Ladies and gentlemen, thank you for standing by and welcome to the TE Connectivity Fourth Quarter 2017 Earnings Call. At this time, all lines are in a listen-only mode. Later, we'll conduct a question-and-answer session. [Operator Instructions] And as a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Sujal Shah. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's fourth quarter fiscal year 2017 results. With me today are Chief Executive Officer, Terrence Curtin and Chief Financial Officer, Heath Mitts. During the course of this call, we'll be providing certain forward-looking information. We ask you to review the forward-looking cautionary statements included in today's press release. In addition, we'll use certain non-GAAP measures in our discussion this morning, and we ask you to review the sections of our press release and accompanying slide presentation that address the use of these items. Press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at te.com. I would like to note that all year-over-year comparisons mentioned in today’s call are on comparable 13-week basis and do not include the extra week in fiscal 2016. I would also like to remind investors and analysts that we will be hosting an Analyst Day event in New York City on December 13 for the reception with the management plan on the evening of December 12. You can now register on our website. Finally, for participants on the Q&A portion of today's call, I remind everyone to limit themselves to one follow-up question to make sure we're able to cover all the questions during the allotted time. And let me turn the call over to Terrence for opening comments.

Thanks, Sujal and thank you everyone for joining us today. I'm very pleased to share our strong results for the fourth quarter, which capped off an exceptional year for TE across all the value drivers of our business model, including sales growth, earnings growth, as well as capital generation and deployment. Before I get into the slides, I want to spend a few minutes highlighting the progress we've made, demonstrating a successful execution of our strategy to create a safer, sustainable, productive and connected future. We are focused on attractive markets fueled by content growth and our sales growth this year is evidence of this. Our portfolio is solid with clear competitive advantages that have the ability to consistently deliver above market growth. Also, our customers value our ability to provide highly engineered solutions into applications where failure is not an option. To put this into context, to value creating for owners in 2017, we delivered 9% recorded revenue growth and 8% organic growth, which we believe is best in class performance versus our industrial technology peers. Adjusted operating margins expanded by 110 basis points to 16.8% with expansion in all three of our segments. And both the sales and the operating margin expansion resulted in adjusted earnings per share growth of 22%, which demonstrates the strength of our business model and resulted in performance above our guidance. For the full year, we delivered record free cash flow of $1.7 billion, which represents 100% free cash flow conversion to net income. We also returned $1.2 billion to shareholders and added two acquisitions that bolt on nicely to existing platforms in our portfolio, reflecting our balanced capital deployment strategy. We're also pleased that our return on invested capital expanded by over 100 basis points during the year to nearly 15%. As…

Thank you, Terrence and good morning, everyone. If you please turn to slide 10, I’ll provide more details on Q4 financials. Adjusted operating income was 576 million with an adjusted operating margin rate of 16.7% which leverages the strong organic growth of 9%. GAAP operating income was 552 million and included 23 million of restructuring charges and 1 million of acquisition charges. Adjusted EPS was $1.25, up 10% year over year, driven by sales growth, operating margin improvement and the contribution from acquisitions. Excluding an $0.08 negative year-over-year impact from tax, adjusted EPS was up a strong 17%. For the quarter, our EPS performance was above our prior range and $0.10 above prior midpoint due to the strong revenue performance. GAAP EPS was $1.21 for the quarter and included restructuring charges of $0.04. For the full year 2017, restructuring charges were approximately 150 million and I expect similar levels for 2018, driven primarily by activity in our industrial solutions segment as we optimize the footprint as well as make structural improvements across TE’s cost structure. Turning to slide 11, our strong Q4 results demonstrate that we are performing well against our business model and executing upon multiple levers to drive earnings growth, including organic revenue growth, a consistent capital deployment strategy of M&A and return capital to our owners as well as our TEOA efforts. Adjusted gross margin in the quarter was 33% with improvement from prior year, driven by fall through on increased volumes and productivity improvements from TEOA programs. This was partially offset by the impact of supply chain inefficiencies in our transportation segment, which Terrence already discussed. Adjusted operating margins were up 70 basis points year-over-year to 16.7% with strong organic growth driving leverage in the operating structure of the company. Adjusted EBITDA margins in Q4 were…

