安費諾 (APH) 2018 Q2 法說會逐字稿

Hello, and welcome to the Second Quarter Earnings Conference Call for Amphenol Corporation.

(Operator Instructions)

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

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

I would now like to introduce today's conference host, Mr. Craig Lampo.

Sir, you may begin.

Thank you.

Good afternoon, everyone.

This is Craig Lampo, Amphenol's CFO.

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

We would like to welcome you to our second quarter 2018 conference call.

Our second quarter 2018 results were released this morning.

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

And then we will take some questions.

As a reminder, we may refer on 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 second quarter with record sales of $1,981,000,000 and with record GAAP and adjusted diluted EPS of $0.91 and $0.90, respectively, exceeding the high end of the company's guidance for sales by approximately $86 million and adjusted diluted EPS by $0.05.

Sales were up 19% in U.S. dollars and up 17% in local currency as compared to the second quarter of 2017.

From an organic standpoint, excluding both acquisitions and currency, sales in the second quarter increased 13%.

Sequentially, sales were up 6% in U.S. dollars and 7% in local currencies and organically.

Breaking down sales into our 2 segments.

Our cable business, which comprises 6% of our sales, was up 4% compared to the second quarter of last year.

The interconnect business, which comprises 94% of our sales, was up 20% in U.S. dollars from last year, driven primarily by organic growth.

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

Operating income was $408 million in the second quarter.

And operating margin was a record 20.6% in the second quarter of 2018, up 20 basis points compared to the adjusted operating margin in Q2 of 2017 of 20.4% and up 40 basis points compared to the Q1 of 2018 of 20.2%.

From a segment standpoint, in the cable segment, margins were 13.2%, which is down compared to the second quarter of 2017 at 14.9%, primarily driven by an increase in certain commodity costs.

In the interconnect segment, margins were a strong 22.4% in the second quarter of 2018, which is up compared to the second quarter of last year at 22.3%.

This excellent performance is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster 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 dynamic market environment.

Through the 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 $26 million compared to $23 million last year, reflecting the impact of the higher average interest rates as well as the higher average debt levels, primarily resulting from the company's stock buyback program.

The company's adjusted effective tax rate was approximately 25.5% for the second quarter of 2018 compared to 26.5% in the second quarter of 2017.

The adjusted effective tax rate in both periods excludes the excess tax benefit associated with stock option exercises, as we have previously discussed.

The company's GAAP effective tax rate for the second quarter of 2018, including the excess tax benefit associated with stock option exercises, was approximately 24.7% compared to 20.1% in the second quarter of last year.

Adjusted net income was a strong 14% of sales in the second quarter of 2018.

On a GAAP basis, diluted EPS grew 14% in the second quarter of 2018 to $0.91 from $0.80 in the second quarter of 2017.

Adjusted diluted EPS, which excludes the excess tax benefit from stock option exercises in both periods as well as certain acquisition-related costs in the 2017 quarter, grew 22% to a record $0.90 in the second quarter of 2018 from $0.74 in the second quarter of last year.

Orders for the quarter were a record $2,025,000,000, an 18% increase over the second quarter of 2017, resulting in a strong book-to-bill ratio of 1.02:1.

The company continues to be an excellent generator of cash.

Cash flow from operations was $265 million in the second quarter or approximately 92% of net income, which was strong in particular given the higher level -- higher-than-normal tax-related payments resulting from the Tax Cuts and Jobs Act of approximately $50 million, including the first installment of the transition tax charge and foreign withholding taxes and other taxes paid on the repatriation of cash during the quarter.

From a working capital standpoint, inventory, accounts receivable and accounts payable were approximately $1.2 billion, $1.6 billion and $903 million, respectively, at the end of June.

And inventory days, days sales outstanding and payable days, excluding the impact of acquisitions, were 78, 73 and 61 days, respectively, which are all within our normal range.

The cash flow from operations of $265 million, along with the borrowings of $179 million under the commercial paper program, stock option proceeds of $30 million and cash, cash equivalents and short-term investments of approximately $33 million, net of translation, were used primarily to purchase approximately $263 million of the company's stock, to fund acquisitions of $59 million, to fund dividend payments of $57 million and to fund net capital expenditures of $78 million.

During the quarter, the company repurchased 3.1 million shares of stock at an average price of approximately $86 under the new $2 billion 3-year open-market stock repurchase plan.

At June 30, cash and short-term investments were approximately $1 billion, the majority of which was held outside of the U.S. At June 30, 2018, the company had issued approximately $1 billion under its U.S. commercial paper program, and the company's cash and availability under our credit facilities totaled approximately $1.9 billion.

The total debt at June 30 of 2018 was approximately $3.4 billion, and net debt was approximately $2.4 billion.

Second quarter 2018 EBITDA was approximately $482 million.

From a financial perspective, this was an excellent quarter.

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

Well, thank you very much, Craig, and I'd like to extend my welcome to all of you on the phone here today.

I'm going to spend a few moments just to highlight some of our achievements in the second quarter, and then I'll get into a discussion on our progress across our diversified served markets.

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

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

As Craig just detailed the company had a very strong second quarter, with sales and earnings both exceeding the high end of our guidance.

Revenues in the quarter increased by a very strong 19% in U.S. dollars and 13% organically, reaching a new record for the company of $1,981,000,000.

And then for the third quarter in a row, we booked another record level of orders of $2,025,000,000, and that represented another strong book-to-bill of 1.02:1.

Operating margin in the quarter reached a new record, 20.6%, and this is just yet another demonstration of the strength of the company's operating performance.

Then finally, as Craig said, we delivered record adjusted EPS of $0.90 in the quarter, and that grew a strong 22% from prior year.

With these results, I can just say that I'm very proud of our entire global Amphenol organization.

And at a time like this, you just see the agility and the superior execution that are clearly reflected in the company's strong results in the second quarter and, indeed, in the whole first half of 2018.

We were very pleased in the quarter to announce 2 new and small acquisitions that we completed late in June.

All Sensors is a California-based provider of high-technology pressure sensors for the industrial market with annual sales of approximately $15 million.

All Sensors represents another excellent expansion of our already strong and growing sensor offering for a variety of segments within the industrial market, including, in particular, medical applications.

Ardent Concepts is a New Hampshire-based manufacturer of high-speed socket interconnect products for advanced processors and with sales of approximately $10 million on an annual basis.

Ardent enhances our already industry-leading high-speed connector offering, in particular, for the communications and the test and measurement markets.

As we welcome these great new teams to Amphenol, we remain very confident that our acquisition program will continue to create excellent value for the company.

Our ability to identify and execute upon acquisition opportunities and then successfully bring those companies into the Amphenol family remains a core competitive advantage for the company.

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

I just want to comment that as we finished the second quarter, we remain very pleased with the breadth and the balance across our end markets.

Once again, in the second quarter, no market represented more than 21% of our sales in the quarter, and this balance is a true asset for Amphenol in any economic cycle.

