from connectors to -- of all types to value-add interconnect assemblies, all the way to the antennas.

And so our teams have done a really outstanding job over the last couple of years making sure that we are really in a leadership position from a technology perspective.

We believe that to the extent that there is spending that is maybe unexpected in 2017, wherever it may be, that we will be there as really the first phone call for those customers in order to help them manage through the buildouts that they need to have.

The thing that I have talked about in this market for so long is the fact that you have a kind of unstoppable march upward of the demand from consumers on the networks, the traffic in the networks.

And whether that's me watching videos on my phone or my kids doing that or the coverage that remains in many geographies still very, very spotty, there's no question that there is an accelerating demand really at the user level.

How does that ultimately translate to the capital spending patterns of the customers?

It's not always really in lockstep unison.

As you know well, they tend to have other reasons for deciding when they spend and when they don't spend.

Thus, it's just really important for us to be ready to be able to pivot quickly towards where the spending comes and to be able to capitalize upon that faster than our peers.

I think we did that this year and we will remain poised to do that in the coming year.

If I may, one quick follow-up to Adam.

The $1 billion buyback I think is the largest you've ever announced.

Typically you run through the entire authorization.

Is that the expectation with this buyback over the next two years?

Sure.

Actually, just to correct you, the largest buyback or at least it roughly equals the buyback we did in 2011 where we bought roughly $1 billion over 2011 and 2012.

And this certainly represents actually much smaller as a percentage of our free cash flow than it did at that point.

This does represent roughly 50% of our free cash flow return to shareholders, including our dividend program, so this would be consistent with our capital deployment strategy where the other half of our free cash flow would be allocated towards M&A over the longer term.

We certainly continue to have a thoughtful and balanced approach to that where we certainly look towards spending our free cash flow towards acquisitions, since we think that provides ultimately the best return of capital.

But certainly our dividend program, our stock buyback program are two important levers to our capital deployment strategy and we think that this share repurchase program really is going to be a great program to continue to have that balanced approach going forward and support that.

I would just maybe add one thing, Shawn.

I mean you asked does it get satisfied in two years.

It's a two-year plan.

You know that we always keep flexibility and last year we made the biggest acquisition in our history; that was $1.2 billion that we spent on that acquisition.

We have not announced another biggest acquisition in our history here.

We will always prioritize acquisitions as the best use of capital for the Company.

At the same time, the Company generates a lot of cash.

Sitting here today, it's a two-year plan.

And we typically when we announce the length of the plan, we would anticipate to use that plan, but it all depends ultimately on whether there's other attractive acquisition opportunities which we would clearly prioritize.

Craig Hettenbach, Morgan Stanley.

Thank you.

I'm just following up on the comments on industrial.

It was a bit better than expected in Q4.

We've seen a few signs out there in terms of maybe a little bit of inflection.

Understanding there's a number of sub segments in there.

Any light you'd shed on that in terms of how you are feeling about some of the broad-based industrial businesses?

I think, look, industrial has -- fortunately for us industrial is a very diversified market and you mentioned it: there's a lot of different segments of industrial.

I think industrial has been in the last year a real tale of two cities, for us at least, where you have certain areas -- and oil and gas has been one that everybody has talked about; we have talked about it.

It hasn't been great this year.

Luckily, it's less impactful than it was in prior year.

But does that reach an inflection because of the price of oil or does it reach an inflection simply because it's fallen quite a bit?

Maybe some combination of the two.

I think you've got other areas that over the course of the year have been maybe a little more challenged, places like alternative energy for various subsidy regions around the world.

And, conversely, we've had some areas that have done really well.

We mentioned before like the battery and HEV markets, the real hybrid bus and truck areas.

We talked about our strength in medical.

We actually had very good performance this year in heavy equipment, factory automation.

And thankfully, we are very, very diversified across that industrial market.

Now as it relates to an inflection or a potential inflection in industrial, there's been a lot talked about infrastructure and will there be an infrastructure, at least investments that would be made in our country.

And we're certainly big proponents of that if it would come.

We have not guided in our guidance here towards any political changes, let's say that, because I think it's still early days.

And whether or not the fiscal policies of this country or any others are going to change; they may, in fact, change, but how they're going to change I think is still up for question.

