Everyone, thank you for standing by, and welcome to the TE Connectivity First Quarter Earnings Call for Fiscal Year 2025. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. And if you would like to withdraw that question, again, press star 1. And 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, Sujil Shah. Please go ahead.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's first quarter results and outlook for our second quarter of fiscal 2025. With me today are Chief Executive Officer Terrence Curtin and Chief Financial Officer Heath Mitts. During this call, we will be providing certain forward-looking information and we ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning. 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 in investor relations portion of our website at te.com. As a reminder, we reorganized into a two-segment structure effective with the start of fiscal 2025. Transportation solutions, where the end markets remain the same, and industrial solutions, which adds two businesses from communications. As we talk about our results today, they will be discussed in the new segment structure. Please refer to our 8K filed in December for recast financial information under the new structure. 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. You may rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments.

Thank you, Sujal. And I first off want to say Happy New Year to everyone, and thank you for joining our first quarter earnings call. As you all are well aware, we continue to be in an uneven global economy where we see pockets of strengths and pockets of weakness. Global economic uncertainty is creating noise as we think about 2025, but what's key is we're performing well and our focus is to execute on what we can control to drive financial improvement as we move through 2025. Within this backdrop, the results that our team delivered for the first quarter are very straightforward. On the top line, our sales organically were in line with our expectations, our adjusted operating margin and EPS were records and ahead of our guidance, and our free cash flow was a record for the quarter, all driven by the execution of our teams. Our orders were slightly ahead of our expectations and accelerated both year over year as well as sequentially, which gives us confidence in our guidance for the sequential improvement in our top line in the second quarter and further growth in our industrial solution segment as we go through the year. The one area that was not in line with our expectations was the impact of a stronger dollar which will impact us through this year. I am proud of our team's performance and what we control to deliver earnings and free cash flow that were above our expectations. Now as we expect this environment to remain dynamic i want to reiterate four key areas that we're focused on the first one is innovation and even with the unevenness that we see our customers are continuing to innovate on next generation architectures and what we do from a connectivity and sensing perspective is a key enabler we are supporting their effort and ramping key programs that drive application growth and you're going to hear about them whether they're the secular drivers such as high speed connectivity for ai programs hardening and monitoring applications of the energy infrastructure next generation vehicle architecture as well as continued ramps to support our adnm customers the second thing that's important that we're focused on is making sure we're executing on the operational levers to drive further adjusted margin expansion and you see this in our first quarter results, as well as our guidance. Thirdly, an area that we've been working on a lot and we've invested in is really making sure we benefit from our global manufacturing strategy. And this includes the localizations that we've done, where our customers need China plus one strategies, and also on the tariff subject, we will deploy our playbook that we exercise during the 2017 tariff cycle and we're prepared to do so if tariffs are implemented and the fourth key and lastly is continuing to drive our strong cash generation model that enables optionality of returning capital owners as well as capitalizing on bolt-on m&a opportunities as they occur so with that as an overview i'd like to get in the presentation if move to slide three and let me discuss some additional highlights and our guides for the second quarter and then he will provide further details our first quarter sales were 3.84 billion dollars which were flat year over year adjusted earnings per share of a dollar 95 was ahead of our guidance and up six percent versus the prior year and adjusted operating margins were record at 19.4 percent up 30 basis points over last year and up in both segments orders of four billion dollars in the first quarter group both year over year and sequentially and as i said earlier this was slightly better than we expected this reflects broader growth within the industrial segment including increased momentum in artificial intelligence programs we delivered record first quarter free cash flow of 674 million dollars and this was up 18 percent year-over-year and this demonstrates the high quality of our earnings and as we look forward we are expecting our second quarter sales to increase sequentially to 3.95 billion dollars on a year-over-year basis we expect to be impacted by unfavorable currency exchange headwinds of over 100 million dollars adjusted earnings per share in the second quarter is expected to be around a dollar 96 which will be up five percent year over year and this includes a six cent headwind from currency exchange and tax versus the prior year stepping away from the financials for a second we are pleased to be included in the dow jones sustainability index this quarter for the 13th year this designation continues to demonstrate our dedication to sustainable business practices that is expected by our customers and also provides value to our owners. So