Amphenol - Q4 2017

Transcript

Operator (participant)

Hello, and welcome to the Q4 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 a 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 (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 Q4 2017 conference call. Our Q4 2017 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. Then we will take 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 Q4 with record sales of $1.944 billion, exceeding the high end of the company's guidance for sales by approximately $145 million and achieving new records of performance. Sales were up 18% in US dollars and up 16% in local currencies compared to the Q4 of 2016. From an organic standpoint, excluding both acquisitions and currency, sales in the Q4 increased a very strong 13%. Sequentially, sales were up 6% in US dollars in local currencies and organically. Breaking down sales into our two segments, our cable business, which comprised 5% of our sales, was down 5% from the Q4 of last year.

The interconnect business, which comprised 95% of our sales, was up 19% in U.S. dollars from last year, driven primarily by organic growth as well as the impact of acquisitions. For the full year of 2017, sales were a record $7.011 billion, up 12% in U.S. dollars and in local currencies, and up a very strong 8% organically compared to 2016. An excellent performance. Adam will comment further on trends by market in a few minutes.

Operating income was $399 million for the Q4, up 18% from 2016, and operating margin was a strong 20.5% in the Q4 of 2017, equal to our record and comparable to both the Q4 of 2016 and the Q3 of 2017. From a segment standpoint, in the cable segment, margins were 11.2%, which is down compared to the Q4 of 2016 at 14.9%, primarily driven by an increase in certain commodity costs together with the lower volumes. In the interconnect segment, margins were a strong 22.4% in the Q4 of 2017, equal to theQ4 of last year.

For the full year of 2017, the company delivered $1.432 billion in adjusted operating income, up a strong 15% from 2016. We continue to be very pleased with the company's operating margin achievement, both with the achievement of 20.4% on an adjusted basis for the full year, which represents the first full year over 20% level, as well as the achievement of 20.5% operating margin in the Q4, which reflects a sixth consecutive quarter over 20%.

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 the market conditions and thereby maximize both growth and profitability in a challenging 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 drive enhanced performance in the future. Interest expense for the quarter was $25 million compared to $18 million last year, reflecting the impact of the higher average interest rates resulting from the senior notes issuance earlier in the year, as well as the higher average debt levels, primarily resulting from the company's stock buyback program.

During the Q4 of 2017, the company incurred a one-time tax-related charge of approximately $400 million, or $1.26 per share, resulting from the enactment of the Tax Cuts and Jobs Act. This charge reflects a shift to a modified territorial tax regime and includes our current estimate of the U.S. toll charge related to the deemed repatriation of cumulative unremitted foreign earnings, which will be paid over a period of 8 years. Local taxes related to the cumulative unremitted foreign earnings due to our intention over time to repatriate our foreign cash, which will be paid when those respective earnings are repatriated, partially offset by an adjustment of certain U.S. deferred tax balances due to the change in the tax rates.

These amounts are the company's best estimates based on the current information and guidance available at this time and represent provisional estimates of the one-time tax-related charge associated with the Tax Act, which will be finalized in 2018. In addition to requiring the one-time charge just discussed, the Tax Act also reduces a substantial portion of the future tax benefits from our stock option program that we have called out during the prior 2017 earnings calls.

Because these future tax benefits will be substantially reduced and the fact that 2017 was the first year that excess tax benefits were reflected in income under GAAP, we will exclude these benefits in our, in our presentation of adjusted non-GAAP results for 2017 and onwards, because we believe that it will provide a more helpful comparability of period-to-period results for investors.... Please refer to the supplemental financial information in our earnings release for a reconciliation of GAAP to non-GAAP adjusted net income and the diluted EPS for all 2017 quarters, which now excludes the excess tax benefit of stock option exercise, as well as the other items already noted.

The company's GAAP effective tax rate for the Q4 2017, including the one-time tax-related charge, partially offset by approximately 550 basis points excess tax benefit related to the exercise of stock options, was approximately 127%. Excluding these items, the adjusted effective tax rate was approximately 26.7% for the Q4, which is consistent with the effective tax rate in the Q4 of 2016. For the full year, the adjusted effective tax rate was 26.5% for 2017, which excludes the excess tax benefit from option exercises and was consistent with 2016.

On a GAAP basis, the company's full year effective tax rate was approximately 51% and 27% for 2017 and 2016, respectively, reflecting a 2017 one-time charge and the tax effect of the acquisition-related costs incurred during the respective years, partially offset by the approximate 490 basis point excess tax benefit of the exercise of stock options in 2017. As indicated in our earnings release, we are still evaluating the impact of the Tax Act on our going forward effective tax rate. As such, based on the current information available, we have estimated that the approximate benefit of the Tax Act on our tax rate will be at least 1 point. Accordingly, we have included this approximate benefit in our 2018 guidance.

We would like to note that the impacts on our going forward effective tax rate are still being evaluated, and the effective tax rate reflected in our grants does not reflect any potential change due to the finalization in 2018 of the one-time tax-related charge resulting from the Tax Act. Adjusted net income was a strong 14% of sales in both the Q4 of 2017 and for the full year of 2017.

From an EPS perspective, on a GAAP basis, including the impact of the Tax Act, partially offset by the 7-cent Q4 and 21-cent full year excess tax benefit from stock option exercise, we reported a diluted loss per share for the Q4 of $0.34 and diluted EPS of $2.06 for the full year of 2017. On an adjusted basis for the Q4, Q4 adjusted diluted EPS was a record $0.86, which is a 15% increase compared to $0.75 for the comparable 2016 period, and compares to our adjusted EPS guidance in the Q4 at the high end of $0.80, excluding the $0.01 EPS benefit included in our guidance for the Q4 related to the expected excess tax benefit of stock option exercises.

For the full year 2017, adjusted diluted EPS was a record $3.12, up 15% over 2016 at $2.72, a very strong performance, and compares to our adjusted EPS guidance in the full year at the high end of $3.06, excluding the $0.15 EPS benefit included in our guidance for the Q4 related to the expected excess tax benefit of stock option exercises. This strong growth was supported by excellent operating performance, as demonstrated by the company's strong operating margins. Orders for the quarter were a record $2 billion, a 20% increase over the Q4 2016, resulting in a book-to-bill ratio of 1.03 to 1. The company continues to be an excellent generator of cash.

Cash flow from operations was a record $428 million in the quarter, and $1.1 billion for the full year, or approximately 156% and 116% of adjusted net income, respectively. From a working capital standpoint, inventory, accounts receivable, and accounts payable were approximately $1.1 billion, $1.6 billion, and $875 million, respectively, at the end of December. Inventory days, days sales outstanding, and payable days, excluding the impact of acquisitions, were 76, 73, and 60 days, respectively, all within our normal range.

The cash flow from operations of $428 million, along with the stock option proceeds of $50 million, were used primarily to fund net capital expenditures of $69 million, to purchase approximately $62 million of the company's stock, to fund dividend payments of $58 million, to fund acquisitions of $22 million, and to repay $20 million under the Commercial Paper Program, which resulted in an increase of cash, cash equivalents, and short-term investments of approximately $264 million, net of translation. During the quarter, the company repurchased 700,000 shares at an average price of $89.

These repurchases were made under the company's $1 billion two-year stock repurchase program, and to date, the company has repurchased approximately 8.4 million shares or $618 million under the plan, and approximately $318 million of repurchases remain available under the program through January 2019. At December 31st, cash and short-term investments were approximately $1.8 billion, the majority of which is currently held outside the US. Given the flexibility introduced by the previously discussed Tax Act relative to repatriation of foreign earnings, the company is currently in the process of assessing repatriation opportunities in 2018 in accordance with its capital allocation strategy.