But to the extent that there was a significant infrastructure expansion, then you can bet our strong position that we have with customers who themselves may benefit from any infrastructure; we would clearly benefit from that as well or we would certainly fight to benefit from it.

As we look into 2017, in addition, I would tell you that on a global basis we feel very good about that position, whether that's in Europe or North America or Asia.

In Asia, our team has just done a fabulous job of really expanding our local presence there, both from a manufacturing and design and, ultimately, sales support for the customers.

As Asia is really moving in certain directions and North America is moving in other directions, we have these local teams who are going to capitalize upon that.

Our industrial business today is a broader set of technologies than it has ever been and that's in particular because of the arrival of FCI.

What FCI brought to us is a range of products that are really used in embedded computing.

If you see just the revolution that is happening in embedded computing, we feel very confident that long term we will be able to realize more benefits from that than we would have been able to do had we not acquired FCI.

And so I think that is other piece of the industrial market that we are very hopeful about long term.

Now, look, sitting today without any presumption of an infrastructure expansion I would tell you that the industrial market is still a very mixed market across those many segments.

But, again, we will remain poised to capitalize if there is something that is more uplifting.

Okay.

Then just as a follow-up on the sensor market, understanding it is a relatively newer market for you.

But just as you look at the M&A potential landscape and then just look from an organic development perspective how things are going with sensors.

We are really excited about sensors.

We just finished our third year owning a sensor company.

It was just three years ago last December that we acquired the GE advanced sensors business.

I'll tell you that the team is doing really well on two fronts; not just the GE team that joined us, but also the Casco organization and then most recently SGX.

Number one, the operating performance of those companies has really done fabulously.

And I would tell you that they have met the challenge, let's say, of the peer pressure that exists within Amphenol to not perform below the Company average and that has been a really great success for that team.

But, in addition, I think they've done a great job of driving stronger performance in their own business while also capitalizing on the collaborative technology efforts that exist within Amphenol.

Our sensor business had a good year last year.

It performed, I think, very well.

We grew in the market organically and otherwise, and I think that we will continue to pursue opportunities to grow both organically as well as through acquisition.

I think the fact that we've made three acquisitions in three years is not too bad, but we are certainly thirsty for more growth opportunities, both inorganic and organic, in the future.

Sherri Scribner, Deutsche Bank.

Thanks, gentlemen.

If you look at the stock market and Amphenol's performance since November, both have done very well and there seems to be an expectation, based on infrastructure spending, a lower corporate tax rate, sort of a general positive environment for businesses, that things are going to get better.

I wanted to see if you could give us some sense of what you are hearing from your customers.

We have the guidance that you've given us, but are your customers feeling better about spending?

Then along with that, can you maybe give us some sense of the implications of the border tax adjustment that new government has been talking about?

Thanks.

Sure, Happy New Year and thank you very much, Sherri.

Look, I've talked to a lot of customers since November 8 or 9, whenever it all came out, and I can tell you that customers are very curious.

They are thinking a lot about this, but nobody really knows ultimately what new fiscal or other policies are going to come about, whether those are tax or trade or infrastructure spending or regulatory reductions.

Look, I think there will be change and I think some of that change will be positive for business and some of that change may be negative for business.

The question is only how do you, as a company, react and manage through that change?

And there I believe we are really well positioned.

Because regardless of what new policies may come, the agility that is really just second nature and integral to Amphenol is something that in times of change creates great value.

So if you have border adjusted taxes or if you have tariffs or whatever, we have a footprint that is extremely flexible, that is aligned to where our customers want to be and something that we will manage through, whether it's good or bad.

I think a lot of customers, I will tell you, have asked me personally what if we had to make this and that in a different geography.

The answer that I am always able to give them in a very clear way is, look, we have a footprint regardless that is very strong in all geographies.

I mean, we continue to be a significant manufacturer in the United States, for example, and we have outstanding people and outstanding organizations here.

So if somebody in the end wants to make consumer products in the US for whatever reason, then we will be right there next to them to support them.

And in many ways, in some of our markets, our competitors aren't necessarily the traditional US companies that you all follow.

In such an instance, I would think we would have an advantage over some of those companies, and that is in particular true in things like consumer devices, whatever they may be.

But, look, we're not going to try to sit here and guess what the policies are.

We'll stay well abreast of them and we will be able to react and pivot, if necessary, on a very, very rapid basis to either capitalize upon or deal with whatever policies may come our way.