with that as an overview, let me get into the order trends, and you can see that on slide four. In the quarter, we saw orders grow to $4 billion, and our book-to-build was $1.05. In our transportation segment, orders came in as we expected, while in the industrial segment, orders were up 15% on a sequential basis, supporting our outlook for sequential organic sales growth in the second quarter. In transportation, our auto orders came in as expected, reflecting continued growth in Asia and offsetting softness in Western car production. When you look at the orders declined for the segment, it was driven by weakness in commercial transportation and sensor and markets. Turning to the industrial segment, all of our business had a book to bill over one in the quarter, and it supports our growth outlook. We are continuing to see sales growth in aerospace defense and marine, as well as in energy, and our orders in automation and connected living are indicating stabilization in factory automation and markets. We've also talked to you about our momentum and artificial intelligence applications, and this is continuing. And just to highlight, when you look at our digital data network's business over the last three quarters our total orders in the last three quarters for this business exceeds 1.5 billion dollars which sets us up for the growth that we've talked to you about now let me get into year-over-year segment results and i'll start with transportation on slide five our auto business performed as we expected and was down three percent organically in the first quarter with strong growth in asia being offset by declines in western regions as we look forward we continue to expect global auto production to be down one to two percent in fiscal 2025 and we continue to expect our content growth to be at the low end of the four to six point range for the year while we expect overall auto production to decline this year we expect continued growth in hybrid and ev production with now roughly 80 percent of that production growth this year occurring in asia where we are strongly positioned we also expect further electrification of the vehicle and realize when you get electrification benefits that's completely powertrain agnostic and we're seeing increased content momentum driven by software defined vehicle architectures which require more data connectivity and provide content growth for us. And really to give you impact of what the momentum we're seeing, and I'll share with you, we just secured over a billion dollars of new design wins with a leading Chinese auto OEM for their next generation platform that is entirely around data connectivity in the car. So let me turn to the commercial transportation. And as you can see on the slide, we wore down 12% and organically, as we expected, and this is driven by heavy truck production weakness in Europe and North America, we do expect that demand trend will improve later in this And in our sensors business, the sales decline was driven by weakness in the broader industrial markets in Europe and North America. From an adjusted operating margin perspective for the segment, our teams execute it very well and it's reflected by the adjusted operating margins that were 21.3 percent in the first quarter now with as an overview of transportation let me move to the industrial solutions segment on slide six and this segment grew double digits in the quarter starting with our digital data networks business it grew 50 percent organically and our design ones are reflecting increased momentum we now expect revenue from artificial intelligence applications to be above the 600 million dollars in fiscal 2025 and it reflects strong growth and leadership of multiple multiple hyperscale ai platforms across the customer base in automation and connected living and this combines our former industrial equipment and appliance businesses we declined five percent organically driven by ongoing weakness in factory automation applications in western geographies, especially in Europe. One nice thing is that we have seen order patterns begin to reflect stability in this end markets, and we've seen increased strength in Asia in the automation area. In AD&M, our sales were up 15% organically, driven by broad growth across commercial airspace, defense, and space applications. In these markets, we continue to see favorable demand trends and ongoing supply chain recovery and we expect the momentum in these markets to continue our medical business in the corner declined 25 percent as we expected and this resulted from inventory normalization by our customers that we're seeing as the broader medical supply chain has improved and we do expect that our medical business will show sequential growth as we move throughout this year and the last market that i want to highlight is our energy business Sales were up 7% organically driven by strength in all regions and ongoing momentum and utility scale renewables, along with investments that are being made to support increased power generation needs, as well as partening of the infrastructure. I also want to highlight that within the quarter, we acquired Harger, which is a North American leader in lightning protecting and grounding solutions that are foundation to grid reliability and a complementary to our existing product set. This acquisition expands our portfolio for grid reliability and connectivity solutions of renewable power, utilities, and industrial power applications. And I welcome the employees of Harger to our TE team. For the industrial segment, adjusted operating margins were 16.8%. They expanded 100 basis points year over year, driven by the higher volume and strong operational performance. We do expect all businesses in the industrial segment to grow sequentially on an organic basis in the second quarter, as I highlighted earlier. Now, with that as an overview of our performance, let me hand it over to Heath. We'll get into more details on the financials and our expectations going forward.

