CommScope Holding Company Inc (COMM) 2014 Q4 法說會逐字稿

Good morning. My name is Brent and I will be your conference operator today. At this time, I would like to welcome, everyone to the CommScope fourth-quarter 2014 Earnings Conference Call.

(Operator Instructions)

I would now like to turn the call over to Mr. Phil Armstrong, Senior Vice President Corporate Finance. Please go ahead, sir.

Thank you. Good morning, and thank you for joining us today to discuss CommScope's fourth-quarter of 2014 results. With me on the call today are Eddie Edwards, CommScope's President and Chief Executive Officer; and Mark Olson, CommScope's Executive Vice President and Chief Financial Officer. You can find accompanying slides for this call on our Investor Relations website.

Before we begin the presentation, I'll cover a few housekeeping items. On slide 2 you'll find our cautionary language related to forward-looking statements. During this conference call we will make forward-looking statements regarding our financial position, plans and outlook as well as the acquisition of TE Connectivity's Telecom, Enterprise and Wireless businesses that are based on information currently available to Management, Management's beliefs and a number of assumptions concerning future events. Forward-looking statements are not a guarantee of performance, and are subject to a number of uncertainties and other factors which could cause the actual results to differ materially from those currently expected.

For a more detailed description of factors that could cause such a difference, please see our 2014 Annual Report on Form 10-K that was filed today with the SEC. In providing forward-looking statements, the Company is not undertaking any duty or obligation to update these statements as a result of new information, future events or otherwise.

Also please note that all dollar figures or percentages are approximations. In addition to GAAP information, we will provide certain non-GAAP measures. We believe that presenting these non-GAAP or adjusted measures provides additional information that's meaningful to investors. Detailed reconciliations of GAAP to adjusted measures can be found in the appendix to our slide presentation.

Slide 3 is our agenda for the morning. Mark Olson will provide an overview of our fourth-quarter and full-year 2014 performance, highlight our three segments' performance, discuss balance sheet cash flow and capital structure and provide our outlook for the first quarter of 2015 and for the full year. Mark will then turn the call over to Eddie to discuss our previously announced acquisition of TE Connectivity's Telecom, Enterprise and Wireless businesses.

After Eddie's remarks, we will open the line for questions. To make sure as many participants as possible have an opportunity to ask a question on today's call, we request that you ask one question and return to the queue for any additional questions.

I'll now turn it over to Mark Olson. Mark?

Thanks, Phil, and good morning, everyone. Now let's turn to slide 4 for a summary of our fourth quarter. Fourth-quarter sales totaled $828 million, a modest decline of 2% year-over-year. Growth in the enterprise and broadband segments was more than offset by lower North American wireless sales and foreign exchange rate changes negatively affected sales by 2% in the quarter compared to the prior period.

Orders booked in the fourth quarter decreased 16% year-over-year to $766 million. Fourth-quarter book-to-bill ratio of 0.93 times reflects enterprise and broadband ratios above 1 while the wireless group was below 1. Operating income in the fourth quarter grew 27% to $76 million, compared to $60 million in the same quarter last year. Adjusted operating income, which excludes amortization of purchased intangibles, restructuring costs and other special items declined 1% year-over-year to $139 million.

For the quarter, GAAP net income rose substantially to $48 million compared to a net loss of $9 million in the year-ago period. Excluding special items, fourth-quarter adjusted net income increased 34% year-over-year to $73 million. Adjusted earnings were $0.38 per diluted share, up 27% year-over-year.

Adjusted net income and earnings per share rose mainly due to lower interest expense and a lower adjusted effective tax rate in the quarter. As you may recall we reduced interest expense by redeeming debt with the net proceeds from our initial public offering in October of 2013, and through other refinancing activities. The lower effective tax rate in the quarter primarily resulted from higher pretax earnings, the benefits of certain International tax structuring initiatives and legislation extending the R&D tax credit.

I'll now turn to slide 5 for a summary of our full-year 2014 performance. We're very proud of our outstanding performance for the year. Sales increased 10% year-over-year to $3.8 billion, reflecting growth in all three segments with significant strength in the Company's wireless segment.

During the year we delivered a 200-basis-point improvement in our gross margins year-over-year to a record 36.5%. Adjusted operating income rose 30% year-over-year to a record $808 million or 21% of sales.