Thank you.

Wamsi Mohan, Bank of America Merrill Lynch.

Thank you.

Adam, in your press release in your guidance section you note the dynamics -- uncertainty around the dynamics related to potential government policy changes as part of the reason for maybe somewhat cautionary guidance.

But could you elaborate maybe what would be some of the policy changes that you see as most material for Amphenol, or maybe help us think through how you are handicapping this risk?

And I have a follow-up.

I think I just talked a little bit about this and I wouldn't sort of rank or handicap specific policies that have been talked about.

I think nobody knows what policies are ultimately going to be reflected.

And I would just reiterate that regardless of what policies come our way, we're going to be well-poised to deal with them.

There's lots of categories of these policies, whether that's tax or trade or infrastructure or other fiscal measures.

Whatever it is we will very adeptly deal with them and we will applaud those that are really favorable for us and for our customers.

Ultimately, we are a global company.

We may be headquartered here in cloudy Wallingford today, but I can tell you that we are a global company.

We support customers on a global basis, we manufacture on a global basis, and our people work on a global basis.

At the same time, we are a very local company.

And so, in many ways, when we support a local market we do that in a very local fashion.

And so I think that whatever happens in any geography -- everybody is talking about this geography where we are sitting today, but who knows whether there won't be changes in other geographies that ultimately impact us and other global companies.

And so it's hard to just pin down the ones that may be in the paper today without reflecting on what maybe other countries may do, what other policies may come in tandem with those, to make that handicapping.

I think that is a tough handicapping to do.

The best we will do and the best we can do is to just stay very, very well abreast of it and to remain as agile as we have ever been before to deal with whatever comes our way.

Adam, just a follow-up on that.

You think that the agility that you have tremendously displayed here over a very long period of time; if there was incremental production that moves to the US, do you feel that Amphenol can maintain that agility, particularly as some of that agility pertains to labor flexibility in some of the other geographies?

Look, let me give you a near-term example of this, Wamsi.

You know and we've talked about the DLA issue that we had.

As part of that DLA issue that required a very rapid resourcing of certain components in this country, and we did that extraordinarily.

Our team did that with a number of products that you can't imagine.

The number of different individual part numbers and the number of different qualifications that were required and all of that -- the flexibility in the manufacturing locations, our team went through that with such flying colors.

And I think you see that reflected in the fact that even with that significant issue, we were able to grow our military business 4% organically this year.

And I think that's just a snapshot of how we deal when there are changes that come.

So we have an outstanding footprint of extraordinarily capable people in the United States, period, and to the extent that there are policies that either incent us or force us to move production to wherever in the world, I can just tell you that this team is going to do a great job to handle that.

Jim Suva, Citi.

Thank you very much.

You talk a lot about the upward, onward march of connectors and everything being connected and electronification of everything, but the guidance of generally flattish sales doesn't really connect with that.

No pun intended.

If we look back historically, you haven't had such a modest growth basically for years and years.

And last year you had some acquisitions that came in midyear that should help.

So is it conservativism or that's what you're getting from customers or --?

I'm just trying to bridge the comments with the actual guidance.

Thank you.

Sure, thanks very much, Jim.

Look, our guidance this year from an organic perspective is actually a little bit higher than our organic guidance was last year, so I think from that perspective I would just point that out.

It's true we had the benefits of the FCI acquisition in particular.

We made a few other acquisitions during the course of the year that weren't envisioned in our original guidance last year.

But I think it is too early to say that the economy, on a broad basis, is in a full recovery.

I think I went through each of the markets.

I highlighted in particular our mobile devices market where we think it's a little too early to see growth.

The same with mobile networks, where at this point we think it is an uncertain spending environment.

But I would just say thank goodness for the diversification of the Company and the fact that we have that diverse balance in the Company can also have, once in a while, an impact.

We have some markets that are growing very fabulously.

If those markets were 100% of our sales, obviously you would have higher organic growth, but then you would have a volatility on the year-end that we don't think would be appropriate for the Company or for our investors.

The way we create our forecast is the same way that we always have, which is we take a real bottoms-up approach to looking at what our operations tell us, and the operations are telling us numbers that they get from their customers.

Then we, of course, will apply some judgment here at headquarters.

