Amphenol Corporation

And welcome to the fourth quarter earnings conference call for Antenol 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, Sir Craig Lambeau. You may begin. Thank you.

Good afternoon, everyone. This is Craig Lampo, Amphenol CFO, and I'm here together with Adam Norwood, our CEO. We would like to welcome you to our fourth quarter 2018 conference call. Our fourth quarter 2018 results were released this morning. I will provide you some financial commentary on the quarter, and then Adam will give you an overview of the business as well as current trends, and 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 fourth quarter with record sales of $2,225,000,000 and with record GAAP and adjusted diluted EPS of $1.09 and $1.05, respectively. exceeding the high end of the company's guidance for sales by approximately $122 million and adjusted diluted EPS by $0.07. Sales were up 14% in U.S. dollars and up 16% in local currencies compared to the fourth quarter of 2017. From an organic standpoint, excluding both acquisitions and currency, sales in the fourth quarter increased 14%. Sequentially, sales are up 4% in U.S. dollars and 5% in local currencies and organically. Breaking down sales into our two segments, our cable business, which comprised 5% of our sales, was up 12% in U.S. dollars and up 15% in local currency compared to the fourth quarter of last year. The interconnect business, which comprised the remainder of our sales, was up 15% in U.S. dollars from last year driven primarily by organic growth. For the full year 2018, sales were a record $8,202,000,000. Sales were up 17% in US dollars and in local currency and up a very strong 14% organically compared to 2017, an excellent performance. Adam will comment further on trends by market in a few minutes. Adjusted operating income was $466,000,000 for the fourth quarter of 2018. Adjusted operating margin was a record 21% in the fourth quarter of 2018, up 50 basis points compared to the fourth quarter of 2017 of 20.5%, and up 10 basis points compared to the third quarter of 2018 of 20.9%. From a segment standpoint, in the cable segment, margins were 11.9%, which is up compared to 11.2% in the fourth quarter of 2017. In the interconnect segment, margins were strong 22.8%. in the fourth quarter of 2018, which is up compared to the fourth quarter of last year at 22.4%. For the full year, 2018, the company delivered $1,695,000,000 in adjusted operating income, up a strong 18% from 2017. We continue to be very pleased with the company's adjusted operating margin achievement, both with the achievement of 20.7% for the full year, as well as 21% for the fourth quarter. This excellent performance is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high-performance action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in a dynamic market environment. Through the careful fostering of such a culture and the deployment of these strategies to both existing and acquired companies, Our management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance in the future. Interest expense for the quarter was $26 million, which is comparable to last year. The company's adjusted effective tax rate was approximately 25.5% for the fourth quarter of 2018, compared to 26.7% in the fourth quarter of 2017. The adjusted effective tax rate excludes the impact of the tax charge in 2017 and related finalization in 2018 resulting from the Tax Act, as well as the excess tax benefits associated with stock option exercises and the tax effect of acquisition-related costs incurred in the 2018 period. The company's gap effective tax rate for the fourth quarter of 2018, including the items just mentioned, was approximately 21%, compared to 126.5% in the fourth quarter of 2017. For the full year, the adjusted effective tax rate was 25.5% and 26.5% for 2018 and 2017, respectively. The adjusted effective tax rate excludes the impact of the tax charge in 2017 and related finalization in 2018 resulting from the Tax Act. as well as the excess tax benefit associated with the stock option exercises and tax effect of acquisition-related costs incurred in both periods. On a GAAP basis, including the items just mentioned, the company's full-year effective tax rate was approximately 23 percent and 51 percent for 2018 and 2017, respectively. Adjusted net income was a strong 15 percent and 14 percent of sales in the fourth quarter of 2018 and for the full year of 2018, respectively. On a GAAP basis, diluted EPS was $1.09 in the fourth quarter of 2018 compared to a loss of $0.34 in the fourth quarter of 2017. For the full year, GAAP diluted EPS was $3.85 compared to $0.06 in 2017. Both periods reflect the one-time tax and other items previously mentioned. Adjusted diluted EPS grew 22% to a record $1.05 in the fourth quarter of 2018 from $0.86 in the fourth quarter of 2017. For the full year 2018, adjusted diluted EPS was a record $3.77, up 21% over 2017 at $3.12. This strong growth was supported by excellent operating performance as reflected in the company's strong operating margins. Orders for the quarter were a record $2,198,000,000, a 10% increase over the fourth quarter of 2017, resulting in a book-to-bill ratio of 0.99 to 1. The company continues to be an excellent generator of cash. Cash flow from operations was $378,000,000 in the fourth quarter and $1.1 billion for the full year, or approximately 116% and 94% of adjusted net income, respectively. The full year amount includes the previously mentioned payment of approximately $81 million to fully fund our U.S. pension plans, as well as higher than normal tax-related payments during 2018 due to the Tax Act. Excluding both of these items, the cash flow from operations was 108 percent of adjusted debt income for the full year. From a working capital standpoint, inventory, accounts receivable, and accounts payable were approximately $1.2 billion, $1.8 billion, and $890 million respectively at the end of December. And inventory days, day sales outstanding, and payable days were 74, 73, and 53 days, respectively, which were all within our normal range. The cash flow from operations of $378 million, along with proceeds from the Euro bond offering of $572 million, were used primarily to purchase approximately $255 million of the company's stock. We repaid $245 million under our commercial paper programs and revolving credit facilities. to fund net capital expenditures of $101 million, and to fund dividend payments of $69 million, which resulted in an increase in cash, cash equivalents, and short-term investments on hand of approximately $272 million net of translation. During the quarter, the company repurchased 2.9 million shares of stock at an average price of approximately $87 under the $2 billion three-year open market stock repurchase plan. bringing total repurchases for the year to approximately 11 million shares or $935 million. At December 31st, cash and short-term investments were approximately $1.3 billion, the majority of which is held outside of the U.S. At December 31st, 2018, the company had issued approximately $624 million under its U.S. and Euro commercial paper programs. and the company's cash and availability under our credit facilities totaled approximately $2.7 billion. Total debt at December 31st of 2018 was approximately $3.6 billion, and net debt is approximately $2.3 billion. In addition, and as previously announced on January 7th, the company successfully launched a $500 million U.S. bond offering, which has a 10-year term and bears interest at 4.35%. The company will use the proceeds from the note issuance as well as capacity under its U.S. commercial paper program to repay the upcoming maturity of its $750 million U.S. senior note, which is due at the end of this month. As a result of the new 10-year bond offering just mentioned, which carries with it a higher interest rate than the rate on the $750 million note maturing at the end of January, as well as considering the rising interest rate environment impacting our variable rate debt, we expect our quarterly interest expense from the 2019 to increase to approximately $30 million. The fourth quarter 2018 adjusted EBITDA was approximately $585 million, bringing the company's full-year EBITDA to a record $2 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 2019 guidance. As mentioned in our press release, our significant beat in sales during the fourth quarter of 2018 compared to the high end of our guidance was primarily driven by incremental strength in the mobile devices market, along with strength in the IT datacom and communications market, partially offset by some additional weakness experienced in the automotive market. Given the incremental strength in the mobile devices market in the fourth quarter, we expect a commensurate decline in the mobile devices market in the first quarter, which will result in a higher than typical seasonal reduction in mobile devices sales. This decline is reflected in our higher than typical seasonal decline in our first quarter guidance, as well as in our full year growth expectations. In addition, we expect that our tax rate may come down slightly in 2019. At this point, we expect this reduction to be a maximum of 50 basis points, which is reflected in our 2019 guidance. I will now turn it over to Adam, who will provide an overview of the business and comment on current trends.

