Good day, and welcome to Aptiv's first quarter 2022 earnings conference call. My name is Marion, and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. Thank you. Christopher Tillett, Aptiv's Director of Investor Relations, you may begin your conference.
Thank you, Marion. Good morning, and thank you for joining Aptiv's first quarter 2022 earnings conference call. The press release and related tables, along with the slide presentation, can be found at the investor relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring, and other special items, and will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our Q1 financials, as well as our full year 2022 outlook, are included at the back of the slide presentation in the earnings press release.
During today's call, we will be providing certain forward-looking information which reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the COVID-19 pandemic, the ongoing supply chain disruptions, and the conflict between Ukraine and Russia. Joining us today will be Kevin Clark, Aptiv's Chairman and CEO, and Joe Massaro, CFO and Senior Vice President of Business Operations. Kevin will provide a strategic update on the business, and Joe will cover the financial results in more detail before we open the call to Q&A. With that, I'd like to turn the call over to Kevin Clark.
Thank you, Chris. Thanks everyone for joining us this morning. Beginning on slide three, Aptiv had a solid start to the year, showcasing our ability to continue to outperform in a volatile market. Revenues totaled $4.2 billion, up 4% from the prior year, driven by strong demand across our portfolio of safe, green, and connected technologies. Operating income and earnings per share totaled $324 million and $0.63 respectively, reflecting continued revenue growth despite a decline in vehicle production in the quarter, more than offset by material inflation and increased operating costs associated with the ongoing supply chain disruptions. Highlights for the quarter include 11 points of growth over underlying vehicle production, with all regions reporting strong growth over market, driven by continued growth in our key product lines, which I'll touch on in more detail on the next slide.
New business bookings reached $6.1 billion, the result of growing demand for our portfolio of industry-leading advanced technologies. As the world continues to grapple with the ongoing COVID-19 pandemic and the related supply chain challenges, Aptiv's business has not been immune to the effects of the various disruptions. We continue to monitor the situation in Ukraine and lockdowns in China, which will impact the balance of the year. At this point in time, we remain confident in our full-year outlook. Our team is doing an exceptional job executing in a very fluid environment, working to mitigate the challenges we're facing. Our sustainable double-digit growth over market and pace of new business bookings during the quarter are a testament to our ability to continue to deliver for our customers. Turning to slide four. Revenue growth across our key product lines continue to outpace the market.
In our AS&UX segment, Active Safety revenue growth remains strong, up 9% during the quarter, driven by the continued penetration of advanced ADAS systems. User Experience revenues increased 10%, the result of the launch of key infotainment programs in Europe and North America. In our Signal & Power Solutions segment, high voltage revenues increased 10% during the quarter, driven by the accelerated launch of electric vehicle programs, particularly in Asia and Europe. Our non-automotive revenues, which now represent roughly 16% of Aptiv's sales, increased 5%, the result of strong growth in the general industrial, semiconductor, and datacom markets. Our portfolio of advanced technologies aligned to the safe, green, and connected megatrends has uniquely positioned Aptiv to solve our customers' biggest challenges, which we've capitalized on to increase our market share with new customers and expand our share of wallet with existing customers.
Moving to Slide 5. Consumer demand remains very strong, requiring us to proactively manage through the ongoing supply chain disruptions while also offsetting the increased material inflation. As I mentioned already, our team's doing an excellent job confronting these issues head on. They've taken several actions to offset the headwinds related to macro factors, including further reducing overhead costs while selectively investing in initiatives related to high voltage electrification, Smart Vehicle Architecture, and software development. Our recently announced agreement to acquire Wind River, which we expect to close mid-year, has translated into several direct OEM engagements, including the commercial agreement with Hyundai that was announced earlier this week.
We're also working closely with our supplier partners and our customers on several product redesign initiatives to both mitigate part shortages and offset material price increases, over 50 of which have already been implemented, and roughly another 50 will be implemented during the balance of the year. Lastly, we're making progress on other cost recovery initiatives, including price reductions from our suppliers and commercial recoveries from our customers, which have a more meaningful impact during the back half of the year. We continue to confront the supply chain and inflation challenges, and are focused on strengthening the underlying resiliency of our business model and reaping the full benefits once these headwinds subside. As shown on slide six, first quarter bookings totaled $6.1 billion, the highest first quarter level over the last several years.
Advanced Safety & User Experience bookings totaled $800 million for the quarter, in line with our expectations, representing the timing of customer program awards during the year. Notable customer awards during the quarter include a central vehicle controller for a European OEM. The funnel for new business bookings for the AS&UX segment for the balance of the year remains very strong, with several ADAS user experience and smart vehicle architecture programs scheduled to be awarded. The second quarter's off to a strong start, with over $3 billion of ADAS awards and a central vehicle control award with lifetime revenues totaling $1.5 billion. Bookings for our Signal & Power Solutions segment reached $5.3 billion during the quarter, including $1.2 billion in high voltage electrification awards.
The strength of our competitive position and the size of our funnel for high voltage electrification programs gives us confidence in reaching over $4 billion of customer awards during 2022. Our strong track record of new business bookings is proof that our portfolio of advanced technologies is perfectly aligned to the areas of significant growth in vehicle content. Our unique position as the only provider of both the brain and nervous system of the vehicle is presenting Aptiv with opportunities to capitalize on the acceleration towards the electrified software-defined vehicle. Turning to the highlights from our Advanced Safety & User Experience segment on slide 7. Revenues for the first quarter increased 7%, 14 points over underlying vehicle production, driven by strong product line growth in both Active Safety and User Experience.
As I referenced on the last slide, during the first quarter, we received a new business award from a leading German OEM for a central vehicle controller on the next wave of its leading EV platform. This award is another strategic win for our portfolio of Smart Vehicle Architecture solutions and is a key building block for this OEM's new electric vehicle platform, which is fully aligned with Aptiv's design for Smart Vehicle Architecture. Moving to slide eight. First quarter revenues in our Signal & Power Solutions segment rose 2%, nine points better than the decline in global vehicle production, reflecting increased demand for high voltage architecture solutions and continued strong revenue growth in non-automotive markets.