Thanks, Heath. And let me get into guidance for 2018 and I’ll start with our first quarter, which is on slide 12 of the presentation. For the first quarter, we are expecting a strong start to our fiscal year. We expect first quarter revenues at $3.35 billion to $3.45 billion and adjusted earnings per share of $1.23 to $1.27. At the midpoint, this represents reported sales growth of 10%, organic sales growth of 5% and adjusted earnings per share growth of 9%. By segment, we expect transportation solutions to grow low double digits on a reported basis, which includes the recent acquisition of Hirschmann, a leading provider of antenna technology and products and Hirschmann bolsters our position as a value added solution provider in the connected vehicle applications, truly a high growth area. On an organic basis, we expect mid-single digit growth in transportation. We expect auto to be up mid-single digits with global auto production being flat year over year, once again demonstrating outperformance due to content growth. We also expect strong growth in commercial transportation and continued growth in sensors. And as I mentioned earlier, we do expect segment adjusted operating margins to above 19% in the first quarter. In industrial solutions, we expect to grow mid-single digits organically with growth driven by continued strength in both factory automation and medical applications. And in communications, we expect low single digit growth with growth in data and devices and appliances offsetting some impact from SubCom project timing for the quarter. Now, let me move to the full year and if you can turn to slide 13, I’ll get into it. We expect full year revenue of $13.7 billion to $14.1 billion and adjusted earnings per share of $5.13 and $5.33. At the midpoint, this represents reported sales growth of…

[Operator Instructions] We’ll first go to the line of Craig Hettenbach of Morgan Stanley.

First question on autos. Terrence, the 10% growth versus 1% production, you guys have been tracking 2 or 3 and that certainly stands out. So if you can just touch on if there's any timing elements and then as part of that question, from a sensor program perspective, any visibility in terms of when you see those new design wins ramping on the sensor side in autos?

Let me take and there are two pieces. So first off on automotive, there is no timing, so there is actually, it’s anyway, we’re trying to catch up some of the inefficiencies we’ve talked about, but really what was nice about fourth quarter was how even our [indiscernible]. We saw – earlier in the year, we had tremendous growth in Asia and as we came through the year, as China slowed a little bit, we still had the fourth quarter around 9% in Asia, 14% growth in Europe and also 5% growth in the Americas. So it’s pretty broad based and really from that, I think that’s where you really see the benefit. As we go forward, and I think it’s reflected in our guidance, we see next year to be a pretty tempered auto production. We expect production to be flat in the first half and we expect really the 1% growth for the year to really be driven out of Asia as well as Europe, with the United States being down a little bit and we still think we’re going to get the net single digit from the content growth. So we feel very good about the momentum we have and it’s consistent that we can grow content above production around the trends. On sensors, your second question, we feel very good about the growth we had this quarter and it was across all three pieces that we sort of look at in the sensors and we had a nice growth in automotive, we had nice growth in commercial transportation as well as the broader industrial markets to grow them. The program ramps are similar to what we told you before. We expect some of the auto ramps, that will be happening more in the latter half of next year, that one you’re going to see the benefits of those. And that will help in the later half but nothing has really changed from what we told you.

Got it. And then if I can just ask a follow-up for Heath, step up in buybacks this quarter, any read through to that? I know you guys have been pretty consistent about the cash return policy, but did notice that an increase in buybacks in the quarter?

No. Nothing has changed from a perspective of our overall capital deployment strategy. Clearly, we had good cash flow generation in the quarter, we balance that out with acquisition activity that’s going on and make sure that we hold to a reasonable cash level and then return money back to the owners of the company. So nothing that’s strategically changed in terms of our outlook on that.

