Amphenol Corporation (APH) Q1 2013 Earnings Report, Transcript and Summary

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions] At the request of the company, today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce today's conference host, Ms. Diana Reardon. Ma'am, you may begin.

Thank you. My name is Diana Reardon, and I'm Amphenol's CFO. I'm here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our first quarter earnings call. Q1 results were released this morning. I will provide some financial comments on the quarter, and Adam will then give an overview of the business and current trends, and we'll then have a question-and-answer session. The company had a good start to 2013, with first quarter sales of $1,080,000,000 and EPS before onetime items of $0.87 cents, meeting the high end of the company's guidance and growing sales 10% and EPS 13% over last year. Sales were up 10% in both U.S. dollars and local currencies compared to Q1 of 2012. And from an organic standpoint, excluding both acquisitions and foreign exchange impacts, sales in Q1 2013 were up 4% from last year. From a sequential perspective, sales were down 6% in U.S. dollars and 7% organically from a record Q4. Breaking down sales into our 2 major components, our cable business, which comprised 8% of our sales in the quarter, was up 14% from last year, with sales from a 2012 acquisition offsetting lower sales in our traditional cable products. The Interconnect business, which comprised 92% of our sales, was up 10% from last year as a result of both increased demand and prior-year acquisitions, and Adam will comment further on trends by market in a few minutes. Operating income was $207 million in the quarter compared to $185 million last year. Operating margin was 19.2% in Q1, up from 18.9% in Q1 2012, a good conversion margin on incremental sales of approximately 22% from last year. From a segment standpoint, in the cable segment, margins were 13.8%, down from 14.5% last year. The decline in margins from last year relates primarily to a favorable product mix in the prior-year quarter. In the Interconnect business, margins were 21.4%, up from 21% last year. The year-over-year interconnect operating margin improvement primarily reflects the positive impact of higher volume and cost reduction actions. We are very pleased with the company's operating margin achievement, and continue to believe that the company's entrepreneurial operating structure and culture of cost control allows us to react in a fast and flexible manner, thereby, constantly adjusting the business to maximize profitability in what clearly continues to be a very dynamic environment. Through the deployment of these strategies, the management team has achieved industry-leading operating margins again in Q1, and remains fully committed to driving enhanced performance. Interest expense for the quarter was $15.5 million compared to $13.7 million last year, reflecting higher average debt levels from the company's stock buyback program and the higher interest expense associated with the company's January 2012 note offering. Other income was $2.8 million in the quarter, up from $2.2 million last year, primarily as a result of higher interest income and higher levels of cash and short-term cash investments. The company's effective tax rate, excluding the impact of onetime items, was approximately 26.7% in Q1 of 2013 and Q1 of 2012, and we currently expect the same rate for the full year of 2013, again, excluding the impact of any onetime items. On an as-reported basis, the company's effective tax rate was 20.9% in Q1 2013 and included income tax benefits of approximately $11 million or $0.07 per share, resulting from the delay by the U.S. government and the reinstatement of certain federal income tax provisions for the year 2012 relating primarily to research and development credits and certain U.S. taxes on foreign income. Such tax provisions were reinstated on January 2, 2013, with a retroactive effect to 2012. Under U.S. GAAP, the related benefit of $11 million or $0.07 a share was recorded as a onetime benefit in the first quarter of 2013. Net income, excluding onetime items, was approximately 13% of sales, and EPS, excluding onetime items, increased 13% to $0.87 this quarter from $0.77 last year, a strong performance. On an as-reported basis, EPS was $0.94 in the first quarter of 2013 and included that onetime tax item that I just mentioned. Orders for the quarter were a strong $1,120,000,000, resulting in a book-to-bill ratio in Q1 of approximately 1.04:1. The company continues to be an excellent generator of cash and achieved cash flow from operations in the quarter of $180 million or 118% of net income. The company continues to target and achieve cash flow from operations in excess of net income. From a working capital standpoint, inventory declined 3% from December and was $712 million at the end of March. Inventory days were at 86 days, up 3 days from December and down 2 days from prior-year levels. Accounts receivable was $862 million. Days sales outstanding was 73 days, up 3 days from prior year levels and 1 day from December. Accounts payable was $446 million at March 31 and 54 days, down 2 days from last quarter and comparable to last year. The strong cash flow from operations of $180 million, along with proceeds from option exercises of $39 million, was used primarily for capital expenditures for the purchase of 1.2 million shares of the company's stock of $85 million, repayment of borrowings under the company's credit facilities of $18 million, and an increase in cash and cash investments of $79 million in the quarter. The company had 8.8 million shares remaining under its stock repurchase program at the end of March, and that program expires in January of 2015. Cash and short-term investments were $1,022,000,000 at the end of March, the majority of which was held outside the U.S. and debt was $1,688,000,000, bringing net debt to $666 million at the end of the quarter. Borrowings and availability under our revolving credit facility were $491 million and $509 million respectively, and the company's leverage and interest coverage ratios remain very strong at 1.6x and 17x respectively. EBITDA in the first quarter was approximately $0.25 billion. From a financial perspective, this was an excellent quarter and a good start to the year. Adam will now provide an overview of the business and current trends.