Our industry-leading portfolio of power and data distribution, connectors, electrical centers and cable management solutions, combined with our global scale, uniquely positions Aptiv to both design and manufacture optimized vehicle architecture systems for customers located virtually anywhere in the world. As a proof point, a leading global electric vehicle OEM awarded Aptiv an additional vehicle architecture program to support their further expansion into Europe. In addition, we continue to support the growth of a German OEM's electric vehicle platform, and the award of this charging device underscores our strong market position in electric vehicle charging. The first quarter's new business bookings validates the value we bring with our system-level approach to optimizing vehicle architecture, which reduces vehicle weight and mass, thereby reducing costs for our OEM customers.
We remain confident that our competitive position, combined with the accelerating demand for electrified vehicles, positions Aptiv for profitable growth in the Signal & Power Solutions segment for the next several years. Turning to slide nine. Despite the current challenges, we remain focused on increasing the underlying resiliency of our business model to deliver sustainable value creation. Although the macro environment remains very challenging and difficult to navigate, we continue to focus on increasing the flexibility of our operating model by leveraging our advanced technologies for both the brain and nervous system of the vehicle, providing more content for the software-defined vehicles of the future. Deploying capital to further strengthen our portfolio of safe, green and connected technologies, including expanding our portfolio of software solutions to meet the increasing needs of our customers.
intelligently diversifying our revenue base into less cyclical non-automotive markets, which will better position Aptiv for value creation from the acceleration of the trend towards a fully electrified software-defined vehicle, increased market share gains, and continued operational efficiency and cost structure optimization. This translates into revenue growth, margin expansion and cash flow generation, which can be reinvested in the business to create an even more resilient business model. With that, I'll turn the call over to Joe to go through the financial highlights in more detail.
Thanks, Kevin, and good morning, everyone. Starting with a recap of the quarter on slide 10, the business generated strong top-line performance while successfully navigating through several industry-wide operating challenges. Revenues of $4.2 billion were up 4%, 11% ahead of vehicle production, which was down 7% in the quarter. Adjusted EBITDA and operating income were $478 million and $324 million, respectively, reflecting strong flow-through on higher volumes and the benefit of savings and cost reduction actions, price downs that were effectively flat year-over-year, and the negative impact of supply chain disruption costs, FX, commodities, and material inflation. Earnings per share in the quarter were $0.63.
Lastly, we had operating cash flows, outflows of $202 million, driven primarily by our decision to maintain a higher working capital investment to help, in part, mitigate the impact of supply chain disruptions. Capital expenditures were $247 million, driven by investments to support program launches across our key product lines. Looking at the first-quarter revenues in more detail on slide 11. We saw growth over market in all regions, despite production disruptions in Europe from the Russia-Ukraine war, as well as COVID-related shutdowns in China, which impacted the final weeks of the quarter. The FX commodity impact on the top line was minimal as the pass-through of the higher copper prices to our customers offset the impact of the lower Euro. As I previously noted, the negative impact of price downs was minimal, almost flat on a year-over-year basis.
From a regional perspective, North America revenue was up 7% on an adjusted basis or 8% above vehicle production, driven by our Active Safety, high voltage and non-automotive product lines. European growth above market was 13% despite a contraction in vehicle production of 18% in the quarter, led by strength in our Active Safety and high voltage product lines, as well as the launch of several User Experience programs. Lastly, in China, revenues were up 14% over a flat market as both segments posted strong double-digit growth despite the impact of COVID disruptions in late March. Moving to the segment recap on slide 12. Advanced Safety & User Experience revenues increased 7% in the quarter, reflecting 14% growth over underlying vehicle production, including growth in both Active Safety and User Experience.
As we have discussed, the increase in material input costs, primarily semiconductors, has negatively impacted segment profitability. Segment adjusted operating income was $16 million in the quarter, down $52 million compared to Q1 of last year. Volume growth contributed approximately $25 million of adjusted OI in the period, reflecting flow-through of 35%, and annual price downs were effectively flat to prior year. A reduction in supply chain disruption costs and the benefit of higher performance and cost actions partially offset the impact of the previously mentioned material inflation. We are actively pursuing multiple paths to mitigate and/or offset the material inflation costs impacting AS&UX. In addition to commercial and pricing negotiations with our customers, we are also pursuing product engineering and redesigns.
A number of these activities involve the redesign of products to open up multiple supplier sourcing opportunities, primarily as it relates to semiconductors, including the sourcing of semiconductors from newer market entrants in all regions where we operate. Signal & Power Solutions revenues were up 2%, reflecting 9 points of growth over market, with meaningful outgrowth in all regions. We continue to see strength in high voltage as well as our Engineered Components product lines, and the segment's reported growth comes despite a difficult year-over-year comparison given the H1 2021 distribution channel replenishment we discussed last year.
Adjusted operating income in the segment was down $98 million as the flow-through on incremental volumes and the benefits of improved performance and cost saving actions were offset by COVID-19 and supply chain disruption costs, as well as the impact of FX commodity and material inflation, primarily copper pass-through timing and resins. The full-year outlook included on slide 13 remains unchanged from our original guidance provided in February. As noted in February, the full-year outlook excludes Wind River, as that transaction is expected to close mid-year. We expect the Wind River transaction to be neutral to 2022 earnings per share. We believe the material inflation and continued supply chain constraints were substantially addressed in our original guidance.
Although we are seeing current year increases to material costs, the actions we are taking with our customers, supply base and cost structure are helping to offset the impact of these additional increases. As it relates to the more recent 2022 disruptions, we believe the second quarter will be significantly impacted by the COVID-related lockdowns in China. We are not providing a formal guide for the second quarter. However, we do believe it is possible that the second quarter is at or slightly below the first quarter revenue and earnings levels. As it relates to China, assuming the COVID-related lockdowns ease during the second quarter, we currently expect that market to recover lost vehicle production in the second half of the year.