That will be from the line of Joe Giordano with Cowen.

Just kind of following up on that last question, M&A outlook, I know it's a core part of your business, of your strategy. It’s a part of your capital allocation program. I know your goal is to be a little bit more disciplined on price versus maybe some of the acquisitions you did historically and you're in an environment with pretty high valuations, so how are you looking at this right now and how does the pipeline look and maybe some comments on potential timing of that?

Sure. And I appreciate the question. Listen, M&A activity is never as linear as you like to model it to be. The reality is, we’ve got above sticks in the fire, we’re probing around in all areas that you would think that we would be acquiring in. Some of the platform activity that was done in sensors and in medical has enabled us to tackle a couple of more fragmented markets where we can go after bolt-ons, we can layer in to those existing - to this platforms that we brought into the TE portfolio. But we’re out there pretty aggressively right now looking for things, but to your point it is a pretty good seller's market and we have to speak to our discipline accordingly. So we are active is what I would say. I think you'll continue to see us announce a handful of Hirschmann like size deals over the next couple of years. And our goal is still to make that an important lever to our business model. But it is an expensive market, there is no doubt about it, there's a lot of competition for deals out there. So we’re going to maintain our discipline, but still aggressively go out and cultivate activity.

And then as a follow up, you mentioned like a 150 million or so in restructuring. I just wanted to what’s your internal kind of estimate for cost out from actions you've done previously into ’18. And how should we think about 150 you’re spending this year playing out. And kind to just more broadly where are you, do you think you are in this whole journey of site consolidations and kind of streamlining the production footprint of the company.

Sure. I think as a rule of thumb, not all restructuring activities is treated equal right in terms of returns, but on average it’s about two-year payback on the restructuring dollars that we spent on a cash payback. Obviously it depends where in the world you do these things. You could have a quicker or longer payback. But on average it’s about two years. So you can model that in relative to what we spend this year and what we are going to spend next year. The second part of your question though about where we are in the journey. Listen, the company well before I got here, a little over a year ago had done a tremendous amount of heavy lifting in the communications solution segment, rightsizing primarily the data and device business as starting back I think as far 2012 as we walked away from about a billion dollars of revenue that was no longer going to be part of our strategic content and having to rightsizing the business for that. So over that four year journey or so you saw a lot of activity in that segment. We feel very good about the operating footprint as you think about communications solutions today. Our focus has churned a little more towards the industrial solutions business, just been the beneficiary of a fair number of acquisition over the last several years and there's some natural site consolidation activity that would – to optimize that footprint. And we’ll softly tackle that, but it’s going to take a couple to three years to get through that. And I think it's important that our customers and employees are first remind on that we don't want to do anything to disrupt what's going on there. So we’re growing nicely and most pieces of our industrial solutions segment we have to contemplate that as well as we think about where we have capacity around the world. But I would envision a couple to three years would be my – if I was going to guide you to that.

That will be the line of Wamsi Mohan with Bank of America. Your line is open.

Terrence, you reported 8% organic growth in 2017 that's pretty impressive. Guidance implies 4% organic. Can you just talk about sort of what you're seeing from an end market perspective going into ’18? And I have a follow up.

Great question Wamsi, and let me paint a little bit of backdrop. When we think about this year, I really think we did a good job capitalizing as markets improved. So first off when you think about maybe going from eight to four, I would start with transportation. We had a 3% auto production environment here, in 2017, we expect that to step down to 1%. We do believe with our content and our win, we're going to grow above market, spend in single-digit where we guided, certainly auto production is moving up from three to one. Secondly, both in transportation as well as in our CS segment, we benefited from content gain as well as share gain both in appliance and our industrial transportation business really around China. Some cycles that had some regulations and I talked about air conditioning segment in appliance. We do expect those markets to come back a little bit more to reality as we go and moderate through the year. But we do see growth in those markets, but we don't expect to grow as high as we had in ‘17. In industrial, I would tell you, I think we’ve seen more of the same. I think the industrial markets throughout this year got more momentum as I said they become balanced across the world. And I sort of knew you are continuing to see this mid-single digit growth where we been running in the second half. And then the last thing that I would say on the bridging sort of eight to the four is, our SubCom business grew 6% last year, well over $900 million. What we're looking at next year, we expect SubCom to be $800 million to $900 million based upon the backlog that’s over a billion dollars I talked about. And what’s really nice about that is, we do expect our data and devices as well as appliances growth to offset even as SubCom is down a little bit. It’s still a high point in cycle, but we do think its elongated. So there are some of the moving parts qualitatively that are reflected in the guidance that I talked about as part of the script and in the slides.