We believe the ability to more freely move earnings under the new territorial system will provide additional support for the company's long-term capital allocation strategy, which focuses on achieving a balance between organic business development, acquisition growth, and shareholder returns, including dividend and share buybacks. Also, at the end of the quarter, the company had issued approximately $1.2 billion under its commercial paper program. The company's cash and availability under credit facilities totaled approximately $2.6 billion. Total debt at December 31st was approximately $3.5 billion, and net debt is approximately $1.8 billion. Q4, 2017 EBITDA was approximately $469 million, bringing the company's full-year EBITDA to a record $1.7 billion. From a financial perspective, this was an excellent quarter and year.

Before I turn the call over to Adam, I would like to make a brief comment relative to our 2018 earnings guidance. As mentioned earlier, our 2018 diluted EPS guidance reflects an estimated 1-point benefit on our 2018 effective tax rate from the Tax Act, or approximately 25.5%, which compares to our 2017 adjusted effective tax rate of 26.5%. On that basis, we anticipate diluted EPS of $0.78-$0.80 for the Q1 of 2018, or 13%-16% growth versus the Q1 2017 adjusted diluted EPS.

For the full year 2018, we anticipate diluted EPS of $3.39-$3.47, which represents a 9%-11% growth versus full year 2017 adjusted diluted EPS. I will now turn it over to Adam, who will provide an overview of the business and comment on current trends.

R. Adam Norwitt (CEO)

Well, thank you very much, Craig, and thank you all for taking the time to listen in on our conference call today. I hope it's not too late to wish everybody a happy New Year. As Craig mentioned, I'm gonna highlight some of our achievements here in the year, both in the Q4 in 2017. I'll discuss the trends and progress across our served markets, and then I'll make a few comments on our outlook for the Q1 and the full year of 2018.

With respect to the Q4, I mean, Craig went over many of these details, but just to reiterate, our results in the Q4 were substantially stronger than expected, as we exceeded the high end of our guidance in sales and adjusted earnings, and reached new records in orders, sales, and adjusted EPS. Sales grew by a very strong 18% in U.S. dollars and 16% in local currencies, reaching another new record of $1,944 million. I'll just say that we're pleased, in particular, that we grew organically in the quarter by a very strong 13%. Craig alluded to the company booked a new record, $2 billion in orders, and that not only represented an excellent book-to-bill of 1.03 to 1, but represented 20% growth to prior year orders.

A very, very strong finish from our bookings. Operating margins were again strong in the quarter, equaling our highest ever level of 20.5%, and cash flow in the quarter reached a new record, $428 million, which is just another great confirmation of the company's financial strength. Just once again, as I come out of the Q4, I'm just so proud of our team. Our results this quarter, once again, reflect the true value of the discipline and agility of Amphenol's entrepreneurial organization, as we continue to perform well amidst what is always a very dynamic electronics industry, all while driving outstanding operating performance for the quarter. We're very pleased to be able to announce two new acquisitions, one that was completed late in December and one that was completed early here in January.

First Sunpool, which we closed on late in the month of December. It's a China-based provider of high technology antennas for the Chinese automotive market, with annual sales of approximately $30 million. Sunpool, which is based in the industrial center of Northeast China, is a leader in the Chinese automotive antenna market, leveraging its advanced product design strength, together with outstanding vertically integrated and low-cost manufacturing capabilities. The company represents another great complement to both our broad and diversified antenna offering around the world, as well as a great complement to our growing presence in the Chinese automotive market. CTI Industries, which we closed on early in January, is a Canada-based manufacturer of high technology cable assemblies for a wide array of applications, including embedded computing, industrial, and automotive.

The company, which has revenues of approximately $60 million, manufactures its products in Canada, Mexico, and China, and serves a broad range of important and complementary customers to our existing customer base. The company enhances our already industry-leading value-add interconnect capabilities across this really wide range of end markets and applications. So as we welcome these outstanding new teams to Amphenol, we remain very confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisition opportunities, and then to successfully bring these new companies into the Amphenol family, remains a core competitive advantage for the company. Now, just to make a few comments on 2017, I think very clearly, 2017 was another outstanding year for Amphenol.

We expanded our position in the overall market, growing sales by 12% in both US dollars and local currencies, reaching a new sales record of $7.011 billion. Organically, we grew by a very strong 8%, which was significantly higher than we had expected coming into the year.... Our full year adjusted operating margins also reached a new record of 20.4%, and as Craig mentioned, this was the first time that we exceeded 20% return on sales for a full calendar year. Our strong profitability enabled us to generate adjusted diluted EPS of $3.12, growing also a strong 15% from prior year. Operating cash flow and free cash flow also were both records in the year at $1.144 billion and $921 million, respectively.

And we continued to put that cash to work in our acquisition program, which once again, contributed strongly to our performance here in 2017. As you'll recall, we closed on the acquisitions earlier this year of Phitek, i2s, Telect, the three sensor businesses of Meggitt, and then Sunpool in the Q4, and CTI here in January. All of these acquisitions have already begun to create value for the company, and most importantly, we've now been joined by a great range of talented individuals, which thereby deepens the bench of our already impressive management team. In addition to our acquisition program, we also bought back, this year, 8.4 million shares under our $1 billion share buyback program, and you'll recall that we increased our quarterly dividend by 19% during the year.

The company's consistent and balanced approach to capital deployment, we believe, will be further enhanced through the increased flexibility afforded by the modified territorial tax system that's implemented in the recently passed U.S. Tax Cuts and Jobs Act. We believe the ability to more freely move the company's earnings under this new territorial system will provide additional support for our consistent long-term capital allocation strategy, which focuses on achieving a balance between investing in organic business development, acquisition growth, and delivering shareholder returns, including our dividends and share buyback program. Our long-term mission remains the same, and that is to be the enabler of the electronics revolution. Through the organic development efforts of our worldwide entrepreneurial organization, together with the benefits from our acquisition program, we've expanded our partnerships with a broadening array of customers across all of our diversified end markets.

This has resulted in Amphenol strengthening our position across the many segments of the electronics industry. While the overall market environment in 2017 was certainly very dynamic, as we enter 2018, our agile entrepreneurial management team is highly confident that we have built a platform of strength from which we can drive superior long-term performance. Now, turning to the trends in our served markets, and just, reflecting back again on 2017, we're very pleased that our balanced and broad end market diversification has continued to create real value for the company. Once again, no end market represented more than 20% of our sales for the full year, and we remain very steadfast in our belief that this diversification mitigates the impact of the volatility of individual end markets, while exposing us to leading technologies wherever they may arise across the electronics industry.

So turning to those markets specifically, starting with the military markets. The military market represented 10% of our sales, both in the Q4 and for 2017. Sales in the military market were up strongly in the Q4, rising by a greater than expected 11%, driven by growth in really most segments of the military market, but that included, in particular, aircraft, base, naval, and communications applications. Sequentially, our sales in military increased by a very robust 10%. And for the full year of 2017, we're very pleased that our military sales grew by a very strong 13%, all organic, reflecting broad-based strength across virtually all segments of the market. Our team working in this important market has continued to solidify our leadership position by leveraging our leading technology position amidst a more favorable military spending environment.

