Ladies and gentlemen good morning, and thank you for standing by. Welcome to the TE Connectivity Third Quarter 2023 Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today’s call is being recorded. And I would now like to turn the conference over to our host, 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 third quarter 2023 results and outlook for our fourth quarter. With me today are Chief Executive Officer, Terrence Curtin; and Chief Financial Officer, Heath Mitts. During this call, we will be providing certain forward-looking information and we ask you to review the forward-looking cautionary statements included in today’s press release. In addition, we will use certain non-GAAP measures in our discussion this morning, and we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The 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 also want to remind you that our Q4 results in fiscal 2022 included an extra week. In this call, year-over-year comparisons for the fourth quarter and fiscal 2023 are made excluding this extra week. Finally, during the Q&A portion of today's call we're asking everyone to limit themselves to one question and you may rejoin the queue. if you have a second question. Now, let me turn the call over to Terrence for opening comments.

Thanks, Sujal, and thank you everyone for joining us today. Before we get into the slides and as I typically do, I want to take a moment to discuss our performance this quarter, within the backdrop of the market environment, along with what we're seeing versus our last call, 90 days ago. I am pleased with the execution of our teams in the third quarter, with revenues that were in line and EPS that was ahead of our guidance, due to strong performance across all three segments. Our Transportation and Industrial segments grew year-over-year, which essentially offset the expected declines in our Communications segment. Our adjusted operating margins expanded 130 basis points sequentially, without the benefit of any volume growth. We delivered on the actions that we've been driving to ensure margin expansion occurred, as we move through this fiscal year. Also, as important, you're going to continue to see the benefits from the strategic positioning of our portfolio around secular growth trends, including increased global production of electric vehicles, adoption of renewable energy and applications for cloud and artificial intelligence. In the quarter, our orders of $4 billion are not only indicating stability in transportation and industrial, but also in our Communications segment as well. I view the older trends to be a real positive and they're reflecting the improving supply chains and reinforce our fourth quarter guidance, which I'll get into more details in a moment. As we've been sharing with you, one of the key areas of focus this year has been working capital management as supply chain performance improves. Our strong free cash flow performance reflects our focus, both in the quarter as well as you see it year-to-date. Cash generation is an important part of our business model and year-to-date free cash flow was up…

Well, thank you Terrence and good morning everyone. Please turn to slide 8, where I will provide more details on the third quarter financials. Adjusted operating income was $692 million with an adjusted operating margin of 17.3%. GAAP operating income was $630 million and included $53 million of restructuring and other charges and $9 million of acquisition-related charges. Year-to-date we have taken $208 million of restructuring charges, and we continue to expect full year restructuring charges to be approximately $250 million, as we continue to optimize our manufacturing footprint and improve the cost structure of the organization. Adjusted EPS was $1.77 and GAAP EPS was $1.67 for the quarter and included restructuring and acquisition and other charges of $0.10. The adjusted effective tax rate was 18.2% in Q3. For the fourth quarter and for the full year we now expect our adjusted effective tax rate to be approximately 19%. Importantly, we continue to expect our cash tax rate to stay well below our adjusted ETR for the full year. We can get you to turn to slide 9. Sales of $4 billion were down 2% reported and 1% on an organic basis year-over-year. Currency exchange rates negatively impacted sales by $42 million and adjusted EPS by $0.05 versus the prior year. Adjusted operating margins were 17.3% in the third quarter expanding 130 basis points sequentially, despite lower sales driven by margin expansion in our Transportation and Industrial segments. We have continued to drive productivity and cost initiatives and have implemented the price increases that we discussed in prior calls. Our pricing is now fully offsetting the impact of higher input costs. Turning to cash flow. In the quarter we once again demonstrated strong cash generation model of our business, with cash from operations of $779 million. Free cash flow for…

Avi, can you please give the instructions for the Q&A session?

[Operator Instructions] We will take our first question from Chris Snyder with UBS. Your line is open.