And I guess my follow up and it’s somewhat related to your answer here, you showed pretty significant operating margin improvement and you noted some pretty strong above market trends here in fiscal ’17. You EBIT margin improved double of what you typically expect of 50 bps and more than double and are still depressed my some supply chain inefficiencies. Your guidance is implying roughly 50 bps going into next year. And I'm just wondering why won’t it be higher than that given that you still have sort of 4% organic growth and you don't have the headwinds of supply chains inefficiencies that you're sort of lapping this quarter. Thanks.

Part of this, as Terrence said we still have another quarter or so of the inefficiencies as we ramp that up through the calendar year. And we’re taking a reasonable view where our investment levels are going to be for next year as well as where the growth is coming from and have mixed layers into that. But in general I would say we feel very good about the work that transportation teams has done to handle this revenue growth and dealing with the situation of improving what has been the efficiencies and where we see that going in terms of progress towards remediation on that. And we feel good about our ability to extend margins in the other two segments as well. So I think we’re going to be off to a good start here in our first quarter and we’ll continue to update you as the year progresses.

That will be from the line of Shawn Harrison with Longbow Research. Your line is open.

Hopefully my math is right, I'm not working off a candy hangover, but if we get a two year payback on last year's restructuring program and this year’s as well that's maybe 150 million I’d say of I guess benefits to potentially come to the P&L. Are there any offsets, I know commodities are up or things like that that would negate kind of that easy math of 150 million of potential benefits from the two years of restructuring.

Well, I think the math is a little -- your math seems a little rich, but there certainly are some things. I mean we don't bridge every last thing. There's no doubt that commodity pressures are embedded in our guidance. I mean if you were to just - look at just commodities alone and freeze that today it’s probably $0.10 of headwind in the quarter, I'm sorry, for the full year, if commodity prices stay where they are today, for 2018, I mean we're not going to go through all of the pieces because we've got productivity initiatives, restructuring initiatives and things like that to offset those types of things. But certainly it’s a balanced view of where those types of cost reside as well as some of the investment level as we are. We have a very rich revenue pipeline right now across most of our businesses. And we are making investments in both OpEx as well in CapEx. So engineering and capital expenditures to make those - handle this type of outsize revenue growth relative to our market. So it’s a balanced view, but certainly there's puts and takes. Restructuring impact does help us, there is no doubt, not just in the short term but in the long term in terms of the optimized footprint going forward and we're making a bestselling place as well.

There's a follow up if I may, Terrence last quarter I think you may have mentioned that you're seeing a little bit of a disconnect between longer term orders relative to immediate term kind of bookings that you would guide to. Did you see that normalize a bit with distribution maybe selling matching sell through a little bit more evenly here through October.

Yeah Shaw, I did mention that last quarter. And in some ways we did see some things expanding out. When you look at the orders, orders have stayed pretty consistent in quarter three, quarter four as I mentioned. The other thing I would say is we are seeing from our channel partners sell through and sell out rates, so that’s selling into them and their PSO out, are marrying each other. So we see inventory turns staying very healthy, we don’t see inventory building up. And from that viewpoint I think things are reasonably in balance where we see things right now. So, where things are especially in a quarter where typically they get a little weaker because in many cases their end of the year at December, staying pretty solid.

