Conference Transcript - TEL 2026-09-09

Speaker 2

Good afternoon, everyone. Day two, Citi's Global TMT Conference, Asia Merchant here. I lead tech hardware, tech supply chain researcher at Citi. Really pleased to have Terence Curtin with us. He is CEO of T-Connectivity. There's a lot of questions here. I'm going to kick it off. And please come in. There's a bunch of seats in the front here. I'm going to kick it off. It's a fireside. It's interactive. I'm going to leave a few minutes here for folks to ask some questions. please do raise your hand if you have interest in asking, and we will bring the mic to you. So welcome. Thank you, Taryn. All right. Let's just start with maybe just the most recent reported quarter. I know September is going to be ending here very shortly, too. But you guys just had a very, very strong fiscal 3Q. Sales were up 14%, 12% organically, year on year. You had record orders. Your EPS is growing much faster. Your margins are expanding. And you are across a broad variety of end markets. It's not just AI. It's not just, again, but there's a whole bunch of end markets that you're, as you think today, and as the, with the quarter that's just been reported relative to kind of, you know, your through cycle framework that you've shared six to 8%, where are some of the demand drivers that are sustainable as you kind of think about that demand?

Terrence Curtin, CEO

No, thank you for the question. And also thank you all for being here. And let me just, I'll get to your question, I promise. But first off is I think what's important is when you think about what TE does, we very much focus on where does data need connectivity, as well as when you need computing data, you also need power. And it's areas that I think drive the growth that I'll talk about. And one of the things that we've been very focused on at TE is how do we continue to broaden our growth profile? It was a big part of what we teed up at Investor Day. And like you said, Asia, there's a lot of it that I'm sure we'll have questions around AI and our momentum in our DDN business that has had tremendous growth. But I also think when you look at what we're experiencing right now is across our industrial businesses, anything that's CapEx exposed is really driving growth and faster than we would have even expected when we talked earlier in the year. So certainly on the data side, what we see happening, and you've seen a lot of companies here today talk about everything that has to happen around AI and also the hardware around it, we're no different than that. Our DDN orders are up 70%. And while we grew a billion dollars this year, that really sets up a very strong backlog for next year with the partnerships we have with our hyperscale customers. But it's just not what's happening in data. You know, in our industrial segment, what we're seeing with our, where we serve connections from an energy infrastructure, which are driven around power. We're seeing double digit orders there, where you have a market that That used to grow 1% or 2%. Now it's probably growing three to four times what it used to. And we've really capitalized to make sure we can grow double digits in that business. And then you have those secular areas that we benefit from, like aerospace and defense, going to grow double digits due to everything happening there, as well as a general industrial uptick that we've seen around the world. This is where we would play with factory automation, where you need connectivity that brings that data out to get to the intelligence to be processed through the LLMs. So when you think about our industrial segment, we're going to grow about $2.5 billion this year. About 80% of our growth is in that segment, and it's very broad. And then in the transportation area, that's an area that we're sort of driving content growth in a flat market. And there are areas that are also around data and power. Self-driving cars, software-defined vehicles, also an electric vehicle, which in Asia is very strong and we're strong. So when you think about that framework, which we're growing about twice it, we see that momentum are going to continue, and it all starts around data and power. And certainly the CapEx elements of where we play, we just see that motoring along and orders up very strong to record backlog as we enter into our 27 that there's no reason to say that's going to slow down as we go into 28 when you think about all that's happening on the data side and the power side.

Speaker 2

Okay. And then on the, if I may just, you know, as we, before we get into each of the segments, EPS is growing faster than revenue. So what's driving that? I mean, not only do you have top line growth, but you also have nice margin leverage and what's the, What's the algo there? Is it pricing because your pricing is higher or is it other sorts of leverage that you're experiencing that's driving EPS to be faster?

Terrence Curtin, CEO

Yeah, on our strong growth this year, which will be mid-teens, probably a point or two is pricing where we're actually managing through inflationary effects, where we're actually getting recovery across the portfolio. So pricing is really a cost recovery tool right now. The rest of it's around volume leverage on what we've done to make the portfolio healthy, as well as our footprint healthy. So it's really good operating conversion. But the other thing that I just want to highlight is we're investing significantly back into the business, especially to those areas that have really strong growth. We're adding engineering in our DDM business. We've added factories in our DDM business. We're adding capacity. So we're driving that earnings leverage to really good conversion on the volume, while also making investments for the future to make sure we capitalize on that growth ahead of us. So I feel the levers, how the team's operating is very strong. And certainly our cash element, we have a very strong cash generation model. We've done some acquisitions as well as returning capital also helps the S line as well.