Well, thank you, very much, Diana, and let me take this opportunity as well to welcome all of you to our first quarter earnings call. I'm going to spend a few moments to highlight several of our first quarter achievements. I then plan to discuss the trends and the progress in our various served markets. Then, finally, I'll make a few comments on our outlook for the second quarter, as well as the full year 2013, leaving time at the end for some questions. In the first quarter, we are very pleased to report our results at the high end of guidance, despite what is clearly continuing uncertainties in the global economic environment. Revenues increased 10% from prior year, and declined as expected by 6% sequentially. As Diana mentioned, orders were a very strong, $1,120,000,000, representing a book-to-bill of 1.04:1 and creating confidence for our future performance. We're especially pleased that despite the sequential decline in sales, we once again generated industry-leading operating margins, with first quarter return on sales of 19.2%. With these results, I'm once again very proud of our agile entrepreneurial organization, as we continue to capitalize on the opportunities that are being created by the revolution in electronics and are demonstrating the discipline and drive necessary to deliver strong operating performance for the company. Our management team continues to strive for a level of market diversification that once again, in the first quarter, has created significant value for the company. As we look at those served markets, turning first to the military market, the military market represented 13% of our sales in the quarter. Sales in this market were flat to both prior year and prior quarter. The stronger sales of our products are incorporated into both avionics equipment, and sophisticated ordinance was offset by an overall moderation in purchasing activities by defense equipment manufacturers. Not surprisingly, uncertainties in the defense budgets of the U.S. and Western Europe continue to create conservatism among customers in these geographies. While we expect these uncertainties to continue, we are seeing still clear indications of expanding investments in new electronic functionalities in military equipment, as well as opportunities for growth in many developing geographies. We expect demand in the military market to remain slightly below these levels in the second quarter, as well as for the remainder of 2013. Nevertheless, we believe our technology leadership, together with the broad program participation, positions us to benefit long-term from the expanding adoption of electronics and military hardware. The commercial aerospace market represented 6% of our sales in the quarter. Sales in this market increased a very strong 15% from prior year and 8% sequentially on increased jet liner production, together with our expanded content on new airliner platforms. Despite some widely reported delays in certain new programs, we remain very encouraged that new airplane platforms are incorporating innovative electronic features at a very rapid pace. These innovations require new higher technology interconnect solutions both to enhance fuel efficiency, as well as to improve overall passenger experience and usability of the airplane. Looking forward, we expect sales in the Commercial Air market to increase further in the second quarter, and have overall a very positive outlook for this market in 2013 and beyond. Our sales to customers in the very diverse industrial market represented 13% of sales in the quarter. Sales in this market increased by 8% from prior year, as the benefit from last year's acquisition of Nelson-Dunn offset lower overall market demand in the quarter. Sales in the industrial market increased by 2% sequentially from the fourth quarter. While there are certain segments of the industrial markets that have been impacted by weaker economies especially in Europe, we continue to make excellent progress, broadening our technology offering, while also increasing our penetration of the many exciting growth segments of this market. In particular, we've made great progress in oil and gas, alternative energy, rail mass transit and factory automation, all of which position us very strongly for the future. We expect the overall industrial market to strengthen further in the second quarter, as new interconnect technologies are adopted across a wide array of these and other applications. The automotive market represented for us 12% of sales in the quarter. Sales increased 9% from prior year and a strong 17% sequentially as we participated strongly in an increase in production volumes of vehicles that are incorporating an increasingly wide variety of new electronics. We're very excited to see the results of our expansion into new high-technology automotive applications, and we are realizing the benefits of our recent acquisitions combined with our long-term organic product development efforts. No question that automakers are incorporating electronics into more and more new areas of performance management, fuel efficiency and passenger infotainment, all of which are creating great opportunities for Amphenol. We expect sales in the automotive market to increase further in the second quarter, as our participation in new programs continues to expand, and we look forward to further long-term progress in this exciting market. The mobile devices market represented for us 18% of sales in the quarter. Sales increased a