That will be from the line of Jim Suva with Citi. Your line is open.

Two quick clarification questions. First was on the restructuring I believe you said 150 million, was that for fiscal year ending 2017 or outlook for 2018 and what would the outlook for restructuring cost be for 2018.

Jim, this is Heath. It’s actually both. Approximately 150 million for 2017 and we expect similar levels for 2018.

And the changes in tax, is that relative to your recent acquisitions or some change in tax filing or the souring of your income or how should we think about what's going on with your taxes and this rate expected to continue to increase assuming no political tax reform?

Our rate is not – our guidance rate of 19% to 20% for the year does not contemplate any kind of tax reform as we're not going to speculate on what that may look like. But I would tell this, you know, as global as we are, our construct is really complicated journey to through and decipher well what the moving parts are going to be on our tax rates. Some of it is jurisdictional mix in terms of the increase and the results of some. These are handful of small three things that benefited us in 2017 that we do not anticipate repeating in 2018 around statute explorations that we have reserved for that we benefited from in 2017 that do not happen again in 2018. But I think probably more importantly our security towards the fact that our cash tax rate was still inside of our ETR for 2017 and we’ll continue to be even inside of that 19 to 20 for next year. Our cash tax rate tends to run roughly 150 basis points below our published effective tax rate which is more important metric as we think about.

Then my last question is on the transportation, with transportation revenues being up year-over-year, the margins being down year-over-year, you mentioned supply chain inefficiencies are something. Can you go into a little bit of details of exactly what is going on there? Because I believe this is now the second quarter of that. And I think you said through the December quarter. So that would be three quarters of, it seemed like an awful long time to remedy some challenges for a company like yourself who's been in this industry for decades.

Well, I mean if you look at the revenue growth Jim, I mean the revenue growth is far outside of what the market growth is. And we’re winning and content wins have been great of the topline. Some of the challenges that the supply chain reacting to our ability to get certain types of parts. And so there's in-sourcing activities going on, most of the cost is related to expedite freight charges, spending more money on things to get things to our customers in a more timely manner is costing us a fair amount of money to do that. I would say this, the team has done a nice job. But when you're talking about adding stamping and welding machines, it tends to be a fairly long lead times, these are not things you to go by off of a retail floor, you get order, commission them and install them and get them up and running. And we are aggressively doing that. I would say that the quarter we just finished that we're talking about today we peaked out in terms of those inefficiencies. We are seeing in real time that those costs are starting to come down, but it will be behind us by the end of this quarter largely. So yes, it was a three quarter journey, it happens. I would say the revenue growth, the demand for our products are real good. And we're on top of it. But there's no doubt that has caused some pain points for the team as they’ve had to respond aggressively towards this. And it did impact. I think we noted in the call, it impacted segment margins by 150 basis points. So we would have grown our margins in the mid-19% range absent these inefficiencies. But we do feel good, we will back for margin rate perspective, in the first quarter back well north of 19% and feel good about where they year is going to end for transportation.

That will be from the line of Amit Daryanani with RBC Capital Markets. Your line is open.

This is Erwin Lu [ph] dialing in for Amit. I had a question about SubCom, you talked about the business being impacted by products timing issues. If I'm not mistaken, I think last quarter you indicated that the business would be flat year-over-year in fiscal 2018. I guess from a timing perspective, can you just provide or give us a sense of what's changed versus 90 days ago.

Couple of things, SubCom is very different than the rest of our businesses. So this is much more of a project construction based business, so how projects come in, how we have to permit those projects, also how our customers want to get those charged in the project, when we look at it, it does get a little bit lumpy and it’s been like that forever. So when you sit there, nothing has really changed about the business, we feel good about the backlog, being around $1 billion which is where it’s been now, plus or minus a little bit for multiple years. And it give us confidence about this cycle being elongated versus what we’ve had historically. And that cycle once again is around the need for data in our cloud provider customers and that's what’s great even about our latest award includes them. So as we look into next year, like I said in my comments we look at the project timing, it looks like we’re going to be in that $800 million to $900 million range as we go into next year. We’ll have to see how projects fill in. but right now I don't think anything's changed from last quarter, it’s just what we expected to be up at this higher point of the cycle, plus or minus a little bit.