Thank you. So our Q3 top line only met the guide, but despite a higher level of auto production, so can you even just talk about some of the offsetting headwinds there? And then also what some more color on what really drove the strong step up in margins. Obviously, a step up was inspected, but this was much more significant. And then just lastly, any clicks and takes into Q4 at the segment or end market level. Thank you.

Sure. Thanks, Chris and thanks for the question. First off, when the first part of your question, you know, we met our overall guide on the top line, and you're right in transportation, we were a little stronger, but you know, communications was a little bit weaker. You know, we've been talking for many quarters now about, hey, as we go through some of the supply chain correction and market weakness around cloud, we thought we'd be in the 450 to 500 range and we thought this past quarter we'd be closer to that 450 and you know, our communication segment came in a little bit below that and our transportation revenue, which was stronger, really made up for that. So on your first party of your question on really the margin front, you know, let's just to move it up a little bit, you know, we knew we had to do margin opportunity as we marched through the year. We had the price cost element that as we talked about in automotive, that was going to be on a lag basis. We did get those in place. I think you're seeing the benefit of that and we said we could get our transportation segment back up to where it's at today as we get later in the year and that that's been accomplished. I also think there's been good operating performance in our industrial segment, even in light of, you know, our biggest and, you know, higher profitability business unit there, industrial equipment, you know, has some destocking occurring. So I think that was very good performance there. And the other element is as communications is cycling down here in both businesses, we've been able to maintain the mid-teens margin even on lighter revenue. So I do think, you know, to my prepared comments, I am pleased with the execution that we know we teed up for you all earlier in the year, you know, came through. Now when we go to next quarter, really with the order trends that we're seeing, it does look like, you know, the segments will be very similar next quarter to where they were this quarter. You know, auto production is going to be flat, you know, we expect transportation revenue looks similar to quarter three, similar to IS and CS right now with where we see the order patterns, we expect margin to be similar. So the guide is very consistent with what we just did and that's some of the stabilization that I talked about. And you know, on the EPS side, we're just a little bit lower in quarter four and that's really due to tax and FX. So, you know, it's nice to be able to show some of the stabilization, as we wrap up quarter three and go into quarter four.

Thank you. Chris, can we have the next question please?

Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is open.

Yes, thank you. It's really nice to see the operating margin improvement here in transportation that you guys alluded to earlier. But I was wondering if you could Terrence maybe double click on some of your inventory comments. How much more inventory digestion do you think is ahead of us, especially in industrial equipment and how much more correction do you think is also left in in data devices? Thank you.

Yeah. Thanks, Wamsi. And thanks for the question. I guess the first thing is, you know, I know we talked about the stocking and the same benefit we're driving in cash flow as supply chain gets better. It is important. We're not in a bubble where not only our supply chains are getting better, but our broader customer supply chains are getting better. And I think really where you see it in our results are the three business units we have, two in CS and one in IS where we feel it the most. And that's really where we have distribution channel involved and certainly, things aren't as much of a direct, direct relationship. So in transportation, we don't feel there's any supply chain to work off. We don't see impacts of destocking and you see that in our performance and you see the growth in all three businesses. In the other businesses, while TE does do about 20% of its revenue through distribution, the business, as you mentioned appliance and D&D in sees as well as industrial. They do about 40% to 50% of their revenue through distribution. And what we've been seeing is we do see a broader supply chains improve, we see our distribution channel partners adjusting their inventory levels to get to more normal demand. And let's face it. If lead times, people are hitting lead times and people don't need to go to distribution to find something to complete a build, they won't have to do that. So it is a natural effect in our business when you have this, but I think we have to realize it is a good sign that supply chains are improving. I think where we are, certainly, industrial has gotten to it a little bit later. I think we still have a quarter or two that we need to work through in these businesses is our best guess, and guess what, that is a guess. But I do think there'll be a point in time where our revenue in those businesses, especially go through distribution, will get closer to demand. But right now, we're building less on what demand is as inventory works down.

Okay. Thank you, Wamsi. Can we have the next question, please?

Yes. Our next question comes from the line of Steven Fox with Fox Advisors. Your line is open.

