Earnings Call Transcript - APH Q3 2021

Operator, Operator

Hello, and welcome to the Third Quarter Earnings Conference Call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then all lines will remain in a listen-only mode. At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Thank you, sir. You may begin.

Craig Lampo, CFO

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our third quarter 2021 conference call. Our third quarter 2021 results were released this morning. I will provide some financial commentary, and then Adam will give an overview of the business as well as current trends, and then we'll take some questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and may make certain forward-looking statements. Please refer to the relevant disclosures in our press release for further information. In addition, all data discussed during this call will be on a continuing operations basis unless otherwise noted. The company closed the third quarter with record sales of $2.818 billion and GAAP and adjusted diluted EPS of $0.67 and $0.65 respectively. Sales were up 21% in U.S. dollars, 20% in local currencies and 13% organically compared to the third quarter of 2020. Sequentially, sales are up 6% in U.S. dollars in local currencies and organically. Orders for the quarter were $3.016 billion, which was up 33% compared to the third quarter of 2020 and down 3% sequentially resulting in a very strong book-to-bill ratio of 1.07:1. Breaking down sales into our two segments. The interconnect segment, which comprised 96% of sales, was up 21% in U.S. dollars and 20% local currencies compared to the third quarter of last year. Our cable segment which comprised 4% of our sales was up 18% in U.S. dollars and 17% in local currencies compared to the third quarter of last year. Adam will comment further on trends by market in a few minutes. Operating income was $571 million in the third quarter. Operating margin was 20.3%, which decreased by 20 basis points compared to the third quarter of 2020, but increased by 30 basis points sequentially when compared to the second quarter of 2021 adjusted operating margin. The year-over-year decline in operating margin was primarily driven by the impact of the more challenging commodity and supply chain environment in 2021, together with the slight margin dilution of recent acquisitions, including MTS, which are currently operating at a lower operating margin than the company average. The sequential increase in operating margin compared to the second quarter adjusted operating margin was driven by normal conversion on the increased sales levels. From a segment standpoint, in the interconnect segment, margins were 22.4% in the third quarter of 2021, which was equal to the third quarter of 2020 and increased from 22% in the second quarter of 2021. In the cable segment, margins were 3.8%, which decreased from 10.7% in the third quarter of 2020 and 6.1% in the second quarter of 2021. Our margins in the cable segment continue to be particularly impacted by the ongoing and sudden increase in commodity and logistics costs, which have not yet been offset by pricing actions. Given the dynamic economic environment, we are very proud of the company's performance. Our team's ability to effectively manage amidst many challenges is a direct result of the strength and commitment of the company's entrepreneurial management team, which continues to foster a high-performance action-oriented culture. The company’s GAAP effective tax rate for the third quarter was 22.2%, which compared to 22.1% in the third quarter of 2020. On an adjusted basis, the effective tax rate was 24.5% in the third quarter of both 2021 and 2020. GAAP diluted EPS was $0.67, an increase of 20% compared to $0.56 in the prior-year period and adjusted diluted EPS was at a record $0.65, an increase of 18% compared to $0.55 in the third quarter of 2020. Operating cash flow in the third quarter was $328 million or 81% of adjusted net income. Net of capital spending, our free cash flow was $238 million or 59% of adjusted net income. Cash flow in the quarter was a bit lower than we would typically expect primarily due to the higher than typical increase in inventory levels, driven by the continuous challenging supply chain environment. From a working capital standpoint, inventory days, days sales outstanding, and payable days were 91, 70, and 61 days respectively. While days sales and payable days were both within our normal range. Inventory days at the quarter end were elevated for the reason just mentioned as well as the impact of recent acquisitions, which have inventory days that are currently significantly above the company average. As mentioned in today's earnings release, the company's Board of Directors has approved a 38% increase in the company's quarterly dividend to $0.20 from $0.145 per share effective for payments beginning in January of 2022. During the quarter, the company repurchased 2.3 million shares of the company’s common stock for approximately $171 million at an average price of approximately $73. And at the end of the quarter, total debt was $5.2 billion and net debt was $3.9 billion. Total liquidity at the end of the quarter was $2.9 billion, which included cash and short-term investments on hand at $1.3 billion plus availability under our existing credit facilities. Third quarter 2021 GAAP EBITDA was $686 million and our net leverage ratio was 1.6 times. As previously discussed, due to the pending sale of the MTS test and simulation business, that business is being reported as a discontinued operation. And therefore, its expected results are excluded from our Q4 guidance. In addition, the company will incur certain additional cash tax and other acquisition-related costs upon the divestiture of the test and simulation business, which is not included in income from continuing operations. I will now turn the call over to Adam who will provide some commentary on current market trends.

