Amphenol Corporation
Q1 2019 Earnings Call Transcript

Published: 25 Apr 2019

[Operator:]

Hello, and welcome to the First 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:]

Thank you very much. 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 first quarter 2019 conference call. Our first quarter of 2019 results were released this morning. I will provide 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 first quarter with sales of $1,959,000,000 and with GAAP and adjusted diluted EPS of $0.87 and $0.89, respectively. Sales were up 5% in U.S. dollars and up 8% in local currency as compared to the first quarter of 2018. From an organic standpoint, excluding both acquisitions and currency, sales in the first quarter increased 5%. Sequentially, sales were down 12% in U.S. dollars and in local currency and 14% organically. The sales decline was driven primarily by the anticipated reduction in the mobile devices market. Breaking down sales into our two segments. Our cable business, which comprise 5% of our sales, was down 1% in U.S. dollars and up 2% in local currency compared to the first quarter of last year. The interconnect business, which comprise 95% of our sales, was up 5% in U.S. dollars and 8% in local currency compared to last year. Adam will comment further on trends by market in a few minutes. Adjusted operating income was $393 million for the first quarter of 2019. Adjusted operating margin was 20.1%, which is down 10 basis points compared to the first quarter of 2018, reflecting the impact of SSI’s slightly lower than company average profitability. Compared to the fourth quarter of 2018, adjusted operating margins are down 90 basis points, which is primarily driven by normal conversion on the reduced sales levels. From a segment standpoint, in the cable segment, margins were 10.9%, which was down compared to 11.7% in the first quarter of 2017, primarily driven by product mix. In the interconnect segment, margins were a strong 22% in the first quarter of 2019, which was down slightly compared to the 22.1% in the first quarter of last year. This strong 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, 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 approximately $30 million, which compares to $25 million last year. As discussed in our prior earnings call, this increase is due to higher average interest rates as a result of the recent bond issuance and the generally higher interest rate environment in addition to higher average debt levels. The company’s adjusted effective tax rate for the first quarter of 2019 was approximately 24.5%, which we expect to maintain this year. This compared to 25.5% in the first quarter of 2018, compares to our prior expectation and guidance of 25%. The adjusted effective tax rate excludes the impact of the excess tax benefit associated with stock option exercises and the tax effect of acquisition-related costs incurred in both periods. The company’s GAAP effective tax rate for the first quarter of 2019, including the items just mentioned, was approximately 22.8% compared to 24.4% in the first quarter of 2018. Adjusted net income was a strong 14% of sales in the first quarter of 2019. On a GAAP basis, diluted EPS grew 4% in the first quarter of the year to $0.87 compared to $0.84 in the first quarter of 2018. Adjusted diluted EPS grew 7% to $0.89 in the first quarter of 2019 from $0.83 in the first quarter of 2018. Orders for the quarter were $2,003,000,000, which was down 1% compared to the first quarter of 2018, resulting in a book-to-bill ratio of 1.02

[Adam Norwitt:]

Well, Craig, thank you very much, and thanks to everybody for joining our conference call here on a wonderful spring day in Wallingford, Connecticut. As usual, I’m going to highlight our achievements in the quarter and then spend a little bit of time discussing the trends and progress across our diversified served markets. And then I’ll spend a few moments to comment on our outlook for the second quarter and the full year, and then, of course, we’ll have time at the end for questions. With respect to the first quarter, our results in the quarter were stronger than we had expected coming into the quarter. We exceeded the high end of our guidance in both sales and adjusted earnings per share. Sales in the quarter grew 5% in U.S. dollars and 8% in local currency, reaching $1,959,000,000 billion and very pleased that sales in the quarter grew organically by 5%. The company also booked just over $2 billion in orders, representing a book-to-bill of 1.02

[Operator:]

Thank you. Thank you. The question-and-answer period will now begin. Our first question comes from the line of Wamsi Mohan of Bank of America. Your line is now open.