Thank you, Terrence, and good morning, everyone. Please turn to slide seven. For the quarter, adjusted operating income was $745 million, with an adjusted operating margin of 19.4%. This was a record performance with year-over-year expansion in both segments, as Terrence mentioned, and it reflects strong execution by our teams to deliver on operational levers, including savings from past restructuring initiatives. GAAP operating income was $690 million and included $5 million of acquisition-related charges and $50 million of restructuring and other charges. Q1 restructuring charges specifically were $43 million, reflecting continued footprint optimization efforts. I expect restructuring charges in fiscal 25 to be around the $100 million level, same as we said 90 days ago. adjusted eps was a dollar 95 and gap eps was a dollar 75 for the quarter and included a tax charge of four cents and restructuring acquisition and other charges of 16 cents again as we guided 90 days ago the adjusted effective tax rate was 23 percent in q1 and we expect q2 to be at this 23 percent level as well we do continue to expect the full year tax rate to be in the 23 to 24 percent range as a reminder the increased etr versus the prior year is primarily related to the impact of pillar two global min tax but as always and importantly we expect our cash tax rate to be well below our adjusted etr if you turn to slide eight we deliver strong adjusted margin eps expansion along with record free first quarter free cash flow with sales that were effectively flat year over year sales of 3.84 billion were unfavorably impacted by increased currency exchange headwinds in the quarter that impacted us by roughly 50 million versus our guide due to the strengthening of the U.S. dollar against other currencies, we now expect year-over-year currency exchange headwinds to exceed $300 million for fiscal 25, with roughly $100 million of impact in each of the next three quarters. Adjusted operating margins were 19.4% in the first quarter, expanding 30 basis points year-over-year. Adjusted earnings per share were $1.95, up 6% year-over-year, driven by margin expansion, and included headwinds of $0.04 from the higher tax rate. Turning to cash flow, cash from operations was $878 million, and free cash flow was $674 million. In the quarter, we deployed roughly $500 million to shareholders through share buybacks and dividends, and we utilized $325 million for bolt-on acquisitions in the industrial segment including the hardware acquisition that terence mentioned earlier our cash generation and healthy balance sheet gives us more optionality with the use of capital we will continue to have strong return of capital shareholders but as i mentioned last quarter we are also looking to pursue more bolt-on acquisition opportunities at attractive valuations and before i turn it over to questions let me reinforce that we expect to build upon our past performance to deliver strong financial results in 2025 while we cannot control the dynamics of our markets we are well positioned to benefit from the secular growth trends in the markets we serve while continuing to deliver strong operational performance to expand margins and drive strong cash generation this year. So with that, let's open it up for questions, Suzyl.

Okay, Krista, can you please give the instructions for the Q&A session?

At this time, I would like to remind everyone to ask a question. Please press star 1 on your telephone keypad. In order to have time for all questions, each participant is limited to one question. If you would like to ask a follow-up question, please press star 1 to return to the queue. Your first question comes from the line of Mark Delaney. Your line is open.

Yes, good morning. Thanks very much for taking the question. I was hoping to better understand order trends and if you could speak a bit more around orders by EdMarket and the linearity of orders you saw this last quarter and perhaps how that's informing your 2Q guidance. And just while you're talking on orders by end market, and we're recognizing that the full-year AI outlook is now for over $600 million, and that's strengthened. But just here in the shorter term, as you look at the order patterns, have you seen any volatility, either positively or negatively, as the industry is starting to transition to Blackwell?

Thanks, Mark, for the question. And like I said on the call, orders were ahead of where we expected. And, you know, certainly we had the FX impact, but, you know, when we think about them coming in stronger, you know, it is why we feel good about the sequential improvement we're going to see and ongoing broad momentum in the industrial businesses to build sequentially. Certainly AI, as you talk about, but, you know, more broadly, and I'll talk about that. So, also, I want to highlight regionally what we're seeing. you know we are continuing to see orders reflect broad strength in Asia and even when you look at the orders growth that we saw you see Asia has been accelerating weakness continues to be in Europe broadly especially you know when you think of auto and in the industrial space and the heavy truck space where we play and you know so you see that unevenness with United States and the America's sort of being a little bit more neutral. To your question about the industrial segments and the markets, what's important is every business had a book to build above one. And we do have the momentum in AI, and our AI orders did grow nicely in the quarter, but the industrial segment, if you take out the AI orders, orders grew 10% year over year in that segment, and 7% sequentially, even without the AI orders that we continue to benefit from. In aerospace, we continue to see growth as commercial air still is recovering. Defense is strong. And while space applications are smaller, they are the fastest-growing applications that we have in that area that you see the strong double-digit growth in aerospace. space. In energy, it's a business that, you know, we've been investing in. We talked about the M&A, but you just continue to see continued order momentum around the utility applications where people are, you see, increased CapEx going into the utilities, and it's pretty broad. The area that, you know, a positive sign, even though stability doesn't sound positive, is the automation and control space. It's an area where we have seen orders moving sideways. We've seen acceleration in Asia. Certainly Europe in that area continues to be weak, but it's an area that sort of says it's good to finally see some stabilization in the automation and control area that, you know, maybe we can see some improvement later in the year. And, you know, in transportation, I talked about what we're seeing in auto production. We do expect auto production to be down for the year, but the orders are sort of tracking that, and we still expect to be at the low end of the 4 to 6 percent of our growth over market there, and really the weakness we saw is in the heavy truck market, and we hope that will improve later in the year. So I think that gives the color that you asked for, and thanks for the question, Mark.