With respect to Europe, as we have previously discussed, we have mitigated our direct production exposure to Ukraine, and barring a broadening of that conflict, we do not expect our other European production facilities to be impacted. Although we have seen softening in European vehicle production to date, we believe that lost production will either be rescheduled for later in the year in Europe and/or offset by stronger North American production. Accordingly, we continue to expect revenue in the range of $17.75 billion-$18.15 billion, up 15% at the midpoint compared to 2021. This assumes global vehicle production growth of approximately 6%, with some shifting between regions from our original forecast. EBITDA and operating income are expected to be approximately $2.6 billion and $1.9 billion at the midpoint.
We continue to estimate adjusted earnings per share to be $4.35 for 2022, an increase of 42% over the comparable 2021 total. We expect 2022 operating cash flows to be just over $2 billion with CapEx at approximately 5% of sales. Moving to slide 14, before I turn the call back to Kevin, we've received several questions recently regarding the long-term 2022 forecast we provided at our 2019 Investor Day. We thought it would be helpful to lay out the changes relative to where we are today. As you may recall, our long-term forecast provided in 2019 estimated 2022 revenues of $17.5 billion, a 14.2% adjusted operating margin, and assumed global vehicle production of approximately 98 million units.
When adjusting for current vehicle production of 83 million units, the forecast would now be $15.2 billion of revenue with an operating margin of 12.6%. Growth over market contribution was significantly higher than our 2019 forecast, driven by the strength of our key product lines, offsetting about 70% of the impact from the decrease in vehicle production. As a result, after adjusting for the change in global vehicle production, the combined impact of COVID and supply chain disruption costs and recent material inflation total the difference between our current outlook and the prior long-term forecast for 2022. While we are proud of our disciplined revenue growth and operating performance over the past several years, we understand the importance of long-term margin expansion.
We are confident that the COVID and supply chain disruption costs, currently estimated approximately $250 million, will abate as conditions normalize. As we have discussed, we are laser-focused on developing offsets and mitigating the impact of material inflation over the next couple of years. In addition, we believe Aptiv's underlying cost structure is well situated to drive incremental margins from the recovery in global vehicle production over the coming years. With that, I'd like to hand the call back to Kevin for his closing remarks.
Thanks, Joe. I'll wrap up on slide 15 before we open up for questions. Our commercial momentum is stronger than ever, as we're able to leverage our unique brain and nervous system portfolio of advanced technologies to accelerate our customers' path to the fully electrified software-defined vehicle of the future. We continue to closely monitor the current macros, including supply chain disruptions and material inflation, as well as the more recent war in Ukraine and lockdowns in China. Our team is doing an excellent job executing in this challenging environment, keeping our customers' production lines connected, while at the same time implementing initiatives to optimize our cost structure to help offset the macro headwinds. All while we continue to invest in the development of advanced technologies which we're confident will further enhance our competitive position and increase the resiliency of our business model.
Thanks again for your time, and let's open up the line for Q&A.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question. We will take the first question from Emmanuel Rosner from Deutsche Bank. Please go ahead.
Oh, good morning, everybody. Thanks for taking the question.
Hi, Emmanuel.
First one is on the material side. Could you provide a little bit of some numbers and a little bit of color around what was the material pressure in the quarter on the net basis? What are you now expecting for the full year and how that compares with previous expectations?
You're on the inflation aspect of it, Emmanuel?
Yes, please.
Yeah. Total, in the quarter, call it right around $80 million for the entire business, on a year-over-year basis. That's the increase. You know, just the way the price increases started to come in, you know, over the course of last year, you know, we really didn't see price increases in Q1. Those tended to start at the end of Q2 and then build through the balance of the year, right? The year-over-year is gonna be higher in Q1, just given that you know, in the Q1 of last year, it was more of a constraint issue than it was, constraint and inflation that we saw in the back half of the year.
You know, as you can see, we're obviously doing a lot on a net basis to offset those costs. We talked about the original guide there being about $200 million, a little over $200 million, $205 million of net inflation that had sort of fallen through to the bottom of the guide that we were working to offset. Round numbers, that is still really what we're dealing with. As I mentioned in my prepared comments, we have had some price increases flow through during the current period, but we've also been able to do a lot on the pricing side. At the moment, we're still really dealing with that net number, which was some of the longer term, you know, product redesign, chip swap out type initiatives that we needed to do.
Again, I guess Kevin mentioned in his comments, the team across the board, the sourcing, engineering team, the business team is doing a really good job of, you know, upholding the line at this point.
Okay, great. Then looking forward, I guess your final slide comparing with the previous framework given 2019 seems to be, you know, somewhat optimistic around the ability to recover or eliminate or offset some of these, you know, pressure on the midterm. Are there, I guess what would be the process for this? Are there any additional recoveries you can have? Is some of it contractual? Is it negotiation? Is it mostly on the cost side? I guess what would be required to sort of eventually claw back this margin pressure?
Yeah, no, listen, I don't think it's exactly what we've been saying really for the past two or three quarters now. There's nothing's changed. There's obviously commercial discussions with our customers around recoveries and price, which you've seen us execute on in Q1. Continual pushback on the supply base, just around the reasonableness of the overall cost increases and the availability of parts. You know, that is now, I would say, moving in, as I just mentioned, to a redesign effort, where if we can't get to reasonable economics with a supplier, we are looking at how to swap them out or at least introduce competition into that sourcing.
