All right. Hi everyone. I think we can get started here. My name is Alex Dwyer. I work with Jefferies. I am an Equity Research Associate, covering machinery and multis, and I work with Steve Volkmann. Today we are joined by Terrence Curtin, the CEO of TE Connectivity.
Wonderful.
Yep. It is a fireside chat format. We take audience questions, so if anyone has a question, don't be afraid to raise your hand. With that, let's get started. Terrence, thank you for coming.
No, thanks, Alex, and I appreciate everybody being here to learn more about TE Connectivity, so let's get into it.
Yep. I guess I'll just start out with some Q&A. You have raised your AI sales guidance a couple of times this year. Though the year-on-year growth rate has come down from 70% to that 33% range or something. I know nothing is really changed in the market. I know you are ramping a lot of capacity.
Totally.
And there's been some program timing nuances. Can you just talk about how that kind of unfolds going forward over the next couple of quarters?
Sure. First off, thank you again. Just to frame where Alex was going, when we look at TE, it's important to understand that we play at the intersection where you need data connectivity as well as power connectivity. Our biggest growth driver both this year and last year really has to do with where we work with semiconductor companies and hyperscalers on how you connect GPUs and all the connectivity that go into the rack. It's been a really good growth driver for us, and actually our expectations are higher than we just thought when we started the year, and the momentum continues to be strong. Yes, we're going to have times when programs change, some programs come in, come out, but what's really good, our position with our hyperscale customers really has set up nice momentum, not only this year but into next year.
Our orders are up about 70% this year, in our AI space. That's going to set up a really nice tailwind as we go into 2027, and as we continue to help them solve the connectivity needs that happen both on the power and data side. The other thing about this year, just to build on maybe outside of our AI business is, our AI business has been maybe about 40% of our growth this year. TE's going to grow about $2.5 billion this year, and that's really driven by our industrial segment, which includes what we do for our AI customers.
That breadth of growth that we have is really where we bring our connections, whether it be in the energy infrastructure, across aerospace and defense, which are strong secular growth trends that aren't slowing down anytime soon, which contributed incremental growth on top of what we do in AI. As well as our legacy position in transportation, where we have a strong position that really our growth is being driven by content performance that's above market. I know you're going to click down in all of these, Alex, but the element is the breadth of the growth that we have as data proliferates, as well as the power that's needed around that proliferation, I really think makes us a little bit unique as you look at opportunities for investment.
Yep. Okay. Got it. Thank you for that. I know earlier in the year there was a lot of commotion about the optics and copper transition. I think you've framed it as copper and optics, and I think it's become more apparent that copper is here to stay for longer. I guess when you talk to customers, have you seen them try to adopt more optics racks, or are you seeing them kind of push against that now? How has that played out as the year's gone on?
We've always seen our customers obviously look at where optics play from a cost, from a power need, and really to get to the data speeds that is needed in AI. It's not a new discussion, but it also sort of became a little bit of a versus discussion versus an and discussion. That, earlier in the year, was a big discussion. But what we see in our DDN business, which serves our AI customers is, and our large customers have said it publicly, copper's going to be continuing to be the workhorse that you see in the rack. Power connectivity, which is about 1/3 of our DDN business, is always going to be copper. When you look at transmitting data and signal, you're going to see areas where optics is used.
You're also going to see areas where copper continues to be extended because of its scale, its lower cost, as well as lower power consumption. What's nice about where we play is we get to work with our customers as they look at where do they want to experiment. In our AI business, it is something that it's not going to be cookie cutter across the architectures. Some customers are going to push the limit. You will see how that comes into the switch in an optics perspective. You have other customers that say, "No, I want to be at a lower cost for a lower cost per token." So we see a lot of experimentation across our customer base, but what we get excited about is that the copper TAM will continue to grow, that it is an and discussion, not a versus discussion.
We've also positioned ourselves where we would play sort of optics that comes into the switch, because we really play in the scale-up element, we do less in the scale-out, and certainly we're going to be part of that. That will add TAM to us as we look forward. So lots of experimentation going on in any AI architecture, both on the power side and the data side, and they're both things that not only for the growth we've had this year and we expect next year, but also as we look out multiple years and as we work with our customers on those racks and those architectures.