very strong 21% from prior year, as our sales of new high-technology products onto new mobile computing platforms more than offset slower growth in mobile-phone-related products. As expected, sales declined 28% from our very strong fourth quarter results due to the combination of both normal seasonality, together with post-ramp reductions in the volume of certain new programs. We expect a moderate increase of demand going into the second quarter, driven in particular by increasing sales of products for new mobile computing devices, including especially tablets, as well as laptops and ultrabooks. We have a very strong technology position in this important and very dynamic end market due to a comprehensive portfolio of products for mobile devices, as well as our preferred supplier relationships with essentially all major device makers. The mobile networks market represented 10% of sales in the quarter. Sales increased a robust 13% from prior year, primarily due to stronger sales of our cell site installation products, and decreased by 3% from the fourth quarter on normal seasonality. We are encouraged to have now realized 2 consecutive quarters of year-over-year growth in the mobile infrastructure market, as operators in certain geographies have begun to increase their spending on LTE, as well as other next-generation networks. It remains, however, too early to predict the full recovery in this market. That being said, in the second quarter, we do expect a further increase in demand, as operators continue to ramp up their network build-outs in order to relieve the gaps in both coverage and capacities, which continue to exist in many wireless systems. We look forward to further long-term strength in the mobile networks market, driven by our broad designing positions on new base station platforms, as well as by our strong position with a diverse range of global wireless operators. The Information Technology and Data Communications market represented 19% of our sales in the quarter. Sales in this market increased by 5% from prior year, led by growth in our products incorporated in particular into servers and storage equipment. Sequentially, sales declined by 5% due to continued moderation in procurement activity by customers in the IT market, together with normal seasonality. As our customers continue to strive for new levels of equipment performance in order to handle a dramatic expansion of data traffic, our pipeline of new design opportunities with our next-generation products has strengthened significantly. In particular, we are working with many customers to help them design new systems that can handle the tremendous expansion of video traffic, while at the same time reducing overall power consumption. We expect demand to strengthen from these levels in the second quarter, as sales of these new high-performing -- high performance products accelerate. The broadband market represented 8% of our sales in the quarter. Sales increased a strong 14% from prior year as the benefits of the Holland acquisition made in the fourth quarter offset a moderation demand by U.S. and international cable operators. Sales were down slightly from prior quarter on customer seasonality. We are very encouraged to see the emerging benefits of our product and customer diversification, which combined with the Holland acquisition, has enabled us to grow our range of broadband customers, while at the same time offering a more complete interconnect product offering. This expanded offering has been very well-received by our customers in the broadband market. We expect sales in this market to increase by somewhat more than normal seasonality in the second quarter, as we benefit from new customer wins, and we look forward to excellent long-term performance in the broadband market. In summary, with respect to the first quarter, we are extremely proud of our organization, as we have continued to execute well in what continues to be a very challenging and dynamic market environment. Amphenol's superior performance is a direct reflection of our distinct competitive advantages, our leading technology, our increasing position with customers across our many diverse markets, the company's worldwide presence, a lean and flexible cost structure and most critically, our agile entrepreneurial management team. Now turning to our outlook for the second quarter and based on constant exchange rates, as well as normal seasonal patterns, we now expect in the second quarter as well as for the full year 2013 the following results. We expect sales in the range of $1,115,000,000 to $1,140,000,000 and $4,580,000,000 to $4,655,000,000 respectively. We expect EPS in the range of $0.92 to $0.95 in the second quarter and $3.76 to $3.85 for the full year respectively. For the full year, these results would represent sales and EPS growth of 7% to 8% and 8% to 11%, respectively. We are very encouraged by the strong outlook in both sales and earnings, especially given the many continuing uncertainties in the global economy. The ongoing revolution in electronics continues to create for our company a tremendous number of opportunities. I am confident in the ability of our outstanding management team to continue to capitalize on these opportunities to both grow our market position, as well as expand our profitability, and thereby ultimately to drive the continued superior performance for Amphenol. Thank you very much, and operator, at this time, we'd be very happy to take any questions.