Adam Werner Well, thank you very much, Craig, and thanks to everybody here today joining us at the time of our quarterly earnings call. And I hope it's not too late to wish everybody on the phone a Happy New Year from the winter wonderland here in Connecticut today. As Craig mentioned, I'm going to spend a few moments just to highlight some of our fourth quarter and full year achievements. I'll then discuss the trends and progress across our served markets, and then finally I'll make some comments on our outlook for the first quarter and the full year, and of course we'll have time for some questions at the end. As Craig detailed, our results in the fourth quarter were substantially stronger than expected. As we exceeded the high end of our guidance in sales and adjusted earnings, reaching new records in orders, sales, and adjusted earnings per share. Sales grew by a very strong 14% in U.S. dollars and 16% in local currencies, reaching another new sales record for the company of $2,225,000,000. I would just say that we're pleased in particular to have grown organically in the quarter by a very robust 14% year-over-year. The company booked a new record of $2.2 billion in orders in the quarter, representing a book-to-bill of just under 1 to 1.99. And our adjusted operating margins were, once again, very strong in the quarter, reaching a new record of 21%. We also generated strong operating cash flow of $378 million in the fourth quarter. And this is, again, a great reflection of the quality of the company's earnings. I can just say with the fourth quarter, how proud I am of the Amphenol team. I think our results once again this quarter reflect the true value of the discipline and agility of Amphenol's entrepreneurial organization as we continue to perform well amidst the very dynamic market environment of the electronics industry, all while driving outstanding operating performance for the company. We're very pleased also in the quarter to announce that we have closed here in January just recently the SSI acquisition that was announced back in December. SSI is a provider of high-technology sensors and sensing solutions based in Janesville, Wisconsin, with annual sales of approximately $180 million. The company, which has operations in Wisconsin as well as in the Czech Republic, offers a wide variety of sensor products, including ultrasonic level sensors, pressure and speed sensors, to customers across the automotive and industrial markets. SSI represents an excellent complement to our growing portfolio of sensor products, which have become a core pillar of our overall InterConnect product offering. As we welcome this outstanding new team to Amphenol, we remain very confident that our acquisition program will continue to create great value for the company. In fact, it is really our ability to identify and execute upon acquisition opportunities and then successfully bring them into the Amphenol family that remains a core competitive advantage for the company. Now, just with respect to 2018, I would just reflect back and say that 2018 was really a very successful year for Amphenol. We expanded our position in the overall market, growing sales by a very strong 17% in U.S. dollars and local currencies, reaching a new sales record of $8.2 billion for the company. Organically, we grew by 14%. our highest level in the last eight years, and substantially above the levels we had anticipated coming into 2018. Our full-year adjusted operating margins for the company reached a new record 20.7%, and that strong level of profitability enabled us to generate adjusted diluted earnings per share of $3.77, which grew a strong 21% from prior year. And then finally, we generated substantial operating and free cash flow of 1.2%. $1 billion and $800 million, roughly, respectively. Our acquisition program also continued to create great value for the company in 2018 with the acquisitions of CTI, Ardent, and all sensors earlier in the year, and SSI, as I mentioned just here in January. We're really excited that these acquisitions represent expanded platforms for the company's future performance, in particular because of just the outstanding and talented individuals involved that we're so pleased to have welcomed to the Amphenol family. These new managers and the company deepen what is already a very strong bench of Amphenolians around the world. In addition, in 2018, we bought back nearly 11 million shares under our share buyback programs, as well as increasing our quarterly dividend by 21%. I would just say that Amphenol's long-term mission remains the same, that is to be the enabler of the electronics revolution. and through the organic development efforts of Amphenol's entrepreneurial organization, together with the benefits from our acquisition program, we've expanded our partnerships with a broadening array of customers across all of the company's diversified end markets. This has resulted in Amphenol strengthening our position across the many interesting and exciting segments of the electronics industry. And while the overall market environment towards the end of the year did become increasingly uncertain, as we enter 2019, our agile entrepreneurial management team remains highly confident that we have built a platform of strength from which we can drive superior long-term performance going forward. Now, turning to the company's trends and progress across our served markets, I would just comment that we're pleased that the company's balanced and broad and market diversification continues to create value for Amphenol. Once again, for the full year, no market represented more than 19% of our sales. And we truly believe that this diversification mitigates the impact of volatility of individual end markets while also very importantly exposing us to leading technologies wherever they may arise across the electronics industry. So turning to those markets, first the military market represented 10% of our sales in the fourth quarter and also 10% of our sales for the full year. Sales in the military market again grew strongly from prior year, increasing by a greater than expected 15% and actually 16% organically, driven by growth in avionics, military vehicles, rotorcraft, as well as ordnance applications. Sequentially, our sales increased by 4% into the normally seasonally softer winter quarter. For the full year of 2018, we're very pleased. that our military sales grew by an excellent 20% in U.S. dollars and 19% organic, and that really reflected broad-based strength across virtually all segments of the military market. Our organization working in this important market has really driven hard for many years to strengthen our broad technology position with customers across all segments of the military industry. The company's superior performance in 2018 showed is yet another great reflection of the results of those significant efforts. And given the ongoing favorable military spending environment, our team continues to solidify their leadership position by ensuring that we're able to execute on this increased demand by supporting the many next-generation technologies that are required for modern military hardware. Looking ahead, we expect sales in the first quarter to increase modestly from these fourth-quarter levels And for the full year 2019, we expect to achieve high single-digit sales growth on top of our already strong sales levels in 2018. The commercial aerospace market represented 4% of sales both in the fourth quarter and in the full year of 2018, and sales increased by a stronger than expected 10% as overall demand from commercial aircraft manufacturers continued to be robust. Sequentially, our sales increased by 8% from the third quarter. For the full year of 2018, we're very pleased that our sales grew by 13% as we benefited from our broad design ends of next generation interconnect products on new jet liners. In addition, we were encouraged to also begin to see some improvements in the sales of both business jets and helicopters here in 2018. Looking into the new year, we expect a slight moderation in sales from these levels in the first quarter, But for the full year, we expect a mid-single-digit sales increase, as procurement of our products used in commercial jetliners increases. We remain encouraged by the company's strong technology position across a wide array of aircraft platforms and next-generation systems that are integrated into those airplanes. And we look forward to benefiting from that position for many years to come. The industrial market represented 17% of our sales in the fourth quarter and 19% of our sales for the full year 2018. Sales in the fourth quarter were up slightly from prior year as stronger sales in medical, oil and gas, and rail mass transit were essentially offset by reductions in heavy equipment, factory automation, and alternative energy. On a sequential basis, sales were down by about 4% from the third quarter, reflecting some moderation in the overall industrial market. For the full year 2018, our sales in the industrial market grew by a very strong 16% in U.S. dollars and 9% organically, driven by excellent performance in medical, battery and electric vehicle, oil and gas, and rail mass transit, together with contributions from our acquisition program. No question that 2018 was another excellent year for our teams working in the industrial market. Through both our successful acquisition program as well as our organic innovations, we've developed a very broad array of products across a diversified range of exciting segments within the global industrial market. Very proud of the success and look forward to realizing the benefits from our efforts in the industrial market for many years to come. This quarter's addition of SSI to the Amphenol family further strengthens are already robust position in sensors that are used in heavy equipment, factory automation, as well as other very dynamic and high technology industrial applications. Looking into the first quarter of 2019, we anticipate a modest sequential increase in sales as we benefit from the addition of SSI. And for the full year 2019, we expect to realize high single-digit sales growth as we continue to benefit from our acquisitions as well as our organic growth efforts. The automotive market represented 16% of our sales in the fourth quarter and 18% of our sales for the full year 2018. Sales were a bit weaker than we had anticipated coming into the quarter, with revenues just up slightly from prior year, as our increased sales of interconnect and sensor products into new applications was nearly offset by moderated vehicle volumes. Sequentially, our automotive sales decreased by 2% in U.S. dollars, and we're basically flat organically from the third quarter. Regardless of this more recent slowing of demand from our customers in the automotive market in the fourth quarter, for the full year 2018, our sales grew by a very strong 14% in U.S. dollars and 7% organically, which is a great performance given the overall trends in global automobile