The breadth of our position is even more important in this environment, as we are able to participate on a wide array of next-generation military hardware. Looking ahead, while we expect sales in the Q1 to moderate from these Q4 levels, we do expect to achieve mid-single-digit sales growth in the military market for the full year of 2018. The commercial aerospace market represented 4% of our sales both in the Q4 and for 2017. Sales in the Q4 increased from prior year by a robust 11%, as aircraft manufacturers increased their procurement after several quarters of more moderate spending patterns. Sequentially, our sales increased by 7% from the Q3.

For the full year of 2017, our sales were up by 3% as the benefits of the Phitek acquisition completed in the Q1, as well as the strength in large passenger plane volumes, was offset by a continued moderation in demand for both helicopters and business jets. Looking into 2018, we now expect a slight moderation in sales from these levels in the Q1. And for the full year, we expect a low single-digit sales increase as helicopter and business jet procurement volumes stabilize, and as commercial jetliner production continues to grow moderately. We remain encouraged by the company's strong technology position across a wide array of aircraft platforms and next-generation systems, and we look forward very much to leveraging that position to expand our overall position in the exciting market for commercial aircraft electronics.

The industrial market represented 20% of our sales in the Q4 and 19% of our sales for the full year of 2017. Sales in the Q4 grew by a stronger than expected 29% in US dollars and 22% organically, as we benefited from robust organic growth across segment of the industrial market, but driven especially by strength in heavy equipment, oil and gas, alternative energy, and instrumentation. Sequentially, our sales in the industrial market grew by a better-than-expected 7%.

For the full year of 2017, our sales in the industrial market grew by a very strong 22% in US dollars and 15% organically, and this was driven in particular by outstanding performance, again, in heavy equipment and instrumentation, oil and gas, and also factory automation, as well as by contributions from the acquisitions that we've made over the recent two years. No doubt about it, that 2017 was an excellent year for our teams that are working in the industrial market. Through both our successful acquisition program as well as our organic innovation, we've developed a very broad range of products across a diversified array of exciting segments within the global industrial market. We're very proud of the success and look forward to realizing the benefits from our efforts in the industrial market for many years to come.

And the addition this quarter of CTI and the various value-add products that come with that acquisition, further strengthens our already robust position in value-add interconnect assemblies for a wide range of segments in the industrial market. Looking to the Q1 of 2018, we anticipate a moderation of sales from current levels, but for the full year 2018, we expect to realize mid-teens growth as we continue to benefit from our organic growth efforts together with the contributions from our recent acquisitions. The automotive market represented 18% of our sales in the Q4 and 19% of our sales for the full year 2017.

Sales increased a very strong 22% in U.S. dollars, 16% in local currencies, and 12% organically, as we continued to make great progress penetrating a wide array of applications and new electronic systems with car makers around the world. Sequentially, our automotive sales increased by 6%. For the full year of 2017, our sales in the automotive market grew by 16% in U.S. dollars and 11% organically, another clear reflection of the company's ongoing progress in expanding our position across the global automotive market. We're pleased, in particular, that in 2017, we realized double-digit growth in all regions, North America, Europe, and Asia.

We're continuing to benefit from our long-term and consistent strategy in the automotive market of expanding our range of interconnect sensor and antenna products, both organically and through acquisition, to enable a wide array of onboard electronics across a diversified range of vehicles made by auto manufacturers around the world. We're very excited that the acquisition of Sunpool expands our already growing position in the market for automotive antennas, an area where we can leverage our industry-leading RF technology position, together with our broad and balanced position with automotive manufacturers around the world. Looking ahead, for the Q1, we expect sales to increase from current levels, and for the full year 2018, we expect to achieve sales growth in the high teens in the automotive market. We look forward to continuing to realize the benefits from our successful automotive business into the future.

Turning to the mobile devices market, the mobile devices market represented 18% of our sales in the quarter and 14% of our sales for the full year 2017. Once again, in the Q4, our teams just did a great job, and our performance in the mobile devices market was much stronger than expected. We grew by a very substantial 69% from prior year as we capitalized on higher volumes of new products, in particular, related to smartphones as well as accessories. On a sequential basis, our sales grew by a very robust 18% from the already very strong Q3.

For the full year 2017, we're very pleased that our sales to the mobile device market increased by 12% from prior year, and as you'll all remember, this is significantly ahead of our expectations coming into the year and even out of the Q2. Our growth for the year was also driven by growth in smartphones and accessories, offset by declines in the volumes of tablets. I just cannot emphasize how proud I am of our team working in this important market. As we had discussed last quarter, they've been able to quickly capitalize on unexpected opportunities to expand our position on important new programs and reacting extremely quickly to be able to increase sales by these very significant amounts.

I can tell you one thing, and that's that our customers remain extremely satisfied to call Amphenol their partner, knowing that we're there, we're there for them no matter when they need us. The mobile device market is, of course, an extremely dynamic and a very exciting part of the overall electronics industry. Both the velocity of product introductions and the challenges of ramping the customer requirements creates opportunities for a company like Amphenol that can react with extreme agility to the ever-changing environment. This agility, coupled with our leading array of interconnect, antenna, mechanical, and production-related products, positions us strongly for the future. Looking in the Q1, not surprisingly, we expect a sequential reduction in sales of approximately 20% due to the typical seasonality that we see in this market.

For the full year 2018, we currently expect to realize low single-digit growth in the mobile devices market. However, we remain ever aware that this market will inevitably perform in unexpected ways, and we'll just continue to remind ourselves that the key to our success is the proven ability of our team to meet and capitalize on any unexpected opportunities and challenges that arise in this dynamic market. The mobile networks market represented 7% of our sales in the quarter and 8% of our sales for the full year of 2017. Sales in mobile networks declined from prior year by a bit more than we had expected, 7% in U.S. dollars and 13% organically, as mobile operators around the world continued to moderate their spending on network buildouts. Sequentially, our sales were down only slightly in what is normally a seasonally softer Q4.

For the full year of 2017, sales were down in low single digits as the overall spending environment for mobile operators remained muted. Looking ahead, and given the uncertainty in the continued uncertainty, I should say, in the spending plans of wireless operators around the world, we expect sales in the Q1 to moderate from current levels. For the full year of 2018, we do not yet anticipate a recovery in the spending environment, and accordingly, we anticipate sales to remain roughly at 2017 levels. While this year's pause in spending was no doubt a challenge for our team to manage, we're very pleased that we have continued to focus on our efforts of designing new products for a broad range of next-generation networks, including all-important 5G networks, thereby positioning the company to benefit when operator spending does return to growth.

Our unique position with both equipment manufacturers and mobile service providers creates significant long-term potential for the company. The information technology and data communications network represented 18% of our sales in the Q4 and 20% of our sales for the full year of 2017. As we had anticipated coming into the Q4, our sales were slightly down from prior year, as stronger sales of products used in servers were more than offset by a moderation of demand in both networking and storage-related equipment. Sequentially, sales were only slightly down from the Q3, which was actually a bit better than we had expected coming into the quarter.

For the full year of 2017, our sales in IT Datacom grew by a strong 9% in U.S. dollars and 6% organically, which is really a great performance given the overall spending environment, as well as the significant strength that you'll all recall we had realized in 2016. Our organic growth in IT Datacom is a real testament to our team's efforts to develop leading technologies while rapidly pivoting towards the opportunities for growth created by new customers in this important market. Looking into 2018, while we anticipate a normal seasonal moderation of sales in the Q1, we do expect to achieve low- to mid-single-digit sales growth for the full year.