And I don't think this process has changed at all, except that I would say from last year to this year we have a slightly higher outlook for organic growth and we don't have the impact of the large FCI acquisition.

But I would not say that this is a marked shift in our outlook long term for the business.

In fact, we see today still a very, very favorable long-term opportunity for Amphenol, as you say, the kind of ongoing, upward march and the proliferation of electronics across really all aspects of the industry.

We see that as continuing over the long term and we think our company remains very poised to capitalize on that long-term trend.

Thank you very much.

Steven Fox, Cross Research.

Thanks, I was going to stay away from economic policy questions and just ask a couple product questions, if I could.

First of all, you mentioned in your prepared remarks, Adam, antennas going into the auto market.

I was just curious if you could just provide a little bit of color around that and what trends you are benefiting from and how you are differentiating yourself.

Then just as a follow-up, if you could give us a little bit more sense in Europe as to whether you're doing better on the connector side or -- rather the antenna side or the connector side in terms of your revenues most recently.

Thanks.

Sorry, on the Europe, do you mean in automotive or do you mean in --?

Sorry, in mobile network.

You mentioned (multiple speakers).

Mobile networks, that's -- I assumed you meant mobile networks.

Look, just with respect to automotive, I did mention today still interconnect products are the biggest portion of our sales into automotive market and that is a broad array of interconnect products.

Not just discrete connectors, but real value-add interconnect systems.

And that's something that we have been focused on for a very long time.

In addition, we've built now a very robust business in automotive sensors.

And we've been focused on expanding our antenna capabilities from where originally it came, which is the device as well as the mobile infrastructure and expanding that core technology into automotive, where we see a real expansion and a proliferation of connectivity in the cars.

Some of that connectivity is with connectors and some of that connectivity is through the air with antennas.

I think our team has just done a really outstanding job here in positioning ourselves.

We have a number of new design wins, some of which are already going into production and others of which will come -- will roll on over the coming quarters and years.

We have really established ourselves, or let me say beginning to establish ourselves as a player in an area where we really weren't in the past, which is automotive antennas.

I think when you couple our deep, deep expertise in radiofrequency, what we call RF technology, together with a broader antenna -- sorry, a broader automotive presence than we have ever had before, that's a really good recipe to find a new lever for growth over the long term.

Now, we also know that automotive cycles aren't just every few months or every few quarters; it's really every few years.

And so it does take time to get the wins and then to have those wins ultimately roll on into mass production.

But I'm hopeful that we will start to see some of the benefit of that in the near term and I think we have even a little bit of benefit from that in our outlook for 2017.

As it relates to our mobile devices sale -- sorry, mobile network sales, in particular in Europe as you mentioned, I would say it was actually balanced in the quarter between our progress with OEMs, which is more interconnect products, and our progress with service providers, which tends to be a bit more antenna.

I say a bit more because we are selling, in addition, interconnect products and other accessories directly to operators, but there's more significance of antenna sales to operators.

I wouldn't say it was really out of balance, probably relatively balanced, which drove that good performance in Europe.

Great, that's very helpful.

Good luck going forward.

Mark Delaney, Goldman Sachs.

Good afternoon and thanks very much for taking the questions.

First question is a follow-up on mobile devices.

You mentioned some of the reasons it was down in the fourth quarter, but can you talk about if it's all end-market -- related to unit sales or was there anything driven in terms of your market share or pricing that caused the decline?

Then, as you think about mobile devices in 2017, you alluded to some opportunities in the second half of the year.

Could you just elaborate on the types of products, be it antennas or connectors, and what sort of end devices you think drive that pick up the second half of 2017?

Sure.

Thanks very much, Mark.

I think with respect to 2016 I highlighted that we saw in the year probably the most significant reductions in demand came on tablet computers.

And I will tell you that that same sort of over the course of the year.

We actually had a pretty good first quarter in tablets, but over the course of the year those sales dropped off a fair bit.

And I don't think that's highly inconsistent with overall tablet units.

Maybe some of the tablet units even had a little bit lower content.

We've talked about a number of years ago where sometimes there's a little bit of a mix shift between the types of functionalities in the tablets, whether those are full mobile network tablets or whether they are Wi-Fi based.

So I'd say the vast majority of the impact, in particular on tablets, which was the bigger impact for us, was really related to units.