production. We continue to benefit from the company's long-term and consistent strategy of expanding our range of interconnect sensor and antenna products, both organically and through acquisitions, which enables us to really drive a wide array of products into onboard electronics across a diversified range of vehicles that are made by auto manufacturers around the world. We're especially excited that the acquisition of SSI significantly bolsters our growing sensor offering for the global automotive market, expanding in particular our range of sensor products to include ultrasonic level, speed, and pressure sensors. I would also just note that since acquiring the advanced sensors operations just over five years ago, which was our first sensor acquisition, we've significantly expanded our sensor business while broadening our portfolio of high-technology products. Looking ahead in the automotive market for the first quarter, we expect sales to increase from current levels due primarily to the contributions from SSI. And for the full year 2019, we expect to achieve sales growth in the high single digits, driven by organic growth as well as the contributions from our acquisitions. We look forward to continuing to realize the benefits from our successful automotive business well into the future. The mobile devices market had a great quarter. Sales were 23% of our total in the fourth quarter and 17% for the full year. And our sales into this market were substantially stronger than expected in the fourth quarter, growing by a very significant 47%, as our shipments of products used in smartphones, in particular, strengthened significantly. But we did also realize growth related to laptops, tablets, wearables, and other accessories On a sequential basis, our sales grew a very substantial 34% from what was already a very strong third quarter. For the full year of 2018, sales in mobile devices increased by 41%, significantly ahead of our expectations coming into the year. Our growth for the year was driven by higher sales of products used in smartphones and accessories and was offset slightly by declines in the volumes of tablets. I can just tell you how proud I am of our team working in the mobile devices market. They were once again able to capitalize on substantial demand for next generation high technology components from our customers while really executing flawlessly on a very challenging ramp up of production to these high volume levels that we saw in the quarter. In addition, our team continues to dynamically adjust their resources in the face of the high level of volatility that we have always grown accustomed to in this market. Based on our significant incremental sales in the fourth quarter that were well beyond expectations, we now expect a sequential decline in sales for the first quarter of approximately 50%. While this is a greater than normal seasonal decline, when factoring in the higher than expected purchases of our products by customers in the fourth quarter, this seasonal decline is largely similar to what we have seen in prior years. For the full year of 2019, we expect our sales to decline in the mid to high teens, also due in part to this excess demand that we experienced in the fourth quarter of 2018. Despite this volatility in demand that we're expecting going into the new year, I can tell you that we remain encouraged by the company's very strong position in the mobile devices market. Our superior performance in 2018 is just an excellent confirmation that our team's proven ability to capitalize on unexpected opportunities from customers around the mobile device market really remains unrivaled in the industry. The mobile networks market represented 7% of our sales in the fourth quarter and 8% of our sales for the full year of 2018. Sales increased from prior year by 9% in U.S. dollars and 12% organically as we grew both with equipment manufacturers and service providers around the world. Sequentially, sales in the mobile networks market were down by approximately 4%, due to typical fourth quarter seasonality. We're particularly pleased that for the full year 2018, our sales grew by 10% in U.S. dollars and 8% organically, as we were able to capitalize on increased spending by a number of operators around the world. Looking ahead, we expect the first quarter 2019 sales to moderate from these levels, But for the full year 2019, we expect the low single-digit growth in the mobile networks market as operators further increase their spending on next-generation systems. We're very encouraged by our performance in the mobile networks market, which was, in the end, stronger than we had anticipated coming into 2018. I can just tell you that our team continues to work aggressively to expand our position with next-generation equipment and networks, And as customers plan for their next-generation advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers around the world. And we believe this creates a significant long-term expansion potential for the company. The information technology and data communications market represented 19% of our sales, in the fourth quarter and 19% also for the full year 2018. Sales in the fourth quarter were stronger than we had expected coming into the quarter, rising a very robust 15% in U.S. dollars and 13% organically from prior year. And this was really driven by strong growth in particular in servers and storage systems, as well as also by improved demand for networking-related products. So really we saw growth across most of the areas of the IT Datacom market. Sequentially, our sales were down by just 3% from the high levels that we experienced in the third quarter, which was, as I said, better than we had expected coming into the fourth quarter. For the full year 2018, our sales grew by a strong 12% U.S. dollars and 9% organically, another year of excellent performance in this important and dynamic market. The company's strong results are a direct result of our team's continued efforts at developing industry-leading products across a wide array of technologies, including in particular high-speed and power interconnect products. In addition, our team continues to adapt quickly to the changing market environment in IT Datacom, in particular by capitalizing on the emergence of these new generation web service providers. Looking ahead, while we anticipate a low double-digit sequential decline from these high demand levels into the first quarter, For the full year 2019, we expect to achieve growth in the low single digits. I can tell you we're very encouraged by the company's strong technology position in the global IT datacom market. Our customers around the world are continuing to drive their equipment and networks to reach ever higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processing power. In turn, Our team remains singularly focused on enabling this continuing revolution in IT Datacom through their ongoing development of a wide array of next-generation technologies. And then finally, the broadband communications market represented 4% of our sales in the quarter and 5% of our sales for the full year of 2018. Sales in broadband increased by a bit less than we had expected, 7% in U.S. dollars and 9% organically. with growth driven by increased spending on network build-outs by our service provider customers. On a sequential basis, sales decreased by a greater than expected 5% from the third quarter, although the fourth quarter is typically impacted by the winter weather. I would say that 2018 was a challenging year in the broadband market, as our sales were slightly down from prior year. On an overall pause in operator spending growth, And as we look into 2019, we expect our sales to remain at the current quarterly levels in the first quarter as operator spending remains stable. And for the full year 2019, we expect sales to be flat with our current 2018 levels. Despite this muted outlook for demand in the broadband market in 2019, we remain encouraged by the company's continually expanding range of products, together with our strong positions with customers around the world. We continue to position the company as the most flexible supplier, thereby ensuring that Amphenol can benefit should there be any upticks in demand from our customers. So just in summary, I can just tell you I'm extremely proud of the company's performance here in 2018. It was a truly special year for Amphenol as we passed $8 billion in sales and reached an adjusted return on sales of 20.7%. The Amphenol organization has clearly continued to execute extraordinarily well in this very dynamic marketplace. In particular, our dual-pronged approach of growing both organically and through our acquisition program has resulted in the company expanding our market position while strengthening our financial performance. Amphenol's superior performance is a direct reflection of the company's distinct competitive advantages. Our leading technology, our increasing position with customers across a diversified array of end markets, our worldwide presence, a lean and flexible cost structure, a highly effective acquisition program, and most importantly, the base of it all, an agile and entrepreneurial management team. So now turning to the outlook for the first quarter and full year of 2019, As both Craig and I have already mentioned, given the incremental and excess demand from the mobile devices market that we experienced in the fourth quarter, we do expect a commensurate reduction in sales in that market in addition to the traditional seasonal decline that we would typically see. In addition, we would just say that there is clearly a heightened level of uncertainty in the overall market environment, and that includes those factors related to trade policy. On this basis and based on constant exchange rates, we now expect for the first quarter and full year 2019 the following results. For the first quarter, we expect sales in the range of $1,898,000,000 to $1,938,000,000 and diluted EPS in the range of $0.86 to $0.88 respectively. This represents the sales increase versus prior year of 2% to 4% in U.S. dollars and 5% to 7% in local currency, and an increase versus prior year of adjusted diluted EPS of 4% to 6%. For the full year 2019, we expect sales in the range of $8,190,000,000 to $8,350,000, and diluted EPS in the range of $3.88 to $3.96, respectively. For the full year, this represents sales and adjusted diluted EPS growth of flat to 2% and 3% to 5% over 2018 levels, respectively. I can just say once more that we're very encouraged by the company's record performance in 2018, and we look forward to driving further strength going forward, even given the many dynamics around the world. I'm confident in the ability of our outstanding management team to build upon our new performance records and to continue to capitalize on the many future opportunities to grow our market position while also expanding the company's profitability. And with that, operator, it would be our pleasure to take any questions.

