Amphenol - Q1 2015

Transcript

Operator (participant)

If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Ms. Diana Reardon. Ma'am, you may begin.

Diana Reardon (CFO)

Thank you. Good afternoon. My name is Diana Reardon, and I'm Amphenol's CFO. I'm here together with Adam Norwitt, our CEO, and we'd like to welcome everyone to our First Quarter Call. Q1 results were released this morning. I'll provide some financial commentary on the quarter, and Adam will give an overview of the business and current trends. We'll then have a question-and-answer session. The company closed the first quarter with sales of $1.327 billion and $0.57 of earnings, meeting the high end of the company's guidance. Sales were up 7% in US dollars and 11% in local currencies compared to Q1 of 2014. From an organic standpoint, excluding both acquisitions and currency impacts, sales in Q1 2015 were up 5%. Sequentially, sales were down 7% in US dollars and 6% organically from Q4 of 2014.

Breaking down sales into our two major components, our cable business, which comprised 6% of our sales in the quarter, was down 3% from last year. Our interconnect business, which comprised 94% of our sales, was up 7% from last year, reflecting the benefits of both good organic growth and the company's acquisition program. Adam will comment further on trends by market in a few minutes. Turning to operating income, operating income increased to $260 million in the quarter. Operating margin increased to 19.6% compared to 18.8% last year, excluding one-time items. A strong year-over-year conversion margin on incremental sales of 32%. The increase of 80 basis points in operating margins over the prior year resulted from an increase in profitability in our interconnect business. From a segment standpoint, in the cable segment, margins were 12.1% compared to 12.2% last year.

In the interconnect business, margins were 21.8%, up 90 basis points from 20.9% last year. The improvement in ROS reflects excellent operating execution, both organically and in our acquisitions, in addition to aggressive cost management. We're very pleased with the company's operating margin achievement. This excellent performance is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high-performance, action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in what clearly continues to be a very dynamic global environment. Through the careful fostering of such a culture and the deployment of these strategies, the management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $17 million compared to $19 million last year, reflecting the benefit of a lower average effective interest rate in the current quarter, more than offsetting the impact of higher average debt levels resulting from the company's acquisition and stock buyback programs. The lower average rate is a result of a new note issuance in September, replacing a higher cost note maturity in November of last year, and the implementation of a new commercial paper program. Other income was $4.1 million in the quarter, equal to last year, and consists primarily of interest income on cash and short-term cash investments. The company's effective tax rate, excluding the impact of one-time items, was 26.5% in both Q1 of 2015 and Q1 of 2014. Including the impact of one-time items, the 2014 rate was 26.4%. Net income in the quarter was approximately 14% of sales.

EPS, excluding one-time items, increased 14%, an excellent performance. On an as-reported basis, earnings per share in the 2014 period included a charge of $2 million or a penny per share for acquisition-related costs. Orders in the quarter were $1.34 billion, up 2% from last year, resulting in a book-to-bill ratio of approximately 1.01 to 1. The company continues to be a strong generator of cash. Cash flow from operations was $188 million in the quarter, or about 104% of net income. The company continues to target cash flow from operations in excess of net income. From a working capital standpoint, inventory was $871 million at the end of March, up slightly from December. Inventory days were 87 days, up seven days from December levels and at the high end of our normal range.

The higher inventory level supports a future step up in certain parts of the business, and we expect inventory days to decline going forward. Accounts receivable was $1.1 billion at the end of March, down about 3% from December. Days sales outstanding were 75 days, up four days from December and at the high end of our normal range. Accounts payable was $583 million at the end of March, down about 6% from December levels, and payable days were 58 days, up one day compared to December.

The cash flow from operations, along with proceeds from our commercial paper program of $86 million and $20 million of proceeds from stock option exercises, were used primarily to purchase $62 million of the company's common stock, to fund net capital expenditures of $40 million, to fund acquisition payments of $76 million relating both to the Invotec acquisition and the final payment on a 2014 acquisition, and to fund $78 million in dividend payments during the quarter, including the funding of both the Q1 and Q2 dividends. During the quarter, the company repurchased 1.1 million shares under its January 2015 10 million share stock repurchase program, and 8.9 million shares remain available at the end of March under the program, which expires in January of 2017. Cash and short-term investments were $1.4 billion at the end of March, the majority of which is held outside the U.S.

Our total debt was $2.8 billion, bringing net debt at the end of the quarter to $1.4 billion. The company had issued $753 million under its $1.5 billion commercial paper program at the end of the quarter, and EBITDA for Q1 2015 was approximately $300 million. From a financial perspective, this was an excellent quarter. Before I turn the call over to Adam, I'd like to make a few comments relative to our guidance. As noted in the press release, we've updated our 2015 guidance range to sales of $5.5billion-$5.62 billion and earnings of $241million-$247million. This is a sales growth of 3%-5% both in US dollars and organically, and 7%-9% from a local currency standpoint. EPS growth is 7%-10%.

This guidance is based on current exchange rates reflecting the negative impact of the significantly stronger dollar and the addition of the acquisition of Invotec, which we closed in the quarter. The negative translation impact caused by the significant strengthening of the dollar in relation to the Euro and certain other currencies since our last guidance has the impact of reducing 2015 guidance by about $65 million in sales and about three cents in earnings. For the full year 2015 compared to 2014, we now expect a drag of about $225 million, or 4% of sales, from the negative effect of translation and an impact of about 10 cents in earnings. The Invotec acquisition that closed in the quarter adds about $30 million in sales and a penny in earnings.

From an organic growth perspective, we've increased our growth range from 2%-5% in our previous guidance to 3%-5% in our current guidance. Adam will talk about trends by market in more detail in a moment. I would just add here that we have reflected some shift in demand in the wireless markets in our guidance. Both wireless markets were previously expected to be relatively flat in 2015. However, we now expect a decline in the mobile network market in the low teens and a high single-digit growth in sales in the mobile device market, with the majority of that growth expected in the second half of 2015.

I would also just note relative to the Q2 guidance that from a sequential standpoint, at the high end of guidance, sales are up 2% in US dollars and 3% organically, with the negative translation impact from the stronger dollar reducing sales by about 1%. From an organic standpoint, the 3% sequential growth in Q2 sales is somewhat lower than our normal seasonality. This results from our current expectations that the wireless market will be relatively flat sequentially. Historically, both markets normally increased sequentially going into Q2. However, as I mentioned earlier, we now see a softer demand in the mobile network market for the year and therefore do not expect the normal seasonal uptick in Q2. In the mobile device market, we now see a flat sequential performance in Q2 based primarily on program timing before a significant strengthening in the second half of 2015.