The IT Datacom market remains a very exciting place, with both traditional and new customers constantly striving to upgrade their equipment to manage the immense expansion of data traffic. This traffic growth continues to be driven by, in particular, the expansion of video as well as the broadening of cloud-based services. Our team remains at the forefront of efforts to enable these revolutions in the IT Datacom market through their ongoing development of next-generation, leading, high-speed, power, and fiber optic technologies. Finally, the broadband market represented 5% of our sales in the Q4 and 6% of our sales in the full year of 2017. Sales decreased by 8% in the quarter as operators paused their spending on network buildouts. On a sequential basis, our sales were down by a bit more than expected, 14% from the Q3.

While we did realize growth of 5% in the broadband market in 2017, with the contributions from our acquisitions, organically, our sales were down mid-single digits, by about 5% in the face of a challenging demand year. Operating spending this year was impacted by a number of external factors, including, in particular, the various strategic combinations being considered among our customers. Nevertheless, we come out of 2017 very pleased that our product diversification efforts in the broadband market have positioned us very well for the future. Looking into the Q1, we expect sales to moderate from these levels, and for the full year of 2018, we currently expect sales in the broadband market to remain at 2017 levels. So in summary, with respect to 2017, I'm just extremely proud of our performance this year.

While there remain many dynamics in the global market, the Amphenol organization has continued to execute extraordinarily well. In particular, our dual-pronged approach of growing both organically and through our acquisition program has resulted in the company expanding our market positioning while strengthening our financial performance. Amphenol's superior performance is a direct reflection of our distinct competitive advantages, our leading technology, our increasing position with customers in diverse markets, our worldwide presence, a lean and flexible cost structure, a highly effective acquisition program, and all of that with the underpinnings of our agile, entrepreneurial management team.

Now turning to our outlook, as Craig mentioned in his remarks, as a result of the changes in U.S. tax law, we currently expect a reduction in our adjusted effective tax rate of at least 100 basis points, and we're gonna continue to refine this expectation as further implementation guidance is released. On this basis, and based on a continuation of the current market environment as well as constant exchange rates, we now expect for the Q1 and full year of 2018, the following results: For the Q1, we expect sales in the range of $1.78 billion-$1.82 billion, and diluted EPS in the range of $0.78-$0.80, respectively.

And again, that represents a sales increase versus prior year of 14%-17% in US dollars and 10%-13% in local currency, and an increase versus prior year adjusted diluted EPS of 13%-16%. For the full year 2018, we expect sales in the range of $7.44 billion-$7.6 billion, and diluted EPS in the range of $3.39-$3.47, respectively. For the full year, this represents sales and diluted EPS growth of 6%-8% and 9%-11% over 2017 sales and adjusted diluted EPS levels. We're very encouraged by the continued strong performance of Amphenol in 2017, and we look forward to driving further strength going forward, even given the many dynamics across the electronics industry.

I'm confident in the ability of our outstanding management team to build upon these new record levels of revenues and earnings, and to continue to capitalize on the many future opportunities to grow our market position while expanding our profitability. With that, operator, we'd be very happy to take any questions that there may be.

Operator (participant)

The question and answer period will now begin. Our first question comes from the line of Shawn Harrison from Longbow Research. Your line is now open.

Shawn Harrison (Analyst)

Hi. Afternoon, everyone, and congrats on the strong finish to 2017.

R. Adam Norwitt (CEO)

Thank you, Shawn.

Shawn Harrison (Analyst)

The mobile devices business, obviously, it looks like you gained, you know, significant shares. You're able to out execute, you know, your peers during the latter half of this year. Are you seeing any expectation that you would cede back some of that market share in 2018, or is your expectation that you would more follow kind of market growth or smartphones?

R. Adam Norwitt (CEO)

Well, I think, you know, to answer it a little bit in reverse, I mean, market growth for smartphones is not always a great predictor of our performance. As you know, there are lots of different factors that go into that market growth. But in terms of our position with our customers, I think we really confirmed to our customers that Amphenol is a very important partner to have, and customers are not going to forget that very easily. So I believe that we have really created for ourselves a very resilient position, but a resilient with the caveat that you're in a market where everything can change all the time. And so I think we've done ourselves a great service. Our customers have recognized that.

I believe that we'll continue to have a very strong position, but what volumes ultimately will be and how new platforms ultimately get designed, that's always very difficult to predict in this market.

Shawn Harrison (Analyst)

And then as a follow-up, I don't, I don't—maybe the word dour is, is too negative, but your view on the mobile networks business seem that way to me. Is there any geographic region that is, is more negative in 2018 versus 2017, or are you just seeing all global regions challenged?

R. Adam Norwitt (CEO)

Yeah, I mean, I think dour is maybe a little strong word for the guidance. I think we expect it to be for the year, you know, kind of flattish, for the year, which is not quite dour, but certainly our performance in 2017 was not what we would have wanted coming into the year. I wouldn't say that there's, in particular, one or another geography that sticks out. I think what we see in the mobile networks market is that is a dynamic that we have seen many times before when you have both generational changes as well as, you know, various corporate goings and comings across the industry, which is that there is a little bit of a pause, and that is a pause that we saw this year.

You will recall, 2016 was a very strong year for us in mobile networks, Sean, and I think this year we saw a pullback in that, and we expect that kind of a pause to continue into 2018, in particular as the 5G networks, as the planning goes on for those. If there is ever an acceleration overall in the plans of various operators or pulling forward in the plans of when to ultimately install next generation networks, what I can assure you is our team has just done a fabulous job of making sure that we're broadly positioned in all geographies, and that's how we've always dealt with this. We always think about this market as a market where you get sometimes this kind of pent-up demand that materializes over a certain time period.

Obviously, data traffic is not changing. It continues to grow unabated. But ultimately, when operators choose to make the investments in those next generation networks, number one, depends on the availability of the actual hardware to enable those networks. Number two, depends on what's happening with the various corporate ownerships of those operators. And number three, depends on their ability to monetize the increase in the data traffic. I think over the years, the operators have gotten better at that last piece, which is the monetization of the data traffic, but still, there's much work still to be done on finalizing these next generation networks.

Regardless of how it comes out, you know, we have always been there and been ready and waiting to capitalize on that pent-up demand when it eventually does get satisfied, and I believe long term, it will.

Operator (participant)

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

Amit Daryanani (Analyst)

Yep, thanks a lot. Good afternoon, guys. Two questions for me as well, I guess. Maybe to start off on the tax rate. Craig, you're talking about, I think, 25.5% tax rate right now, but it doesn't sound like it's all finalized. So what are the factors that you're waiting for to get more clarity on, if you could just maybe call out a couple of those? And then, do you think 25.5% is the right tax rate, or does it go down from there as you're going into 2019 as some of these things get sorted out?

Craig Lampo (CFO)

... Sure. Thanks, Amit. Yeah, I mean, as mentioned in my prepared remarks, Amit, you know, the current information and guidance available to us, you know, creates our best estimate and kind of what we have today. There's a lot of moving parts as it relates to the Tax Act. It was just passed 30 days ago, a little over 30 days ago, so there's still a significant amount of interpretations and guidance coming out. I mean, there's guidance that came out just Friday of last week, you know, that we had to process. So that's kind of what we're referring to in terms of we're still evaluating it. I wouldn't point out any one particular thing. There are certain provisions in it that, you know, are certainly have some impact on us and other multinational companies.