Thank you. We will now begin the question and answer session. Each participant is allowed to ask one question and one follow-up. Our first question is coming from the line of Mark Delaney from Goldman Sachs. You may now ask your question.

Yes, good afternoon. Thanks very much for taking the questions. First question is about mobile devices, which was a significant positive surprise, especially given how weak global smartphone demand was and a lot of the smartphone supply chain companies actually cut their fourth quarter guidance. So I'm hoping for just a little bit more color on how Amphenol was able to actually achieve a significant revenue upside in its mobile devices segment for this past quarter.

Well, thanks very much, Mark. I mean, look, our team reacts to what demand we get from our customers. And I think whether that's come in prior years from sometimes gaining share or sometimes the programs that we're on have done a little bit better, I would tell you that this year it was more just the volumes of the programs that we were on. There was more demand for the products that we were selling. And that's really the most simple explanation. And I think it really is a credit to our team for being able to react to that volume increase. And as I said, I mean, we had a volume increase in the quarter of quite significance on a sequential basis, 32% from quarter to quarter. And to react to such an increase in volume and be able to satisfy that was really a testament to the team's agility in the face of what is no doubt about it the most volatile market that we work in. And look, as I explained in my prepared remarks, we see also this sort of commensurate reduction, which is more significant than we have typically seen. But that was because we saw this real incremental demand that we hadn't expected coming into the quarter. And if you look at this market over many years, we have seen many times where, you know, we're not really able to predict quarter to quarter what's going to happen. We've seen sometimes a very strong Q2. We've seen other times a strong Q3. And in this case, we saw a really strong Q4, and it's really no different than we've seen in other years. The only difference here is that it kind of crosses the calendar year, and so it has a little bit of a magnified effect on the overall growth outlook for the company calendar year to calendar year. But it's just another reflection of the team's real ability to capture what opportunities are present for them and then to react. when sometimes the volumes have a different trajectory on the downside. And I think our team has just done a fabulous job of that, ramping up the resources where necessary and ramping them down just as quickly as they need to in the face of the sort of seasonality that comes along.

I got it. That's helpful, Adam. My second question is about SSI. Something to get a better sense where EBIT margins are for that acquisition, what sort of EPS contribution from SSI is assumed in your guidance for 2019 and How should we think about EBIT margins for SSI over the longer term compared to the corporate average?

Sure. Thanks a lot, Mark. Yeah, in regards to SSI, I think we actually talked about this a little bit also when we released our press release for it. But those EBIT margins for that company, it's a great company. It's just slightly below kind of the company average, not meaningfully below, but they are slightly below the company average. So in terms of the EPS accretion, we didn't really talk about that, and certainly I wouldn't necessarily point that out specifically, but I'm sure you can probably calculate that yourself based on the EBIT margins I just mentioned.

Thank you. Our next question is coming from the line of Amit Dardanani from RBC Capital Markets. You may now ask your question.

Thank you. I have two questions as well, guys. First off, on the mobile device side, Adam, the decline you guys are seeing in March, is there a way to think about how much of that do you think is just normal seasonality versus an inventory correction at the OEM level? And if you look at your crystal ball for mobile devices, do you think March is a trough and we start to improve in revenues in June, or could revenues remain muted for the first half of the year?

Well, first, I don't have a good crystal ball on mobile devices, Amit. I think you've covered us long enough to know that. But, look, I think what we both said, Craig and I, I mean, the vast majority of our beat in the fourth quarter was really coming from mobile devices. So I would sort of say that the equivalence of that is what we would see as kind of a correction going into the first quarter because that was really incremental to the plans and We don't know ultimately who's selling what products, but we do have a general sense of what they buy from us. And so beyond that, I think it's the kind of normal seasonality. And look, normally the first quarter is down somewhere between, I don't know, 25%, 35% is not abnormal to see. You have the holidays. You have Chinese New Year. You have all those various things. Is the first quarter a trough or not? I think that's, again, I think it's hard to say with a crystal ball. I think we've given an outlook for the year that we would expect the year to be down in the kind of mid to high teens. What the cadence is over the course of each quarter, I'm pretty bad at predicting that. So I won't go out at the end of my skis on that one.

Fair enough. And if I could just follow up, you talked about heightened global uncertainty, I think. I'm somewhat surprised how well your military business is doing despite the government shutdown. So are you seeing any impact from that, or is there a risk that that's going to impact your military business very specifically from the government shutdown? Any color there would be great. Thank you.

Yeah, well, I think the government shutdown, I mean, it may have lots of impacts that I'm not privy to, but I think the one area that it doesn't seem to have an impact on is the defense industry. I think the DOD is not one of the departments that is impacted today. by the government shutdown. I mean, we continue to see very robust demand in the military market. Obviously, we don't sell directly to the government in the vast majority of instances. The vast majority of what we sell is components that get integrated onto advanced military electronic systems, airplanes, vehicles, munitions systems, communications systems, and the like. And we're selling those to OEMs who are manufacturing those products. But I think in general we have not seen really any slowdown or any impact from the government shutdown on our really strong military business. And I think when you look at the performance of our military business really over the course of the year, it's just a really outstanding performance, growing 20%, 19% organically, really continued momentum through the course of the year. And I think with the continued strong outlook going into 2019, and I think it is a reflection really of two things. I mean, number one, we have worked over many, many years to broaden what was already an industry-leading position in military interconnect products, both through our acquisitions as well as really leveraging our technology capabilities around the company and packaging those technologies into the military, areas like high speed and fiber optics and power and I mean, the sort of core pillars of interconnect technology, our team's just done an outstanding job of packaging those for these next-generation advanced military electronics. And the places where you see these electronics going and these next-generation electronics is really amazing. I was just recently out in Michigan and seeing what they're doing, for example, on next-generation electronification of military hardware. These are these are these really exciting areas where the military is pushing the limits of these technologies and where our team, by having broadened the range of products that we can sell, really becomes the first phone call on so many of these next generation systems. And so I think, look, regardless of whether there's a short-term government shutdown or otherwise, I think this trend towards adoption of new electronics in the military and our enabling of that adoption has a real favorable platform for Amphenol.