Adjusted net income rose to $427 million and adjusted EPS rose to $2.23 per diluted share, up 63% and 39% respectively year-over-year. This improvement is mainly due to higher sales volumes, a favorable change in the mix of products sold, benefit from ongoing cost savings initiatives, lower interest expense and a lower effective tax rate.

I'll now discuss each of our three segments' fourth-quarter performance starting with the wireless segment on slide 7. In wireless, thanks to the hard work of our team, we have established the leading global position in merchant RF wireless network connectivity solutions and small cell data solutions. Our solutions enable wireless operators to deploy macro cell sites, metro cell sites and small cell data solutions to meet 2G, 3G and 4G cellular coverage and capacity requirements.

After substantial growth in the first nine months of the year, fourth-quarter wireless segment sales declined 9% year-over-year to $485 million. The fourth-quarter decline was primarily due to a slowdown in North America which was somewhat offset by growth in Europe and in the Asia-Pacific region. Foreign exchange rate changes had a negative impact of 2% on wireless segment sales in the fourth quarter compared to the prior year.

Wireless adjusted operating income was $84 million for the quarter, down 25% year-over-year, mainly due to lower sales volumes. As we have previously indicated, growth in our wireless business is not linear. After the aggressive pace of investment in the first half of 2014, some North American wireless operators have slowed spending. We believe this is a temporary slowdown. We are still in the early stages of global LTE deployments.

Despite the short-term volatility, we believe that the spread of data- intensive wireless devices will continue to strain wireless networks. As a result, we expect that operators will continue to invest in increasing network efficiency and capacity through cell splitting, creating a metro layer and increasing deployment of the indoor coverage layer to meet the growing demand for bandwidth.

We are also encouraged by the solid year-over-year growth in Europe, as European operators further roll out LTE and modernize existing 3G networks. And we're also pleased to see higher sales in India and the Asia-Pacific region as operators continue to enhance their existing 2G and 3G networks.

Moving to our enterprise segment on slide 8, we're the global leader in enterprise connectivity solutions for data centers and commercial buildings. Our comprehensive solutions, sold primarily under the Systemex and Uniprise brands, include optical fiber and twisted-pair structured cabling solutions, intelligent infrastructure software, network rack and cabinet enclosures, modular data centers, intelligent building sensors, advanced LED lighting control systems and network design services.

Enterprise sales increased 4% year-over-year to $213 million, primarily due to growth in the Asia-Pacific region. In the quarter, enterprise adjusted operating income increased 31% year-over-year to $43 million and represented 20% of sales.

As we have previously discussed, our enterprise segment is the business most impacted by the overall economic environment and information technology spending. While we expect uneven global economic recovery, we have seen signs of modest improvement in our business.

We remain confident in our long-term growth opportunities as capacity requirements continue to expand and cloud-based services and applications are driving growth in data centers and corporate campuses. We believe that large organizations will have an ongoing need for next-generation enterprise connectivity solutions to meet the ongoing demands for bandwidth and intelligence in networks. Given our capabilities and experience, we believe CommScope is well-positioned to capitalize on these growth opportunities.

I'll now turn to slide 9 and discuss our broadband segment. We are a global leader in providing cable and communications products that support the multi-channel video, voice and high-speed data services provided by multiple system operators or MSOs. We are a leading global manufacturer of coaxial cable or hybrid fiber coaxial networks and a leading supplier of fiber optic cable for North American MSOs.

Fourth-quarter broadband segment sales increased 20% year-over-year to $131 million. The growth was driven by increased investment in North America as cable operators pushed fiber technology deeper into their networks and invest in enhancing the quality of their video and broadband offerings.

Adjusted operating income rose substantially year-over-year to $13 million or 10% of sales in the quarter. The increase was driven by higher volumes and the benefit realized from ongoing cost-reduction initiatives.

After a challenging 2013, we are proud that the broadband team delivered on its objective to return to historic levels of profitability. The broadband team achieved double-digit sales growth in the quarter and more than doubled adjusted operating income to $42 million for the full year. We continue to work diligently to position the broadband business for success.

