Everyone, thank you for standing by, and welcome to the TE Connectivity fourth quarter earnings call for fiscal year 2026. At this time, all lines are in a listen-only mode. Later, we will conduct a Q&A session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. 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, Sujal Shah. Please go ahead.
Good morning, and thank you for joining our conference call to discuss TE Connectivity's fourth quarter and full-year results for fiscal 2026, along with the outlook for our first quarter of fiscal 2027. With me today are Chief Executive Officer, Terrence Curtin, and Chief Financial Officer, Heath Mitts. During this call, we'll 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.
Finally, during the Q&A portion of today's call, due to the number of participants, we're asking everyone to limit themselves to one question, and you may rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments.
Good morning, and thank you everyone for joining us. Before I get into the slides and the details of our results and expectations going forward, I do want to make some overall comments. TE is positioned around the accelerating data and power trends that are driving significant growth for us today and creating opportunities for strong growth in the years ahead. As I mentioned last quarter, our products and technology are at the intersection of some of the largest technology and infrastructure investments taking place around the world, and you'll see the benefits in our results and our outlook during this call.
Our fourth quarter performance above guidance was a good finish to the year, and full 2026 fiscal financial results demonstrate strong execution by our team in delivering $2.6 billion of sales growth, which is an increase of 15% year-over-year, along with adjusted earnings per share growth of 24%. The sales and earnings performance was coupled with another year of strong cash generation while continuing to invest in expanding capacity and engineering resources to support future growth. We also made bolt-on acquisitions that expand our addressable market in both optics as well as power filtering. Let me click down on the trends and how these are showing up in our results. You are all familiar with the investments taking place in AI infrastructure. Our Digital Data Networks business is benefiting from increasing data and power connectivity requirements, including growing networking demand as AI architectures evolve.
At the same time, our Energy business supports the electrical infrastructure needed to power these data centers. At TE, our opportunity extends from the grid all the way to the chip. Together, DDN and Energy accounted for approximately half of our organic sales growth in fiscal 2026. But AI is also moving beyond the data center into physical AI applications. As intelligence moves to the edge of the network, more machines and devices need increased computing. That, in turn, leads to more connectivity, so information can be processed and decisions can be made in real time. We're seeing this in factory automation, intelligent vehicles, battery electric storage, and industrial and humanoid robots, and TE is well-positioned to benefit from these emerging applications. Just as importantly, the breadth of our growth extends well beyond AI.
We're driving strong content growth in automotive and commercial transportation and benefiting from continued strength in commercial aerospace and defense, as well as our other businesses. Across all of our markets, the need for increasing data and power requirements is creating opportunities for additional connectivity content, reinforcing growth across the portfolio. While I'm excited about our positioning and opportunities tied directly to AI, we're also benefiting from broader trends outside of AI as they contributed the other half of our sales growth this past year. With that as a quick backdrop around trends, let's get into the presentation, and I'd ask you to go to slide three, and I'll get into fiscal fourth quarter results, as well as the full year and our guidance for the first quarter of fiscal 2027.
In the fourth quarter, we delivered another quarter of double-digit sales growth that was ahead of our guidance. Sales were $5.3 billion, and this was an increase of 13% organically year-over-year, and both segments delivered strong growth. Orders were $6.1 billion, growing 29% versus the prior year. I'll get into more details on both the sales and the orders on the next few slides. Against the sales growth, we delivered 21% EPS growth with adjusted earnings per share of $3.14, and adjusted margins expanded 100 basis points over the prior year. We had strong free cash flow generation of $1.2 billion, with approximately $800 million returned to our shareholders. Now let me touch upon full-year fiscal results quickly. Across the board, we achieved record sales, orders, adjusted operating margins, EPS, and free cash flows. Just a really strong year.
For the full year, sales were nearly $20 billion, growing 15% on a reported basis and 12% on an organic basis. We achieved order levels of over $22 billion and are entering fiscal 2027 with record backlog levels. Adjusted earnings per share increased 24% to $11.52. Adjusted operating margins expanded 120 basis points year-over-year to 22%. We continue to demonstrate the strength of our cash generation model, and Heath will get more into this in his section. As we look ahead to fiscal 2027 and our outlook, for the first quarter of 2027, we are expecting sales of $5.35 billion, and this is an increase of 15% year-over-year on both a reported and an organic basis, and the growth, again, will be broad-based. We expect adjusted earnings per share to be around $3.30, and this will be growing 21% over last year's levels.