I think there's a number of even in semiconductors, there's a number of what I'll call newer market entrants across the world that are gonna provide some opportunity for that, and we're actively pursuing that on all fronts. Then, you know, part of it, and again, we've had this muscle in the company for the last, you know, as you know, for the past five or six years, where we're maniacal on the cost structure. We're again continuing to look at the cost structure and find ways to, you know, if we can't directly mitigate the cost increases, find other ways through manufacturing or SG&A performance to help offset them. I don't think those levers have changed really over the past three or four quarters. Kevin, did I leave anything out?
Yeah, no, you covered it. I guess, I mean, the only thing I'd add to Joe's point is there's a portion of when you look at that performance, inflation, there's a portion of the supply chain disruption, the COVID costs that, you know, as things loosen up a bit, would normally fall away. To Joe's point, you know, the more challenging areas in and around material inflation, and that's an area where we have a high level of confidence, based on our competitive position and our capabilities to be able to offset whether that's through be it through negotiations or through product redesign efforts.
We will now take the next question from John Murphy from Bank of America.
Good morning, guys. Maybe just,
Hey, John.
Hey, guys. Just to maybe follow up on this. I mean, you know, the idea that, you know, the headwinds have grown so dramatically since you last gave guidance and you're able to hold it. You know, I understand there's lots of actions and negotiations that are going on with your partners, below you and above you. Could this kind of lead to much higher incrementals or margins as the world normalizes and stabilizes over time? Or is there some of this that is somewhat more temporary, dealing with you know, the volatility at the moment?
John, listen, I think, you know, it's gonna evolve. You know, as I said in my prepared comments, it's over the next couple of years as it relates to material inflation, right? It's not going to go away tomorrow. I do think at least on the material inflation side, the COVID and supply chain disruption costs, as we've talked about, those should abate as things normalize. That'll be helpful to margin. I quantify that at about $250 million. We've bumped that up a little bit from the original just given some of the disruption in Q2 in China, but still within a manageable number. It's non-structural. It's these types of sort of transaction costs that occur when you have to close plants quickly and such.
You know, as those costs abate and I think, you know, when you take a step and this is why we get a lot of questions on that slide 14 in the deck and why we wanted to put the numbers out there. You know, I think when you take and have an appreciation for the fact that, you know, our original 2022 estimate was at 98 million units of production, and we're now operating at 83, round numbers. You know, as we start to work our way back there, structurally the business I think is set up very well from a footprint perspective, from a workforce cost perspective, you know, to drive incrementals as volumes go up.
You never wanna be a business that's completely reliant obviously on volumes to expand margins, but it's gonna be a positive tailwind over the next couple of years as we start to get back into the nineties on vehicle production.
Yeah, John, I think if you look at the mix of business and the flow on the mix of business, it's more profitable today when you exclude the material inflation and supply disruption than what it was back, you know, in 2019. To the extent you get normalization from an inflation standpoint and stabilization of the supply chain, you should see, you know, improved incrementals and, you know, lower decrementals, quite frankly, to the extent you have weakness.
Yeah. It just seems like you might be more of a coiled spring. I wouldn't put those words in your mouth, but I might say we might be appreciated on the margin recovery as the world normalizes. That's, you know, some time off, right? We all know that. Just a second question. I mean, on the business, bookings, I mean, you kind of highlight their record levels. You know, there's a lot going on in the world, and this is kind of a similar question where everybody's a little bit distracted, but you're winning business like crazy, and that's even before Wind River comes on.
I'm just curious, you know, is this a timing issue, or is there just a surge of new programs coming, which it seems like is the case? They're driving those wins. Then also, as we think about Wind River coming on, you know, how do you think about the competitive set or who you'd be going up against when you put Wind River products and software in front of your customers? Is it other-
Buyers or is it internal, and really what the competitive set as you go to market there?
It sounds like there's two parts to your question. As you look at where we are from a funnel standpoint, new business opportunity standpoint, we just attribute it to a couple factors. One, when you think about our product portfolio and what we refer to as the brain and nervous system of the vehicle, you know, the industry is aligned and, you know, virtually all OEMs out there are rethinking vehicle architecture and are on a path towards a software-defined vehicle. We're seeing an acceleration of that trend that given the nature of our product portfolio we're benefiting from.
In addition to that, you're seeing the acceleration of battery electric vehicles, which again, given our vehicle architecture capabilities and some of the other product areas that we're working on, that we're seeing significant benefit from. The commercial momentum in the traditional portions of our business is stronger than it's ever been. Then you overlay on top of it, you know, a kind of second and third generation of advanced ADAS solutions, in-cabin sensing solutions, User Experience solutions that are more dependent on software capabilities, which, you know, inherently we have based on our legacy business. Then you overlay the incremental capabilities that Wind River has, and that they'll ultimately bring when they're a part of Aptiv.
You know, there really isn't anyone out there with the same sort of competitive position. As we've talked about from a software standpoint, all of our customers are challenged by the level of software that's going into the vehicle. All of them are looking for help. Again, we feel like given our capabilities and the nature of our product portfolio, we're perfectly positioned to benefit from that trend.
We will now take the next question from Chris McNally from Evercore.
Thanks so much, team. I wanted to focus in on, you know, maybe the implied second half margin first half. Obviously, I know you have a range, but, you know, given you sort of reiterated the full year, just, you know, the quick calc, if I look at the, you know, the midpoint of your guidance, it implies sort of second half margins over first half are over, you know, 300 basis points better. The top end, you know, which I think, you know, a lot of people will be curious, you know, since you kept, would be almost 150-200 basis points better. 500 basis points more, which would imply margins in the 13%.
Can you just walk us through that, you know, since you said Q2 looks like Q1, what is so different about second half? We obviously get better volumes, but, you know, how much of it is known price recoveries, and the lag, you know, which is hurting first half? Just any more qualitative on that because it's so stark, second half versus first half.