Yep. I guess to stay on the optics piece, you guys made that RAM Photonics acquisition earlier in the year.
Correct.
It didn't seem like there was a lot of revenue attached to that, more like a technology idea. Can you talk about how you see that playing into the optics adoption? I know they come with a fiber array unit. Can you just talk about what that is and how that speeds up the manufacturing issues that the optics supply chain is going through?
As we look at where optics would play in on our roadmap, we really view from a connectivity perspective in the rack. That happens at the switch, and what you would have, whether you have co-packaged optics or near-package optics, how do you bring the signal off of that with the density? You also have to have the scale to manufacture at very high rates, and that's where we've been very focused on our development. To your point, we made a technology acquisition earlier this year called RAM Photonics, which really has some very high density as well as good automation that goes with it. It doesn't have revenue attached with it at all. It's really part of our technology roadmap from a product perspective, and it really sets us up to where we think we should play in the optical space.
We're not somebody who's going to be doing lasers and active optics. There's a lot of companies that have capabilities in it. But when you think about connectivity and the passive connectivity that we do on the electrical side, which is copper, as you call it, we really feel that the fiber attach unit is an area where there needs to be scaling brought to. It ties in with our roadmap and also the discussions we have with our customers and as we go through engineering qualifications. So I view that as part of that TAM expansion that we talked about. It's something that we didn't have at our investor day earlier this year, but it's something that provides a future growth opportunity no matter where optics comes in, whether it's CPO or NPO.
What do you think about timeline on revenue generating for that asset? Do you think it's a couple of years away?
Yeah. The question, I was at another conference yesterday that was a technology conference. This question I got every minute. The element that you have is it's really going to come down to where our customers see scalability of where this can be that really doesn't change their roadmaps. Right now, we're in a lot of engineering qualifications. I don't think you get into meaningful revenue until 2028, 2029, depending upon where our customers have it in, as well as where does the broader ecosystem support optics adoptions in the switch.
Mm-hmm. Okay. I guess the power connector opportunity, I think, is that 25% of your DDN business?
It's actually larger. When you think about our DDN business, which is about $3 billion of our $20 billion this year, about 1/3 of it is, it's a little bit higher than what you said, Alex.
Yeah.
About 1/3 of it is actually around power connections. One of the things that creates future growth opportunity is as you bring more compute and more optics and other things in, the power consumption that you need increases the content significantly. Certainly, there are some customers that are looking at 800-volt sidecar power racks that support the GPU racks. That is where the power is going. They are types of things that can create a 50% increase in our content on a rack. When you think about the growth we are delivering this year, around $1 billion, those types of architectural changes continue to help us look at a roadmap on growth that is just going to continue to build as AI architecture evolves.
Yep. I guess, can you talk about what the last three years looked like from the power connector growth story and how that can differ from as we think about the next three years and whether 800-volt comes or does not come? Is it just denser connectors or more volume or higher pricing?
Sure.
Yeah.
When you go into there, typically when you think about density, you think about density more in the data side. On the power side, what you are dealing with is you are dealing with voltages that are much greater to bring over. You are dealing with bigger interconnects, not typically smaller interconnects, as well as a lot of the materials and electromechanical elements that go with it. When you think about probably three years ago, power connectivity was probably 25% of our DDN business. It is up to 30%, about a third. I think you are going to continue to see that go up as the power architectures evolve versus the standard architectures we have had historically. When we look at this space, I know you asked about optics and copper.
There are elements that relate to what is happening on the data side that we are going to benefit from, both in copper and optics, but then there is the power element. The power element, we have some customers that are looking at 800-volt, some are looking at 400-volt steps. You are going to see a lot of different architectures that our customers are experimenting with, and we get to work with them, which is a very important part of our moat with our system architects and our customer system architects. It goes back to anything that TE does.
I know when we are talking right now about our DDN business, but whether it is in our energy business, our automotive business, our factory automation business, it really always starts with you have a semiconductor and you have a power supply, and you need connectivity that brings that architecture together, and they are the things that we focus on. Depending upon how hard the technical challenge is, that drives the bigger content opportunity. We always embrace architectural changes. They are things where our customers need our expertise, it is where our engineers excel, and then certainly we have to make it for a life of any program, but they are things that we get excited about all the time.
