Amphenol - Q2 2018
July 25, 2018
Transcript
Operator (participant)
Hello, and welcome to the second quarter earnings conference call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then, all lines will remain in listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.
Craig Lampo (EVP and CFO)
Thank you. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our second quarter of 2018 conference call. Our second quarter of 2018 results were released this morning. I will provide some financial commentary on the quarter, and then Adam will give an overview of the business as well as current trends, and then we will take some questions. As a reminder, we may refer in this call to certain non-GAAP financial measures and may make certain forward-looking statements, so please refer to the relevant disclosures in our press release for further information.
The company closed the second quarter with record sales of $1.981 billion, and with record GAAP and adjusted diluted EPS of $0.91 and $0.90, respectively, exceeding the high end of the company's guidance for sales by approximately $86 million and adjusted diluted EPS by $0.05. Sales were up 19% in U.S. dollars and up 17% in local currencies compared to the second quarter of 2017. From an organic standpoint, excluding both acquisitions and currency, sales in the second quarter increased 13%. Sequentially, sales were up 6% in U.S. dollars and 7% in local currencies and organically. Breaking down sales into our two segments, our cable business, which comprised 6% of our sales, was up 4% compared to the second quarter of last year.
The interconnect business, which comprised 94% of our sales, was up 20% in U.S. dollars from last year, driven primarily by organic growth. Adam will comment further on trends by market in a few minutes. Operating income was $408 million in the second quarter, and operating margin was a record 20.6% in the second quarter of 2018, up 20 basis points compared to the adjusted operating margin in Q2 of 2017 of 20.4%, and up 40 basis points compared to the Q1 of 2018 of 20.2%.
From a segment standpoint, in the cable segment, margins were 13.2%, which is down compared to the second quarter of 2017 at 14.9%, primarily driven by an increase in certain commodity costs. In the interconnect segment, margins were a strong 22.4% in the second quarter of 2018, which is up compared to the second quarter of last year at 22.3%. This excellent performance is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high-performance, action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in a dynamic market environment.
Through the careful fostering of such a culture and the deployment of these strategies to both existing and acquired companies, our management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance in the future. Interest expense for the quarter was $26 million, compared to $23 million last year, reflecting the impact of the higher average interest rates, as well as the higher average debt levels, primarily resulting from the company's stock buyback program. The company's adjusted effective tax rate was approximately 25.5% for the second quarter of 2018, compared to 26.5% in the second quarter of 2017. The adjusted effective tax rate in both periods excludes the excess tax benefit associated with stock option exercises, as we have previously discussed.
The company's GAAP effective tax rate for the second quarter of 2018, including the excess tax benefit associated with stock option exercises, was approximately 24.7%, compared to 20.1% in the second quarter of last year. Adjusted net income was a strong 14% of sales in the second quarter of 2018. On a GAAP basis, diluted EPS grew 14% in the second quarter of 2018 to $0.91, from $0.80 in the second quarter of 2017.
Adjusted diluted EPS, which excludes the excess tax benefit from stock option exercises in both periods, as well as certain acquisition-related costs in the 2017 quarter, grew 22% to a record $0.90 in the second quarter of 2018 from $0.74 in the second quarter of last year. Orders for the quarter were a record $2.025 billion, an 18% increase over the second quarter of 2017, resulting in a strong book-to-bill ratio of 1.02 to 1. The company continues to be an excellent generator of cash.
Cash flow from operations was $265 million in the second quarter, or approximately 92% of net income, which was strong, in particular, given the higher level, higher-than-normal tax-related payments resulting from the Tax Cuts and Jobs Act of approximately $50 million, including the first installment of the transition tax charge and the foreign withholding taxes and other taxes paid on the repatriation of cash during the quarter. From a working capital standpoint, inventory, accounts receivable, and accounts payable were approximately $1.2 billion, $1.6 billion, and $903 million, respectively, at the end of June. Inventory days, days sales outstanding, and payable days, excluding the impact of acquisitions, were 78, 73, and 61 days respectively, which are all within our normal range.
The cash flow from operations of $265 million, along with the borrowings of $179 million under the commercial paper program, stock option proceeds of $30 million, and cash, cash equivalents and short-term investments of approximately $33 million net of translation, were used primarily to purchase approximately $263 million of the company's stock, to fund acquisitions of $59 million, to fund dividend payments of $57 million, and to fund net capital expenditures of $78 million. During the quarter, the company repurchased 3.1 million shares of stock at an average price of approximately $86 under the new $2 billion, 3-year open market stock repurchase plan. At June 30, cash and short-term investments were approximately $1 billion, the majority of which was held outside of the U.S.
At June thirtieth, two thousand and eighteen, the company had issued approximately $1 billion under its U.S. commercial paper program, and the company's cash and availability under our credit facilities totaled approximately $1.9 billion. The total debt at June thirtieth of two thousand and eighteen was approximately $3.4 billion, and net debt was approximately $2.4 billion. Second quarter two thousand and eighteen EBITDA was approximately $482 million. From a financial perspective, this was an excellent quarter, and I will now turn it over to Adam, who will provide an overview of the business and comment on current trends.
R. Adam Norwitt (President and CEO)
Well, thank you very much, Craig, and I'd like to extend my welcome to all of you on the phone here today. I'm gonna spend a few moments just to highlight some of our achievements in the second quarter, and then I'll get into a discussion on our progress across our diversified served markets. And then finally, I'll make some comments on our outlook for the third quarter and the full year, and of course, we'll have some time for questions at the end. As Craig just detailed, the company had a very strong second quarter, with sales and earnings both exceeding the high end of our guidance. Revenues in the quarter increased by a very strong 19% in U.S. dollars and 13% organically, reaching a new record for the company of $1.981 billion.
And then, for the third quarter in a row, we booked another record level of orders, of $2.025 billion, and that represented another strong book-to-bill of 1.02 to 1. Operating margins in the quarter reached a new record, 20.6%, and this is just yet another demonstration of the strength of the company's operating performance. Then finally, as Craig said, we delivered record adjusted EPS of $0.90 in the quarter, and that grew a strong 22% from prior year.
With these results, I can just say that I'm very proud of our entire global Amphenol organization, and in a time like this, you just see the agility and the superior execution that are clearly reflected in the company's strong results in the second quarter, and indeed, in the whole first half of 2018. We're very pleased in the quarter to announce two new and small acquisitions that we completed late in June. All Sensors is a California-based provider of high technology pressure sensors for the industrial market, with annual sales of approximately $15 million. All Sensors represents another excellent expansion of our already strong and growing sensor offering for a variety of segments within the industrial market, including, in particular, medical applications.
Ardent Concepts is a New Hampshire-based manufacturer of high-speed socket interconnect products for advanced processors, and with sales of approximately $10 million on an annual basis, Ardent enhances our already industry-leading, high-speed, connector offering, in particular for the communications and the test and measurement markets. As we welcome these great new teams to Amphenol, we remain very confident that our acquisition program will continue to create excellent value for the company. Our ability to identify and execute upon acquisition opportunities, and then successfully bring those companies into the Amphenol family, remains a core competitive advantage for the company. Now turning to our trends and the progress across our various served markets, I just want to comment that as we finish the second quarter, we remain very pleased with the breadth and the balance across our end markets.
Once again, in the second quarter, no market represented more than 21% of our sales in the quarter. You know, this balance is a true asset for Amphenol in any economic cycle. Particularly this quarter, we're very pleased that we realized strong organic growth across nearly all of our markets here in the second quarter. Turning first to the military market, this market represented 10% of our sales in the quarter, had a very good quarter in military. Sales increased from prior year by better than expected and very strong 23% in U.S. dollars and 21% organically, as we once again drove growth across virtually every segment of the military market. Our performance in the quarter was led in particular by strength in rotorcraft, vehicle, avionics and airframe, communications, as well as ordnance-related applications.