In particular, this quarter, we're very pleased that we realized strong organic growth across nearly all of our markets here in the second quarter.

Turning first to the military market.

This market represented 10% of our sales in the quarter.

We had a very good quarter in military.

Sales increased from prior year by better-than-expected and very strong 23% in U.S. dollars and 21% organically as we once again drove growth across virtually every segment of the military market.

Our performance in the quarter was led, in particular, by strength in rotorcraft, vehicle, avionics and airframe, communications as well as ordinance-related applications.

Sequentially, our sales came in stronger than we had expected, rising 5% from the first quarter.

As we look ahead, we now expect sales in the third quarter to remain at these robust levels, and for the full year 2018, we now expect to achieve mid-teens growth in the military market, a very strong outlook.

Our team working in the all-important military market continues to do just an outstanding job of expanding our position in this market.

Our success is a reflection of the continued drive to develop leading-edge, high-technology interconnect solutions, which are then incorporated into a broad array of military electronics.

As militaries around the world bolster their spending, in particular, their spending on next-generation solutions, our outstanding performance has positioned us to continue to drive strong results into the long term.

The commercial air market represented 5% of our sales in the quarter, and our performance strengthened once again here in the second quarter, with sales increasing by 17% in U.S. dollars and 14% organically.

Sequentially, our sales grew slightly from the first quarter.

And as we look into the third quarter, while we expect a normal seasonal moderation in sales, for the full year 2018, we now expect to achieve a low double-digit increase compared to prior year.

We're encouraged by our strong performance in the commercial aviation market in the first half of 2018, and we remain confident in the company's overall position in the global commercial aviation market.

We continue to broaden our range of products in support of the revolution of new electronics in next-generation planes.

And we look forward to capitalize on these leading technologies for many years to come.

The industrial market represented 21% of our sales in the quarter.

Sales in this market grew by a very strong 27% in U.S. dollars and 17% organically as we again drove organic growth across essentially all segments of the industrial market.

This included hybrid bus and truck, railway mass transit, medical, heavy equipment, oil and gas, alternative energy as well as instrumentation.

And in addition, we're pleased to have realized continued benefits from our acquisitions that we've completed over the course of the last year.

Sequentially, sales were up strongly, rising by 14% from the first quarter.

As we look into the third quarter, we expect sales to moderate from these current levels due to traditional summer seasonality.

Nevertheless, for the full year 2018, we continue to expect mid-teens sales growth in the industrial market.

Our team is just really pleased with the continued strong performance in the industrial market.

Whether through our organic product development efforts or our ongoing acquisition program, we've built a very robust and diversified suite of interconnect and sensor products for the widest array of industrial applications.

And as electronics continues to transform the industrial market, we look forward to realizing the benefits of our excellent position in this important space into the future.

The automotive market represented 20% of our sales in the quarter, and we again drove strong performance in this market, with sales growing 22% in U.S. dollars, 16% in local currency and 10% organically.

Sequentially, sales grew as expected by 2% in U.S. dollars and 4% in local currency.

Looking into the third quarter.

We expect sales to remain approximately at these levels despite the summer seasonality.

And for the full year 2018, we continue to expect sales growth in the high teens, which includes the benefit of acquisitions.

We remain excited by the company's outstanding position in the global automotive market.

Our team around the world continues to expand our range of high-technology interconnect products, sensors and antennas for a wide array of applications within vehicles.

These developments, together with our ongoing strategy of acquiring companies that offer complementary technologies, has positioned us strongly for the future as carmakers continue to integrate advanced electronics into fuel-powered, hybrid and electric vehicles.

In addition, our team is accelerating their work with customers on new advanced technologies, and that includes, in particular, areas such as autonomous and semiautonomous driving.

All of this creates an outstanding long-term growth opportunity for Amphenol.

The mobile devices market represented 11% of our sales in the quarter, and our sales performance is a bit stronger than we had expected in the second quarter as volumes of certain existing programs were higher than we had thought coming into the quarter.

Sales rose by 27% from prior year as higher sales of products incorporated into smartphone and accessories were only partially offset by somewhat lower sales related to tablets and laptops.

As we expected coming into the quarter, sales decreased from the first quarter, declining by about 15% sequentially.

We expect sales in the third quarter to increase significantly from these levels as we begin to ramp up on a variety of new programs.

And given our strengthening position on several of these new programs that are currently going to mass production and, of course, as always, understanding that the mobile devices market is inherently very difficult to predict, we now expect sales in the mobile devices market to increase in the mid- to high teens for the full year 2018, a very strong performance.

Our results here in the second quarter, together with the strengthened outlook, continues to demonstrate the extraordinary abilities of our team working in the always dynamic mobile devices market.

Their reactivity in meeting the challenging and ever-changing demands from customers, all while continuing to focus on development of innovative next-generation products and manufacturing processes, has secured our leading position in this important market.

And we look forward to continuing to realizing the benefits of this position for many years to come.

The mobile networks market represented 8% of our sales in the quarter, and we are pleased that our sales grew strongly in the quarter, rising a better-than-expected 16% in U.S. dollars and 11% organically from the prior year.

Our growth this quarter was driven, in particular, by sales of our high-technology antenna and interconnect products sold direct to service providers.

Sequentially, our sales grew 14% from the first quarter.

And as we look towards the third quarter, we expect a reduction in sales from these levels.

However, for the full year 2018, we now expect a mid-single-digit sales increase from prior year.

As we discussed during last quarter's call, while we're encouraged by our stronger performance as well as our strengthened outlook, we do not yet see meaningful changes in the overall outlook for carrier spending, and in particular, we don't believe that spending on 5G systems in 2018 will be all that significant.

Regardless, our team has continued to work hard to position us extremely well for the future.

And so when that next wave of infrastructure spending does materialize, we're confident that we'll ultimately participate broadly with our wide array of antenna and interconnect products, both working with global equipment manufacturers as well as the service providers.

The information technology and data communications market represented 20% of our sales in the quarter, and in this market as well, our performance was stronger than we had expected coming into the quarter.

Our sales grew compared to last year by 13% in U.S. dollars and 9% organically, and that was driven, in particular, by growth in storage and server applications.

Sequentially, our sales grew by a very robust 15% from the first quarter, with growth in virtually all segments of the IT market.

As we look towards the third quarter, we expect our sales to remain at these robust levels.

And for the full year, we now expect to realize sales growth in the high single digits, which is a fair bit better than we had anticipated coming out of last quarter.

Our position in the IT datacom market is as strong as ever as we continue to extend our leadership in developing a wide array of next-generation products in high speed, power and fiber optics for a broad range of OEMs and web service providers around the world.

As customers continue to accelerate data center performance in order to manage the explosive growth of online traffic, we remain confident that our high-technology offering positions us strongly for the future.

Then finally, the broadband communications market represented 5% of our sales in the quarter.

Sales in this market were down by about 5% from prior year as cable operators continued to moderate their spending.