Yep. Does anyone in the audience have a question? Or I can keep going, if not. All right, I will keep going. I guess I am going to move on from DDN segment and go into energy. I guess you have added Richards and
Sure
you are 70% exposed to North America now. The growth rate has come up because of that, and I think you even raised it again to mid-teens last quarter. Can you talk about what drove that revision and what gives you the confidence to think mid-teens organic growth is the right growth rate going forward, and talk about that?
Yeah. So when we sit there and we talk about our industrial segment, we talked about our DDN business, which is a chunk of it. But the other chunk we have, we have a bunch of businesses that are $2 billion. Our DDN business is $3 billion, and once again, it is doing connection, but this is in the power space where we support our utility customers from medium voltage in the grid all the way down to stepping down to a data center, stepping down to a renewable farm. It is an area where we spend a lot of time focusing on where do we play from a go-to-market, and we have also done a couple acquisitions that have helped support where we want to play, including Richards and Harger.
But when we look at this space, it is a space that these are power connections, 800-volt, low voltage in a utility. That is low voltage. But when you think about where we are helping our customers here, it is as the energy capacity has increased this market, this was a market five years ago that was a 1%-2% market. We view it is growing 6%-7% today, and depending where you play, you have growth rates much higher than that. We excel in medium voltage. We also excel in undergrounding. So when you get into grid hardening, you also get into highly dense areas like we are here in Manhattan. You really get into opportunities as the grid needs to be upgraded. Certainly, there is deferred maintenance.
We feel where we are playing actually gets us into that double-digit rate that you talked about, and it is why we upgraded it.
We continue to add capacity, both in our facility here in New Jersey, we are near here in New Jersey, as well as out in Ohio. And 70% of our business is U.S.-focused. It is an area where we have picked to play stronger in the U.S. Clearly, TE, you typically think about TE being very global. Actually, in energy, it is very much U.S. first, a little bit smaller in Europe is really our position. And as we sit there and think about how you get power distribution, where we serve our utility customers, but just as importantly, how we serve what we call industrial power, the EPCs that help do moving the power from the utility to the step-down into the data centers, to step down into semiconductor manufacturing sites. There are other areas that we are very strong at and you use our medium voltage products on.
We get very excited about the growth trends here. I know everybody likes to talk about AI, but there is an element here with where the energy infrastructure is at and the growth rate we see there. We really like where we position ourselves, and it is a nice double-digit grower. It is going to be mid-teens this year. I think you can have that expectation as we go forward in this 6%-7% market. We continue to have opportunities, and it is also an area we will probably continue to look at across our industrial segment for places that can have inorganic opportunity.
Yep. I was going to ask, as you look at this business over the next three to five years, are there any immediate gaps you see in the business that you would like to add organically or inorganically? I assume you probably want to keep building out the North America presence. Are there any regions in the country you are underexposed to? Or you mentioned strong in undergrounding. Would you maybe build up capabilities in the above the ground utility? Just how are you thinking about that?
Certainly, we're very focused in medium voltage, and we like that, and it builds on what we've done organically and what we've done inorganically. I think if we could find things that would help in the overhead, because a lot of the U.S. is overhead when you go to the middle of the country, but there'll be opportunities, and they have to be on the right returns and growth profiles for us. I do think the energy space is always a fragmented space. We like the base that we have. We also think there's opportunities to continue to expand it with the relationships we have with our utility customers, as well as in the industrial power side.
We'll continue to look at components that could fit into our suite and that we can add value to, both for us, as well as the customers, as well as owners.
Yep. Okay. Then, I guess on the lower growing parts of the energy business, the traditional Europe business-
Totally
Then the clean energy renewables piece, are you seeing any signs of pickup there? Can you just refresh on what are the main renewable clean energy applications you sell into?
Our growth rate, renewables, we typically sell into utility scale solar. When you look at that here in North America, we are not as wind exposed. That has been slower, and even in the growth rate that you talked about in mid-teens, we are absorbing a slower environment, and some of that is due to regulation. That is really where we play in renewables, and that is really here in the United States. In Europe is traditionally a slower grower than where I talked about from the growth rate. We are actually seeing step-up from an investment from our European customers. It also gives us confidence that we will be able to be in that double digit as those investment levels come in, where they are actually putting in LNG facilities, actually has a lot of power that needs to come to it.
