Amphenol Corporation
Q4 2020 Earnings Call Transcript

Published: 27 Jan 2021

[Operator:]

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then, all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

[Craig Lampo:]

Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, Our CEO. We would like to welcome you to our fourth quarter 2020 conference call. Our fourth quarter and full year 2020 results were released this morning. I will provide some financial commentary and then Adam will give an overview of the business as well as current trends. Then we will take questions. As a reminder, during the call, we may refer 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 $2.426 billion, and record GAAP and adjusted diluted EPS of $1.15 and $1.13, respectively. Sales were up 13% in U.S. dollars and up 11% in local currencies and organically compared to the fourth quarter of 2019. Sequentially, sales were up 4% in U.S. dollars and 3% in local currencies and organically. Breaking down sales into our two segments. The interconnect business, which comprised 96% of our sales, was up 14% in U.S. dollars and 11% in local currencies compared to the fourth quarter of last year. Our cable business, which comprised 4% of our sales, was down 4% in U.S. dollars and 2% in local currencies compared to the fourth quarter of last year. For the full year 2020, sales were $8.599 billion, which was up 5% in U.S. dollars, 4% in local currencies and 2% organically compared to 2019. Adam will comment further on trends by market in a few minutes. From a segment standpoint, in the interconnect segment, margins were 22.5% in the fourth quarter of 2020, which increased from 22.0% in the fourth quarter of 2019 and 22.4% in the third quarter of 2020. In the cable segment, margins were 10.3%, which increased from 10% in the fourth quarter of 2019 and decreased from 10.7% in the third quarter of 2020. For the full year 2020, adjusted operating income was $1.650 billion, which was slightly up from 2019 and resulted in a full year 2020 adjusted operating margin of 19.2% compared to 20% in 2019. This 80 basis point decline reflects the challenges and results -- resulting impacts related to the COVID-19 pandemic, primarily in the first half of the year. Given the unprecedented challenges we saw this year, we are extremely proud of the Company's performance. Our team's ability to effectively manage through this crisis 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, which has enabled us to capitalize on opportunities and maximize profitability in an uncertain market environment.

[Adam Norwitt:]

Well, Craig, thank you very much. And I'd like to extend my welcome to everyone here on the phone today and I hope it's not too late to wish everybody a Happy New Year, as we're still here in the month of January. First, I just want to express my hope that all of you on the call here today that you, your family, your friends and colleagues are all staying safe and healthy throughout the pandemic. I'm going to highlight our achievements in the fourth quarter and the full year. As Craig mentioned, I'll discuss our trends and progress across our served markets. I'll then make some comments on our outlook for the first quarter and then, of course, we'll have time at the end for questions. Now, with respect to the fourth quarter and amidst what has, no doubt, been an unprecedented and volatile year, I'm truly proud that we finished 2020 with record sales and adjusted earnings per share in the fourth quarter, both of which were significantly above our guidance. Sales grew 13% in U.S. dollars and 11% organically, reaching a new record $2.426 billion. This organic growth, which was very strong, was driven by growth in mobile devices, industrial and automotive end markets in particular. The Company booked a record of $2.512 billion in orders in the fourth quarter and that's a strong book-to-bill of 1.04 to 1. Despite continuing to face some operational challenges related to the ongoing pandemic, adjusted operating margins were strong in the quarter, reaching 20.6%, a 10 basis point increase from third quarter levels and 60 basis points from prior year. Craig already highlighted the operating and free cash flow of the Company, very strong at $441 million and $371 million, respectively, in the fourth quarter. Both just excellent reflections of the quality of the Company's earnings. I just want to say, with this fourth quarter how proud I am of our team around the world. And our results this quarter once again reflect the discipline and agility of our entrepreneurial organization, as we continue to perform well amidst the environment that still has continued challenges. Our small acquisition team was also very busy in the fourth quarter and here in the last few weeks of January. As we announced on December 9, we're very pleased to have signed an agreement to acquire MTS Systems, a leading supplier of advanced test systems, motion simulators and precision sensors, for $58.50 a share. The MTS acquisition continues to be subject to MTS shareholder approval, certain regulatory approvals, as well as customary closing conditions. In addition, last week we announced that we had entered into an agreement with Illinois Tool Works, under which ITW will acquire MTS' Test & Simulation segment following the closing of our acquisition of MTS. The sale is also subject to certain regulatory approvals and other customary closing conditions. We continue to expect that both the acquisition of MTS, as well as the follow-on sale of the Test & Simulation business to ITW, will both occur approximately in the middle of 2021.

