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    TE Connectivity PLC (TEL)

    Business Description

    TE Connectivity Ltd. is a global industrial technology leader dedicated to creating a safer, sustainable, productive, and connected future through its extensive range of connectivity and sensor solutions. These solutions facilitate the distribution of power, signal, and data across various sectors, including next-generation transportation, renewable energy, automated factories, data centers, and medical technology . The company operates through three main segments: Transportation Solutions, Industrial Solutions, and Communications Solutions, offering products such as terminals, connector systems, sensors, relays, antennas, and application tooling .

    1. Transportation Solutions - Leads in connectivity and sensor technologies, providing products like terminals, connector systems, sensors, relays, antennas, and application tooling for markets such as automotive, commercial transportation, and sensors .

    2. Industrial Solutions - Supplies products that connect and distribute power, data, and signals, including terminals, connector systems, interventional medical components, relays, heat shrink tubing, and wire and cable, serving industrial equipment, aerospace, defense, marine, energy, and medical markets .

    3. Communications Solutions - Offers electronic components for data and devices and appliances markets, including products like terminals, connector systems, antennas, and heat shrink tubing .

    Q3 2024 Summary

    Initial Price$142.73March 27, 2024
    Final Price$148.71June 27, 2024
    Price Change$5.98
    % Change+4.19%

    What went well

    • TEL is experiencing strong momentum in its AI-related business, expecting over $250 million in AI revenue this year, which is anticipated to more than double in 2025. The company has secured design wins across multiple hyperscale customers and is confident in reaching $1 billion in AI revenue in the future.
    • In the automotive segment, TEL expects content growth of 4% to 6% over market due to increased electrification and electronification of vehicles. The company is confident that the trends toward electric vehicles (EVs), hybrids, and advanced vehicle architectures will drive higher content per vehicle, boosting revenues.
    • TEL is achieving strong margin expansion, with adjusted operating margins reaching 19.3%, a 200 basis points increase year-over-year, and record adjusted earnings per share. The company expects further margin improvement, particularly in the Industrial Solutions segment as destocking ends and the Communications segment benefits from high-margin AI applications.

    What went wrong

    • TE Connectivity's margin improvements have been driven by restructuring and cost-cutting efforts, which have been expensive ("it has not been cheap we're painless"), raising concerns about the sustainability of these improvements.
    • The commercial transportation market is down from a top-line perspective, and ongoing weakness in industrial equipment markets could pressure TE's revenues.
    • Potential delays in new vehicle launches, lower vehicle sales from key customers, and inventory corrections may hinder TE's ability to achieve its targeted 4-6% content growth in automotive revenues.

    Q&A Summary

    1. AI Revenue Growth
      Q: What's driving higher AI growth, and customer mix?
      A: TE Connectivity is experiencing strong momentum in its AI-centric business, fueled by accelerating cloud CapEx from hyperscalers and design wins across multiple customers. This has led to AI revenue expectations increasing to $250 million this year, with confidence to at least double that to $500 million next year. With this trajectory, the $1 billion sales estimate may be achieved sooner.

    2. Margin Outlook
      Q: What's the margin outlook, especially with AI growth and commodities?
      A: TE is focused on margin expansion across segments. In Communications, incremental margins on AI-related revenue are expected to be in the 25% to 30% range. They've raised the floor on margins due to operational improvements and are confident in managing commodity price volatility.

    3. Automotive Content Growth
      Q: Can TE achieve 4–6% automotive content growth amid market shifts?
      A: TE is confident in achieving 4% to 6% content outperformance in Automotive , driven by electrification and electronification trends. EV production is up 20% this year , and TE benefits from increased content in electrified powertrains and advanced architectures, such as miniaturized and more complex connectors in zonal systems.

    4. CapEx and Cash Flow
      Q: How will CapEx commitments change with AI revenue doubling?
      A: TE's CapEx runs at about 5% of revenue , and they can support AI growth within this run rate without incremental pressure. Investments in AI applications are being absorbed through trade-offs and completed expansions in other areas.