The other thing I want to highlight is that when we look at the trends in our markets and customer programs and backlog, we are expecting another year of double-digit organic sales growth in fiscal 2027, and we expect that will be similar to the 12% organic growth levels we had in 2026. At this point, I would like to talk about orders, and I would ask you to turn to slide four, where you can see the details on the slide. Order momentum remained strong and increased 6% sequentially and nearly $1.4 billion year-over-year to $6.1 billion in the quarter, with orders increasing double digits in both segments. The Industrial segment continued its momentum, with orders increasing 47% versus the prior year. While the strongest growth was in DDN, every business had over 20% order growth year-over-year in the fourth quarter in the segment.
In our Transportation segment, orders increased 13% versus the prior year, and this reflects continued content growth in both automotive and commercial transportation, along with a continued improvement in the North American commercial transportation end market. Our book-to-bill of 1.14, along with our backlog position, are strong indicators of growth as we start our new fiscal year. Now let me get into the segment results, and I will start with the Industrial segment, which is on slide five. In our fourth quarter, our Industrial Solutions sales grew 20% on both a reported and on an organic basis year-over-year, with ongoing momentum and broad-based growth across the segment. Sequentially, segment sales increased close to 10%, with growth in all of our businesses, including 17% sequential growth in DDN.
In Digital Data Networks, we delivered another strong year of performance in fiscal 2026, with orders growing by roughly 70% for the full year, driven by our strong position with our hyperscale customers. We expect this strong performance to continue into fiscal 2027, as well as longer term. In 2027, we expect to add over $1 billion of DDN revenue, with the vast majority of that from AI applications. Looking at our backlog aging and timing of customer program ramps, we expect that over half of that growth will be in the second half of our fiscal year. I do want to take a moment to talk about AI technology and architecture evolution and how we think about our DDN growth longer term. I can say with confidence that this business will be significantly larger in the next four- five years and beyond than it is today.
Our DDN business more than doubled in size the past couple of years. Based upon our momentum that we have with our customers, our product and technology roadmaps, and our design and manufacturing capabilities, we expect to grow well over $1 billion per year over an extended time horizon, implying that this business will double again in the next few years. We have been increasing our capacity in engineering as well as manufacturing to support the design wins and our expected growth. We still believe we are in the early stages of the AI infrastructure build-out, but it is clear that future architectures will require both copper and fiber connectivity. On data connectivity, the shift towards inference and agentic AI is expanding demand for CPUs and networking connectivity.
As workloads evolve, we are seeing intelligence move closer to where the data is generated, and decisions are made at the edge of the network. These trends will enable continued TAM expansion. As we talked to you before, when it comes to power connectivity needed, that is architecture-agnostic. Our leadership position allows us to capture additional content as data centers transition to 800-volt direct current as well as liquid cooling. At the same time, optical increases our addressable market and adds another significant growth opportunity for our DDN business. A great example I want to share with you in our role of next-generation connectivity is the recent NVIDIA and Cisco announcement of a new industry specification and next-generation high-speed optical transceiver technology. It shows how TE is providing key enabling technology to deliver significantly greater performance to 12.8 terabits per second and 4x the bandwidth density.
This is a hybrid solution that combines both optical technology with a copper interconnect, and I feel it is a good leading indicator of how our customers are using multiple technologies to get to the best engineering solution for the architectures of the future. These types of solutions, combined with our RAM Photonics technology that is focused on addressing CPO fiber attach density and scalability, expands our addressable market for optics on or near the chip. These examples demonstrate the strength of our engineering capabilities, our portfolio, and our customer relationships in next-generation AI infrastructure. At this point, still staying in Industrial Solutions, I do want to turn to our Energy business. Once again, our team delivered another strong quarter, and it had organic sales growth increasing 12% in the quarter, and this resulted in 18% organic sales growth for the year.
As we have talked to before, the growth that we are seeing is driven by the continued investment across grid hardening, where utilities continue to modernize aging infrastructure for increased power needs, as well as data center build-outs, which I discussed earlier. We provide the connectivity solutions that enable generation, transmission, and distribution infrastructure, which gives us a unique position. Turning to our Automation and Connected Living business, our sales increased 18% organically in the fourth quarter, with growth across every region. We continue to see indicators of both cyclical growth as well as content outperformance, particularly on the factory automation and battery electric storage applications. In our aerospace and defense business, we grew 16% organically in the quarter, reflecting ongoing strength in both the commercial aerospace and defense markets, where our data connectivity and power products are essential to next-generation platforms.