[Wamsi Mohan:]

Hi, thank you. Adam, the mobile device market you characterized that as pretty volatile and we’ve seen that in the past as well. Can you characterize for us the change in the guide over the past quarter? Typically the upside or downside in mobile devices have really come into third or fourth quarter because of volume changes and dynamics of timing of launches of major products. Can you maybe talk a little bit about why this larger change is transpiring so early in the year? And when you talk about architectural changes, I think you mentioned that in your prepared remarks, you guys have been very good at working with customers to capitalize on those changes. So what was different about this architectural change and do you view this more as a cyclical issue or more of a structural issue? Thank you.

[Adam Norwitt:]

Well, thank you very much Wamsi and appreciate the question. I think your point is very true that when we’ve had that kind of volatility where we’ve been in many cases able to capitalize on demand that has come later in the year, sometimes that has happened when competitors have not been able to satisfy demand or otherwise, I think what I mentioned and what you also alluded to is, we did see here in this quarter as the designs of the products were finalized with our customers, that there were changes to the architecture of some – of certain products and that ultimately resulted in less content opportunity for the company in those products. And again that’s – it’s not always that content goes always up with every platform, we’ve talked about that many times that every new system has a slightly different design, a slightly different product overlay to it, different natures of opportunities and content. For us and I think in this case, the customer chose to design slightly different way and that had a negative impact on our outlook. But does it mean that, that this is a kind of a one way ratchet or some permanence to it, absolutely not. I mean, every product gets designed in a slightly different way and I think what we have always said about this market is, we always look for new opportunities to design in our products into new applications and new systems and well, over the long-term, that has been a very favorable trend for us over a very long-term. If you look over a decade, our mobile devices market has averaged growth of more than 8% organically over the last decade because of that long term trend. But in the short-term, that can go up and that can go down and that’s the inherent nature of the volatility of the market. There’s volatility on content, there’s volatility also on volumes as volatility on winners and losers amongst our customers and that’s something that we’ve dealt with over many, many years and we’ve been able to build long-term a very, very strong business regardless of that. So as we always do, we always try to update our outlook given what we know in the moment and due to these architectural changes that you mentioned, and that I mentioned earlier, that really drove us to have the outlook that we have produced here today.

[Wamsi Mohan:]

Okay, thanks, Adam. Appreciate that color. And as a quick follow-up, when I think about the strong organic growth that you posted in the quarter of 5%, you’re guiding, a little bit softer growth here in the second quarter. But the full year obviously is more challenged from an organic growth perspective. Would you say that as you look across your diversified business base that this delta really is largely attributable to the shortfall in mobile devices and you feel pretty good about sort of the organic trajectory of the rest of the business. And I’ve heard the puts and takes across the various businesses seems like, you still have upside on military and commercial aerospace and some of the other end markets attracting more or less in line. Would this be a fair characterization of that?

[Adam Norwitt:]

Yes, I think that’s a fair characterization. I mean, as you mentioned, there were puts and takes as there always are across a diversified range of end markets like we have, which is one of the reasons why diversification is such a core pillar of how we run this company. I mentioned earlier that no market was more than 21% of our sales in the quarter, I think, when you look last year also no market was more than that similar level and this has always been with Amphenol a very, very important principle for us that we tried to stay diversified across markets within those markets across customers to the extent one can and across customers across their applications. When you look at the more modest organic growth outlook for the year, the math is pretty straightforward. When you have a market that last year was 17% of our sales down 30%, that has a certain magnification on the overall outlook for organic growth and I think across the other markets we have some markets performing at stronger levels and we have others performing a little bit less robust. But that’s the nature of the business and that’s not any categorical change. The big categorical change here in this in our outlook is in fact the mobile devices.

[Operator:]

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

[Craig Hettenbach:]

Yes, thanks. Just a question on SSI. Now, it’s just a few months, but just kind of how that’s performing versus expectations and any anecdotes in terms of growth drivers you just see for that business?