Hi. Good morning. I was wondering if you could dig in a little bit more into the cash flow numbers. Like you said, you're up a lot. How sustainable you see cash flow going forward? And maybe what does it mean in terms of your capital allocation? It seems like it's not changing right now, but how does it influence you in a rising rate environment? And then within that, if you could touch on just the M&A environment, that would be helpful also.

Sure, Steve, this is Heath. I'll take this question. First of all, we're pleased with our cash flow performance this year. Year-to-date, our free cash flow is $1.5 billion, which, as I mentioned earlier, is up 40% year-over-year, and we've had pretty consistent results as we -- each quarter as we work through the year. A little -- a big chunk of that to answer your question about sustainability of the space performance builds on what Terence just talked about and that's stability. And if you think about -- there are times, particularly over the past couple of years, when we've had to flex our working capital, particularly inventory to handle all of the volatility that's out there in the various supply chains, both uncertainty from our suppliers as well as differing order patterns from our customers. And the last thing we're going to do is be in a position to hold our customers up. So we've had to flex inventory. So now with the visibility improving, that's tied to some of the supply chain improvement out there, we've had the ability this year and particularly through the first half of this year to reduce inventory levels, bring our days on hand to back more in line. There's a little bit of work to do in a couple of our businesses. But for the most part, we're getting to a better place. And that working capital management has really driven our ability to drive free cash flow improvement year-over-year. So we feel good about that. We feel good in general about our ability to sustain that going forward. In terms of overall capital allocation, which was the second part of your question, was that we're fully funding capital expenditures. We have not cut that back demonstrably -- most of our…

Okay. Thank you, Steve. Can we have the next question, please?

Yes. Our next question comes from the line of Matt Sheerin with Stifel. Your line is open.

Yes. Thank you, and good morning. Terence, I wanted to drill down a little bit more on the opportunities in AI in your comments. It sounds like you've got a strong relationships with key customers and the semiconductor suppliers. But could you talk about the competitive landscape and the edge you have over competitors? And could you also size up the market opportunities for us perhaps as a percentage of your overall cloud revenue?

Sure, Matt. Thanks for the question. Thanks for the question. And let's face it, we like data anywhere because typically you need a connection to occur. So when you think about the core of what we do, whether it's data, power, or some sort of signal, that's where we see opportunities. And anywhere data goes is an opportunity for us. When you think about AI, though, there's one thing to move data, but when you think about the high speeds that this is at, as well as the low latency you need, it's really an extension of what we've been talking about from a cloud perspective. There's one thing to have a data connector. There's another thing to have a high speed that can handle what these GPUs are throwing off, as well as make sure that you not only have to compute, you also have to move the data. You also have to store the data. And how does that all stay in sync? And that's really, there is a number of us in the world that do that very well because you're at the cutting edge of technology and you not only need to design with the people that build the architecture, you need to be very close to the semi-companies that are making these next generation chips that everybody's all excited about. So when you look at it, I sort of view it's the next step of where cloud went. And we're just taking it up a level of speed. And certainly with the adoption of AI that we all hear about, it's exciting for us. So from a product set, when you look at what we do, we have sockets that actually the GPUs and the CPUs go into. You do need something that takes that…

Okay. Thank you, Matt. Can we have the next question, please?

Yes. Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.

Yes, good morning. Thank you very much for taking my question. I realize the company only formally guides one quarter at a time, but given that we're now in your fiscal fourth quarter, I'm hoping you can provide some early thoughts on fiscal 2024 and how you're currently thinking about trends by end market for next year.