Looking at margins in this segment, the segment's adjusted operating margins expanded 40 basis points over 22%, reflecting continued strong execution of our teams while delivering on the growth for our customers. Now, if you could, I would ask you to turn to slide six and let me get into Transportation Solutions performance. In the fourth quarter, our Transportation Solutions sales grew 8% on a reported basis and 7% organically year-over-year. In automotive, sales increased 6% organically, despite a decline in vehicle production. Due to our content drivers, we delivered strong growth above the market in the fourth quarter, which was above our expectations and driven by ongoing strength out of Asia from a content perspective, as well as improvement in Europe. The auto growth was also driven by our global leading position and our customer co-creation model.
As we look forward, we do expect global vehicle production to be down slightly in fiscal 2027, continuing the production trends that we saw this past year. We do expect our growth over market in fiscal 2027 to be in our four-six point range, driven by the three pillars of content growth for us, which is data connectivity in the vehicle, electrification of the powertrain, as well as electronification of the vehicle. The other thing I want to highlight that goes beyond auto applications is we continue to see an exciting opportunity in humanoid robots. This is where our automotive business is really well-positioned to lead and will be supported by capabilities across TE.
When you think about it, our transportation segment provides power and signal connectivity, things needed to charge a robot, like charging inlets, while our other businesses, industrial, contributes high-speed data, as well as connectivity needed for motors and actuation solutions, and really the whole basket sets us up well to take advantage of this emerging application. We view these technologies represent up to $500 of potential TE content per humanoid robot. We are also working closely with leading OEMs on next-generation designs, positioning us to benefit as this emerging market scales. I think this is just another great example of how the need for power and data connectivity, combined with our broad capabilities, enables TE to build additional future growth drivers.
Let me turn over to our Commercial Transportation business, which had very strong sales growth, which increased 18%, and this growth was across all regions, including improving trends in North America. Our team is delivering significant content growth above market through new program wins, further electrification of trucks in Asia, and strong execution across all regions. For the segment on the margin side, the team delivered adjusted operating margins of 21% in the quarter, and this is an increase of 80 basis points versus the prior year and demonstrates the resiliency and the execution of our transportation team. So with that as a wrap-up of the segment, let me turn it over to Heath, who will get into more details on the financials and expectations going forward.
Thank you, Terrence, and good morning, everyone. Please turn to slide seven. Our fourth quarter sales were $5.3 billion, which included IEEPA tariff refunds that resulted in a reduction in sales of $87 million. Going forward, we expect an additional $50 million of tariff refunds in the first quarter, and that reduction in sales is included in our guidance. For the quarter, we achieved adjusted operating income of nearly $1.2 billion and adjusted operating margins of 22.1%. GAAP operating income was approximately $1.1 billion and included $12 million of acquisition-related charges, $14 million of restructuring and other charges, and $57 million of amortization expense. For the full year, restructuring charges were $110 million, and I expect restructuring charges in fiscal 2027 to be below the $100 million level.
Adjusted EPS was $3.14, and GAAP EPS was $3.10 for the quarter and included restructuring, acquisition, and other charges of $0.08, as well as amortization expense of $0.16. Additionally, we had a tax benefit of $0.20 related to the decrease in the valuation allowance for deferred tax assets. The adjusted effective tax rate was 21% in our fourth quarter, and we expect 21% in the first quarter as well. For fiscal 2027, we expect our adjusted effective tax rate to be 22%, similar to last year's rate. Currency exchange rates provided a year-over-year tailwind in fiscal 2026, as noted in the attached bridge schedules. However, based on current exchange rates, we anticipate a slight year-over-year headwind in fiscal 2027. Turning to slide eight for fiscal 2026 full-year performance. This slide lays out the strong performance across the key financial metrics that both Terrence and I talked about.