Thank you. The next question is coming from the line of Wamsi Mohan from Bank of America, Merrill Lynch. You may now ask your question.

Yes, thank you. Adam, I'm going to ask my obligatory mobile device question as well. Your volume increase comment around mobile devices, I mean, if you really look at, or at least what we track in terms of revisions to smartphone demand, it really had trended negative as you closed out through the course of the quarter. And the bulk of that really happened in November and December. And when you look at sort of your guidance and upside to that, Should we be really thinking about mobile devices as much broader than just smartphones? And frankly, laptops have been challenged, too, because of Intel shortage. So should we be attributing this upside not to smartphones but really to wearables? And can you size maybe the wearables business within your mobile devices so we have some context of how large that could be? Do I have a follow-up?

Yes. I know it's not necessarily jibing with what everybody hears, but actually we had really strong performance in smartphones in the corridor. We had strong performance in other areas as well, and we do have a strong position in things like wearables, but today our biggest business in mobile devices is really smartphones. We grew, I will tell you, we grew in all the areas, whether that's phones or laptops or tablets, wearables, all the other sort of accessories. I mean, there's so many new types of mobile devices that continue to emerge, but we had very strong and really strongest performance in smartphones. And I think to try to give a little color to that, I mean, we've been very successful at enabling with really new technologies our products, that sometimes can be used in new generation phones at a higher level of content and having a higher value into those products. And I think our team's just done a fabulous job of continuing to build on our content as those devices become more complex and as there's more value that can be embedded in them. And you'll know very well, Wamsi, our approach here has always been a very consistent approach. It's one where we say we will participate in the mobile devices market to the extent that that our product is really adding value to the end product or our customer. And as our customer develops products which have more complex hardware, an array of signals that go into them and other things like that, that can create the opportunity for us to participate with more content. It doesn't mean we always win everything, of course. It's a very volatile market. Everything is a new jump ball. But the opportunity is still there so long as there is still the innovation on the hardware side As we've said before, if everything turned into a commodity that was just an empty host for software, then probably we wouldn't participate as much. But as long as we've been in this market, we continue to see customers innovating new platforms of hardware and seeing the hardware as a strong selling point to their consumers and as a differentiating point to attract, preserve, or gain market share.

Okay. Thanks for the call, Adam. Appreciate it. I was wondering if I could ask a longer-term question around the sensor business. So you obviously alluded to, you know, your advanced sensors. You did all sensors, SSI now. Can you maybe size for us the sensor portfolio as it currently stands and how you think about sort of the growth profile of that asset in aggregate, maybe just for 2019, if you could slice it a little differently from sort of the end market because it cuts across your different end markets. Thank you.

Well, I mean, look, we're really pleased with the progress of our sensor business really over the last half decade. It was just over five years ago that we made our first acquisition of the advanced sensor business of GE, really five years and a month ago, I think, exactly. And since that time, we've acquired, I think, the better part of eight businesses that have been complements to that original advanced sensor business, And without giving a specific number for what sensors represents, because that's not necessarily how we portray the sales of the company, I would tell you that you look at all the acquisitions that we've made with also some not-insubstantial organic growth, and it's become a good business for us. And what we really like about the business, as you alluded to, is it's not just kind of a one-trick pony of a business. You have a lot of different – different diversified opportunities, predominantly across the industrial and automotive markets, but we've also started to see sensor opportunities in the aerospace market, and we'll continue to look for new areas across Amphenol's entire end market portfolio to really expand our sensor business. And the other thing that we've continued to see is a real strong benefit to us being able to go to customers with a comprehensive offering of interconnect antennas and sensors. And More and more, whether that's in areas like Internet of Things or whether that's in next-generation connected heavy equipment or, you know, you go through the list, there's so many different areas where the opportunity to go to customers and give them really an end-to-end solution becomes more and more compelling. And I think we've seen strong benefits from that so far, and I think the stronger potential is still really in the future for that proposition.

Thank you. The next question is coming from the line of . You may now ask your question.

Yes, thanks. Good afternoon, Adam and Craig. Just a question regarding, Adam, your commentary on the mobile networks and IT data comp spaces, both areas where you saw a very strong growth. It looks like a little bit more subdued outlook this year. I think you're looking at low single-digit growth for each sector. Could you, particularly on the IT data center where you've seen good growth, are you seeing any sort of pause, particularly on data center investments and then on mobile networks? What's your take on the 5G rollout and how that impacts your revenue going forward?

Yeah, well, look, as we mentioned, I think we had really strong years in both these markets in 2018. You'll remember we came into 2018 with a little bit less sanguine outlook, in particular on mobile networks, where I think we came into the year, if I recall correctly, almost flat. And IT Datacom was kind of a mid-single-digit kind of an outlook. And we ended up in both those markets going organically in the high single-digits. As we look now into 2019, look, I talked about the fact that there is, you know, there has been a little bit of building uncertainty in the world. I think these are coming off a very, very strong year, in particular for IT Datacom. And so as we think about our outlook for the coming year with some of the, a little bit of conservatism maybe from some customers in the IT Datacom market, given the overall kind of geopolitical world, maybe a little bit of A little bit of that also in Asia, places like China. I think it's nothing cataclysmic. I think we still see that as being a market where we're going to have growth in the year. And you can bet that our team is going to fight really hard for every opportunity that presents itself. Relative to the mobile networks market, I think we're really pleased to see a little bit more opportunities in 2018. And it remains a market where I would say we don't yet see the real strong impact coming from things like 5G or whatever next generation networks are going to be called. But our team has done a great job of capitalizing on the opportunities that are present. And as we look into the year, to the extent that any of these networks get accelerated, no doubt about it, we'd be present to capitalize upon that.

Okay, thanks, Adam. That's all for me.

Thanks so much, Matt.

Thank you. Our next question is coming from the line of correct head back from Morgan Stanley. Great, thank you.

Thanks. Adam, just a question on trends by geography. There's been a lot of focus in the investing community on just China's slowdown. Just curious to get your take in terms of what you're seeing in China versus Europe and North America.

Yeah, well, I mean, I'll say two things. In the fourth quarter, we actually had really strong growth in Asia. Now, not surprising from one perspective, which is that mobile devices is essentially all procured in Asia, if not all procured in China. And so when you have a strong mobile devices quarter, that tends to also bring the all of Asia. But interestingly, what I would also say is that even if you take out mobile devices, in the fourth quarter. I mean, we still grew in the kind of mid single digits in Asia. And, you know, for us, the vast majority of our business in Asia is, is in China. Um, and so I think our team, despite all the sort of press that you read, despite all the hoopla and, and hue and cry about the trade war and the slowdowns and all of this, I think our team's done a really good job of ferreting out opportunities. I, I would also point out that, uh, In the quarter, in the fourth quarter, in Asia, for example, we grew in markets like automotive on a year-over-year basis. And I think that that's a market where there's been a lot of wide discussions around the volumes which are down, and no doubt about it, the volumes are down. But I think our team's just done a great job of building on a growing position there and taking more position on next-generation electronics, which has allowed the company to offset that more subdued end-market demand that has been there.