[Operator:]

Thank you. The question-and-answer session will now begin. Please be reminded that questioners are only allowed to ask one question. Our first question is from Mark Delaney of Goldman Sachs.

[Mark Delaney:]

Thank you so much for taking my question. I was hoping to better understand the orders that the Company reported and the strong book-to-bill of 1.04, to what extent do you think those orders are to help sort of true end demand? And do you think any of the orders that the Company is receiving are potentially customers placing longer-dated backlog, because of some of the supply chain challenges that have really impacted semiconductors, but perhaps is impacting orders to electronics companies more broadly, potentially including Amphenol or any other factors that may be influencing the orders other than some of the more typical drivers like increasing content per unit? Thanks.

[Adam Norwitt:]

Thanks so much, Mark. Look, customers place orders to us and we can't always exactly pinpoint what the demand is, except we know that when they tell us they want the product. And I wouldn't tell you that we've seen any dramatic lengthening of lead times or longer-dated orders per se. You mentioned the widely reported discussions around semiconductor availability in a variety of markets. I think our customers are pretty smart. And while they may be chasing lots of semiconductors or trying to put orders on those kind of products, they know that our products are available for them. And we haven't disappointed them throughout this year, even with the disruptions early in the year, even with the significant increases in certain of our markets in the second half. So I wouldn't necessarily say that customers are lumping us into that kind of semiconductor category. I think that customers are looking to us, no question about it, on the basis of the fact that we were there for them when they needed us most. In particular, as many of our customers coming out of the pandemic, had certain -- some parts of their supply chain, which still had a lot of disruptions. And the excellent job that our team did in recovering from those disruptions, whether that was early on in the year, with bringing all of our factories in China back to full production, substantially earlier than many or continuing in through later part of the year with the recoveries that we saw, for example, in automotive and industrial and other markets. So, I think that our team is doing a good job of making sure that we get more than our fair share of our customers' bandwidth and orders, and we're going to keep driving for that.

[Operator:]

Thank you. Our next question is from Amit Daryanani of Evercore.

[Amit Daryanani:]

Thanks for taking my question. Wanted to follow up on what Mark was talking about and maybe more specifically item on the industrial and automotive kind of the non-tech markets, where growth rates have been extremely strong. I think the concern is starting to become that, are we starting to over-ship versus end-demand and suddenly 20%, 24% organic growth is much better than what the underlying end-demand is. Just on those two segments, I'd love to understand how does one get conviction, how do you get conviction that a strong first half may not result in a bigger correction to half of the year?

[Adam Norwitt:]

Yes. I mean, look, it's a fair question, Amit. I think we had just outstanding performance in the fourth quarter in both of those markets, as you know, 29% and 24% organic growth in industrial, 24% and 19%, respectively, in automotive. I think that we are outperforming by any measure, I would say the various markets. But does that mean that they are taking our product and putting it on the shelf? No. I mean, we don't see that whatsoever. But, at the same time, there is still uncertainty in the marketplace. We're not giving guidance for the full year. We have done an outstanding job of supporting our customers when they needed us in the ramp up after the various disruptions. And regardless of what happens in end demand, I believe that our position with customers is stronger than ever. Now, I should also mention that, whether it's in industrial or in automotive and obviously, industrial has a lot of different segments within it, we see continued content gains in both of those areas, which are greater than just the end unit demand. And that's the trend of adoption of electronics into all types of systems, all types of equipment, all types of products. And if anything, we've seen that adoption accelerate over the course of this year for a variety of reasons and much has been reported about the acceleration, for example, of electric drivetrains in cars, where we benefited greatly for that. But we've seen a lot of very similar dynamics across the multiple segments within the industrial market. So, look what does this mean for the second half of 2021, again, we're not giving guidance for the year. There is a lot of uncertainty related to the pandemic, but I think our position with our customers is stronger than ever before.