Next I'll discuss cash flow and liquidity on slide 11. During the fourth-quarter we generated $116 million of adjusted free cash flow. Adjusted free cash flow was down somewhat from the year ago period due mainly to the timing of cash interest payments resulting from our refinancing activities earlier in the year. For calendar year 2014, adjusted free cash flow rose 36% year-over-year to $346 million.

We ended the fourth quarter with $729 million in cash and cash equivalents and had $322 million available under our credit facility, which combined with our cash balance provided total liquidity of $1.1 billion.

On slide 12, I will highlight our existing capital structure. Since our take private transaction in January of 2011, we have reduced our net leverage ratio from 5 times to 2.3 times by substantially growing earnings and free cash flow. During 2014, we also refinanced higher cost debt resulting in a reduced annualized interest expense of $23 million.

We expect to continue generating strong free cash flow during 2015 and intend to use our excess cash to minimize the amount we need to borrow to support the planned acquisition of TE Connectivity's Telecom, Enterprise and Wireless businesses.

I'll move to our first-quarter and full-year 2015 outlook on slide 14. Our guidance excludes the impact of the planned acquisition, amortization of purchased intangibles, restructuring costs, transaction and transition costs and other special items.

For the first quarter of 2015, we expect sales of $800 million to $850 million; adjusted operating income of $135 million to $155 million; and adjusted earnings of $0.33 to $0.38 per diluted share, based on a weighted average diluted share count of 192 million shares. For calendar year 2015, we expect sales of $3.65 billion to $3.8 billion; adjusted operating income of $725 million to $775 million; adjusted earnings per diluted share of $1.95 to $2.05, based on a weighted average diluted share count of 194 million shares; and strong free cash flow.

As previously discussed, our outlook reflects a temporary slowdown in North American wireless carrier spending, the negative impact of foreign exchange rate changes, and ongoing product line trimming in our broadband segment.

And now I'll turn it over to Eddie Edwards. Eddie?

Thanks, Mark. On January 28, we announced that we planned to acquire TE Connectivity's Telecom, Enterprise and Wireless businesses. On slide 16 you can see the compelling strategic and financial rationale for the transaction. A

s you all know, the demand for bandwidth grows globally every day. We believe this transaction will enable us to capitalize on that increasing demand and accelerate our strategy to drive profitable growth by allowing us to enter into attractive adjacent markets.

We also believe the combined Company will be ideally positioned to take advantage of changes in communications infrastructure and leverage long-term global bandwidth growth. Given the secular demand for fiber, TE Connectivity's Telecom fiber portfolio is expected to be a driver of growth across CommScope's existing and future businesses.

There are four fundamental reasons we believe these businesses are an excellent fit for CommScope. First, with the new businesses, CommScope will be a more diversified Company. This includes products and solutions in geographic reach. With TE Connectivity's strong presence in Europe, Middle East, Africa and Asia-Pacific regions, the combined Company is expected to meaningfully expand its footprint and global competitive position.

Second, this is a transaction that creates significant complementary market opportunities. Combining the product focus and scale of both Companies will enable us to expand our offerings and our ability to serve both new and existing customers.

Additionally, we are excited that this combination significantly expands our platform for innovative solutions. With these innovative solutions, CommScope aspects to solve more customer communications challenges while providing greater opportunities to its business partners.

TE Connectivity delivers relationships with many blue-chip customers and grants us access to approximately 7,000 patents and patent applications around the globe. And we will have access to additional relevant patents through a cross-license with TE Connectivity, the corporate parent. As a result, we will have a better platform for innovative solutions and we believe better positioned to become a global leader in fiber technology.

And finally, there are significant cost synergy opportunities as a result of this transaction which will enable us to build a stronger financial profile for our combined Company. From a financial perspective, we believe the acquisition will be significantly accretive. We have estimated approximately $150 million in run-rate synergies within three years and on a pro forma basis, we will become an entity of approximately $5.8 billion of revenue and an adjusted EBITDA of approximately $1.2 billion.

As a result, we also expect accretion to be in excess of 20% to CommScope's adjusted earnings by the end of the first full year after closing, excluding transition purchase accounting costs and other special items. We're very excited about this acquisition and look forward to complementary opportunities and improved diversification that we believe will contribute to overall revenue growth in the years to come. As a reminder, this transaction is subject to customary closing conditions and regulatory approvals, including antitrust approvals, and is expected to close by the end of the year.