And I think there is next year, because Q1 this year had a little bit more strength in tablets, there's a little bit of a carryover impact into 2017 on that tablet.

So we would expect tablets to still be a little bit of a drag on performance going into 2017.

I think, conversely, I mentioned we have had good performance and we continue to have good performance in wearables, where there's just a lot of new devices there.

Some of those devices are just really innovative and challenging.

As you know, we have always talked about the fact that when the hardware gets challenging, that's where we get to add more value to our customers and where we are able to bring our innovation capabilities to our customers to enable them to fit more into that more challenging package that a wearable represents.

So I think that has been a strong point in 2016 and would continue to be such in 2017.

As it relates to phones, I think that we've always said that on every phone -- we don't always have content on every phone.

We don't always have the same content on every platform and that remains the case.

And so it really depends on individual platforms.

We try to win everything, but I can't tell you that we are 100% successful in winning absolutely everything, so they're some platforms where we have good content and others where we don't.

And that can sometimes have an impact in the course of a year.

In the more laptops and next-generation mobile computing, I think we have done a really excellent job there.

It was sort of performing a little bit better in 2016 than the average, but not necessarily contributing to the overall.

And I think as we look forward into 2017 we would expect -- certainly we would expect the laptops, ultra books, whatever you call them to perform at a better rate than tablets.

I think you have seen that the functionality being embedded in computers is a little bit chewing on the market of tablets.

As they get smaller and more functional and more connected, you don't necessarily always need to also have a tablet.

My anecdote is always when we meet investors to sort of take a count and see who has what devices.

I think the arc of tablets I have seen where everyone of you just uses a tablet and I can tell you just over the recent months and quarters I've seen a few more laptops popping up in the room.

And I think our performance is probably consistent with that.

That's very helpful.

I appreciate all the color.

A follow-up question on margins, I think the incremental margin guidance implied in the 2017 outlook is toward the low end of the historical 20% to 30% drop-through rate on EBIT margins.

I think maybe there's some mix benefits as maybe you do less in mobile as a percentage of revenue next year.

You did talk about some of the FX headwinds and maybe some metal headwinds.

So what would it take to do more for the midpoint or higher end of the historical drop-through levels on EBIT margins for 2017?

Actually I think that 2017 -- I'm not sure what math you are doing, but certainly 2017 is benefiting significantly from the second-half positive performance from FCI coming up to our average company operating margin levels.

And that's going to bring into 2017, which is going to bring our overall year-over-year margins higher.

But if you would look at our base business, that would also be converting at roughly our normal long-term rate at -- long-term conversion targets around 25%, as we've said in the past, and actually our drop-through is roughly that amount on that base business.

So I think we actually feel we are converting pretty well going into 2017 and we are continuing to execute well.

We had a great year in 2016 and throughout the year we increased our margins from I think Q1 to Q4 by something like 190 basis points.

A lot of that was FCI creating step functions in their profitability, but some of that also was our base business.

And I think 2017 we still feel pretty good about anyway.

So I think that 2017 is going to be another good year from a profitability-wise and we don't really see so much of a significant impact, at least at this point, from commodities.

William Stein, SunTrust.

Great.

Thanks for taking my question.

Adam, regarding the recent acquisition, I think you noted that it affords you new relationships directly with the airlines themselves, the carriers.

I'm hoping you can describe the benefit that you expect that to deliver to the business.

Does it mean faster revenue growth or more revenue stability or maybe some other financial benefit to the Company?

And maybe compare it specifically to what you've learned by having that sort of exposure in the infrastructure market, where you don't just sell to the infrastructure equipment OEMs, but you also, as you've noted many times in the past, you sell directly to the telco carriers.

Thank you very much, Will.

You correctly point out that I did allude to the fact that in addition to Phitek's relationship with equipment makers and airplane builders, they have really also direct relationship with airlines.

And it's interesting in a few respects.

The reason they have that relationship is there are some airlines in the world who have actually decided that for them to be competitive they want to create proprietary experiences, let's call it, for their customers.

And I think some of those big airlines around the world are well-known who have unique experience that they offer to their passenger customers.

And part of that experience can be, ultimately, the way that the customer interacts electronically with the plane.

Whether that's the shape or configuration of the connectors or what functionality may very well be embedded in those connectors, if they just buy an off-the-shelf system or interface that is supplied by a jet maker, then all of their competitors have equal access to that.