Sequentially, our sales came in stronger than we had expected, rising 5% from the first quarter. And as we look ahead, we now expect sales in the third quarter to remain at these robust levels, and for the full year 2018, we now expect to achieve mid-teens growth in the military market, a very strong outlook. Our team, working in the all-important military market, continues to do just an outstanding job of expanding our position in this market. Our success is a reflection of the continued drive to develop leading-edge, high-technology interconnect solutions, which are then incorporated into a broad array of military electronics. And as militaries around the world bolster their spending, in particular, their spending on next-generation solutions, our outstanding performance has positioned us to continue to drive strong results into the long term.
The commercial air market represented 5% of our sales in the quarter. Our performance strengthened once again here in the second quarter, with sales increasing by 17% in U.S. dollars and 14% organically. Sequentially, our sales grew slightly from the first quarter, and as we look into the third quarter, while we expect a normal seasonal moderation in sales, for the full year 2018, we now expect to achieve a low double-digit increase compared to prior year. We're encouraged by our strong performance in the commercial aviation market in the first half of 2018, and, and we remain confident in the company's overall position in the global commercial aviation market.
We continue to broaden our range of products in support of the revolution of new electronics in next-generation planes, and we look forward to capitalize on these leading technologies for many years to come. The industrial market represented 21% of our sales in the quarter. Sales in this market grew by a very strong 27% in U.S. dollars and 17% organically, as we again drove organic growth across essentially all segments of the industrial market, and this included hybrid bus and truck, railway, mass transit, medical, heavy equipment, oil and gas, alternative energy, as well as instrumentation. In addition, we're pleased to have realized continued benefits from our acquisitions that we've completed over the course of the last year. Sequentially, sales were up strongly, rising by 14% from the first quarter.
As we look into the third quarter, we expect sales to moderate from these current levels due to traditional summer seasonality. Nevertheless, for the full year 2018, we continue to expect mid-teen sales growth in the industrial market. Our team is just really pleased with the continued strong performance in the industrial market. Whether through our organic product development efforts or our ongoing acquisition program, we've built a very robust and diversified suite of interconnect and sensor products for the widest array of industrial applications. As electronics continues to transform the industrial market, we look forward to realizing the benefits of our excellent position in this important space into the future.
The automotive market represented 20% of our sales in the quarter, and we again drove strong performance in this market, with sales growing 22% in U.S. dollars, 16% in local currency, and 10% organically. Sequentially, sales grew as expected by 2% in U.S. dollars and 4% in local currency. Looking into the third quarter, we expect sales to remain approximately at these levels despite the summer seasonality, and for the full year 2018, we continue to expect sales growth in the high teens, which includes the benefit of acquisitions. We remain excited by the company's outstanding position in the global automotive market. Our team around the world continues to expand our range of high-technology interconnect products, sensors, and antennas for a wide array of applications within vehicles.
These developments, together with our ongoing strategy of acquiring companies that offer complementary technologies, has positioned us strongly for the future, as car makers continue to integrate advanced electronics into fuel-powered, hybrid, and electric vehicles. In addition, our team is accelerating their work with customers on new advanced technologies, and that includes, in particular, areas such as autonomous and semi-autonomous driving. All of this creates an outstanding long-term growth opportunity for Amphenol. The mobile devices market represented 11% of our sales in the quarter, and our sales performance was a bit stronger than we had expected in the second quarter, as volumes of certain existing programs were higher than we had thought coming into the quarter.
Sales rose by 27% from prior year, as higher sales of products incorporated into smartphone and accessories were only partially offset by somewhat lower sales related to tablets and laptops. As we expected coming into the quarter, sales decreased from the first quarter, declining by about 15% sequentially. We expect sales in the third quarter to increase significantly from these levels as we begin to ramp up on a variety of new programs. And given our strengthening position on several of these new programs that are currently going into mass production, and, of course, as always, understanding that the mobile devices market is inherently very difficult to predict, we now expect sales in the mobile devices market to increase in the mid- to high-teens% for the full year 2018, a very strong performance.
Our results here in the second quarter, together with the strengthened outlook, continues to demonstrate the extraordinary abilities of our team working in the always dynamic mobile devices market. Their reactivity in meeting the challenging and ever-changing demands from customers, all while continuing to focus on development of innovative, next-generation products and manufacturing processes, has secured our leading position in this important market. And we look forward to continuing to realizing the benefits of this position for many years to come....The mobile networks market represented 8% of our sales in the quarter, and we're pleased that our sales grew strongly in the quarter, rising a better than expected 16% in U.S. dollars and 11% organically from the prior year. Our growth this quarter was driven, in particular, by sales of our high technology antenna and interconnect products sold direct to service providers.
Sequentially, our sales grew 14% from the first quarter. And as we look towards the third quarter, we expect a reduction in sales from these levels. However, for the full year 2018, we now expect a mid-single-digit sales increase from prior year. As we discussed during last quarter's call, while we're encouraged by our stronger performance as well as our strengthened outlook, we do not yet see meaningful changes in the overall outlook for carrier spending. And in particular, we don't believe that spending on 5G systems in 2018 will be all that significant. Regardless, our team has continued to work hard to position us extremely well for the future.
And so when that next wave of infrastructure spending does materialize, we're confident that we'll ultimately participate broadly with our wide array of antenna and interconnect products, both working with global equipment manufacturers as well as those service providers. The information technology and data communications market represented 20% of our sales in the quarter, and in this market as well, our performance was stronger than we had expected coming into the quarter. Our sales grew, compared to last year, by 13% in U.S. dollar and 9% organically, and that was driven, in particular, by growth in storage and server applications. Sequentially, our sales grew by a very robust 15% from the first quarter, with growth in virtually all segments, of the IT market. As we look towards the third quarter, we expect our sales to remain at these robust levels.
For the full year, we now expect to realize sales growth in the high single digits, which is a fair bit better than we had anticipated coming out of last quarter. Our position in the IT datacom market is as strong as ever, as we continue to extend our leadership in developing a wide array of next-generation products in high speed, power, and fiber optics for a broad range of OEMs and web service providers around the world. As customers continue to accelerate data center performance in order to manage the explosive growth of online traffic, we remain confident that our high technology offering positions us strongly for the future.
Then finally, the broadband communications market represented 5% of our sales in the quarter, and sales in this market were down by about 5% from prior years as cable operators continued to moderate their spending. On a sequential basis, though, sales rose by a bit less than expected, 11%, from the first quarter. For the third quarter, we expect a modest increase in sales from these levels. For the full year 2018, we now expect our sales in the broadband market to be, roughly at the same level as prior year.
Despite our more muted outlook for the broadband market this year, we're still confident in the strength of our position, and we look forward to realizing the benefits of our expanded product offering in support of customers around the world who are delivering data, video, and voice to consumers and businesses. So just in summary, I just can only say that we're extremely pleased with the company's strong second quarter and successful first half of 2018, as the entire Amphenol organization has continued to execute extraordinarily well in expanding our market position while strengthening the company's financial performance.
Amphenol's superior performance is a direct reflection of our distinct competitive advantages, our leading technology, our increasing position with customers across a broad and diverse array of markets, our worldwide presence, a lean and highly flexible cost structure, an extremely effective acquisition program, and an agile, entrepreneurial management team. Turning to our outlook, for the third quarter and the full year, while the overall demand environment is strong, there are still uncertainties, and in particular, related to trade and geopolitics. So assuming no significant changes to the current economic and geopolitical environment, and based on constant exchange rates, we now expect in the third quarter and full year of 2018, the following, results.