Thank you, Mark. We have the next question, please.

Your next question comes from the line of Scott Davis with Malia's Research. Please go ahead. Your line is open.

Good morning, guys. Good morning, Scott. Thanks for the color on the borders. That's actually super helpful. Hey, I wanted to move to margins because that was operating leverage is your second thing you mentioned of your four priorities, but it seems like you guys have done a really nice job managing margins and actually improving margins in a relatively low-growth environment. But how do you guys think about incremental leverage? And let's just focus on TS because I think industrial is a little bit more clear. But how do you think about incremental leverage in TS when we get a recovery? Do you have costs that need to come back proportional to that recovery, or would you expect to see kind of outsized incrementals when, you know, again, it may not be until 2026 or whatever, but whenever we do see a volume recovery there?

Scott's teeth. I'll certainly take that, and I appreciate the question. Listen, it's, you know, we've made a lot of strides in the TS margins. If you go back a few years, We were always talking about target margin of 20% and so forth. We don't, you know, we're comfortable that we're at that level. Certainly Q1 was probably, is outsized, which is pretty common as you think about our seasonality because our China factories are always humming very strong in the first quarter. And you saw that last year as well. But we're confident that we're going to be at our 20% number or better by quarter as we work our way through the year. So we're feeling good about automotive elements of that. The element of the growth side as we move through this year and obviously position ourselves for next year are also the other components of TS, of the transportation segment. The commercial transportation business, which, as you're aware, is a nicely profitable component of our portfolio, you know, has been depressed with heavy truck builds and construction and mining and ag equipment being in a rough part of the cycle. As that returns to growth, that would be where we're going to get a lot more of the leverage from. And, you know, we're working our way through. We're holding our head on that. But that's where we're going to see some of the leverage elements as we work our way into 26 because that levers up very nicely. From a cost perspective, you know, transportation segment, particularly automotive and in Europe, has been a heavy focus of some of our footprint activities over the last few years. and so we are getting the benefit of being able to tolerate low or sometimes negative growth environments because we've reduced some of that fixed cost structure and particularly in western europe where we're probably too dependent if you go back over the past five or ten years so that's been a concerted effort and uh that journey is not quite over but certainly you know you see it in the results now where our automotive growth is down three percent year over year yet an aggregate the transportation margins are quite solid so we feel good we feel good about that

hopefully that answers your question okay thank you scott we have the next question please your next question comes from the line of emmett dariani with evercore isi your line is open um thanks a lot good morning everyone uh you know terence you folks talked about ai revenues exceeding the six hundred million dollar target for the year that you had actually given last quarter. I was just wondering if you could talk about, you know, what is driving the strength here? Is it, you know, better demand from hyperscalers or silicon companies? And, you know, is it more broad-based? Are you seeing more sharing gains that's helping you? Just anything that can provide some clarity and the leverage of the upside you're seeing on that particular target would be helpful. And then, Heath, maybe just related to this, as AI RAM, how should we think about the margin profile of AI versus a broader industrial segment average? Thank you.