Before we open up the call for Q&A, I want to thank the global CommScope team for their strong performance in 2014. It was an outstanding year. We delivered 10% sales growth, generated record gross and operating margins, increased adjusted earnings per share by 39%, and took steps to broaden our position as a leading infrastructure provider and meet the growing demand for bandwidth.

Now we will be happy to answer any questions. So, Brent, I turn it over to you.

(Operator Instructions)

Amir Rozwadowski, Barclays.

Was wondering if we could talk a bit more about the demand trajectory in the US? Obviously we've seen the major carriers report right now. And certainly, with the exception of AT&T, it does seem as though the rest of the carriers are pointing to up and to the right when it comes to spending on their wireless networks for the course of 2015.

As we think about the reset in your expectations, how should we think about the trajectory from a macro cell investment perspective as well as a lot of the chatter that we've been hearing about increased spending towards small cell? Thanks a lot.

That's more than your one question but we'll try to address all of that. I think the positive thing about CommScope is that we are not a one-continent player. We deal in wireless around the globe. You're aware of and it's just not the North American continent that drives our business.

However, it is important and I think as all of you know, in the fourth-quarter we did see a slowdown in spending from several of the operators. And some of that slowdown continues into the first quarter. We expect, as budgets are released that we'll see relief in that and that will come in the near term. But as we said in our calls at the end of last year, and I think in any of our conversations, this will be a more backend-loaded plan at almost the opposite of what we saw last year.

And so we're not concerned as to where the trajectory is. We think the overriding demand for bandwidth, both in wireline and wireless, is going to be the key driver for what we do. We are a connectivity Company. People are going to have to be connected in some form or fashion.

And the advent of small cells, I think you mentioned as your last part of your question, that is continuing. I don't think you read much about it in the papers today. We've addressed the small cell need in building in one way. There's a lot of different ways to do that: Pico, Temco, remote radio heads and the like. So there are a lot of offerings by a lot of our competitors out there, so it's a highly competitive market. We're happy to be a leader in that marketplace. And look forward to competition in the future.

Great. Thank you very much for the incremental color.

Brian Modoff, Deutsche Bank.

Another question around can you talk about where you could be surprised in terms of the guidance for the year on the positive side? Geographically, such as Europe, which appeared to be a little better in the quarter relative to the rest of the markets? And then on products, which categories you think could be catalysts for upside? Would it be the [IM] product, would it be something in the data networking side? Give us a little color around that. Thanks.

Sure, Brian. I think we do have puts and takes in each of the geographic regions. We would probably point to Europe as maybe having signs of both of those. We see good continued growth there. We had a very strong quarter in the fourth quarter and I think that was the fourth consecutive quarter of very strong double-digit growth in wireless in Europe. So we look at that as an area of opportunity.

The flipside to that could be currency movements. And so as some people project perhaps the euro reaching parity with the dollar, who knows? That could be a headwind for us. So there's both sides of the same coin there.

Outside of Europe, when you think about Asia, we've got very good project activity in a number of the developing countries there. We pointed to Myanmar in the past; Indonesia would be another good example.

So most of these are significant projects that will span a period of more than one year and the timing of those, how fast they come up and how fast they roll off, can create either upside or down within any given period. So we have a balanced view, we think, in the guidance that we've given for 2015 that takes most of that into account.

Okay. Thank you.

Rod Hall, JPMorgan.

Two questions, if I can. One and a bonus. The first one would be with respect to ION-E. I wondered if you guys could comment. I know you're launched in the US now. Can you comment on what the demand trajectory looks like in the US, how you expect that to ramp through the year?

And then the second question I've got for you is with regards back to North America, it's more a clarification, I guess. You guys said you think that this downturn is short-term. How would you define that and what kind of visibility do you think you have for the latter part of this year? Do you think it's pretty certain that they turn up spending by the end of the year or do you think it might push on into 2016? Thanks.

Okay. On the ION-E question, I think, as we've described during the course of last year, we introduced ION-E about a week ago, a year ago at Mobile World Congress and so since that time we have been in the process of approvals. That's the first thing you have to do. You have to be able to connect to these carriers and you have to make sure that they support your product.