For the third quarter, we anticipate sales in the range of $1.98 billion-$2.02 billion, as well as adjusted diluted EPS in the range of $0.91-$0.93. This represents a sales and adjusted diluted EPS increase versus prior year of 8%-10% and 10%-12%, respectively. For the full year of 2018, we expect sales in the range of $7.82 billion-$7.9 billion, as well as adjusted diluted EPS in the range of $3.57-$3.61. For the full year, this new guidance represents now sales and adjusted diluted EPS growth of 12%-13% and 14%-16%, respectively, over 2017.
In particular, this new outlook now represents full-year organic sales growth of 8%-9%. This is a significant increase from our prior organic growth guidance of 4%-6%, as well as our original organic growth guidance coming into the year of 2%-4%. We're very encouraged by the company's strong second quarter results, as well as our strengthened outlook.... I can just tell you that I'm very confident in the ability of our outstanding management team to build upon these great results in the second quarter and the first half, by continuing to capitalize on the many opportunities to grow our market position, while also delivering strong financial performance in the second half of 2018 and beyond. With that, operator, we'd be very happy to take any questions that there may be.
Operator (participant)
Certainly. The question and answer period will now begin. Our first question is coming from the line of Mr. Mark Delaney of Goldman Sachs. Sir, your line is open.
Mark Delaney (Stock Analyst)
Yes, good afternoon. Congratulations on the good results, and thanks for taking the questions. First question was on tariffs. Adam, you alluded to it a bit in your, your thoughts about your outlook. Can you help us better understand how the conversations are going with your customers and, you know, any shifts you're thinking about there? And more specifically for Amphenol, given how many sites that Amphenol has in China, can you help us understand how much of your, your shipments may be from plants in China into the U.S., and is there any reallocation of your own manufacturing that you're contemplating doing?
R. Adam Norwitt (President and CEO)
Yeah, well, thank you so much, Mark. I mean, obviously, this has been a big news story here. I think we talked about this last quarter also quite extensively. And one thing I'm just so pleased with our team, you know, like many things that come along over which one has no control, I mean, our team around the world looks at this and says, "It is what it is. We're gonna lean into it and really proactively deal with the situation." And I'm just so pleased when we look at our outlook and we look at the very minimal impact that these tariffs so far have on our outlook for the business, and that's just a result of the agility of the Amphenol management team to react in the face of a changing environment.
Now, what does that mean in particular? I think you alluded to the fact, you know, of conversations, and what are those conversations? You can imagine that we've been extremely communicative with our customers throughout this whole process, and we continue to be so. I mean, this is a situation where one has to just be extremely transparent and, and over-communicating in order to make sure that you're supporting customers the best way you can, while at the same time, understanding that sometimes those costs have to be passed through, to, to your partners, whether those be distributors or, or customers.
You know, our first reaction to the tariffs and the first step that we take, you know, upon those tariffs really being even threatened, is to look at what we can do to mitigate the impact of those tariffs and thereby not cause harm to our customers. I think our team around the world has just done a fantastic job of quickly pivoting towards wherever needs to be done, and that. You know, whatever needs to be done can be a whole host of things. I mean, you can imagine with the number of products we sell to the number of different customers and the number of different markets from the number of different facilities, that there's a long, long list of different tactics and approaches that one takes to mitigate those tariffs.
I don't need to go into all of the details of those, but just let it be said that the team is doing a fabulous job of mitigating. Then to the extent that it isn't, we're not able to mitigate that, well, certainly then, that gets passed on and worked with customers to ensure that we're minimizing whatever has to be passed on, but passing on what has to be passed on, through pricing, surcharges, and other things. And again, there's not a one-size approach that we're taking to this. It's very much tailor-made to the circumstances of the various products, and our team is just doing a fabulous job of dealing with that. Now, you know, relative to our position in China, you know, do we import certain things from China that are impacted by tariffs?
Of course, we do, like any other company in, in our position. But the other thing that I will say is, you know very well, our approach to manufacturing, regardless of where it is, has always been an approach that emphasizes flexibility and localization. And so we're always making sure that the best that we can, we're going to make the products in the region where we sell it, and we're going to make those in facilities that are flexible, such that if we need to change something, we can change that something in a reasonable time period. And so that's true, we have a strong position in China, but it doesn't mean that we're locked into anything, and we continue to support our customers around the world very well in, in those local markets.
Look, I will just say this, which is we're big believers in free trade, and we believe that ultimately, free trade is a positive for all industries, let alone the electronics industry, which is one of the most global industries. And we are a reflection of that global electronics industry as a global company, as we are, and we are certainly hopeful and lending our voice to the process, very aggressively, to make sure that these tariffs are not a long-lived experiment here. But whatever it is, it is, and we will make sure that we deal with it effectively, and we have done so so far.
Mark Delaney (Stock Analyst)
Yeah. Got it. That's helpful. A follow-up question on SG&A, which, you know, the nice SG&A leverage, I think, contributed to the record EBIT margin. So I'm just curious how we should think about SG&A as you move through the year, and to what extent some of this leverage can be sustained. Thank you.
Craig Lampo (EVP and CFO)
Sure. Thanks a lot, Mark. In regards to, you know, just SG&A and just overall profitability of the company, certainly we're very happy and excited, you know, with the results we had in the quarter, you know, generating a 20.6% record operating margins in the quarter. As you know, we don't look at, you know, operating margin. You know, we don't look at our profitability specifically from a gross, you know, gross margin or SG&A perspective. We really measure ourselves and measure our operations on an operating margin perspective. Certainly whatever our operations have to do and ultimately to reach those, you know, high performance bars that we set for them, they do, regardless of what levers they need to pull within their businesses.
You can also imagine that every business doesn't have the same, you know, structure in regards to SG&A and, and gross margin, and certain of our operations have, you know, certainly higher SG&A levels because that's what they need to, to run their business, and certain of having lower SG&A levels, depending on, you know, the gross margin that they may, they may, have within that business. So I think, again, we're, we're very happy with, with the, you know, conversion that we had into the second quarter. The SG&A levels that we have is kind of, actually, I would say it's a more typical, sequential kind of growth in our SG&A, if you kind of look at the growth rate versus kind of our sales rate going into the second quarter.
So I would say that actually there's not so much I would point out from an unusual aspect with regards to that. But, you know, we generally, you know, view our operating margins ultimately at the end of the day, and we're very happy with that performance, and nothing specific to point out in SG&A from that perspective.
Mark Delaney (Stock Analyst)
Thank you.
Craig Lampo (EVP and CFO)
Thank you, Mark.
Operator (participant)
Thank you. Our next question is coming from the line of Amit Daryanani of RBC Capital Markets. Sir, your line is open.
Amit Daryanani (Senior Managing Director of Equity Research)
Perfect. Thanks. Congratulations on a nice quarter, guys. Two questions for me as well. You know, one, I guess, Craig, could you just walk through the free cash flow dynamics of, you know, I think the conversion rate has been under 50% for the first half of the year, and I think there's some one-time tax payments there. But just the puts and takes there, and as you get into the back half, should we expect this conversion to improve back to the high 90% that you traditionally have done?
Craig Lampo (EVP and CFO)
Sure. Thanks, Amit. You know, as you know, we've talked about this in the past, and certainly our goal is to drive our annual operating cash flow at a level that's higher than our net income, and we have achieved this, you know, over many years, and we do expect to continue to achieve that. You know, and as I did mention in my prepared remarks, you know, the company did make about $50 million in tax-related payments during the quarter, and this related to the tax reform that, you know, that it was recently occurred. You know, excluding these payments, our operating cash flow in the quarter was actually above our targeted, you know, income levels or net income levels of over 100%, well above that, actually.