Thanks, Mark, and I also appreciate you giving a caveat that we only guide for one quarter. So anything I'm going to give here will be qualitative about what we see and, some insight because I think I probably talked about some and Heath talked about some already. So first of all, it starts off, it is nice to see the stability that we're starting to see in orders and communications that pick up. So I do think the comments start with that sort of as a backbone. It is important that some of the destocking we talk about in some of our businesses that will work off. I can't tell you the exact date that will be done. But that will -- while that's a headwind now, that will be something as we get into next year will be a tailwind for those businesses. I also think when you look at transportation specifically, our transportation growth this year is going to be driven by automotive is in the low-double-digits. That's on pretty low production growth and it has the content that we've always talked to you about and then a little bit of price on top of that, really, you should expect on top of what auto production is we'll be in that 4% to 6% next year, because we won't have the additional price increases unless material would go up more. And so in transportation, we still see content being the driver into next year. I think the only thing that we're watching real time is in our commercial transportation business. We see some signs in China and North America, that being a little bit slower. So that's one market we're going to keep an eye on. And then when you get into the Industrial segment, you think about the three units that I talked about on the prepared comments. Commercial aerospace is not going to be slowing down in the recovery, and it's one area that we're still playing catch-up in. Medical interventional procedures we feel good about and you're seeing the strong growth there. And renewable applications, we would continue to expect strong growth momentum there. And once we work through the destock and industrial equipment, we'll get back to some of the growth that we've been showing you. And then in the Communications segment, it really is around the destocking and then the AI programs kicking in. So having the stability, I think you see the secular content drivers. We still expect there would be a slow global economy. But really, when you look at these content levers that we've been talking about, will really be the drivers as we get into next year and hopefully, the inventory destocking winds down.

Okay. Thank you, Mark. Can we have the next question please?

Our next question comes from the line of William Stein with Trust Securities. Your line is open.

Great. Thanks for taking my question. First sort of a supply chain question. You've given us a pretty good bit of information already about where you're seeing destocking and such. But like to draw the comparison to some of the semiconductor suppliers who in this cycle was very effective at taking that extended lead time situation as an opportunity to constrain what they were delivering into the channel so that they didn't run into this problem. And I wonder if there are any lessons learned from that? I know every cycle is a little bit different. But as you think about this going forward, is that a potential opportunity to improve the business to constrain what you ship into those guys so you don't wind up in the situation.

So a couple of things, Will. I just want to give a contrast between semi land and what we do, because I do think there is an important difference. Semiconductors had some lead times that were well out over a year. I would tell you, when you look at what we do, our lead time typically on average could be six weeks to 12 weeks. And while we had supply chain challenges, I think the bigger challenge was not as extending lead times. It was meeting lead times. And when I think about the service levels we're at today, which our direct customers feel other than maybe in the aerospace market, our service levels are back to pre-COVID levels from a shift to request element. So I do think there's a big difference on lead times and certainly the semiconductor fab process is very different than the connector process. But I do think while we are around the same trends and we may have stocking and destocking effects, the lead time disconnect between a semiconductor and a connector is very different and ours is much shorter. We did constrain demand in certain areas where we knew we were ahead. You take our clients business, we did not add capacity for our clients business to be permanently at a $1 billion run rate. We were trying to manage through our various channels. So, I think you're always going to have elements of a little bit of stock and destock where you have more channel activity. Let's face it. We build the orders. When we're getting orders we don't say, well this is a real order and this is a fake order. Every order is real, because there is a customer that's asking for something someplace. So I actually feel pretty good how we manage through it. I'm also pretty proud when you look at our communications segment with where their margin is running on how much their revenue is all I think it also proves we've improved the profitability substantially in that segment when we're at maybe a cyclical low that really gets us back to where we can take the margin back up to what we talked about when we target for the segment more like 20%. So there are lessons we think about. I'm not sure it relates to the semiconductor processes as much as how we manufacture.

All right. Thank you, Will. We have the next question, please.

Our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open.

Thanks. Good morning guys. I had a question about the TS margins. So you have the price fully realize some wraparound into next year. And you also have called out some operational improvements as well. I'm curious, if you could talk about a view of fundamental incremental margin expectations over the next year or two for the TS segment?