[Adam Norwitt:]

Yes. Thanks very much, Craig. Look, we always love all of our children and we love our new children even better. But I have to tell you, this has been a fabulous acquisition. Craig and I actually just a few weeks back had the opportunity to visit the European operation of SSI, which is in the Czech Republic and just an unbelievable organization of people with fantastic products, great customers and an extremely high technology products. And the business is going really well, I’d say, it’s performing at or above our expectations for the year. And more importantly, whenever you acquire a company that is really a family company and that, that organization has to transition into not being a family member and where the patriarch in this case who was in quite a senior gentleman when he’s retiring at that time and the management team who is all still there is now part of Amphenol. I mean, this is always something that we focus very heavily on. I remember we were there the first day that it closed to welcome them all. We’ve spent a lot of time with them over what has now been the better part of four months and the team has truly embraced, being part of the Amphenol organization and we see an enormous amount of activities ongoing between them and other divisions of Amphenol, hunting for that long-term collaborative value, whether that be with customers with technologies, with cost reductions. I mean, you name it and so, I would say that SSI and the wonderful organization there has embraced our team and vice versa in a way that is actually beyond my expectations and that would lead me to think that long-term the prospects for that business are very good.

[Craig Hettenbach:]

Got it. And then just as a follow-up, understand there’s puts and takes by the different end markets, but with a book-to-bill of 1.02 to 1, any comments on just kind of the broader environment that you’re seeing out there kind of how customers are reacting to demand and how their view of inventory at the moment?

[Adam Norwitt:]

Yes, I mean if you look at our book-to-bill, it was strong in the quarter. I mean just over $2 billion in bookings. I mean, you can imagine when you go through the puts and takes of the markets and where we’ve kind of upgraded our outlook and vice versa, that the booking, the stronger book-to-bill would probably be in those markets where we’ve had a bit more of an organic upgrade to our outlook. So markets like military, markets like commercial air, in particular where we had strong bookings, but we had very robust bookings really across the company and relative to inventory positions, again, we don’t have great visibility as you know. We have some visibility into the distribution channel and we haven’t seen anything out of the ordinary in distribution channel. I guess, I would say that those distributors who are a little more focused on military and aerospace are probably booking at a little bit more aggressive levels. But that’s on the margins, I think by and large we haven’t seen any significant changes or causes for concern in distribution inventory. I think in the other end markets, it’s more anecdotal. We may have seen – I talked about in the IT market how we did see for example in storage a little bit of weakness and we did see maybe a few pockets there, where there was some inventory that was built-in and there’s some planning around that. But by and large, I would tell you that the overall position again to the extent that we see it, which is a relatively small extent is nothing so notable.

[Operator:]

Thank you. Our next question comes from the line of Matt Sheerin of Stifel. Your line is now open.

[Matt Sheerin:]

Yes, thank you. Adam, you commented on the datacom market growth, but you also talked about some moderation in some of the sub-markets there. Could you elaborate on what you’re seeing specifically in the data center? I know you’ve had a lot of success going directly to the hyperscale cloud providers and I know there’s some noise about some inventory build or lumpiness in those markets. So could you give us some more color there?

[Adam Norwitt:]

Yes, I mean, I think what I talked about relative to the sub-markets, we have real strength in networking, we had maybe a little bit less strength in servers and then storage was a bit soft in the quarter. And relative to the hyperscale, and what’s interesting about hyperscale, it is really a service provider model. So we’re very used to service provider businesses. We service a lot of operators in the mobile networks market and the broadband market. We’ve been involved with that mindset of a service provider for many, many, many years as you know well Matt. And there is a certain volatility, a lumpiness as you term it, in the hyperscale market, which is just natural for service providers. I mean, it turns out that when you’re buying product to manufacture other product. You’re essentially in many times you’re kind of keeping a factory busy, making whatever you’re making, networking equipment or servers or something else. But when you’re installing data centers and configuring data centers, there is just a lot of other factors that are at play. You’re constructing sometimes things, in the case of the mobile networks market, sometimes weather has an impact, the same is true in broadband. So there’s a lot of other factors besides just build rates that come into play in that hyperscale and I would also say that you don’t have always as many kind of intermediaries, things like contract manufacturers are involved. And so there can be a little bit more volatility in that space, and I think when we look at our performance this quarter in IT datacom, very, very strong performance, growing by 12% organically actually in the quarter. But our outlook for the second quarter is a more modest outlook and I think, there may be some of what you described that volatility embedded in that outlook. But this is normal, I think it’s not an abnormal thing for an operator driven space.