So, you know, and we do, I would say, expect in the full year to have that typically strong operating cash flow of, you know, over our targeted levels. And taking into account the non-recurring pension contribution that we had in the first quarter of around $80 million, in addition to the higher level of foreign withholding and other taxes we've paid as it relates to the repatriations during the year, that are higher, I would say, in the first half than we would expect, you know, in the future, just because of you know, some of the cash that was overseas that now we're bringing back in a more accelerated fashion.
So, you know, I would say we're very pleased, actually, with ultimately our operating cash flow performance in the first half, considering the working capital needed to support, you know, these higher growth rates that certainly we're achieving. I would also mention, though, when you come kind of past the operating cash flow, and we talk about free cash flow, that we did talk about this a little bit last quarter, and we do expect to have, and we have had a little bit higher level of capital expenditures during the quarter, you know, again, as we mentioned, and we do expect to have this, you know, a little bit higher level during the year.
But again, within our range, we typically talk about a 2%-4%, you know, range of capital spending, and this year, and certainly in the quarter, we're a little bit higher, kind of, you know, at the top end of that range, maybe, you know, very slightly above. So, you know, that essentially, I think, if you look at our free cash flow, is probably one of the areas that had a slight impact. I think that, you know, as again, we usually don't talk about, you know, 2019 and beyond, but I wouldn't expect that we would continue to be at that much, you know, that higher level.
We continue to kind of be in the, you know, maybe the more middle of our normal typical range that we've been in the past, and therefore, I would believe that our free cash flow in the future would be, you know, would be typically strong. But I have to say that, you know, this higher level of capital expenditures to support, you know, these, you know, really strong programs that we've won is really, I think, a testament of the strength of the company and the fact that we're able to support that and drive the strong growth that we're seeing.
Amit Daryanani (Senior Managing Director of Equity Research)
Perfect. And then I guess, if I could just follow up the industrial segment. You know, it's had some really good growth for the last several quarters, and I think 2018, you talked about mid-teens organic growth. If you step back and think of it, you know, what seems to be driving this? Is it an uptick in industrial spend, or is it more content gains and market share pickup that you guys have? And do you see this sustain the growth levels you've had, in 2019 and longer term, or was there something unique in 2018 that's driving the mid-teens growth here?
R. Adam Norwitt (President and CEO)
Yeah. Well, I mean, I don't know about 2019, so I'm not going to comment necessarily on 2019, but I can tell you that we're just the growth this year, as I mentioned in my prepared remarks, it's very broad-based. And so if one tries to sort of say what is going on across the industrial market, I think there's two things. Clearly, there is a good macro environment overall, and I think that good macro environment overall tends to have a positive impact on industrial. But layered onto that is a trend that is not a new trend, but it may be somewhat of an accelerating trend, and that is the adoption of electronics into the industrial space.
You know, whether that is in trains, whether that is in factory automation equipment, whether that is in new battery technology, in medical areas-
... You name it, across all of those areas where we participate. So broadly, we continue to see customers just adopting new electronics at an increasing pace and at an increasing rate of change. And I think the reason is, you know, industrial is usually slow. It is the last to tend to adopt those kind of new things, because you're putting complex electronics into very harsh environments. You think about an oil and gas drilling environment, you think about a high-speed train, I mean, these are not hospitable environments for delicate and advanced electronics. But I think that the ability to package those electronics has gotten so much stronger, our ability and capability to enable the packaging of those electronic functions with our high-performance products is really part of that whole drive.
I think that is, across all these markets, the real trend that we have seen here. Now, you know, is that trend going to continue in the future? I would be very surprised if it doesn't, because you're just solving a lot of problems when you think about what these electronics are doing, whether that is, you know, targeted irrigation, whether it's the tracking of trucks and all the electronics that goes along with that. I mean, these very, very high precision functionalities being put onto equipment that is traditionally thought of as pretty, pretty heavy to lug around. It's just creating a lot of value for the end customers. But as you know, you know, if there is, in 2019, a different macro dynamic or anything else, you know, industrial is obviously not immune to that.
We look forward, for the long term, to continuing to participate in this broad adoption of electronics in the industrial market.
Amit Daryanani (Senior Managing Director of Equity Research)
Perfect. Thank you.
R. Adam Norwitt (President and CEO)
Thanks, Amit.
Operator (participant)
Thank you. Our next question is coming from the line of Wamsi Mohan of Bank of America. Sir, your line is open.
Wamsi Mohan (Quality Analyst)
Yes, thank you. Adam, in mobile devices, you know, we've clearly seen a history, I guess, of volatility, and you significantly increased your outlook here for the year. Can you give us some sense of what changed in the last 90 days? Is it, you know, design wins that have firmed up? Is it market share, clarity on allocation, or do you actually see a broader market improvement? And can you give us some sense of how that strength layers in across the back half?
R. Adam Norwitt (President and CEO)
Yeah. Well, we talked about it last quarter when we also saw a bit of a strengthening environment. I would just say that as you get closer to the second half, which is when all the action is in the mobile devices market, you start to get a little bit more clarity into all those things that you described, whether that is the strength of your design-ins, the shares that you've been allocated or the volumes that the customers are expecting. And so I would guess—I guess the best way to put it is all of those we've seen a little bit more of a favorable perspective on, and thus has given us the confidence to have a, you know, a relatively meaningful increase in our outlook here in mobile devices.
Now, in terms of the overlay in the second half, and I guess you're asking about, you know, what the cadence would be between Q3 and Q4-
Wamsi Mohan (Quality Analyst)
Yes.
R. Adam Norwitt (President and CEO)
We see a significant increase here in the third quarter, as I talked about in my guidance. You know, what is it ultimately going to be between Q3 and Q4? There's always a little bit of dynamic to that. It remains a very hard market to predict, even within a month or two, let alone across 90 days. But I think we would see that, you know, we'd have a significant increase here in the third quarter, and then we'd see in the fourth quarter still some increase, but maybe not quite as significant, on a sequential basis as we'd see from the second quarter to third quarter. Obviously, second half to first half, as usual, is going to be very strong.
I wouldn't say that we're gonna have, necessarily this year, quite as magnified of a second half, at least based on our current view of the market, as we had last year. You'll recall, in last year, we had a second half that was, you know, close to double what it was in the first half. And so I think that we wouldn't expect it to be such a magnified growth in the first half. And we saw, as I mentioned in my prepared remarks, a little bit stronger performance, even in the second quarter, on some of the existing programs that we're working on. And again, that takes away from the percentage growth that you would see in the second half.
Wamsi Mohan (Quality Analyst)
Okay, that's helpful, Adam. And then, are you seeing any impact at your customers, given shortages of some components like MLCC capacitors? I mean, we've heard some of the EMS players start to call out, you know, revenue misses because they just don't have enough component availability. Is that becoming a more acute problem, you know, relative to last quarter?
R. Adam Norwitt (President and CEO)
Well, I mean, look, we had very strong growth here and very strong results, even amidst these very widely reported and real problems that people are facing with access to certain components. And, you know, you mentioned MLCCs, that's obviously the one that's probably the most talked about, but there seems to be, you know, a demand on a lot of different components that are out there. Has it had a material impact or meaningful impact on our, on our ability or the demand of our customers to for our products? Nothing meaningful. Have there been anecdotes that we've seen? Have we had people that have had to chase things? Because even we use, once in a while, some of these things in certain advanced products.
I mean, no, no question, I guess we've probably had more people chasing things than we had a year ago, but it has not had any meaningful impact on either our ability to ship or our customers' desire for our products, at least so far. I mean, it's a situation that is very broad in the industry. But we do see a lot of customers being very sophisticated about how they're dealing with this, and I think it's something that hopefully the industry is gonna work their way through.
Wamsi Mohan (Quality Analyst)
Thanks, Adam.