You know, but, but, you know, the 1 point is kind of our best guess today based on what we know. And we did say at least 1 point, so I wouldn't expect less than that. So we'll see what happens going forward as we have more clarity on all of these, you know, things that we're expecting, hopefully, will come out from a, from a guidance interpretation perspective. So I, I would tell you that I think 25.5% is the rate, rate to use as, as kind of we look forward here, and I'm certainly not gonna guess in 2019 and beyond, what, what, what might happen there.

Amit Daryanani (Analyst)

Got it. And I guess, Adam, just on mobile devices, you know, I think last year, maybe prior to that as well, when you start off the year and give annual guide, you always kind of start off with a flat expectation for that segment, saying it's volatile, we can't predict it, which makes sense. What do you see better today that, again, you're not dramatically more positive than that, but you're talking about low single digit growth? So I guess versus the last few years, what do you see so different in mobile devices that makes you take a more positive stance than versus the flat number you've typically talked about?

R. Adam Norwitt (CEO)

Well, I think, you know, Amit, if you... With Shawn's question, I think there is something related to that, which is, you know, we clearly had a very significant overachievement here in the second half when we think about our mobile devices business. In the mobile devices market for us, second half to first half was up by nearly 90%. I mean, that was a very, very strong performance by our team, and I, I cannot just emphasize enough how much hard work goes into that. And through that demonstration of being there for our customers and really supporting them when they needed that support, I, I think that does create, you know, some, a little bit more favorable view going into the year in terms of where we will be with those customers going forward.

Again, with the caveat that I always make, that you never know in the mobile devices market. We just felt that coming into this year, on the basis of all that we know from our customers, that it's a little bit, obviously, a little bit more favorable outlook than what we've seen over the prior three years. Now, I'm not going to tell you I'm any more dependable on our outlook on mobile devices. I have been for three years running, very undependable in those same three years that you correctly point out, we guided it flat. I was wrong all three years. Fortunately, I was wrong to the upside, two out of the three years, and I was wrong to the downside, one of the others. But...

We've always tried to guide on the basis of what we see at the beginning of the year. That's the best that we can do here. I, I think just this time, what we see today, sitting here in January, is a little bit more favorable than what we've seen the prior three Januaries.

Operator (participant)

Speakers, our next question comes from Mark Delaney from Goldman Sachs. The line is now open.

Mark Delaney (Analyst)

Yeah, it's Mark Delaney from Goldman. Thanks very much for taking the question-

R. Adam Norwitt (CEO)

Hello, Mark.

Mark Delaney (Analyst)

And congratulations on the strong Q4. I just follow up on mobile devices, if I could, and, you know, certainly understanding there's a lot of volatility in that market, but generally, normal seasonality has sales rise in Q2 and again in Q3, off of a lower March quarter. And as you guys are thinking about planning the year, is your expectation that the build is different than normal seasonality this year?

R. Adam Norwitt (CEO)

Yeah, I mean, we... You know, it's hard for us to guide for the full year and to guide for a Q1, let alone to give any kind of intelligent and helpful guidance in terms of the cadence over the course of those quarters. As you know, we're not very good at that. It's a very difficult market to forecast. So I wouldn't say that there's anything terribly abnormal from what we see today, but I'd be hard pressed to try to paint for you a good picture of what each quarter is going to be, sitting where we sit today.

Mark Delaney (Analyst)

Okay, got it. And then a follow-up question on the military segment, which I know did well in the Q4. Given some of the uncertainty around the U.S., the U.S. budget and government funding, when you talk to your customers, how important is it to get a full year budget in order to achieve that, the outlook for the full year military revenue growth that the company guided to? And is it something that's concerning to any of your customers?

R. Adam Norwitt (CEO)

Yeah, I mean, I think it's really important to have a government that operates effectively and has budgets at the time that those governments need budgets. I remember there was a lot of pain that everybody in the military industry went through at the time when we were dealing with this bad word, Sequestration, which you will remember very well. I wouldn't say that the current environment is anything like that Sequestration. We've seen very favorable overall demand in the military market. I think we've done even a little bit better than that when you look at our performance.

I mean, for a full year performance growing 13% organically, and, you know, not forgetting that the prior year we grew 4% organically, and that was including the DLA issue, which is, you know, a year and a half ago. Does not having a budget, jumping from CR to CR to CR, in the budgeting process, put a damper on the demand for our products? I don't know that we have seen that. I've certainly heard some of our customers in the media talking about how... it is concerning that there is not a real permanent budget, and we would applaud any effort to get a budget done and solidified, because the military certainly does not like to operate in times of uncertainty.

But what is very clear, and I think if we look at the change over the recent several years, is there is clearly the shift towards a strategic posturing of the military, which has more of a tilt towards the building of next-generation electronic systems to enable our military hardware, both in the U.S. and around the world. And we've seen that just very broadly, next-generation systems, new products, a lot of new innovations, upgrades to existing products. I mentioned that, you know, we've seen growth in the military market this year, really very broadly. If I look at all the little segments that we track in the military market, essentially all, but maybe one or two of them are up, and are up in double digits on a full year basis.

You know, that's everything from communications to ordnance applications, to vehicles, to airframe, to naval, to space. So we're really pleased that it appears that that sort of tilting of the balance may be away from supporting the day-to-day operating expenses of the military and more towards the advanced electronics and advanced capabilities that ultimately can be enabled by electronics. I think that's the real favorable environment that our team has been able to capitalize upon. And we're able to capitalize upon that because we've got just such a breadth of products and a depth of technologies across the company and across the regions in which we operate.

So regardless of whether the U.S., you know, kind of hopscotches between these continuing resolutions, I think we have a good outlook, and I don't think that our outlook for the military market is in any way really based on the political soap opera in Washington.

Operator (participant)

Our next question comes from the line of Sherri Scribner from Deutsche Bank. The line is now open.

Sherri Scribner (Analyst)

Hi, thank you. It seems like the outlook in industrial and auto, sort of those industrial-focused markets, continues to be very strong. You guys have seen excellent growth in those two end markets, and you're guiding to, you know, mid-teens, high teens growth in those two segments in 2018. I was hoping you could give us a little more detail on what you're seeing from an end market perspective, and is that driven by a better economic outlook across the different geographies? And how much of that is coming from organic growth versus non-organic growth?

R. Adam Norwitt (CEO)

Yeah. So I think just on your to reverse the question a little bit, both markets we would expect to be kind of high single digit organic growth for the year. And so very, very strong outlook. I would separate the two in terms of the dynamic in the industrial and the automotive market. I think the industrial market certainly does have some more broad economic tailwind behind it, even if some of our performance in areas of that market are clearly outperforming any trends that you see overall. You know, our strength in areas like heavy equipment and in oil and gas, which we're very happy to have, you know, kind of rebounding at this point in things like instrumentation and medical factory automation.

I think though not all of those trends are just pure, rising tide of GOP lifts all the industrial boats kind of trends. I mean, if you look at something like factory automation, I think here you have a trend that is beyond GDP, which is really a shift in places like China and other low-cost countries towards automation in order to deal with either lack of availability of labor, which we see in many places, or increasing cost of that same labor. And, you know, our products are used on a wide array of everything from robots to automation machines that go into these new factories, and that's been a real favorable segment for us.

I would say that automotive is much more a content growth, a story of electronics applications continuing to expand in the car, and not necessarily so much, just an overall economic trend of automotive. I mean, you all know better than I do, the general automotive numbers, whether that's, you know, flat or low single digit or whatever forecasts would come. I think for us, is less important than the fact that we continue to see just a great proliferation of electronics across car lines.