Yeah, sure. Thanks, Amit, and I appreciate the question. You know, first off being, you know, when you look at it, you know, our AI revenue in the quarter doubled already, you know, in the quarter. And, you know, we did $300 million last year. We told you we're going to be above $600 million. And what is nice, it is a broad group, you know, of the hyperscalers. You know, when we think about where we positioned ourselves, and it is about how you play in that ecosystem with the other semiconductor player, that are in there and the hyperscalers it isn't just one program it is pretty broad and it's consistent with what we've told you now you know what is nice the orders keep on layering in you know the momentum that we've talked to you about as we started talking about this a year and a half ago continues our teams are very focused on the ramp you know the ramping of these programs that we have across the customer pace you know is really a key focus and i think in many ways upside to the number we talked about will really be driven by how we execute on the ramps, which is what we like. The other thing is you sort of talk about share. Our share has not changed. It sort of stays in that 30, 35 percent range, and that's at the level of the programs that we're winning. But it also shows how big the opportunity is when you think about the benefit that our industry has from bringing the connectivity to this technology. And, you know, the major connector companies are going to have the share because of the complex technology requirements that we have. You know, on the margin, you know, it's similar to our cloud margin products that we talked about a few years ago. And we are in ramp. So, you know, these are early ramps.

But margin, you're going to see the volume benefit as we move forward and you see it in the IS margin as well as we continue to move it up feel that we can continue to scale it and it's going to continue to drive momentum not just this year but in the next year okay thank you amit can we have the next question please your next question comes from the line of wamzi mohan with a bank of america your line is open uh yes thank you so much uh i was wondering uh terrence if you could talk a little bit about some of the levers that you can use if tariffs do get implemented i think you noted you know some of the uh advantages you have around your manufacturing strategy uh and localization uh in your in your prepared remarks and and secondarily you know your cash flow has been very strong we're entering kind of what is at least broadly perceived to be a market that's more favorable for m a would be curious to get your thoughts around. I heard you say bolt-on, but how open is TE to doing larger deals as well? Thank you so much.

Sure. Let me take the first part of it, and then I'll let Heath take the cash flow piece of it. First off, let's just start with a little bit of a baseline for everybody about our footprint. And I know we've talked about our footprint historically from how we reposition. Heath even talked about some of the things we've done in transportation. But the first thing is we've been focused a lot on localization within region. So, you know, our business is not one where you make in one region of the world and that's the manufacturing center you shift to. Our footprint is very much aligned to our customer supply chains and we've worked very hard to say how do we make sure it's right to supporting our customers in region and eighty percent of what we manufacture is in region so it is very focused on our customers and as we do work you know we feel we're playing from a good offensive position but each customer supply chains very nuanced and we continue to talk to them of how no matter what comes out at us from a tariff perspective they would adapt so that we can leverage what we have or or that so with that as a little bit of an overview i think the key that you should all think about as we're thinking about it is you know we've dealt with tariffs already in 2017 you know it impacted we had about 300 million dollars of tariff costs that we worked with our customers on whether that be logistical lanes whether that be moving tooling from a manufacturing perspective and also in the areas where we couldn't find solutions with our customers or their choice it was passing along the tariff costs to our customers via price and you know that playbook that we went through back in 2017 is what we're prepared to do and we've been preparing to do depending what we get hit with and we don't know what what it could be so it is important staying close to the customers and you know we recovered the cost last time through all those options and leveraging our footprint, we think we'll do the same thing this time and we're prepared to. So Heath, with that, maybe on the terrafront, why don't you cover the cash flow and M&A topic?

Yeah, in OOMZ, obviously our cash flow, we've stacked up a couple of years of record free cash flow as a company that's given us a lot of optionality. We have returned a fair amount to our to our owners uh through dividends and share repurchases but we've continued to to be active in m a uh we use the term bolt on really referring just as a reminder referring that you know we're looking for things that are close to home or close to the areas that we know well versus a platform that may be a new space force so i don't want to confuse bolt-ons with size sometimes bolt-ons can come in as a small to mid-sized company sometimes opportunities are much larger. And we're very active right now. We have seen the pipeline increase. We have resourced it. Let's just say we've enhanced our resources around that in very particular areas where we see fragmentation and opportunities for us to go and acquire things. And it's an active environment. I'd say it's more active over the past six months in terms of discussions and deals coming to market than we had seen prior for a while. So I think there's some some good opportunities out there, and you should expect us to be active as we move forward here.

All right. Thank you, Amze. Can we have the next question, please?

Your next question comes from the line of Stephen Fox with Fox Advisors. Your line is open.

Hi. Good morning. I was wondering if you could just maybe talk a little bit more about the industrial markets, not away from the cloud business, but traditional automation and controls. You've mentioned it's sideways stabilization. Is that much different from what we're seeing 90 days ago? How encouraged are you that some of these trends can improve as you go through the year in any particular region?