On a sequential basis though, sales rose by a bit less than expected, 11% from the first quarter.

For the third quarter, we expect a modest increase in sales from these levels.

And for the full year 2018, we now expect our sales in the broadband market to be roughly at the same level as prior year.

Despite our more muted outlook for the broadband market this year, we're still confident in the strength of our position, and we look forward to realizing the benefits of our expanded product offering in support of customers around the world who are delivering data, video and voice to consumers and businesses.

So just in summary, I just can only say that we're extremely pleased with the company's strong second quarter and successful first half of 2018 as the entire Amphenol organization has continued to execute extraordinarily well in expanding our market position while strengthening the company's financial performance.

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

Turning to our outlook for the third quarter and the full year.

While the overall demand environment is strong, there are still uncertainties and, in particular, related to trade and geopolitics.

So assuming no significant changes to the current economic and geopolitical environment and based on constant exchange rates, we now expect in the third quarter and full year 2018 the following results.

For the third quarter, we anticipate sales in the range of $1,980,000,000 to $2,020,000,000 as well as adjusted diluted EPS in the range of $0.91 to $0.93.

This represents a sales and adjusted diluted EPS increase versus prior year of 8% to 10% and 10% to 12%, respectively.

For the full year 2018, we expect sales in the range of $7,820,000,000 to $7.9 billion as well as adjusted diluted EPS in the range of $3.57 to $3.61.

For the full year, this new guidance represents now sales and adjusted diluted EPS growth of 12% to 13% and 14% to 16%, respectively, over 2017.

And in particular, this new outlook now represents full year organic sales growth of 8% to 9%, and this is a significant increase from our prior organic growth guidance of 4% to 6% as well as our original organic growth guidance coming into the year of 2% to 4%.

We're very encouraged by the company's strong second quarter results as well as our strengthened outlook.

And I can just tell you that I'm very confident in the ability of our outstanding management team to build upon these great results in the second quarter and the first half by continuing to capitalize on the many opportunities to grow our market position while also delivering strong financial performance in the second half of 2018 and beyond.

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

Our first question is coming from the line of Mr. Mark Delaney of Goldman Sachs.

Yes.

First question was on tariffs.

Adam, you alluded to it a bit in your thoughts about your outlook.

Can you help us better understand how the conversations are going with your customers?

And any shifts you're thinking about there?

And more specifically for Amphenol, given how many sites that Amphenol has in China, can you help us understand how much of your shipments may be from plants in China into the U.S.?

And is there any reallocation of your own manufacturing that you're contemplating doing?

Yes.

Well, thank you so much, Mark.

I mean, obviously, this has been a big news story here.

I think we talked about this last quarter also quite extensively.

And one thing I'm just so pleased with our team, like many things that come along over which one has no control, I mean, our team around the world looks at this and says, "It is what it is.

We're going to lean into it and really proactively deal with the situation." And I'm just so pleased when we look at our outlook and we look at the very minimal impact that these tariffs so far have on our outlook for the business.

And that's just a result of the agility of the Amphenol management team to react in the face of a changing environment.

Now what does that mean in particular?

I think you alluded to the fact of conversations and -- one of those conversations.

You can imagine that we've been extremely communicative with our customers throughout this whole process, and we continue to be so.

I mean, this is a situation where one has to just be extremely transparent and overcommunicating in order to make sure that you're supporting customers the best way you can while, at the same time, understanding that sometimes those costs have to be passed through to your partners, whether those be distributors or customers.

And our first reaction to the tariffs and the first step that we take upon those tariffs really being even threatened is to look at what we can do to mitigate the impact of those tariffs and thereby not cause harm to our customers.

And I think our team around the world has just done a fantastic job of quickly pivoting towards whatever needs to be done.

And that -- whatever needs to be done can be a whole host of things.

I mean, you can imagine with the number of products we sell to the number of different customers and the number of different markets from the number of different facilities that there's a long, long list of different tactics and approaches that one takes to mitigate those tariffs, and I don't need to go into all of the details of those.

But just let it be said that the team is doing a fabulous job of mitigating.

And then to the extent that we're not able to mitigate that, well, certainly then, that gets passed on and worked with customers to ensure that we're minimizing whatever has to be passed on but passing on what has to be passed on through pricing, surcharges and other things.

And again, there's not a one-size approach that we are taking to this.

It's very much tailor-made to the circumstances of the various products.

And our team is just doing a fabulous job of dealing with that.

Now relative to our position in China, do we import certain things from China that are impacted by tariffs?

Of course, we do, like any other company in our position.

But the other thing that I will say is you know very well our approach to manufacturing, regardless of where it is, has always been an approach that emphasizes flexibility and localization.

And so we are always making sure, to the best that we can, we're going to make the products in the region where we sell it, and we're going to make those in facilities that are flexible such that if we need to change something, we can change that something in a reasonable time period.

And so that's true.

We have a strong position in China, but it doesn't mean that we are locked into anything.

And we continue to support our customers around the world very well in those local markets.

Look, I will just say this, which is we are big believers in free trade, and we believe that, ultimately, free trade is a positive for all industries, let alone the electronics industry, which is one of the most global industries.

And we are a reflection of that global electronics industry as the global company that we are, and we are certainly hopeful and lending our voice to the process very aggressively to make sure that these tariffs are not a long-lived experiment here.

But whatever it is, it is, and we will make sure that we deal with it effectively.

And we have done so, so far.

Got it.

That's helpful.

A follow-up question on SG&A, which -- the nice SG&A leverage, I think, contributed to the record EBIT margin.

So I'm just curious how we should think about SG&A as you move through the year and to what extent some of this leverage can be sustained.

Sure.

Thanks a lot, Mark.

In regards to just SG&A and just overall profitability of the company, certainly, we're very happy and excited with the results we had in the quarter, generating 20.6% record operating margins in the quarter.

As you know, we don't look at operating margin -- we don't look at our profitability specifically from a gross margin or SG&A perspective.

We really measure ourselves -- we measure our operations on an operating margin perspective.

And certainly, whatever our operations have to do ultimately to reach those high performance bars that we set for them, they do regardless of what levers they need to pull within their businesses.

You can also imagine that every business doesn't have the same structure in regards to SG&A and gross margin.

And certain of our operations have certainly higher SG&A levels because that's what they need to run their business, and certain of them have lower SG&A levels depending on the gross margins that they may have within that business.

So I think, again, we're very happy with the conversion that we had into the second quarter.

The SG&A levels that we have is kind of -- actually, I would say it's a more typical sequential kind of growth in our SG&A if you kind of look at the growth rate versus kind of our sales rate going into the second quarter.

So I would say that, actually, there's not so much I would point out from an unusual aspect with regards to that.

But we generally view our operating margins ultimately, at the end of the day, and we're very happy with that performance.

And nothing specific to point out in SG&A from that perspective.

Our next question is coming from the line of Amit Daryanani of RBC Capital Markets.