And just as a follow up, as I look at your communications solutions business, particularly in data devices and appliances, you indicated that growth in Asia was a major driver of your performance. Is it possible to talk about some of the underlying demand trends on sort of an ex-Asia basis?

Yeah, a couple of things. So in appliances, it is your traditionally driver, so it is around appliance bills, home starts and really this year I would say outside of Asia, traditional appliance that was sort of a low single-digit market. We were able to grow faster than that due to our leading position as well as content wins we’ve had. But really we benefited from an air conditioning cycle in Cycle that was much stronger and you saw all that growth throughout the year. And that in devices it’s really a global business when you think about how those customers act. We did see strength in Asia really around cloud and how we sell to as the cloud builds out. But when we said they are going forward, we do see Asia will always be a big driver when it comes to data and devices just due to where the products made also where the design is done. So outside the United States isn’t as relevant – outside of Asia sorry isn't as relevant for data and devices when it comes to revenue.

That will be from the line of Steven Fox with Cross Research. Your line is open.

Two questions from me. First off, you've mentioned both content wins and market share gains. I was wondering if you could just talk a little bit about the market share gains for a few minutes in terms of what's driving that, where they're most prevalent and assume maybe we should exclude the data business since that seems to be a specific product cycle for you guys. But outside of data, can you talk about market share gains. And I have a follow up.

Certainly, there's an element of what we track Steve, both regionally and I think when you take the share gains ex-content, we feel very good about our momentum in auto. Globally we also feel very good on share momentum in our ICT business. And I would also say if you jump into industrial growth and what we've been able to accomplish in the industrial side both of the factory, automation as well as medical. When you get into excluding data in appliance, I would tell you we had tremendous momentum from a share gain in Asia over many years now. Taking our leading position in more of a Western position around Europe and then United States than actually has our Asian customers have become more global players then they work historically really driving share gain wins in Asia through all the major appliance manufacturers. So when you look at share gains at our ex-content or electronification, really they're the markets that we see it in and in more of our traditional products.

And then just as a follow up, the Hirschmann acquisition obviously makes sense, but it seems to suggest maybe you're expanding your look at what you're going after in auto around connected applications. Is that correct and if so, what does it say for maybe other deals in that area or do you have enough now to do more in terms of just getting and stuff like that.

Steve, on Hirschmann, I don't think I would say it’s different, I do think it's things that we actually do already and how do we get a little bit deeper in it. So when you look at Hirschmann, and Hirschmann what it does is really be antenna technology and how that integrates into the [indiscernible] are some things that we've done already in our automotive business. So we get excited about it’s an area where we’ve had transaction organically and we do typically look at where we have traction organically for an inorganic similar to what we did [indiscernible] and similar to what we did with medical. But when you take Hirschmann there were things we were doing that might have been a little bit on the lower tech scale than what Hirschmann did. And what this really allows us to do is continue to build our penetration around the connected car infrastructure really around the physical network that happens in a vehicle, so that’s within vehicle. So it’s a natural extension of what we're doing. And we're happy to have Hirschmann as part of our team and that opens up a bigger content envelope than what we were doing historically. So it actually allows us to continue to building strong content momentum that we talked to you about and opens up a bigger area that we can also take Hirschmann more global than they have been because they have been very European centric and how do we take that technology with our strong auto position. So I would say it’s a go-to market play, it’s also getting core technology a little bit broader, I wouldn’t say it’s completely different than what we do that would be the only thing I would modify from what your question was.

That would be from the line of Matthew Sheerin with Stifel. Your line is open.