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

Adam Norwitt (CEO)

Well, thank you very much, Diana. And let me also add my welcome to those of you on the call today. As Diana mentioned, I'm going to highlight some of our first quarter achievements, and then I'll spend some time to discuss our trends and progress across our diverse served markets. Then finally, I'll make a couple of comments on our outlook for the second quarter as well as for the full year. With respect to the first quarter, I'm just very pleased to report that our sales and EPS were both at the high end of guidance. And that's despite a challenging economic environment as well as the impact of the strengthening US dollar. Our sales increased 7% from prior year in US dollars and 11% in local currencies, reaching that $1,327 million.

Orders at $1,340 million were a book-to-bill of 1.01-1, which is an encouraging sign. Our profitability in the quarter continued to be very strong as we generated operating margins of 19.6%, which, as Diana mentioned, is an 80 basis point increase from prior year. Our EPS grew 14% from prior year, essentially twice the rate of our sales growth. Just want to say that I'm extremely proud of our global team, who was once again able to react quickly to the many opportunities that are being created by the electronics revolution, all the while exercising the discipline and drive necessary to achieve outstanding operating performance. I think our strong results in this first quarter once again demonstrate the benefits of the company's outstanding entrepreneurial culture. I'm very pleased in the quarter that we completed the acquisition of Invotec during the first quarter.

Invotec is a leading UK-based manufacturer of highly engineered, harsh environment, printed circuit boards, flex circuits, and related assemblies for the aerospace, defense, and industrial markets. It has annual sales of roughly $35 million. Importantly, Invotec represents an outstanding complement to our North American PCB and flex circuit capabilities and positions us to take further advantage of the ongoing drive to proliferate this technology in important aerospace and industrial applications. And that is a trend that we are really seeing across our global customer base in that space. We're very excited to welcome the outstanding Invotec team to Amphenol, and we look forward to continuing to create value in the future with our very successful acquisition program.

Turning to our trends and progress across our served markets, I just want to comment first that once again, our balanced and broad end market diversification supported the company's excellent performance in the first quarter. We're particularly pleased that no single market represented more than 18% of total sales in the quarter. The fact is that the company's diversification across the electronics industry in areas with a wide variety of technology requirements, product life cycles, and underlying drivers has consistently been an underlying creator of long-term value for the company. Turning to those markets, first, the military market represented 11% of our sales in the quarter. Sales were flat to prior year in US dollars and increased by 3% in local currency, led by increases in communications, vehicle, and rotorcraft-related products. Sequentially, as we had expected, sales were down in the mid-single digits.

Looking ahead to the second quarter, we expect sales to increase moderately from these levels, and we remain confident in achieving full-year growth in constant currency in the military market. Now, it's true that military budgets overall appear to have stabilized, but at the same time, they're clearly not expanding. Nevertheless, our technology leadership and our broad program participation have enabled us to realize the growth we experienced in the first quarter and have positioned the company to benefit long-term from the expanding adoption of electronics and military hardware, as well as from stronger spending trends in emerging geographies. The commercial aviation market represented 6% of our sales in the quarter. Sales were up slightly in local currency and declined by 6% in US dollars on what was a pause in growth rates of the components used in production by the leading aircraft manufacturers.

Sequentially, sales reduced seasonally by 7% on lower production volumes. Despite this moderating rate of growth, we remain confident that our commercial air sales will grow in the second quarter from these first quarter levels. For the full year, we continue to expect to achieve robust organic growth, in particular with the anticipated second half ramp-up of certain new airplane platforms. The world's airlines continue to demand planes that are more fuel efficient and that create a better passenger flying experience, leading aircraft manufacturers to incorporate an increasing range of complex new technologies into their latest generation airliners. We're extremely well positioned to enable these technologies with our interconnect, value-add cable and printed circuit assemblies, and cable management products. This combination creates an exciting long-term expansion opportunity for Amphenol.

The industrial market represented 18% of our sales in the quarter, and we achieved strong growth of 10% in US dollars and 13% in local currency compared to prior year and 3% in local currency sequentially. This increase in our sales was driven by excellent performance in the heavy equipment, alternative energy, and medical segments, as well as by contributions from the Gold Star acquisition that we completed in the fourth quarter. That growth was partially offset by an expected decline in sales to oil and gas customers that's related to lower levels of exploration and drilling due to the recently reduced commodity prices. Looking ahead, we expect sales in the industrial market to increase from these levels in the second quarter, and we continue to anticipate a double-digit sales growth in local currencies for the full year 2015.

Long-term, we look forward to realizing the benefits of our broad industrial interconnect and sensor product offering, together with our diversified presence across the many exciting segments of the global industrial market. The automotive market represented 18% of our sales in the quarter, and we experienced again a significant increase in sales from prior year, growing 31% and 14% organically as we continued to benefit from the Casco acquisition made last year in the third quarter and as we grew our sales of new products used in telematics, emissions management, and drivetrain control applications. Sales were essentially flat sequentially in US dollars, but they grew by 4% on a local currency basis from the fourth quarter.

We're very pleased to be continuing to outgrow the overall automotive electronics market as we capitalize on our broadened suite of interconnect and sensor technologies, which are being incorporated into a wide array of new and complex vehicle electronics. With the additions of Tecvox, Advanced Sensors, and Casco during the last 18 months, we have significantly expanded our product offering across a wide array of new electronics applications and cars. In addition, we have organically expanded into a variety of new discrete connectors and advanced value-add interconnect systems, thereby positioning the company for continued excellent long-term growth. Looking toward the second quarter, we expect sales in the automotive market to increase further from these levels, and we continue to look forward to an excellent 2015 and beyond for this exciting business.

The mobile devices market represented 15% of our sales in the quarter, and sales increased 5% from prior year and declined as we had expected by roughly 28% sequentially, driven by post-holiday seasonality. I can just say I'm so proud of our mobile devices team who has once again quickly flexed their resources given these significant volume changes, all while still preserving strong operating performance as well as, very importantly, preserving the ability to expand our capacity for growth expected in the second half of 2015. This organizational agility remains a core advantage of Amphenol in the extremely dynamic mobile devices market. As Diana mentioned, while we expect sales to remain at current levels in the second quarter, we now have a more positive view of the demand potential in the mobile devices market in the second half of this year.

Thus, we now anticipate achieving growth for the full year of 2015 somewhere in the mid-single digits. We remain confident that despite the ever-changing landscape across the mobile devices market, our leading technology, preferred supplier relationships with a broad range of device makers, and most importantly, the excellent execution of our outstanding agile organization positions us extremely well for the future. The mobile networks market represented 9% of our sales in the quarter, and sales declined as we had expected by about 9% from prior year in US dollars and 4% in local currencies and by 5% sequentially as operators further moderated their network build-out activities in most geographies after last year's significant infrastructure investments.