That is very important to our growth profile.
Yep. Okay. Cool. I think I will stop there on the energy business and then move over to the ACL segment which is more of your traditional general engineering industrial business. The double-digit growth started coming before the PMIs started inflecting in January, and it has been eight months in a row of expansion there. I know you serve a lot of different end markets in that business. Are there any one to two major geographies that have been driving it, or any specific industry? I know factory automation has been strong.
Yeah. When you look at what we call ACL, it is automation is how you should think about it. This is a business that when we say the growth rates, I do have to be transparent. It has been a market that has been very slow for a couple of years. So we are finally seeing a cyclical inflection. To your geography question, Alex, it is broad. We are seeing it in all three regions of the world, and to your point, you look at ISM PMI, you really see that momentum going because it is so broad. Where we play is very much in discrete manufacturing in the automation space, in the factory automation space, and we are seeing our customers probably get back to more of a mid-single digit to higher single digit growth rate in their business.
A lot of it really comes back to the data that you need on the factory floor. When you look at what we do, and I know we started with AI, the data that is actually needed to make things more efficient actually starts with the productivity that you need to collect the data to make the machine more intelligent. One of the things, yes, we have a cyclical pickup that is early. I would tell you, even when we look at TE, where we are investing and how we think about how we use AI internally, it is on the engineering side and it is in our factories. That comes with getting the data off the machines. How do you make the machines more intelligent to have that compute using the models?
It's one of the things that not only you have the cyclical pickup, we typically have a content above an industrial CapEx number that's a couple hundred basis points ahead. When I see how we're investing and what we're seeing in the trends, it sort of makes sense that they're dovetailing, and it's across our global network. It is not around, hey, growth is good in one region or another. It's really around how we're driving the efficiency that we need to drive the next level of productivity using the tools that we didn't have before, that some of the LLMs provide us. I think we're still early in that cycle that's just picking up and it's nice to see the trends our customers are seeing in their businesses.
It, once again, comes back to data connectivity you need, that we connected our machines years ago to really get to this point, and then we're just accelerating it to use the models as they become more relative to drive next level efficiency.
Yep. How do you compare this industrial recovery to different industrial recoveries that have happened over the last decade or so? I guess there's a debate on how long people think an industrial recovery could last, and what would be the biggest risks to derailing this?
It's a really good question, and probably the hardest part is typically when we think about industrial recoveries, in many cases, it's started about automotive cycles. Automotive is a big capital driver, and let's face it, automotive's a very flat environment right now. From a production perspective, it's being driven in a different way. I think in many ways, what makes it very different is that it's an efficiency cycle. Certainly, there's areas that have a lot of investment, like semiconductor manufacturing and so forth, around some of the localization that's occurred. But it does have a feel of a very different cycle because the drivers are different, and I do think it comes more to a core efficiency cycle, in addition to some of those big mega programs that we all read about. But it has a very different feel of a cycle.
I hope that helps the duration be longer, but it is a different cycle than what we are used to seeing.
Yep. Okay. Is the humanoid robot, is that an opportunity you are seeing or would want to pursue ultimately, or is that something you would
No. Fair. It is a great question. With what we do on data and power, they are the types of things we are going to have content opportunities on. I know if I talk to all of you out there, some of you will say it is not real. Some of you will tell me it will be infinity. What is really cool is when you look at what the architecture will be. It has a compute element, and obviously you have to move signal and data around, as well as it is something you are going to have to recharge and power. We have automotive customers that are actually experimenting very highly, using a lot of automotive-type product that we will work with them on. Certainly, we have our robotic customers that have views on what the architecture would look like.
It is one of those things that I am sure we will be talking more about in three to five years, but it is the types of things when you think about what TE does from a data and a power connection, we will be right in the center of it, and we will help people solve that. But it is still very nascent, when you think about the revenue element.
Okay. Then, I guess maybe switching over to automation. At your Investor Day in November, you provided a target for 4%-6% content gains, I think.
You mean automotive.