R. Adam Norwitt (President and CEO)
Thank you so much, Wamsi.
Operator (participant)
Thank you. Our next question is coming from the line of Shawn Harrison of Longbow Research. Sir, your line is open.
Shawn Harrison (Senior Research Analyst)
Hi, afternoon, and my congrats as well.
R. Adam Norwitt (President and CEO)
Thanks, Shawn.
Shawn Harrison (Senior Research Analyst)
Adam, I'm probably gonna date myself, but, you know, thinking back over, you know, the past, I don't know, almost 15 years of covering you guys, I don't think I've seen as many kind of drop in orders and upside to kind of current quarter, you know, sales trends as we've seen over the past 3-4 quarters. I'm wondering maybe what's your perspective on why that's occurring? We know the macro is strong, but are some of your competitors having problems with lead times, or are there other factors at work where you're, you know, consistently seeing upside in current quarter results?
R. Adam Norwitt (President and CEO)
Yeah, I mean, 15 years is a long time. I am actually 20 years with the company today, Shawn, so we're both dating each other here. Look, I think we've had really strong performance. It's a positive macro environment, as we said, but I think also the momentum that we've developed with the breadth of our technologies across such a diverse array of markets has really put us in a strong position. And that strong position ultimately gives us a great shot of winning with those customers who really need our advanced technologies. And so I would say that, you know, when you look at our performance, on any comparative basis, I would say that we're probably winning a little bit more than our fair share, and because of that strength of the technology, the reactivity.
I mean, you know, Wamsi just asked about shortages and the ability of customers to deal with that. I mean, you can bet that our team, with their typical Amphenolian reactivity, is out there responding to customers when customers are a little bit more stressed about the availability of things than they have been in the past. And so if we can quickly step in and say, "Yes, we can get that for you. We can ramp up capacity, we can shift things when necessary," you know, that at least has a positive image to the company. Whether that means we're taking particularly business from competitors who can't ship, I wouldn't necessarily point to any specifics about that.
But I just think the overall offering that we have to customers of high technology products available to them at the right quality, at the right cost, you know, we're doing a good job, the team overall, and that's allowed us to capitalize on some of this upside.
Shawn Harrison (Senior Research Analyst)
That's helpful. And as a follow-up, if I may, just the mobile infrastructure business, maybe geographically, where was the upside this quarter? And then on the 5G dynamic, if we listen to Ericsson from last week, they seemed a little bit more bullish on the 5G market than maybe you are. And so wondering if, you know, where the disconnect may lie?
R. Adam Norwitt (President and CEO)
Yeah, I mean, geographically, I would say that in mobile networks, I mean, we had decent growth broadly, but I will say it was probably more of a North America-focused growth quarter for us in mobile networks in the second quarter. Look, Ericsson's gonna know a lot more than we are. I mean, we're the tail being wagged by the dog here. But that being said, we have a very broad position, and in our discussions with customers, what we see right now, not that we don't see anything from 5G, but I think what I said is we don't see that as being significant or really very meaningful this year. Is there a lot of work going on in 5G? No doubt about it, a lot of work.
Is there a lot of systems that customers are designing to be 5G ready? I think we see that as well. But ultimately, when we think about the magnitude of a next-generation mobile networks infrastructure build, and, you know, you know that, Shawn, better than I do, you know, those can be quite meaningful, and it gets launched, and there's a big build-out that happens. And we don't expect to see those kind of big build-outs of 5G this year. There's test sites being built. There's, you know, networks that are starting to be fleshed out. There's discussions around, you know, where that's going to happen first and what those functionalities are going to be. But ultimately, we don't see that as being significant to our results this year.
Now, all that being said, I have to say, I mean, we come out of the second quarter with certainly a more positive view of mobile networks this year than it was when we entered the year. And so I think that we're pleased with the performance. We're very pleased, in particular, in the second quarter. We grew, you know, double digits organically on a year-over-year basis, and we were able to, you know, somewhat upgrade our outlook for the full year. So I think we feel really good about the position that we have there, and we look forward into the long term to see, you know, when the real substance of 5G, the substance of those investments comes, we're confident we'll be positioned for it.
Operator, do we have a next question?
Operator (participant)
Yes, sir. Our next question is coming from the line of Steven Fox of Cross Research. Sir, your line is open.
Steven Fox (Senior equity analyst)
Thanks. Good afternoon. I have just two questions for me, please. First of all, Adam, you touched on a few of these points, but I was just curious if you could direct, address directly, sort of some of the competitive outperformance. Your organic growth is about 2X some of your larger competitors right now. So I was curious if there was two or three things you would highlight that maybe are leading to that. And then secondly, with regard to the tariffs, we're hearing a lot about sort of prices going up in distribution as an offset to some of these tariffs, but I was curious where the limit is on that and whether you have to manage that a little more delicately than maybe we're understanding. Thanks.
R. Adam Norwitt (President and CEO)
... Thanks so much, Steve. I mean, look, I'm not gonna speak to others in the industry, which are all fine companies, but I will speak to our organization. I think I mentioned before, we believe one of the core reasons for our performance is really the agility of the organization to react, irregardless of the environment. I mean, you flip it in a bad time, what does that mean? It means reacting on the bottom line. It means reacting to customers when they are really in sometimes very difficult times. But in a good economy like we have today, it can be just as critical to have that reactivity.
The reactivity to get the product to the customer, the reactivity to make investments on behalf of the customers in a timely fashion, the reactivity to accelerate new product developments when people are so busy just making what they have in the current generation. I mean, there's a lot that goes on there that ultimately, our 110 or so general managers around the world, this is the job that they're doing day in and day out. I mean, they wake up in the morning, that's what they do. When they leave the office and head home at night, that's what they do. I mean, it is just exactly that ability to react quickly in real time to changing needs, that, that is one of the greatest assets of Amphenol.
And then you couple that with the technology developments of the company, and I think, you know, over the last decade or so, we've made just great strides in improving on the breadth and depth of our technology offering to customers. And when you look at, you know, the acceleration of what I call the electronics revolution, in really every area that we work, there is a premium put on having a technology that is truly able to enable our customer systems to perform at these higher levels that ultimately consumers and businesses are demanding. And this is, I guess you would say, the better mousetrap approach here, and I think our team has developed a lot of better mousetraps in terms of getting the right product to customers for the applications that they need.
Now, as it relates to tariffs, I mean, look, pricing and all of this is a very, very delicate thing. And I mentioned earlier, you know, we're not taking just a single omnibus approach to that. But no question, in the distribution channel, you know, there's a lot of discussion about that and a lot of transparency that we have with our distributors. You know, what are, as you say, the limits of that? I mean, there are some products where the limits are very low, and there are other products where the limits are very different.
It really depends on the nature of those products, where those products are traditionally procured from, whether those are movable or not, whether there are other mitigation measures that one can take on the tariffs, and ultimately, what the market will bear. And I think by doing that, not in a monolithic fashion, but rather on a really almost part number by part number, customer by customer, application by application approach, you're able to much more uniquely tailor each effort towards what the market will bear, what the customers can absorb and pass on themselves, or what the nature of the product is and what you can do with that product to mitigate those tariffs.
I think that, that is, you know, a little bit the same as the answer to the first part of your question, which is that ability to, to be uniquely flexible in each instance is, is something that helps us a lot in, in dealing with a, a difficult thing. I mean, these tariffs are a difficult thing. I will tell you, it, it's not, it's not without time spent, and our team has spent an enormous amount of time here, and I will get up on a soapbox for a minute and say that, you know, talk about regulatory burden. I mean, these tariffs are an enormous regulatory burden on, on business in general because of the time that you spend to manage through them and to make sure that your customers are, are not unduly punished by those measures.
I think our team is doing a really fabulous job in that light.