Yeah, no, thanks, Steve, for the question. And, you know, the stabilization, I would say, is good that we're seeing. I would tell you last time we were together, I would say we're probably a little bit more in the mode of hoping for stabilization, but we were still seeing not as many strong spots in the orders as we would like and also in discussions with our customers. You know, when we sit here, we truly have stabilization in our orders. I also would tell you as we look through a lot of this market goes through our distribution partners, It does look like the inventory elements are more behind us than in front of us, and we've all been trying to get our arms around that. And the other thing is, you know, what are those inflection points that are upward that we're seeing? I would tell you, you know, when you look at our customers in Japan and in China, the larger automation where we serve them directly, I would tell you for the past couple of quarters, you are seeing upward order momentum. So that is a positive in Asia. I would say, you know, the U.S. customers we have here are probably more sideways, but that's a positive versus where it's been. And our European customers are continuing to show weakness. So overall, it's stable. I think it's not surprising when you think about the geographic mix, what we're seeing in different economies and investment levels. But stabilization is the first step. And certainly when we think about, you know, what is needed when you think about productivity, if people do things that are needed around tariffs, about reshoring, these are all areas that we think are positive drivers where we play, which is mainly in the discrete. And let's face it, we've been a company that's been investing CapEx and investing ahead, and we think other companies are going to have to do it. So net net, I think it's more positive than it was, but certainly it's not a full upward tilt in every region on the order book by any means it's more sideways globally with unevenness like i talked in the early part so steve i hope that adds color but i think that's an area that we can build off of as we move through this year okay thank you steve can we have the next question please your next question comes from the line of colin langen with wells fargo your line is open Hey, guys.

This is Costa Pesulis filling in for Colin. I just wanted to double click on your LVT assumption down negative one to one and a half, growth over market, lower into the four to six range.

Can you just double click on North America, Europe, and China? not sure sure thank you for the question and you know first off being as we said on the call we do expect auto production to should be down a point or two uh it was down three percent in the first quarter and you know the first quarter we saw a very strong production growth in Asia. We saw Europe was down 10% in auto production and we saw North America being down a little bit in auto production. So you see the unevenness in the production. You know, when we think about the four to six percent range, we have said we're going to be at the low end of that range. I do want to remind everybody when it comes to Europe, Europe is our highest content per vehicle we have. So we still believe we can be at the low end of that range the four to six growth over market really driven out of Asia and the other thing is I know the discussion around electric vehicles in the West is one where there's lots of questions but you know on the planet there's going to be about four million more electrified vehicles made and eighty percent of those are going to be in Asia where we have a very strong position so we still People will benefit from that content increase in Asia as the Western OEMs do their transitions. The other thing I would say, electronification, which we've always talked about, and that includes what happens around 48-volt introduction into a vehicle, all the safety features, autonomy features, zonal compute designs that get put in, and certainly how software-defined architectures occur all of that creates need for connectivity and certainly we're seeing an acceleration on that that also gives us confidence to be at the low end of that range and you know i mentioned the design one that we had just recently with the large china oem that sort of shows the level of that content increase so this year we do expect the production environment you know to be weak in europe we do expect the ev environment to be weak in europe north america you know slightly down, the growth of vehicle production, and then the electrified trends will be driven out of Asia, where we have a great position.

Okay. Thank you, Costa. Can we have the next question, please?

Your next question comes from the line of William Stein with Truist Securities. Your line is open.

Great. Thanks for taking my question. Hey, thanks. I'd like you to maybe figure out my opportunity a little bit. at maybe one level down. We've heard quite a bit about cross-licensing technology in this area. I don't think that's new to the connector industry, so maybe you can confirm that or put it in context and maybe also help us understand the effect on revenue and margins when there's cross-licensing of IP going on in that space. Thanks so much.

Yeah, sure. Well, a couple of things. When we do have cross licensing and you and you have seen it over time in the telecom and datacom space so you're right this is not new and it's an area that as you have ramps you know our customers ask for hey i want to make sure i have security of supply and you know we have cross license with competitors over time to really make sure we help the customers with these ramps so when you sit there you know you you have a sharing of share obviously um it is a collaborative but it's also let's face it you know we have to cross license each other's technology really make sure we help the customer get to the solution and so i actually viewed something that's about an exciting growth

trend and let's face it as we cross license to each other we have to make sure we have partners that can meet the ramps of the volumes that are coming and it's really something that's been very traditional in the interconnect space and the data com space for a long time okay thank you will we have the next question please your next question comes from the line of asia merchant with citigroup your line is open great thank you for the questions um you know we got some questions recently about the co-packaged opportunity uh that some of the semiconductor players are um participating in how do you guys think about this ai opportunity i think you've outlined it as $1 billion, perhaps, you know, in a few years. Clearly, that's accelerating or seems to be accelerating here, just given what you guys are forecasting for fiscal 2025. But longer term, how do you think about co-packaged optics and how TE plays in that space? Thank you.