Two questions for me as well.

One, I guess, Craig, could you just walk through the free cash flow dynamics?

I think the conversion rate has been under 50% for the first half of the year.

I think there's some onetime tax payments there, but just some puts and takes there.

And as you get into the back half, should we expect this conversion to improve back to the high 90% that you traditionally have done?

Sure.

Thanks, Amit.

As you know, we've talked about this in the past, and certainly, our goal is to drive our annual operating cash flow at a level that's higher than our net income.

And we have achieved this over many years, and we do expect to continue to achieve that.

And as I did mention in my prepared remarks, the company did make about $50 million in tax-related payments during the quarter, and this related to the tax reform that has recently occurred.

Excluding these payments, our operating cash flow in the quarter was actually above our targeted income levels -- or net income levels of over 100%.

It's well above that actually.

So we do, I would say, expect, in the full year, to have that typically strong operating cash flow over our targeted levels and taking into account the nonrecurring pension contribution that we had in the first quarter of around $80 million, in addition to the higher level of foreign withholding and other taxes we've paid as it relates to the repatriations during the year that are higher, I would say, in the first half than we would expect in the future just because of the -- some of the cash that was overseas that now we're bringing back in a more accelerated fashion.

So I would say we're very pleased actually with, ultimately, our operating cash flow performance in the first half, considering the working capital needed to support these higher growth rates that certainly we're achieving.

And I would also mention though when it comes to kind of past the operating cash flow, when we talk about free cash flow, that we did talk about this a little bit last quarter, and we do expect to have and we have had a little bit higher level of capital expenditures during the quarter, again, as we mentioned.

And we do expect to have this little bit higher level during the year but, again, within our range.

We typically talk about a 2% to 4% range of capital spending.

And this year and certainly in the quarter, we're a little bit higher, kind of at the top end of that range, maybe very slightly above.

So that essentially, I think, if you look at our free cash flow, is probably one of the areas that has a slight impact.

I think that as -- again, we usually don't talk about 2019 and beyond, but I wouldn't expect that we would continue to be at that much -- that higher level.

We continue to kind of be in the -- maybe the more middle of our normal typical range that we've been in the past, and therefore, I would believe that our free cash flow in the future would be typically strong.

But I have to say that this higher level of capital expenditures to support these really strong programs that we've won is really, I think, a testament of the strength of the company and the fact that we're able to support that and drive the strong growth that we're seeing.

Perfect.

And then, I guess, if I could just follow up.

The industrial segment, you've -- it had some really good growth for the last several quarters, and I think 2018, you talked about mid-teens organic growth.

If you step back and think of it, what seems to be driving this?

Is it an uptick in industrial spend?

Or is it more content gains and market share pickup that you guys have?

And do you see this sustain the growth level you've had in '19 and longer term?

Or was this something unique in '18 that's driving the mid-teens growth here?

Yes.

Well, I mean, I don't know about 2019, so I'm not going to comment necessarily on 2019.

But I can tell you that we're just -- that the growth this year, as I mentioned in my prepared remarks, it's very broad-based.

And so if one tries to sort of say what is going on across the industrial market, I think there's 2 things.

Clearly, there is a good macro environment overall, and I think that good macro environment overall tends to have a positive impact on industrial.

But layered on to that is a trend that is not a new trend, but it may be somewhat of an accelerating trend.

And that is the adoption of electronics into the industrial space, whether that is in trains, whether that is in factory automation equipment, whether that is in heavy trucks, in new battery technology, in medical areas, you name it, across all of those areas where we participate.

So broadly, we continue to see customers just adopting new electronics at an increasing pace and at an increasing rate of change.

And I think the reason is -- industrial is usually slow.

It is the last to tend to adopt those kind of new things because you're putting complex electronics into very harsh environments.

You think about an oil and gas drilling environment.

You think about a high-speed train.

I mean, these are not hospitable environments for delicate and advanced electronics.

But I think that the ability to package those electronics has gotten so much stronger.

Our ability and capability to enable the packaging of those electronic functions with our high-performance products is really part of that whole drive, and I think that is, across all these markets, the real trend that we have seen here.

Now is that trend going to continue in the future?

I would be very surprised if it doesn't because you're just solving a lot of problems when you think about what these electronics are doing, whether that is targeted irrigation, whether it's the tracking of trucks and all the electronics that goes along with that.

I mean, these very, very high-precision functionalities being put on to equipment that is traditionally thought of as pretty heavy to lug around is just -- it's creating a lot of value for the end customers.

But as you know, if there is, in 2019, a different macro dynamic or anything else, industrial is obviously not immune to that, but we look forward, for the long term, to continuing to participate in this broad adoption of electronics in the industrial market.

Our next question is coming from the line of Wamsi Mohan of Bank of America.

Yes.

Adam, in mobile devices, clearly seeing a history, I guess, of volatility, and you significantly increased your outlook here for the year.

Can you give us some sense of what changed in the last 90 days?

Is it design wins that have firmed up?

Is it market share, clarity on allocation?

Or do you actually see a broader market improvement?

And can you give us some sense of how that strength layers in across the back half?

Yes.

Well, we talked about it last quarter when we also saw a bit of a strengthening environment.

I would just say that as you get closer to the second half, which is when all the action is in the mobile devices market, you start to get a little bit more clarity into all those things that you described, whether that is the strength of your design-ins, the shares that you've been allocated or the volume that the customers are expecting.

And so I would guess -- I guess the best way to put it is, all of those, we've seen a little bit more of a favorable perspective on and thus, has given us the confidence to have a relatively meaningful increase in our outlook here in mobile devices.

Now in terms of the overlay in the second half, and I guess, you're asking about what the cadence would be between Q3 and Q4, I mean, we see a significant increase here in the third quarter, as I talked about in my guidance.

I don't -- what is it ultimately going to be between Q3 and Q4?

There's always a little bit of dynamic to that.

It remains a very hard market to predict even within a month or 2, let alone across 90 days.

But I think we would see that we'd have a significant increase here in the third quarter.

And then we'd see, in the fourth quarter, still some increase but maybe not quite as significant on a sequential basis as we see from the second quarter to third quarter.

Obviously, second half to first half, as usual, is going to be very strong.

Probably -- I wouldn't say that we're going to have necessarily this year quite as magnified of a second half, at least based on our current view of the market, as we had last year.

You'll recall, last year, we had a second half that was close to double what it was in the first half.

And so I think that we wouldn't expect it to be such a magnified growth in the first half.

And we saw, as I mentioned in my prepared remarks, a little bit stronger performance even in the second quarter on some of the existing programs that we're working on.

And again, that takes away from the percentage growth that you'll see in the second half.

Okay, that's helpful, Adam.

And then are you seeing any impact at your customers given shortages of some components like MLCC capacitors?

I mean, we've heard some of the EMS players start to call out revenue misses because they just don't have enough component availability.