[Operator Instructions] Our first question comes from Amit Daryanani with RBC Capital Markets.

Just 2 questions from my side. One, first, broadly, could you just maybe just touch on the demand trends you saw in terms of linearity in the March quarter just in terms of did March end up on a soft notes or were things fairly stable throughout the quarter?

Yes, thank you very much, Amit. I think the first quarter was not different from most first quarters, where January was a strong month, February with Chinese New Year, as you can imagine, was not as strong and the quarter finished very well in March. So nothing really abnormal in the demand trends.

Fair enough. And then maybe if I just look at the capital allocation right now, I mean, you guys are sitting on a little over $1 billion of cash on hand. The debt load's obviously manageable. When you think about future capital usage, and I realize M&A is a key part of it, can you just tell me maybe, is it realistic for you to sustain the buyback base of 1 million shares a quarter on a fairly consistent basis for not just 2013, but potentially longer-term as well?

Yes, I think that, Amit, we don't guide to incremental share buybacks when we give guidance for the company. I think that what we said in the past would still be consistent as we look out into the future, and that is that we do try to have a balanced approach to the deployment of the company's financial strength. As you mentioned, the acquisition program clearly is the #1 priority because it provides the best both top line and bottom line growth potential for the company over the long-term, but we have over the last few years. Certainly, it's been active from a stock buyback program, and also we'll consider and continue to look at the dividends. But I think if you look back and look at the way that we deployed the stock buyback in the past few years, it wouldn't be an unreasonable assumption to think that we would probably continue that, again, borrowing whatever capacity we think we need to sustain the acquisition program in the future.

Next question comes from Matt Sheerin with Stifel. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: I just wanted to ask a question, Adam, regarding your commentary on the defense area, where that's obviously going to be weak this quarter, and then you said that you expected it to be down for the year. Do you expect to see a flattening out in terms of orders, particularly as we get through the fear portion of this sequestration? Or do you expect it to be even weaker? And then as a follow-up to that, as you see this weakness, are you taking any cost-cutting actions in place in order to preserve the margins in that business?

Well, thank you very much, Matt, for the question. I think what I meant to say in the prepared remarks is we would expect it to be slightly down in the second quarter. We expect it to sort of be at those levels throughout the course of the year. We don't expect a kind of quarter-by-quarter continual reduction in demand. I think that the market has been soft for some quarters, and all the anticipation of what has been going on in the government spending arena with sequestration and otherwise. Now you can bet that our actions at the factory level, at the organizational level, at the SG&A level are appropriate, given the amount of demand that we have seen, and that organization is extremely agile. They have taken the actions to reallocate resources to higher growth areas, to remove those resources that are not necessary, whether in the factory or otherwise, and that's something that we will continue to do always in Amphenol in real time. I mean, if you just look across the company on roughly a 6% sequential reduction in sales in the first quarter, our headcount was also down by about 6% in the quarter. So that's something that we always as a company -- we don't wait for the market to tell us otherwise. Our general managers are constantly reacting in real time to whatever changes in demand may come. If demand moves up in military, if it were to do that, then they would make appropriate adjustments on that side as well. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And is it fair to say that on the margin side, that the Commercial Aerospace part of the businesses has a similar margin profile so as you expand that, that should offset any of the margin weakness from the defense side?

I think we make good money in all of our markets. And so I think there is certainly a distinction, if you look from a segment perspective, between the cable business and the interconnect business, but we're talking about -- interconnect business is what we're primarily talking about. With these markets, we -- the change in market presence historically has not had an impact on margin, and we wouldn't expect that going forward.

Next question comes from Jim Suva with Citi.

When we think about your company is faced with a interesting decision, contemplating your all-time high cash levels right now, which is a great situation to have. But unfortunately, banks like Citibank aren't paying a lot of interest rate these days. So can you talk a little bit about -- you did not make any M&A acquisitions this quarter. Did anything slow down in the acquisition pipeline or anything with the taxes or the sequester that impacted the M&A or should we just say that it just happened to be the -- an item based on the calendar and how timing happens to rollout with M&A?

Yes, well, Jim, thank you very much for the question. I mean, we're all very proud that the company continuous to be a great generator of cash. And as Diana said, our top priority for that cash continues to be the M&A program. Last year, we had a very successful year in the M&A program. We made 5 acquisitions in 5 totally different markets, which added tremendous, tremendous new platforms of growth for the company. And you know after having followed the company for so many years, that acquisitions are not coming regularly every quarter, every month or whatever. They come on a very regular basis. We work them through our pipeline, but at the end of the day, when you get ultimately the seller to decide to sign the paper and close the deal to us, that's something that is very hard to predict. I'm not going to tell you that we will close a deal every quarter like we were fortunate to do last year, but we still have a very, very robust pipeline of acquisitions. You mentioned the tax issue from last year, where by maybe on the margin, there may have been some sellers who if they were already destined to sell at some point, the coming tax changes of 2012 or at the year end of 2012 may have on the margin pushed them slightly over the edge. That was not though such a major driver of why we were able to do those acquisitions. We are constantly working with companies in a variety of industries across the real breadth of the markets that we serve to incubate that acquisition pipeline. And that's something that we continue to do, and where we continue to believe that there's great opportunities for further acquisitions in the coming quarters and years. Whether those will come in the second quarter, in the third quarter, that, we can't tell you right now. But certainly, at such time as we do that, you will be the first to know and we'll be very proud to have those. The company, Amphenol, remains today in this industry what I would call the acquirer of choice. Our track record of having completed more than 50 acquisitions over the last dozen years and the unique entrepreneurial way that we organize our company is extremely attractive when you talk to outside companies, and that attractiveness has not changed. So we look very much forward to continuing to deploy our cash towards acquisitions in addition to the various other levers for cash deployment that Diana has talked about. When that will come here, again, we will let you know when it happens.