Hey, Chris this is Heath. Listen I think TS has done a lot -- the transportation segment in general, but particularly the automotive piece of this as well as the sensors piece of this has done a lot of heavy lifting on the cost structure. And that's largely moving production in a meaningful way away from higher cost locations into lower cost jurisdictions. And we are starting to see the benefit of that in many cases we're also following -- we're part of a supply chain that's also following that trend. So not necessarily unique to us that following our customers to where we need to be to support them. The impact of that on our cost structure is something that has been gradually layering in catching up on inflation with some of the price increases that we've done over the past a couple of quarters has certainly benefited us. And as I think about as we go into next year, the difficult thing to call on that is what auto production number is going to be. We're not terribly bullish as we go into next year that auto production globally is going to ramp possibly [ph]. I guess, more to come as we all get smarter on that by region. But you know the content story, and we do expect the category of EV and hybrid to grow very nicely again just as it's shown in the past couple of years and our content on that. So I feel good about our ability to outperform the market as we've always done and that will lead to some margin opportunity for us. When I think about incrementals we target in normalized times roughly a 30% incremental and more to come on that as we get through into next year, obviously, as you mentioned we'll have some price wraparound for the first half of next year. So I appreciate the question.

Okay. Thank you, Chris. We have the next question, please.

Our next question comes from the line of Joe Giordano with TD Cowen. Your line is open.

Hi guys, good morning. I appreciate all the color on the AI stuff today, but I did have one kind of follow-up there. How do I think about that business replacement for a business that you would have been doing in the absence of AI, like, if I think about your whole data and device business where -- what does that business look like on a normalized basis now? Like it was a $1.5 billion business higher now it's run rating at $1 billion where is like the right pedaling?

Yeah, I think there's a couple of things. You do have the destocking and certainly I would say the one area where I know I talked about distribution a lot there is still a lot of server and semiconductor inventory on the planet that needs to work through. So I do think you're going to have us being below that level right now as that clears out. I would also say just realize just because AI is happening doesn't mean every server and cloud application is obsolete. It is different architecture, but you're still going to get the benefits of those. So I think we're going to get back to normalization in the supply chain, which is driving it. And then you will see AI add on to some of the cloud element. It is not a full cannibalization by any means. And you shouldn't think about it as cannibalization. And we're in the early innings really on AI. I know, I talked about the wins we've had, but the engagements we have are still very strong and you'll start seeing them next year go.

Thank you, Joe. Clear. Next question, please.

Our next question comes from the line of Amit Daryanani with Evercore. Your line is open.

Hi.

Hi, Amit.

This is Abdullah speaking for Amit. And I just wanted to focus on industrial. I think last call you mentioned industrial to be - 150 margin expansion in the second half and you saw a really nice expansion I think of 130 this quarter despite revenues being down I think in the segment $50 million or so. So I was just curious what could be here and what the varies puts and takes on?

Yes. Again this is Heath on the margin question for IS. Listen, I mean, you've got four very distinct businesses within this and you're always going to have a little bit of noise quarter-to-quarter. I think we talked about last quarter some of the mix with the downturn in the industrial equipment business, which is our highest margin component of that segment certainly impacted us. We were able to make up some ground here in our fiscal third quarter with some cost actions as well as just improved profitability in some of the other businesses. So it's a bit of a mix. As you think forward I think listen at this kind of revenue range and with this current mix of what we're talking about the operating margins for the segment probably start with 15. I don't necessarily know that we would dip back down into the 14s like we were last quarter. But this -- as we think forward I think it's in the 15s. And then I think the important piece here is that we are still committed to high-teens operating margins within this segment. We do have a couple of acquisitions that we need to digest that we've taken on over the past year or so. Those have come in with considerably lower margins, but have a really, really strong opportunity to create value through some of the margin improvement and growth opportunities that we've already identified and are implementing that's still running below segment average. And as we get those acquisitions layered in I think that will also have a meaningful impact. So we feel good about our trajectory there. But there's no doubt that we're running a couple of hundred basis points lower than where we want to be longer term.

Okay. Thank you, Abdullah. Can we have the next question, please.

We will take our next question from the line of Samik Chatterjee with JPMorgan. Your line is open.