[Operator:]

Thank you. Our next question is from Joe Giordano from Cowen.

[Joe Giordano:]

Good afternoon. So, there's a lot of debate in auto like longer term about like what applications should be -- that need to be hard wired versus when wireless is most appropriate. I mean, I know your portfolios seems to be intentionally structured to benefit kind of no matter what the answer to that question is, or that trend is. But can you talk about how you think that plays out? What are your customers thinking like, is there like a limitation on what can be wireless?

[Adam Norwitt:]

Yes. I mean, without getting into too deep of a technical discussion here, I think you already kind of answered the question as I would answer, which is, we are agnostic. The fact is, we are a significant supplier of interconnect products, antennas and sensors into the automotive market. And to the extent that there is next-generation developments, new architectures in the car that create a kind of an open field to help enable that, that's always been a benefit for Amphenol in the long term. And so I would expect the same that to the extent that things become, how you say, more -- less wired or more wired, more wireless. The fact that we are a manufacturer of interconnect antennas and sensors positions us very well regardless of what that outcome is.

[Operator:]

Thank you. Our next question is from Craig Hettenbach from Morgan Stanley.

[Craig Hettenbach:]

Yes, thank you. Adam, can you just touch on or follow up on the MTS acquisition. I mean, pretty unique in terms of size of a business that you're acquiring here? And also maybe expand on just -- you talked about some of the complementary nature, kind of what it does your portfolio as you go out in time?

[Adam Norwitt:]

Thanks very much, Craig. I mean, look, I think the only thing that I would say is really unique about MTS is the fact that it's a public company. It's our first public company acquisition. But, in terms of scale of the acquisition, you'll recall that we made the acquisition of FCI, I think it's been, what Craig, six years or so since that acquisition and at the time when we were a substantially smaller company. FCI was about a $1.2 billion purchase price, and this is $1.7 billion less the proceeds from the Test & Sim business. So, I wouldn't say that the size is unique. But the process is a little bit more unique with the public company process. And then with the strategic review that we did, that ultimately resulted in an outstanding outcome of us negotiating together with Illinois Tool Works, or ITW, the disposition of the Test & Simulation segment to ITW. And ITW is just an outstanding company. MTS is an outstanding company. And you know how we feel about Amphenol. So, I think this is a three really outstanding companies ending up in a real win-win-win for all parties, whether that's the shareholders of MTS, whether that's Amphenol or whether that is, in fact, ITW. From our position, the MTS Sensors business, which is what ultimately attracted us to MTS, it is just extraordinarily complementary. I mean, I'd say virtually no overlap with our own sensor offering, extremely harsh environment products used in a variety of really high technology applications. These are sensors that are used in force and vibration, pressure, position, really at the highest level of reliability with also complex interconnect systems associated there with. And so, from a -- when we talk about the complementary aspect of the MTS Sensors business, it is really just that unique -- uniquely complementary set of products across the end-markets where we very excited by. And then you add to all of that, just a wonderful, wonderful management team across the business. By the way all of MTS, we've just been so impressed with the people at MTS. But particularly with the MTS Sensors team, we're just so excited by this entrepreneurial organization and it's a team that we've known for a long time. This was not a kind of last minute thing here, far from it. We've known this organization for a very long time and we're very excited, subject to the shareholder approvals, subject to the regulatory and other closing conditions, we're very excited one day to welcome them into the Amphenol family.

[Operator:]

Thank you. Our next question is from Samik Chatterjee from JPMorgan.

[Samik Chatterjee:]

Hi, thanks for taking my question. Adam, I wanted to use the last question here on MTS as an excuse to ask you about Cable Products. I mean you -- I think you didn't want to be in the Test business and that led to the decision of selling that MTS asset to ITW. I mean, on the same lines, how should I think about the longer-term reasons to be in Cable Products and Solutions, which you report as a separate segment. I can see kind of the margins are quite a bit below your other segments and we haven't seen like strong growth for a while here. So, what's the longer term opportunity you -- how does it fit in with the rest of the business or do you see it as a core part of your portfolio overall?