    5. M&A Strategy
      Q: What's TE's strategy on bolt-on M&A and opportunities?
      A: TE remains focused on bolt-on M&A in markets they understand, aiming for strong financial returns. The pipeline, particularly in industrial spaces, is more robust than it has been in a very long time.

    6. Order Patterns and Destocking
      Q: What are the current order patterns amid destocking?
      A: While destocking has impacted revenue, TE is seeing strength as the appliance business returns to growth and signs that destocking in industrial equipment is starting to stabilize.

    7. Transportation Margins
      Q: What are the expectations for transportation margins ahead?
      A: TE has achieved 21% margins in Transportation , surpassing the 20% target. Incremental margins of about 30% are anticipated. There's potential for further margin improvement through recovery in commercial transportation and continued operational efficiencies.

    Key Metrics

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    Revenue by Segment - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    Transportation Solutions2,4332,4139,5882,3732,3842,3302,3119,398
    - Automotive1,7471,766,951-1,7491,727-6,956
    - Commercial Transportation4033691,525-384363-1,456
    - Sensors2832841,112-251240-986
    Industrial Solutions1,1411,1594,5511,0251,1431,1331,184,481
    - Industrial Equipment4233881,706-356353-1,385
    - Aerospace, Defense, Marine2933231,178-342345-1,344
    - Energy230231883-234226-919
    - Medical195217784-211209-833
    Network Solutions--------
    Consumer Solutions--------
    Communications Solutions4244631,8954334405165771,966
    - Data and Devices2522931,162-273329-1,274
    - Appliances17217733-167187-692
    Total Revenue3,9984,03516,0343,8313,9673,9794,06815,845
    Revenue by Geography - in Millions of USDQ1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024
    EMEA1,6101,6056,2081,4111,5521,4661,475,899
    - Switzerland--4,111----3,906
    - Germany--405----236
    - Other EMEA--1,692----1,757
    Asia-Pacific1,2151,2355,1561,3791,2571,3331,3985,367
    - China--3,182----3,571
    - Other Asia-Pacific--1,974----1,796
    Americas1,1731,1954,6701,0411,1581,1801,24,579
    - U.S.--4,107----4,020
    - Other Americas--563----559
    Total Revenue3,9984,03516,0343,8313,9673,9794,06815,845

    Executive Team

    NamePositionStart DateShort Bio
    Terrence R. CurtinChief Executive OfficerMarch 2017Terrence R. Curtin has been the CEO of TE Connectivity since March 2017. He joined the company in 2001 and has held various executive leadership positions, including Executive Vice President and CFO from October 2006 through July 2012, and President of TE Connectivity from March 2015 .
    John S. Jenkins, Jr.Executive Vice President and General CounselOctober 2012John S. Jenkins, Jr. is responsible for TE Connectivity's global legal, compliance, corporate governance, government affairs, intellectual property, security and risk management, and corporate social responsibility activities. He joined TE Connectivity in October 2012 .
    Shadrak W. KroegerPresident, Industrial SolutionsOctober 2020Shadrak W. Kroeger has been serving as the President of Industrial Solutions at TE Connectivity since October 2020. He has been with TE Connectivity since 1995, holding various leadership positions across the automotive, industrial, and consumer markets .
    Steven T. MerktPresident, Transportation SolutionsAugust 2012Steven T. Merkt has been serving as the President of Transportation Solutions at TE Connectivity since August 2012. He joined TE Connectivity in 1989 and has held various leadership roles in general management, operations, engineering, marketing, supply chain, and new product launches .
    Heath A. MittsExecutive Vice President and Chief Financial OfficerSeptember 2016Heath A. Mitts has been serving as the Executive Vice President and CFO at TE Connectivity since September 2016. Before joining TE Connectivity, he was the Senior Vice President and CFO at IDEX Corporation from March 2011 until September 2016 .
    Robert J. OttSenior Vice President and Corporate ControllerJune 2007Robert J. Ott has been the Senior Vice President and Corporate Controller of TE Connectivity since the company's separation from Tyco International in June 2007. He previously served as Vice President, Corporate Audit of Tyco International .
    Malavika SagarSenior Vice President and Chief Human Resources OfficerApril 2023Malavika Sagar has been serving as the Senior Vice President and Chief Human Resources Officer at TE Connectivity since April 2023. She previously held various HR leadership roles within the company and worked at Avaya from 2004 to 2012 .
    Aaron K. StuckiPresident, Communications SolutionsOctober 2020Aaron K. Stucki has been the President of Communications Solutions at TE Connectivity since October 2020. He joined TE in 2011 and has held various leadership roles, including General Manager of the Industrial & Commercial Transportation business unit .
    Sam EldessoukyDirector, Member of Audit Committee and Joint Committee on CybersecurityOctober 4, 2024Sam Eldessouky was appointed as a director of TE Connectivity on October 4, 2024. He also serves on the Audit Committee and the Joint Committee on Cybersecurity of the Board. He brings extensive expertise in accounting and financial leadership from his previous roles at public companies .