Yes. Hi. Thanks for taking my question, I guess I had a question on Industrial Solutions as well but more sort of looking at it from a mix perspective just wondering how you think about what this business mix looks like in four years to five years, or how do you want it to look like in four years, five years because from the outside it does look like you have secular drivers in ADM, Energy and Medical whereas industrial equipment I understand sort of the better margin on it but doesn't appear from the outside to have the same drivers in terms of secular growth. So is there a way we should think about how this mix transitions in this business by subsegment of time or where your focus of investment will be as you look at this business?

Well, I think, when you look at the business I think it's important to say where you've seen our investment first. You have seen us been very focused on building out the industrial equipment business unit because we like the factory automation trends that are there. And even if you went back probably three years, four years that was not always the largest business unit. So we have done M&A there. We like the opportunities that are there. We also like the challenges that are there that what are customers trying to solve? You're typically trying to solve getting data off a factory floor in a very harsh environment and getting it back to the compute that turns that into intelligence. So I think you're going to continue to see areas in that space where we continue not only to invest, but also thinking continually about where we can do M&A in that spot. In the other areas that you sit there energy has become much more of a secular driver than we've had and it's where we've really focused around renewable energy. We actually did a small M&A earlier this year. And I think that's an area that we would also continue to look at on top of the secular drivers we have there to say how do we continue to build out that. In aerospace, I would say we're capitalizing on the recovery it's a space that I would say the content is really set because those platforms are won. I don't see there being big secular changes to the platforms right now. We certainly have EVOTL and things like that, but they're further out then your horizon to really create value. So I think it's really more of an execution story. And in medical I think you see the consistent growth and I think you're going to continue to see as we're benefiting from interventional. So I think what's nice about the segment is all four of them have growth drivers in them today. We couldn't say that five years from that five years ago. And I think what you're going to continue to say they all give us different options as we continue to build out those businesses and we'll have times where we do have a little bit of a mix or one has a little bit higher margin than the other, but that's just going to be a factor as we build it out.

Okay. Thank you, Samik. Can we have the next question, please?

Our next question comes from the line of Luke Junk with Baird. Your line is open.

Good morning. Thanks for taking my question. Just wondering if you could comment on the pace of AI-related awards that you're seeing. Just wondering how quickly the billion plus in awards that you've referenced have come together how quickly that could get $1.5 billion or $2 billion? And then related to that in terms of book-to-bill, could you just give us some additional color on overall communications book-to-bill of 0.96, just how that splits between data and devices and appliances and to what extent AI is impacting the data and devices side? Thank you.

Yes. On the -- let's take the last question first. Data and devices is above one. And certainly appliances to below one. I would tell you on both of those where the orders go through distribution the book-to-bill is well below one and the direct customers are above one. So it sort of shows you some of the dynamics. And even in the appliance market, I would say, inventory at the OEMs and at our direct relationships seem to be in check where they need to be where that lower market is. When you look at the wins and an AI to go back the wins are coming fast and furious. And it's one of the things I have to give our team credit for as we were dealing with a market that was turning how do we really make sure we capitalize on those wins. So when you sit there the pipeline has moved up even since the last time we talked we're well over $1 billion now. I think it's really going to be around how these programs ramp and certainly the architecture size. So it wouldn't surprise me that we continue on these calls to update you. But there's no pause in the AI platform. In some cases similar to the EV platform that we had in auto no matter what's happening in the cycle they're accelerating. And I think we'll be able to give you ongoing updates as they ramp.

Okay. Thank you, Luke. Can we have the next question, please?

Our next question comes from the line of Shreyas Patil with Wolfe Research. Your line is open.

Hey, thanks so much. So maybe just coming back to Transportation Solutions. If I think about where we are now you mentioned the price increases are fully offsetting material inflation. So you're generating and you're generating about an 18.5% margin, there is going to be some additional outflow potentially some benefits from restructuring. So how do we think about that bridge to the 20% margin target? Are there other headwinds we should be considering as it does seem that is something that could be achieved potentially at some point next year?