As Diana mentioned earlier, based on the latest information that we received from our OEM and service provider customers, we now expect only a slight increase from these demand levels in the second quarter, if not flat performance, and do anticipate a decline in our mobile network sales for the full year of 2015. Regardless of these more muted sales expectations, we remain extremely well positioned in the mobile networks market and are thus very confident that with our industry-leading breadth of interconnect and antenna products, we will continue to participate broadly in ongoing next-generation mobile network deployments around the world. The information technology and datacom market represented 17% of our sales in the quarter, and sales in this market increased by greater than expected 6% from prior year due to strengthening sales of our wide range of high-speed products incorporated into a broad range of data center equipment.

Sequentially, our sales were flat to the seasonally stronger fourth quarter. Looking ahead to the second quarter, we expect sales to grow slightly from these levels, and we continue to anticipate full-year growth in the IT Datacom market in the mid-single digits. This IT market is really undergoing a rapid transformation as cloud and web service providers are driving new innovations across the entire architecture of data centers really around the world. Amidst this dynamic environment, we remain encouraged by our industry-leading high-speed and power products, our preferred relationships with leading equipment suppliers, and our enhanced and direct focus on service provider and data center customers, all of which have created a platform for us to continue to outperform in the future in this important market.

The broadband communications market represented 6% of our sales in the quarter, and as we had expected, sales declined slightly from prior year on a moderation of spending from US cable operators and were essentially flat to the fourth quarter. While we do expect a slight increase in demand in the second quarter, we now expect more moderate growth in the broadband market for the full year 2015 as there really remains a heightened level of uncertainty in the capital spending plans of many of the MSO, satellite, and telecommunication customers in this space. That's in particular given the several high-profile industry mergers, which are still at this stage pending after a long time.

Nevertheless, we remain confident that we will realize long-term success in this market due to our proven capability to create innovative solutions for our customers in support of the rapid growth of especially high-speed data delivery. As we drive further efforts to create these enabling technologies, we look forward to maintaining our leadership position in the broadband market. So in summary, with respect to the first quarter, I'm just extremely proud of the Amphenol organization as we once again executed very well in a challenging and dynamic market environment. Our continued strong performance in 2015 is another clear reflection of the company's distinct competitive advantages, our broad range of leading technologies, our balanced and comprehensive market diversification, our worldwide presence, and our lean and flexible cost structure.

But above all of these strengths, simply our greatest asset remains a high-performance culture that is reinforced every day by Amphenol's agile entrepreneurial management team. Now, turning to the outlook and just to reiterate some of the comments Diana made, there continue to still be significant uncertainties across the global marketplace that's reflected in part by the ongoing weakening of certain overseas currencies. Accordingly, and based on a continuation of these current economic conditions and assuming also that exchange rates remain stable at these latest levels, we now expect in the second quarter and the full year 2015 the following results. For the second quarter, we expect sales in the range of $1.315 billion-$1.355 billion and EPS in the range of $0.56-$0.58 respectively.

This represents a sales increase versus prior year of flat to 3% in US dollars and 5%-8% in local currency and an EPS increase of 4%-7%. For the full year 2015, we expect sales in the range of $5.5 billion-$5.62 billion, which is an increase of 3%-5% in US dollars and 7%-9% in local currencies. We expect 2015 EPS of $2.41-$2.47, which represents an increase of 7%-10% over 2014 excluding one-time items. We're very encouraged by the company's continued strong outlook in sales and earnings, especially given the many uncertainties in the global marketplace. It is really the ongoing revolution in electronics that continues to create tremendous opportunities for Amphenol.

I'm very confident in the ability of our outstanding management team to continue to capitalize on these opportunities to grow our market position and to expand our profitability and thereby to drive continued superior performance for the company in 2015 and beyond. With that, Operator, we'd be very happy to take any questions.

Operator (participant)

Okay. Participants will now begin the question and answer session. Our first question comes from the line of Jim Suva of Citi. Your line is open.

Jim Suva (Analyst)

Thank you. Congratulations to you and your team there at Amphenol. Really great results, especially considering the currency and the changes. Diana and Adam, can you help us understand a little bit more granularity on your comments around the mobility? You mentioned some softness. Is this broad-based global? Is it geographic? Is it more like smartphone handset or tablet or notebook? Or how should we think about that commentary?

Adam Norwitt (CEO)

Yeah. No, Jim, thank you very much. I think we talked about mobility and mobile from two standpoints. One is the mobile networks market where we do have a more moderate view of that market, as well as the mobile devices market where I think we have a somewhat stronger view than we previously had. So I assume what you're asking is relative to our comments on mobile networks. In mobile networks, I think what we have seen is last year there was just tremendous performance in that market. You know that we grew last year by 24% over prior year, which is really far in excess of any of the statistics that one saw coming out of equipment manufacturers or the various capital spending results of the operators around the world.

I think that was just a great confirmation of the efforts that we've made over many years to broaden our product offering in support of these new technologies and these next-generation systems. No doubt about it, that was a lot of build-out that happened last year. I think what we're seeing on a global basis really is that the operators are really working to digest those investments, in particular here in the first half, but even throughout the year, more maybe than we would have thought previously. From a regional standpoint, last year we saw good growth in all the regions, probably saw a little bit better in Asia, but we had strong double-digit growth in every region. I think in this quarter, we probably saw a bit more magnified reductions in Europe and some reductions in North America.

We actually still saw some element of continued strength on a year-over-year basis in Asia. I think for the full year, we would probably anticipate that all the regions would still be in that kind of digestion phase of their investments, but perhaps maybe Europe would be a little bit weaker than Asia, for example. Relative to mobile devices, again, we are seeing more strength in that space, and that just comes down to our organization's fantastic ability to continue to win programs at the leading device manufacturers. I think we did talk about last year that we saw a little bit worse performance last year in tablets and a little bit better performance maybe in things like Ultrabooks, and we've seen good performance with some of the new smartphone manufacturers as well as some of the accessories around those products.

I think that those trends are largely continuing coming into 2015, and we probably wouldn't expect much different performance across that market this year.

Jim Suva (Analyst)

Great. I have a very quick follow-up here. Acquisition, a lot of times when we hear printed circuit board companies, we think of very low-margin business. Am I correct by assuming that this company is a lot more than just printed circuit boards and a lot higher value add? And maybe you can give us a little bit of flavor or color into if that's a correct statement, more than just printed circuit boards.

