Ladies and gentlemen, thank you for standing by, welcome to TE Connectivity Third Quarter Earnings Call for Fiscal Year 2021. At this time, all lines are in listen only mode. Later, we will conduct a question- and- answer session. To ask a question during the session, you will need to press star one on your telephone. As a reminder, today's call is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Sujal Shah. Sir, please go ahead.
Good morning, and thank you for joining our conference call to discuss TE Connectivity's third quarter results. 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. Due to the large number of participants on the Q&A portion of today's call, we are asking everyone to limit themselves to one question to make sure we can give everyone an opportunity to ask questions during the allotted time. We are willing to take follow-up questions, but ask that you rejoin the queue if you have a second question. Let me now turn the call over to Terrence for opening comments.
Thank you, Sujal, and I also appreciate everyone joining us today to cover our results for the third quarter, as well as our expectations for our fourth fiscal quarter. Before Heath and I get into the slides and the details of the quarter, I want to frame our view of the environment that we're operating in, as well as our performance. We are in an economy that is showing strong GDP growth globally, driven by the recovery from last year's COVID shutdowns, with consumer spending that is robust, as well as corporations around the world increasing investment to capitalize on this recovery. In addition to the recovery, it's also important to note that we've strategically focused TE around select secular trends, and these trends are accelerating in the key markets that we serve.
You'll see this in our transportation segment with electric vehicle adoption accelerating, in our communication segment around cloud investment, and in our industrial segment with capital spending accelerating globally around factory automation as well as digitization. While we have a recovery that is happening faster and is more robust than we all thought, the reality is that the world is dealing with supply chains trying to catch up to this faster recovery. This is causing volatility for our customers, as well as everyone that's in our customers' supply chains. In this backdrop, we are performing well in this environment, and our strong results for the quarter and our performance so far this year demonstrates the strength and diversity of our portfolio. You'll see this with contributions from each of our three segments.
We are generating sales, adjusted operating margins, and adjusted earnings per share that are pre-COVID levels, and we remain excited about the additional growth and margin opportunities that will be beyond this year. With this backdrop, let me provide some key messages from today's call about our performance. First, I am pleased with our execution in the third quarter and the quarterly records that we achieved. These records include sales of over $3.8 billion, adjusted earnings per share of $1.79, and adjusted operating margins of over 19%. Our results were ahead of our expectations, driven by the continued recovery in most end markets that we serve, our broad leadership positions, and strong operational performance by our teams.
It's also important to note that while we are in a recovery, our growth also continues to be driven by the secular trends across our markets that are driving our market outperformance this year, and will continue to drive outperformance going forward. Another key factor that you see is that we are continuing to demonstrate our strong free cash generation model, and continue to expect free cash flow conversion to approximately 100% for this full fiscal year. As we look forward, you'll see, and we'll talk about our orders in quarter three remain consistent with our second quarter. We expect our quarter four sales to be roughly flat to our quarter three sales. We expect that these revenue levers will translate into strong performance with $1.65 in adjusted earnings per share in the fourth quarter.
As I mentioned, our results are demonstrating the strength and diversity of our portfolio, with growth and margin contributions from each segment. In communications, you see the growth opportunities in the cloud and the ongoing increase in capital expenditure trends by the cloud providers. In our industrial segment, you see increased investments in capacity and higher levels of factory automation. In transportation, you see content growth trends for electrification as well as further electronification of both autos and trucks. In each of our segments, we are delivering strong operational performance, which are evident in the margins. When we look back to our discussion we had in October, we did indicate that our first quarter would be the peak of global quarterly auto production for our fiscal year, but not the peak of our earnings.
This is playing out as we anticipated because of our diverse portfolio. For this fiscal year, we are expecting over 20% growth in sales, approximately 400 basis points of adjusted operating margin expansion, and over 50% growth in adjusted earnings per share. I am very pleased with this level of progress towards our business model and our team's ability to execute, especially with some of the markets continuing to recover and the broader challenges we faced in the supply chain. Now let me turn, and I want to take a moment to frame the current market environment and our business relative to where we were just 90 days ago when we last spoke. Starting with transportation, consumer demand for autos remains robust, but ongoing challenges with semiconductor supply continue to impact our customers' ability to produce.
Global auto production came in slightly lower than expected in the third quarter, and we're expecting auto production to be approximately 19 million units in our fourth quarter. The trends around our content growth remain strong in the transportation segment. Our content per vehicle has accelerated from the low 60 range a few years ago into the $70 range this year. We continue to benefit from increased electronification and higher production of electric vehicles, which will enable us to continue to outperform auto production going forward as content continues to grow. In our industrial segment, we continue to see an industrial backdrop that is improving, which is benefiting our industrial equipment as well as our energy businesses. Also in our quarter, our orders in medical have begun to recover, and we've returned to growth as interventional procedures have started to increase again.
The one area where we are not seeing acceleration is in our AD&M business. I will highlight, the business does feel stable at current revenue levels. From 90 days ago, let me talk about communications. The end market trends that we mentioned last quarter are continuing. Consumer demand continues to be robust in appliances, and capital expenditure trends remain strong in cloud applications. While that's a look at where we were versus 90 days ago by our segments, I do want us all to remember that we are in a world that's still dealing with COVID and the uncertainties around variants. While all our global factories are operational, we continue to watch developments in each of the regions we operate, our focus has been and will continue to be on keeping our employees safe while also helping our customers capitalize on the improving economic conditions.