Is that becoming a more acute problem relative to last quarter?

Well, I mean, look, we had very strong growth here and very strong results even amidst these very widely reported and real problems that people are facing with access to certain components.

And you mentioned MLCCs.

That's obviously the one that's probably the most talked about, but there seems to be a demand on a lot of different components that are out there.

Has it had a material impact or a meaningful impact on our ability or the demand of our customers to -- for our products?

Nothing meaningful.

Have there been anecdotes that we've seen?

Have we had people that have had to chase things because even we use, once in a while, some of these things in certain advanced products?

I mean, no question.

I guess we probably had more people chasing things than we had a year ago.

But it has not had any meaningful impact on either our ability to ship or our customers' desire for our products, at least so far.

I mean, it's a situation that is very broad in the industry.

But we do see a lot of customers being very sophisticated about how they're dealing with this, and I think it's something that hopefully the industry is going to work their way through.

Our next question is coming from the line on Shawn Harrison of Longbow Research.

Adam, I'm probably going to date myself, but thinking back over the past, I don't know, almost 15 years of covering you guys, I don't think I've seen as many kind of drop in orders and upside to kind of current quarter sales trends as we've seen over the past 3 to 4 quarters.

And I'm wondering maybe what's your perspective on why that's occurring.

We know the macro is strong, but are some of your competitors having problems with lead times?

Or are there other factors at work where you're consistently seeing upside in current quarter results?

Yes.

15 years is a long time.

I am actually 20 years with the company today, Shawn.

So we're both dating each other here.

That -- look, I think we've had really strong performance.

It's a positive macro environment, as we said, but I think also the momentum that we've developed with the breadth of our technologies across such a diverse array of markets has really put us in a strong position.

And that strong position ultimately gives us a great shot of winning with those customers who really need our advanced technologies.

And so I would say that -- and when you look at our performance on any comparative basis, I would say that we're probably winning a little bit more than our fair share.

And because of that strength of the technology, the reactivity -- I mean, Wamsi just asked about shortages and the ability of customers to deal with that.

I mean, you can bet that our team with their typical Amphenolian reactivity is out there responding to customers when customers are a little bit more stressed about the availability of things than they have been in the past.

And so if we can quickly step in and say, "Yes, we can get that for you.

We can ramp up capacity.

We can shift things when necessary," that, at least, has a positive image to the company.

Whether that means we're taking, particularly, business from competitors who can't ship, I wouldn't necessarily point to any specifics about that.

But I just think the overall offering that we have to customers of high-technology products available to them at the right quality, at the right cost, we're doing a good job, the team overall, and that's allowed us to capitalize on some of this upside.

That's helpful.

And as a follow-up, if I may, just the mobile infrastructure business.

Maybe geographically, where was the upside this quarter?

And then on the 5G dynamic, if we listen to Ericsson from last week, they seemed a little bit more bullish on the 5G market than maybe you are, and so I'm wondering if -- where the disconnect may lie.

Yes.

I mean, geographically, I would say that in mobile networks -- I mean, we had decent growth broadly, but I will say it was probably more of a North America-focused growth quarter for us in mobile networks in the second quarter.

Look, Ericsson's got to know a lot more than we are.

I mean, we're the tail being whacked by the dog here.

But that being said, we have a very broad position.

And in our discussions with customers, what we see right now, not that we don't see anything from 5G, but I think what I said is we don't see that as being significant or really very meaningful this year.

Is there a lot of work going on in 5G?

No doubt about it, a lot of work.

And is there a lot of systems that customers are designing to be 5G-ready?

I think we see that as well.

But ultimately, when we think about the magnitude of a next-generation mobile network's infrastructure build, and you know that, Shawn, better than I do, those can be quite meaningful.

It gets launched, and there's a big build-out that happens.

And we don't expect to see those kind of big build-outs of 5G this year.

There's test sites being built.

There's networks that are starting to be fleshed out.

There's discussions around where that's going to happen first and what those functionalities are going to be.

But ultimately, we don't see that as being significant to our results this year.

Now all that being said, I have to say, I mean, we come into -- we come out of the second quarter with certainly a more positive view of mobile networks this year than as we -- than it was when we entered the year.

And so I think that we're pleased with the performance.

We're very pleased, in particular, in the second quarter.

We grew double digits organically on a year-over-year basis, and we were able to somewhat upgrade our outlook for the full year.

So I think we feel really good about the position that we have there, and we look forward into the long term to see when those real -- when the real substance of 5G, the substance of those investments comes, we're confident we'll be positioned for it.

Our next question is coming from the line of Steven Fox of Cross Research.

Just 2 questions for me, please.

First of all, Adam, you touched on a few of these points, but I was just curious if you could direct -- address directly sort of some of the competitive outperformance.

Your organic growth is about 2x some of your larger competitors right now.

So I was curious if there was 2 or 3 things you would highlight that maybe are leading to that.

And then secondly, with regard to the tariffs, we're hearing a lot about sort of prices going up in distribution as an offset to some of these tariffs, but I was curious where the limit is on that and whether you have to manage that a little more delicately than maybe we're understanding.

Thanks so much, Steve.

I mean, look, I'm not going to speak to others in the industry, which are all fine companies, but I will speak to our organization.

I think I mentioned before we believe one of the core reasons for our outperformance is really the agility of the organization to react regardless of the environment.

I mean, if you flip it, in a bad time, what does that mean?

It means reacting on the bottom line.

It means reacting to customers when they're really in, sometimes, very difficult times.

But in a good economy like we have today, it can be just as critical to have that reactivity, the reactivity to get the product to the customer, the reactivity to make investments on behalf of the customers in a timely fashion, the reactivity to accelerate new product developments when people are so busy just making what they have in the current generation.

I mean, there's a lot that goes on there that ultimately our 110-or-so general managers around the world, this is the job that they're doing day in and day out.

I mean, they wake up in the morning, that's what they do.

When they go -- when they leave the office and head home at night, that's what they do.

I mean, it is just exactly that ability to react quickly in real time to changing needs that is one of the greatest assets of Amphenol.

And then you couple that with the technology developments of the company.

And I think, over the last decade or so, we've made just great strides in improving on the breadth and depth of our technology offering to customers.

And when you look at the acceleration of what I call the electronics revolution in really every area that we work, there is a premium put on having a technology that is truly able to enable our customers' systems to perform at these higher levels that ultimately consumers and businesses are demanding.

And this is, I guess you would say, the better mousetrap approach here.

And I think our team has developed a lot of better mousetraps in terms of getting the right product to customers for the applications that they need.

Now as it relates to tariffs, I mean, look, pricing and all of this is a very, very delicate thing.

And I mentioned earlier we are not taking just a single omnibus approach to that.

But no question, in the distribution channel, there's a lot of discussion about that and a lot of transparency that we have with our distributors.

What are, as you say, the limits of that?

I mean, there are some products where the limits are very low, and there are other products where the limits are very different.