Yeah, Chris, it's Joe. I'll start, then Kevin can obviously add. Listen, I think you're right. Order of magnitude, we'd agree with you. It's not a change from where we saw the year, to be honest with you, in February. Obviously didn't know about the war in the Ukraine and China COVID, but it was tilted to that. Some of it is comps. If you recall, just, you know, the back half of last year, August, September, October, COVID in Malaysia, those were the low points from a volume perspective. They were the high points from a cost disruption perspective. We had our EDS plants closed. The wire harness plants were closed for days at a time, week after week after week. So, you know, we're picking up that benefit. We're not assuming that's recurring.
In addition to that, you've got building volume growth as we go through building volumes as we start to go through some of the launches, particularly around things like User Experience, and there's some high voltage launches in the back half of the year. Our price recovery, just the way the negotiations have worked with customers over the past three or four months, tend to be somewhat back-end loaded in that they start to pick up with the volume on the back half of the year. Not a surprise to us, wasn't, and I appreciate just given we didn't give quarterly guidance, it was harder for folks to see. But that tilt was there in the existing guide. Now we've got a little bit more pressure on it.
You know, if you assume a rough Q2 in China, which we are, but that market has demonstrated, you know, several times now its ability to rebound quickly. From everything we're seeing at the moment on the ground over there, that's what we're assuming.
Yeah. Chris, maybe I'll add, just taking a second step back on Joe's comments, if I could just make one comment. So we managed through COVID in 2020 and supply chain challenges in 2021 and Q1 of 2022, and at the same time, continued to strengthen our product portfolio. All of that activity, you know, benefited our customers because we kept them connected, and quite frankly, our growth over market benefited our supply base, right? All of that as it relates to Aptiv has created a tremendous amount of commercial momentum, you know, which is in our bookings. Our growth over market. To Joe's point is you think about it, we have some structural initiatives underway where we're quite frankly re-engineering out alternatives and bringing in lower cost alternatives.
We're also leveraging the significant volume we have with the existing supply base. We're selectively pursuing business just given the strength of the funnel that's in front of us, we can be very selective about the business we pursue, and we're really focused on those customers where we have a much more strategic relationship with. It's not a tactical relationship where we're fighting day-to-day about, you know, a price. All that is translated into, you know, significant improvement as we roll out through the balance of the year. Now we run into particular periods where, you know, like Q1 to keep customers connected, maybe broker buys were higher than what we would like.
As we look at the balance of the year and how we sit from a supply chain standpoint, we think even those sorts of disruptions are, you know, are reasonably manageable.
Perfect. Kevin, Joe, I appreciate the vote of confidence. Can we talk about a little bit by division? You know, you referenced a lot of SPS, but obviously we've been waiting for sort of the margin uptick in AS&UX. If I think about it on a two-year basis, you know, your margins in, you know, the second half of 2020 were in the, you know, call it 8%+ range for AS&UX. That would seem to be implied again if I just do the midpoint of your second half because it's such a, you know, we've now been in the single digits, low single digits for AS&UX for 6 quarters. I just wanted to confirm that, you know, both divisions would see that uptick.
Yeah. Both do, Chris. AS&UX is a little bit more challenged, obviously, just given it, that is where a lot of the semiconductor spend is, right? So round numbers, you know, when I give an inflation number, I mentioned that, $80 million to Emmanuel, you know, all two-thirds of that plus is hitting AS&UX. And what does hit in SPS, some of that is copper timing, right? Because we're indexed on the metals buy there. So would expect AS&UX to finish the year, call it back to mid-single digits. So just like it's bearing the cost of a lot of that semiconductor pain at the moment, it's gonna receive the benefits of the commercial recoveries in price.
We are targeting mid-single-digit% for the full year in AS&UX. Obviously that would put us, you know, closer to high single digits% in the back half.
Perfect.
AS&UX, SPS has a bit more of a straighter trajectory. It's, you know, it's low double digits now, or just about low double digits now, and it moves to sort of mid-double digits for the full year.
Perfect. Just as a really super straightforward one. High voltage, the +30%, you know, the industry looks like it's growing, you know, 50% or 60%. Again, you have tough comps because of the great year last year. Just any color you can talk about, you know, sort of the potential to have upside in high voltage. Thanks so much, team.
Yeah, it's growing really strong. It is a tough comp. I think we've got you know, what, I don't know, it was 128% or something last year growth. You got a tough year-over-year. There's a couple things there. You know, obviously there was some European production disruption which hits high voltage. There was some China disruption in the back half, which obviously now has hit, so hit high voltage. Those are sort of the transactional things in the quarter. There's two other things I'd you know, probably highlight there. One, as Kevin's talked about and just referenced, we tend to be very selective, right, on who we're doing high voltage with.
We wanna make sure they're gonna build the cars, wanna see them, you know, OEMs that are gonna transform their portfolio where we're committing, you know, long term to those platforms. As you see, you know, particularly in other parts of the world, in China, as you see some of the smaller OEMs, you see some of the other platforms kick in, you know, we're selecting not to be on every car there, obviously, but we've got great content. We're on about 50% of the launches over the next two years. There's, you know, that is what I'd sort of frame as the bigger picture item. You did have some transactional things in the quarter that just given the importance of high voltage in Europe and China, that's gonna impact that number there.
We will now take the next question from Mark Delaney from Goldman Sachs. Please go ahead.
Yes, good morning, and thank you very much for taking the questions. To start, I was hoping to better understand how the recoveries that you're seeing this year are being structured, and is it more about surcharges that are maybe temporary or perhaps a more sustainable change in price? You know, I'm asking as I'm trying to better understand the ability that Aptiv has to hold onto the recoveries you're expecting to see in H2 as you head into 2023, and then hopefully make progress toward the 12%+ longer-term EBIT margin target you have.
Yeah. Mark, I'm sorry. You were a little bit faint from a question standpoint. I think you were asking about, you know, structurally how we see a path back to more normalized margins.
I apologize. I'm fighting a bit of a cold. The recoveries you're seeing in the second half of the year, are those more surcharges that are maybe temporary? Or are you structuring these more as sustainable changes in how the products are being priced? You know, I'm trying to get at-
Yeah.