[Matt Sheerin:]

Got it, okay. Thanks a lot, Adam.

[Adam Norwitt:]

Thanks so much, Matt.

[Operator:]

Our next question comes from the line of Shawn Harrison of Longbow Research. Your line is now open.

[Shawn Harrison:]

Afternoon, everybody.

[Adam Norwitt:]

Good afternoon, Shawn.

[Shawn Harrison:]

On the mobile networks business, you took up the guide for the year, the expectation for the year. How much of that was organic versus solely the Charles acquisition, particularly given the strength you saw in the first quarter?

[Adam Norwitt:]

Yes, I’d say the vast majority of the increase was really the Charles acquisition. But we’ve had – but there is some strength in that market, that was a bit better than we expected in the first quarter. I mean, look, we’re really excited about just the growing array of products that we have in that area. And so whether that performance is coming from the addition of Charles or organically, I would tell you that we just remain very well positioned as operators and as customers, really start to plan for their next generation networks whatever they want to be called. I mean, I know companies are suing each other over what they call these networks, but let’s say 5G or whatever you want to say here. And I think that the Charles acquisition just brings us an added complement of really sophisticated interconnect enclosures that are used in areas like small cells, in areas like more densified 5G networks and things like that. And so we’re really excited about bring that in. At this moment, it’s a company that we’ve been courting for a long time, it’s a – it was a family owned company, it’s called Charles Industry because the wonderful gentleman who founded it was a guy named Joe Charles. And Joe, I spoke to him last night is just an outstanding individual with just vision and drive and running – and that company that he founded 50 years ago. So this is not a fly by night kind of a business either and we’re just so proud to be the kind of adopted new parents of somebody’s baby that they created and it’s just the fact of how that business has developed and their focus on the mobile networks market in a different area of the interconnect world than what we have, is something that we’re just really, really excited about. So, I think we had good strength in the quarter organically. I think that translates into a good outlook organically for the year, and then coupled with Charles, I think it brings us really a more favorable position than we thought we would be in coming into the year.

[Shawn Harrison:]

And then as a follow-up on mobile devices, the lower content this year, is that a function of a share loss, where maybe competitors are providing a material type of technology, that just wasn’t something you were focused in on. And how does that play into the kind of 5G knowing, there’ll be more frequencies to the support millimeter wave and that should be, potentially a benefit to Amphenol and its mobile devices business?

[Adam Norwitt:]

Yes, just – I mean first and foremost, this is not a share loss. I mean, sometimes customers design things with different products that they’re either replacing something with, as you said, maybe a different technology or just not integrating the same type of product. They solve the situation maybe on the board or they solve it somewhere else. And so – or there’s a different functionality that’s embedded into the product. So this was really a change in the available content for us, not a share loss at all. And then related to 5G, who knows, I think is the first answer I would give you, which is who knows ultimately what the products, how they’re going to be designed for 5G. But, we have always benefited from enhanced complexity and devices. And so, to the extent that there is more complexity, more signals being generated, more signals that have to be handled inside a mobile device be that a phone, a tablet, a laptop, a wearable, whatever it may be, that’s usually a good thing for us. I can’t tell you it’s categorically always good at each individual platform or each individual device, but by and large, complexity and added complexity, more signals, more frequencies, in general should be a good trend for Amphenol.

[Operator:]

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

[Jim Suva:]

Thanks very much. Adam, I know you’ve spent a lot of time on the mobility side of things. But, just to kind of help us all, we’re a little bit struggling with it. So maybe one last chance of helping us understand it a little better. It sounds like it was not a competitor undercutting Amphenol on price. You’d mentioned more, it has more to do like available products or available content. Is that because there is like a mix shift down or the newer platforms have less content? Or just trying to figure out about, are the newer smartphones coming out structurally having less content for Amphenol?

