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    Amphenol Corp (APH)

    Amphenol Corporation is a leading global designer, manufacturer, and marketer of electrical, electronic, and fiber optic connectors and interconnect systems, antennas, sensors, and sensor-based products, as well as coaxial and high-speed specialty cable . The company operates through three main business segments: Harsh Environment Solutions, Communications Solutions, and Interconnect and Sensor Systems . Amphenol serves a diverse set of end markets, including automotive, broadband communications, commercial aerospace, defense, industrial, information technology, and mobile networks .

    1. Communications Solutions - Offers a range of connector and interconnect systems, including high-speed, radio frequency, power, and fiber optic products, along with antennas for markets such as information technology, mobile devices, and broadband communications .
    2. Interconnect and Sensor Systems - Provides sensors, sensor-based systems, connectors, and value-add interconnect systems for automotive, industrial, and aerospace markets .
    3. Harsh Environment Solutions - Focuses on ruggedized interconnect products for industrial, defense, commercial aerospace, automotive, mobile networks, and information technology and data communications markets .
    Initial Price$67.74July 1, 2024
    Final Price$63.62October 1, 2024
    Price Change$-4.12
    % Change-6.08%

    What went well

    • Amphenol achieved record adjusted operating margins of 21.9% in Q3 2024, reflecting strong execution and the ability to maximize profitability on strong growth, especially in IT datacom and defense markets.
    • Strong positioning in the AI-driven IT datacom market, with a broad customer base across web service providers, OEMs, and chip companies, capturing more than their fair share of AI-related demand.
    • Resilience and ability to outperform in the automotive market, with continued content gains in next-generation drivetrains, electronics, antennas, sensors, and capabilities to fulfill offerings on a global basis.

    What went wrong

    • Declining sales in the European automotive market, with sales in Europe decreasing from prior year, and overall automotive sales only growing by 4% in U.S. dollars and being flat organically. ,
    • Weakened trends in the European industrial market, with management noting that their view of trends in Europe are "probably a little more muted than maybe they were a quarter ago", and observing an "incremental tick down in Europe".
    • Acknowledgment of inevitable market cycles, with management stating "we know that business goes in cycles", indicating potential future downturns in currently strong markets like IT datacom and AI, which could adversely impact future performance.

    Q&A Summary

    1. AI Contribution to Growth
      Q: How much of growth came from AI vs non-AI?
      A: More than half of our year-over-year growth in IT datacom was from AI-related products, with AI contributing similarly to sequential growth. The underlying IT datacom market also showed very strong growth.

    2. Record Margins and CIT Impact
      Q: What led to margin strength this quarter, and how is CIT performing?
      A: Operating margins reached a record high due to strong execution and maximizing profitability on robust growth. CIT's margins are still improving and were not a significant contributor to margin improvement this quarter, but we are confident they will reach company average over time.

    3. Elevated CapEx Levels
      Q: How long will elevated CapEx levels continue?
      A: Elevated CapEx will continue for the next couple of quarters to support significant growth in IT datacom and defense markets. We target CapEx at 3%-4% of sales over the medium and long term, and nothing structurally has changed regarding our capital spending needs.

    4. AI Customer Base Breadth
      Q: Discuss your customer base breadth in AI deployments.
      A: We have an outstanding breadth of offerings into AI across the entire stack, working with web service providers, OEMs, and chip companies. This comprehensive approach positions us strongly to capture more than our fair share of AI-related opportunities.

    5. Order Visibility and Duration
      Q: How much visibility do you have around these orders?
      A: We have seen very strong book-to-bill ratios, particularly in IT datacom, with some order aperture extending a bit longer to give us comfort in making necessary investments. The vast majority of orders are fulfilled within a couple of quarters.

    6. Automotive Business Outlook
      Q: Is the market constraining your automotive growth potential?
      A: Despite dynamic market conditions, we continue to outperform by gaining content and enabling new applications. Though Europe faces challenges, we see robust growth in Asia and North America, and we are confident in our position to drive growth above market levels.

    7. Mobile Devices Market
      Q: What drives high single-digit growth in mobile devices?
      A: Our team has done a fabulous job, with content in products expanding. Innovations in connectors, antennas, and mechanisms contribute to growth. However, the market remains volatile and dynamic, and we are cautious in forecasting future quarters.

    8. Industrial Market Outlook
      Q: Are there any further green shoots in industrial markets?
      A: We saw some sequential growth, with strong performance in North America and Asia, but Europe has moderated due to challenges in demand, particularly tied to the automotive industry. Our team is navigating these dynamics and focusing on opportunities in other geographies.

    9. Andrew Acquisition Update
      Q: Does earlier closing mean no antitrust issues?
      A: We never thought there would be any meaningful antitrust issues, but we're encouraged by how the process is going, allowing us to expect closing in the first quarter instead of the first half.

    10. Managing Cycles and AI Investments
      Q: Can AI investments scale to other markets, and how do you prepare for slowdowns?
      A: Our culture emphasizes agility and flexibility, always looking to expand technologies into new applications. We maximize performance during strong cycles and moderate impact during downturns, ensuring stability across market fluctuations.

    11. Aerospace Guidance and Strike Impact
      Q: Does aerospace guidance include strike impact?
      A: Our guidance incorporates all information from customers, including any impacts from ongoing strikes in the aerospace market.

    12. Organic Orders by Verticals
      Q: Comment on organic orders and vertical strengths.
      A: We don't specifically discuss organic orders by verticals. Our book-to-bill reflects the total performance, including acquisitions, and we focus on overall execution across all businesses.