Adam Norwitt (CEO)

No, this is an outstanding question, Jim, and it's very true that there is a whole industry of printed circuit boards, and that's not an industry that we have in large part participated in.

But we do have a business in very high reliability, harsh environment printed circuits, be it flex or rigid flex or rigid boards and the related assemblies that is really active in the military aerospace and industrial space, and that's what this company is. And so it's by no means a big entry into printed circuits. Rather, it's a continuation of our approach to present a total interconnect solution for those very high reliability applications that we see, in particular in aerospace, military, and industrial.

One trend that we have seen, and we have been really one of the drivers of that trend from a very high technology standpoint, is there are applications in particular in those harsh environments where traditionally those have been managed through big cable bundles and that those cable bundles are over time in certain of those applications being migrated towards more of a printed circuit technology that integrates connectors and integrates that whole assembly and allows the customers to have a better vibration proof and a more kind of certainty of the application than they would have had in the past. That's a very, very long-term trend that we see, and it's one that we're really at the forefront of working with leading customers around the world on enabling.

Previously, we had that capability predominantly in North America, and the Invotec acquisition gives us that high value add, high technology opportunity to support customers also in Europe. And so it's very, very much consistent with that strategy. You could call it a little bit of a niche strategy in that broader printed circuit area, but it's very complementary to our overall value add interconnect offering to those customers.

Operator (participant)

Okay. Our next question comes from the line of Sherri Scribner of Deutsche Bank. Your line is open.

Sherri Scribner (Director and Senior Equity Research Analyst)

Hi, Diana. I just wanted to bridge the full-year revenue guidance versus what you said a couple of months ago to what you're saying now. It looks like if you add the acquisition back, you add the modest beat you had this quarter, and then you take out the FX impact, it's mostly the same guidance.

I just want to make sure that I'm understanding that correctly. It seems like mostly the change is the acquisition and the FX impact.

Diana Reardon (CFO)

Sure. I think that's the right way to look at it. I think at the high end, that's exactly right. It's the same guidance adjusted for FX impact and adding in the Invotec acquisition. And from a low end of guidance, we've increased the range from 2%-5% organic growth to 3%-5%. So I think the way you've described it is correct.

Sherri Scribner (Director and Senior Equity Research Analyst)

Okay. Thanks. And then I guess just for the second quarter guidance, it seems a little like the seasonality is a bit less than you would typically see. Usually, you see sales increase sort of in the mid-single digits on a sequential basis. What's really driving that?

And then I guess what's the strength that drives growth in the second half of the year? Obviously, mobile devices to some extent, but just want to get a little more color. Thanks.

Diana Reardon (CFO)

Sure. I think, as I said in my prepared remarks, we expect in the second quarter, if you look sequentially, we expect not to see the normal sequential increase in the wireless markets, the wireless network market due to the fact that we now see a year-over-year decline in that market. And I think Adam just described pretty well what was going on there. In terms of the mobile device market, we actually do have a more positive view of that market and expect now that that market will be up in the mid-single range for the year. But in the second quarter, due to program timing, again, we expect that market to be flat.

And then as we move into Q3 and Q4 in the second half of the year, we expect to see a significant strengthening in that market. And that's why you see a little bit less than what our normal sequential seasonality would be in Q2, and we'll have a little bit higher than normal seasonality, if you will, when we move into Q3 in the second half of the year.

Operator (participant)

Okay. Our next question comes from the line of Shawn Harrison of Longbow Research. Your line is open.

Shawn Harrison (VP and Senior Research Analyst)

Hi. Good afternoon. I guess kind of going back to the first questions on mobile, two-fold. On devices, am I correct? Is it solely content gains which give you the bullish view on the second half of the year versus a better volume outlook for the device market?

And then second, on networks, is there an inventory issue of Amphenol products, or is it that there's an inventory issue of end products being put into the market? I just wanted to be clear on that versus just a lack of deployment of base stations and associated equipment for the year.

Adam Norwitt (CEO)

Shawn, thank you very much. So it's relative to mobile devices. It's hard for us to always say, is it content gains? Is it new wins on new programs? Is it more content on programs that we already had content? I think the best is to say that we're doing an excellent job of maximizing our content on as many devices as we can. And you have a lot of devices in this space, so to sort of parse that out and say which is content and which is totally new things and which are volume expectations.

But I think that the team is just doing a fabulous job to gain position on coming programs in which we have a lot of confidence and as well on programs that we really start to see and start to really see in the pipeline. Relative to mobile networks, I mean, I don't know necessarily that I would call it an inventory, although there certainly may be end inventory in the channel of base stations and things like that. I mean, that's very common when you have a big capital spending year followed by some reductions and that some of the equipment manufacturers may very well have some inventory. But I think if you just look at the capital spending plans that are widely reported, there are many of those that do reflect quite some significant downturns.

I think there are some of those operators as well who are also involved in some of these broadly reported corporate mergers and whether that is keeping some governor on their spending plans, that's something they know that I don't know. But there's certainly some moving pieces going on strategically in the industry. I think all that being said, we feel that our position in that space and our position with customers is really stronger than it ever was before. And one thing I'll say is when you look at our performance last year, we did such a fabulous job in a time of high growth and demand to satisfy customers. They don't forget that. They really don't forget it.

And so when that spending comes, and it will come, they will always remember who was there for them and who reacted quickly, who didn't cause their crews to not have the parts when they needed them in the field. And that will reflect positively on our ability to continue to gain position in the mobile networks market long term.

Shawn Harrison (VP and Senior Research Analyst)

Very helpful. And if I just may wonder your follow-up, it seems as if private market multiples on sensor companies have gone a bit sky high over the, I don't know, the past 6-12 months. Does that in any way change your thinking about the opportunities in that market near term, knowing that you guys are typically a very astute acquirer?

Adam Norwitt (CEO)

Well, I appreciate the compliment. Look, we're not a bottom feeder. We are astute acquirer. We pay fair multiples for good companies.

We have bought many companies in many different valuation cycles. So whether there are a few data points over the last 12 months that reflect maybe higher multiples than we would necessarily have paid, does that change the landscape for Amphenol? Absolutely not. We continue to have a fabulous reputation among sellers, both financial sponsor sellers as well as real owner-managers of companies. As a company that does what it says, keeps its word, executes quickly, pays a fair price, and is a fabulous home ultimately for those companies. I think that just the one who pays only the highest price doesn't win in every instance. There are some instances where they do win. If someone wants to pay a much higher price than us in certain occasions, we will be happily not buying those companies.