So we started that process in Europe with four different customers. We have trials underway. We have commercialized with one of the carriers already. They are very enthusiastic about what they've seen in throughput and capability of the ION-E product. The process of approvals in the US has gone somewhat slower and we didn't start that process until later in the year and we're still underway in organizing trials and getting those underway for approval.

Had a lot of conversations with the customers here as to what the capabilities our. And the people that worked with the ION or the other products that we have on a day-to-day basis are well versed in what it's doing. But we do have to go through the process of their approvals and their labs and that will be done during the course of the first -- let's say late first quarter, early second quarter and then we have to go out into the regions and sell it. Being specified is one thing.

So we would expect during the course of the last part of the year, you would see a ramp of sorts. We're not sure as to what that pace is going to be. But we're still as enthusiastic as ever as to what its capabilities are, the ease of deployment, and the versatility it has across all the current cellular spectrum in one box, only with software adjustments, no hardware to be bought. 12 SKUs, a great vehicle for us to sell from. So very, very pumped up.

And we think about it as we exit the second half of the year, this is going to be a prime seller in that marketplace, either through our wireless business, or through our enterprise business of which this product is geared toward. Your question as to short-lived or longer term or whatever, it's not an exact science in understanding what your customer is going to buy and the forecasting capabilities of many leave a lot to be desired for us, a manufacturer. If we had a linear customer base, it would be grand, but the wireless business is the opposite of that.

As I said earlier in the question that Amir asked, the budget process is not yet released. We would expect that sometime in the next four weeks or so. We expect then that some of the larger carriers would start their escalated ordering in the back end or middle to back end of the second quarter.

That's how we've planned our year. We see nothing right now that is different than how we planned. How it comes as preciseness as far as revenue is yet to be determined, but we've seen nothing that gives us concern about how the year will roll out. We're very bullish, I think as I've said, and we've all said during the course of any conversations, as to what the drivers of our business our across all those segments and that's the enabling bandwidth utilization.

There is nobody talking less or using their smartphones any less than they did yesterday. It's going the other way. And we think we're well-positioned in a market that has growth opportunities for the long term.

I think the other thing that's important is that we serve the carriers on a global basis and so North America, while very important to us, is not the only customer set we have.

Great. Thank you, Eddie.

Jess Lubert, Wells Fargo.

Maybe just a clarification first, can you help us understand the currency impact embedded in your full-year outlook? And then the question is it seems like your business in Europe was pretty healthy. You talked about the sequencing in the US. Can you provide some detail regarding what you're seeing with respect to the pace of LTE builds in Europe, how that compares to what you saw a few years back in the US? Are you seeing actions by some of the first movers there spur other operators to spend a little bit more?

And if you could help us understand how you expect European demand to play out for the year, I think that would be helpful. Thanks.

Sure, Jess. I'll take the first part and then I'll let Eddie help out with the second. But from a foreign exchange rate standpoint, in the range of 70% to 75% of what we sell around the world we sell in dollars, so we are exposed to the remainder across a variety of currencies and the dollar has strengthened, of course, against all of those over the last period of months.

And so we have that built into our outlook for 2015. And we would expect broadly in the range of the same type of impact that you saw in the fourth-quarter. So about a 2% or so impact using today's rates, as far as pressure on 2015's revenue.

And then while you didn't ask this question, I would also point out that within our broadband business, we are pruning, or continuing to, certain product lines that, not unlike what we did in the wireless business a couple of years ago, trading off topline growth for bottom- line profit. And that will put approximately another 1 point of topline pressure. But we've managed through these things before as far as FX.

Most of what we manufacture, we do so in local currencies. So we have a very good natural hedges in place. But it will have a little bit of impact on us as we see 2015.

Okay. In the case of wireless you asked about Europe and it did grow at a faster pace than what the rest of the world did. I think something close to 30%, 28% I believe is the exact number. That pace is continuing. Your question about does one spur the other? Absolutely.

A company like Everything Everywhere, which is full LTE, an early adopter there. Competition breeds competition, and I think they have been an influencer there, but the larger companies as well, we're seeing a lot of activity across the entire continent. It's not just Europe. Indonesia right now is a very strong market for us. We're seeing a lot of activity there. So that's the great thing about our position being diversified. We're able to attack the markets outside of our home markets.