Adam Norwitt, CEO

Well, thank you very much, Craig, and I'd also like to extend my welcome to everybody here on the phone today. I hope that all of you had an enjoyable and healthy summer and are staying dry here if you're in the Northeast today. As Craig mentioned, I'm going to highlight some of our achievements here in the third quarter. I will discuss the trends and our progress across our served markets. And then finally, I'll make some comments on our outlook for the fourth quarter and for the full year of 2021. And of course, we'll have time at the end for questions. As Craig went over, our results in the third quarter were substantially better than we had expected coming into the quarter. We exceeded the high end of our guidance in sales, as well as in adjusted diluted earnings per share. Our sales grew a very strong 21% in U.S. dollars and 20% in local currencies, reaching a new record of $2.818 billion. On an organic basis, our sales increased by 13% with broad-based growth across most of our served markets, as well as contributions from the company's acquisition program. Orders in the quarter were robust, again, more than $3 billion, at $3.016 billion. This represented another strong book-to-bill at 1.07:1 despite the many operational challenges that we've continued to face throughout the quarter, including continued cost increases related to commodities, supply chain, and other logistics pressures. We were very pleased to deliver robust operating margins of 20.3% in the quarter. As Craig detailed, that was a 30 basis point sequential improvement. Our adjusted diluted EPS grew strongly from the prior year, increasing by 18% to a new record of $0.65. This is an excellent reflection once again of our organization's continued strong execution. The company generated operating and free cash flow of $328 million and $238 million in the third quarter. We're very pleased that the Board of Directors just approved yesterday an increase in our dividend of 38% effective in January of next year. Coming out of this quarter, I'm just extremely proud of our team around the world. These results once again reflect the discipline as well as the agility of our entrepreneurial organization, as we continued to perform well amidst a very dynamic and challenging environment. Now turning to our trends and progress across our served markets. We're very pleased that the company's broadened balanced and market diversification continues to create value for Amphenol. Very importantly, our diversification mitigates the impact of the volatility of individual markets while also simultaneously exposing us to leading technologies wherever they may arise across the electronics industry. These are both important benefits, especially amidst such a dynamic market environment. Turning first to the military market. This market represented 10% of our sales in the third quarter. Sales grew by 7% from the prior year and declined by 4% organically, which was a little bit lower than our expectation heading into the quarter. On an organic basis, growth in ordnance, airframe, and space-related products was more than offset by moderations of our sales of products that were used in vehicle, naval, and communications applications. Sequentially, sales declined by about 3%. Looking into the fourth quarter, we now expect a slight sequential sales increase. For the full year of 2021, this would imply a mid-teens increase in sales from last year's levels. We continue to be excited by the strength of Amphenol's position in the military market as defense customers around the world continue to adopt next-generation technologies at an increasing pace. Our industry-leading breadth of high technology, interconnect, and sensor products position the company strongly across essentially all major defense programs, and this gives us confidence for our long-term performance. The commercial aerospace market represented 2% of our sales in the quarter. Sales were flat compared to the prior year and declined by about 19% organically as the benefit of our recent acquisitions was offset by continued declines in demand from aircraft manufacturers. As expected coming into the quarter, our sales declined by about 3% sequentially. Looking into the fourth quarter, we're happy to now expect a mid-teens increase in sales compared to these levels. For the full year 2021, this would imply a roughly 10% sales decline compared to last year, a clear reflection of the pandemic-related headwinds that have impacted the travel industry and thus the commercial aircraft market during the COVID-19 pandemic. Regardless of this challenging environment, our team working in the commercial aerospace market remains committed to leveraging the company's strong interconnect and sensor technology position across a wide array of airplane platforms and next-generation systems integrated into those aircraft. As personal and business travel continues to recover from the pandemic-impacted lows, we do look forward to benefiting as jet manufacturers expand their production and in turn expand their procurement of our components. The industrial market represented 26% of our sales in the quarter. Sales increased by a very strong 44% in U.S. dollars and 24% organically. This excellent growth was broad-based across most segments of the worldwide industrial market, including in particular, the battery and heavy electric vehicle, factory automation, oil and gas, rail mass transit, heavy equipment, alternative energy, and instrumentation segments together with the contributions from our recent acquisitions. On a sequential basis, sales increased by 4% from the second quarter, which was much better than our expectations coming into the quarter. Looking into the fourth quarter, we expect sales to moderate from these levels, but for the full year of 2021, we expect sales to increase more than 40% from the prior year, a very strong performance. I remain extremely proud of our global team working in the industrial market. Our long-term strategy to expand our high technology interconnect, antenna, and sensor offerings both organically and through complementary acquisitions has positioned the company to capitalize on the many revolutions that are occurring across the industrial electronics market. We look forward to realizing the benefits of the strategy for many years to come. The automotive market represented 19% of our sales in the quarter. Despite the widely reported challenges across the automotive market, our sales actually came in higher than expectations in the