Now let me get into the slides, please turn to slide three so I can get into some additional details for the third quarter, as well as our expectations for the fourth quarter. In the third quarter, sales of $3.8 billion were better than our expectations and were up over 50% year-over-year, demonstrating strong performance through the economic recovery with growth in all segments. Also, on a sequential basis, sales were up 3%, and our earnings per share was up 14%, with sequential margin expansion in each segment. Compared to last quarter, industrial segment sales were up 5%, driven by ongoing strength in industrial equipment and increases in energy and medical. In the communication segment, sales were up 16%, with double-digit growth in both data and devices and appliances on a sequential basis.
In our transportation segment, our sales were in line with our expectations. When you look at orders in the quarter, they remain strong at $4.5 billion, consistent with the levels we had in the second quarter. This reflects market improvement along with ongoing inventory replenishment by our customers. If you think about the balance sheet, we continue to maintain the capital strategy between making sure we're returning capital to shareholders as well as M&A. Earlier this month, we entered into an agreement to acquire ERNI, a European connector manufacturer that has a complementary product line in serving the industrial market. This acquisition has a purchase price of approximately $300 million and is consistent with the bolt-on strategy around acquisitions that we talked to you about. As we look forward, we expect our strong performance to continue into our fourth quarter.
We expect sales to be up in the high teens over the year to approximately $3.8 billion. Adjusted earnings per share is expected to be approximately $1.65. This will be up 40% year-over-year. As you can see on the slide, we've included our full-year numbers and our performance relative to both fiscal 2020 and 2019, which I highlighted earlier. Let's turn to slide four. I'll get into orders a little bit more. For the third quarter, our orders remained strong at approximately $4.5 billion, consistent with the second quarter levels that I mentioned earlier. Order levels continue to reflect economic recovery and replenishment across a number of our end markets. Year-over-year, we saw orders growth in all businesses and in all regions. Transportation orders remained elevated due to the market recovery as well as the auto industry supply dynamics.
In our industrial segment, orders grew 8% sequentially, with growth in industrial equipment, energy and medical, and flat orders in AD&M, which indicates the stabilization that I mentioned earlier. Let me also add some color on orders on what we're seeing from a geographic perspective on a sequential basis. We continue to see growth in Asia, where our China orders were up 6% sequentially. In Europe, our orders were down 7% sequentially, and in North America, our orders were essentially flat versus last quarter. With that as a backdrop around orders, let me get into our segment results that you'll see on slides five through seven, and I'll cover this briefly. Starting with transportation, our sales were up approximately 70% organically year-over-year, with growth in each of our businesses.
Our auto business grew 90% organically. We are benefiting from the market recovery and are demonstrating continued content outperformance due to our leading global position. We continue to benefit from increased production of electric vehicles as TE's technology and products are enabling high voltage architectures and applications with every leading OEM on the planet. In commercial transportation, we saw 56% organic growth driven by the market recovery, ongoing emission trends, as well as content outperformance. We are continuing to benefit from stricter emission standards around the world and increased operator adoption of EUR 6, which reinforces our solid position in China. The other key point is that we continue to gain momentum with wins on electric powertrain platforms and trucks, which while this doesn't give revenue or orders today, it will provide future content growth for our leading position in commercial transportation.
In sensors, we saw 20% organic growth driven primarily by auto applications, and we also saw growth in the commercial transportation and industrial applications as well. For the segment, adjusted operating margins expanded sequentially to 19.4% on essentially flat sales. Well, let me turn to the Industrial segment, and in this segment, sales increased 13% organically year-over-year. In our industrial equipment business, sales were up 36% organically with growth in all regions and benefiting from the momentum in factory automation applications, where we continue to benefit from accelerating capital expenditures in areas like semiconductor and automotive manufacturing. Our AD&M business sales declined 7% organically, driven by the continued weakness in the commercial aerospace market. In our energy business, we saw 9% organic growth driven by increases in renewables, especially global solar applications.
Lastly, in our medical business, as I mentioned earlier, it returned to growth in the quarter and was up 10% organically year-over-year with a recovery in interventional procedures around the world. From a margin perspective, adjusted operating margins for the segment expanded year-over-year by nearly 300 basis points to 15.8%, despite the volume declines in our AD&M business, and this was driven by solid operational performance by the teams. Let me turn to the communication segment, and our team continues to demonstrate strong operational execution while capitalizing on the growth trends in the markets that we serve. Sales grew 31% in the segment organically year-over-year, with robust growth in both data and devices and appliances.
In data and devices, we grew 16% organically year-over-year due to the solid position we've built in high-speed solutions for cloud applications. We continue to see capital expenditures increasing by our customers, and our content growth is enabling us to grow cloud-related sales at double the market rate this year. In appliances, sales grew 57% organically versus the prior year, with growth in all regions driven by market improvements, our leading global market position, and ongoing share gains. I do want to say that our communications team continues to deliver outstanding performance to complement the higher sales levels that they're executing to.
You see this with our adjusted operating margin in the segment of 23.5%, which is up 760 basis points versus the prior year. Overall, across our segments, our teams are capitalizing on growth trends in their end markets, demonstrating the diversity of our portfolio while delivering strong operational execution. With that, let me turn it over to Heath, who'll get into more details on the financials and our expectations going forward.