And so I think there are a number of airlines that are moving in that direction.

The most natural place to move in that direction is in in-flight entertainment or things like Wi-Fi connectivity, but who knows whether they won't, in the end, move more extensively in that direction.

When we think about the trajectory that we've seen in other markets towards service providers ultimately taking more charge of that customer experience and, thereby, interfacing more with companies like us who help them to enable the customer experience, we have seen really quite some transformation.

We saw that probably earliest in the mobile networks market, like you alluded to.

We've also more recently seen that in the IT datacom market, where we've seen quite substantial growth coming from service providers where previously we really in that space only sold into the OEM market.

We've seen that, in fact, in a few areas in the industrial market.

For example, if you're working in alternative energy sometimes it's not -- in a solar application, for example, you're not just dealing with panel makers, but you're going directly to solar service providers and working with them on proprietary solutions that allow them to have more efficiency in their power generation plants.

So I think that it is a trend that we have seen really across the industry.

It doesn't mean at all, by the way, that we do that at the expense of those such cherished relationships that we have with our OEMs.

I think, in fact, it can help those relationships, because we can be important with their customers as well as we can be supporting them immensely on their own initiatives.

And that can be a really wonderful way to move from a transactional relationship to a real partnership relationship with those customers.

I think that is something that we have indeed seen in the mobile networks market.

I think we see that a little bit emerging in the IT datacom market and some of the others that we refer to.

So in the commercial air market, short of maybe supplying some MRO materials for repairs and maintenance, in the past we haven't necessarily had that sort of upfront design-in relationship with airlines, whereby we are helping them create proprietary experiences.

And I think now we have that and we have the opportunity to benefit from that in the future.

Thank you.

Wamsi Mohammed, Bank of America Merrill Lynch.

Thanks for taking my follow-up.

Adam, now that you have lapped a year for FCI, how do you feel about another significantly large acquisition?

If you could put that in the context of an environment where interest rates might rise and there might be disallowance of interest deductibility for taxes, would you pace your appetite for M&A any differently?

Thank you.

Sure.

Thanks, Wamsi.

Look, we have just lapped our year with FCI.

I will tell you exactly what I said a year ago when we acquired FCI, which is our criteria for acquisitions has always started, number one, with the people.

We look for outstanding people who can really thrive in Amphenol's unique entrepreneurial environment, and I can just tell you with FCI we checked that box 100 times over.

The second we look for is technology and real leading technologies that can help enable our customers' products to work better.

And then, finally, we look for a market position that is complementary.

I think in that case FCI ticked all of those boxes.

A criteria that we have never talked about is size.

I think that -- the fact is FCI was the biggest one in our history.

We did also this year some smaller acquisitions.

So does FCI indicate that we change our approach to size?

It doesn't because we have not changed our approach to size.

If a significant acquisition came along, was available, or otherwise was attractive, we would not shy away from doing that.

Now as it relates to the various fiscal policies or otherwise that you alluded to, we will react if those fiscal policies change.

Obviously, if money gets more expensive for whatever reason, either because the face value of that money is more expensive or the net in your pocket value of that money is more expensive because of deductibility, we will react to that.

But I think you also know that if you follow our acquisition program over many, many years we have always followed a very reasonable approach to valuations.

We have not chased valuations because money is cheap, nor have we run away from them when money is more expensive.

We pay fair value for great companies and ultimately create a strong return on those cherished investments for us -- for the Company and for its shareholders.

So I think that we are not just watching ticks up and ticks down in interest rates as we think about what the right price for acquisitions is going forward.

And so, look, whatever may come may come.

We continue to believe there is a lot of great companies that are out there.

We have a very robust pipeline and to the extent that we were able to bring some of those in to the Amphenol family, we will do so on fair terms, as we always have.

Thanks, Adam.

Very good.

I think that was our last question and once again I like to express our appreciation for all of your time here today.

Wish you again a Happy New Year and look forward to seeing everybody or hearing from everybody at least just in about three months.

Take care and have a great continuation.

Thank you.

Thank you for attending today's conference.

To access the replay of today's conference call, please dial 1-203-369-3132 for toll or 1-800-677-5817 for toll-free and use the passcode 7183.

Thank you and have a nice day.