And just a follow-up there, I was hoping you could maybe either touch on seasonality or the sequencing you'd expect through the year? Do you expect that growth to be steady Q1 to Q4? Do you expect it to be more second-half weighted? Any thoughts there?

I think as I said earlier, the way our plan looks, is the first half will be slower than the second. We'll see a trend toward Q3 and Q4. Historically, we would have had cycles different than this, but the buying patterns and deployment of networks has changed a lot.

And so I think the years are all different right now. So what we see now is the second half will be strong. The first half will be similar to what we saw in the second half of last year. And that's what we said when we first announced the TE acquisition. I think nothing that we're seeing today is any different than that.

Thanks, guys.

George Notter, Jefferies.

I wanted to ask about inventory correction. I know that was part of the discussion going through Q4 and is that the piece here that's motivating more the backend loading on wireless over the course of this year? Are you still working through inventory that's out there? And how do you get comfortable with how much inventory is out there relative to what you might have shipped over the last few quarters? Thanks a lot, guys.

We're not going to talk about what might be in the channel of our customers. There is some there. What we said is that it's not something that's going to damage us at all. It will slow. That's part of the slowness, I think, in the antenna part of wireless business. But it's not something that concerns us over the long term. It's just one of those cycles as preciseness of how deployments are done is imprecise. And so this is just one of the things that we get paid to deal with on a daily basis and our people are very good at it.

So we have a heavy demand in that product line right now, serviced by the rest of the world. So it's a thing. It's something that we adapt to on a daily basis.

George, one of the things we haven't commented on is the impact of the $45 billion Spectrum [option] in the US as well as M&A activities that US carriers are engaged in. And so coming off of what was really a torrid first half of last year, we think digesting that torrid build pace, together with Spectrum option and M&A activity is more the driver behind the temporary first half slowdown here that we've been talking about and we expect to see it return to normalcy in the second half in US.

I think, George, a little bit clarification as to what we are versus maybe others, we have the ability to ramp and to slow down effectively. I think our large-scale customers appreciate that capability, that if they have a need, we can service it and we can support the lack of need and adapt to it. So that's the strength of our Company, it's the strength of how we manage our business on a daily basis. And I think we're well-positioned for whatever may come.

Got it. Thank you.

Sure.

Shawn Harrison, Longbow.

Just a quick clarification and then more of a question on enterprise. The tax rate assumed in the guidance for the year. And then secondarily just on enterprise, maybe if you could talk about the geographic growth expectations you have for 2015? You seemed a lot more positive internationally than the domestic demand picture, at least when commenting on fourth quarter. How does that project out as we look at 2015?

From a tax rate standpoint, Shawn, last year in the fourth quarter we had an unusually high rate in the fourth quarter of this year. A little bit unnaturally low, but what we expect for the full year would be broadly in the range of 35.5% to 36.5% for 2015. So we're pleased with being able to reduce that rate by nearly 300 basis points last year. The pace of our repatriation activities to service debt is one of the biggest drivers, but 35.5% to 36.5% is what we would guide you to for 2015.

I think in the case of what we see as growth, I think we're seeing the general growth around the globe. In the case of larger deals, that's good to see. I think as you listened last year, we'd say the deal sizes are getting smaller and the final traveling through the funnel is getting longer.

I think we're starting to see a more normal pace as the larger transactions are starting to come back, have been of late, the last several weeks. So we believe by that we do see growth in enterprise from the core business as well as the emerging businesses that we bought during the course of the last couple of years. So it's widespread. I think our distribution partners see a better year this year than what they saw last year. So that's a positive for us as well.

Thank you very much.

Simon Leopold, Raymond James.

I wanted to get two quick clarifications on numbers you've given us before. And then a question about some expense issues. In terms of the two clarifications, in the past you've talked about the DAS being business being about 20% of wireless and within enterprise, data centers being about one-third. I just want to see if that was the case in the fourth quarter, as well as your thoughts on the outlook for those kind of contributions.

The other topic was I wanted to see if you could quantify or give us some sense of what's happened in terms of your COGs affect on lower oil and copper prices, how to factor that in and how you're thinking about that within the model. Thank you.