And as a quick follow-up, raw material prices have been pretty volatile in the most recent couple of months, whether it be copper or aluminum or those. Can you help remind us about the ability of cash passthrough or does Amphenol kind of benefit when the copper goes down? Or is it more you purchase and you use it and have to manufacture it, and you don't see it for a quarter or 2 down the road? Just kind of impact of raw materials for your company as we think about modeling going forward and the fluctuations of kind of copper, aluminum, what they've been doing.

Sure. Look, I think, it seems in the last few weeks that there's been a pretty big movement down in certain commodity cost. You mentioned copper, gold, and I guess that we would be the first to applaud and be pleased if such an environment continues and these prices continue to come down and clearly, if they do come down, once you work through existing inventories that are on hand, clearly, we would -- there would be a reduction in cost for us and for the rest of those who use those materials. I think that the impact on margin is a somewhat more complicated equation that also has to do with what happens to pricing and demand in an environment like that. But what I can tell you is that if there is a margin enhancement opportunity that presents itself because we do get into a better environment from a commodity perspective, I think that the team here certainly would be the first to capitalize on it and would be thrilled to be in an environment that was different than it has been in the last few years where commodities have really been a big pressure, I think, for all manufacturers. So we certainly look forward to hopefully having the opportunity to see those costs at a lower level, but the impact on margin ultimately will depend upon also that balance with the pricing environment.

The next question comes from Amitabh Passi with UBS.

Adam, had a couple of questions on your end markets. I think you talked about auto sales being up 17% sequentially, definitely very surprised to see that number as robust as it was. I mean, it sounds like it's more than just production and content growth. It sounds like you might be gaining some share or whether there's some program ramps. Would love to get some color in terms of how we think about that 17% growth. And then maybe just on your Wireless Infrastructure segment, if you could give us some color in terms of geographic trends and how that's trending between your antenna business and your base station interconnect business.

Yes, well, thank you very much, Amitabh, for the questions. And first, with respect to automotive, we were also very happy with the 17% growth. I mean, just remember, our automotive business has been on a great trajectory for the last 3 or so years. If we go back to the kind of the beginnings of 2009, automotive represented for 5%, 6% of sales. In this quarter, it was 12% of sales. So we have really executed on the strategy that we've been talking about, which was to drive organic new product development [indiscernible] at the same time as we complement that with some very, very nice high-technology acquisitions. [indiscernible] in addition to a little bit of normal seasonality. It was clearly the result from new programs that are ramping up, share gains that we have been able to capitalize upon with customers around the world. And that is something that we feel has the potential to continue as we look forward to an automotive business that has a lot of momentum behind it for Amphenol. The basis of all of that has been the fact, and not a new topic that I have mentioned in the past, is really the fact that we see in the car today more electronics applications that allow us to create true value in our interconnect products for our customers, and thereby to realize the profitability returns that we would expect to have. That just was not the case historically in the automotive market, and today, we just see more and more new applications that are coming out that allow us to really participate. And we're participating with components, and we're participating with real significant interconnect value-add products with customers around the world. Now relative to Wireless Infrastructure, we were again very pleased to see 2 quarters in a row of growth on a year-over-year basis. I mentioned that the growth driver this quarter was more what I would call the sell-side installation products. These include our antenna products [indiscernible] growing array of interconnect products that go into sites, sold both to operators, as well as to OEMs. And so we actually feel very good about the momentum in that part of the market. Now ultimately, will the operators on a worldwide basis continue to drive spending that we all know is necessary to support the coverage and the capacity of these overly stressed networks? That, I think, still remains to be seen, and that's why we remain cautious about that market going forward, but to the extent that the spending happens, our position in the market, both with OEMs, as well as with operators, is very, very strong. Now you also alluded to the geographical trends in that market and I think, not surprisingly, North America has been probably, as a result, North America was where smartphones and tablets and whatnot first exploded onto the scene. North America seems to still be the place that has some of the most robust growth and robust investments in these next-generation networks. We're hopeful that China will be following behind. Europe, it still remains to be seen, how the economics are going to work out there relative to when that investment schedule will happen. Ultimately, we all know it has to happen, and we will be there to participate when it does.