It really depends on the nature of those products, where those products are traditionally procured from, whether those are movable or not, whether there are other mitigation measures that one can take on the tariffs and ultimately what the market will bear.

And I think by doing that not in a monolithic fashion but rather on a really -- almost part number-by-part number, customer-by-customer, application-by-application approach, you're able to much more uniquely tailor each effort towards what the market will bear, what the customers can absorb and pass on themselves or what the nature of the product is and what you can do with that product to mitigate those tariffs.

And I think that is a little bit the same as the answer to the first part of your question, which is that ability to be uniquely flexible in each instance is something that helps us a lot in dealing with a difficult thing.

I mean, these tariffs are a difficult thing.

I will tell you it's not without time spent.

Our team has spent an enormous amount of time here.

And I will get up on a soapbox for a minute and say -- talk about regulatory burden.

I mean, these tariffs are an enormous regulatory burden on business in general because of the time that you spend to manage through them to make sure that your customers are not unduly punished by those measures.

But I think our team is doing a really fabulous job in that light.

Our next question is coming from the line of Sherri Scribner of Deutsche Bank.

Adam, I was hoping to get your thoughts in -- from the perspective of the market being as strong as it is.

We're clearly in a positive economic cycle.

And you guys guided 5 of your 8 segments to be stronger for the year.

I guess, trying to parse that out, is that upside coming from the strength that you're seeing in those markets in particular?

Or do you feel that, that upside is coming from Amphenol's ability to take some share, do a bit better on those markets?

Well, thanks very much, Sherri.

Look, I think it depends is the answer, and that's sort of the answer to many things that we always say in Amphenol.

It really does depend.

I think in some of those markets, I would say that we are clearly outperforming, even the strength.

I mean, you just take a look at something like the military market.

I mean, the military market, we are expecting now kind of a mid-teens organic growth for the year, and that's just really, really strong.

I don't think that military budgets are increasing by that amount.

But what I do think is that the adoption of electronics in the military market and our participation in that adoption of electronics is very strong.

And so I guess, you could say that, yes, you have a hospitable market, but you also have, in the case of the military market at least, a very strong performance specific to Amphenol.

And I mean, I don't want to go through all 5 of those markets that you referred to.

But just let it be said that I think there's a combination across each of them of some macro strength and then some that is more unique to us.

Okay.

And then, I guess, digging into the mobile devices market.

I know we've heard from a number of suppliers that they're seeing some benefits in that market from higher ASPs and more complex products.

Do you think that some of the strength that you're seeing in the back half is being driven by that?

Or is it more share gains?

Or is it more unit growth?

Thanks.

Well, I think it's a combination of all of them.

I mean, there's no doubt about it, that as mobile devices advance through their generation, I mean, one of 2 things can happen, either they can get really commoditized and it becomes just a host for some software or it becomes more premium on the performance of the hardware.

And I think we've said for many, many, many years that, for us, we're going to participate where there's a premium on the hardware.

And the corollary to that is we believe that, ultimately, to be successful, our customers are going to have to design innovations into their products themselves, not just becoming kind of a commoditized host for certain software.

And I think we've seen that.

I think we've seen in next-generation mobile devices more functionality in the hardware and trying to push all of that into smaller packages with higher performance, more signals that are going through them, higher bandwidth of signals.

All of that can ultimately drive to more complexity and more technology that can be embedded within the products.

And to the extent that, that happens, I think we've been consistent in saying, again, for many years that to the extent that, that trend continues, we see the mobile device market as a good place to be in, and I think we're seeing that this year.

Our next question is coming from the line of Deepa Raghavan of Wells Fargo Securities.

Adam, a question for you, and Craig, one for you.

It looks like the organic growth expectations within automotive continues to be high single digits.

Is that correct, one?

And just curious, you did low double digits in first half.

And as you look into your backlog within auto, is there any moderation expected in second half, especially with Europe WLTP headwinds?

Yes.

I think -- I mean, what we talked about is our overall outlook for the automotive market in the mid-teens.

I think we didn't specifically say what our organic growth would be for the year, but I think we don't expect it to be much different than it's been here in the second quarter.

We grew in the quarter by 10% organically, so very strong.

I guess 10% would qualify as low double digits, the lowest of double digits, let me say.

As we look into the second half for automotive, I don't know that we necessarily see much of a slowdown in the second half.

I mean, the only thing is that we had an acquisition at the end of last year in the fourth quarter, so the acquisition benefit maybe towards the very end of the year will be a little bit less.

But from an organic basis, I would guess our automotive business would be pretty consistent across the year.

Okay.

Craig, one for you.

Share buybacks, that's been pretty strong in the first half.

It looks like you've taken the benefit of downdraft here, but you had to borrow to do that, obviously.

So the question is, where are you with regards to cash repatriation?

And as you continue to repatriate that, should we expect the repatriated cash to do share buybacks?

Or will that be used to pay down debt mostly from here?

Great.

Thanks, Deepa.

Yes, I think in regards to the share buyback, certainly, there's a number of factors that we take into consideration, one being, certainly, the market price of the stock and then -- as well as other cash needs in the particular period that we're looking at that.

And certainly, we may purchase more or less shares in a particular quarterly period.

We have seen a little bit more share buybacks in the first half.

As you mentioned, we did do quite a significant amount of repatriation in the first half, which has actually driven more of the buybacks that we've done, in addition to the fact that, with the tax reform just becoming effective in the first quarter, is when we really started to repatriate a majority of the cash.

In regards to the buybacks, I wouldn't necessarily signal any significant change other than I wouldn't necessarily also expect the same level in the second half that we did in the first half.

It really depends, again, based on all the factors that I mentioned.

In regards to repatriation, I would say that the first half will probably be higher than the second half by quite a bit.

In regards to our repatriation activities, certainly, we brought back a lot in the first half, and the second half will be much less than that.

But we will continue to repatriate where it makes sense from a foreign tax perspective and other considerations.

And then going forward, we'll -- from a repurchase activity, we'll see what makes sense based on, again, the cash needs from an M&A perspective or from where we think the market price seems to be.

So certainly, it's something that we really don't make the decision on far in advance.

It's really more kind of on a quarter-by-quarter basis.

Our next question is coming from the line of Will Stein of SunTrust.

We've spoken a lot about tariffs and understanding the very dynamic nature of the company.

We expect you'd manage that as well as or probably better than anyone else.

There is another sort of creeping trend that I'm hearing from industry contacts, and I wondered if you could comment on it, that relates to inflating commodity costs, in particular, resins.

And I think you mentioned this briefly in the prepared remarks.

But if you could give us any more details to your expectations for that trend to continue and in particular, your ability to pass that on to the channel.

My understanding is the channel's taking those price increases, but any comments or clarifications would be really helpful.

Sure.

I mean, I think what Craig talked about in his prepared remarks was really specific to our cable segment.

And we have continued to see, on a year-over-year basis at least, commodity costs have a more magnified impact on that business, where materials is a bigger percent of the overall cost basis.