Hi. This is [indiscernible] on behalf of Mat Sheerin. In the past and currently you mentioned that cloud and hyper scale infrastructure has been a big driver for data and devices. Could you just be able to give more detail on the materiality in the segment as well as your growth expectations for fiscal year on that segment. Thank you.

But when you take it, and I’m going to talk higher level. When you take our data devices businesses, you sort of break it down. We don’t have much exposure to consumer anymore and that what Heath talked about as we moved away from that to really point our engineers harsher environments. So when you think about our data devices business there's an element of it probably about 30%, 40% that relates to traditional telco infrastructure. There is an element that also relates to wireless and then there is an element that relates to the cloud. And certainly cloud means both servers as well as the emerging hyperscale providers that we all talk about a lot. So when you sit there really the traditional telco infrastructure has been pretty muted. I think you’ve seen that. On the wireless side we are waiting for some of the 5G rollouts that are upcoming over the next couple of years to really help that piece of the pie. But clearly when you take this year, the growth has really been driven by the cloud and the our hyperscale customers. And that has created I would say almost all the growth we’ve had in our data devices business this year and has offset some of the slowness in the traditional telco and wireless infrastructure. So that's the way I would ask you think about it in response to our question.

That would be from the line of Sherri Scribner with Deutsche Bank. Your line is open.

Hi, its Adrienne Colby for Sherri Scribner, thanks for taking the question. Within industrial solutions, commercial aerospace continues to be a bit of a drag. Just wondering if you could provide some color on the ongoing timing issue. And also if you could talk about the trends you're seeing in oil and gas, just trying to understand better what was going on energy in the quarter.

So let me your first question, so in commercial aerospace, clearly that’s about almost 50% of what we do in our aerospace and defense business. And when you sit there and the contact what we have we feel very good about, both with -- both airplane manufacturers. What we’ve seen a sluggishness throughout the supply chain on build rates, and really that’s been something that has been happening all year. So we feel very good with the content and clearly as that momentum picks up as build rates and the supply chain were through that’s a sluggishness we’re talking about. On oil and gas, oil and gas in not our energy business, our energy business is much more around power transmission, distribution and generation. The oil and gas businesses at our aerospace and defense submarine business and I would say that business was very flat this year. We continue to see stabilization in that market, but we expect slight growth next year, but it’s still running around $120 million per annum. And we not expecting some big rebound in that as we go through our 2018 guidance.

That will be from the line of Mark Delaney with Goldman Sachs. Your line is open.

This is [indiscernible] on for Mark, thank you for taking the question. My first question is on automotive. How is TE thinking about the increased auto purchase tax in China in 2018 within its guidance?

When you sit there, we look at auto production. And so right now when we're sitting there, we do sort of view auto production next year in China to be relatively flat to this year of low-single digit. So when we sit there clearly this year, we had very strong growth, about 9% production growth in China. So as the incentives have worked off and the facts you talked about, we do expect more muted China production next year and that’s included in our 1% global auto production. Despite that we feel very comfortable that we’re going to grow mid-single digit on that backdrop of global production. And what’s really nice about our global positioning in automotive is we really see that Europe will be a big growth driver in next year based upon our contact wins. So you're going to hear us talk a little bit more about Europe as we go into next year, while this year has been very much around China and Asia in automotive. You are going to see our European based upon our great global position that we have.

And as a follow up, the sequential revenue guide in 1Q fiscal ’18 is more benign than typical seasonality. Can you discuss what the main driver or drivers of that are?

Largely just, we would agree with you. But largely driven by the stronger order rates coming out of our fourth quarter where we see world. As we’re looking at it we have pretty strong orders across all the businesses and across all regions. So it's a lot of going back to what Terrence has been talking about in the last few minutes around content and market share. We feel very, very good about it, but agree that it's not the normal seasonal step down that we would normally see.

Okay, thank you Tim. It looks like there is no further anymore questions. So if you have any more questions please contact investor relations at TE. Thanks for joining us this morning and have a great day.

Thank you, ladies and gentlemen that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.