quarter growing a strong 31% in U.S. dollars and 26% organically. This strong performance reflected our automotive teams' excellent execution in the face of numerous supply chain challenges, as well as robust growth of our products used in electric and hybrid electric vehicles. This was another clear confirmation of our global teams' long-term efforts at designing high voltage and other interconnect and sensor products into these next-generation platforms. On a sequential basis, sales were flat compared to the second quarter. The widely reported supply chain challenges in the auto industry continued to impact demand from vehicle manufacturers around the world. Accordingly, we do expect in the fourth quarter, a high single-digit sequential moderation in sales. For the full year 2021, this implies sales will increase by more than 40% compared to last year, driven by our expanded position in next-generation electronics integrated into cars, including in particular those electric and hybrid drive trains. I remain extremely proud of our team working in the automotive market, who have continued to demonstrate a high degree of agility and resiliency in both driving a significant recovery from last year’s reduced sales levels, while also expertly navigating the myriad of supply chain challenges that the entire automotive industry is facing. We look forward to benefiting from their efforts long into the future. The mobile devices market represented 13% of our sales in the quarter. Our sales in this market declined from the prior year by 5% as modest growth in sales of products incorporated into smartphones and laptops was more than offset by declines in wearables and tablets. Sequentially, sales increased by a stronger than expected 36% driven by higher sales across virtually all product categories that we serve. Looking into the fourth quarter, we expect a continued mid to high single-digit increase in sales from these third quarter levels. For the full year, we anticipate sales to grow modestly from 2020, which is, in fact, an impressive achievement given last year’s robust demand. I remain very proud of our team working in the mobile devices market. Their unique agility continues to enable the company to react quickly to changing demand in this most volatile of markets. With our leading array of antennas, interconnect products, and mechanisms enabling a broad range of next generation mobile devices, we're positioned well for the long term. Turning to the mobile networks market. This market represented 5% of our sales in the quarter and sales increased by 11% from the prior year and 7% organically. This sales growth was really driven by our sales to mobile service providers, which was offset by a small moderation of sales to OEMs. On a sequential basis, our sales increased just slightly, which was largely in line with our expectations coming into the quarter. For the fourth quarter, we expect another slight sequential increase in sales as mobile networks customers continue to ramp up their investments in 5G and other next-generation networks. For 2021, this would imply that our sales would grow by approximately 10%. Our team continues to work aggressively in the mobile networks market to realize the benefits of our efforts to expand our position in next-generation 5G equipment and networks around the world. As our customers ramp up their investments into these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers. The information technology in datacom market represented 22% of our sales in the quarter. Sales in this market rose from the prior year by a very strong 28% in U.S. dollars and 26% organically. This was driven by increased demand from OEMs and in particular increased demand from web service providers. Sequentially, our sales grew by a better-than-expected 10% from second quarter levels. As we look into the fourth quarter, we do expect a slight decline from these elevated levels. For the full year of 2021, we expect sales to increase in the low 20% range. We remain encouraged by the company's outstanding position in the global IT datacom market. Our OEM and service provider customers continue to drive their equipment and networks to ever higher levels of performance in order to manage the continued dramatic increases in demand for bandwidth and processor power. In turn, our team remains highly focused on enabling this continuing revolution in IT datacom with industry-leading high speed, power, and fiber optic interconnect products. We look forward to realizing the benefits of that leading position for many years to come. Finally, the broadband market represented 3% of our sales in the quarter. Sales declined by 5% from prior and 10% organically as cable operator procurement moderated. On a sequential basis, sales decreased by a slightly better than expected 3%. For the fourth quarter, we now expect a further moderation in sales from these levels, and for the full year 2021, we anticipate that sales will grow in the mid-single digits. Despite this more challenging environment in the broadband market, we continue to look forward to supporting our service provider customers around the world. All of them are working to increase their bandwidth to support the expansion of high-speed data applications to homes and to businesses. Now turning to our outlook. There's no question that the current market environment remains highly uncertain with significant supply chain and inflationary challenges, as well as the ongoing pandemic. Given this and assuming constant exchange rates, for the fourth quarter, we expect sales in the range of $2.690 billion to $2.750 billion and adjusted diluted EPS in the range of $0.61 to $0.63. This would represent year-over-year sales growth of 11% to 13% and adjusted diluted EPS growth of 7% to 11%. Our fourth quarter guidance represents an expectation for full year sales of $10.540 billion to $10.600 billion and full adjusted diluted EPS of $2.39 to $2.41. This outlook represents full year sales and adjusted EPS growth of 23% and 28% to 29% respectively. I remain confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability. In addition, our entire organization remains committed to delivering long-term sustainable value while prioritizing the continued safety and health of each of our employees around the world. Most importantly, I'd like to take this opportunity to once again, thank the entire Amphenol team for their truly outstanding efforts here in the third quarter. With that operator, we'd be very happy to take any questions.