I think that it's a little bit of a mixed bag.

I mean, this year has been very inflationary in its totality.

And I think on a year-over-year basis, it's inflationary even if some of the commodities, in particular, some of the precious metals, have pulled back a little bit from their highs over the course of the last maybe 90 -- 60, 90 days.

Maybe that balance is a bit out with some of the dynamics that you talked about with respect to the plastics.

I think, look, this is something that we just deal with all the time.

And so whenever you get commodity price increases, at least in our interconnect segment, our team is doing everything that they can to mitigate that, and to the extent they can't mitigate it, then we work with customers to see whether there is reasonable ways to pass the impact of that on to our customers.

And you can do that with varying degrees of success based on, usually, the market dynamics that those customers are facing.

And so to the extent that plastics are a little bit up and to the extent that, that's maybe balanced a little bit with metals, I mean, we don't see, right now, a real significant impact any different than we have seen a quarter ago or 2 quarters ago.

On a year-over-year basis, it is a little bit inflationary environment.

But I think our -- I think that inflationary environment is also balanced to the end demand.

And you know that well because, you, Will -- you know that well, Will, because you've followed the company for quite a while, that what really matters to us is not necessarily whether commodities go up or commodities go down, but do they go up and go down in balance with end demand.

And I think we are in a relatively healthy demand environment.

And so to the extent that there are commodity increases, that allows our customers, that allows us to pass on, ultimately, the impact of those commodity increases.

It's when there's a disconnect between them.

And as we all saw that, what it's now 7 years ago, in 2011, where the demand environment was not very robust, yet you had a very frothy commodities environment, primarily driven by financial speculation that ultimately created a real pressure on margins in 2011.

But if you look at our performance today, we're expanding margins on a year-over-year basis.

We're really reaching the highest levels of profitability in our history.

And that comes amidst what is still a modestly inflationary environment, but with a robust demand environment.

So I think that it's that matching and the consistency between the 2 that really matters to us.

And right now, we see that is pretty well aligned.

That's really helpful.

If I can squeeze a follow-up in.

You had very good conversion on the operating line this quarter, as you often do.

I think it was over 25%.

You're -- I think you're running above your long-term op margin target.

You're doing another acquisition in the sensor category, which we think is -- tends to be, long term, accretive to that.

Should we anticipate continued expansion on the operating margin line as we go forward?

Sure.

Thanks a lot, Will.

Yes.

No, we certainly -- again, we had a great quarter from a profitability perspective.

We did deliver a little bit above what our kind of long-term target is, I mean not significantly above but certainly a little bit above that.

And if you look -- we don't guide to specific margin numbers but if you kind of -- our implied guidance would.

If you actually looked at the numbers, it would actually be a pretty -- some margin expansion in the second half.

So we do expect to have some more margin expansion, but again, on a normal conversion basis, not anything step function or anything like that.

So I think that there's nothing, I guess, unusual that I would point out from that.

I think our longer-term 25% conversion is still something that we think we could achieve.

We're very happy with the results so far this year.

We do see a little bit of pressure on the overall year related to some new acquisitions that aren't quite at the level of the average of the company yet in terms of adopting the Amphenol philosophy.

But we certainly are still committed to having them achieve them and certainly optimistic there, in addition to some pressure, as we mentioned before, on the cable segment in regards to the -- their margins in terms of commodity cost impact.

But other than that, we're really converting very well, and sequentially, I think you'll continue to see that nice conversion towards the rest of the year here.

Our next question is coming from the line of Jim Suva of Citi.

One quick question for each of you.

And I'll ask them at the same time so you can take them in whatever order you prefer, but a strategy question more for Adam.

Adam, you've made now several acquisitions in the sensor area or segment of the world, starting GE sensor and then subsequent to those others.

Do you see the world of sensors and connectors merging over time?

Is that like a natural evolution?

Do you view them as separate?

And then, Craig, on the integration of the recent acquisitions, can you help us out?

Are they kind of at operating profitability that you're pleased at?

Does Amphenol bring in a lot of tools or best-in-class situation?

Or how should we think about the folding in of those from a financial perspective?

Well, thank you, Jim.

Maybe I'll take your strategy question first here.

I mean, you're correct in saying that we've now acquired quite a number of sensor and sensor-related businesses since the time we made our first sensor acquisition, which is now more than 4.5 years ago when we first acquired the Advanced Sensor Business from GE.

And I'd just tell you that we're just so pleased with the progress that we've made, both organically as well as through those ongoing acquisitions and that -- the most recent of which is this small company, All Sensors, that we acquired this quarter.

The -- to your question, is the sensor and the connector world just going to merge together?

I mean, that, I don't know.

Are we seeing within our company great value of having that total offering of interconnect together with sensors?

I mean, we certainly are.

I think the presence that we have across a diverse array of markets and to really every nook and cranny of the electronics industry, that's just a fabulous advantage for these sensor companies.

Our ability to work with customers to package those sensor solutions and -- ultimately, which need an interconnect, sometimes quite significant interconnect content within them, that has proven to be a great offering to customers.

And we've seen quite a lot of progress there with customers who really like the idea of having one throat to choke in -- with that consolidated offering.

And I think that the technology trends of the 2 types of products, sensors and connectors, I mean, they are really one and the same.

I mean, you take something like the Internet of Things where you have this just extraordinary explosion of connected devices.

And what ties those devices so many times together is the fact that they got to have -- in addition to some integrated circuit, which we're not going to be participating in, of course, they got to have a sensor, a connector and an antenna.

And when we think of the total range of interconnect products, we include in that sensors, connectors, antennas, and that creates a great proposition for customers who are dealing with unique and challenging design issues that we can many times help them to resolve.

So I think our strategy is certainly that, that is a great offering.

Whether the industry and whether every company who's in sensor is going to be in connectors and vice versa, I think that I wouldn't go so far as to say.

I mean, there's plenty of room in the industry for companies who are just going to be in connectors and plenty of room in the industry for companies who are just going to be specialized in sensors, and that -- there are many who will be very successful doing so.

But I think for our company, this has, so far, been a really good strategy.

Yes.

Thanks, Jim.

In regards to the profitability of the acquisitions, these 2 great companies are relatively small, $25 million in aggregate from an annual revenue perspective.

They're not so much different from the company average, a little bit below the company average, but they're not going to have much of a drag on the overall profitability just due to their size.

So in terms of that -- I wouldn't point out that as something that would be -- have any impact really on the profitability going forward.

We do a lot of things as it relates to other acquisitions.

And sometimes, they come in at our profitability levels; sometimes, they're above; sometimes, they're below.

And there's a lot of levers that ultimately we push, but ultimately, it's the operation's and the acquisition's job ultimately to do all of that.

We talked about it before.

We don't think about acquiring companies and having synergies or any things of that nature, but we really look at -- we work with the general managers and our groups work with them.