These are all records. We are confident that this momentum will continue into fiscal 2027. Let me spend a minute on cash flow. Cash from operations was approximately $4.5 billion, and free cash flow was $3.4 billion in fiscal 2026, which was up $200 million year-over-year. We achieved 100% free cash flow conversion of adjusted net income while increasing capital expenditures to support growth in our Industrial Solutions segment. Our strong cash generation and healthy balance sheet provide continued flexibility in how we deploy capital. In fiscal 2026, we returned approximately $2.8 billion to shareholders through share repurchases and dividends while committing approximately $1.6 billion to bolt-on acquisitions in our Industrial Solutions segment. We expect the pending Astrodyne TDI acquisition to close by the end of our fiscal first quarter.
Before I turn it over to questions, let me reinforce that our performance in fiscal 2026 reinforces our positioning to benefit from the largest technology infrastructure investments taking place globally. Our strong orders and backlog positions support our outlook for double-digit sales growth this year, 2027. We are investing in both capacity and engineering to ensure that we capitalize on these opportunities. We will continue to perform ahead of our through-cycle business model, generating strong margins, earnings growth, and cash flow. Now, let's open it up for questions.
Thank you. Please give the instructions for the Q&A session.
Thank you. At this time, I would like to remind everyone to press star one on your telephone keypad if you would like to ask a question. In order to have time for all questions, each participant is limited to one question. Your first question comes from the line of Scott Davis with Melius Research. Scott, your line is open. Please go ahead.
Hey, good morning, Terrence, Heath, and Sujal. Congrats on wrapping up a great year. Despite the stock having fits and starts, you guys did your job. I wanted to get into the horse that is going to be ridden today, obviously around DDN. Can you guys talk a little bit about how your content changes or content intensity or value map, however you want to talk about it, as we move into more architectures, 800 VDC, liquid cooling, kind of next generation stuff. I am thinking solid-state transformers as well, because it feels like there is going to be a fair amount of connectors in there as well. Maybe if you guys can talk a little bit about that. If possible, size it, that would be wonderful. If not, just give us some subjective color on that pathway.
No, thanks, Scott, and appreciate the question and comments. The first thing that you come into is the architecture changing significantly. One of the things that is really great where we play is we are right at the center of those trade-offs that our customers are making, the data trade-off as well as the power trade-off, and you mentioned a lot of the power trade-offs. The one thing, while there are questions of where do the data paths and signal paths go between where is copper used and fiber, when it comes to power, that is agnostic, and the only thing that is happening is that content is going up. We do see customers that clearly are experimenting with 800-volt DC liquid cooling, but you do have customers that are different spots in there. Now, when you look at our DDN revenue, our DDN revenue is approximately 30% power connectivity.
And with that being agnostic, with all those trends you are talking about, whether it is a sidecar, whether it is liquid cooling, all of those things, our content goes up. Even in the guide we talk about for 2027 in our DDN growth, we expect the power connectivity part of our portfolio to grow faster than overall DDN. I think that is a trend that you are going to continue to see build because like you just talked about, all those technology you bring to drive increased power needs. Increased power needs means more difficult power connectivity, let us face it is different materials, different challenges, and power connectivity has been a strong grower in our DDN business, and is going to continue to be because we have a very strong position there. So you are going to continue to see it.
I would say, like I talk about with copper and fiber, you have people experimenting to get to the best cost, best performance, and it will not be a complete straight line across the customer base, but it is good content growth for us regardless as it evolves.
Okay, thank you, Scott. Can we have the next question, please? Pascal, can we have the next question, please?
My apologies. I was on mute. Your next question comes from the line of Wamsi Mohan with Bank of America. Wamsi, your line is open.
Yes, thank you. Good morning. You are entering fiscal 2027 with a very strong backlog, and you noted sort of preliminary outlook of similar growth as fiscal 2026 on organic basis. Terrence, can you share some color on both the trends across the segments and any seasonality that you would call out that is important for us to think through? Thank you.
Thanks, Wamsi. Let me talk a bit about the backlog. It is strong. It is up about 30% year-over-year. The $22 billion of orders versus the revenue, you see we grew $2 billion of backlogs. Our backlog is about $8 billion. I think it is important for everybody that when you look at that backlog growth, the biggest chunks of that backlog growth are DDN as well as our aerospace and defense business. Both of those combined are probably 60% of our backlog growth. In DDN's case, you are building out backlog where our customers want to make sure the capacity is in place, and that is a very strong indicator. In AD&M, it is the trends that relate to AD&M, and also AD&M is typically longer lead time. The biggest growth are in those two businesses.