Sorry. Oh, automotive. Did I say automation?
Yeah.
Okay.
That's what I mean.
I guess a lot of investors typically associate the content gains with EVs, which I think had double the content versus an ICE. I think you laid out three different content drivers. Should we be thinking about content gains in a different lens than historically, and what the main drivers are that you have seen since that Investor Day?
First off, I know we all know the automotive production environment is flat at best, and it is - 1. When you think about TE, I think there are a couple of things that are very important that you think about. First off, of how global that we are, and we have content on essentially every vehicle on the planet. The second thing is it goes back to the data and power I talked about a couple of times. Three to five years ago, we would have discussions at this type of conference where we would say, "Hey, we can grow outside production by 4 percentage points-6 points," and probably 60%, 2/3 would be around electric vehicle adoption, driven by Asia, certainly driven by Europe, followed by North America. Similar to the rest of TE, our growth profile has broadened in automotive too.
When you think about that 4%-6%, while that number is the same, the complexion of what drives that content opportunity for TE is very different. There is probably about 40% of the 4%-6% that gets driven by data connectivity in the vehicle. That is both what happens with ADAS. It is also what happens when you basically have over-the-air software updates. That is about 40% of that 4%-6%. We still also have a part that is EV, and it is really due to our strong presence in Asia. Asia EV adoption is full steam ahead. It is not stopping, and I know many of us here live in the United States, EV does not give a lot of content opportunity in North America.
The last piece that you have, which is pretty balanced with EV, is really what happens in features in the vehicle that we benefit from.
If you are in China, those vehicles have microphones all over them because you talk to the car. The comfort is very different. You have refrigerators that are in those vehicles. Here in North America, you may have cooled seats. All of that creates electronics. Any electronics you get in a car, sometimes they need data. Certainly, they are going to need to be powered, and that is the last element of what creates content opportunity for us. So one of the things that we really like is you have this data element, and the other thing around that data element, you have to realize, it is the edge compute that is happening. So no different than how I talked about factory automation, where you have data that is needed for efficiency in the car.
It is also creating another element of edge that all feeds off the AI trend that you have up top, and it is driving that content, which is very different than if we just talked three, four years ago.
Okay. Got it. That is helpful. I guess -1 to flat automotive global production, and I think you even gave that expectation.
Totally
To think about fiscal 2027 to next year, the flattest range. Is there anything that you are tracking or could drive more upside to auto production over the next three to five years? Would it be autonomous vehicles, or is there anything that could happen that could stimulate that to growth?
When we plan and we work with our customers, we basically sit there and say, "We are going to assume flat." Regions can have different things going on. We are also benefiting from our strong China position, where our Chinese customers export. Sometimes people view that as a risk. That is actually something, our strong position, both with locals as well as multinationals in China. Actually, we do not have any negative exposure to that. We are very strong with both. When you look at car production, we really do not think that is going to move. You would need something economically to make it move, and we really focus on how we bring innovation to drive the content growth. We view it is more in our hands to drive that content growth like we have been doing, and we feel good in that 4% - 6% environment.
We're going to continue to drive growth in our business like we've done this year and like you even just saw last quarter where we had outperformance
Yeah
in the content.
Yep. Okay. I guess staying in your transportation segment and shifting over to commercial vehicles, it seems like the growth rate's come up a lot this year. I know the comps are easier and we're coming off a trough of a cycle.
Totally.
How much of the growth is the cycle versus you've just won a lot more programs recently versus you have a lot more content gains? How do we think about that?
Sure. First off, I think I'm going to sound a little bit like our automation discussion.
Yep.
The heavy truck market in the United States has been weak for a few years. Certainly outside the United States has actually been constructive. It's actually been growing outside the United States. The United States and the heavy truck market has been tough. When we say commercial vehicles, we not only include Class 8 trucks, we also include ag and construction equipment. We've actually seen United States pick up over the past couple of quarters that it was early into a cycle. Certainly there's regulation and interest rates at play into this a little bit more than some of the other markets we play into. In addition to where the cycle is picking up, we have the same content opportunity in commercial vehicles that we do in a car. In Asia, about 1/3 of commercial vehicles are electrified powertrains.