And they find kind of the places that they think that makes sense for that operation, and then the general managers of those operations are responsible for executing.

And historically, that's been a great strategy for us, and certainly don't see that changing in the future.

Our next question is coming from the line of Joe Giordano of Cowen.

Just a quick question on IT datacom.

What specifically is driving the shift in outlook there?

And kind of bigger picture, outside of a big recession, what can trip up the trends in that, in like data transmission?

That seems like one of the most powerful things I can kind of think of.

So what are the -- what should we be on the lookout for that could potentially change the underlying structure there?

Yes.

Well, I mean, I think our positive view of IT datacom comes, number one, because we had a really strong quarter here, and it comes from the outlooks that we're hearing from our customers.

We've been talking for a long time about the growing strength of the company's position in the IT datacom market, and that, that strength which we've developed organically as well as through the number of acquisitions and most notably, the acquisition of FCI that we made now 2.5 years ago.

And I think the strength comes from a few areas: I mean, clearly, high-speed products where we have the industry's leading solution for helping our customers manage through this flood of data traffic that they are trying to deal with.

I mean, the data traffic is just unbelievable.

And when you look at some of the drivers of that, whether that's online video, which is the most traditional driver of data traffic, I mean, which just continues to explode; online gaming, which continues to explode; and then these new applications.

And I mentioned when -- in my prepared remarks when we talked about the automotive market, while it's still a very small and nascent segment of the automotive market, this whole thought of autonomous driving and what that entails from a data perspective, it really just makes your head spin when you think about the amount of data that's being created to support an autonomous car and the amount of data that a single car is creating over the course of a day, a week and a year.

I mean, you're talking in terms of not gigabytes or megabytes but terabytes and petabytes of data that these vehicles are creating in order to map the environment that they're in.

And we're obviously at the very, very earliest stages of that kind of revolution in the automotive industry, which then has that knock-on effect of how you're going to process all that data.

And so I think that ultimately, that trend of the expansion of data is something that we're capitalizing on the near term and in the long term.

Now look, I mean, what can trip it up?

I mean, look, I don't know.

There's a lot of things that can trip things up.

I mean, you mentioned a big recession.

I -- there have been lots of dislocations in the IT datacom market.

And I think you will recall that there were a number of years where actually the overall IT market was not very robust.

We did pretty well during that time period because we quickly pivoted towards some of the service provider opportunities, the web service providers, and we were able to really transform our approach to customers in order to capitalize on where the spending still was.

But it's a very dynamic market.

You have lots of innovation, lots of start-up companies, lots of new technologies that are coming out there.

And there's no doubt about it, I mean, there's change always underfoot in the IT datacom market.

And so what could trip up the market?

Who knows, I think, is the answer.

But for us, what's important is that we've got to remain nimble enough that regardless of what dislocations come along, we'll still be able to get our leading products to the right customers who need those products.

And I think if we can keep doing that, we'll be in decent shape.

Okay.

And then last for me, on the auto side in terms of your growth, can you flesh out regionally how that played out in terms of your forward guidance?

Any kind of like secondary changes in one versus the other regionally?

Yes.

We had actually, in the second quarter, really strong performance on a broad basis.

Actually, I think, organically, it was virtually the same across each of the regions, Europe, Asia and North America.

I mean, I think when I look at our automotive business, the snapshot of it here in the second quarter, I mean, we have really transformed the regional footprint of that market today, where we used to be a business that was more than 2/3, if not 3/4 just in Europe and then the rest in North America and a little bit in Asia.

And now when I look at it, I mean, Europe is more than 1/3 but less than 1/2 and Asia is around 1/3 and North America is just a bit less than 1/3.

So it's like the balance that we've achieved across our automotive market is actually really, really satisfying for the whole team that's working in that space.

In terms of the guidance, I mean, we don't necessarily guide on a regional basis, and I wouldn't even been able to tell you what's embedded in our outlook from a regional basis.

But I don't think we see any big dislocations or big differences on the regions as we look into the second half.

Our last question is coming from the line of Sarah Linden on behalf of Mr. Craig Hettenbach of Morgan Stanley.

This is Sarah on for Craig.

Just looking at the auto growth you're experiencing and forecasting kind of moving forward more broadly, could you dive into a little bit what you're seeing in terms of content versus production gains from your customers?

And then on the content front, like what parts of the vehicle are you seeing those content increases?

Yes.

Well, thanks very much, Sarah.

I think that our growth is clearly outperforming overall the automotive production numbers, and you'll know better than I do what those numbers are.

They're very widely reported.

And I think we continue to see content.

What the number is, I wouldn't really be able to tell you exactly what percent of our overall organic growth in the quarter.

I mean, we grew 10% organically in the quarter.

I would guess the majority of that is either share gain or content because the production is not growing anywhere near that rate.

And in terms of the applications, there's a lot to list here, and I don't want to keep everybody on the phone all afternoon.

But just more broadly, we are seeing, as I talked about in the industrial market, the adoption of new electronics everywhere in the car, everywhere from new navigation and telematics systems to safety systems, to more efficient mechanisms for transmissions and engine management, braking systems, electric -- hybrid electric drivetrain systems and even the early beginnings of autonomous or semiautonomous driving systems.

So there's a lot of different applications in the car.

I mean, you look at a car today, and I had the good fortune to ride in a few of these really advanced cars more recently, and I mean, these are just data centers with wheels on them.

And it's our job to make sure that we design our products into every part of that data center on wheels to allow us to participate as these new revolutions continue.

Absolutely.

And then quickly, just touching on IT and datacom.

Do you expect to continue to see your legacy enterprise business like driving the business forward?

Or would growth be primarily driven in the hyperscale side of things?

Yes.

I mean, look, I guess, if you look over the last few years, we've seen more growth coming out of the hyperscale or the web service area.

But we continue to see a lot of efforts and a lot of new technology developments with our -- I wouldn't call them legacy, but our traditional OEM customers who are still designing really advanced equipment and marketing that on a very broad basis.

And so I think we see still good opportunities in both.

I guess that shift that we've been taking advantage of towards the web service providers is something that is not changing today.

So I suppose if one were to look forward, you wouldn't see that, that shift is going to go away.

So I guess, by definition, we'd see a little bit more -- continued more strength coming out of the web service provider.

But look, at the end of the day, I mean, we don't really care.

I mean, for us, just what's important is that customers, regardless of whether they're OEMs, web service providers or enterprises directly, that they are continuing to strive for these new equipment functionalities that can help them deal with data transfer rates expanding, as we discussed earlier.

And so it's the same job that we have regardless, to develop those leading products to make sure that we're doing our part to help the industry, in its totality, capitalize upon and manage through this real explosion of data traffic.

Great.

Well, thank you very much.

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You may proceed.

Okay.

Well, thank you very much.

And again, we appreciate everybody's time today.

I wish that everybody has a good continuation of your summer, and we look forward to speaking to everybody in the fall.

Thanks again.

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