[Adam Norwitt:]

Yes, I mean, the simple answer to -- you said it at the end, do we see it as a core part of our portfolio? For sure. And it's very different than the situation with MTS. In the case of MTS, we were drawn to MTS because of the sensor business. We were impressed, by the way, very impressed with the team and with the business of Test & Simulation, but it's a different business for us, really categorically different and that was why we talked about having a strategic review. And in the end, I think a great outcome for all parties with the agreed sale to ITW. In the case of our Cable Products, Cable Products are an integral part of an interconnect system that is used in particular for getting high-speed bandwidth to customers and to companies. And what we've said all along is, yes, the Cable Products segment may underperform from an operating margin perspective for the moment, we don't want to be in the business of picking the winners and losers of how people and companies are going to get Internet connectivity to their homes, to their businesses, to the universities, to the governments. We want to be betting really on every possible way of doing that. And thus, our position with the cable operators, with the MSOs, is a very important strategic position for Amphenol. And that importance, by the way, carries over into our interconnect segment, where the strength that we have, the reputation that we have, our ability to service these service providers as opposed to OEMs, has been a fabulous value to the rest of the Company, in particular, as we've seen other markets move more towards the service provider market. And let me just give you an example of that. You take the IT datacom market, which traditionally we were selling products that go just directly to equipment manufacturers. Well, as I think everybody on the call knows, over the recent five or more years, maybe even a little bit more than half a decade, we've seen increasing strength and increasing demand from web service providers. How you work with a service provider is very, very different than how you work with an OEM, who ultimately is making a piece of equipment in a factory. And our experience in the Cable Products has been invaluable to our team in making sure that we can react to the demand and the volatility of the demand that is really endemic in any service provider business. When I look at our results this year, in particular in IT datacom, where we did see extremely strong demand from service providers, our ability to react on a moment's notice, the mindset of that is a mindset that we developed, that we incubated originally in our Cable business. And I think that that's just a great reflection of the broad value that we see in that business, beyond just the fact that it does have today a little bit lower margins, to much smaller piece of our business that it once was, but it's still an important part of Amphenol's strategy.

[Operator:]

Thank you. Up next for question is Nick Todorov from Longbow Research.

[Nick Todorov:]

Yes, thanks. Hi, Adam. Hi team. I want to touch upon the outlook on the mobile devices. Adam, I think you mentioned seasonal about down 40%. Can you maybe give us a little bit more color, because as we are looking at the data points, smartphone sales are strong, PC sales remain strong, as well as all the consumer electronics. So, maybe you can talk, what are you seeing that the first quarter is going to be more seasonal than anything else? Thank you.

[Adam Norwitt:]

Yes. Well, thanks very much, Nick. I think this is not an abnormal guidance that we see. Look, we had very, very strong performance in mobile devices this year. We came into the year with an expectation of the market being flat. I will tell you, I mean, we didn't give guidance at the time, but had you asked me at the end of Q1, what would mobile devices be for the year? I probably would have thought it would be even down given the disruptions that we saw in the first quarter to our China facilities. And the vast majority, if not all, of our mobile device production is really in China and all of those factories were shut down, as you know, for the better part of three weeks, due to the early stage of the coronavirus. And then our team just did an unbelievable job of reacting to the strength in the market. And the strength this year, well, there was, on a sequential basis in the fourth quarter, strength in smartphones, where we really saw a lot of strength this year, was maybe not surprisingly in devices that are needed by people when they are working, when they're learning, when they're being entertained at home. So, things like laptops; things like tablets; we saw a lot of strength in wearables, I know, a lot of people got on health kicks and maybe these wearables can be very useful there; a lot of strength in things that go in your ears, hearable devices as we call them, and probably because you have a lot of people doing work and school from home and they might have other people in the same house and they want to have some privacy. Whatever the reason is, there was just a great amount of strength and our team was able to react to quite unexpected demand. And so, as you go into the first quarter, I think that we would expect normally some relaxation of that demand. I mean, look, anecdotally, I tried to buy Christmas presents for my wife and my daughter of a computer, because they both have really old computers and I totally failed as a father and a husband and they each got their present, one got it about a month late, and the other one still hasn't gotten hers. So, there was a real demand back in the fourth quarter, in particular for these devices. And I think we wouldn't expect such a continuation here in the first quarter.