Operator, Operator

Thank you. The question-and-answer period will now begin. Our first question is from Amit Daryanani with Evercore. Please proceed.

Amit Daryanani, Analyst

Thanks a lot and good afternoon. Adam, there's been a fair amount of talk, a lot of talk maybe around just supply chain challenges, inventory build, and everything else. Yes, love to get your perspective. What are you seeing from that basis across your customer base? Are you starting to see your order, the demand start to moderate a bit with customers being less eager to expedite orders or anything you're seeing variation between the channel and OEM demand trends? Just anything you see from that basis would be helpful.

Adam Norwitt, CEO

Thank you, Amit. There's certainly been a lot of discussion and news about supply chains lately; it's hard to read the news without encountering it. For most of my career, I don’t remember supply chain issues being such a prominent topic. Now, it seems to be in the headlines nearly every day. Throughout the past quarter, our team faced several significant challenges, and they really worked hard to overcome them. Our results reflect that effort, showing a sequential growth of 6% this quarter, which exceeded our expectations despite ongoing and, in some cases, worsening supply chain issues, like logistics and freight availability, raw materials costs and availability, and labor shortages in various areas globally. These challenges were definitely factors our team had to navigate. Nevertheless, the entrepreneurial spirit of the Amphenol organization helped us achieve our goals. Regarding inventory and orders, we still experienced strong orders this quarter. While our book-to-bill ratio decreased slightly to 1.07 compared to the second quarter, this was largely due to our sales growing in line with our bookings. We saw a decrease in orders of about 3% from the previous quarter, but with a 6% increase in sales, resulting in a still healthy book-to-bill ratio. Our inventory did rise a bit, which isn’t surprising given our considerable growth and the supply chain challenges we face. While we don’t have complete visibility into customer inventory levels, particularly in distribution, we haven’t observed any abnormal inventory levels among our distributors. In fact, we’ve seen strong sell-through of our products globally. Our distribution business mainly serves industrial and aerospace markets, where demand continues to be robust, especially in the industrial sector. In the automotive market, we've discussed before that we could have shipped more if customers had wanted it. However, there are instances where customers aren’t able to take our products due to a lack of other necessary components for their finished goods. Instead of building up their inventory of our products, they sometimes ask us not to ship them. Overall, there’s a lot happening, but amidst these challenges, the company’s performance has been commendable.

Operator, Operator

And our next question is from Steven Fox from Fox Advisors. You may go ahead.

Steven Fox, Analyst

Hi, good afternoon. Adam, I was wondering if you could just maybe touch on IT datacom a little bit more. It’s been a very good year for that market for you guys. And after what seems like better expected quarters each quarter, you seem to sort of look for it to slow down. So I’m just curious, like where are you seeing maybe concerns, where are you seeing more opportunities, whether markets or share trends or new products, etc. Thanks.