Speaker 2

All right. Okay. Well, maybe we can just dig into each of the segments, right? I mean, clearly, I'll start with AI DDN because, or DDN, just because, you know, it's top of mind here. It's a technology conference. So DDN sales up, you know, in the 30s, orders obviously significantly higher. You guys did have a target, $3 billion in cloud and AI that you kind of shared at your analyst event. You talked about, you know, that target continues to shift left, meaning it's being achieved much faster. So when you think about your size now of that DDN, AI, DDN, cloud and AI, sorry, cloud and AI segment and kind of the growth trajectory that one should expect just given hyperscaler CapEx and that just continues to rise. Yeah.

Terrence Curtin, CEO

So first off being our orders this year with our DDN business, which is where that's housed, is up 70%. So, you know, got a couple great questions today. You know, parents, how do you grow 30-ish percent, but your orders are up 70? Those orders are really for 2027 is right upon us. So there are programs that we've won certainly with our hyperscaler customers around the copper connectivity that we do for them to really get their infrastructure up on their GPU networks. And that's going to be, sets up really strong growth for 27. And as you said, any target we gave out just nine months ago related to AI, we've been ahead of that. And that 3 billion shifted in. And that's going to continue to shift to the left. But I feel very good about the momentum there and our position's very strong with our hyperscale customers.

Speaker 2

And beyond 2027, does the orders look like, you know, we are seeing demand very, very strong. I mean, I have some component players who are talking about HTT's that are talking about demand further out, you know, just given the supply tightness. So how does it flow through the connector side, you know, on your side? Like, are you seeing orders maybe stretch out beyond just one fiscal year?

Terrence Curtin, CEO

We're typically in the 27, so we don't have that supply tightness that some of your other people that you cover do. um really when we're looking at it we'll probably start seeing 28 orders but coming into early into 27 when we will see it but i think the real element that we get excited about as you go into 28 is the engineering activity we have with our customers today on next generation architecture right one of the things that's important is you know our customers are going to pick a semiconductor They're going to pick a power supply. Then you go work the connectivity. And what's really nice about where we lean in is with our engineers, with our customers, is those next gens are being worked on already. So the orders we have today are for things that we have to take into production next year. The engagements that we have about what's the next generation architecture, who's looking at 800 volt, who's looking at liquid cooling versus air cooling, where does optics come in in the rack over time? All of those discussions are happening real time. What gets as excited as that, the momentum is going to continue in 2009.

Speaker 2

Talking about optics, that's obviously a big debate, right? And I mean, you guys have talked about it. You were like, it's not just copper or optics. It's going to be copper and optics that are going to continue. So just as you're sitting here, you're looking at all the workloads, you're looking at all the AI architectures. I mean, they're changing, right? At OCT Asia, there was a lot of chatter about what's changing, what's not changing. you have scale-up, scale-out, CPO, NPO. So when you look at your content opportunity in fiscal 26, increasing in fiscal 27, just help investors think about, you know, as you go into fiscal 28 and 29, what sort of, what are you looking at from a content opportunity?

Terrence Curtin, CEO

So a couple of things first, and I appreciate you said it. It's going to be copper and optics, and it was great at the launch today. The Marvell CEO actually said that as well. So You hear that a lot, and I do ask you, it isn't a versus, because we're really looking at architecture being maximized, and copper is going to play a role. Anything in the power architecture is always going to be copper-based, and even if you go to a Gentic where you bring CPUs in, you have much more CPU, that's going to be copper-based. Where we play, certainly we play in the scale-up. We don't play as much in the scale out. But in the scale up, we do look at where you'll have NPO and CPO coming in more at the switch level is where you're going to first see it. There's a lot of scaling that has to happen there when we look at the architecture we're working on with our customers. And we have solutions that can actually play in that space that I'm pleased with our customer engagement on that would help enable that. And that's an increased TAM that we would have versus our copper portfolio. So we view copper is going to continue to grow over this period. Certainly the architectures, as you said, they're very customized. They're changing a lot as people are trying to optimize different parts of the workload. Copper is going to be a key part of it. But what we get excited about is where we can introduce basically a fiber attach unit, which is essentially we would view it as a fiber connector that would actually help enable CPO or MPO as that comes.

Speaker 2

Right. Right. And there's just a lot of activity going on in that FAU side, just to make it scale, right? Because up to this point, they haven't had to scale. So just, you know, as you think about that space evolving, what are some milestones to keep that investors should keep in mind to say, OK, now this is starting to gain momentum and can scale to the level. Obviously, it's not fiscal 27, but into 28, 29. But you kind of see some of those.