Steven Fox (Senior equity analyst)
Great. I appreciate all the color. Congrats on the great performance this quarter.
R. Adam Norwitt (President and CEO)
Thanks so much, Steve. Appreciate it.
Operator (participant)
Thank you. Our next question is coming from the line of Sherri Scribner of Deutsche Bank. Ma'am, your line is open.
Sherri Scribner (Wall Street analyst)
Hi, thank you. Adam, I was hoping to get your thoughts from the perspective of the market being as strong as it is. We're clearly in a positive economic cycle, and you guys guided five of your eight segments to be stronger for the year. I guess, trying to parse that out, is that upside coming from the strengths that you're seeing in those markets in particular, or do you feel that that upside is coming from Amphenol's ability to take some share, do a bit better in those markets?
R. Adam Norwitt (President and CEO)
Well, thanks. Thanks very much, Sherri. Look, I think it depends, is the answer, and that's sort of the answer to many things that we always say in Amphenol. It really does depend. I think in some of those markets, I would say that we are clearly outperforming even the strength. I mean, you just take a look at something like the military market. I mean, the military market, we're expecting now kind of a mid-teen organic growth for the year, and that's just really, really strong. I don't think that military budgets are increasing by that amount. But what I do think is that the adoption of electronics in the military market and our participation in that adoption of electronics is very strong.
And so I guess you could say that, yes, you have a hospitable market, but you also have in, in the case of the military market, at least, you know, a very strong performance specific to Amphenol. And I mean, I don't want to go through all five of those markets as you referred to, but just let it be said that I think there's a combination across each of them of you know, some macro strength and then some that is more unique to us.
Sherri Scribner (Wall Street analyst)
... Okay. And then, I guess, digging into the mobile devices market, I know we've heard from a number of suppliers that they're seeing some benefits in that market from higher ASPs and, you know, more complex products. Do you think that some of the strength that you are seeing in the back half is being driven by that, or is it more, share gains, or is it more unit growth? Thanks.
R. Adam Norwitt (President and CEO)
Thanks. Well, I think it's a combination of all of them. I mean, there's no doubt about it that as mobile devices advance through their generations, I mean, one of two things can happen: either they can get really commoditized, and it becomes just a host for some software, or it becomes a more premium on the performance of the hardware. And I think we've said for many, many, many years that, for us, we're going to participate where there is a premium on the hardware. And, you know, the correlate to that is we believe that ultimately, to be successful, our customers are going to have to design innovations into their products themselves, not just becoming kind of, commoditized hosts for certain software. And I think we've seen that.
I think we've seen in next generation mobile devices, you know, more functionality in the hardware and trying to push all of that into smaller packages with higher performance, more signals that are going through them, higher bandwidth of signals. All of that can ultimately drive to more complexity and more technology that can be embedded within the products. And to the extent that that happens, I think we've been consistent in saying, again, for many years, that to the extent that that trend continues, we see the mobile device market as a good place to be, and I think we're seeing that this year.
Sherri Scribner (Wall Street analyst)
Great. Thank you.
R. Adam Norwitt (President and CEO)
Thanks, Sherri.
Operator (participant)
Thank you. Our next question is coming from the line of Deepa Raghavan of Wells Fargo Securities. Your line is now open.
Deepa Raghavan (Senior Equity Analyst)
Good afternoon. Adam, a question for you, and Craig, one for you. Looks like the organic growth expectations within automotive continues to be high single digit. Is that correct, one? And just curious, you did low double digits in first half, and as you look into your backlog within auto, is there any moderation expected in second half, especially with the Europe WLTP headwinds?
R. Adam Norwitt (President and CEO)
Yeah, I think, I mean, what we talked about is our overall outlook for the automotive market in the mid-teens. I think we didn't specifically say what our organic growth would be for the year, but I think we don't expect it to be much different than it's been here in the second quarter. And, you know, we grew in the quarter by 10% organically, so very strong. I guess 10% would qualify as low double digits, the lowest of double digits, let me say. As we look into the second half for automotive, I don't know that we necessarily see much of a slowdown in the second half.
I mean, you know, the only thing is that, you know, we had an acquisition at the end of last year in the fourth quarter, so the acquisition benefit maybe towards the very end of the year will be a little bit less. But from an organic basis, I would guess our automotive business will be pretty consistent across the year.
Deepa Raghavan (Senior Equity Analyst)
Okay, thanks. Craig, one for you. Share buybacks, that's been pretty strong in the first half. Looks like you've taken the benefit of downdraft here, but you had to borrow to do that, obviously. So the question is, where are you with regards to cash repatriation? And as you continue to repatriate that, should we expect the repatriated cash to juice share buybacks, or will that be used to pay down debt mostly from here? Thank you.
Craig Lampo (EVP and CFO)
Great. Thanks, Deepa. Yeah, I think in regards to the share buyback, certainly, you know, you know, there's a number of factors that we take into consideration, you know, one being certainly the market price of the stock and then as well as other cash needs in the particular period that we're looking at that. Certainly, you know, we may purchase more or less shares in a particular quarterly period. We have seen a little bit more share buybacks in the first half.
As you mentioned, we did do quite a significant amount of repatriation in the first half, which you know, which has actually driven more of the buybacks that we've done, in addition to the fact that, you know, with the tax reform just becoming effective in the first quarter is when we really started to repatriate a majority of the cash. In regards to the buybacks, I wouldn't necessarily, you know, signal any significant change other than I wouldn't necessarily also expect the same level in the second half to be within the first half. It really depends, again, based on all the factors that I mentioned.
In regards to repatriation, I would say that the first half will probably be higher than the second half, by quite a bit, in regards to our repatriation activities. We know certainly we brought back a lot in the first half, and in the second half will be, will be much less than that, but we will continue to repatriate where it makes sense, from a foreign tax perspective and other considerations. And then, you know, going forward, we'll, we'll, you know, from a repurchase activity, we'll see what makes sense based on, again, the cash needs from an M&A perspective or from, you know, where we think the, the market price, seems to be. So certainly, it's something that we really don't make the decision on, you know, far in advance. It's really more kind of on a quarter-by-quarter basis.
Operator (participant)
Thank you. Our next question is coming from the line of William Stein of SunTrust. Sir, your line is open.
William Stein (Senior Analyst)
Hey, thanks for taking my question, and congrats on the great results as usual for Amphenol.
Craig Lampo (EVP and CFO)
Thanks, Wills.
William Stein (Senior Analyst)
Of course. We've spoken a lot about tariffs and understanding the very dynamic nature of the company. We expect you'd manage that as well as or probably better than anyone else.
... There's another sort of creeping trend that I'm hearing from industry contacts, and I wondered if you could comment on it, that relates to inflating commodity costs, in particular, resins. And I think you mentioned this briefly in the prepared remarks, but if you could give us any more details as to your expectations for that trend to continue and, in particular, your ability to pass that on through the channel. My understanding is the channel's taking those price increases, but any comments or clarifications would be really helpful. Thank you.
R. Adam Norwitt (President and CEO)
Sure. I mean, I think what Craig talked about in his prepared remarks was really specific to our cable segment, and we have continued to see on a year-over-year basis, at least, that commodity costs have a more magnified impact on that business where materials is a bigger percent of the overall cost basis. I think that it's a little bit of a mixed bag. I mean, this year has been very inflationary in its totality, and I think on a year-over-year basis, it's inflationary.
Even if some of the commodities, in particular, some of the precious metals, have pulled back a little bit from their highs over the course of the last maybe, you know, 90-60-90 days, you know, maybe that balances a bit out with some of the, the dynamics that you talked about, with respect to the plastics. I think, look, this is, this is something that we just deal with all the time. And so whenever you get commodity price increases, at least in our interconnect segment, you know, our team is doing everything that they can to mitigate that. And to the extent they can't mitigate it, then we work with customers to see whether there's reasonable ways to pass the impact of that on to our customers.