First of all, I don't want to commit to anything for 24 until we get closer to 24. So I think we've got to be careful with that. Obviously, we're pleased with the improvement from our first half to our second half both in the third quarter reported results as well as how we feel about how we're going to finish the year in the mid-18s. Our target margin for TS is still 20% and that is unchanged. Obviously, we're approaching 19% now. I want to be careful that we don't commit to something for next year because as I mentioned on an earlier question we got to see where revenue comes out as well. And the thing that we have to keep a very close eye on within this segment is commercial transportation, which is an important piece of the segment. We didn't talk about it too much today, but Terrence had mentioned on an earlier question that we do -- that is our highest margin component of the segment, and we do expect some pressure there next year particularly in China. And so as we think about it it's not just an auto story, it's also the combination of commercial transportation which is a $1 billion business as well as is our sensors business. So more to come on that. But our goal and I feel comfortable over the next couple of years for sure getting to sustainable margins closer to target.

Okay. Thank you, Shreyas. Can we have the next question please?

Our next question comes from the line of Guy Hardwick with Credit Suisse. Your line is open.

Hi, good morning. Just wondered, if you could differentiate in industrial equipment between sales into distribution sales to original equipment manufacturers. How sharply different are the trends or maybe they're not at all? And I had a follow-up question as well.

Hey Guy, it's Terrence. If you look at it to our direct customers, our book-to-bill is running a rent closer to one. Through distribution is probably running more like 0.8. The only color I would add to you, the industrial equipment business in Asia, which includes the Japanese equipment makers for factory automation who support a lot of things in China and certainly in China. That continues to be weak, both in direct, as well as indirect. But the backlogs of our OEM customers are strong. I would tell you in some cases, we see them working off some inventory, as they were making sure their supply chain they were protected, but there are different trends between our direct relationship and what we're seeing from -- in the distribution channel. And in that business, it's close to 50-50 between the channel and what we do direct.

Thank you. Could you give us an update on your Chinese auto business particularly in electric vehicles? I mean, potentially this market could be 40% NEVs by the end of the year. If there's enough then how TE's position particularly versus local competitors and whether you're fully participating in the growth, particularly one or two very strong domestic players who've done very well of late?

Yes. So, a couple of things. Thanks for the question. So, just -- I'm going to talk, in TE about -- we have about $3 billion of business in China overall, of which two-thirds of that is automotive. I mean, so when you really think about China and TE, the biggest play we have is around EV and Guy, you’re right on. If you want to really participate in EV adoption globally, you have to participate in China or they're the biggest driver of it. And 70% of global fully battery electric vehicles that are adopted on the planet are produced this past year are basically in China. And the thing that I would tell you is, our market share with the local Chinese OEMs versus the multinationals is similar. And you have to realize today, well over 50% of production in China is local OEMs. So, the old days of the multinational brands owning the market, that's no longer the case. And when you look about our content story, our content story is being driven, not only with the multinationals with the local Chinese OEMs and we have a very good share position, content per vehicle when you look at it overall in China, it's pretty similar between the two, whether it's a multinational or a local Chinese OEM and honestly the growth we talked about and our CPV growth is really driven by, we're positioned well with both of them. So I know sometimes people say, well, I'm only with the multinationals. Not in that's not true with TE. TE's on essentially every car in the planet I always say. And what's really nice is what our team has done to really make sure they're penetrating both types of OEMs in China and it's been very important to our growth. And our China automotive business as I said in my prepared comments, all regions in automotive grew this quarter. And also for the year, we'll have growth in all regions. So, certainly we see sluggishness in China outside of automotive. We've actually seen auto production starting to ramp back up again and our positioning there is very strong.

Okay. Thank you, Guy. And I'd like to thank everybody for joining us on the call this morning. If you have any additional questions, please reach out to Investor Relations at TE. Thank you, and have a nice morning.

Ladies and gentlemen, today's conference call will be available for replay beginning at 11:30 a.m. Eastern Time today, July 26 on the Investor Relations portion of TE Connectivity's website. That will conclude the conference for today.