[Adam Norwitt:]

Yes. Look, Jim, you’re not at all beating a dead horse there. I know it’s a very important topic for everybody. And again, it’s not a question of us losing share. We were not undercut by anybody. That’s not the case. It was just the customer took a different design approach. I mean, we sell antennas, we sell connectors, we sell mechanical devices into these products. And sometimes for example, a customer will take a different approach to an antenna technology, where they’ll reduce the number of antennas or they’ll change the structure of those antennas. That’s the type of dynamic that we were dealing with here and that we are dealing with here. Is it – and it ultimately does result as you correctly term it in less content available for the company on that given set of platforms. But like I said earlier, this doesn’t mean that, that is a one-time shift till time immemorial. I mean, you all know that last year we benefited greatly from an increase in content opportunity that our team did a fabulous job of capitalizing upon really incredible efforts that the team went through in order to ensure that we could support an extraordinary ramp, 90% increase first half to second half last year, which took a lot of doing and then reacting in turn as they’ve done so successfully here in the first quarter. So this is the nature, as I said earlier, of the volatility of the space. Every product has a little bit of a different design. Each generation can have more or can have less. There can be new competitors, your customer can lose share or gain share. These are all the things that make this market not for the faint of heart, but make us be able to be successful because of that unique agility that our team has.

[Jim Suva:]

Okay. Now I finally get it, Adam. Thank you and then a quick follow up…

[Adam Norwitt:]

I’m glad I helped you there, Jim.

[Jim Suva:]

Yes, thank you. And a quick follow-up, for your reduction for that segment for the year, is it mostly the reduction, I’m talking about only, is the mostly the reduction due to the design change or like a reduction in overall industry demand from like units being consumed out there in the market?

[Adam Norwitt:]

Well, look, I think there it’s – I think the change that we’re talking about here is mostly due to as I said in my prepared remarks, the sort of architectural change. Is there a little bit less sanguine view of overall volume demand? I think sure, there is a little bit of that as well.

[Jim Suva:]

Thank you so much.

[Adam Norwitt:]

Thanks so much, Jim.

[Operator:]

Thank you. Our next question comes from the line of Deepa Raghavan of Wells Fargo Securities. Your line is now open.

[Deepa Raghavan:]

Good afternoon, guys. Couple of questions from me. I will start with the composition of full year revenue guidance. I look at the flat guidance on revenue and trying to assess what the acquisition versus organic growth probably looks like, looks like acquisition is $300 million contribution, up 3% to 4%. ForEx is a bigger headwind now, maybe 2% down and organic growth is maybe 1% to 2% lower on year-on-year basis as well. Does that sound right to you? Just not very sure what’s in your guide. Appreciate any color.

[Craig Lampo:]

Sure, Deepa. Actually your math is relatively good on that, and not to go into every detail, but I think that basically we described from a bridge perspective from last year to this year from a revenue growth is pretty much on target.

[Deepa Raghavan:]

Thank you. My follow on would be Europe, Adam you talked about weakness in Europe pretty – but your comments were very specifically rounding around autos being weaker. But just curious if there are any other verticals that have turned softer versus earlier on in the year, can you talk about that. That is a much bigger vertical for you and probably a higher content regional also for you. Thank you very much.

[Adam Norwitt:]

Thank you, Deepa. No, I think I wouldn’t really mention any of our other markets specifically. The only thing I would say is, there are a few pockets of industrial in Europe, which in some of the industrial segments in Europe are a little bit the tails wagged by the dog of the automotive industry, you’d see once in a while. But again, our overall outlook for industrials still remains as robust as we had talked about coming into the year. So I think within the industrial markets, there have been sort of geographical puts and takes as well, but really where it was most noticed, most obvious was in automotive. Our business is today much more balanced geographically in automotive than it once was. I think you’ll remember well that there was a time when Europe used to be roughly two-thirds of our automotive business and now it’s more balanced. It’s a little bit bigger than the other two regions, which are roughly the same size. But we did see in Europe, a little bit less demand than we had anticipated coming into the quarter. And I think as we look towards the out quarters, our presumption and expectation on the basis of what we’ve heard from our customers is that Europe may still a little bit underperform the other regions. I mean look, a lot of people much smarter than I, and much more knowledgeable than I have written a lot about that and it’s probably the least well kept secret in the industry that European automotive has a little bit softness to it, but we’re not immune to that, I would say.