Thank you, Terrence. Good morning, everyone. Please turn to slide eight, where I will provide more details on the Q3 financials. Adjusted operating income was $734 million, up significantly year-over-year with an adjusted operating margin of 19.1%. GAAP operating income was $714 million and included $11 million of restructuring and other charges and $9 million of acquisition-related charges. We still expect total restructuring charges to approximate $200 million for fiscal 2021 as we continue to optimize our manufacturing footprint and improve the cost structure of the organization. Adjusted EPS was $1.79, and GAAP EPS was $1.74 for the quarter, which included restructuring, acquisition, and other charges of approximately $0.05.
The adjusted effective tax rate in Q3 came in as we expected at approximately 18%, with our fourth quarter tax rate expected to be around 20%. We expect to continue to expect our adjusted effective tax rate for the full-year to be around 19%. Importantly, we expect our cash tax rate to stay well below our reported ETR for the full-year. Now, we turn to slide nine. Our results and progress you see on the slide reflects the strength and diversity of our portfolio and business model execution. As Terrence mentioned, we delivered record performance in Q3 on sales, adjusted operating margins, and adjusted EPS. We are not only showing progress versus the prior year, but we're also delivering higher sales margins and adjusted EPS versus FY 2019, which represents a pre-COVID baseline.
Sales of $3.8 billion were up over 50% versus the prior year and up 3% sequentially, with solid performance in each of our segments. Currency exchange rates positively impacted sales by $138 million versus the prior year. Adjusted EPS of $1.79 was up significantly year-over-year and up 14% sequentially, reflecting our strong operational performance. Adjusted operating margins were 19.1%, also up significantly versus the prior year. Year- to- date, our adjusted operating margins are running at around 18%, and our fourth quarter is expected to be a continuation of this strong performance. Turning to cash flow. In the quarter, cash from operating activities was $682 million. We had very strong free cash flow for the quarter of $539 million, and year- to- date, free cash flow is approximately $1.5 billion. In Q3, we returned approximately $445 million to shareholders through dividends and share repurchases.
Our cash flow performance demonstrates the strength of our cash generation model, and we continue to expect free cash flow conversion to approximate 100% for the full-year. We remain committed to our disciplined use of capital, and over time, we continue to expect two-thirds of our free cash flow to be returned to shareholders and one-third to be used for acquisitions. As Terrence noted, we entered into an agreement to acquire ERNI earlier this month, and we expect to close by the end of this quarter. ERNI has revenues of approximately $200 million annually and will be reported as part of our industrial equipment business. Before we go to questions, I want to reiterate that we are performing well in this environment despite challenges in the broader supply chain.
Our results for the quarter and our performance so far this year demonstrate the strength and diversity of our portfolio, with contributions from each of our three segments. We delivered record performance in Q3. Our 4th quarter guidance represents a continuation of our strong performance, and we are excited about growth and margin opportunities beyond this fiscal year in line with our business model. Let's now open up for questions. Sujal? Okay. [inaudible] , could you please give the instructions for the Q&A session?
Our first question comes from the line of Mark Delaney at Goldman Sachs. Your line is open.
Yes. Good morning, and thanks very much for taking the question. Terrence, you mentioned several secular trends that the company is addressing and longer term that TE can grow revenue and margins. I was hoping you could speak a bit more about what the company is seeing with respect to this industry backdrop and what that may mean for the company's fundamentals in the intermediate to longer term.
Yeah. Thanks, Mark. I think when you sit there, you see the performance we put up, which we're very proud of. In many ways, a lot of where the recovery is across our business is still pretty early. I think the first thing to frame to your question is probably around where can we meet demand a little bit. I would still tell you one of the things is, with this quarter, with some of the supply chain elements that happened within TE, there is about $100 million of revenue we estimate across our segments that due to our supply chain, we couldn't get out to customers. We are still trying to get up to the level of demand that's out there. Certainly, with the supply chain issues, we estimate it's about in Q3, $100 million.
We think it'll be a similar amount in quarter four. That's really where materials impact us around metals and resins, and we think that'll be with us a little bit. When you think through the markets and you think about where auto production's at right now, auto production this year with the $19 million we expect in the fourth quarter, is still significantly below 2019 levels. That $81 million units this year will still be down from $88 million in 2019. Certainly, we're being throttled a little bit by some of the semiconductor supply chain. As you think through the cycle, auto production can go up as we go look forward.
Certainly, content's going to help us. We also have in the industrial, as I mentioned in my comments, it really feels like it's just getting started. Our medical business is picking up. Our energy business that was pretty resilient continues to be strong, and you're seeing what was started a couple of quarters ago around industrial equipment. We continue to see that picking up as you have CapEx. In communications, cloud CapEx is up 20% this year. It's expected to be up 10% next year. We still see they're big drivers for us that'll help us.
We still have margin improvement that we need to deliver in two or three segments, and they're our largest segments. Certainly we're working through the supply chain elements that I think everybody in the plan is working through. We still see margin improvement back up to where we've told you all our business model going forward. The cycle is a recovery, and one of the things we feel very good about is the consumer is showing up. Whether it be to buy cars, whether it be to buy appliances, and companies now are showing up. It will probably be lumpy, but I would tell you it feels very good from the drivers that we positioned TE around.
Okay. Thank you, Mark. May we have the next question, please?
Our next question comes from the line of David Kelley of Jefferies. Your line is open.
Hi, good morning, Terrence and Heath. Thanks for taking my question. I wanted to focus maybe on the fourth quarter earnings guidance implies, based on our math, sequentially lower margins relative to the third quarter. It feels like we're seeing rising input costs, some ongoing supply chain disruptions, but also improved pricing and clearly volume recovery. With that in mind, could you talk about some of the dynamics at play here in context of how you're thinking about the fourth quarter margin trajectory?