And that includes everything from hybrid and electric drivetrains, to next-generation emissions controls, to onboard electronics, to even kind of autonomous-like applications that are going into cars, and again, creating just great new functionalities, creating the demand for new electronic systems, which ultimately creates a really nice opportunity for our team to work with customers to design in our next-generation products. So I'd say that that's less of a broad GDP economy trend, and maybe industrial has a bit more of a component of that.

Sherri Scribner (Analyst)

Okay, that's really helpful. Thanks, Adam. And then just looking at the IT and datacom, it seems like your growth outlook for the year is, is relatively strong, considering, you know, people's general view of that market low to mid single digits. What's driving that? Is that, again, from the service side, where you commented on some of the cloud business, do you still see the storage market and the networking market as challenged? Maybe some more detail in that segment would be helpful. Thank you.

R. Adam Norwitt (CEO)

... Well, thank you, Sherri. No, I think we've just established ourselves in the IT market as really the leader in high technology products for this market. And so I think our team, with their combination of truly advanced technologies, whether that's in high speed, in power, in fiber optics, or the other relevant technologies, together with the dynamic that I've described now here for several years, of that quick ability to pivot towards where the new opportunities will be, I think that has given us a really great platform from which we can have this favorable view for the future. Is more of that growth coming from servers or storage or networking or cloud service?

I don't know that I would break it down so specifically, but I think the trends that we've seen over the recent two years, we don't see a big change in those trends, where there is a bit more growth coming out of some of these next generation cloud companies and maybe a little bit less coming out of the more traditional OEMs building the boxes.

Operator (participant)

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

Craig Hettenbach (Analyst)

Yes, thanks. Adam, just a question on mobile networks and just the transition to 5G. Just curious, kinda, what typically your visibility would be into that transition? And then once it happens, even if it's later this year or early next year, is there anything to keep in mind from a content perspective or opportunity set, for Amphenol?

R. Adam Norwitt (CEO)

Yeah, I mean, I don't know that we would necessarily have dramatically better visibility than what gets publicly announced about who's going to build what networks when. I think you've started to hear some prognosis about when certain networks are going to be built, some of them around Olympic Games, some of them around other events and timings. But the question is not when do the first networks get built? The real question is: when do they really start to get built in true volume? And, I mean, you will remember, certainly, Craig, you know, when 3G, there were plenty of 3G trial networks built or certain cities that were built before you really started to see material levels of demand that were representing, you know, significant network buildouts for, for that equipment. And so, you know, when...

Sometimes you will read announcements, and you will see announcements about certain things being built, but that won't necessarily be the real volume increases that could ultimately satisfy this pent-up demand that I spoke of earlier. With respect to the content on 5G, every generation has different architectures, has different content. Every vendor who makes this equipment has slightly different approaches to how they design things. I wouldn't characterize 5G as having necessarily different content than what we've seen on 4G or 3G. What I would characterize, though, very clearly, is that the performance requirements of what goes into a 5G cell site, whatever that is, either in the base station or across the site, those performance requirements are clearly going to be higher than what we've seen in 4G, whether that's with speed or latency or power consumption.

And those are all areas where we have a really great track record of helping our customers to tackle the thorny problems that come as they're trying to break beyond prior levels of performance. And so, you know, does it end up having more or less connectors on one, or more or less cables, or bigger or smaller antennas? You know, that is, for us, a little bit less important than the degree of technology that's getting embedded into that next-generation system, and we have no reason to believe that that won't be a very advanced technologies going into these 5G systems.

Craig Hettenbach (Analyst)

Got it. And then just a quick follow-up for Craig. You know, gross margins down slightly year-over-year. I know you mentioned kind of the cable weakness, and that's an element. Anything to keep in mind for full year 2018 in terms of commodity input costs and how you're thinking about gross margin?

Craig Lampo (CFO)

Yeah, sure. Thanks, Craig. I think that's right in regards to the you know, full year 2018 and the Q1. I think that certainly commodities do have some level of impact, specifically related to the cable segment. We've talked about this, you know, when I talked about the reason for the you know, for the reduction and the profitability in that segment. I mean, another thing that actually does have a little bit of impact in the short term, but over time, we would expect to improve upon it, is you know, the impact of our acquisitions that have been done you know, recently over the course of the year.

And the acquisitions, while they're accretive, from an EPS perspective, do sometimes have, you know, some operating profitability levels that are a little bit less than, or in some cases, you know, some significantly less than our, you know, corporate average. And, you know, this usually happens before we've been able to, you know, have them adopt, you know, kind of our Amphenol operating principles and then get them up to the level. And we saw this in 2016 in a magnified effect when we looked at the full year piece of FCI, which we were able to get, you know, up much quicker than we expected, and that's a little bit what you're seeing in 2018 as you compare to 2017.

Over time, we would expect to get those, you know, acquisitions up to the average of the company. But from a long-term perspective, at this 25% conversion margin that we talked about, you know, consistently, I think that, you know, some years are gonna be a little bit up, sometimes a little bit down from that, but I think that's still a long-term target that we believe is very much achievable.

Operator (participant)

Speakers, our next question comes from William Stein from SunTrust. Your line is now open.

William Stein (Analyst)

Great, thanks for taking my question. Congrats on the good quarter and outlook. I'd like to ask about capital allocation. In particular, the buyback slowed a little bit in the quarter relative to where it's been recently. Is that related more to the acquisitions that you did in the quarter, or is there anything else going on there? Thank you.

R. Adam Norwitt (CEO)

Sure. Thanks for the question. I... As it relates to the buyback, I mean, every quarter is a little different in terms of how we allocate our capital, and I wouldn't say that—I think we actually had a lot of buybacks happening in the first half of the year and first three quarters of the year and, but, you know, every, every single at 8.4 million shares, you know, for, for the year. So I, I think that as—if you look at the whole year, I, I think that's kind of the context I would put it in.

I don't think any one particular quarter I would really focus on from a buyback perspective, or nor would I focus on it from an M&A perspective, because that also has, you know, certainly its puts and takes from a quarter perspective. So overall, from a capital allocation perspective, you know, I wouldn't take that, you know, I guess, reduced amount in the Q4 as any change. I think as it relates to the new Tax Act, you know, we really truly believe that the, you know, the new territorial regime that is now in place under the new Tax Act, really provides us with, or further enhances our flexibility that we really think is a cornerstone, one of the cornerstones of our capital deployment strategy.

We really think, you know, balance, flexibility, and consistency are really the cornerstones of our strategy, and we do think the Tax Act really helps with that in supporting that, and the ability to more freely move cash, as myself and Adam, you know, mentioned in our prepared remarks, really additionally supports that as well. So in the short term, you know, from a capital deployment perspective, I think that the flexibility introduced by the act, you know, will ultimately, you know, help us. In the long term, it really isn't gonna have so much of an impact, I think, on our overall deployment strategy of, you know, giving about, you know, 50% of our return of capital for M&A, with the other 50% going to return of capital shareholders, and any one quarter maybe, you know, different.

William Stein (Analyst)

Thanks for that. One follow-up, if I can. It relates to supply chain, let's say, performance or constraints, on the other hand. This affects you both, I think, from a sourcing perspective, and also potentially from, from the perspective of your customers and their inventory management. We've heard so much about tightness in the supply chain, as it relates mostly to passives, but also discretes, and then, to a lesser degree, but more sort of concentrated basis in some ICs. I'm wondering what you're seeing in this regard. Any sort of characterization of our current environment would help. Thank you.