[Operator:]

Thank you. Our next question comes from the line of Steven Fox of Cross Research. Your line is now open.

[Steven Fox:]

Hi, good afternoon. Two quick questions for me, Adam. On the – you said that you were able to protect wireless margins by reacting quickly to a downturn. Can you give us a sense, does that mean that margins were flat with where they were before, you just had a degradation with volume. Can you give us a little more color on that? Then I had a follow up.

[Adam Norwitt:]

Yes, I mean look, does it mean margins were flat? I mean, we don’t talk about it as margins by each of our markets. But it’s – I think it would be quite a Superman feat to have flat margins with a 50% reduction in volume. I think what we mean by that Craig talks always about the fact of really driving conversion margins both on the upside and the downside. And I think our team just did a fabulous job of managing those conversion margins. Thus, I can imagine many organizations, where if your business effectively falls in half in a 90 day period, you have an enormous amount of stranded fixed costs that I think it’d be hard for most businesses just to make money in such an environment and our team just did an excellent job of managing the conversion margins. But it doesn’t mean that the absolute level of profitability at that 50% lower volume level is the same as it was in the fourth quarter.

[Steven Fox:]

That’s helpful, I appreciate that color. And then on the enclosures acquisition, obviously there’s a lot of interconnect areas that you’ve gone into that have added value to the business. When you think about enclosures now, with this acquisition, does it brought in your acquisition lends out any further. Are you thinking more of that other markets for enclosures or is this more of a specific niche that you plan on focusing on? Thanks.

[Adam Norwitt:]

Well, thanks. I mean look, this is actually not a new area for us necessarily. I mean, you’ll recall that we’ve made a few other outstanding acquisitions over the recent years, acquired a company called All Systems Broadband and we acquired subsequently a company called Telect. And those companies were really involved in complex interconnect enclosures more for indoor applications, inside data centers, inside telecommunications, indoor applications. And what Charles brings us is a very similar product actually to those that we have acquired before with Telect and All Systems Broadband. But it does that in a harsh environment application. And in particular, what you see more and more as for example in the wireless market, as people move more toward small cells, more densified networks, where there’s a lot more outdoor requirements, that – there’s just not the place to put things indoors anymore. And you have to have a high technology packaging for those, so that you can get this complex interconnect into the side of the place right near where the tower goes or right where the junction goes to the house or to the tower or to the distribution point. And so Charles has just this very unique high technology harsh environment, interconnect enclosures, which is very complementary to the more data center indoor applications, that we got from Telect. So it’s not that we have a strategy that says, we’re going to go be an enclosure company at all. I mean, this is really high technology interconnect products together with the enclosures that go around that and that really rugged eyes and protect those interconnect products wherever they maybe situated. So it’s really on a continuum. Charles and we’ve been very pleased with the performance and the reception from our customers of both All Systems Broadband and Telect and now together with Charles, we really have a complete offering both indoor and outdoor when customers need those really complex interconnect systems.

[Operator:]

Thank you. Our next question comes from the line of Mark Delaney of Goldman Sachs. Your line is now open.

[Mark Delaney:]

Yes, good afternoon and thanks for taking the questions. I do have two. The first was hoping to get your perspective on the macroeconomic environment specifically in China. There’s been quite an array of data points, some quite weak, others you mean to suggest there are some to see improvement in the China macro economic situation, so hoping to get perspective from Amphenol and what you may be seeing with your orders as it relates to the China region?