But I think that there still remain a lot of opportunities for us to acquire great companies using our consistent methodology, which hasn't changed over the years. And we have not chased kind of market multiples, as you know very well, regardless of what cycle that we're in. We view this as a real long-term game. When you're buying a company, you're buying it in our world, at least for life. And you don't just sort of buy opportunistically when things are cheap and not buy when things are expensive, and you don't only buy because of short-term dynamics that are at play. We feel very confident that long term we're going to continue to be successful across the broad range of companies that we want to acquire, and that includes interconnect as well as sensor companies.

Operator (participant)

Okay. Our next question comes from the line of Amit Daryanani of RBC Capital Markets. Your line is open.

Amit Daryanani (Managing Director)

Yep. Good afternoon, guys. Thank you. Two questions for me. One, Adam was wondering if you just touched on this mobile devices trend that you expect in the back half. Is there a lot of breadth to the strength you guys are expecting, or is it really driven by one or two customers? Because this has historically at least been a fairly volatile pattern for you guys in the past. I'm just trying to get a sense of how good the breadth is from a customer basis in the back half.

Adam Norwitt (CEO)

Well, look, I think we've always said, and I wouldn't say anything different this year, that our breadth in that market is relatively reflective of the overall breadth of who's successful and who's not successful in the space.

I think I wouldn't say anything different about our outlook for this year. It is a market where there are always winners and losers of the day. Sometimes those are different winners and different losers of yesterday and different winners and different losers of tomorrow. But it is a relatively concentrated market as it relates to who's winning at a given moment. I think from that standpoint, our guidance is consistent with how we have always approached that market. I think we have a strong position across a lot of different products, product types as well. I mean, it's not just phones. It's not just tablets. It's not just Ultrabooks. I mean, there's accessories and other things that go along with those.

And I think our team has just done a fabulous job on their continued mission to diversify our presence in that space as best one can in a space where there are always winners and losers.

Amit Daryanani (Managing Director)

Got it. And then just on the automotive side, your revenue growth, the organic trends have been well ahead of what I think auto production and content numbers would suggest. So maybe just talk a little bit of what's driving that. And then are you starting to get benefits from cross-selling opportunities with the GE sensor assets you guys acquired? Is that starting to have a tangible difference on your revenue line over there?

Adam Norwitt (CEO)

Yeah. No, it's a very great point. I mean, we're just so proud of this market and how that's performed.

I mean, just to think over the last half a decade here, I mean, six years ago, Q1 of 2009, this market was 5%-6% of sales. And here it is this quarter, 18% of sales. Really a historical high for us across that balanced diversification that we have. And I think if I look at why we continue to outperform, I mentioned in my remarks earlier that we really see two main pillars of that. One is we've made a lot of great acquisitions. And over the course of the last five years, we've acquired just a great range of really interesting, really high technology, high-performance companies, ranging from companies that are involved in sealed connectors to companies involved in automotive lighting to companies involved in data comm and power connectivity in the car to sensor companies.

And I think that those acquisitions have really rounded out our high-value product offering at the same time as the other pillar has been a real focus on organic growth and driving products into new applications in the car. Not trying to take share from the traditional players, but really capitalizing on new applications, new electronics, new functionality that comes into the car. And so ultimately, as it gets to that sort of cross-selling, automotive is not a market where things flip on a dime. At the same time, if I think over the last five years, have we benefited from cross-selling of some of those acquisitions that we've brought on and have those become drivers of really renewed organic growth for the company? No question about it. But that does take time.

And so now to your question of does the sensor company which we acquired 16 months ago in the case of Advanced Sensors or Casco roughly less than half a year ago, have those started to create meaningful material impacts to sales? I wouldn't say that they're material impacts to sales. Would I say that we've seen meaningful progress in finding those opportunities? Absolutely. When do those ultimately translate into kind of moving the needle on a revenue standpoint? There is a certain time horizon to that in the automotive industry, whatever that may be, one, two, three years. And I fully expect, given the great progress that our team has managed to achieve, that we will see that impact long term.

But I wouldn't necessarily say that our results this quarter have any meaningful impact from cross-selling of sensors, but they clearly have meaningful impact from cross-selling of other things that we've acquired over the last six years.

Operator (participant)

Okay. Our next question comes from the line of Mark Delaney of Goldman Sachs. Sir, your line is open.

Speaker 13

Great. Good afternoon, and thanks very much for taking the questions. For the first question, Adam, I was hoping you could help provide some perspective on some of the trends you're seeing in the industrial end market. And I know you commented on a weakness in the oil and gas area specifically as you'd anticipated, but I wanted to see if you've seen slowdown in any of your other industrial end markets given some of the weaker data points we've seen this earnings season from some of the big industrial companies.

Adam Norwitt (CEO)

Sure. No. Well, thank you very much. Obviously, we did talk about oil and gas, and I think that's the real sort of the industrial market, the one that's no doubt in the headlines with the broadly reported price of oil and the resulting slowdown in some of the drilling and extraction and exploration activities there. Like anybody else, we're not immune to that slowdown, and that has certainly had some impact. I mean, fortunately for us, we're not leveraged onto one or another part of the industrial market. We have a very diversified industrial market across things like heavy equipment, alternative energy, lighting, machine tool, factory automation, rail mass transit. I think I mentioned where we saw really the strength in the quarter.

We saw that great strength in heavy equipment, and that heavy equipment strength was not just because of some acquisition that we made with Gold Star, but also we saw outstanding performance in heavy equipment organically, where we've just made great progress really in taking stronger position with customers in the off-road and heavy equipment market. We've seen fantastic performance in alternative energy where our team there has just done such a fabulous job in what is not an easy market. I mean, solar and wind energy and the other sort of ancillary alternative energies, some of those can be very tough markets, but we have an organization that just focuses on that space, drives costs down, and takes share with important customers around the world. They've done a great job. We've done a great job in things like lighting and machine tool as well.

I think the only space where we maybe saw a little bit of downturn besides oil and gas wasn't quite as robust in factory automation, although in local currencies, it was relatively flat. But otherwise, I think we've seen pretty broad-based growth in our industrial market.

Speaker 13

Yeah. Thanks. I appreciate the perspective there. And then for a follow-up question on gross margins, I know gross margins have gotten back to 32%, which is a good number, and I think that's been a level that a high after several years. I think last time you guys were there were 2010, 2011.

As you look out into the second half of the year, if we think about mobile device revenue mix maybe increasing, is that something that's going to put some downward pressure on gross margin, or are there other things that can maybe offset what I would expect would maybe be some mixed headwinds for 2H?