    Questions to Ask Management

    1. With the industry shift towards zonal architectures potentially reducing wiring and connectors in vehicles, how is TE positioned to mitigate the potential content loss in your automotive business, and can you elaborate on whether you're actually seeing higher content per vehicle or facing a decline?

    2. Given the theoretical increase in content per vehicle from hybrid and electric platforms, but considering factors like new vehicle launch delays and inventory corrections, can you clarify whether TE can achieve the 4 to 6 points of targeted outgrowth in automotive revenue, and how confident are you in this guidance?

    3. With the emergence of cross-licensing deals between interconnect players in the AI space, how might this affect TE's competitive positioning and margins in your data and devices segment, and can you explain the potential financial implications of manufacturing under such licensing agreements?

    4. Considering that your competitors are accelerating M&A investments, can you provide more detail on TE's strategy and tactics regarding bolt-on acquisitions, including end-market focus, expected returns, and how these acquisitions will contribute to TE's growth trajectory?

    5. Given the significant margin expansion achieved in your transportation segment from restructuring and operational improvements, what are the remaining levers for further margin enhancement, and are there any structural factors that could limit margin expansion beyond current levels?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateSeptember 2007 Fiscal 2024
    End Date/DurationNo expiration Not specified
    Total additional amount$2.5 billion $1.5 billion
    Remaining authorization$0 million $245 million
    DetailsIncrease authorized on October 30, 2024 Repurchased 14 million shares with a value of $1,991 million

    Competitors

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

    • Yazaki, Aptiv, Sumitomo, Sensata, Honeywell, Molex, and Amphenol - Competitors in the Transportation Solutions segment .
    • Amphenol, Hubbell, Carlisle Companies, Integer Holdings, Esterline, Molex, and Omron - Competitors in the Industrial Solutions segment .

    Latest news

    Recent developments and announcements about TEL.

    Financial Reporting

      Earnings Report

      ·
      Dec 17, 2024, 7:39 PM

      TE Connectivity PLC has released its earnings results for the quarter ended September 27, 2024. Here are the key highlights:

      • Net Sales: The company reported total net sales of $4,068 million for the quarter. This includes $2,330 million from Transportation Solutions and $1,738 million from Industrial Solutions .

      • Operating Income: The total operating income for the quarter was $651 million, with Transportation Solutions contributing $410 million and Industrial Solutions contributing $241 million .

      • Adjusted Operating Income: The adjusted operating income, which excludes certain charges, was $755 million. This includes $452 million from Transportation Solutions and $303 million from Industrial Solutions .

      • Trends: The earnings report indicates a slight decrease in net sales compared to the same quarter last year, which was $4,035 million. However, the adjusted operating income has increased from $699 million in the same quarter last year, indicating improved operational efficiency or cost management .

      These results reflect the company's ongoing efforts to optimize its operations and adapt to market conditions. The increase in adjusted operating income suggests that TE Connectivity is effectively managing its costs and restructuring efforts to enhance profitability.

    Corporate Leadership

      Leadership Change

      ·
      Nov 12, 2024, 12:00 AM

      Robert J. Ott, the Senior Vice President and Corporate Controller of TE Connectivity, is retiring effective January 3, 2025. Reuben M. Shaffer has been appointed to succeed him. Mr. Shaffer has been with the company since 2008, holding various roles, most recently as Vice President, Assistant Corporate Controller .