[Operator:]

Thank you. Up next for questions would be Luke Junk from Baird.

[Luke Junk:]

Good afternoon, everyone. My question, I was wondering about the Company's ability to, I guess, you could say, cross-pollinate between the industrial as it relates to batteries and electric vehicles and your core auto business. I guess, I'm wondering, does that sort of the two-pronged approach open additional doors for Amphenol?

[Adam Norwitt:]

Yes, actually Luke, it's a great question. The simple answer is, yes. Our team work in industrial, our team work in automotive and there's a lot of crossover, by the way, in those teams. There is an enormous amount of interaction from a technology, from a customer perspective, to ensure that we're maximizing our position with customers, whether they are making an electric bus or an electric sports car. And so, that interaction, as you call it cross-pollination, we call it inside Amphenol collaboration, is something that we're doing all the time. And that's collaboration from a product development, making sure that we're bringing a full suite of products to customers, in each of those markets and really capitalizing on that trend of electrification that we're seeing, again not just in automotive, but we're seeing that trend very significantly in the industrial market as well. And I'd say that when you look at our performance in both of those end markets, which we talked about with one of the earlier questions, it's not totally coincident that we're seeing those strong content growth in both of those markets, some of which is being driven by this trend of electrification.

[Operator:]

Thank you. Next for our question is Wamsi Mohan from Bank of America.

[Wamsi Mohan:]

Hi. Yes, thank you. Adam, if we step back a couple of years over here, the Company was operating north of 20% operating margins. You're slightly below that, embedded in your guidance over here, on slightly higher revenues versus 1Q '19. Clearly, these are unprecedented times. There's been a lot of cost inefficiencies that have crept in because of COVID. Can you maybe characterize if that is the reason why the margins are where they are? I mean, clearly, very strong in the face of what has actually transpired, but still below a couple of years ago. And I'm wondering if, a, you could help us think through what the reasons are, if it is truly COVID inefficiencies and if it is, how large are these and how long do you expect them to persist, after which we should start to see sort of back to historical levels of margin?

[Adam Norwitt:]

Wamsi, thanks for the question. Yes, I think if you look back the first quarter of 2019, we were certainly operating at very strong profitability at that point. Honestly and we finished the fourth quarter at very strong profitability levels. So I guess I wouldn't necessarily just kind of look back into '19 to kind of just to see a time where we are operating at strong profitability levels. If you look at the fourth quarter, we already reached 20.6% here in the quarter. We certainly still see some disruption related to the pandemic and that's certainly embedded in those numbers, maybe slightly offset by some other benefits we have and things like T&E. So I think I said last quarter that we kind of see a relatively neutral impact in the second half of the year. As we kind of go into the first quarter, our guidance really reflects, I would say, a sequential seasonal decline and we talked about approximately 10% kind of seasonal decline in sale. And that does, as you mentioned, kind of imply a conversion rate may be slightly higher than our normal 30% downside, which would maybe get to the profitability level in the 19% -- kind of a little above 19% range. So I think that's probably the basis of your question. I mean, I wouldn't say this conversion is isn't -- certainly isn't so significant, given the level of sequential decline we are seeing kind of going into the first quarter. In addition, combined with a continued challenging kind of cost environment, we are seeing still COVID-related inefficiencies. And I think that the Company has really done a great job thus far, as you saw in 2020, of dealing with those inefficiencies and really snapping back in a profitability level, but we are seeing a little bit of a decline going into the first quarter from a sales perspective, which is going to have some impact. And I think the team has done a great job dealing with that and we'll continue to deal with that. And so, I'm real proud of kind of where we ended up in 2020 and -- and I have no doubt that we'll get back to those levels. The other thing that's happening in the first quarter, certainly, is the acquisitions we just closed on here in January, are having some small effect on the conversion, if you look sequentially into the first quarter. And the ones we did in 2019 certainly wouldn't -- haven't made necessarily the progress that maybe we would have expected in 2020 for very understandable reasons, I think, we're dealing with the pandemic during 2020. So I think there's a few reasons. But, all in all, we're real happy with where we are at profitability, certainly in the second half year of 2020, and be quite honest, even in the first half given the challenges we had. And certainly, we are really confident that as we go into 2021, you'll see those levels snap back to normal levels once COVID is behind us.