I appreciate the color. And then just as a quick follow-up just on SSI, just as you think about the sensor portfolio you're talking about in, you know, a half a decade of acquisitions and you're building that up, Can you just talk about the environment in terms of for additional potential bolt-ons, and is it specific sensor types that you can expand upon or certain end markets that look more attractive than others?

Yeah, I mean, I think when we first got into the sensor market five years ago, I remember very well talking about the fact that we viewed the sensor market at that time, and, again, we were kind of neophytes, let's be honest, We viewed the sensor market as having a lot of similarities to the interconnect market of several decades before. And what we saw was a market that is pretty fragmented, let's say very fragmented, a lot of mom and pops, a few companies zoned by conglomerates, and then a much smaller number of larger, really strong players. And we saw that. And it reminded us very much of the interconnect market and the connector market that we've been a part of for so many years in that it creates an opportunity for one to build through an acquisition strategy, a portfolio of products that can be both complementary and ultimately valuable in their totality to customers. And so as we've thought about that over the years and we've, I think, successfully executed here on bringing in the better part of eight companies in addition to that first one, we have really viewed that from two perspectives. One is building on our market position in sensors, so really looking at the various markets that we participate in traditionally, which are very diversified, really kind of every nook and cranny of the electronics industry, and trying to sort of plug the holes, so to speak, where we don't yet today have a sensor presence. And then also looking at the types of sensors, starting with things like temperature and pressure, gas and moisture, and expanding to areas like position and recently level sensors, speed sensors, and a whole array of different types of sensor technologies. And by sort of thinking on those two trajectories, both end market as well as the sensor types, we're slowly able to build out a more broad presence and a more complementary and broad presence to our customers that we've been dealing with for many, many years. And I think that has been a really great strategy. Are we at the end of that strategy? I would say far from it. I think we're still, I'd say five years is pretty early days. We've been in this business, Amphenol, for 87 years, so five is a relatively small proportion of the history of the company. But we still, I think we have validated, at least for ourselves, the fact that, Indeed, there is that opportunity to both grow organically as well as grow through a thoughtful acquisition program. And that's what we'll continue to pursue, a real thoughtful approach to adding new types of sensors, spreading all of those sensors across new geographies, new applications. And then along the way, really the most important principle of these acquisitions has been the people side. And I can just tell you we brought in fabulous individuals into the company who we probably never would have gotten to know had we not at one point said we want to get into the sensor market and expand really what we offer to customers, broaden really the reach of what our interconnect offering is to include sensors. And I'm very thankful that we did that because we have brought a lot of great people into the company. And at the end of the day, those great people create also new platforms for future performance for the company.

Thank you. The next question is coming from the line of Sean Hyerson from Longbow Research. The line is now open.

Good afternoon, Adam. Two questions, if I may. The mobile networks business, in terms of the growth forecast for the year, is there any difference between the three geographies you principally serve in terms of growth rates? And then second, on the M&A environment, when you come into kind of a more uncertain environment historically, Do you see the companies that you've been speaking to over the past months and years become more willing to consider selling the business, or do they begin to pull back a little bit more from considering selling the business?

I think relative to the mobile network's guidance, what I can tell you is if we look at our performance here in the fourth quarter, I would say that we had stronger performance in North America. We had maybe, you know, kind of average performance in Europe and a little bit worse in Asia. And I think when you look at kind of our full year performance for mobile networks, it was, you know, really we had probably much stronger performance in North America compared to the other regions. A little bit better actually in sort of the rest of the world areas. So as we go into now 2019, We don't necessarily guide by region, but I wouldn't expect it to be materially different. I think we still see robust opportunities in North America. I think our team in some of the other regions around the world, places like India and other kind of what we would call sort of rest of the world areas, we see good strength there. We'll be mindful, though, I mean, to the extent that one or another region is comes first with the next generation system, that could all of a sudden drive that region to have a little bit better performance. And sometimes we've seen that in the past when you've had a new generation system. Sometimes it's a little bit of a regional arms race. And, again, I don't think we expect that right now, but to the extent that that materializes over the course of the year, that could skew it. But I wouldn't say that we have necessarily a pointed by region sort of outlook here. Relative to your question about M&A and with the uncertain markets and whether you talk about the volatility in the equity markets or otherwise, in our experience, this doesn't necessarily change buyer behavior. We look to buy companies that we work with for a long time. We try to get to know them over a long time period, and sometimes the gestation of those relationships changes. it's not really necessarily related to external factors. And so does that mean that people are more willing or less willing to sell? I think it has depended. If you look at our track record over many years and over many cycles, I don't know that there's been necessarily a correlation between economic cycles and our willingness, certainly, nor our ability to successfully execute on acquisitions I think we've bought companies in good times and bad. I remember making my first acquisition as CEO in March of 2009, which was not necessarily the greatest economic environment. So I think it really depends on the seller. Sellers sell for a lot of reasons, and those aren't necessarily and usually aren't typically driven by either the stock market or the overall macroeconomic environment. But we have a great pipeline. We continue to work that pipeline very hard, and I think we have a great story to tell. The organizational culture of Amphenol really creates just such a compelling and attractive destination for the right companies, and I say really the right companies because we make sure we buy companies that have a real entrepreneurial fit with our organization. We look for great people, great products, and great market position, and We look to pay reasonable prices for all of that, fair prices, let me say. And I think we were successful in doing that here with SSI, a company that we had courted and dated for quite a long time. And, again, we have a great pipeline going forward, and we'll look forward to more acquisitions in the future. And, as always, we'll remain very unable to predict the timing specifically of when those are going to come.

Thank you. The next question is coming from the line of Steven Fox from Cross Research. You may now ask your question.

Hi. Good afternoon. Just two quick questions from me. One, can you just sort of help with your organic growth expectations for auto and industrial for 2019? And then secondly, any thoughts with the full year guidance how we would think about cash flows versus the cash flow performance you just did. Would the ratios be about the same, better or worse for any reason? Thanks.

Yeah, so relative to – I'll talk about industrial and auto for a second and then let Craig talk about – answer your other question. I think organically we would expect both industrial and auto to be in the sort of low to mid single digits organic growth. So I think in both cases we said they're high single digits of A little bit more than half of the growth coming out of M&A and a little bit less than half coming out of organic growth.

In regards to our cash flow for 2019, we had a great year in 2018 for cash flow, especially if you take into account some of these additional items that we had. In regards to 2019, I wouldn't expect anything so different. I think we're going to still have a strong year in 2019. We do a great job of managing our working capital. You know, in slower growth years, sometimes that means that working capital is actually a help for you in terms of cash flow. So we certainly would expect that in 2019 to continue to have the cash flow. And our target continues to be long-term to have, you know, operating cash flow, you know, in excess of net income. And I certainly wouldn't expect that any different for 2019. Thank you.

And the next question is coming from the line of Deepa Raghavana from Wells Fargo Securities. You may now ask your question.

Good afternoon, Adam and Craig. A couple from me, too. With regards to your automotive low- to mid-single-digit organic growth outlooks, are you able to discuss some of your production assumptions, especially across regions, China, Europe, North America, for example? That would be pretty helpful, especially just given that most companies are lowering their expectations versus third-party data providers. And I have a follow-up.