Clearly, that ties into, in DDN, the 70% order growth we had, and what I said in the call that we expect our revenue to be up over $1 billion this year in 2027, driven by our hyperscaler customers. In AD&M, I would say Energy and ACL, all of them have very strong trends. You are looking at double-digit growth in those businesses based upon the momentum that we are seeing next year. We really do not see that slowing down with the indicators we are getting. Clearly our industrial segment will be the big driver of our growth again that we teed up for 2027. I think the thing that is interesting is in transportation, while the market looks similar in automotive, our content is driving the order growth. As I said, Asia continues to be very strong content performance.
Europe, we are actually seeing an improvement in electric vehicle, which we are benefiting from, and you saw that in our quarter four results. We are finally getting North American commercial transportation to come back, which has been slow, and that is good for us. When you think about all the things that are in the backlog as well as the momentum, it is what gets us to, hey, this look 2027 growth looking similar to the 12% we just delivered organic growth this past year. Lastly, on your shape, we will be above seasonal in our first quarter, and that is really driven by the strength we have in the industrial segment, which typically is down a little bit seasonally. You won't see that this year. It will be only down slightly. That is just one thing to your seasonal element I would highlight.
All right. Thank you, Wamsi. Can we have the next question, please?
Your next question comes from the line of Amit Daryanani with Evercore. Amit, your line is open.
Yep. Thanks a lot, and good morning, everyone.
Are you okay, Amit?
I'm good.
Are you okay?
Thank you.
Okay.
Yes, I'm fine.
All right.
Terrence, I wanted to ask you around the speed side of your DDN revenues. There is this eternal investor worry around copper versus fiber when it comes to your AI revenues, and really the industry broadly, I would say. You spend a lot of time with your customers. I am wondering, is this part of the debate you see customers having as they design next-gen solutions? Maybe you can just talk about what do you retain versus what do you potentially lose and gain as we go from copper to pluggable optics and eventually CPO? I think everyone would sort of love to understand how do we think about the revenue opportunity across the AI stack as we start to see optics move inside the rack?
Sure. Let us face it, and I know you have done some work on this. As you see our customers, our customers are working constraints constantly on the power side, the data side. When we see that and what we are working on, it goes back to what we have said, that you are going to see both copper and optical connectivity in next generation racks. That is a constant discussion, and it builds on even Scott's question. When we look at that evolution of the architecture, including the adoption of optical at the switch level in the rack, it is an opportunity that we see our addressable market continuing to expand.
When you think about the traditional copper connectivity that you have in the rack, we go through and we pressure test scenarios, and where optical reach different levels three, four, five years out, and what we know about our customers' roadmap and where they are experimenting. They experiment and they do not just have one line of sight. When we look at these scenarios, we see the copper addressable market growing over 100%. So we expect that to double where the copper will be used. You look at it, and that is going to be the drivers that you see about the continued expansion of AI in the infrastructure. When you get into inference and agentic, you get increasing demand at CPUs, which is copper-based, as well as dedicated inference architecture. So we see copper still playing a pretty big role.
As I said to Scott, you got to remember, 30% of the connectivity we have is power connectivity. It's agnostic, and when you bring optics in, it only goes up more. We talked about 800-volt direct current already. So that we see growing faster than our overall DDN business. Then where we've been placing our bets on optical is another growth opportunity. This is additional TAM, and we're building a portfolio that's chip-to-fiber, fiber-to-fiber, and high-density fiber routings. We're in the middle of validations with our customers as they're looking at their next gen on where these products play as they solve the fiber connectivity problem at the densities they need, and that's a key vector. I did mention the program today, and I think it sort of shows what we work on.
This IO, which has optical and a copper interconnect on it that was announced recently, that's a hybrid solution. It has both in it. They're the types of things that our customers are trying to figure out how they maximize the architecture as they move forward. We do expect where we play in the TAM in that optical connectivity, it'll be sure similar to what we have elsewhere in the copper connectivity. So we get excited about where we're at. It's certainly going to evolve, but we see a TAM that's going to grow on both vectors, and it's why we laid out the script. We view our DDN business is going to continue to grow by $1 billion a year and continue to compound based around where we're positioned.
All right. Thank you, Amit. Can we have the next question, please?
Your next question comes from the line of Will Stein with Truist Securities. Will, your line is now open.