Diana Reardon (CFO)

Sure. I mean, I think that we would more talk about operating income margin. I think as we've said before on prior calls, we really don't manage to the gross margin or the SG&A line. We look at operating income margin. And I think that there are within the markets we participate in, there are certainly, to your point, a different mix of gross margin and SG&A, but it's the operating income I think that we all care about at the end of the day.

From an operating income standpoint, we had certainly very good performance here in the first quarter in line with what our expectations are. We had a very strong year-over-year conversion margin on incremental sales. I think the guidance as we've laid that out has, again, good conversion margins in the remainder of the year. It implies an increase in ROS levels as we go through the year. And so we feel very good about what the trajectory of that profitability will be during 2015. And that fully incorporates that mix that you referred to with a stronger mobile device market in the second half. So again, we feel very good about the profitability profile that we expect to see in 2015 and an expansion in ROS levels.

Operator (participant)

Okay. Our next question comes from the line of Amitabh Passi of UBS. Your line is open.

Amitabh Passi (Senior Technology Equity Research Analyst)

Hi, guys. Adam, I had a couple of questions on the IT data comm segment. Looks like sales have sort of stabilized here the last three quarters or so. Just wondering, are you starting to see some semblance of stability with your OEM customers, or do you continue to see your business skew more towards the web scale companies?

Adam Norwitt (CEO)

Yeah. No. Thank you very much, Amitabh. I think stabilized, we're happy to see actually pretty strong growth in that space this quarter. We grew 7% for the year. I think I guided that we expect to have that IT data comm grow mid-single digits for the year. I think we're doing that at a time when you continue to not see such robust growth, at least coming out of the publicly traded hardware OEMs around the world.

I think from that standpoint, we are really continuing to gain position in the IT data comm space. There's no question that we have really expanded our activities around working with the, as you call it, the web scale providers, or we call it kind of the data center web service provider customer base. I think that that's a real pivot that we have had to make. In typical Amphenol fashion, it's a pivot that we make very quickly because that's kind of one of the great advantages of our entrepreneurial organization is that agility that we're able to exercise. We don't have to kind of completely restructure ourselves to pivot towards a new trend in that market. I think, as I mentioned earlier, we do see in the IT data comm market quite a significant transformation happening.

I think I call it kind of a re-architecting almost of how you work in that IT data comm space. I just think our team has done a fantastic job in capitalizing upon that, not just reacting to, but really capitalizing upon that change. I think where we have seen real progress is in our real leading offering of high-speed products as well as with our outstanding power solutions that go into that market. The high speed, no doubt about it, is such a critical feature. Whether you are a traditional OEM, a traditional enterprise data center, or a web service provider, the amount of data that people are trying to crank through their systems and really pump out is just increasing at phenomenal, phenomenal rates. I mean, I see it in my own TV.

I had a technician in my house last night because I can barely watch Netflix right now because it's just stopping and starting all the time. It just shows me, again, the phenomenal potential and the growth that is coming. Here I am, I'm watching Netflix at most an hour a week. For that one hour, if it stops and starts, it really is frustrating. There's real value that is created for the end customers and thereby for the operators and the equipment manufacturers by creating high-speed solutions that ultimately can support a much fatter pipe of data.

So I think from that standpoint, it's a question of really that pivoting towards the new reality of the market together with the continued investment of our leading high-speed and power products that has positioned us for the growth that we've seen this quarter and that we expect this year.

Amitabh Passi (Senior Technology Equity Research Analyst)

That was helpful, Adam. Just a quick follow-up. There's some excitement in the market around standardizing 25 gig. Is that a meaningful needle mover for you guys or in the grand scheme of things, would it be noise? I'm just trying to get a sense of how big 25 gig could be potentially for your business.

Adam Norwitt (CEO)

Yeah. I mean, 25 gig is something we've actually been developing and innovating for, I don't know, it feels like almost eight years now that we've been talking about creating and have created interconnect solutions to support 25 gig.

The reality is we're working on interconnect solutions that get well beyond 25 gig. One of the reasons for that is that the interconnect sometimes outlasts the silicon in these devices. I mean, you can imagine an environment where boxes are being built and they want to change out cards in that box with the latest speed upgrades, but you got to still put it through the connectors that are residing, for example, in the backplane or the midplane of such a system. So we have always prided ourselves on creating high-speed solutions that give headroom beyond where the customers want to go in today. So it's true that there's maybe a lot of more publicized talk about 25 gig.

For us, we're talking about things like 56 gig and 100 gig and beyond right now because we need to think far in advance such that when our customers design our product into their core architecture, they've got room to expand in the future.

Okay. Our next question comes from the line of Mike Wood of Macquarie. Your line is open.

Mike Wood (Analyst)

Hi. Good afternoon. First question on auto growth. Can you just remind us what you were looking for that end market for the full year? I think you may have mentioned low double digit previously. And would the growth rates in auto be primarily determined by product launches, or is it really customer decisions with upgrading to specific add-ons when they make the car purchase?

Adam Norwitt (CEO)

Yeah. No. Thank you very much, Mike. Yeah.

I think we have guided for that market to be growing in the low double digits. I don't know that I've given a specific number, but it's somewhere in the low teens, I would estimate, organically. Yeah. From organic. Obviously, we have much higher expectations because of the acquisitions that we made last year. I think we would see in a local currency basis growth sort of more in the kind of 25%-30% range for the year. Relative to timing, you have a couple of dynamics at play. Certainly, we have good content on new platforms, and many times you work for many years on a new system that's integrated into a new platform, and that has a certain ramp cycle to it. But in addition to that, what we have started to see more of over the recent years is what I would call mid-cycle upgrades.

Those mid-cycle upgrades would be things like lighting and onboard electronics where the electronics industry is just moving at a much faster pace than the automotive industry that has traditionally moved. And I think the auto companies have recognized that there are certain feature sets in the car that they can't wait five years for a platform upgrade to implement. I mean, you see it even in any new car you drive. You buy it with a GPS system, and within six months, that GPS already feels kind of old and kludgy. And I think that that is a dynamic that the car companies are really facing up to quickly. And so we have seen a few more what I would call mid-platform upgrades, which don't coincide with that traditional kind of second half of the year product launch that you would normally see in car companies.

And so I think that it's maybe not quite as magnified to those platform launches as it has been traditionally.

Mike Wood (Analyst)

Great. And then the more than 30% conversion margin on the interconnect business, was that upside relative to your long-term goals from the improvement on the acquired companies, notably Advanced Sensors? So does that have a similar impact embedded in your 2Q guidance?