You can do that with varying degrees of success, based on usually the market dynamics that those customers are facing. And so, you know, to the extent that plastics are a little bit up, and to the extent that that's maybe balanced a little bit with metals, I mean, we don't see right now a real significant impact, any different than we have seen, you know, say, a quarter ago or two quarters ago. On a year-over-year basis, it is a little bit inflationary environment, but I think that inflationary environment is also balanced to the end demand.
You know, you know that well 'cause you, Will, know that well, because you've followed the company for quite a while, that what really matters to us is not necessarily whether commodities go up or commodities go down, but do they go up and go down in balance with end demand? I think we are in a relatively healthy demand environment. So to the extent that there are commodity increases, you know, that allows our customers, that allows us to pass on ultimately the impact of those commodity increases.
It's when there's a disconnect between them, and, we all saw that, what, it's now seven years ago in 2011, where the demand environment was not very robust, yet you had a very, very frothy commodities environment, primarily driven by financial speculation, that ultimately created a real pressure on margins in 2011. But if you look at our performance today, you know, we're expanding margins on a year-over-year basis. We're really reaching, you know, the highest levels of profitability in our history. And that comes, you know, amidst what is still a modestly inflationary environment, but with a robust demand environment. So I think that it's that matching and the consistency between the two that really matters to us, and right now, we see that as pretty well aligned.
William Stein (Senior Analyst)
That's really helpful. If I can squeeze a follow-up in, you had very good conversion on the operating line this quarter, as you often do. I think it was over 25%. I think you're running above your long-term op margin target. Should we anticipate a continued expansion on the operating margin line as we go forward?
Craig Lampo (EVP and CFO)
Sure. Thanks a lot, Will. Yeah, no, we certainly, again, we had a great quarter from a, you know, profitability perspective. We did deliver a little bit above what our kind of long-term target is. I mean, not significantly above, but certainly a little bit above that. And if you look, you know, we don't guide to specific margin numbers, but if you kind of, our implied guidance would, if you actually, you know, looked at the numbers, would actually be some margin expansion in the second half. So we do expect to have some more margin expansion, but again, on a normal conversion basis, not anything step function or anything like that. So I think that there's nothing, you know, I guess, unusual that I would point out from that.
I think our longer term 25% conversion is still something that we think we can achieve. We're very happy with the results so far. This year, we do see a little bit of pressure on the overall year, related to some new acquisitions that aren't quite at the level of the average of the company yet in terms of adopting the Amphenol philosophy, but we certainly are still committed to, you know, having them achieve them and certainly optimistic there. In addition to some pressure, as we mentioned before on the cable segment in regards to the, you know, their margins in terms of commodity cost impact. But other than that, we're really converting very well, and sequentially, I think you'll continue to see that, you know, that nice conversion towards the rest of the year here.
William Stein (Senior Analyst)
Great. Thanks so much, and congrats again.
Craig Lampo (EVP and CFO)
Thanks, Will.
Operator (participant)
Thank you. Our next question is coming from the line of Jim Suva of Citi. Sir, your line is open.
Jim Suva (Equity analyst)
Thank you very much, Craig and Adam, for the details so far. One quick question for each of you, and I'll ask them at the same time, so you can take them in whatever order you prefer. But a strategy question more for Adam. Adam, you've made now several acquisitions in the sensor area or segment of the world, starting, you know, GE Sensor and then subsequent to those others.... Do you see the world of sensors and connectors merging over time? Is that like a natural evolution? Do you view them as separate? And then, Craig, on the integration of the recent acquisitions, can you help us out? Are they kind of at operating profitability that you're pleased at? Does Amphenol bring in a lot of tools or best-in-class situation, or how should we think about the folding in of those from a financial perspective?
Thank you, gentlemen.
R. Adam Norwitt (President and CEO)
Well, thank you, Jim. Maybe I'll take your strategy question first here. I mean, you're correct in saying that we've now acquired quite a number of sensor and sensor-related businesses since the time we made our first sensor acquisition, which is now more than 4.5 years ago, when we first acquired the advanced sensor business from GE. And I'd just tell you that we're just so pleased with the progress that we've made, both organically, as well as through those ongoing acquisitions, and that the most recent which is this small company, All Sensors, that we acquired this quarter. It, to your question, is the sensor and the connector world just going to merge together? I mean, that I don't know.
Are we seeing within our company great value of having that total offering of interconnect together with sensors? I mean, we certainly are. I think the presence that we have across a diverse array of markets and to really every nook and cranny of the electronics industry, that's just a fabulous advantage for these sensor companies. Our ability to work with customers, to package those sensor solutions, and ultimately, which need an interconnect, sometimes quite significant interconnect content within them, that has proven to be a great offering to customers, and we've seen quite a lot of progress there with customers who really like the idea of having one throat to choke, with that consolidated offering.
I think that the technology trends of the two types of product sensors and connectors, I mean, they are really, really one and the same. I mean, you take something like the Internet of Things, where you have this just extraordinary explosion of connected devices. And what ties those devices so many times together is the fact that they got to have, in addition to some integrated circuit, which we're not gonna be participating in, of course, they got to have a sensor, a connector, and an antenna. And, you know, when we think of the total range of interconnect products, we include in that sensors, connectors, antennas, and that creates a great proposition for customers who are dealing with unique and challenging design issues that we can many times help them to resolve.
So I think our strategy is certainly that that is a great offering. Whether the industry, and whether every company who's in sensors is gonna be in connectors and vice versa, I think that I wouldn't go so far as to say. I mean, there's plenty of room in the industry for companies who are just going to be in connectors, and plenty of room in the industry for companies who are just gonna be specialized in sensors, and that's, there are many who will be very successful doing so. But I think for our company, this has so far been a really good strategy.
Craig Lampo (EVP and CFO)
Yeah. Thanks, Jim. In regards to the profitability of the acquisitions, and these two great companies are at, you know, relatively small, you know, $25 million in aggregate from an annual revenue perspective. They, you know, they're not so much different from the company average, a little bit below the company average, but they're not gonna have much of a, you know, a drag on the overall profitability just due to their size. So, you know, in terms of that, that's, you know, I wouldn't point out that as something that would have any impact really on the profitability going forward. You know, we do a lot of things as it relates to, you know, other acquisitions, and sometimes they come in at our profitability level, sometimes they're above, sometimes they're below.
And there's a lot of levers that ultimately we push, but ultimately, it's the operations and acquisitions job ultimately to do all of that. We've talked about it before. We don't think about acquiring companies and having, you know, synergies or any things of that nature, but we really look at, you know, we work with the general managers and our groups work with them, and they find kind of the places that they think that, you know, make sense for that operation. And then, you know, the general managers of those operations are responsible for executing, and historically, that's been a great strategy for us, and certainly don't see that, you know, changing in the future.
Jim Suva (Equity analyst)
Thank you so much for the details.
R. Adam Norwitt (President and CEO)
Thank you, Jim.
Operator (participant)
Thank you. Our next question is coming from the line of Joe Giordano of Cowen. Sir, your line is open.
Joseph Giordano (Senior Analyst)
Hey, guys. Good afternoon.
R. Adam Norwitt (President and CEO)
Good afternoon, Joe.
Craig Lampo (EVP and CFO)
Good afternoon.
Joseph Giordano (Senior Analyst)
Just a quick question on IT Datacom, and what specifically is driving the shift in outlook there? And kind of bigger picture, you know, outside of a big recession, what can trip up the trends in that, in like data transmission? That seems like one of the most powerful things I can kind of think of. So what should we be on the lookout for, like, that could potentially change the underlying structure there?