Great. Thanks. I want to congratulate you both on the fundamental work and your leadership in that. I think you are the first company I have seen use an AI agent to manage the call. I would like to ask about auto end markets for you. The indicators for semi components through calendar Q3 earnings have seemed to be pretty dispersed. Foundry data points were surprisingly positive, but most of the semi companies that have a lot of exposure to automotive have not been as optimistic. You are coming in on the more optimistic side of those, but not quite as much as Foundry. We are trying to put these together.
Maybe you can help us understand what is driving the outgrowth currently in September and December, and what gives you the confidence that you are going to have outgrowth and in fact, growth at all in that end market in FY 2027 as we consider rates elevated and gas prices rising. It is just a little bit confusing. Thank you.
Sure. Thanks, Will. You had a lot of elements of that. Let me tell you how we see production, because I think we always have a start on that, and we expect production to be slightly down again with everything you have talked about. It is going to be slightly down pretty much in every region of the world. There is not one region that has great production and the other two are down. You do have to go back to our global positioning, which is very unique across our China position, our European position, and where it is around the world. When you really look at the strong performance in the fourth quarter, throughout this year, we have been talking about how Asia has been overperforming from a content pretty consistently. We talked to you about, hey, EV traction in Europe and in North America was not great.
I think what you are really starting to see in Europe now, and it does come into some of your element of the macro, we have seen EVs pick up in Europe, and we are seeing that momentum continue as we work with our customers in Europe into next year. Our content performance in Asia was double digit in the fourth quarter. In Europe, it was slightly above the high end of the range, and North America was still sort of not contributing within the range. So we still continue to see a North American environment that is going to be challenged into next year. I would say Europe with the EV content has that driver, which was really our biggest driver years ago, is actually going to be contributing more consistently. That gives us the confidence.
The other two drivers we talked to you about, data connectivity in the vehicle continues to march. It was strong all year this year. We do not see anything slowing that down. Then electronification, which is around, hey, 48-volt zonal and all of those things that also get in the safety picture, that has been steady. This year we were at the lower end of our range for the year, ending very strong. It is really the ending strong is really due to EV in Europe coming back, in what is still going to be a slightly sideways environment in Europe next year. We do see the 4%-6%. We have confidence in that with the programs that we sort of said, and certainly I think the fourth quarter shows the momentum as we are exiting this year, going into next year.
All right. Thank you, Will. Can we have the next question, please?
Your next question comes from the line of Joe Giordano with TD Cowen. Joe, your line is now open.
Hey, thanks, guys.
Hey, Joe.
I want to switch over to humanoids. We've mentioned a $500 potential per robot, obviously the scale of robots, depending on what company we're talking about, is dramatically different, size and complexity. But just curious, where you are in terms of discussions with the leading manufacturers who appear poised to be at least at the forefront of putting out real scaled volumes of these things.
Yeah. I think the real wild card is where you sort of went, which is, hey, there's a lot of people have them, and one of the things that I think is unique for us is, you take our strong automotive position, both here in North America as well as China. Many of our automotive customers are trying to take their capabilities of, let's face it, something that has wheels, something that needs a battery, something that needs a controller in it, and data going through it, and actuators and motors. Guess what? That's a car in some cases. So they've leaned into it, as well as there's independent companies that have done it. Certainly, the China momentum is strong, and let's face it, we have very strong position in China. So when we look at it, we do have content on those platforms. The wild card is the units.
I'm just going to be honest with you, Joe. You go out five years, you have some people that think there's 1 million humanoid robots being made. You have some people thinking 10 million humanoid robots made. But when you think about where we play, you're going to have these traditional things that our automotive team would supply. You're going to have a lot of connectivity that needs to be harsh. You have a lot of movement. You're going to have a power supply that needs to be charged. Our automotive team does a great job with that. We leverage some of the things in DDN when you think about the data connectivity needed, depending upon the compute in the robot.
And then there is a whole bunch of motors and actuators that are in a robot that really our ACL unit industrial has a complete suite that we provide to our automation customers. And each one of those is going to depend upon the type of robot. I know I said up to $500. That would be a robot with some pretty heavy compute in it. But, it is a content opportunity. And, whether it ends as a content similar to a car, or higher, we will see, but it is just one of those things where data and power go, that is where we play. And I think you have seen us continue to take advantage of those opportunities when that occurs.