Diana Reardon (CFO)

Sure. I think from a year-over-year standpoint, that 32% conversion margin had contributions from both of those things. So I think to your point, the acquisition programs did come along very well during 2014, as we talked about last year, and coming into this year. So there is a positive impact there. But the base business or the core business also performed very well from an operational execution standpoint on that incremental volume.

And so I think we're getting a contribution from both of those things that you're seeing in the Q1 profitability level. And I would say as we work our way through 2015, I think that would also be true where we expect both our base business and the acquired companies to continue to execute well and to continue to move up that scale from a profitability perspective.

Operator (participant)

Okay. Our next question comes from the line of Steven Fox of Cross Research. Your line is open.

Steven Fox (Managing Director)

Thanks. Good afternoon. Two questions for me. One, just a quick check on your DSOs being up four days for the quarter. I wasn't quite clear on whether you were saying that there's a slightly higher level or whether you think that number comes down in the next couple of quarters.

And then secondly, Adam, can you just talk a little bit more about the broadband business given it's never been a huge growth area for you organically? And some of the things you just talked about seem to suggest that it could be headed for some more muted growth for a while, and you have fixed costs that are, my understanding, is very well associated just with that business. What is it that keeps you in it today versus maybe looking out a year or two?

Diana Reardon (CFO)

Maybe I'll just start with the DSO question. I think that to your point, and as I said, the DSO was at the high end of our normal range at the end of Q1.

DSO and payable days are a little bit harder because you can get to the end of a quarter sometimes, and you do have a day or two either way. But I think that over time, we would expect, I think, that to come back down more to the midpoint of our range. It can range anywhere from 70 days to 77 days probably at the end of a quarter. But we would expect that that would work its way back down towards that midpoint.

Adam Norwitt (CEO)

Yeah. Steve, relative to the broadband business, it's true that right now we would certainly prefer to have a more robust growth outlook for the business. Last year, that business was slightly down on a year-over-year basis. Why are we in that business? I've said it before, and I'll just reiterate it today.

We believe that it's very important for the company to participate in all aspects of the electronics industry. That includes in all aspects of how people get internet and high-speed data. The broadband remains one of the top ways that high-speed data is delivered to homes and businesses around this country and many others. We have just an outstanding position in that space. I think our team has done an excellent job to diversify our product such that we're no longer simply just a cable-on-a-reel company that we were many years ago. It's very true that right now, that industry is going through a lot of change. I mean, you have the very widely reported mergers that are still lingering and delayed, and who knows ultimately whether they get approved. You can imagine that that causes a pause in the purchasing activities of customers.

But we saw a very similar dynamic for close to three years in our wireless networks business. I talked all along about the fact that there was building a pent-up demand in the wireless networks market. Ultimately, that pent-up demand, which we continue to focus on gaining position, we continue to focus on gaining technology breadth in that space. Ultimately, last year, we were able to realize fantastic growth in that space as the operators ultimately realized that they had to satisfy some of that pent-up demand. What kind of pent-up demand is being created in the broadband space? I mean, I can only speak out of personal anecdotes of how terrible that service is in certain areas. You can imagine that as that business shakes out, in particular in the United States, that one could imagine a scenario where the build-out activity strengthens again.

We're not a company that is just living by the short term of what's happening in that market in a given year. We have a long-term conviction that it's great to be in a space where we have a high-technology leadership position in an area that is delivering one of the best delivery systems for high-speed data that anyone knows today. So what will it be this year? We have a more muted expectation. We anticipate a little bit of growth this year. What will it end up being next year? Time will tell. But one day, will there be a necessity for investment in that space and investment where Amphenol will be a participant in that? We certainly have that long-term conviction.

Steven Fox (Managing Director)

Fair enough. That's very helpful. Thanks.

Adam Norwitt (CEO)

Thank you, Steve. Appreciate it.

Operator (participant)

Your next question comes from the line of Craig Hettenbach of Morgan Stanley. Your line is open.

Craig Hettenbach (Executive Director)

Yes. Thank you. Adam, question on the sensors business. As you think through the strategy there, can you give a little context in terms of how much is push versus pull in terms of some of your customers perhaps pulling you into discussions in terms of what you can offer at this point and what the implications are for the growth there?

Adam Norwitt (CEO)

Sure. I mean, look, I'm not going to tell you that in any of our businesses, customers just come screaming and knock down the door. I mean, we got people out there knocking lots of doors. So in every one of our business, we're going to push hard. That's true certainly in the sensor business as well.

I think to the extent that there is a pull, it's a pull that happens internally in Amphenol where we have fabulous relationships with certain customers in certain segments of either the industrial or the automotive market in particular where we don't have a sensor relationship. Through that wonderful dialogue that we have with our ongoing relationship from an interconnect standpoint, we pull in the sensor team to talk about a collaborative drive, whether that is a new integrated product or whether that is just a totally new product that the customer says, "Hey, now that you have that sensor, let's talk." What's the genesis of that conversation? Is it the customer taking up a notice, or is it our salesperson promoting it, or our engineering team promoting it? I have a hard time to say which is push and which is pull.

But no question, there's a lot of dialogue happening at customers across those spaces. And the customers that I have had the good fortune to visit, they just are really happy that a company in whom they have so much confidence like Amphenol now can offer them a broader solution of interconnect, of sensors, and of antennas, which are all products that are real growth areas for customers in most of those spaces. You talk about something like the Internet of Things, which is very often bantered about, almost cliché these days. Ultimately, this Internet of Things, as it's reflected in places like industrial and automotive and otherwise, is a network of sensors with antennas and interconnect on them. And there's very few companies, very, very few, who can say they are really a leader in all three spaces.

And that's something that we can say very strongly to our customers around the world. And I think ultimately that will create long-term value for the company and for those customers. And does it start with a push or a pull? It doesn't really matter as much as in the end, do we win it?

Craig Hettenbach (Executive Director)

Got it. Maybe just a follow-up there. Since you mentioned kind of integrated product, can you talk about just the design engineer teams working together now and how you envision that as you look out over a couple of years in terms of where the technology might go?

Adam Norwitt (CEO)

Sure. I mean, you know very well, Craig, having covered the company for a while, that we have still a very simple organization with general managers who run their organizations, and they have full accountability and authority to run their businesses and all the functions report up into those businesses. And so we don't have an integrated engineering organization across Amphenol. What we do have is a very successful approach towards collaborating across those companies. And so to the extent that these integrated products happen, it's through that collaboration that will come, for example, between an engineer working in our sensor organization and an engineer working in one of the other operations, be that in industrial or automotive or otherwise. And the real question comes is how do you stimulate those dialogues and identify them?