Next question comes from Wamsi Mohan with Bank of America.

Adam, could you perhaps comment on how much of your portfolio you compete with the Japanese connector manufacturers? And are you seeing any change in their pricing strategies, given this humongous move here in the yen?

No, thank you very much, Wamsi. It's a very interesting question. In all honesty, we don't compete a tremendous amount with a lot of companies from Japan. As you know, we traditionally don't have a huge Japanese business. That has not been historically a huge market for us, and I would tell you that I don't personally have any real anecdotal evidence about pricing behavior because we just don't -- we are not really going head-to-head so frequently with the more well-known companies in Japan.

Okay. And another pricing question, I guess, this one on circular connectors, have you noticed any change in pricing now that Deutsche has been part of TE for several quarters?

Again, I wouldn't say that there's been any noticeable change that would be at all meaningful to the company. I'd still go back to the fact that when that company was acquired, they broadly talked about that they wanted to increase the margins of the company, and we continue to look forward to them trying to do that by being disciplined on pricing, and so, no, I have not seen any dramatic changes there.

Next question comes from Brian White with Topeka.

Adam, when you talked about some of the new systems in IT and data, supporting video whatnot, I assume you're talking more networking than servers?

No, to be honest, I'm talking about it both because you're seeing now more and more converge systems, Brian, and so the -- where servers and storage and networking equipment were traditionally very, very distinct pieces of equipment, that's not always the case anymore. And so I think that some of these next gen systems, there will be more and more conversions. We saw strength in the quarter in storage as well as in servers. We didn't see as much strength in networking in the quarter, but our ongoing design activities are really across all 3 of those areas, and I think the fact is, is video taxes all of them. You got to process the video. You got to store it somewhere, and you got to route it around the world when people want to consume it. And so what we have heard and seen with all of our customers across all those equipment verticals is that the nature of data and the volume of data that they need to be able to process in these systems is just mind boggling in many ways. I mean, the logarithmic growth in this video-based data traffic is incredible. And we see that whether one is designing a new server, a new storage system, a router, a switch, you name it. That is sort of the common story that we're hearing from all of our customers. And we're very fortunate because we have been a leader in high-speed technology in the real core of these IT systems, starting with the backplane system that came out of our acquisition with TCS and expanding throughout to I/O connectors to cable assemblies and beyond. And our continued drive to create leadership in that market with next gen systems that push the limits of copper capabilities, which is what customers truly want to have has really positioned us well. We also see that power is an area of all these equipment. Again, whether that be storage, servers or networking, where our customers are struggling with how do they deliver to their end customers a new value proposition, which is thus that operating cost will be lower and power consumption will be lower. And so we've seen a lot more innovation around the power interconnect bus bars, power management systems, whereby, if you can help them with -- drive further efficiency in that system, that creates a lot of value for the customers, and thereby, allows us to capture business at good margins.

Okay, great. And just on the mobile device market, I want to be clear, we'll see growth in tablets and ultrabooks sequentially in the June quarter, but not in smartphones?

Yes, I think what we look forward to in the June quarter, we think there can be moderate growth overall in the market, and as has been the case for a number of quarters, we see more of that growth being driven by what I term these mobile computing devices as opposed to just simple phones.

Next question comes from Mike Wood with Macquarie Capital.

This is Adam, in for Mike. Just a quick question. Can you talk about some of the trends you're seeing in China post Chinese New Year since we've been kind of removed for a while at this point?

Yes, well, I like your name, Adam. I think in China, we have seen, I'd say, normal trends. I think we are very happy to see that relative to our factories that the kind of typical disruption from a manufacturing standpoint that we saw, we saw that last year, we saw it probably the year before, seems to have been a little bit more smooth this year. And that's reflected also in our customers, and so to that extent, because our customers also didn't have these big kind of tumultuous labor turnovers, that allowed our demand to be also, I'd say, more normal in the quarter. Obviously, February is low in China. March tends be a comeback and that was no different relative to the overall Chinese economy and the overall demand in China. Again, we haven't seen anything really out of the ordinary or notable beyond the fact that it's still a market that grows at 2 or 3x the rate of most of the developed economies in the West, and that creates a lot of opportunities for us in a variety of markets that we participate in there.