Okay. Thank you, Joe. Can we have the next question, please?
Your next question comes from the line of Joe Spak with UBS. Joe, your line is open. Please go ahead.
Thanks. Good morning, everyone. Terrence, I just wanted to go back to maybe pull together some of the comments you made about DDN and the shape of the year, because you said over $1 billion for the year, second half weighted. But even if we assume pretty flattish or very modest sort of quarter-over-quarter, first quarter growth, that would be $300 million. So that is like a $1.2 billion pace, and I know the comps get tougher, but then you did also say more of the growth seems back half weighted. So can you just help me understand that again? Or if I am wrong, why wouldn't it be significantly stronger than that $1 billion?
Well, I did say over $1 billion, so I want to make sure that first element is clarified. I know that was in the script, Joe.
Yeah.
When you look at the shape, I think how you all should think about the shape as we go through this year is, that is all based upon programs we won. As you look at it, we do expect our DDN sales to be up slightly from quarter four to quarter one, then we will expect it to be up a little bit higher in quarter two, and then we will have a bigger step up in the second half.
I think that is the way you should frame it as you model it from a shape and interpreting more than half in the script, but I do think you are going to have a build from quarter four to quarter one to quarter two, and then you are going to get the bigger element in the second half, just how our programs are rolling in from our customers that we have won.
Okay. Thank you, Joe. Can we have the next question, please?
Your next question comes from Asiya Merchant with Citi. Your line is now open.
Just hold one second.
Great. Thanks for taking my question.
There we go.
Great.
Hey, Asiya.
Thank you for taking my question. Oh, hi. Thank you. Can I just double-click a little bit on margins? You guys had pretty good incrementals here in the fourth quarter that you reported. Just based on the guide, incrementals are going to be strong again in the December quarter. Should be sustained throughout the year? If you can just talk a little bit about the drivers here for continued incremental margin expansion. Thank you.
Thank you, Asiya. This is Heath. Certainly, we're balancing a lot of balls in the air right now from a margin perspective relative to how much is making it to the bottom line versus the reinvestment levels in the business, particularly in the areas that Terrence has spent the last 15 or so minutes talking about in the segments. So, in the quarter, certainly, margins came in plus or minus where we expected and have a decent jumping-off spot as we go into the first quarter. I would expect that to continue. There will be some quarter noise from time to time where we're making certain investments and dealing with some things. There is also no relief coming in our expectations on the inflationary front. We're still feeling heightened inflationary pressures, particularly on resins, metals, and certainly freight cost, with where prices are right now.
Those are not markedly different as we enter 2027 versus what we have felt throughout 2026. So I'm not flagging incremental year-over-year, but those are real, and we don't see a lot of relief coming from those. The productivity machine is humming pretty well right now, and where we can, we've got a little bit of pricing opportunity, but that's not a big instrument for us to use. Yeah, I think from a modeling perspective, you can assume that it looks consistent year-over-year with how we've been trending.
Thank you, Asiya. Can we have the next question, please?
Your next question comes from the line of Mark Delaney with Goldman Sachs. Mark, your line is now open. Please go ahead.
Yes. Good morning, and thank you very much for taking my question. Appreciate all the helpful comments the company already gave on the outlook for the DDN business, as well as your thoughts on both copper and fiber. I was hoping you could double-click on the fiber traction, and in particular, with the RAM Photonics acquisition. Can you share more around how the engagements with RAM Photonics are going with hyperscalers and what your outlook is for the fiber attached technology? Thanks.
Yeah. No. Mark, good morning as well. Where we are with that, clearly this was cutting-edge technology, which is fiber attached. It is very high density, and we are in the middle of engineering validation with certain customers. I would also say, building on the comments I made earlier, not every customer is looking at fiber to the chip in their roadmaps near term. Our engagement is with the customers you would expect it to be with, and we will continue to keep you updated. There is not much more I can say on that, but it will be something that we are very pleased on the validation we do have going on from an engineering.
Then as we always have to do with these programs, you always have to scale it, which I think we have shown a propensity that we can do, when you see the growth of DDN. This was a hard challenge to solve as you bring signals onto the chip. How do you get the density of the fibers coming off? That is what we have here from the fiber to the chip connectivity that I talked about a little bit earlier.
All right. Thank you, Mark. Can we have the next question, please?
