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    TE Connectivity PLC (TEL)

    Q4 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$148.72June 26, 2024
    Final Price$149.58September 26, 2024
    Price Change$0.86
    % Change+0.58%

    Q&A Summary

    1. AI Revenue Growth
      Q: Is the billion-dollar AI opportunity accelerating?
      A: TE expects AI revenue to double from $300 million to $600 million next year, with momentum likely pulling the $1 billion target closer ( ). Orders in the Communications segment were up almost 100% last quarter and 40% this quarter, indicating accelerating demand ( ).

    2. Operating Margin Targets
      Q: Can you expand on the goal to reach 20% margins?
      A: Transportation margins are already at 20%, and the new Industrial segment finished 2024 in the high teens ( , ). Over the next couple of years, the company aims to improve Industrial margins to exceed 20%, driving total company margins to that level ( ). Volume growth and cost actions are expected to support this goal ( ).

    3. Automotive Growth in Asia and China
      Q: How is content growth in Asia and China performing?
      A: In Asia, TE saw mid-double-digit revenue growth versus mid-single-digit car production growth, reflecting strong content outperformance driven by EV momentum and electronification ( ). China represents about $2 billion of automotive revenue, with TE benefiting from growth with local OEMs as multinationals lose share ( ). TE is opening its sixth automotive factory in China to support this growth ( ).

    4. Capital Allocation and Buybacks
      Q: Does the $2.5 billion repurchase signal a change in strategy?
      A: The larger repurchase authorization reflects TE's strong cash flow and the desire for optionality in capital deployment ( ). While exploring M&A opportunities, TE intends to continue returning excess cash to shareholders via buybacks and dividends, without significantly changing its capital strategy ( ).

    5. CapEx and Free Cash Flow
      Q: What are CapEx plans and free cash flow expectations for next year?
      A: CapEx is expected to increase by about $100 million in FY '25 to support AI program growth, aligning with 5% of revenue ( ). Free cash flow conversion is anticipated to remain over 100%, though not reaching the prior 120% level due to working capital needs as volumes grow ( ).

    6. Industrial Segment Weakness
      Q: When will the Industrial business stabilize?
      A: The Industrial segment, particularly factory automation and building automation, remains weak, bouncing along the bottom ( ). Improvement is expected to take until calendar 2025, with Europe weaker, Americas stable, and slight improvement in Asia ( ).

    7. Sensors Business Exits
      Q: Can you elaborate on the product exits in Sensors?
      A: TE is exiting about $50 million worth of Sensors products in the coming year to focus on four key markets: automotive, heavy vehicle, medical, and factory automation ( ). This pruning represents a headwind for next year but will conclude in 2025 ( ).

    8. Auto Production Outlook
      Q: How will European auto strikes affect your guidance?
      A: TE's guidance incorporates anticipated challenges, including European auto worker strikes. Global auto production is expected to be down slightly next year, with Europe contributing significantly to the decline ( ). Asia is anticipated to be the growth driver ( ).

    9. Commercial Transportation Weakness
      Q: How does the Commercial Vehicle market impact margins?
      A: The global commercial transportation market has weakened, putting pressure on margins in the Transportation segment ( , ). However, TE maintains 20% margins in Transportation, supported by strong automotive performance, and expects improvement in commercial transportation later in the year ( ).

    10. Data and Devices ex-AI
      Q: How is the traditional datacom business performing?
      A: Excluding AI, the cloud element is returning to growth, projected at mid-single digits next year after a period where investment shifted to AI ( ). Enterprise remains sideways, and TE doesn't play largely in telecom networks ( ).

    11. Impact of Tesla's Architecture Changes
      Q: How does Tesla's connector simplification affect TE?
      A: Architectural changes like Tesla's often increase complexity and content for TE, as they involve more electronification and engineering challenges ( ). TE sees such changes as opportunities, as they work with every car company globally ( ).

    12. Sequential Decline in Comms Orders
      Q: Why did comms orders decline sequentially?
      A: Orders grew 100% last quarter and 40% this quarter year-on-year, but lumpiness is expected due to program timing ( ). TE had $1 billion in orders in the past two quarters combined, supporting the guidance of doubling AI revenue ( ).

    13. Incremental Margins on Communication Growth
      Q: Are you expecting 25%-30% incremental margins in Communications?
      A: TE anticipates around 30% incremental margins, accounting for investments in capacity and engineering to support growth ( ). This includes benefits from AI as well as cost actions in the segment ( ).

    14. New Segment Reporting
      Q: How should we view growth and margins in the new segments?
      A: TE will provide detailed data later in the quarter. The new Industrial segment combines IS and CS segments and finished 2024 in the high teens margin, while Transportation remains in the 20% range ( ). The company expects margin improvement in Industrial in FY '25 ( ).

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