Next question comes from Sherri Scribner with Deutsche Bank.

I was just looking at your book-to-bill of, I think, it was 1.04 for the March quarter, and that's typically a book-to-bill above 1 is a positive indicator, but you guys typically see a book-to-bill above 1, decently above 1 in your March quarter. How indicative do you think your book-to-bill is this year of strengthening trends for you as we move into next quarter and for the year?

Sure, I think as you pointed out, it is normal for us to have a good book to bill in the first quarter. And if you would go back over the last probably 4 or 5 years, probably 50% of that time, the book to bill is probably 1.03 to kind of 1.04 kind of range. So I wouldn't say it's an abnormally high book-to-bill ratio, but I would on the other hand say that it certainly is a strong orders. I think the order level is up something like 9% on a year-over-year basis, and so it is, I think, a positive sign. That does confirm the sequential increase in sales that you see in our guidance in Q2. So I wouldn't say -- again, it's not an abnormally high book-to-bill, but it certainly is a good one and I think that supports the Q2 guidance.

Okay, that's helpful. And then just looking at your segments, Adam, I think most of your commentary was for seeing sequential improvements in all of the end markets with the exception of military. Can you give us some sense of where you expect a bit more strength, which segments do you see as being a bit stronger in the second quarter as we move through the year, being above that sort of, I think, you guided to about 4% sequentially increase in revenue? So which segments are going to be above that corporate average?

Sure, well, thank you very much, Sherri. I think maybe in order of where we would see the strength, I think I mentioned that we expect in broadband, for example, to see somewhat substantially more than typical seasonality. And that's something that we feel very good about, given all the benefits that I talked about with the recent acquisition and the product expansion. We expect industrial to have good performance sequentially. Aerospace continues to look also like a market that would have good performance, and the IT market, actually, we anticipate that market probably performing a little bit better than the average in the quarter sequentially.

Next question comes from Shawn Harrison with Longbow Research.

2 questions. When considering the cable business, your margins were up from the back half of 2012. How much of that improvement is a function of market conditions relative to just the contribution from the M&A?

I think that there is some contribution from both, I would say, Shawn, in those numbers. There is some diversity relative to the product mix in the traditional business prior to the contribution of the acquisition. And I think when you -- if you would look at the sequential improvement as an example between Q4 and Q1, where we did have a good improvement in margin, that primarily was a stronger mix of sort of our traditional cable products. If you would look in the back half, I think there probably is more -- at the back half of 2012 probably a little bit more contribution from the acquisition, which does have in general a higher ROS level than some of our other products.

Okay, and then as a follow-up, if I do my math correctly, and assuming the midpoint of guidance for the year, it implies you have to do something like $1.2 billion of revenues in the September and December quarters to reach the mid-point of the sales guidance. I guess, what would be the biggest drivers in the back half of the year for 2013? Last year, it was definitely mobile devices. Is that the same level of thinking and maybe the other end markets, that would be up significantly too?

I think that the communication market, in general, tend to be stronger in the second half of the year without getting into a discussion [ph]. Specifically, we just wanting to nail down the trends for each quarter for the full year by market would probably not be something we'd like to get into. But I think, in general, we would look to see a continuation of really what we're guiding to in Q2, which is a strengthening in most of the communications-related markets in the back half.

Next question comes from Mark Delaney with Goldman Sachs.

I was hoping you could elaborate a little bit more on some of the recent trends that you've been seeing and maybe comment specifically on orders so far in the quarter, and then if you're seeing any changes in customer behavior such as expedites or pull-ins.

Yes, I mean I wouldn't tell you that there's anything of note. We've given guidance here for the quarter and for the year, and I think the orders in the quarter, so far, certainly would support that guidance. And to the same -- by the same token, I would say that behavior of customers in the month of April compared to the month of March, there, we haven't seen any notable changes.

That's helpful, thank you. And then as my follow-up question, there's been a lot of change in the mobile device market, whereas some of the smartphones are getting larger and some of the tablets have been getting even smaller. Can you just talk about the opportunity from you from the changing mobile device ecosystem?