Your next question comes from the line of Manmohanpreet Singh from JPMorgan. Your line is open. Please go ahead.
Hi. Thank you, guys. Thank you for taking my question. I just wanted to double-click on DDN from a slightly different perspective, maybe. The orders for the segment tracked at almost 70% growth through fiscal 2026, while revenues were, I think, closer to 44%, 43%. It is kind of in line with the backlog build commentary, which you have highlighted earlier, but just wanted to double-click on what is the actual timing relative to conversion of that backlog into revenues, and maybe should that at some point drive an inflection in DDN revenues? Thank you.
No. Thank you. I will just build on some of the other answers I said. First off, being that those orders are from our hyperscale customers. We continue to think that growth will be driven no different than it was this year from the hyperscalers. Then the shape that you do think of how that converts is do think about the revenue, back to Joe's question, that going from quarter four to quarter one, our DDN revenue will be a little bit up, increase a little bit up into quarter two, and then certainly you will see a bigger step-up in the second half, which gets into that over $1 billion of growth. That backlog is spread out over next year, and a little bit into the year after, which is really good because their program wins and really locking in with the customers.
All right. Thank you, MP. Can we have the next question, please?
Your next question comes from the line of Varun Govindaraj with Bernstein. Your line is now open. Please go ahead.
Good morning, everyone. Thank you for the question. I just had a follow-up on the price cost that you touched upon a little bit earlier. Naturally, we're in this environment where input costs are going up a ton. From the time something enters your backlog to the time it's delivered- Outside of the internal actions that you're taking, what other levers do you have to pass price on? Can you also go talk to customers and increase it when the order has come in earlier? Or is that really not as much on the table? Specifically interested on the DDN side.
Yeah. So a couple of things. First off, I do want to thank you for picking up coverage on us, so appreciate that and appreciate the question. When we look there, pricing across our business units does relate to how it happens in markets. In some cases, we have metal riders, and metal riders are very common. We put them in over the years. Certainly, you see the benefit of that in our Transportation Solutions margin, that we don't have to chase or get into negotiations, and they're sort of real-time things. In things like resin and stuff, that is a little bit more real-time discussions because the resins that we use don't have core indicators. But our teams have done a good job, and you've seen that in our results.
I would also say when we have seen an acceleration, there's even times we've repriced backlog in areas where we see backlog going out that we don't believe we should take the risk of inflation in. We do have those customer discussions. So, while he said very correctly we're price positive, we really view price in our business to be an offsetter of these inflationary costs with our productivity tools, and I think our teams have been doing a really good job with it in this environment.
All right. Thank you, Varun. Can we have the next question, please?
Your next question comes from the line of Shreyas Patil with Wolfe Research. Shreyas, your line is open.
Hi. Thanks so much. Terrence, I'm curious if you could help us unpack your AI business a little bit. You've mentioned about 30% is tied to power. I believe around 10% or so is tied to optical. So clearly you're seeing very good growth on the power side. Market factors are supporting optical growth. But as we think about that remaining piece, I suspect investors are just assuming that's all scale-up copper, which is almost certainly wrong. But curious if you can help unpack that, and then the factors that support scale-up copper in the rack going forward. Thanks.
Yeah, it is a mix of many products. When you look at it, clearly the power is there. There are also elements that we get into edge and IoT that is further away from the rack, which is the percentage that is not directly AI. But when you get into what we would call compute or data fabric, this can be copper backplane, this will be things that are mid board, and some of these things will not disappear in an optical infrastructure. Certainly, you also get into cables that actually jump as well from a data side that is similar to what I talked about earlier. The complexity of the interconnects, there is not just one. It is similar to all of our units. It is much more complex. But when you think about it, about 30% is power.
The rest is both between what is happening in the backplane, what is happening in the middle, what is flyover cables, as well as IOs on the front end. All of those are things that we have to design with our customers on that create a lot of stickiness, and actually they are experimenting with different things. There will still be, as I sort of say, it is a fiber and copper. There are things that will remain copper for a long time, even in an optical as it comes into the rack.
All right. Thank you, Shreyas. I would like to thank everybody for joining us this morning, and if you have any additional questions, please contact investorrelations@te.com. Thanks, everyone, and have a nice day.
Today's conference call will be available for replay beginning at 11:30 A.M. Eastern Time today on the investor relations portion of TE Connectivity's website. That will conclude the conference for today.