First off being, you know, while we do play in optics, we don't play in co-packaged optics. You know, that is a capability we do not bring. But even when you get into that, you have connectivity you're going to need that will still be on copper and you know let's face it that is you know our strength and when you look at the architecture if you do have customers ever going to experience what happens close to the chip what happens further away and over time it will will be a hybrid approach so when we think about what we've gone out with a guide that includes that you will have evolution of the architecture and when you get into things like that it just means you're going to have harder problems you have to solve which typically means that's where engineers do their best work and we get excited as the architecture get us gets involved okay thank you asia can we have the next question please your next question

comes from the line of luke spared your line is open good morning thanks for taking the question um terence hoping you could just expand a little bit more on your comment about the opportunity you for tell around data in the car specifically and that of course coming out of sdp architectures you mentioned that major award in china but maybe if you could just zoom out to the pipeline more broadly especially in asia where that trend is ahead of the west and maybe uh would it be possible to put some guardrails around cpv terms as well a lot of the tension on electrification in terms of incremental content but maybe maybe this could be an underappreciated driver thank you No, Luke.

No, a couple of things. You know, when we've always talked to everybody about content, we've always sort of said, you know, as the electrified powertrain moves, you know, that plays a big chunk of the content. But there's this other bucket that's electronification that is just as important. And as you said, when you think about software-defined, our Asian customers are clearly leading the way here. And we continue to see that momentum. and it's an area that we've always been excited about you know you're really looking here how do you get data connectivity Ethernet in a car that really allows all the software definitions as mechanical buttons move and so forth get eliminated you need to have that software defined architecture that allows that configuration to occur and let's face it there needs to be connections that go into all the modules to make sure this comes to life and And what's been nice is, you know, our product set here has continued to grow. You know, it's up to about $600 million this year, which doesn't even include the win. And you can get a feel of what that does already on a content per vehicle. And we only expect that that's going to accelerate. And even when you think about that billion dollar of wins we've gotten recently from one customer, you know, those wins are accelerating. And, you know, it's adding another content lever that supports our four to six. And it's one of the things that we get excited about, and we'll continue to share thoughts about how those winds continue to impact us as that acceleration continues to occur.

Okay, thank you, Luke. Can we have the next question, please?

Your next question comes from the line of Joe Giordano with TD Cowan. Your line is open.

Hey, guys. I think we touched a lot on the major subjects. So maybe if I could just ask quickly on industrial equipment, I know you mentioned orders suggest stabilization. Are you seeing any evidence of like that orders need to kind of ramp from here or are we kind of just at a level that seems consistent with end demand?

And then similarly on medical, pretty substantial kind of decline there in the quarter and much different than the last couple that we've been seeing here. so is that the beginning of something that you're seeing there or is that kind of a one-time correction and and we're kind of back to a normal rate how do you kind of view that market sure joe two very different questions joe on industrial equipment i think what we're seeing is stabilization and we would like to see other regions strengthening more to call it broader um on that inflection point like i talked earlier but i think from a modeling perspective right now how we'll get a little bit of sequential improvement and then hopefully that accelerates but I would say have a view of stabilization right now you know on a medical I would say that's a that's a one-time event you know we did expect this we had some customers that you know over inventory and across the medical device we did see them take it down and then we think that as we move forward you're gonna see sequential improvement off the first quarter you shouldn't assume it stays there and we've seen orders already improve book to build well above one but it really was a pocket here in the supply chain that'll build sequentially uh back up as we move through the year so thanks for the question joe thank you joe we have the next question please your next question comes from the line of surrey boroditsky with jeffries your line is open hi good morning um so maybe just

building on some of the margin commentary that you've made. You know, you spoke about some of the restructuring charges related to footprint consolidation this year. Maybe talk a little bit about the benefit of that restructuring for margins for 2025 or maybe 2026. Thank you so much.