Sure. David, this is Heath. I'll take the question. Listen, first of all, I think what we effectively, and I commented in my prepared statement, was we're running at around 18% year- to- date in terms of margins, and we see that more or less continuing as we work our way into the fourth quarter. If you pick a particular quarter, you're going to have timing issues given how diverse we are, how we're set up globally. You're going to have timing issues in any one particular quarter. I think you've got to be careful about just picking out a quarter and trying to compare it forward or backwards. Within our world, there is price cost differences between the different businesses.
In some cases, we're able to pass along that price more quickly, particularly if it runs through our channel partners where we have distribution, and some of our businesses are more heavily dependent upon that. Places where we don't have that distribution partner or that mechanism to pass along price that quickly, it takes a little bit longer. The realization of that is very mixed within our portfolio. The other thing to consider is we're still, as we've talked about in the past, we're still on this restructuring journey with some of our footprint optimization. As part of that, you're going to have timing issues of when you start to realize some of those savings versus the cost of getting some of those things done.
You spend a little bit ahead of before you take things offline. There's all kinds of different moving parts in a portfolio like ours. From an EPS perspective, sequentially, from a third quarter, fourth quarter, we will have a tax headwind. Our tax rate's going to step up 200 basis points, and that's fairly normal in terms of timing for the fourth quarter. Some of the EPS drop sequentially is tied to that tax rate.
Okay, thank you, David. Can we have the next question, please?
Our next question comes from the line of Amit Daryanani of Evercore. Your line is open.
Good morning. Thanks for taking my question. I guess, Terrence, wanted to maybe expand a bit more on the supply chain dynamics you've talked about. I think there's been a fair bit of discussion around this by everyone, including investors. I'd love to get your perspective on what does really all of it mean for TE, and maybe you can explain what are the supply chain pressures you're referring to, and then what impact is it having to your operations and P&L broadly. Thank you.
Yeah, no, thanks for the question. Let me, supply chain, I guess we're all using more than we would like to use on calls, so let me make sure what it means to TE. First of all, it all starts with end demand in our customers. Let me spend a little bit of what we're feeling from customers. Certainly customers are trying to make sure they recover. In some cases, when you think about what we go into, and even take a car, a car has 30,000 parts. If one or two or three parts they can't procure, they struggle making a car.
What you have right now, because of the recovery being faster, you have everybody scrambling, and also you have a lot of the data signals that are coming down from our customers are changing a lot as they're trying to make sure they meet customer demand. The first thing I would say from a supply chain is pretty severe volatility coming from our customers as they're trying to make sure they get up and running. Unfortunately, in some cases, you've seen customers having to stop production because of things like semiconductors. That creates volatility. When you look into our world, it is important that when you think about TE, we are a manufacturer. We start from very base materials. What we innovate, we make.
From that viewpoint, the biggest things that we use are things that are plastic, certainly resins from commodity all the way up to very highly engineered things that help with flame retardancy and temperature, as well as metals that are used for conductivity. When you sit there in those two key areas, we did have some areas where resin supply was impacted, and certainly metal supply has been impacted. What that has created for us is not only that supply impacted, we've had to do some things that aren't as natural for TE. Which is we might have supply due to our global supply chain in certain parts of the world, and we may be shipping things around the world. Not only the availability, it's also created some of those pressures, as you said in your question, that we're managing, because guess what?
We're trying to really make sure we help our customers. The reality of it is, this is going to be with us. We've been dealing with it in the recovery. I wouldn't say it's getting better, but I would say, we're going to continue to be dealing with it through our fiscal year and into early next year as we're trying to pick up to a world that's recovering. This type of recovery, whether you see it in our orders or in the supply chain, means there's a fast recovery that's happening out there as people are trying to catch up to it. Hopefully that gives some flavor, and I think our teams have actually been managing it through the volume, the price, and the productivity, as you've seen our results.
Okay. Thank you, Amit. Can we have the next question, please?
Our next question comes from the line of Joseph Spak of RBC. Your line is open.
Thanks, good morning. Terrence, you talked about some of the BEV wins and how that doesn't really impact the numbers today, but it helps for future growth. I was wondering if you could help dimensionalize that for us at all, like maybe quantify the bookings in this quarter or the lifetime backlog, and how fast are some of those factors growing? How should we think about that?
Number one is from a momentum perspective, the momentum that we've told you about has not changed. There's really two factors. We benefit from our global position. We also benefit from the technology that we bring as you move to high voltage architecture, whether that be in connecting, it being to sensors that are resolvers and current sensors when you get into the electric motors. When you look at it to conceptualize a little bit, I'll go back to what I talked a little bit about last quarter or the call before, which is what it's mean to our content. A few years back, we were in the low $60s per [inaudible] . We're in the $70s now. When you think about that $10 increase in content, approximately half of that is due to high voltage.
That's about $5 of content at the total TE level across all production that has translated into revenue. That's a key driver, as we say our content can grow above 80. Realize there's only 9 million electric vehicles made this year. What's great is that that adoption continues to accelerate. It didn't stop during COVID, and certainly as that accelerates, that's going to continue to drive content outperformance for us, and it actually just continues to accelerate all around the world. It's nice to see the traction in places even like the United States, which has always been a slower adopter of the technology, actually pick up, as well as the models that are coming out from all of our global customers are showing how this trend is picking up.
Okay, thank you, Joe. Can we have the next question, please?