To what extent can you hold onto this better pricing?
Yeah.
Going into 2024?
No, all to the point that Joe made earlier when he walked through the several. They're all permanent structural initiatives that translate into either reduced cost from a permanent standpoint, and that could be done through price negotiations with suppliers or engineering and lower cost solutions, which requires work between our engineering and sourcing organization. It's price discussions, commercial recovery discussions with our customers, all of which would be permanent and structural in nature.
Okay. That's helpful. The second thing I was hoping to follow up on was this redesigning of chip suppliers. You mentioned it several times on the call today. Maybe you can remind us what needs to happen to go ahead with that in terms of testing of the system with a new chip, what kind of software rewrites might be necessary, how long does that take? You know, just give me a sense of how far along you are in this effort in 2022, because again, you spoke to it multiple times now on the call, so it seems like-
Yeah.
Something you're having some good success with. Thanks.
Yeah. It's a great question. It really varies by the nature of the product. There are some situations, although rare, where it's a fairly easy switch with a minimal amount of validation. Given the nature of where we play, when you think about User Experience, when you think about high voltage electrification, advanced ADAS solutions, the bulk of what we do requires some element of re-engineering and validation activities that take place at Aptiv, as well as with a customer. Those can range anywhere between six months to a year plus. These have been initiatives that have been underway for, you know, really since kinda, you know, early to mid 2021, so are well underway. We have...
It's close to 100 engineers today who are solely focused on that hardware redesign as well as the extent software needs to be changed, as you said. Software redesign initiatives, I think we had a little over 100 programs underway. 50, as I mentioned in my prepared comments, that have already been implemented, and then another 50 which will be completed and implemented through the balance of the year. You know, most of it requires investment from an engineering standpoint, and some element of time, but it's something that's been underway for you know, a fairly lengthy period of time.
We will now take the next question from Joseph Spak from RBC Capital Markets.
Thanks. Good morning, everyone.
Hey, Joe.
Hi. Hey, how's it going? I just wanna go back to, you know, holistically I'd like to talk about some of the parts here, because it sounds like, you know, there's more pricing recoveries assumed in your outlook than prior. You know, your light vehicle production or your vehicle production outlook at 6% weighted to Aptiv is sort of unchanged. It would seem like to sort of hold the guidance, some of, like, the core or base outgrowth has to be a different assumption. Maybe you can just help us out with that sort of puzzle and, like, how much of the recoveries is really helping the top line in your guidance now versus prior?
Not really changed, Joe. I mean, we did talk about at the time of the guide. You know, the economics were always in the guide. They weren't on the price line, and I think we've talked about, you know, the reasons why we did that, because we're not necessarily sure how all of the recoveries are gonna come from. No, the economics remain fairly consistent with what was in the original guide, which is, you know, in part how we're holding it. Like I said, there are some increases we're seeing coming through during the current year, but we've obviously got activities and we're able to absorb a little bit more of that. From a net economic basis, really no change.
Listen, on the top line assumption, you know, we haven't moved. We're at approximately 6%. Understand there's a lot of movement. You know, I think the world has effectively come down closer to 6%, right? We were, I think, probably a little bit more realistic at the start of the year. Listen, it, as I mentioned, there are most likely gonna be some puts and takes in across regions. You know, our view was that, you know, the industry probably could have done more in North America to begin with if it wasn't for some of the supply chain constraints. To the extent you get some softening in Europe, parts availability, chip availability goes up because of softness in Europe.
We think North America could potentially do more, at least based on what we're hearing from our customers. I said, our assumption around China, which is, you know, our assumption based on the feedback we're getting from our teams on the ground and our customers there, is they're expecting to recover pretty quickly from what is now a prolonged lockdown going into sort of mid-second quarter. It started mid-March, right? It's been going on for a while. That's a region and a part of the industry that has demonstrated several times now their ability to come back pretty quickly and pretty robustly. That's what we're currently assuming. Really no changes in sort of net economics.
We, like I said, in the original guide and my sort of my prepared comments, we try to think through, you know, what was realistically coming down on us in 2022 from an inflation perspective and what we're gonna have to go do from a recovery perspective.
Okay. Yeah, thanks for that. Kevin, you know, you talked about Wind River a little bit, and obviously all these automakers are undergoing big decisions about architecture and software. They wanna make sure all the boxes can talk to each other. That's a refrain we hear quite often. I mean, are you really, even though it's sort of not closed, are you really able to have those discussions with the automakers? It sounds like you are. Again, like what, maybe just a little bit more color on the receptivity to using a solution like Wind River, because you know, it's obviously a very important and complex decision for the automakers.
No, it's a great question, Joe. Let's start with how we work with Wind River. As we mentioned when we announced the transaction, our first step with Wind River was really reaching a commercial arrangement, where we were partnering on the development of middleware and, you know, a software tool chain. Today, we operate under the terms of that commercial agreement. We jointly go to customers, discussing what we're developing and the capabilities that Aptiv brings, as well as the capabilities that Wind River brings. Those commercial engagements have been extensive, with a very high level of interest.
I would say separate from that, given our capabilities in ADAS and User Experience, you know, in the traditional areas of software, kind of feature development, software building blocks where, you know, where we have a legacy or history, there are separate discussions going on there as well, whether it's an OEM that we're also talking to about middleware and what we're doing with Wind River or we're not. There's increasing demand, you know, increasing need for support as it relates to, you know, their software activities. It's, you know, as we talked about, Joe, a meaningful opportunity.
A bulk of the industry is really struggling with it, and we feel like we're very well positioned to, you know, assist in the transition to the software-defined vehicle.
Thank you.
We will now take the next question from Brian Johnson from Barclays.
Yes. Good morning. Just wanna follow up on-
Hey, Brian.