[Operator:]

Thank you. Up next for questions would be David Williams from Loop Capital.

[David Williams:]

Hey, good afternoon, and thanks for letting me ask a question. But just wanted to touch a little bit on the automotive market may be and what your outlook is there? I know you're not providing full year guidance but if you're kind of thinking about the automotive market in terms of the total growth this year and then maybe the mix of EV versus the traditional vehicles, what are your thoughts around that perhaps?

[Adam Norwitt:]

Yes. I mean, you said it David, we're not giving an outlook for the year. And I couldn't actually quote for you exactly how much of our business is related to EV versus traditional. I don't have the numbers close at hand. But what I can tell you is that, we are seeing higher growth from EV applications over the last several years and so EVs definitely represent a higher proportion today than they did a year ago, two years ago and three years ago, and we would expect in the coming year or two for that trend to continue. EVs not only do they tend to have potentially a little more content, but the nature of the content can be more attractive and more interesting for a company because of the high reliability, the harsh environment, the high power aspects of those vehicles. So, look, we'll see how the year progresses. We're not giving again guidance, but we have seen good strength in EV, and we would expect to see that going forward.

[Operator:]

Thank you. Up next for question would be Chris Snyder from UBS.

[Chris Snyder:]

Thank you. I have a follow-up on auto. Can you talk a bit about the EV verse ICE competitive environment? Are you seeing new entrants, just given the different product mix and high voltage focus? And conversely, does the shift carry any implications from maybe some of the smaller competitors, who could struggle to invest in EV solutions, at least in the early days? And I just asked, because of the Company's outperformance on the auto side has been very strong in the last couple of quarters. I just wanted to see if there are any share shifts going on?

[Adam Norwitt:]

Yes. I mean, look, I don't know specific share shifts. What I do know is we're outperforming the market. And so just I guess, by definition, we're taking some share. And part of the reason for that is EVs and part of the reason is other applications. Are there different competitors in an EV versus an internal combustion engine? There may be. I mean, there's different competitors for all different systems in the car. You have to remember in our industry, there is not a monolithic competitive landscape. There are obviously some companies that are publicly traded and well-known, which are excellent companies, but there is a whole diaspora of competition in the interconnect industry. And each application may have a different landscape of competitors than the application before it. So I guess, by definition, yes, you're going to have some different competitors. I think our strength in EV in part stretches back to the fact that we've been making high-power, high-voltage connectors for really the entire history of Amphenol. That is a legacy, you would call it even a birthright of Amphenol with our military, our industrial business and our ability to collaboratively share some of those underlying core technologies across our team, a little bit like we discussed just a few moments ago, has really positioned the Company well to be an enabler of those next-generation systems, which are really mission critical. So I think we're very happy to have a whole diaspora of competition across all our markets and that includes within automotive.

[Operator:]

Thank you. Our next question is from Steven Fox from Fox Advisors.

[Steven Fox:]

Thanks, good afternoon. Adam, I was wondering if you could just dig into the weeds on the two acquisitions you just closed in January. You've mentioned one was around harsh environments and we know you're already a leader in that area, and then the other one was tied to cable assemblies and we know you have a pretty broad offering there. So, can you just sort of get into what attracted you to the businesses from a product standpoint? Thank you.

[Adam Norwitt:]