R. Adam Norwitt (CEO)

Yeah, well, I think relative to supply chain, number one is our team's just done a fabulous job. And, you know, are there certain constraints? We certainly hear about the passives and discretes and some ICs. I wouldn't say that in our company, in our universe, in our industry, we have seen those broad-based constraints. There's been some discussions about certain materials like copper and other things like that, but obviously, our team was able to drive just outstanding results here, regardless of any minor constraints that may be there. Craig mentioned that we have seen some increased costs of certain commodities, and that was reflected most prominently in the margins that we saw in our cable business this quarter.

But broadly, I would not point to any supply chain constraints, and I think certainly none that we are causing. And again, I go back to the ramp-ups that we were able to drive in our mobile devices market. You look at some of the sequential growth that we were able to achieve also in, over the course of this year in our industrial market, in Mil-Aero. So no, no question that our team was able to deal in that environment, regardless of whether there were constraints or not. And so I don't think it's impacting Amphenol, and it's certainly not impacting our, outlook for 2018.

Operator (participant)

Our next question comes from line of Jim Suva from Citigroup. Your line is now open.

Jim Suva (Analyst)

Thank you very much, and congratulations to you, you and your team there at Amphenol. I have two questions. They're a little bit related, so I'll just ask them at the same time. Adam, on your outlook for 2018, if you look at a % basis, about the growth of 2018 versus 2017, and you consider that some of the acquisitions were recently announced today, so they'll help boost the growth rates, as well as some of the acquisitions announced previously during 2017, haven't had a full year. It just seems like the growth rate is kind of downshifted from what it has been in the past few years organically. Am I right on that or off on that? Maybe you can correct me or help me with my logic.

And then underscoring that, I think, Adam, you'd mentioned mobile devices for Q1 is typically down about 20%, and that's what you're guiding to. It looks like in the past, though, it was down much more, or maybe it's just kinda close to rounding numbers. Thanks very much.

R. Adam Norwitt (CEO)

Well, thank you very much, Jim, and thanks for your kind words. I mean, relative to the outlook, and I think specifically, you're getting to the organic outlook for the year. I mean, our outlook here represents organic growth of 2%-4% for the year and an overall growth of 6%-8% for the year. If I just go back in time, last January-

... I think our outlook was for 0%-2%, organic growth for the year. And if I look at our organic growth over the last three years, in fact, in 2017, we accelerated our organic growth. We had 8% organic growth, and in the prior two years, our organic growth was a bit more muted, but we complemented that with outstanding acquisitions in the year. So I would actually say that our guidance here for 2018 is a very, very robust guidance, and it's a great blend, in fact, of both organic and acquisition contributions, and represents a more favorable outlook than we've had really organically for the last three years. So I think that that's we feel very good about the guidance and about how we're looking into 2018.

And relative to mobile, I think, you know that mobile, some years Q4 is very strong relative to Q3, other years it's more balanced across the quarter. And so we've seen reductions sometimes of more than 30% in the Q1 for mobile, and we've seen other quarters where it's more like this 20. Is this 20 a little bit on the lower end? It's certainly lower than the 30 that we've seen in some other years, but it's not uniquely low. I think we've had other years where mobile is down roughly that 20%.

But we talked earlier with one of your peers' questions, that I think we do have a slightly more favorable view of the mobile market sitting where we sit today, and maybe part of that is associated with that a little bit lower sequential decline in the Q1.

Jim Suva (Analyst)

Great. Thank you so much for the details, and again, congratulations to you and your, you and your teams.

R. Adam Norwitt (CEO)

Well, thanks so much, Jim.

Operator (participant)

Excuse me, our next question comes from the line of Deepa Raghavan from Wells Fargo Securities. Your line is now open.

Deepa Raghavan (Analyst)

Good afternoon. Hope you're doing well. Adam, question for you on M&A within the industry. If you can comment on how the tax windfall for some U.S.-based companies can or cannot change the M&A landscape within the connector space. Also, within your M&A pipeline, could you talk about, you know, a potential for larger acquisitions now that FCI is completely integrated?

R. Adam Norwitt (CEO)

Well, thank you very much, Deepa, for the question. I mean, relative to the overall M&A landscape and the cash that is maybe available to some companies, I personally would not expect that would have a significant change. And for one reason, it's not that we are, now that we have the availability of and the flexibility that Craig talked about so eloquently here from the tax reform, it's not that we're going to just go change how we think about pricing on acquisitions. I believe very much that one should pay reasonable prices for acquisitions, regardless of what the cost of capital of the moment is. Because when we make these acquisitions, we're acquiring them for life.

You know that in Amphenol, we're not, we don't view ourselves as a portfolio manager per se, where we buy things and then someday we sell them, and we try to market time the buying and the selling of them. We're buying companies for, on a permanent basis, and we know that we're going to be living with the earnings of that company on a permanent basis when the rate environment or the various costs of capital may have changed. And so we're gonna remain very disciplined on price. We're very happy to pay good prices for great companies, and we're gonna continue to take that same approach. And I think as really the acquirer of choice in our industry, we would maybe set a little bit the trend there, as it were.

As it relates to our overall M&A pipeline, we continue to have a very robust pipeline. We're very pleased to have closed on the two deals that we announced here today. We have still many more companies that we pursue and follow and stay in touch with and have at various stages of the life of an acquisition, so if you will. Is there another FCI kind of near and on the horizon? You know, that is not something that I would necessarily comment on today, except to say that, you know, we have never had as a criteria for our acquisition program, size.

And so if the right company does come along, and, you know, clearly there are companies that are of certain sizes in our industry, and if that opportunity were to present itself, we would not be scared away by size. I think that what we look for in acquisitions is people, number one. We look for great management teams, and we've been so successful in accomplishing that goal. We look for fantastic, innovative, and enabling technology, and we look for companies with complementary market position to Amphenol. And if we can check those three boxes, very importantly, whether that is a big company or a small company, we're going to put our best effort forward in terms of bringing that into the Amphenol family. So we'll continue to work hard at our acquisition program.

I think the balance of our capital deployment that Craig mentioned, acquisition remains really a very high priority, if not our highest priority, together with investing in our organic growth. We're gonna continue to deploy that capital, which, as we said, has a more flexible availability to us than it has in the past. I'm very confident long term we'll have great success. We remain unable to predict when those acquisitions will close and when we will get some, but I'm confident long term there will be good ones ahead.

Deepa Raghavan (Analyst)

Thank you. That, that's helpful. Craig, I have one for you. Is it fair to assume SBC-related tax doesn't impact 2018 or going forward? And the reason I ask is your EPS growth guidance is pretty strong at 9%-11% compared to your historical guides.

Craig Lampo (CFO)

... Yeah, so Deepa, I think it is fair to assume that we don't have that included in our guidance. We haven't guided to any of this excess tax benefits on our stock-based compensation. And, you know, the reason for that, I mentioned in my prepared remarks, and we do really do believe that you know, the ability to be able to compare our results, especially since the tax benefit is gonna be significantly reduced under this new tax act, you know, is important. There will certainly be some benefit in 2018 based on some level of stock option exercises. You know, but the same level of stock option exercises will create a significantly reduced benefit because of the new tax regime.

So we're certainly not guiding to that, and we're not including that in our adjusted guidance, adjusted EPS guidance for specifically that reason.

Operator (participant)

Our next question is from Steven Fox from Cross Research. Your line is now open.