Adam Norwitt, CEO

Yes. Well, thanks so much, Steve. I mean, no doubt about it. It’s been a very, very strong year, and I would almost say a very strong couple of years for our team work in the IT datacom market. I mean, not forgetting that last year, we grew in that market by 15%. This year, continuing to exceed our expectations with sales in this quarter in particular are growing by 28% and 10% sequentially. So no question about it. When I look into the fourth quarter, we’re coming from very elevated levels of demand. We’re not guiding to a catastrophic reduction. We’re talking about a modest sequential decline in the fourth quarter, which I think, given the overall environment, given the overall demand from our customers, and in particular customers in web service where we’ve seen just really strong growth and whether you call them cloud or web service providers, we’ve seen outstanding growth in that business over the last couple of years. Once in a while, you could have a moderation. There could even be a little bit of seasonality that could come into that. So, I don’t think that this fourth quarter guidance is at all a turnaround in that business. It would still by the way in the fourth quarter reflect very, very strong year-over-year growth in that IT datacom market. In the end, I think it would be a very, very strong year for that market for our teamwork in that market.

Operator, Operator

And our next question is from Wamsi Mohan with Bank of America. You may go ahead.

Wamsi Mohan, Analyst

Yes. Thank you. Adam, you guys have done a tremendous job maintaining profitability through so many difficult cycles. As you look at the cycle here, and through 2021, how much would you say your ability to raise prices has offset some of these inflationary pressures? And as you look into 2022, it sounded from some of the comments, especially in cable, that there was room to raise pricing some more to catch up. If you could just characterize sort of 2021, 2022 from ability to sort of recapture some of that potential inflationary elements and how you think about it into 2022. That’d be great. Thank you.

Craig Lampo, CFO

Hey Wamsi, this is Craig. I think that if we think about our profitability, we’re certainly very proud of our achievement in the quarter. This year given the difficult cost environment has been increasingly, I'd say gotten worse over the course of the year. We've done a good job of neutralizing that worsening environment, given the actions we’ve been able to take during the year. One of those actions clearly is being able to pass on some of that cost to our customers, to the degree that we can offset it in other ways. The management team has done a really good job of that. Different markets are more challenging than others; certainly things like distribution is easier to pass on pricing, while other markets are a little bit more difficult. Overall, we’ve done a good job and most of the markets are passing on some of the pricing. I wouldn’t make the exception and you comment on cable. That market has a different competitive environment and the products are different; they’re certainly more cost-sensitive and impacted by logistics costs. There’s been quite a quick increase in those types of costs that absolutely have impacted us. The team’s doing a good job of working through that. We do think over some period of time, they’ll be able to offset those cost pressures, which in that market you can’t really do. So overall, I think that we’ve done a good job to offset the majority of the increases that we’ve seen during the year while managing to our expectations.

Adam Norwitt, CEO

I would just add, Wamsi, to that one important principle here: pricing is an art. It’s not just you issue a price increase and off it goes. The beauty of how we’re organized is that we’re not making those pricing decisions here at headquarters. Instead, we have 125 general managers around the world, and those general managers are best suited to make the right decision around pricing because they know their competitive position, their technology position, and they can go to a customer and say, look, I have tried everything else and the only remaining thing I can do is raise the price to you. And that’s a reasonable discussion grounded in fact. I think that’s why we’ve been maybe a little more successful in moderating the impacts of these price increases because our general managers have every tool at their disposal. All of the functions and inputs are part of their responsibility, and thus they’re able to go out and make it happen.

Operator, Operator

And our next question is from Samik Chatterjee from JPMorgan. You may go ahead.

Joe Cardoso, Analyst

Thank you. This is Joe Cardoso on for Samik. So broader question, I guess, the setup and guidance for 3Q seems very similar to what we are seeing now for 4Q. However, Amphenol was able to outperform the high end of the guide in terms of both revenue and earnings in 3Q. I guess can you help investors understand why they shouldn’t expect a similar level of outperformance this time around? Are there headwinds around supply and costs intensifying or were there any material surprises you would point out in 3Q that are not sustainable into 4Q? Any color around the puts and takes there would be appreciated. Thank you.