Sure. Thanks so much, Steve. Look, these are both outstanding companies. We've known them both for a long time. I mean the family who founded and still until we just closed recently, Positronic, I've known that family for, I don't know, a decade and a half. I mean it's an outstanding company, Positronics. Just a real marquee brand in the interconnect industry, known for harsh environment, in particular, board level power connectors and some data connectors. These are IO connectors, these go on the board. They are used in a wide variety of systems in the military, as well as in datacom for power and industrial applications, and it's very complementary actually. A lot of the products that they have, Positronics, they have just a real proprietary position across their customer base, and sometimes, you look in admiration at the strength of a company's position, because of the uniqueness of their technology and that's something that we have done for many years with Positronics. El-Cab is a little bit of a different story. El-Cab, first of all, is our first company that's really fully based in Poland. Poland is an outstanding location for low-cost manufacturing with proximity to all of Europe and they have an excellent position in cable assemblies for industrial applications, and in particular, next-generation electric-powered industrial vehicles and whether that's buses, whether that's trucks, delivery vehicles, they're also involved in marine-related cable assemblies. But what really attracted us to them is their just leading position in this sort of EV revolution, industrial EV revolution, and that's something we've done a great job of in Asia, we've done a great job of it in North America and we've done a really -- a good job in Europe. But this accelerates our position in those -- in that electrification of industrial vehicles in Europe. And again, a fabulous team, family-owned company, great management, great products, great position, those are the factors that we always look for in acquisitions. And I think both Positronics and El-Cab deliver wholeheartedly in all those areas.

[Operator:]

Thank you. Our next question is from Joseph Spak from RBC Capital Markets.

[Joseph Spak:]

Thank you very much. Adam, you mentioned battery factories a couple of times and they are likely into be trillions of dollars of CapEx spent to build terawatts of capacity, not only for electric vehicles, but storage and other uses. So it's probably one of the faster growing market opportunities out there. Is there anything you could tell us about Amphenol's opportunity and positioning in the market? And are there some regional differences? Because I think a lot of the capacity right now is in Asia, but there probably needs to be factories built all over the globe?

[Adam Norwitt:]

Yes. I think, maybe, it might have contemplated a little bit, Joe. I think what I talked about was battery and EV and factory automation, but not necessarily together. But the fact is, you raised a very good point, which is for sure, whenever you have a massive build out of factories, be that for batteries where there is a lot of automation, next-generation vehicles, whatever and we've seen a lot of build-out of factories, by the way, semiconductor factories as well, you've seen the strength that we've had in instrumentation. Our position in factory automation and instrumentation, test equipment and otherwise, interconnect for all of those, puts us in a very strong position to benefit from the expansion of these facilities. But when we talk about our sales of industrial products into battery applications, it's really actual interconnect sensors that get integrated into these high-technology high-voltage battery systems, both to allow the signal of the battery, the power to come in and out of the battery, and also the control systems for these batteries, which is a wonderful opportunity where there is a lot of kind of interconnect and sensor applications where you're selling to customers just a complete solution to allow them to manage these batteries and thereby get more efficiency and safety out of them, once they're integrated into vehicles.

[Operator:]

Thank you. Up next for questions would be William Stein from Truist Securities.

[William Stein:]

Great. Thanks for taking my question. There's always been quite a focus on the trend to EV. But when we think about U.S. federal energy policy, it looks like there is perhaps a shift in the works to favor more renewables versus carbon-based. And I wonder, Adam, if you can sensitize us to the potential impact of your business. Are renewables a good market for Amphenol relative to downhole, which I understand is very harsh and typically high margin, high ASP sorts of connectors? Thank you.

[Adam Norwitt:]

Yes. I mean look, we're agnostic Will, to whatever that may be, if it's traditional oil and gas versus renewables versus all that's related to renewables, the battery storage that Joe just asked about and otherwise, we're really agnostic. I mean, if you look as an example, last quarter, we had last quarter a strong growth in alternative energy. And that was offset by relatively strong decline in oil and gas. And I think that's a good indication of the value and the strength of the diversified position that we have really across all areas of whether that be power generation, power consumption, power storage, we've made sure to not place a bet on kind of one trend or another, but rather to be present supporting customers across the board and we are still supporting our oil and gas customers for sure. I mean, that's an important market and I don't think the world is totally detaching from fossil fuels. But if the trend is away from them, we're well positioned either way.

[Operator:]

Thank you. Our next question is from Jim Suva from Citigroup.

[Jim Suva:]

Thank you very much. Adam and Craig, you've seen a lot of success with your Company in automotive. It used to be about 5% of the Company, now it's 20% of the Company. Is most of that success coming from like the infotainment in the cabin, the safety along the bumper or the batteries in it or the electronic motors? I'm just trying to see, because there are some big trends that are going on. I'm trying to see, where has been the most part of your strength in automotive?