And that's where our group executives and our management team comes into play so much, which is making sure that we are incubating those dialogues on a frequent basis, facilitating them and identifying them as appropriate such that we can put those engineers in a room together and get the job done. And I think we've done that really from day one. So one of the very first things we did when we acquired Advanced Sensors and then later when we acquired Casco was to get a bunch of engineers in a room together to meet each other, number one, and to exchange kind of, "Hey, this is what I do. Tell me what you do. Kind of you show me yours, I show you mine." And that initiation of the relationship was something that we took the opportunity very early to do.

That has already started to pay great dividends through some of the collaborative activities that we've seen. So I think that long-term, to the extent that customers have a desire and a need for those integrated products, and we think they will, and we see them already having that, I think our engineering teams will work very well collaboratively, still within the basic Amphenol operating structure, but in a way that can be very effective to solve those problems for customers.

Operator (participant)

Okay. Next question comes from the line of Will Stein of SunTrust. Your line is open.

Will Stein (Managing Director)

Thank you for taking my question. Two quick ones. First, in the wireless infrastructure and market, I'm wondering if you're seeing anything meaningful from small cells this year?

Adam Norwitt (CEO)

Yeah. I think we are very much participating in small cells.

And I couldn't break down how much of our sales are resulting from small cells, but is there something meaningful? Yeah. I would say that there's something meaningful in small cells as the capital spending of some of our operator customers in particular shifts a bit from macro towards a bit towards small and micro cells, that we certainly would benefit from that because we have a great product offering that covers that both from an interconnect as well as an antenna perspective.

Will Stein (Managing Director)

Great. And then in the broad-based industrial end market, I want to follow up on a question that was asked earlier. Often, I think we as analysts try to look at results of some of the biggest industrial companies and try to draw conclusions from their results to those of Amphenol and others.

I'm wondering if you think that's a reasonable way for us to anticipate demand shifts in this end market, or perhaps is much of your demand really coming from either private companies or companies that we might not have a good view of because of their size? Any characterization trying to line up those two, let's say the results of the big companies and your results would be really helpful. Thank you.

Adam Norwitt (CEO)

Sure. Will, I would love to be able to help you make a model for the industrial market, but I think I would fail miserably. You'd do a much better job than I would. Our industrial business is so diversified.

To look at maybe, for example, a diversified industrial company, I mean, there's a pretty big one down the road here in Connecticut, and say, "Is that a proper proxy for the industrial outlook for an Amphenol?" I wouldn't necessarily say that that would be the most highly effective approach to that. I mean, we work across so many segments of industrial. Ultimately, what ties these industrial markets together is that there are applications that tend to go into areas which are a little bit dirtier, a little bit more tricky to deal with. They tend to have to last a long time. But I mean, you're talking about applications as diverse as solar cells and high-speed rail, factory automation, oil and gas, things that companies that make earth movers and tractors, lighting and next-generation lighting, medical.

I mean, do those have necessarily the same cadence to them, those spaces, or is there one or two sort of proxy big companies where one can say, "Well, that's going to drive it"? Not necessarily. And I think there's another element too, which is the same dynamic that we talk about in automotive, which is the expansion of new electronic feature sets in that space means that you can't just say, "How many more cars are built this year, and thus what are the revenues of Amphenol or Amphenol's peers going to be in that space?" You have the very same dynamic that happens in industrial.

There is this, to not use a very easy-to-say word, but kind of an electronification that's happening across the industrial market in all those spaces that I referred to where something, for example, that used to be a hydraulic or mechanically driven feature on a tractor now becomes electronic, or where a train that used to only need power to connect between the cars now needs a whole suite of fiber optics and digital and power and RF and other aspects, or where a train network now has to be tracked through a whole wireless system, something like a Positive Train Control. I mean, I can go on and on about that migration that's happening in the industrial market away from hydraulics and mechanics and towards electronics. Which is the same thing we've seen in commercial air. It's the same thing we've seen in military.

It's the same thing we've seen in automotive, whereby it's very hard to just take the overall equipment sales and then put that as a template for what one should expect with Amphenol. I think clearly our performance over these years has reflected a very different trajectory than what one would have seen in overall GDP or overall industrial performance.

Will Stein (Managing Director)

Great. Thank you.

Adam Norwitt (CEO)

Thank you very much, Will.

Okay. Our next question comes from the line of Wamsi Mohan of Bank of America. Your line is open.

Wamsi Mohan (Senior Equity Research Analyst)

Yes. Thank you. Diana, you noted that inventory was a little higher than normal to support future builds. So in light of the fact that guidance is roughly flat sequentially, what end markets is this targeting? Why is this atypically higher this quarter? And I have a follow-up. Sure.

I think we're not going to get into inventory by end market, but I think our guidance is, from an organic standpoint, about 3% growth sequentially. So it's not exactly flat. But I think that some of this build is not necessarily just for Q2, but also to some extent goes into the second half of next year. That being said, I mean, inventory is a little bit higher, but it's still at the high end of the normal range that the company has had if you go back over the last few years. So it's not an astronomical build in inventory that we're talking about here. And I think, as I said in the prepared remarks, we would expect as we go through the year that inventory would come back down at least to the midpoint of the range that we've seen from a day's perspective historically.

Okay. Thanks for that, Diana. And then if I'm looking at this right, your guidance implies some organic deceleration in second quarter, re-acceleration again in the second half despite some slightly tougher compares in the back half. So is it fair to think that the puts and takes are largely the mobile network comments you alluded to in 2Q and then the mobile device ramp in 3Q that's creating this dynamic, or are there additional drivers of acceleration that you have confidence in 3Q and further?

Diana Reardon (CFO)

Sure. I think if you look at the guidance and think about why it's different than perhaps what you'd expect from a normal seasonality standpoint, I think it's exactly those two markets that you just mentioned. It's the fact that the wireless markets, which would ordinarily be up sequentially in Q2 for the reasons I already explained, we don't expect that.

And then we do expect a pretty significant sequential uptick in the mobile device market in the second half of the year. And that does happen from time to time. If you go back historically, you can find other years where that's happened. And I think, as Adam has described on many of these calls before, it just tends to be a lumpy type of business depending on timing of program introductions and that kind of thing. But it is those two markets that are giving the 2015 sequential seasonality a bit different look than perhaps what it has been in the past.

Okay. At this time, there are no further questions on . Speaker, so may we proceed?

Adam Norwitt (CEO)

Well, thank you very much. And again, I thank you all for your attention today.

I hope that spring has come as it has here to Wallingford, Connecticut, to all of you. We look forward to speaking to you again in a short three months. Thank you very much.

Diana Reardon (CFO)

Thank you.

Operator (participant)

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