Two of the related themes that came up this morning. First is around price recovery, and second, just further drilling down into the tier two issue with the semis and thermal. First on just general price discovery. If I'm running an OEM, it seems like I've been assaulted by, or excuse me, requested by every tier one on earth for recovery. Tier two pressures coming through to the extent it's a directed buy. Just at what level of the OEM are you having these discussions? Kind of related to that, as we've discussed over the years, what effect does your C-suite access, you know, talking about autonomy, electrification, software-defined vehicle, facilitate those cost recovery discussions?
Yeah. Well, first, Brian, just to be clear, I mean, our focus is on both reducing the cost of the input. There's a lot of activity with the supply base. There's a lot of focus on how we continue to reduce our own cost structure as well. There are discussions with the OEM about, you know, price increases, especially in those areas where we're seeing a tremendous amount of price inflation. Semiconductor is a great area. Those discussions tend to take place at, to your point, the most senior levels within the OEM. I'd say we've had actually a fair amount of success in those discussions, especially with those OEMs, where we have a more strategic long-term focused relationship.
You know, the nature of what we do, whether it's battery electric vehicles, whether it's advanced ADAS systems or solutions, you know, those tend to be programs or initiatives that are much more long-term in nature and require alignment between supplier and customer. I'd say we're having more success in with those particular customers where those relationships.
Second, a follow-on to the questions around semiconductor substitution and software. Is there actually a margin opportunity over the midterm to the extent you swap out a semiconductor supplier with embedded firmware and replace that with Aptiv software that could be in a domain or a zone or even a central compute unit?
Yeah. Yeah, absolutely. Those are some of the initiatives that we're working on now. We don't have any in play or in place at this point in time, but that is a part of our whole SVA strategy and our whole software strategy.
Brian, it's Joe. You might recall as well, and this is a couple years out, but we did talk about, you know, over $100 million of synergies from Wind River, which is in part taking out some of the, you know, the middleware, the RTOS that we currently pay for from other suppliers and start to leverage the Wind River products once we own them. Now, that's a couple years out, but that is, you know, thematically consistent with what you're talking about as well.
Okay, thanks.
The next question comes from Ryan Brinkman from JP Morgan. Please go ahead.
Hi. Thanks for taking my question, which is on power electronics. Of course, the disposition of Delphi Technologies materially increased your overall growth and margin profile. Although I've been noting over the past year that the power electronics piece of that spun powertrain business, which was, I think, transferred from the remainco just prior to the spin, it's been winning a ton of awards and first for inverters, and now yesterday for battery management systems. You know, obviously electrical architecture is very attractively levered to high voltage. Now you're getting into even higher margin, other areas, like software with Wind River, et cetera.
Just wanted to sort of gauge your appetite or ability to participate in some of these power electronics areas which are high growth, and were previously spun, or if I don't know, maybe they're non-competes or are there obstacles, which could cause you to want to focus on other areas?
No, Ryan, it's a great question, you know, I mentioned in my comments areas where we're investing. A number of customers, given our history and given our capabilities in software and even in high voltage electrification, have come to us with interest in the power electronics and battery management system space. That's an area where we've built out teams that are actually in the process of working with OEM customers in developing those product solutions. It's an incremental opportunity for us today, and we'd hope by the end of this year have more commercial activity to be discussing on calls like this. That's something that's been underway for, quite frankly, the last couple years.
Yeah, Ryan, it's Joe. We're not precluded in any way from that space. If you recall back in 2017, I'm sorry, 2019, when we spun the powertrain business, it was, you know, 2017. It was the right thing to do. I mean, we were focused on making sure that business had the ability to grow beyond its internal combustion footprint, and power electronics made sense there just given at the time how it was sold into the customers. We're not precluded in any way from participating in that part of the market.
Okay, great. Thanks. Sounds exciting. We'll be looking forward to updates.
The next question comes from David Kelley from Jefferies.
Hey, good morning, guys. Thanks for taking my questions. I think you mentioned non-autos is now 16% of revenues. You clearly have Wind River closing soon. You know, the macro has changed quite a bit since 2019, but you've been targeting kind of non-autos revenue mix at 25%, I believe, by 2025. I guess, could you update us on that goal and how you're thinking about the organic and acquisition opportunities to bridge the sixteen to the twenty-five?
Yeah, David, it's Joe. I think, you know, over the next couple years that, you know, we've got really good growth in that non-automotive business. We think that closes the gap to call it almost 20%. Now, you know, we've got the other product lines growing faster, so it doesn't quite get to 20% organically. It's probably good news in that the other product lines have, you know, things like high voltage have continued to grow really fast. You know, still have some work to do on the inorganic side. We've, you know, we've talked consistently M&A strategy.
You know, we'll continue to include, you know, businesses like Winchester Interconnect, which was non-automotive and a product line category that we understand really well, or businesses like HellermannTyton that have a really good balance of industrial and aerospace and automotive. Continue to focus both on the organic and inorganic. You know, as we've always said, that was a high-level target. That was an ambition. We're not, you know, we're not gonna take a big strategic buy, right, just to hit that number, but we think we're on a really good trajectory to get there.
Okay. Got it. Thank you. Maybe kind of one quick clarification on the non-auto business as well. I think you noted revenue growth up 5%, and SPS from non-autos. I think you also mentioned CV and industrial product growth of 1%, you know, elsewhere in the deck. I guess bridging that gap, is that all Datacom or is there some other factor we should be considering there?
No, no. It's the 5%'s total Aptiv, right? AS&UX has some commercial vehicle business and some recent launches that are growing quite nicely. It's total Aptiv. SPS was down 1% this quarter, which is low, impacted by primarily the China shutdowns impacted that commercial vehicle space in the quarter.
Okay, perfect. Thank you.
Oh, yeah. Thanks. Wait, just reminded me. The one other comment, Justin, I mentioned this, you know, we did have that channel replenishment in Q1 last year in the engineered components business, connectors in HellermannTyton. A part of that falls into that non-automotive business. Obviously, we're replenishing the distribution channel. You got a little bit of a year-over-year comp that impacts non-auto as well.
