Amphenol Earnings Call Insights: Info-Tech Market and Mobility Sector

Amphenol Corp (NYSE:APH) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Info-Tech Market

Sherri Scribner – Deutsche Bank: I was hoping you could dig a little bit more into what’s going on in the info-tech market. I think you said that business was weak at the end of the quarter. Just wanted to get a sense of is that primarily on the server storage side, is that primarily on the telecom side, maybe you could provide a little more detail?

Richard Adam Norwitt – President and CEO: Look, the fourth quarter certainly on a year-over-year basis was strong and the strength in the fourth quarter was in particular driven by servers and there are a lot of new release servers where we have an expanded position on those servers with a lot of our new high-speed products as well as, especially power products where more and more the efficiency of power in those servers becomes a real selling factor for our customers. We had anticipated and we had heard from our customers going into the fourth quarter that the overall spending patterns from their customers appear to be moderating somewhat and I think we even talked about at the last conference call that that of all the markets appeared to be one where there was some macro, global economic impact to that market. I think as we go into the first quarter, we continue to see and hear from our customers that in general the outlook from the various IT managers around the world is not really anymore positive and has not turned more positive and that’s why we have given guidance going into the quarter that we would expect some degree of further moderation. But whether that is in servers or networking or transmission or storage, that’s not necessarily so clear to us sitting where we sit today; but the overall budgeting and the overall spending among the IT managers of the world appears to still be somewhat conservative. That all being said, we have done a great job this year in ensuring our position across the board, because as you may know, the IT industry has one other characteristic that is relatively new this year, and in the prior couple of years, which is the level of competition among the equipment makers has truly ratcheted up, whether that is from new entrants or people who are traditionally involved in one segment now getting into other segment, there is just a real tremendous dogfight going on in the IT industry. We don’t bet on which of those dogs is going to win the fight. We have worked very hard to ensure a strong position across the board, among all of the major manufacturers of IT hardware and datacenter hardware. In my mind, the demand for data, driven by video, driven by these mobile devices, that continues to create a tremendous level of end demand eventually, that will eventually demand some of this equipment to be produced and we have very, very strong positions across the board there.

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Sherri Scribner – Deutsche Bank: I just wanted to quickly ask about the automotive segment, you had commented that you thought that segment would be weak in the fourth quarter and it was driven by Europe, but you suggested in the guidance that maybe that is getting better and I’m just curious about that considering some of the comments we have heard about auto and U.S. maybe being a bit softer. So, I just want to get your overall thoughts.

Richard Adam Norwitt – President and CEO: Sure, we should not be a bellwether for automotive obviously, our position on automotive is 11% of sales, of which we’re very proud of and it’s a lot more than it used to be. It is not necessarily reflective of the whole market for interconnect in auto, but what we have seen very clearly and we see that with the optimism that we have going into the first quarter is that we’ve been working a lot on a lot of new electronics for cars and those are going into cars which are being built and are – where the build rates are going up, going into the first quarter. So, it’s a combination of new programs that we have successfully designed into, a combination of those products that we are selling into also – also selling well in the end market. So, whether that is a broader industry trend or an Amphenol-only trend, I’m not here to say it away, but certainly what we see from our customers and the programs that we are designed into is that there is a good expectation going into the first quarter and it was no surprise to us that we saw in the fourth quarter some slight decline in that market given all what we have seen in Europe which still is the majority of our sales into the automotive market.

Mobility Sector

Matthew Sheerin – Stifel Nicolaus: A question, Adam, regarding the mobility sector which was obviously up very strong and you guided down perhaps more than seasonal. Could you give us an idea just sequentially? It looks like just sort of backing into your guidance by end market. It looks like that’s going to be down 20% plus or so. Can you confirm that? Then also could you give us an idea of diversification within that business, tablets versus smartphones and customer concentration because obviously there’s two very big customers doing well and the two ecosystems. I’m just trying to get a sense of how diversified you are within that segment.

Diana G. Reardon – EVP and CFO: Matt, just to take the first part of your question in terms of the sequential decline, we think it could be about twice normal and normal what we’ve seen is somewhere in the sort of 13% to 15% sequential decline and we think because of that that’s strengthened in the fourth quarter and what Adam described before that it could be twice that as we go into Q1 and maybe Adam wants to talk about just to the question.

Richard Adam Norwitt – President and CEO: I think just relative to the fourth quarter, we did see great strength there. There are a lot of new programs launching. We had good position on those new programs and it can happen. We obviously – it exceed our expectations in the fourth quarter on the volumes and some of that volume for the fourth quarter maybe would have normally been in the first quarter. Relative to the diversification, I mean, our position is actually quite diverse there. You’re correct, there’s only a few player, but I would say that there’s more than two by the way, but there is certainly not 20. We have a good position across the board with these players. Our growth this year, and the fourth quarter is no different, has not been driven by phones necessarily, because I have talked about in the past that we have been a more of a commoditization of those phones, whereby the value in the phone becomes more the software and not the unique properties of the hardware where we can add value. Conversely, we have seen in tablets and Ultrabooks and what I have really termed mobile computing devices, a tremendous amount of hardware innovation, interconnect innovation, antenna innovation, mechanism innovation, whereby our R&D teams around the world and predominantly in Asia, where they are, have been able to work with customers to truly enable new functionalities in those devices which allow our customers the opportunity to sell more of them. And so, it is really on those mobile computing devices where we have seen more of the growth in the quarter. We continue to participate in smartphones, but that’s not what’s driving the growth today.