R. Adam Norwitt (President and CEO)
Yeah, well, I mean, I think our positive view of IT datacom comes, number one, because we had a really strong quarter here, and it comes from the outlooks that we're hearing from our customers. We've been talking for a long time about the growing strength of the company's position in the IT datacom market, and that strength which we've developed organically as well as through the number of acquisitions, and most notably, the acquisition of FCI that we made now, you know, two and a half years ago. I think the strength comes from a few areas. I mean, clearly, high-speed products where we have the industry's leading solutions, helping our customers manage through this flood of data traffic that they are trying to deal with. I mean, the data traffic is just unbelievable.
When you look at some of the drivers of that, whether that's online video, which is the most traditional driver of data traffic, I mean, which is just continues to explode, online gaming, which continues to explode, and then these new applications. And I mentioned in my prepared remarks, when we talked about the automotive market, and while it's still a very small and nascent segment of the automotive market, this whole thought of autonomous driving and what that entails from a data perspective, it really just makes your head spin when you think about the amount of data that's being created to support it, an autonomous car, and the amount of data that a single car is creating over the course of a day, a week, and a year.
I mean, you're talking in terms of not gigabytes or megabytes, but terabytes and petabytes of data that these vehicles are creating in order to map the environment that they're in. And we're obviously at the very, very earliest stages of that kind of a revolution in the automotive industry, which then has that knock-on effect of how you're gonna process all that data. And so I think that ultimately, that trend of the expansion of data is something that we're capitalizing on the near term and in the long term. Now, look, I mean, what can trip it up? I mean, look, I don't know. There's a lot of things that can trip things up. I mean, you mentioned a big recession. I...
There have been lots of dislocations in the IT datacom market, and I think you will recall that there were a number of years where actually the overall IT market was not very robust. We did pretty well during that time period because we quickly pivoted towards some of the service provider opportunities, the web service providers, and we were able to really transform our approach to customers in order to capitalize on where the spending still was. But it's a very dynamic market. You have lots of innovation, lots of startup companies, lots of new technologies that are coming out there, and there's no doubt about it, I mean, there's change always underfoot in the IT datacom market. And so what could trip up the market? Who knows, I think is the answer.
But for us, what's important is that we got to remain nimble enough that regardless of what dislocations come along, we'll still be able to get our leading products to the right customers who need those products. And I think if we can keep doing that, we'll be in decent shape.
Joseph Giordano (Senior Analyst)
Great. And then last for me, on the auto side, in terms of your growth, can you flesh out regionally how that played out in terms of your forward guidance, any kind of like second derivative changes, in one versus the other regionally?
R. Adam Norwitt (President and CEO)
Yeah, we had actually, in the second quarter, a really strong performance on a broad basis. Actually, I think organically, it was virtually the same across each of the, each of the regions, Europe, Asia, and North America. I mean, I think when I look at our automotive business, the snapshot of it here in the second quarter, I mean, we have really transformed the regional footprint of that market today, where we, we used to be a business that was, you know, more than two-thirds, if not three-quarters, to in Europe, and then the rest in, in North America and a little bit in Asia.
Now when I look at it, I mean, Europe is, you know, more than a third, but less than a half, and Asia is, you know, around a third, and North America is just a bit less than a third. So it's like, the balance that we've achieved across our automotive market is actually really, really satisfying for the whole team that's working in that space. In terms of the guidance, I mean, we don't necessarily guide on a regional basis, and I wouldn't even be able to tell you what's embedded in our outlook from a regional basis. But I don't think we see any big dislocations or big differences on the regions as we look into the second half.
Joseph Giordano (Senior Analyst)
Great. Thank you.
R. Adam Norwitt (President and CEO)
Thanks, Joe.
Operator (participant)
Thank you. Our last question is coming from the line of Sarah Linden on behalf of Mr. Craig Hettenbach of Morgan Stanley. Ma'am, your line is open.
Sarah Linden (Analyst)
Hello, this is Sarah. I'm for Craig. Just looking at the auto growth you're experiencing and forecasting, kind of moving forward more broadly, could you dive into a little bit what you're seeing in terms of content versus production gains from your customers? And then on the content front, like what parts of the vehicle are seeing those content increases?
R. Adam Norwitt (President and CEO)
Yeah. Well, thanks very much, Sarah. I think that our growth is clearly outperforming overall the automotive production numbers, and you'll know better than I do what those numbers are. They're very widely reported. And I think we continue to see content. What the number is, I wouldn't really be able to tell you exactly what percent of our overall organic growth in the quarter. I mean, we grew 10% organically in the quarter. You know, I would guess the majority of that is either share gain or content because the production is not growing anywhere near that rate.
Sarah Linden (Analyst)
Mm-hmm.
R. Adam Norwitt (President and CEO)
And in terms of the applications, there's a lot to list here, and I, I don't want to keep everybody on the phone all afternoon. But just more broadly, we're seeing, as I talked about in the industrial market, the adoption of new electronics everywhere in the car.
Sarah Linden (Analyst)
Mm-hmm.
R. Adam Norwitt (President and CEO)
Everywhere from, you know, new navigation and telematics systems to safety systems, to more efficient mechanisms for transmissions and engine management, braking systems, electric-hybrid electric drivetrain systems, and even the early beginnings of autonomous or semi-autonomous driving systems. So there's a lot of different applications in the car. I mean, you look at a car today, and I had the good fortune to ride in a few of these really advanced cars more recently, and I mean, these are just data centers with wheels on them. And, it's our job to make sure that we design our products into every part of that data center on wheels to allow us to participate as these new revolutions continue.
Sarah Linden (Analyst)
Absolutely. Thank you. And then quickly, just touching on IT datacom, do you expect to continue to see, your legacy enterprise business, like, driving the business forward, or would growth be primarily driven in the hyperscale side of things?
R. Adam Norwitt (President and CEO)
Yeah, I mean, look, I guess if you if you look over the last few years, we've seen more growth coming out of the hyperscale or the web service area. But we continue to see a lot of efforts and a lot of new technology developments with our, and I wouldn't call them legacy, but they're our traditional OEM customers who are still designing really advanced equipment, that and marketing that on a very broad basis. And so I think we see still a good opportunities in both. I guess that shift that we've been taking advantage of towards the web service providers is something that is not changing today. So I suppose if one were to look forward, you wouldn't see that shift is going to go away.
So I guess by definition, we'd see a little bit more continued more strength coming out of the web service provider. But look, at the end of the day, I mean, we don't really care. I mean, for us, just what's important is that customers, regardless of whether they're OEMs, web service providers, or enterprises directly, that they are continuing to strive for these new equipment functionalities that can help them deal with data transfer rates expanding, as we discussed earlier. And so it's the same job that we have, regardless, to develop those leading products, to make sure that we're doing our part to help the industry in its totality, capitalize upon and manage through this real explosion in data traffic.
Sarah Linden (Analyst)
Got it. Thank you very much.
R. Adam Norwitt (President and CEO)
Great.
Sarah Linden (Analyst)
Thank you.
R. Adam Norwitt (President and CEO)
Well, thank you very much. Yep.
Sarah Linden (Analyst)
Go ahead, sir.
R. Adam Norwitt (President and CEO)
Operator?
Operator (participant)
We have no more questions, and you may proceed.
R. Adam Norwitt (President and CEO)
Okay. Well, thank you very much. And again, we appreciate everybody's time today. I wish that everybody has a good continuation of your summer, and we look forward to speaking to everybody in the fall. Thanks again.
Thank you.
Operator (participant)
Thank you for attending today's conference. If you would like to hear the replay of the call, you may dial the toll-free number 1-800-337-6558, and enter the PIN of 7183. Thank you, and have a nice day.