Serena Seath, I'll take that. Well, our footprint journey has been, you know, going on for several years now and a lot of it is the continuation of moving legacy western or more expensive production areas to lower cost regions and that has continued, that will continue you see it currently in our certainly as we can leverage modest to negative growth in our transportation segment yet ability to expand margins So, you know, that is a global comment, but certainly most of our restructure there has been a little bit more focused in Europe as we've moved away from Western Europe and into Eastern Europe and in Morocco. For the industrial segment, though, the industrial segment is obviously a little bit more fragmented with five different business units within that segment that we report on here. we will see more growth there this year and to terrence's point some of that's obviously driven by the ai activity within our ddn business but it's also more broad-based across other areas like energy and aerospace and defense um and and uh and then you know modest recoveries and things like uh our our acl business which is the the old industrial equipment and appliances so we are expecting not just top line support there, but pretty significant margin improvement as we work our way through the year. And we feel good about that. We know we're below where we need to be from an entitlement perspective there at that segment level. Certainly getting some help from the factory automation side of industrial equipment, which is a nice margin business, will help in that journey. But in the meantime, there's some things that we've done on the cost outside and otherwise to mitigate some of this as we start to pull ahead margin-wise within that segment. I think when you set back, and we're setting back at the end of the year, you'll see more margin expansion there than you will anywhere else in the company.

All right. Thank you, Sari. Can we have the next question, please?

Your next question comes from the line of Osamik Chatterjee with J.P. Morgan. Please go ahead.

Thanks for taking my question. just a quick one here can you just sort of yes i mean uh the you know the ict business and i think we've been pretty public with it is a nice margin business and has been for quite a long time it does cycle it cycles with heavy truck production we're well positioned globally there so sometimes we do feel the impact of certain regions as they go through different parts of their cycle both directions um and so my comment earlier was really referring to even though there's the the the top line and is if there's a dilutive impact they're coming from that part of the segment relative to you know where it fits in we've been able to hold you know our margins okay but as we start to see growth in that segment I'm sorry in that business unit the commercial transportation business unit hopefully towards the end of this fiscal year but certainly where we see things starting to line up with our customers for 2026, we would expect some outsized margin support there, just given how it weights into that segment. So we're not spiking the ball now. We're not calling for a recovery in the next quarter or two, but certainly some of the discussions that we're seeing, and there is a little bit of a longer view in terms of where things are, and particularly with some of the emissions standards change for heavy truck?

Yeah, there will be an emissions change in 27, and there is typically pull forward of demand before that, and that's one of the elements as we look further out in the year and into 26. We would expect that that's when that cycle you'll probably see some benefit from it to East Point.

All right, thank you, Summit. Can we have the next question, please?

Your next question comes from the line of Joe Spack with UBS. Please go ahead.

Thanks so much. Two quick margin questions for me. First, in auto, we know typically that some reporter companies tend to get some engineering coverage from the customers. I was wondering if that occurred at all and helped the transportation margins or so by how much. And from the old reporting segment, we could surmise that digital data networks is an above average segment margin business. You talked about how you're investing ahead, the need to invest. I'm just wondering if as you sort of continue to see strong AI growth, whether we could actually see a little bit of margin variability from that growth, depending on the pace of investment.

A couple of things. We have been investing for these ramps. So let's take the second part of your question, Joe. On the first part, I'm going to ask you to re-ask it. You broke up a little bit but on ddn you know you've seen where it was in the cloud cycle we have been investing ahead to make sure we're adding capacity to really you know handle the ramps we have you know doubling businesses you know does create a lot of execution and investment in the head that we have been doing that um and you know there will programs will be lumpy at times and you'll see that in our orders already so you know you will see that impact on our margin in this segment um can you talk about the transportation question again i missed that one around december yeah sorry sorry um you know in auto typically we see in the december quarter sometimes companies get some engineering recoveries from their customers i was just wondering whether that no we we don't we we do not have that you know when you look at the first quarter margin he said it well earlier you know it is the highest production period of the year mainly out of asia our plants really crank at that time and you know that we get the volume benefit from it and if you look back in many years our court first quarter margin is a little bit hotter than other times of the year and it's really due to asia has nothing to do with engineering reimbursement joe all right thank you joe we have the next question your next question comes from the line of christopher glenn with oppenheimer please go

ahead your line is open christopher you may be on mute okay i think we're having some trouble with Chris's line, so Chris, we will circle back with you later, but if there's no further questions, I want to thank everybody for joining us this morning, and if you do have more questions, please contact InvestorRelations at TE. Thanks, everyone, and have a nice day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.