Our next question comes from the line of Scott Davis at Melius Research. Your line is open.
Good morning, guys.
Hey, Scott.
Nice to see you surviving this mess that's out there and thriving. I kind of just wanted to follow up on that last question a little bit in the context of the Chevy Bolt recall and perhaps the architecture that is being utilized there on the high voltage side. Are there learnings from that recall and that perhaps increases your content growth going forward and having more backup and safety systems around heat and particularly around high voltage? Is there anything to be gleaned there or nothing new?
Scott, great question, and good to hear from you. I think the thing that you look at, I wouldn't say when you think about does that learning out of that recall provide extra content, I wouldn't say it does, but I think it shows how fast the technology's moving, as well as when you look at the architecture evolution, the pace at which it's coming at. When you think about combustion engines and how long they took to develop as well as everybody getting their models out, you will have situations where there will be events that there will be learnings of how do you need to harden the electrical architecture. I don't think that will create incremental content opportunity.
What I would tell you for TE is when those issues occur, we're the type of company that they look to because we're working on up to 1,000 volts. We play not only from the charger inlet, we play into where the motors go, the high voltage there. You also play on what's happening on the cell-to-cell or module-to-module connections as well as the sensing that occurs. Certainly, GM will really work hard to make sure those types of events don't occur in the future. It actually also creates a bigger opportunity for stickiness for us. Certainly on the new truck platforms at GM, we have very strong content that's in line with that 2X content we've talked to you about.
Okay, thank you, Scott. Can we have the next question, please?
Next question comes from the line of Chris Snyder of UBS. Your line is open.
Thank you. My question is around TE high voltage differentiation. The company has invested significantly in both developing but also scaling these solutions globally in recent years. Is this leading to high voltage share gains relative to low voltage? It also seems like the OEMs would lean more heavily on top suppliers, just given how important these initial EV rollouts are, and then particularly within high voltage as it's a new but also extremely critical component for them.
Yeah. Chris, when we look at it, I think let me take a step back for just for a second. With what we do around our interconnect and sensing portfolio. Anywhere you have data, you have power, you have sensing, and guess what? Getting into smaller packages and then higher power and higher data, that's what our engineers do. When you deal with high voltage architecture in the car, certainly our customers, that's why we like the position we have. It's a global position, as I said, where we design all around the world with all the OEMs. When you think about it, one point I want to highlight is the low voltage architecture carries over for us, because you're not putting in your low voltage applications onto the battery and the motors.
Our low voltage carries over, and where we really get into, and I mentioned it to Scott's question, it starts at the charging inlet. It goes into how does the connections and the sensing occur around the high voltage connection that you need around the motors. It gets into the battery solutions. It gets into the contactors that we provide to switch the power over as you go from DC to AC and back, as well as the position in the current sensors. It's completely across. I think the other thing that's unique for us versus some others that might be a Tier 1, now we're Tier 2, our customers really like that we're agnostic. We are there to solve their challenges that they're trying to get to. How are they trying to solve fast charging? What type of cells are they using in their battery pack?
That agnostic element is what they really like about our global position as they come into, and we focus on the connection systems. We don't get complicated about harnesses and other things. That's what the Tier 1s do. It's really about the connection technology that we invest in as they think about the platforms and how they have to evolve these platforms. That's where you get the content increase that we mentioned, and we shared examples, but it gives us a real content opportunity to double our content in electric vehicles. Like I said earlier, the content growth you're seeing in TE, about half of it over the past couple of years is due to high voltage wins.
Okay. Thank you, Chris. Can we have the next question, please?
Our next question comes from the line of Wamsi Mohan at Bank of America. Your line is open.
Yes. Thank you. Terrence, you had a pretty solid fiscal third quarter. You're guiding for pretty strong exit for this fiscal year. Can you maybe share some early thoughts into next fiscal year? It feels like there should be some nice production growth, and underlying markets seem to be in recovery mode as well. Any bookends around demand change in FY 2022 would be helpful. Thank you.
Yeah. Thanks, Wamsi. I guess, I'm going to have to give you the caveat that we only guide for the fourth quarter, and we'll talk to you in 90 days about what we see going into 2022. I just do want to reflect on what we say our business model is, maybe quick before I talk to markets. It is about the content we've talked about, and even to your questions. It is about where underlying production go into various markets that we serve. It is about also continuing to capitalize on some of the execution things that he talked about on restructuring. We're still not at the entitled margin in two of our three segments, and it's how do we use that capital to return it to you. I do think it's important.
That's the way we think about TE, and it's important that we keep in front of us. Some of this I talked about. In transportation, we do still see runway around production. semiconductors have been a little bit of a governor this year. That probably will get fixed, I think people say in 2022 at some point. Also that the consumer demand and inventory being depleted on car lots really are something that you could see auto production going up. Certainly, our content will continue. In industrial, manufacturing CapEx is accelerating. I mentioned we're seeing it in semiconductor. We're benefiting from that. We're seeing it in the automation. We're benefiting from that. What we're seeing in medical as well as energy looks like very nice legs to it.
The one spot that we don't sort of see any signs of acceleration is around aerospace and defense, that's just something, there's good consumer trends. We aren't seeing it yet in that supply chain. In communications, I would just say cloud we expect to be strong. When it comes to appliances, the consumer's shown up strong. That probably will normalize at some point. I don't know if that'll be in 2022 or later, but certainly we're benefiting from a very strong appliance cycle here around the consumer. Really like how the end markets could be teeing up for 2022, and we'll share more with you in 90 days.