Adam Norwitt, CEO

Sure. Thanks very much, Joe. I mean, look, we always give guidance with the information at hand just as we did 90 days ago. I wouldn’t point to some different dynamic nor would I say that one should expect that we’re going to exceed guidance by the same amount that we beat last quarter. Our team is always going to strive to maximize our results amidst whatever environment we’re in. As we talked at nausea, it's a dynamic environment, and they’re going to continue to push until the last minute of the last hour of the last day of the year in supporting our customers and executing amidst this environment. If our guidance ends up being exceeded, that will be what it will be, but right now we’re giving guidance based on what we see in the marketplace.

Operator, Operator

And our next question is from William Stein with Truist Securities. You may go ahead.

William Stein, Analyst

Great. Thank you for taking my question. Adam, I wanted to ask about lead times and expedites. It doesn’t really sound like you’re significantly stretched from a lead time perspective. So maybe you can provide some context. I’m aware in every end market, every company within the Amphenol umbrella has different characteristics so an average might not be meaningful. But however you can describe the current lead time situation relative to how it might have been, let’s say a quarter ago and versus what would be sort of a middle of the cycle dynamic. Then the degree to which expedite requests might have changed. There are some companies in the supply chain talking about the level or number of expedited parts falling significantly in the last quarter. I’m wondering if you’re seeing that same dynamic. Thank you.

Adam Norwitt, CEO

Thanks so much, Will. I mean, relative to our lead times, it shouldn't be surprising that we have a little bit of extra lead time now than we would have had a year ago. It is a very constrained environment. Sometimes even just getting materials in from overseas, if you need to have to do that, there's just a lot of sand in the gears of the global supply chain and that can lead to extra lead times. Also, I’ve talked about our orders maybe not even because of our own lead times, but just customers opening up the aperture of their order window a little bit longer has led to some of the higher levels of orders that we’ve seen in addition to just overall robust demand. As it relates to expedite requests, I don’t have a good read on that more thoroughly or systematically across the company. We continue to have some customers who really need product. To the extent that we are using a material that is really constrained, and there are certain cases of that, I continue to see the odd expedite request here and there. But I don’t have a good read on whether it’s less or more or the same. I guess I would say it’s been kind of the same over the last 90 days with nothing that I would really take note of.

Operator, Operator

And our next question is from Mark Delaney with Goldman Sachs. You may go ahead.

Mark Delaney, Analyst

Yes. Good afternoon, and thanks very much for taking the question. I was hoping to get an update on what the company has seen in China, both from a demand and an operational perspective. There’ve been a number of headlines around companies having a more difficult time operating in China such as electricity shortages, certain materials constraints. I’m hoping you could elaborate on what Amphenol is seeing there. Thank you.

Adam Norwitt, CEO

Thanks very much, Mark, and good afternoon to you. I think one thing I'd like to point out from this last quarter is our growth on a year-over-year basis was balanced very evenly across all the geographies. Almost every region grew organically by that 13%. That was really nice to see, actually, a bit surprising given the sort of dynamics from pandemic related challenges and supply chain challenges like electricity related issues. Our team in China continues to do a fabulous job of managing through whatever challenges come their way, and that did include in the quarter some challenges related to electricity availability. Fortunately for us, our approach operationally around the world is to never put all our eggs in one basket. People are sometimes surprised that we have so many facilities around the world, something like 200 to 250 facilities, which includes around 50 in China that are spread across the country. When there are pockets of challenges over the last year and a half, whether that be from COVID-related shutdowns, supply chain challenges, or even the electricity issues in China, it hasn't had a material impact across the company. The local management team just makes it happen, which is the approach we take.

Operator, Operator

And our next question comes from Nik Todorov with Longbow Research. You may go ahead.

Nik Todorov, Analyst

Yes. Thanks and congrats on the great results. I have a question on auto. Adam, if you look at your auto numbers, it seems like they again outperform relative to peers. I think you’ve talked about seeing upside in the quarter relative to expectations. So why in your view do you continue to see upside in the quarter? Maybe going back to the expedite, do you continue to see expedites in auto? I’m curious because your lead times are relatively, maybe they’d be a little bit extended, but they’re still nothing compared to what symptoms they saw, and I’m sure you’re not the one constraining auto production. So why do you think you continue to see upside there?