Yeah, I mean, we don't look at sort of overall vehicle productions and then extrapolate our outlook. Our outlook is really a bottoms-up. We've described this, I think, before, that the way that we come to a forecast is we go out and we talk to our customers, and we make some judgment about what they tell us, and then on the basis of that, we ultimately come with an outlook for the company. And nowhere in that mix is there kind of a presumption that, of what the market is going to be. And I think others have maybe a better handle on that, not something that we necessarily base our outlook on.

Okay. So 0% to 2%, you're on your growth. That's probably lower due to your mobile devices. I mean, my map just says it would be mid-single-digit growth, X mobile devices on revenue growth. The question for me is – With the exception of mobile devices, are any of your end markets inflecting downwards, or is it just cycle normalization that you're seeing? I guess where I'm going with it is, how do you view the 0.2% growth outlook versus double-digit growth that you printed the last couple of years?

Yeah, well, look, I think one thing, Deepa, I'll credit you for doing good math here, and I think you made a good analysis there. Look, I think overall, as we said, and it's no surprise, I don't think we're the only ones to observe this, there's no doubt that there is a little bit more uncertainty in the overall world right now. And for a whole variety of reasons, which I don't mean to extemporaneously talk about here today, I think the newspapers are full to the rim with enough things written there. Are there specific markets? that have had an inflection. I think we talked last quarter about the fact that automotive here in the fourth quarter as we finished the year was a little bit weaker than we expected. And then ultimately it was even a little bit touch weaker than we thought coming into the quarter. So I'd say that that was, you know, if we want to talk about an inflection, it was a little bit weaker than we expected coming into the quarter, and we had weakened our outlook going into the quarter. That's one. I would say that if we look at, like, the industrial markets, It's mixed. We've had some markets that continue to be very strong. I think I mentioned the fact that in the quarter, I mean, we saw, you know, strong performance from things like rail mass transit, medical and oil and gas, for example, you know, really strong performance. And then conversely, we saw some other areas that turned a little bit more negative, areas like heavy equipment, factory automation, instrumentation. And those are areas that maybe earlier in the year, we saw a bit more strength coming out of those segments of the industrial market. So, you know, are some of those more macro impacts having a little bit of impact on a few of those segments of the industrial market, a little bit more than certainly we thought a couple quarters ago? You know, I think that's kind of a fair statement. But, look, in military market and commercial air, we talked about I think we still have a very favorable outlook there. I think I already addressed the IT Datacom and mobile networks market to one of your peers' questions. And then the broadband market, I think, is just kind of in a flat situation right now. For the full year, it was not a great performer, a little bit worse than we had expected. I think that for the quarter coming up, while we do expect going into the first quarter maybe a little bit of year-over-year growth, it's still kind of flat. on a sequential basis, and our anticipation is that the market will be roughly flat for the whole year of 2019. Thank you.

The next question is coming from the line of William Fine from SunTrust. Your line is now open.

Great. Thanks for taking my questions, two of them if I can. First, Adam, in the mobile device and market investors tend to have concerns for component companies that have a lot of exposure there. You know, I think that's typically because of the level of customer concentration and the difficulty in predicting sort of volume ramps across various products. And it gets really to diversification, both among customers and, within a customer among their products. I'm wondering if you can comment as to Amphenol's position in that regard today, and in particular relative to your customer and product concentration over the last few years in that end market. Is it getting more concentrated, less concentrated, more diversified? Any help understanding that, please?

Yeah, well, look, I mean, the starting point I would say is that it is a concentrated market on a relative basis. So there's only a few players out there, and there's even a smaller few who have a real strong position. And if you look historically, you will see that we did, in fact, have one year, I think it was back in 2015, where we had one customer that kind of peaked over 10%. And I would tell you in 2018, we also had one customer that did peak just over 10%. and it's not inconsistent with the concentration that we've seen in years past. Our presence with each of our customers in the mobile devices market is also very diversified. So you pointed out there's a lot of different products that are sold by each of those different customers, and our goal in a market that is concentrated like mobile devices is, number one, to make sure that we're as diversified as we can be, given the opportunities in that space, But also, number two, to make sure as a total company we remain very diversified. And so that's why, you know, for us it remains very important that you look at the company for the full year. Not one of our markets was more than 19% of our sales. I think mobile devices was 17% of our sales for the full year of 2018. Now, it was a little bit more in the fourth quarter, but it was a very heavy first quarter. And I think the fact that we ended up having that one customer peak a little bit over 10% was really because of this incremental demand for our products that we got in the quarter. It was quite incremental to what we'd expected, as Craig and I have already described a few times here. So I wouldn't say that there's any real change. I mean, I talked earlier the fact that this is a market that is volatile between the quarters. It's a concentrated market. It's a market where you have to be extraordinarily agile in the face of that inherent volatility in the market. And it's a market that We're very, very pleased to be a part of and we're very proud of the success of the company over a long time period when many other companies have not been able to be successful because they just were not simply agile enough to manage the variability that comes in that market. It's a very wonderful market if you can be agile. And I think our results here in the fourth quarter and in 2018 are a great reflection of that. And as we go into first quarter and we have to make the necessary adjustments to the business, I can tell you that our team is already well on their way without even one word from us to make whatever adjustments need to be made in the face of the changing demand environment. So I certainly wouldn't want to be 100% mobile devices, but I wouldn't want to be 100% in any of our markets. I mean, that's the beauty of our approach to really the electronics industry in the broadest sense is that we believe that it's important for the company to be present everywhere where there are opportunities in this sort of revolution of electronics, that is going on over the course of our lives here, yet we don't want to bet on one or another one of those areas. And so we continue to find that there are opportunities everywhere, that we should be as diversified as possible. And by being diversified, we get access and awareness of the new technologies, but we don't just put all our eggs in one basket. And I think that's true across the board in the company, but it's also true here within mobile devices.

Thanks for that. It's helpful. One follow-up, if I can, switching gears to the M&A pipeline. I know M&A is very bottoms-up driven at Amphenol, not a top-down thing, and I understand it's not very predictable when you're going to be able to close deals, but is it fair to think about the pipeline of potential acquisition targets that you're looking at is likely skewed away from traditional connector companies today relative to how it's been in the past, and is there anything outside of, let's say, your traditional connectors, antennas, and sensors? Is there another category that you might be looking at? Thank you.