[Adam Norwitt:]

Yeah, I mean, I don’t know that we’re – we have any different view on China. I think – you characterized it Mark, it sounds like a pretty fair characterization, but – which would be by the way the same characterization around the world, I mean, there are some areas of strength and some areas of weakness. I think people talked broadly about Asia and China in particular in automotive and there’s been a lot written about that. I mean, I would say that our performance in Asia was not our strongest region. I highlighted Europe – I mean, our strongest automotive performance was really in North America in the quarter. But you know, by the same token we had strong performance in IT datacom in Asia and in China as well. So I don’t know that there is one general conclusion. I mean, one thing I will say, Craig and I were there a few weeks ago and there still seems to be a lot of Ferraris and Bugattis driving around Shanghai. So it doesn’t seem like anything is falling totally off of the cliff.

[Mark Delaney:]

I understand, that’s helpful. And then a follow-up question for Craig on EBIT margins in the second half of the year. It seems like revenue will be down year-over-year given the already discussed mobility dynamic. So, typically that all else equal will help margins. But, I know there are some of these puts and takes volumes overall seem lower. You got some new acquisitions coming in. So maybe just help us think about sort of the puts and takes to EBIT margins for 2H? Thank you.

[Craig Lampo:]

Sure, no problem. So, yes, I think if you look at our full year guidance and certainly, the second half of the year is – will be – it’s going to be impacting that. Basically what you see is organic reduction, there’s a few puts and takes on that. Number one is obviously the normal range of conversion kind of year-over-year on our organic sales reduction that we talked about a little bit, a point or two is organic sales reduction. But actually that the bigger impact is, I think that if you looked at the range of conversion on that is actually relatively quite low on an implied basis. It’s really the reduction from our EBIT perspective is more impacted by the acquisitions, Charles and SSI and Aorora, collectively are slightly below the company average and that certainly has some impact on, not only the second half but also on the second quarter and even to a certain degree on the first quarter as relates to SSI. So, those are the things that ultimately are impacting the EBIT margin on a year-over-year basis. But, what we do have to say is that I’m extremely proud actually of the team and specifically the mobile device team and as Adam before mentioned being able to really react in an amazing way to this reduction in volume that, they saw number one in the first quarter as it compares to the fourth quarter in addition to the reduction that they’re seeing, kind of just for the full year and to be able to deal with this and protect their margins on the bottom – on to the bottom line. And I think you infer that ultimately the mobile device market ultimately is a little bit less profitable from a margin perspective than in other markets. But I would say that we never said that as a company, I think as the company average, we said that in all our markets with an expectation perception of broadband really has, in a range of similar margins. So, I wouldn’t say the fact that they’re down 30% really is having an overall impact in the company. But, what I would say is that, if we didn’t do such a good job in terms of the management team in dealing with this reduction, then there could have been a more significant impact and there really is in the margins that we see right now.

[Operator:]

Thank you. Our next question comes from the line of William Stein of SunTrust. Your line is now open.

[William Stein:]

Great. Thanks for taking my question. I understand from industry context, there is a growing adoption of 48 volt technology in both datacenter and automotive applications, maybe automotive moving slower but still happening. I’m wondering if there’s an impact on Amphenol’s business from this trend in particular. Thank you.

[Adam Norwitt:]

Yes, I mean, well, you always have these great insights into tech, which is wonderful to see. Yes, no question, I mean, we’ve been working on 48 volt applications in auto, in data center and other areas. And the underlying driver is just there’s just so much more stuff going on in these systems. And when you get to all the different things, just the typical, say 12 volt in the car, for example, just can’t support it, the network cannot support all these different applications, that are drawing power. And so does that have implications from an interconnect perspective, I think absolutely it does. I think that there any time when you have that kind of generational shift either in power or in bandwidth of data or frequency as it relates to RF. I mean, these are the things that connector companies really live for, is really helping customers to enable those transformations, helping to – helping your customers to figure out what the ramifications of that are, what the – how you have to test and validate and secure the systems, so that they’re equally safe as they were in the past. And so, our team around the world as they are on any of these technological evolutions or revolutions, they’re working very closely with a number of customers all over the place.

[William Stein:]

Great, thank you.

[Adam Norwitt:]

Thanks, Bill.

[Operator:]

Our last question comes from the line of Joseph Giordano of Cowen. Your line is now open.

