Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Amphenol Corp (APH, Financial) reported record sales of $3.61 billion for Q2 2024, an 18% increase year-over-year.
- The company achieved a record adjusted diluted EPS of $0.44, up 22% from the prior year.
- Orders in the quarter reached a record $4.61 billion, resulting in a strong book-to-bill ratio of 1.12 to 1.
- Adjusted operating margins reached a record 21.3%, a 90 basis points increase from last year's second quarter.
- The company announced a 50% increase in its quarterly dividend to $0.165 per share, effective October 2024.
Negative Points
- The industrial market saw a 5% organic sales decline year-over-year, indicating some market softness.
- The automotive market is expected to see a slight decline in sales in Q3 due to slowed production schedules by certain automakers.
- Broadband market sales declined by 17% year-over-year, with further moderation expected in Q3.
- The CIT acquisition is currently operating below the company's average profitability levels, impacting overall margins.
- The pending acquisition of CommScope's mobile networks businesses is expected to take 10-11 months to close, which is longer than typical for Amphenol Corp (APH).
Q & A Highlights
Q: Adam, a really impressive order growth over here. Big, big numbers on. Can you just talk about how much of that was driven by AI? Are you seeing a lot of new programs kick in? And how do we square that with your expectation of a moderate increase here in IT datacom for the third quarter? Thank you.
A: Yeah, well. Thank you very much, Wamsi. Look, we are very encouraged by the orders this quarter. And as I mentioned, 112 book-to-bill, by far and away, the biggest driver of that was a very significant book-to-bill that we saw in the IT datacom market and no doubt about it. I mean, there's a significant portion of that is being driven by AI, and this is existing programs that we've already won, new programs that we are winning, a really broad array of a momentum that we have across AI. And I think just so proud of our team who is leveraging our leading position in high speed and power to really continuing to win in these extraordinarily complex systems. And as it relates to your question on the third quarter and the guide related to our sales, we shouldn't forget, these are some of the most complex interconnect products ever built that we are making in many cases. And they have to be that because what our end customers are trying to achieve with AIs is really phenomenal. I mean, the phenomenal array of growth of these next-generation models that are being trained, the intensity of the interconnect, the requirements of both speed, highs, ultra-high-speed, ultra-low latency, the complexity of these systems because you're effectively having to connect every GPU or TPU or whatever it may be to every other one in order to create this sort of fabric like network. There is an enormous amount of technology involved in these things. And we've talked about also in the past that for some of these systems that requires also some meaningful investments upfront. And well, our CapEx last quarter was kind of in line with our normal historical. I think Craig did mention that we continue to expect some elevated CapEx here in the second half. And so I would say that the orders that were getting from customers in many ways, they slightly opened in the order aperture to maybe give us more confidence in kind of extending ourselves in those investments and as well in order to make sure that these significant new products with all the challenges associated with them that we're building the right capacity in order to do that. And I'm not talking about massive extensions in these order apertures, but these are not necessarily just orders for the next quarter alone. And so, you know, as we look at our order book, we look at our backlog related to AI, I mean, it gives us confidence not just for the quarter ahead, but for a long term to come.
Q: Adam, I mean, there's obviously a lot of focus on what does the AI opportunity really mean for Amphenol? I'm wondering if you could spend some time just screaming on how do you see this opportunity playing out for you? Is it bigger with hyperscaler or with semiconductor companies for you? And is there a way to think about maybe how much of the incremental, let's say $300 million of revenues you had in June was AI driven versus not? Thank you.
A: Thank you very much, Amit. I mean, look, the answer is all of the above. I mean, at the end of the day, there are folks who are spending money to build AI data centers. And those tend to (technical difficulty) play down to the chip companies. And I think what is unique about AI is, these systems are so much more complicated. There's so much more technology embedded in them that, in fact, we are working through the stack of that entire chain in making sure that our products are doing the right thing at each level. And so I think from that perspective, it's a little bit unique compared to traditional IT datacom where we worked with just OEMs or just service providers. I say here, we work with companies up and down the stack. And in significant ways, let me say that. In terms of the growth over prior year, I mean, you've characterized our growth, which is just over $300 million on year-over-year basis. And I think what I -- how I describe that was the vast majority of that growth really came out of AI. We've been careful not to just put specific numbers. In fact, it's not always easy to tell what is exactly AI and what is exactly not AI. And so we've tried to be a little bit more directional about those numbers. And I think we've been consistent about that from really the beginning of the sort of advent of this revolution. But I think you can safely say the vast majority of our growth on a year-over-year basis, and then on a sequential basis, just to give another data point, I would say that the strong majority of our growth on a sequential basis, but not all of it, -- and we were encouraged on a sequential basis as well to see some growth in the base IT demand, which has been a long time coming. I think we all know. I mean that was not the easiest of markets over the last, you know, I don't know, six to eight quarters, and it's encouraging for us to finally see meaningful growth from that sort of base IT investments, which we always expected would when they come. But no doubt about it. The vast majority of year-over-year or the strong majority of our sequential growth has come out of AI.
Q: Hey, thanks for taking my question. And I'm actually going to switch gears here and ask you about the acquisition of CommScope, particularly in terms of when you think about mobile networks and you mentioned you're starting to see somewhat of a cyclical sort of spending recovery from your customers. But I think investor perception generally for that mobile networks business has been that service providers don't really need to spend massively till we get to 6G. So maybe if you can sort of outline why now, why now the acquisition? How you're thinking about sort of the outlook for the next few years and what drove the decision here to double down on this mobile networks business? Thank you.
A: Yeah. Well, thank you very much, Samik. Look, -- and I'm just going to from a vernacular perspective, we'll call this, Andrew. So as not to confuse anybody because we're not buying all of CommScope. We are buying the mobile networks business from CommScope, which is essentially Andrew, that was acquired by them in 2007. And Andrew is just a fabulous, fabulous company. I mean, as I mentioned in my prepared remarks, a rich legacy of technology and outstanding enabler of all the generations. I mean, they go back all the way to 1G and 2G and 3G and 4G and now 5G as a core partner in enabling those next generation networks. And I think, yes, for the last, you know, year or year-and-a-half, we've seen more muted demand in mobile networks were encouraged. See that now -- I'm not going to tell you that we're smart enough to
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