Okay. Thank you, Wamsi. Can we have the next question, please?
Next question coming from the line of Joseph Giordano of Cowen. Your line is open.
Hey, guys. Good morning.
Hey, Joseph.
Hey, just curious on in auto, on the customer inventory side of component parts, there's a lot of different commentary coming out so far in earnings season from what different companies are seeing. Just curious what you do internally to kind of make sure you're understanding what % of orders that you're getting are for actual production of cars right now and how much is for your own customers building some stock. What's the internal procedure for kind of flushing that out?
Well, a couple of things that we do do. It's not unreasonable to assume that people will be trying to hold a little bit more buffer stock right now. As I said, we're not even able to meet current full demand. I said that was about $100 million. We do actually make sure as we check with our customers, actually, in some cases, we visit their warehouses to make sure we don't see hoarding occurring.
We also talk to our OEM customers because let's realize, in some cases, we ship into Tier 1s, and there's lots of discussions between the OEM, the Tier 1s to make sure flow continues to happen. I'm sure in some parts, there may be some people trying to build up a little bit extra buffer stock, especially in the supply chain environment. I would tell you we're still trying to get to make sure we keep demand flowing to keep production going with the OEM lines.
Okay. Thank you, Joe. Can we have the next question, please?
Our next question coming from the line of Christopher Glynn of Oppenheimer. Your line is open.
Hi. Yeah, thanks. I also wanted to double down a little bit on the relationship between orders and consumption and as pertains to revenue, I'm wondering if there's any mismatch relative to the actual production now with the transportation segment specifically that we might qualify our view of production advancement next year. As far as orders go, would we anticipate a quarter or two where maybe you have the reciprocal of what we're seeing now and kind of mismatched the other way with the continued outsized book-to-bills in the trailing periods?
All right. You asked about three questions there, let me start at the total company level first. We've had $4.5 billion of orders last quarter and this quarter, if you take this quarter, we billed $3.8 billion. I think when you look at that gap, that gap is certainly larger than normal. There is about $100 million in that gap that is real demand that due to our supply chain, we could not fulfill. When you look at that remaining gap, I sort of think about it in a couple of buckets, certainly we look at it a lot. We study it by our different end markets. There's probably about half of that element which relates to our distribution partners. That is where people may not be able to get goods from us. They're looking to our channel partners to procure.
From that viewpoint, we have seen an increase, a very strong increase over the past two quarters in our channel partner orders. What I would tell you, our channel partner inventory is at the same levels as last year. Their turn is up very big. They're placing orders. Certainly, we're not able to meet them to the levels that they're ordering. The other portion would be from our direct OEM customers, and it will be that they're trying to make sure TE's parts are not that one, two, or three parts that they can't make something. We have seen people go out an extra quarter in some of their ordering patterns due to the current environment.
I think as the supply chain continues to get better, what you would see in places like transportation, a transportation book-to-bill is typically around one. It's not typically 1.1.2. I think as the supply chain catches up, you will see things get more normal and get closer to where they should be as they normalize and the whole supply chain gets better. I would expect at some time, orders will get closer to billings, clearly as the supply chain continues to improve and things come better.
Okay. Thank you, Chris. Can we have the next question, please?
Our next question coming from the line of Samik Chatterjee of JP Morgan. Your line is open.
Hi. Good morning. Thanks for taking my question. I guess, Terrence, just wanted to follow up on your comment about order trends by geography, and seemed like Europe is kind of the outlier there where you're still seeing some weakness in the quarter. Just if you can talk about what you're seeing in terms of the difference there in Europe and the recovery there, and why probably kind of the order trends being kind of a bit off of an outlier relative to the other regions.
No, honestly, when you look at that, I know it's down by about 7% sequentially. I would say when you look at that's more around some of the normal summer shutdowns in transportation than I would say it's a big deceleration. I would say we continue to see orders even as we're into July, stay at elevated levels because the conditions we're in aren't changing. I wouldn't say it's one barometer, negative or positive. Certainly we would normally see that as some of our customers do summer shutdowns in Europe in the automotive space, and they are still doing those.
Okay. Thank you, Samik. Can we have the next question, please?
Next question from William Stein of Truist. Your line is open.
Great. Thanks for taking my question. Terrence, you mentioned earlier this fact of manufacturing where a car has 30,000 parts or whatever it is, and you need all of them to make the car, not just a subset. Even if you're missing a couple, you have a problem. Certainly true in almost all products. In autos, though, I'm sure you'd acknowledge that there are cases where these companies can decide, well, there's a feature or two that we can isolate and perhaps de-content it and get a car shipped.
We're picking this trend up pretty clearly from multiple sources that we're seeing de-contenting going on in order to get around the shortages. I'm wondering if TE is seeing this. If so, to what degree, and in particular, does it take away from your growth in the next couple of quarters in any way, where perhaps a more content-rich car would have provided a better opportunity, but what the company's shipping is something of a smaller content opportunity or vice versa?
Yeah. Hey, William. Great question. Number one, let's face it, the auto manufacturers are being creative because there's consumer demand. Let's face it, they want to get the vehicles out, and if there's a feature where they can't get a component, they certainly are taking some of those features out near term. I would tell you on our revenue, while we do see that around certain OEMs, that is not having a meaningful effect. Where we play in the core architecture, in the electrical network, as well as in the background in an EV, you may lose a couple interconnects, but that is not that much from a big-picture content.