[Joseph Giordano:]

Hey, guys. Good afternoon.

[Adam Norwitt:]

Good afternoon, Joe.

[Joseph Giordano:]

Hey, so I wanted to just dig in on auto a little bit. I mean, I know you lowered your overall full year expectations, but at the end of the day given this production environment, that’s going to end up looking pretty good versus most who participate in that space. I was curious if you can maybe talk at a high level about, whether it’s regionally – is the content that you’re doing of both the production, is that fairly balanced regionally? And kind of curious if you can give some color into how that portfolio looks now whether connectors versus sensors versus antennas and is one growing faster than another in terms of content? Is there major variations there that we should be thinking about?

[Adam Norwitt:]

Yes, no, I think first of all, I appreciate the comments and we do feel very good about the progress of our automotive business even when we were a little disappointed with the performance in the quarter. We pulled a little bit down the outlook for the year. I mean that does not reflect any disappointment with our progress and position in that marketplace, which is a very, very strong progress and excellent position. On a regional basis, I wouldn’t tell you that there are regional differences in content, because the expansion of content, the sort of revolution of new applications being put into car, things like whether that’s hybrid electric vehicle, whether that’s new drive systems, whether that’s new electronics, new communications systems, new interfaces of passengers, new types of control systems for transmissions, and engines, and braking and all of that. I mean, there’s such an extraordinary array of different things happening in cars. And I don’t think that any one region has a disproportionate adoption, with maybe the only exception I would say is that the China EV market is certainly a more fluid market where there’s a lot more players. And so there’s a lot going on there and our team has done a really excellent job in that space. But in terms of overall content in cars, I don’t personally believe that there is a real differentiation on a regional basis. Relative to our products and you correctly categorized them, interconnect products and sensors and antennas, I think they all are seeing great opportunities. And so, I wouldn’t say again that one of them has a disproportionate progress. I think they’re all playing a role in the enabling of that advanced content in cars, in all the various regions. And we’re just really pleased as we continue to build out the product range for the company and that includes in this quarter, with the acquisition of Aurora, which again, albeit a small company, they make unique products that are used especially in next generation onboard electronics and embedded computing in cars. And I think that, that just adds to what is already and has already become a very broad range of products and very well, you’ve covered the company long enough to see that over the last decade we’ve really built that out, both organically and through acquisitions. And we continue to be on the hunt for next – the next sort of complementary product across those various product categories to allow us to be more important to our customers, to allow us to participate more strongly in that next generation electronics and that’s what Aurora is an indication of and we’ll continue to drive a strategy that way going forward.

[Joseph Giordano:]

Great, and then maybe one kind of basic one on mobile device. I mean, I feel like you’re the first one to say that you kind of have no idea how to model that part of business forward, because of how volatile it can be. But you’ve given what we talked about on the call here, moving your – moving your target down 30, like if you had a handicap, what’s more likely from that spot. Would it be more likely to move that down further or up further? Do you have a sense for feel there? I mean, last year if I think about it was like, we started that low single digit and ended up 40%. So just kind of thinking of how that – how we handicap this one?

[Adam Norwitt:]

Yes. Look, I’m not a golfer, so I don’t know about handicapping. We have always approached this in a very simple sense, which is we’ve always tried to communicate to our shareholders and to the world the best that we can at the time when we’ve made that communication. And so to tell you right now that we’re going to be better or worse than the 30%, I couldn’t tell you. We think right now that our outlook is – this is the best outlook that we have at this moment on the basis of all the information that we have. I think that it remains a volatile market and I think our team remains uniquely able to capitalize or deal with the changes as they make up. And that’s the best we can do at this moment and thank goodness, I don’t have to play golf and deal with handicaps. Thank you very much.

[Operator:]

Thank you. At this time, there are no further questions. Please proceed.

[Adam Norwitt:]

Well, thank you all. We really appreciate everybody’s continued interest and focus in the company and we wish that you all have a pleasant spring and we look forward to speaking to you in the summer. Thanks very much.

[Craig Lampo:]

Thank you. Bye-bye.

[Operator:]

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