Yeah, well, I think you correctly termed that it's our pipeline. I mean, bottoms-up, I would tell you we're very involved here at headquarters, so I think it's – I wouldn't say it's a bottoms-up-driven process because Craig and I – together with our very small headquarters acquisition team, are extremely involved in every potential acquisition of any size. But, you know, look, the ideas for acquisitions certainly percolate around the company, and that's the beauty of having 110-plus general managers and my seven group executives around the world. I mean, they're our greatest sensory network to find these new acquisitions. They know who their great competitors may be. They know some of the products that may be complementary to their own, and That's a great resource, which is a heck of a lot better resource than just waiting for pitch books to show up on our desk from investment bankers. Now, look, are we skewing away from Internet? I would say absolutely not. I say interconnect. I mean, we continue to have a pipeline of great interconnect companies. And if you look at our acquisitions just in the last year, I guess two of them were sensor companies and two of them were interconnect companies. One of them was really a value-add interconnect. The other one was a really high-technology connector products company. And then the two sensor companies of all sensors and SSI. I think if you looked into prior years, you'd also see a blend of that. I would rather say that when, again, over the last five years when we got into sensors, it opened up a new avenue, a kind of a new platform of acquisitions, but not to the expense. of our continued strong drive to find complementary interconnect companies, antenna companies, and sensor companies. Now, to your question of is there something else out there that we may, you know, further extend, you know, our portfolio of interconnect companies, there may very well be. But I can tell you this. We are not acquiring companies just to become a holding company of a bunch of unrelated components. I mean, we view this as a very, very strategic drive to be able to offer our customers a broader suite of interconnect under the broadest definition of what that is. And that, in our mind, includes connectors, value-add interconnect products, sensors, antennas, and all that is associated therewith. And so we're not going to just go and acquire random companies to add incremental revenue to the company. if it doesn't make really strategic sense to how our customers view us as an interconnect partner to them. But are there new areas and, you know, accessories or ancillary products that are really part of that family that we could expand into? For sure there are. And what those would be is hard for me to tell you at this point, but we'll continue to look to, you know, as I call it, extend really the reach of the interconnect products that we sell to to our customers on a broad basis. And we do that, by the way, also organically, not just through the acquisition program, but always looking organically at our own internal innovation and product development to satisfy those needs as well.

The next question is coming from the line of Jin Suva from Citi. You may now ask your question.

Thanks. A couple quick questions, one for Craig and one for Adam. Craig, CapEx has been going up over the years, I assume, to support growth. What should we think about for CapEx for 2019? But importantly, are you having discussions with customers due to the new trade wars and political situations of them asking you to physically relocate products? And if so, do we need to build in a little more CapEx for that? And then Adam, for your mobility outlook, You know, I think the worst year or the most challenging year that Ample ever had in mobility was like in 2016. Are we looking kind of like that, or it looks like your severity is even more than that because you were down about 14% this year, and now you're seeing kind of mid to high team decline, or is that just simply because Q4 was so good? Thank you.

Thanks, Jim. So I would just say in regards to CapEx, our typical kind of annual spending, as we've talked about before, is in the range of, say, 2% to 4% of sales. We typically, over the longer term, have been closer to maybe a little over 3%. This year, as you mentioned, we did have clearly some strong growth this year, organic growth, 14%. In years of that type of growth, we do typically have a little bit higher level of spending. And this year, We're maybe still within that range, but I think slightly under 4% for the year. As we move into 2019, I wouldn't expect anything meaningfully different from that in terms of a range. I would expect between 3% to 4% of sales. And as it relates to the tariffs and the trade war and potentially moving production, I certainly wouldn't build anything incremental into the plan. I think that, as Adams talked about before, we're very – thoughtful around being very agile in terms of ensuring that we're doing the right things and being thoughtful around whether or not we have to move production or just do different things a little bit differently from a logistics perspective. But I certainly wouldn't at this point add anything from that perspective into our capital spending.

And, Jim, with respect to mobile devices, you have a good historical perspective. In 2016, our sales were down 15%. I think what I said in my prepared remarks is we do expect in the full year of 2019 sales to be down in the kind of mid to high teens. So mid to high teens could imply a little bit worse than the 15% that we had in 2016. But I think you correctly pointed it out, and I think Deepa also earlier did the same math, which is that with this incremental sales that we had in the fourth quarter, you know, there is some impact, some not insignificant impact there. from that on to the year-over-year comparison in mobile devices as we go forward into 2019.

The next question is coming from the line of Joe Giordano from Cohen. You may now ask your question.

Hey, guys. Good afternoon.

Good afternoon, Joe.

Hey, so, Otto, I think you said 7% organic was your 2018 full-year number. Can you kind of parse that out regionally, how the organic looked in each of your key regions?

Yeah, so I think for the full year organically on a regional basis, I would say we had strong performance both in Asia and North America and a bit weaker performance in Europe. I think we were actually in Europe down a bit, and in North America and Asia both growing on a year-over-year basis in the kind of low double digits. Okay. Sort of flat, uh, Europe was a little flat.

Okay. Um, and then, um, what about orders for like, for that business on the auto side and for Datacom specifically in 4Q, um, you know, some of your competitors reported you started, they, they grew nicely in the quarter revenue, but orders really start to trail off. So I'm curious, uh, what your orders in fourth quarter were for auto and for Datacom, if you're willing to get into that organically.

Yeah, I mean, we don't really split out orders by market, but I wouldn't tell you that we saw any sort of dramatic reductions in orders in any of those markets. I mean, you have a little seasonality that sometimes comes. I think that the overall performance of the market that we both reported in the fourth quarter as well as how we've guided it in the first quarter is kind of reflection of the rough magnitude of the order trends in each of those markets. I wouldn't say that there was a sort of real shocking disparity in orders.

Okay. And then last question for me, the mobile device outperformance in 4Q versus your initial expectation. I know you've over the last couple of years been winning a lot of this kind of white knight business where your flexibility has allowed you to fill holes that existed from others. And I'm just wondering, does that, How does being able to do that kind of carry over to discussions on new platforms as they emerge? Like, does it position Amphenol in a way that you can price at a premium because they know that they're not going to have to scramble and find a replacement supplier at the end of the day?

Well, look, pricing at a premium in the mobile devices market is not the easiest thing in the world. So I wouldn't say that anything ever gives you the right to kind of price at a premium. It's a competitive market, and you've got to be lean and mean on your cost. I think, look, a year ago, we talked about the fact that as we came into the second half of 2017, we really were coming to the rescue of our customers in a few instances where, you know, some of our peers had kind of fallen down and were not able to satisfy their both technically and capacity-wise, the needs of the customers. And we were able really to step in and solve those problems. And I think if we look at our performance this year, I think the strong performance that we've had this year was less related to that dynamic and more related to the fact that our customers do reward you for bailing them out when they need to be bailed out. And I think it doesn't give you a free pass. It doesn't give you a carte blanche or anything like that. but it's part of the mix of considerations that a customer goes through when they decide to whom are they going to award business. And business is not awarded in our industry just on price. It's awarded on reliability. It's awarded on quality. It's awarded on technology. It's awarded on the ability to meet the execution requirements and the volumes of the customer and the terms of the arrangement. I mean, there's a whole complex array of considerations that our customers go through before they ultimately decide to whom are they going to work with, number one, and number two, to whom are they ultimately going to award what share of their business going forward. And I think when you have demonstrated consistently, as we have over many, many years, that we're there for our customers when they need us, well, that is not harmful to that calculus. Is it dispositive? Is it the only thing? No, absolutely not. But it certainly gives you a little extra thumb on the scale of, in the whole mix of considerations. And so I think when we look at the team's great work that they did this year, growing more than 40% on a year-over-year basis, clearly that was not just a reflection of a transactional relationship of 2019. It was on a continuum, on a buildup of sort of credibility and the reputation that we built with those customers over a long time period, together with the transactional discussions that you have on every new platform in that very volatile market.

Thank you. At this time, we no longer have any questions over the phone. Speakers, you may go.

Well, Operator, thank you very much, and I'd like to extend my thanks to all of you for your close attention, and I wish you all a great start to the new year, and we look forward to speaking with you all again here in a short 90 days. Thanks so much. Thank you.

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