Adam Norwitt, CEO

Yes. Thanks very much, Nik. Look, this is a long story for us. We've been growing our automotive business for more than a decade through a consistent strategy of growing both organically and through acquisitions into new electronics applications in the car. Throughout the course of that time, we’ve expanded our product offering from simple connectors and cable assemblies to sensors, antennas, complex center assemblies, and the like. Our strategy has not been to just take share out of incumbents, but rather to participate in the expansion of electronics in the automotive market. That expansion of electronics has really accelerated throughout that time. As I highlighted, one area of expansion for electronics has been across the electrification of vehicles, both electric and hybrid vehicles, where we've leveraged our strong legacy and high voltage capabilities to really be a robust participant in that area. This has been a great growth driver for us for many quarters, including the last completed quarter. Have we seen expedites in the automotive market? I would actually say we’ve seen this quarter and last quarter more of the opposite of expedites. We've seen that customers have pushed out demand because of supply shortages that they're seeing from other types of commodities. You mentioned semiconductors as one example, as opposed to expedites of customers pulling in. But for those other supply chain shortages, I’m sure our automotive business would have been even more robust than it was.

Operator, Operator

And our next question is from Luke Junk with Baird. You may go ahead.

Luke Junk, Analyst

Good afternoon, everyone. Adam, I’ve got another auto question. This one may be a little bigger picture. A lot of the discussion around your business these days is around EVs, and rightly so. But I wanted to ask you about the knock-on effects that you're seeing on some other factors. Some in the industry have talked about a so-called Tesla halo, i.e., the fact that consumer expectations for tech in the vehicle are just simply much higher in an EV. I’m wondering how this accelerated proliferation of technology inside the vehicle places the company’s strengths and positioning relative to electrification.

Adam Norwitt, CEO

Look, it's a great question. It's a question that I wouldn't even confine to EVs. You point out the consumer expectations for technology in EVs, but I would just say that consumer expectations for technology in vehicles have expanded and continued to accelerate over many years. I look at my kids, when we get in a car, they have cables they want to plug in to various parts of the car. Car companies are putting in things like wireless charging and outlets in different places. Navigation systems, communication systems, safety systems, passenger comfort systems have seen this, and I think we are living through a revolution of electronics in vehicles, across all vehicles. In the global automotive market, hybrid and EVs represent less than 10%. But all vehicles are adopting more electronics because the car companies have realized not only that their customers want these things, but that they can also make more money on these things. It’s great news for anybody working in the automotive electronics market. Additionally, our strategy has not been to take share out of others, but rather to work on the new things happening in the car. I think our company comes out of that very well positioned.

Operator, Operator

And our next question is from Jim Suva of Citigroup. You may go ahead.

Jim Suva, Analyst

Thank you. I just have one question, and I don't know if it's for Craig or Adam, but either one is fine, that is on your cable products. Operating margins, of course, raw materials of copper, aluminum, and all that have gone up. It sounds like you've mentioned you are putting in price increases, which is fair and good to hear, but the operating margins below 4%, that's pretty unprecedented. Do you think we're at the lowest level here, or do you think they're going to be at this suppressed level for a while? If you can just kind of talk about the profitability of that segment, because it seems like while a small part of the company overall, it is materially challenged right now, but I think there could be potential there. Thank you.

Adam Norwitt, CEO

Yes. Thanks, Jim. There’s no doubt that the profitability of the cable segment is at the lowest level it’s been in certainly in my memory. But we’re also in an unprecedented environment from a cost perspective, especially as it relates to logistics and commodity costs. We’ve talked about these costs impacting that segment more, and in a high cost environment where the costs are increasing significantly and quickly, it's not easy to overnight increase prices due to competitive dynamics. The team is working hard on pricing actions, and we are confident that they will be successful over some period of time. This segment represents only 4% of the company right now, so it’s impactful for them, but it has a lower impact on the overall company. The new management team is extremely focused on this, and while it is unclear when these margins will bounce back, we remain optimistic about improvement in the coming quarters.

Operator, Operator

And our next question is from Chris Snyder with UBS. You may go ahead.

Chris Snyder, Analyst

Thank you. So I have another question on auto. The company was up over 20% organically against the backdrop of high teens declines in auto production. So very substantial levels of outgrowth. I understand all powertrains are seeing content gains, but this outgrowth inflection we've seen over the last year aligns with ramping EV production. Would you guys be able to provide maybe what percentage of auto revenues are coming from high voltage today? So we could assess how that's lining up against EV units?