Even if you look at our content growth this year over production, it's not evident in any way. I would also say in this type of environment, while you have some of that de-contenting, they are also being able to add options to it, which we also benefit from. That isn't meaningful in a big number either. It would probably impact others more than us. With our breadth that we have across where we play in the architecture while they're doing it's not having a meaningful impact on TE.
Okay, thank you, Will.
Yeah. Sure.
Can we have the next question, please?
Our next question from Matthew Sheerin of Stifel. Your line is open.
Yes. Good morning.
Matt.
Terrence, I wanted to ask about the strength that you're seeing in the communications segment, and specifically the cloud business and the margins there. Look like record margins. The question is, how sustainable is that? Within the cloud demand side, how diversified are you? I know obviously there's just a handful of really big hyperscale players. In terms of the diversification and the lumpiness of that business, if you could provide more color.
Sure, Matt, and thanks. A couple of things. Let me talk about the cloud element, and then I'll talk about segment margins. On the cloud element, what's really been nice is, and those of you that follow us, our AD&M business, years ago, we basically made a strategic decision to get out of consumer so we could focus on just high speed. I remember when we had less than $100 million with our cloud customers. It's well over $300 million today. Our market share at one point in time was with one of the cloud providers. Our market share is pretty even across all the cloud providers, and not only the U.S. cloud provider, but also globally.
The breadth and the strengthening of it, as well as the share gain, it's both the growth of the CapEx and their investment, but also how our team's executed on share gain as well, and bringing important technology to it. It has been a strong cloud environment. I think I mentioned already, close to 20% CapEx growth in cloud. What's nice is next year we still see double-digit again. As you not only get that underlying growth, it goes back to the secular trend around content is, content to next generation as new chips come out on those servers. We also benefit from our next-generation products from what the content is. Feel very good with where we're positioned there.
When you look at the segment margin, the performance by the team has been very strong. It's benefited not only by what we've done in cloud, I would also say our appliance business and that global leading position, that growth there in that business has also very much contributed to the margin in that segment. We still think that's a high teens business through cycle. With having both segments being very strong, it's benefiting the margin there, and it's something that as probably appliance normalizes, we could have some pressure. Net that segment is above target margins is something we're proud of.
Okay, thank you, Matt. Can we have the next question, please?
Next question from Steven Fox. Your line is open.
Hi. Good morning, everyone. Terrence and Heath, I was just curious if you could talk about when you start considering some of these supply chain pressures and inflation pressures to be sort of a new normal, and how you might change managing your supply chain, how you might change hedging, how your customers might change. Within that context, can you just sort of give us a baseline for what you're doing on hedging inflation right now? Thanks.
Sure, Steven, this is Heath. I'll take that. Our biggest input pressures that we have when we talk about things that are impacting our P&L would be around resins and being around certain of the specialty metals, right, that we use in our products. In many cases, for the metals, we do have a hedging program that generally hedges out about 18 months of our anticipated usage or our purchase and then subsequent usage. When we see inflation or deflation relative to the metals, that tends to kind of layer in more quietly into our results, both directions. That is unchanged, and we'll continue to do that. The bigger issue that we are seeing when we are looking at some of these, and we throw them into the broader supply chain bucket, is we do have local sourcing, which is really good.
It enables a lot of nimbleness and agility for our businesses, whether that's in Asia, Europe or the Americas. To be able to procure product locally versus shipping things around the world. That also has the challenges of when we do have supply chain disruption in a particular location, in a particular region, whether that's driven by natural causes like floods or otherwise. Could be the situation down in Texas earlier this year, where a lot of the chemical companies came offline and put a lot of pressure through the resins and so forth in the Americas. Those types of things, when they happen, or floods in Germany. When those things happen, we still have to be responsive to our customers. Sometimes that means we are then moving some of our supply around the world, and that can get very expensive.
The freight costs, it's a long-winded way of saying some of the freight costs layer into some of the supply chain pressures as well from us because of some of our structure. For us, we're going to continue to take advantage of those local supply chains. We just need to make sure that we have that flexibility going forward. In terms of our ability to manage it and when do we foresee it being part of the new norm? I don't know. The semiconductor doesn't impact us directly, but it impacts our customers. You're probably better equipped to come up with answers to when the semiconductor shortages dissipate. In terms of some of the other things relative directly to us, I would say we're working through those and feel pretty good about how we're ready to jump into FY 2022.
Okay. Thank you, Steve. Can we have the next question, please?
Next question coming from the line of Jim Suva of Citigroup. Your line is open.
Thank you. My one question is actually a follow-on to your response, Heath, that you just gave. Not talking about the semiconductor shortages, but the resins input costs and all that, and you talk about hedging and such. I'm wondering, as shipping costs have been around for a while now, an extended amount of time all through COVID, and these additional raw material costs, is it come time to start repricing some of your contracts with customers or put in indexing for raw materials? All your answers so far talk more about hedging and dealing with your supply and stuff. I'm just wondering, did it come time to go back to talk to the customer, or are we just not there yet?
No, Jim, it's Terrence. Twofold. We've been there, quite frankly. To go where we are on it. Across our channel partners, we did a price increase, and this is 20% of our business. In January, we just implemented another price increase, and we're going to continue to look in this environment. In our direct customers, we are having those discussions right now. We do have metal riders in many of our agreements that are like collars. If you bust out of an area of metal, we have ability to recapture. Then when you deal with resins and freight, which are newer, we are having those discussions with our customers. It's very different by industry, and that's what has been going on. That day will layer in at different times, but I feel we are having those discussions real time.