We will now take the next question from Itay Michaeli from Citi. Please go ahead.
Great. Thanks. Good morning, everyone. Just two questions from me. Going back to the second half margin, or implied margin, is that a good way to think about the go-forward margin beyond 2022? Are there any potential kind of one-time recoveries or benefits that we should be thinking about in the bridge beyond 2022? Then maybe for Kevin, on the 50 projects for product redesigns, maybe talk a little bit about like what is the cost savings from that? Like how big are those projects and maybe the timing for some of the savings from those?
Yeah. Itay, it's Joe. Let me start with the question. Not gonna quite at this point in the year get into sort of exit margins or sort of run rates coming out of the end of the year. The way I would think about it more for 2023 would be, and what we're looking at is obviously how do the COVID and supply chain costs come down over the course of next year, and then obviously over the next couple of years addressing the material inflation. I think things are still a little choppy to sort of take one quarter or one period of time and try to extrapolate for a year. The margin improvement that we talked about first half to second half, you know, we would expect to sustain that go forward.
I think it's a little choppy at the moment to sort of try to go out and take a stab at 2023 margins.
Itay, to your question about those initiatives, it varies, right? Some are longer term, as I mentioned, and more complex. Some are shorter term and less complex. When you think about savings, you think about the offset to the material inflation that we're seeing, that we saw late last year and this year, plus the benefit of incremental volume in the out years. It's meaningful savings as the volume rolls out and the product's replaced.
That's all very helpful. Thank you.
We'll now take the next question from Dan Levy from Credit Suisse.
Dan.
Hi. Good morning. Good morning. Thanks for taking the questions. I wanna ask a couple of questions on the disruptions you're seeing in Europe and China. Maybe we could just start with Europe. Maybe you could just be a bit more granular on the impact to SPS in Europe. Do you have any remaining operations in Europe? I know you mentioned customers are paying for the moving production, but maybe you can give us a sense of how much volume you've lost or whether there's other leakages. Is there any potential to take additional business from perhaps other competitors that are over-indexed to Ukraine?
Well, maybe let's break it down. We have a facility in Russia. Russia is not operating at this point in time. At least if you believe customer schedules there, production should start picking up sometime late this quarter. That's something that we'll watch closely. When you think of Ukraine, we've talked about this, or you look at Ukraine, I think we talked about this in the past, we have four manufacturing facilities. Two of those facilities, production has been fully moved, again, paid for by the customer, up and running, whether it be in North Africa, Poland, or Serbia, in existing footprint, so supporting Western European OEMs.
We have two facilities in the very western part of the Ukraine that are operating at this point in time at very low production levels. There's some production going on supporting one Western European OEM. A few OEMs have come to us asking us to pick up volume or pick up programs from other suppliers who weren't able to move as quickly as we were able to move. Those weren't, you know, just given where we were, just given economics, situations we pursued. My guess as things continue to evolve, we'll have ongoing discussions with those OEMs whether or not it makes sense for us to take over that business.
It has presented some potential incremental revenue opportunities.
Okay. Net, it sounds like the actual impact from what's going on in Ukraine has actually been more limited. Is that a fair assessment?
Yeah. I mean, there's been a revenue and OI impact in the grand scheme of things. I wouldn't call it out separately. If we're in a situation where you have long-term China lockdowns and challenges in Ukraine and Russia, could be a bigger number. At this point in time, I wouldn't get into specifics. We've managed through it. We started moving production before the conflict or war actually started, so we got ahead of it. As I said, we had a couple OEMs who were very focused on it, and we partnered with them. We had existing space. We were able to move production pretty easily and they supported us from a cost and logistics standpoint in actually doing that.
Even the locations where we're in the western part, sort of around the Polish-Romanian border, that production will be moved. There is the ability to manufacture those products in other locations. Those customers were just a little bit slower to respond. You know, to Kevin's point, one of the reasons we're not talking about this some other cost bucket, we just went with, "If you want to move, this is what it's gonna cost." Customers have effectively agreed to that and are paying it.
Great. Maybe you could also give us a sense on more specifically what is happening in China right now? To what extent has your production been outright halted? Where does it stand today? I think we've seen in the past, when your production is outright halted, the decrementals start to get pretty ugly. Why isn't this more of a pressure to the business if you're having sort of outright production shutdowns?
I think Joe said it's a pressure near term, depending on the length of the lockdowns. I'd say at this point in time, all of our facilities are up and operating. Our Engineered Components facilities at a higher capacity utilization levels. We have several facilities that never shut down. We have a few in the Shanghai area from a wire harness standpoint that actually did. Those wire harness facilities are now on average operating at a 50%-60% capacity utilization level. So there is an element of production that's actually taking place. You know, the question is, does the situation stay as it is and we don't see ramp up in production, or does the situation deteriorate? We're just watching that very closely.
Yeah, Dan, it's akin to what we talked about last year, just different timing, right? I, as I said in my prepared comments, we do expect Q2 to be heavily impacted. That is a market, our business team, an industry, our customers that have recovered quickly in the past. There's time left in the year, you know. We're talking about March, April, May, not a November, December type disruption. It was a little bit of the same dialogue we had last year, you know, if depending on when the disruption occurs, demand is still strong, customers wanna buy the cars, build the cars, inventory levels of the dealers are still low. You know, there is a desire by our customers to recover quickly.
Just given where we are from a point in time in the year, and from what we're seeing from customer desires and our capabilities, we think, you know, those. We have the ability to. If it is Q2, and sort of stays contained within Q2, we do have the ability to recover the balance of the year.
Great. Thank you.
That will conclude today's question and answer session. I would now like to hand back to Kevin Clark for any closing remarks.
Great. Thank you everyone for your time. We appreciate it. Have a nice rest of the day.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.