Steven Fox (Analyst)

Hi, good afternoon. Two questions for me, please. First, just circling back to the acquisitions. Can you, Adam, you, you highlighted a bunch of attributes for why you bought these two businesses. I was curious from a technology standpoint, if there's anything specific you would highlight that brings to portfolio, or is this more customer and, you know, supply chain related? And then I had a follow-up.

R. Adam Norwitt (CEO)

Yeah, I think with the two acquisitions, they're obviously very different. One is a value add interconnect assembly company, cable assemblies, this is CTI, and we obviously know how to do cable assemblies. We have plenty of them across Amphenol, and oftentimes with the cable assembly business, you're really looking for different customer channels, different markets, different presence. But at the same time, they have fantastic manufacturing technology and really great high value components. And so that's with CTI. I think with Sunpool, we're just really pleased that we get here, not only an automotive antenna company in a very, very important, arguably the most important automotive market, where the most cars are sold and made, but also a truly vertically integrated automotive antenna capability.

That is additive to what we have had in the past. You know that we've been developing organically our own automotive antenna business, and we've been very successful with that. But I'd say this really gives that a turbo boost in terms of our overall capabilities on automotive antennas from a design perspective, a validation, a testing, and all the kind of components of making those products, some of which we were able to do before, and some of which we are only now able to do with the addition of Sunpool.

Steven Fox (Analyst)

Great, that's really helpful. And then just on the operating margin. So, as you highlighted, you've cleared the 20% threshold pretty consistently recently. And given the volume outlook you're providing, I was curious, like, how you would sort of quantify the chances of continuing to produce that type of level of margins, if you're hitting those volumes? Like, what else would hold you back, whether it's acquisitions or raw materials or just seasonality as we think about modeling out this year? Thanks.

Craig Lampo (CFO)

Sure, thanks. You know, as I mentioned before, I mean, 2018, certainly there is some impact from commodities in the cable segment. As I mentioned, there's certainly an impact as it relates to the acquisitions that we've done in 2017, and that they're not we don't project in 2018 for them to be quite up to the level of Amphenol yet. But over time, I, I don't think there's anything that's holding us back since we're at 20%, that wasn't, you know, holding us back or, or helping us before we were at the 20% level. There's nothing, you know, from a leverage perspective, that changes, I think, right now.

I think we continue to have, you know, a great management team that does a really, you know, great job of making sure that they're, you know, the cost in the business and are as low as possible, given and as flexible as possible, in regards to, you know, their everyday operations. You know, these general managers do a fantastic job, as they have done, you know, before the company was overall at 20%, in regards to, you know, maximizing the profitability and whether or not, you know, they do it, you know, out of SG&A, or whether or not they do it in the factory or wherever else. We're not really so concerned about that.

I think this is, this is an area that we believe that long term, we should be able to continue to have that leverage. But, you know, in any one year, there will be things that will impact it, such as, you know, the commodities that have had some impact in 2017, in the cable segment and into 2018. And in the shorter term, the acquisitions that are certainly having some impact, which we would expect, you know, as we acquire companies that are at lower profitability, will have some impact in the future until we are able to get them, you know, up to the Amphenol operating levels, which we do believe as a management team is clearly possible and certainly targeted.

Operator (participant)

Speakers our last question comes from the line of Joe Giordano from Cowen. Your line is now open.

Joseph Giordano (Analyst)

Hey, guys, thanks for taking my questions here.

R. Adam Norwitt (CEO)

Good afternoon, Joe.

Joseph Giordano (Analyst)

Most of what I want to ask has been asked, but I just wanted to square, you know, some of the guides on, like, mobile network, kind of, kind of with some of the news flow that you're seeing about post-merger, kind of dissolution, you know, better CapEx estimates for some of these companies. Is your guide kind of like what's actually been... Like, where they're actually actively procuring right now, or is this like kind of a, a very short, you know, focus on what you're seeing right now, or is this kind of taking into consideration kind of the longer-term plans that maybe you're not seeing active in the market quite yet?

R. Adam Norwitt (CEO)

Yeah, I mean, the way that we build our guidance is really through our internal forecasting process, which is based ultimately on what we hear from our customers, talking to our salespeople. What we don't do is we don't read the paper and say: Well, you know, we think there's a certain trend that may be coming, and we should adjust our guidance accordingly. I mean, if the overall market changes, you know, then we would be very happy to be there to enable that higher levels of spending. It's not something that we've seen from customers, and so our guide incorporates exactly what we hear from the customers.

I mean, we're as hopeful as anybody that things like, you know, US tax reform or stimuli or overall economic growth around the world can ultimately drive things like infrastructure spending or investments in networks or, or, or whatever that may be, that can ultimately have a favorable effect on demand for our products. But today, what we see and what we hear from our customers is embedded here in what we've guided to.

Joseph Giordano (Analyst)

Okay, and then similar on data and devices, I think the plans out of, like, the hyperscale, like the Web 2.0 companies, seems to be pretty good as far as data centers into next year. And how big of a piece of the business is that portion of the market for you guys now?

R. Adam Norwitt (CEO)

Well, you know, I'm not going to quantify it, but what I've said consistently is we've seen just outstanding performance from that. And I think ultimately, if you think about the drivers of why this demand is increasing, I mean, you see just so many opportunities coming. The demand for video on the internet, the demand for consumers consuming things on, in mobility that they weren't otherwise consuming. I mean, you know, crazy things. I mean, now it appears that there's video game leagues that are more popular than actual sports leagues, and people are watching these on their mobile devices. They're streaming them, they're doing all of this. These are all the kind of drivers that are ultimately putting, coursing the data through the networks.

And as we've seen that shift towards these, these new web service providers, a lot of the backbone for these new consumption of video is happening through these web service providers. And so we've just. That has been a real driver of growth, and we would anticipate it to continue to be. I will say that as you migrate towards a service provider in terms of their proportion of, of the, the market, service providers buy on a very different cadence than do equipment manufacturers. And so ultimately, that can lead sometimes to more volatility. And we saw that this quarter in our IT data comm market, where, in fact, in the Q4, our sales were slightly down, and that's despite having an excellent year, growing 9% for the full year.

But we had had a year before an outstanding finish to the year, where we've seen really significant investments, in particular, in web service providers. So I wouldn't be surprised if there is a little bit more of that kind of operator-type, service provider-type volatility in the IT market for some portion of it. Is it today the dominant part of our IT data comm market? No, it's not. But has it been a real significant driver of growth for that? Yeah, no question about it, it has, and we would anticipate that going forward.

Joseph Giordano (Analyst)

Just, just so I understand. Is the difference in the procurement is one more just, like, are the cloud guys more willing to do more just in time and hold less inventory than the equipment guys? Is that what's leading to that volatility?

R. Adam Norwitt (CEO)

Well, I mean, ultimately, you're talking about someone who's worrying about running a factory versus someone who's just building things, building data centers, getting work crews in the field. And anybody who's involved in actually building networks, whether that's mobile service providers, whether that's broadband service providers, whether that's internet service providers, the cadence of when you build things is very different than if you're operating factories, and you're paying for factory overhead, and you want to kind of level load those factories over a certain time period. I mean, work crews and construction projects happen at a very different type of timing than do just factory consumption. Very good.

Well, I think that is our final question, and again, we very much appreciate everybody's attention to us here, and look forward to talking to you all here in three months. And again, Happy New Year and great continuation here in the Q1. Thank you very much.

Operator (participant)

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