Okay, thank you, Jim. May we have the next question, please?
Next question coming from the line of Luke Junk of Baird. Your line is open.
Yeah, thank you. Probably a question for Heath this morning. I was hoping you could walk us through the sequential margin walk in industrial margins, given the step-up that we saw versus first half levels. Also looking forward here, maybe just in the fourth quarter, if you could give us any help on what that margin might look like in industrial specifically.
I think, first of all, thanks for the question. We've been pretty public with the journey that we're on within the industrial segment margins, right? We started this in the low teens and with the multi-year trajectory of through a lot of rooftop consolidations of getting this business into the high teens. We're in that journey. We made a lot of improvement here in the quarter. Certainly two other things that industrial benefits from. One, the restructuring activity that has been underway continues. That comes in chunks at times as operations get taken offline, and so you might have some costs in one quarter before something comes offline, and that tends to create quarter-to-quarter lumpiness. When you smooth it out over one year or longer, you can kind of see the result.
The other thing is, Terrence just hit on this, the industrial segment does benefit from the opportunity on the price side because more of the industrial business goes through distribution. Fairly large chunks of our industrial segment did have the opportunity to not only do price increases back at the beginning of the calendar year, but in July, implemented additional price increases. That does have more of a near-term benefit for the segment versus some of the other segments where it's more of a direct OEM relationship, and it takes a little bit longer to work that way through. Those are a couple of the pieces as we look forward into the fourth quarter.
Listen, timing on things, you're always going to have that with a business as big and complex as we are in our industrial segment. Being a $4 billion segment has a lot of moving pieces. I feel very good about the trajectory as we move from the first half to second half or third quarter to fourth quarter. I think even more importantly, as we work our way into 2022 and beyond, there is still margin upside for the segment, and the team is hyper-focused on that. More to come. Thanks for the question.
Thank you, Luke. Can we have the next question, please?
Next question from Nikolay Todorov of Longbow Research. Your line is open.
Yeah, thanks. Good morning. I think the near-term dynamics on supply chain are well-publicized, but my question is, Terrence, do you see any impact on the longer-term dynamics, like design by your customers specifically in automotive? Do you see any changes in the way they operate or think about design in the current environment? If you do, what impact that could have from these changes on your business? Thanks.
Twofold. From a design perspective, when I think about the velocity and even coming through COVID, the velocity did not change during COVID. If anything, especially in transportation, specifically around EVs, you see the launches that are happening, you see the innovation that's happening real time. What typically happens with customers, I think with all of us, you're just seeing the pace continues to accelerate because the consumer expects it. That I think not only is in transportation, it's everywhere, but it's also how it goes through their supply chain and also some of the benefits we get in our industrial business over people's investments, including our own, around how their factories have to be more flexible and digitized.
When it comes to the question about supply chain design, clearly customers will reflect going through this period of what needs to be different, and the more JIT you are, they'll probably pick some spots of what do they have to do differently. I would say we're not seeing anything near term. We don't see people thinking about vertically integrating interconnects versus maybe some other areas, especially in the transition to EV. What's good is we're very close to our customers, and hopefully we can take advantage of it for opportunity for TE versus risk as they work through it. Once again, being with every OEM, we have a pretty good purview, especially in automotive as we go forward.
Okay. Thank you, Nick. Can we have the next question, please?
Our last question coming from the line of Rod Lache of Wolfe Research. Your line is open.
Hey, this is Shreyas Patil on for Rod. Just two quick ones. One, could you help quantify the supply chain impact that you saw in the quarter? I believe last quarter you mentioned it was a $50 million headwind. Second, just looking at the year-over-year comparison, I know it's a bit challenging given the base effect, but it looked like your incremental margin ex currency was maybe closer to 40%. I think in the past, you've talked about 30%-35% incremental margin. Maybe just how we should think about that going forward.
Sure. This is Heath. I'll take the question. I think in the quarter, and Terrence mentioned this earlier, we quantify the supply chain impact to us, and define more or less as our availability to, or in some case, inability to get the input materials that we need. That impact to us was about $100 million. I would say that probably two-thirds of that would have been in transportation. Our inability to ship was about $100 million that I would quantify on the top line for the supply chain impact. Obviously the teams are scrambling day by day to recover that and keep customers happy. In terms of the flow-through, listen, the year-over-year flow-through, we're proud of it.
We're proud of it when we look at it, and not just in the third quarter, and anticipate it flow through the fourth quarter, but also on a year-to-date and full-year basis, and we are proud of it. I think I would caution you, our compares last year were so far off relative to the severe downtick, and that had a disproportionate impact to our margins as well last year. When we look at that on the downtick versus the recovery a year later, in a given quarter, you're going to see some outsized numbers.
I would not want to guide you to reset your expectation that 40% is the new norm for our flow-through. We are still confident in that 30%-35% number, which we took up earlier this year due to some of the restructuring activities that have been underway. I think it normalizes into that range. You're going to have quarter noise from time to time, particularly in a year-over-year basis that we had in the third quarter.
Okay. Thanks for the question, Shreyas. I want to thank everybody for joining us this morning. If you have more questions, please contact investor relations at TE. Thank you and have a good morning.
Thank you, ladies and gentlemen. Your conference will be made available for replay beginning at 11:30 A.M. Eastern Time today, July 28th, 2021, on the investor relations portion of TE Connectivity's website. That concludes your conference for today. You may now disconnect.