[Adam Norwitt:]

Jim, thank you very much. I think you listed a lot of them. I mean the fact is, if I look over the long term and you've followed us for a very long time and so you have a great sense of the arc of the progress of our automotive business over these many years. We started out in automotive many, many years ago as the innovator of airbag connectors and that was kind of our first thing we did and we're talking a long time ago. I think the first airbag was like in 1990 or something like that. So, we're talking a 30-year time period. And over time, we developed into interconnect products for satellite radio and GPS and other infotainment. We built through acquisitions and other -- and organic means presence in emissions control and engine control, other electronics and essentially as the car adopted new electronic systems, we were positioning ourselves either organically or through acquisition, to participate in those next-generation systems. Our growth in automotive was never a question of, kind of, taking someone else's business, that was a legacy business. Rather, it was positioning ourselves, as these new systems were developed, to be there for customers for Tier 1s, for Tier 2s, whomever. And I think that's been very successful over all these years. We believe there is still a lot more potential left in our automotive business. The growth in content in the car is really outstanding and we're not the only one to talk about that. In many ways, to me, a car is becoming kind of a datacenter on wheels. It's becoming an electric powertrain on wheels. I mean, you name it. And each of those new systems, many of which you mentioned, are contributors to the growth of the Company. But I -- what I wouldn't say is, if any of them are disproportionate to our long-term success in that market. I think, it's been actually a relatively balanced contribution to that long-term success, that in particular we've seen over really the last decade.

[Operator:]

Thank you. And next question on queue would be from David Kelley from Jefferies.

[David Kelley:]

Good afternoon, Adam and Craig. Just wanted to ask about the industrial trajectory. You discussed and highlighted several secular opportunities. It feels like, from a broad cyclical standpoint, industrial equipment seems to be ramping back up. But we're also going to be coping against some difficult medical comps through the year. So, can you just talk about what you're seeing or what you do see as the biggest drivers for industrials in 2021?

[Adam Norwitt:]

Yes. I mean look, again, we're not giving guidance for 2021. But, when I look at the breadth of our performance here at the end of the year, as we closed out the year, and also throughout the course of the year, it's just there is no single story to the strength. I mean, yes, great performance in battery EV, great performance in instrumentation, great performance in medical. Again, I could give you a long list of the positive contributors to our industrial market. Will there be some areas where there will be a little bit of a tougher comparison? Obviously, the second quarter was a particularly acute quarter for medical, where our team, I mean I just cannot emphasize enough how proud we were to be a contributor to the fight against COVID through our reactivity to the demand for new medical equipment, whether that be respiratory therapy devices and the sensors interconnect products that are contained therein, whether that be hospital equipment to outfit ICUs and other patient care devices. I mean, that is something that we at Amphenol will forever be proud of, the contributions that our team made to the fight against COVID to protect lives and to enable countries around the world to have a fighting chance against this virus. And so, yes, will there be a little bit less maybe of some of those more acute care things? There could be, but who knows. There was also, as many have talked about, reductions in elective procedures, which actually reduced demand for certain medical equipment in some areas too, and so maybe that has the chance to come back. I think there is not the visibility today and thus, why we are not giving the guidance for the year. For me to say, which of those segments, as we go through the course of the year, are going to have the stronger or the weaker performance. But for sure, we have positioned ourselves with our customers by being there for them when they needed us most in their -- in really the most critical of time periods, such that, to the extent that they have business to give, I would expect that they will give at least, if not more than, our fair share to Amphenol.

[Operator:]

Thank you. As of this time, we don't have any further questions on queue. I'll turn the call back to Mr. Lampo for his closing remarks.

[Adam Norwitt:]

Well, this will be Mr. Norwitt for one last remark here. And listen, thank you all for all of your great interest in the Company. We really appreciate everybody's support through this 2020. We know this was not an easy year for all of you, working from home and cooked up and not being able to come visit us, for example. And we for sure, Craig and I, the two of us, no doubt about it, look forward to the day where we get to meet you in person again, host you here in our modest headquarters in Wallingford, Connecticut, where we are today. And we look forward to great success and wish you all good health as we continue into 2021. Thank you so much.

[Craig Lampo:]

Thank you.

[Operator:]

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