Adam Norwitt, CEO

Yes. Thanks very much, Chris. We haven't publicly detailed what percentage of our automotive revenues are derived from high voltage. However, I can say consistently that the growth in our EV business, whether that's in autos or our industrial electrification business have been significant drivers of our outperformance. You can imagine that after many quarters of doing so, this business represents a lot more today than it did in prior years. It is a meaningful piece of the business and continues to provide great potential for the future.

Operator, Operator

And our next question is from David Kelley with Jefferies. You may go ahead.

David Kelley, Analyst

Good afternoon, Adam and Craig. Thanks for taking my question. Maybe if we could dig a bit deeper into the industrial strength. You noted growth across a number of your end market exposures there. So how should we think about the end market dynamics and again realizing there's a lot of puts and takes there versus Amphenol's content opportunity and some of your market share gains? And if I may, how should we think about some of the moderation into your end? Is there a specific end market where you expect to see that?

Adam Norwitt, CEO

Yes. Well, thanks very much, David. The industrial market for us is a very diversified range of segments. Everything from medical to heavy vehicles, oil and gas, marine, factory automation, battery electric vehicles, alternative energy, and building automation where we’ve seen strong growth. Virtually every one of those segments grew in the quarter, which is not always seen; usually, there's some sort of counter-cyclicality across one or another of those segments. Because of our strategy for many years, we've built out a range of products that make us important to customers across the industrial world. Customers across this market are adopting electronics at an increasing pace. It is important to note that this business is very fragmented from a competitive perspective, and we continue to gain position against competitors who either do not have the breadth of offering, geographical coverage, or are unable to support customers on a global basis during the pandemic or disruptions. The team is just doing an excellent job, and we look forward to strong growth in the industrial market for many years to come.

Operator, Operator

And our next question is from Joe Giordano from Cowen. You may go ahead.

Joe Giordano, Analyst

Hey, good afternoon guys. Adam, you've articulated your position and overall views of operating in China many times on these calls. But I wanted to give you the chance to do it again, just in light of the ramp-up intentions. Is it more challenging for companies to do business? Like I understand how you guys are positioned there. It clearly works. You have to think about how you deploy capital or how you do incremental growth differently in a region like that. Is how increasing escalation impacted the way you do things?

Adam Norwitt, CEO

Well, look, we're not blind to the world around us. There's no doubt that the geopolitical tension that has been present for a number of years has certainly not gone away. For one would fully advocate that countries like the U.S. and China, the world's two largest economies should get along. There are plenty of reasons why we shouldn't, but I'm optimistic that in the long term, that will happen. As it relates to our position in any country including China, I would just remind everyone that we have a unique operating strategy. We rely on local managers in every country we operate in; we operate in over 40 countries with local general managers who have the authority to run their business as they see fit. Our general managers in China tailor how they conduct business obviously within the confines of ethics and law. This model allows them to meet customers at a local level, and enables Amphenol to bring the full capabilities of the company to support those customers. This has allowed us to be successful in various regions, and we continue to apply appropriate scrutiny to investments in every location, factoring in all risks and opportunities. But overall, it’s an operating model that has performed well for us.

Operator, Operator

And our last question comes from Joseph Spak with RBC Capital Markets. You may go ahead.

Joseph Spak, Analyst

Thanks Adam. I just want to follow on one more question regarding China. Are you seeing any impact, either direct or indirect from some of the power shortages that have been going on? How's that impacting the business?

Adam Norwitt, CEO

Thanks Joe very much. Look, we’ve seen challenges, and I talked a little about this earlier. Some challenges have included in China, a few power shortages. But I think like I described, our approach is to never put all our eggs in one manufacturing basket. While we’ve had some power shortages in one location or another, it hasn’t had a meaningful impact across the company. Our local teams are doing a fabulous job of mitigating any impact from such shortages. Everyone has a lot to think about in a time where there's a lot going on.

Operator, Operator

And I would now like to turn the call back to Mr. Norwitt for closing remarks.

Adam Norwitt, CEO

Well, thank you so much. I’d like to extend my best wishes to everyone here on the phone. Thank you so much for taking the time with us. I will be the first to wish everybody a happy holiday season and a successful end of the year. We’ll talk to you in 2022. Thanks very much.

Craig Lampo, CFO

Thank you. Have a great day.

Operator, Operator

And this concludes today's conference. Thank you for participating. You may disconnect at this time.