    NamePositionStart DateShort Bio
    R. Adam NorwittPresident and Chief Executive Officer2009R. Adam Norwitt has been with Amphenol for approximately 25 years. He has served as President since 2007 and CEO since 2009. Previously, he was COO from 2007 to 2008 and held various other roles .
    Craig A. LampoSenior Vice President and Chief Financial Officer2015Craig A. Lampo has been the Senior Vice President and CFO since 2015. He was Vice President and Controller from 2004 to 2015 and Treasurer from 2004 to 2006. He joined Amphenol after working at Deloitte & Touche and Arthur Andersen .
    Lance E. D’AmicoSenior Vice President, Secretary, and General Counsel2016Lance E. D’Amico has been Secretary and General Counsel since 2016 and Senior Vice President since 2019. Before Amphenol, he held executive roles at UTi Worldwide Inc and Element K Corporation .
    William J. DohertyPresident, Communications Solutions Division2022William J. Doherty has been President of the Communications Solutions Division since 2022. He previously served as Senior Vice President from 2018 to 2021 and held various other roles since joining Amphenol .
    Luc WalterPresident, Harsh Environment Solutions Division2022Luc Walter has been President of the Harsh Environment Solutions Division since 2022. He was Senior Vice President from 2004 to 2021 and has been with Amphenol for approximately 40 years .
    David SilvermanSenior Vice President, Human Resources2019David Silverman has been Senior Vice President, Human Resources since 2019. He was Vice President, Human Resources from 2014 to 2018 and has been with Amphenol for approximately 17 years .
    Peter J. StraubPresident, Interconnect and Sensor Systems DivisionJanuary 1, 2024Peter J. Straub will be President of the Interconnect and Sensor Systems Division starting January 1, 2024. He was Vice President and Group General Manager of the Sensor Technology Group from 2019 through 2023 .
    1. Despite your strong overall operating margins reaching a record 21.9% in the third quarter , the margin improvement was not significantly contributed by the CIT acquisition, which is still on its journey to reach company average margins ; can you provide more specifics on the timeline and actions planned to bring CIT's margins up to par, and what risks might prevent you from achieving this?

    2. You've indicated elevated capital expenditures in the third quarter and expect continued elevated levels in the fourth quarter to support growth in the IT datacom and defense markets ; given the potential for demand volatility in these markets, how are you mitigating the risk of overinvestment, and what return on investment are you targeting for these capital projects?

    3. With a strong book-to-bill ratio of 1.09:1 driven by large orders in IT datacom, defense, and commercial air, and acknowledging that some of these orders have a longer aperture to provide assurance for capital investments ; how confident are you in the stability of these orders, and what mechanisms are in place to protect against potential order cancellations or delays?

    4. While IT datacom saw exceptional growth of 60% year-over-year driven by AI-related demand , how are you addressing the potential concentration risk if this demand slows down, and what strategies are in place to diversify your revenue streams within this segment?

    5. Given the expected decline in automotive sales in the fourth quarter and only mid-single-digit growth for the full year 2024 , can you elaborate on the challenges you're facing in this market, particularly in Europe where sales declined, and what specific initiatives are you implementing to reinvigorate growth in the automotive segment?

    Program DetailsProgram 1Program 2
    Approval DateApril 27, 2021 April 23, 2024
    End Date/DurationApril 27, 2024 April 28, 2027
    Total additional amount$2,000.0 million $2,000.0 million
    Remaining authorization amount$0 million $1,669.4 million
    DetailsCompleted Ongoing

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      • Q4 2024:
        • Sales: $3.950 billion to $4.050 billion (19% to 22% increase compared to Q4 2023) .
        • Adjusted Diluted EPS: $0.48 to $0.50 (17% to 22% increase compared to Q4 2023) .
      • FY 2024:
        • Sales: $14.855 billion to $14.955 billion (18% to 19% increase compared to 2023) .
        • Adjusted Diluted EPS: $1.82 to $1.84 (21% to 22% increase compared to 2023) .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      • Sales: $3.7 billion to $3.8 billion (16% to 19% growth compared to Q3 2023) .
      • Adjusted Diluted EPS: $0.43 to $0.45 (10% to 15% growth compared to Q3 2023) .
      • Adjusted Effective Tax Rate: 24% for Q3 and full year 2024 .
      • Interest Expense: Approximately $45 million for Q3 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024
    • Guidance:
      • Sales: $3.24 billion to $3.30 billion (6% to 8% growth compared to Q2 2023) .
      • Adjusted Diluted EPS: $0.79 to $0.81 (10% to 13% growth compared to Q2 2023) .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024
    • Guidance:
      • Sales: $3.40 billion to $3.1 billion (2% to 4% growth compared to Q1 2023) .
      • Adjusted Diluted EPS: $0.71 to $0.73 (3% to 6% growth compared to Q1 2023) .

    Competitors mentioned in the company's latest 10K filing.

    • Aptiv
    • Belden
    • Commscope
    • Eaton
    • Foxconn
    • Glenair
    • HARTING
    • Hirose
    • HUBER+SUHNER
    • ICT Luxshare
    • JAE
    • Jonhon
    • JST
    • Molex
    • Phoenix Contact
    • Radiall
    • Rosenberger
    • Sensata
    • TE Connectivity
    • Yazaki
    • 3M

    The company competes primarily on the basis of technology innovation, product quality and performance, price, customer service, and delivery time .