Sure. To address your first question, Simon, you're correct that about 20% of our wireless business is in our small cell DAS offerings. And that is approximately the same ratio in the fourth quarter as it has been over the last period of time. Within enterprise, again, the one-third being data center, two-thirds being more the traditional LAN IT space, that relationship has, again, held here in the fourth quarter.

As far as the impact of oil prices on -- we do buy polys, resins, other things that can be oil-based, but it has no appreciable impact on our results.

And copper as well?

Copper, it moves up and down. Typically we have a lead lag, that if there is any impact, it would be very temporary, but we aren't a copper toller. We sell solutions. And so we don't have any discrete adders or subtracters for copper in any of our commercial offerings.

I think the other important thing, Simon, is that copper is becoming less and less important as a raw material for us versus what you would have seen two or three, four years ago.

Great. Thank you. That's what I was looking for.

Mark Delaney, Goldman Sachs.

I was hoping you could help us understand a little bit more about what's driving the margins in the first-quarter guidance? It looks like the operating margin guidance for the first quarter is up, maybe, 70, 75 basis points versus the calendar fourth quarter on pretty similar revenues. So what's driving the margin uplift this quarter?

Well, on a sequential quarter basis, Mark, we can have a product mix that will alter a bit geographic mix, also on a sequential quarter basis can move the needle a little bit. But there's no material change in what our expected performance is in the fourth quarter from an overall margin standpoint compared to the fourth. Nuances due to product mix and geographic shift.

Okay. If I could ask one follow-up, Mark, I think relative to the proposed TE deal you mentioned that tax savings would be one of the potential accretive drivers to your model. As you go farther along with the transaction, is there any update about how much the potential tax benefit could be if you're able to close the TE deal?

No. At this point, Mark, we would give you the same outlook. There's still a lot of work to be done left around purchase price allocation and the tax deductible intangibles that will come from that transaction and where it shakes out geographically. But we do expect that out of the $3 billion of purchase price that in the range of $1.5 billion plus will become tax-deductible over a 15-year type. And that over time we will see downward pressure on our tax rate as a result of that.

Thanks very much.

(Operator Instructions)

Mark Sue, RBC.

This is actually Spencer Green for Mark Sue. You've seen broadband and it's shown some really nice sequential year-over-year improvement in the last few quarters. Can you speak to a little bit of about sustainability of trends in that segment, how industry consolidation could impact that? And also how to think about the business makeup post-TE relative to today's business maintenance?

Okay. I'm going to answer the last one first. We have not yet decided how businesses roll out. We're in the process of doing that. And over the course of the next several weeks, we will be working on that and we'll certainly let our employees know and let the public know as necessary.

The first question? Broadband. During the course of the year we've talked about the expectations of broadband and recovery from the single-digit margins that we've seen. And we had a plan underway that was a multifaceted. But two things, we're looking at the geographies of where we sell and the margin affected there.

The other is to look at the products that we sell across the Company, across the broadband business. And the ones that we really needed to continue or stop or find a different way to sell them, meaning indirectly as opposed to directly. So our guys started upon a process of doing that. And as I've said, they virtually accomplished what we were set to do.

During the course of 2015 we do expect revenue lost because we will continue in some geographies and finalize the pruning of products, so that's built into the plans that Mark talked about earlier. And so we expect that trend of double-digit operating income will continue. And our guys have done everything we've asked. And we expect that to go forward.

I think, Spencer, you may have also alluded to the anticipated impact of the Comcast Time Warner merger. And if you use history as a gauge, typically what's happened -- and both of those, of course, are very good customers of ours, that there can be a temporary pause while the merger is digested and then typically what has happened is a return to spending in earnest following a brief pause. But we don't see it having a material impact on our results this year.

Perfect. Thank you.

Thank you. We have no further questions in the queue at this time. I'd like to turn the call back over to Eddie Edwards for closing remarks.

Okay. We thank you for your continued interest in CommScope. We are very excited about our year following. It's a new one now, so we're going to work hard to make you feel good about us on a going-forward basis.

We're very excited about this acquisition. We look forward to getting a whole bunch of new partners to work with us. It's a strong, talented team, a great customer relationship in growing markets. We think it's going to make our Company better for all, including both our lenders and our investors. So we welcome everybody. So we'll talk to you next time.

Thank you. This concludes today's conference call. You may now disconnect.