Sure. Look, this is an ecosystem, as you termed it, that changes constantly. And so we have seen more than a decade that we've been having significant business in this market, that there's always change. There's change in form factors. There's change in functionality. There's change in what functions are integrated into those systems, and that is no different. No doubt about it, as you said, there are certain phones getting bigger. There are certain tablets getting smaller. There are new tablets coming. There are ultrabooks, which starts to behave like tablets. There are laptops start to behave like ultrabooks. I mean, you can get your head spinning when you start talking about the dynamics in that market, which is why we look at it much more simple. As we look at that market and how we have always approached that market is we will participate in a market where we can create value for our customers, where there's value in the innovations that we make through our interconnect, our antenna, our mechanism products that we sell into that market, whereby we help to make the customer's product better. And if we can do that for the customer, then, ultimately, they will pay us a reasonable price for the product, and we can have good progress with that business. That's what we have been able to do, in particular, on a lot of these new devices and as more new devices come out, mobile computing devices, to the extent that they need innovation, and I think it's a sure bet that somebody is going to need that innovation, then we will participate and have a good opportunity for growth in that market. But what it will be in the next quarter and the coming quarters, it is virtually impossible to predict with any degree of certainty very far down the road what that's going to be. But at the end of the day, I think one can rest assured that the innovation is going to be required by our customers, whoever they may be at the time, in order for them to sell the latest generation products to their customers and thereby be successful, and that's really the measure for us in terms of how we participate in that market. So obviously, it's a very important market for the company, one that is a very dynamic market and it's one where we have been extremely successful in the back of that very simple principle.

Our final question comes from Steven Fox with Cross Research.

Just 2 quick questions. First of all, you mentioned, Adam, that you're expecting to see some benefits from new electronics functionality on the military side. Is that something that's going to occur this year or is this something that you're working on designs maybe for next year? And then secondly, I was just curious if we can get an update on just any changes or advances in your manufacturing footprint going through this calendar year? Obviously, you're well-positioned in China. I don't know if there's other changes we should think of relative to India, Mexico, et cetera, but it would be great to get an update there.

Sure, well, thank you very much, Steve, appreciate the questions. I mean relative to new electronics in the military aerospace market, this is something that has been ongoing, and the fact is, is without our participation in some of these new electronics, even in the first quarter, our performance would have been much worse than it was. I mean, the overall spending environment is clearly not a favorable environment. And so it really is on our shoulders and on our organization around the world to continue to drive leading innovation. We're very fortunate though, because we have such a broad position and such a reputation as the technology leader in that market that customers come to us when they need to create those innovations. And now, the military equipment manufacturers, they got to differentiate. They cannot just live on a rising tide anymore, rather, they got to create this kind of more bang for the buck new technologies for their end customers, whatever government that may be around the world. And so we have seen tremendous participation in that, the new radar systems, for example, in the U.S. and Israel, early warning and missile-defense radars, things like that, where new electronics have been incorporated and which allows us to offset what would otherwise be budgetary pressures in that market. That is going to benefit for us in the first quarter. We believe it will continue to be a benefit for us, going forward, long-term. And when does that drive growth or not, obviously, there is an overall budgetary environment, which we would fight against, but that gives us a tremendous opportunity to have success, regardless of the budget. Relative to our manufacturing footprint, we operate a lot of factories around the world because we have a very unique organizational structure and just to remind everyone, that is a structure, whereby we have individual operating units with general managers, who truly run accountable businesses around the world. Part of being accountable is being flexible, and we pride ourselves on a constant degree of flexibility in how we make things and where we make things. These aren't decisions that Diana and I are making here in Wallingford, Connecticut. These are decisions that get made on the ground in realtime, depending on the needs of our customers and the requirements of the various dynamics of costs that are coming. So to that end, yes, we continue to operate in China. I think we have today 28 factories in China. We have significant people in China. But by the same token, we continue to strengthen in Mexico, in India, in Eastern Europe, and we continue to prospect for new locations to support customers around the world. And so it is an ongoing, very fluid manufacturing footprint for Amphenol, as we seek to continue to have that very flexible approach. At the same time, I should just say relative to China, yes, the costs in China have gone up and yes, the renminbi continues to appreciate, but we also have a lot of customers and a lot of business in China. China is a tremendous market for the company. And so I cannot imagine very easily a scenario whereby one would move production, say, to Mexico to reexport back to China. That's not something that probably would make a lot of sense. At the same time, though, we are seeing some movement of production back to North America and predominately to Mexico, where that makes sense for customers in this market. So it continues to be very dynamic, and we will continue to approach that with a degree of agility that we think is really typifying the Amphenol management style.

Thank you so much, Steve. And if there are no other questions, we appreciate everybody's interest in the company, and hope that you also have some of the first signs of spring that we are seeing here in Wallingford, Connecticut. Thank you all very much.

Bye-bye.

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