I know that doesn't sound natural here in the U.S., but that's true. Also, you have data which not only helps the trucker be more efficient and more productive, it comes throughout also from a safety perspective. Some of those trends we talk about in auto and a lot of other features do carry over. Right now, we're growing very strongly as the cycle has picked up.
Yep.
There is content in there that it will get down to maybe a lower single-digit market.
Yep
at some point, but we will be able to drive outperformance due to those vectors around content, similar to what we have in automotive.
Yep.
We are globally balanced in this business, so it is about 1/3 in Asia, 1/3 in Europe, 1/3 in North America. That element, we also really like that position as we drive innovation around the world.
Do you have a view on, I do not know how your business is split between ag, construction equipment, and heavy truck, but do you have a view on how long the cycle could be for this, and if interest rates creeping back up could be something to worry about?
Yeah. Clearly, this was a big purchase, so interest rates do impact this. That is probably the one caveat and why I said it, to really be honest, where interest rates go could make this a little bit more of a muted cycle. I think we have to see how that plays out. I think it is a little bit different than a cycle than where we see factory automation, like we talked about from that efficiency, where you have really efficiency that you can drive off of the predictability we all want in our processes and our manufacturing with, certainly, the tools we have at us. So I just think it is a watch-out as we go into next year. But we will have content outperformance.
Yep. Okay. I guess you have got the Investor Day targets are for 30% incremental margins, and I think it is the same for transportation and for industrial. Is that the right way to think about that for next year? Are there any puts and takes on price cost or any segment where there has been more footprint optimization done that you could leverage now?
Well, first off, a lot of our footprint optimization is in the rear-view mirror. We have invested heavily to be localized, and I think you are seeing that in our margin performance. Both of our segments run around 22% operating income, and you have even seen in the lower production environment, our transportation performance team did a really good job. It is an inflationary environment, and we have been passing on prices in both segments to really offset, whether it is metal inflation, certain areas where we have tariff. I think our teams have done a nice job in working the price lever while staying competitive. As we look forward, I think the other thing you have to realize, we are adding capacity and investment more in our industrial segment.
Whether it is DDN, which we talked about first, our energy business, to really make sure we capture the growth opportunities.
I do think you are going to see higher fall-through and higher growing units. We also are making real-time investments, and you have seen nice margin expansion this year as we are making those. I think it proves how our operations have improved from an execution perspective. I think there will be times that one segment may be a little bit higher due to higher volume. A lot of the footprint things that we used to talk about are in the rear-view mirror.
Yep, okay. I guess just to wrap it up, I feel like we have discussed a lot of things, and I think we hit on most of the segments, hopefully. Is there something you think that is underappreciated about your stock or your story or your growth drivers or anything, any message on what is underappreciated about TE?
Yeah. First off, let's face it, you're all very bright people, so I'm not going to say what you don't understand. But I do think there's an element when you think about TE, historically, people would say, "Hey, think about TE from an automotive perspective." Currently, over the past few years, with the momentum we've had in AI and our DDN business and even how we started the discussion
Yep
it was a lot of DDN discussion. I think there's a broadness to our growth around data and power that shouldn't be underappreciated. And I would just ask you all to really make sure when you think about what we talked in our energy business, the secular trends that we also have in aerospace and defense, which we didn't even
Yep
talk about.
That's the thing. That's the one I
Which is going to be double-digit growth, are very powerful growth drivers. When we look at this year, while there's a lot of times automotive and DDN discussion, which are important, we're growing $2.5 billion this year. A lot of those other businesses, which we worked very hard to broaden that growth, being focused where we add connectivity solutions both on the data and the power side, I guess that's the one that I think sometimes we all go to the discussion how we did it.
Yeah.
Those other ones are driving. These are $2 billion businesses that are driving double-digit growth, are really driving the breadth of growth, and also how we execute to pull it through, drive cash flow, and certainly, whether we return it to you or we actually add to the portfolio inorganically, I really think the business model is working well. I want to thank you for being here
Yep
this afternoon. I know it's probably the last meeting of the day for many of you.
Yep.
I appreciate you listening.
Thank you all for joining.
Thank you, everybody.
Yep, thanks for coming.
Thanks.
Thanks, everybody.