Terrence Curtin, CEO

Certainly, it starts with our customers' architecture. They have to hit their intercept points. Secondly, our customer engagement. Where are they seeing it? And certainly that's where we're focused on right now. Our engineering engagement on that intercept point, getting engineering qualification. And then like everything in the optic space, how's it scaled to the needs that the units that our AI customers want us to have and our hyperscale customers? So I think they're going to be the things we're looking at the roadmap. Certainly we're investing ahead. We made a $200 million acquisition earlier this year to help buffer the portfolio there. And we'll keep investors apprised of our progress as we go through.

Speaker 2

All right. And then you talked a little bit about power. One third of the connected, within the DDN AI space is power, right? And the rest is data connectivity. So obviously there's a lot happening over there. You're talking about 400, 800 volt architectures. Help us understand as those transitions are happening, again, what's the content opportunity growth that you guys are seeing? What should we be looking out for to say, yes, this is happening and an inflection perhaps for e-connected?

Terrence Curtin, CEO

The one thing you have to realize is not everybody's going to move to one voltage architecture. Go back to the customization. What's really great is as you bring in these sidecars, that brings in a whole different architecture where connectivity even becomes more powerful. It's also you're bringing in a lot of different voltages into the rack that actually have very different material science, also have different electromechanical interference elements to them. All of those are things that we excel in. So as our customers are experimenting with that, that we have such a large portfolio of power products to begin with, it's very essential that as we move through that journey with our customers, some will not go full 100 to 800 volt, but that will create increased content just due to the connectivity in there. Also, as you move to optics, you're going to need more power in the rack. And I believe when you think through the AI discussion, a lot of our discussion with TE is around the data side. I actually think the discussion needs to be as much about the power side, because all of those inflection points create engineering tradeoffs that our engineers do great with our customers. And they're figuring out the architectures and constraints they're working through. And what that will create is an increased inflection point on the content. It won't be cookie-cutter-like RAC, but it will be something that will increase revenue content for us as we move to that, I think.

Speaker 2

And then just stepping away from it, where is TE's moat when you think about all these changes, whether it's on the power side or on the optics coming into the RAC? Where would you say is TE's moat and why you think that content continues to stay with TE, potentially even expand while you guys are providing the solution?

Terrence Curtin, CEO

I think when you look at connector manufacturers, there's four moats, four pieces to our moat. The first one is we need to be engineering close with our customers. Connector business is not we design a connector and bring it to a customer and just pick it off the shelf. That's not what a connector manufacturer does. It is they're trying to work right at the design center with our customers. And it's a very engineering intense business. And we're part of that architectural design. And it's why when you look at connector manufacturers, we all don't play in the same markets. Building up engineering at all the design centers around the world is hard, but significant investment in different markets, and you typically see us play in certain markets. The second thing is we need to be deep in the technology. Whether it's AI and you're dealing with 448 gig speeds and signal integrity or voltages going up to rates with 448, you need to actually understand that architecture to get deep. And you could hold that true into an AI domain. You could say it could be utility infrastructure where we're doing power connections or even into a car. The third element is you need to basically have the science expertise that comes with it. In some cases, we're dealing with space. We're dealing with different materials because we're in a different space applications than you would have on Earth. And then the fourth one is we have to have the supply chain that executes at the rate at the supply chain of our customers. It isn't cookie cutter around where we make. We have to be very close to our customers. If you take us and AI, we've added three new facilities in Southeast Asia to really make sure we support our China's plus one over the past three years. We're adding more right now, and it needs to be able to execute at the pace our customers want. and it's something that continually evolves. So the mode that you sit there, which each one by themselves may not say, well, is that that special? When you put them all together and the amount of SKUs that we cover for our customers from an execution perspective is very important from the design all the way through in an area where cycles just get tighter. In every one of our markets, our innovation cycles are tighter than they need to be and our customers expect it and that's how we have it.

Speaker 2

Yes, that's execution definitely. Energy, the energy segment, you know, that it's nice. You had an acquisition, Richards, and, you know, you've also added to that. But it did grow 33% organically, I think, in the last quarter, last fiscal year. You have grid hardening there. You have aging utility infrastructure. Obviously, you have the data center power buildouts. So is this like, how should investors think about it? Is this a mid-teens growth business that we should think about for energy?

Terrence Curtin, CEO

I actually do think it is, and I think when you sit there, we're doing connections for energy utilities, and really what you have, and I mentioned it earlier, a market that used to be a 1% to 2% market that I would have described to investors 5, 10 years ago as a cash cow, and we would be using to fund other things, is really a market that's probably going 3x what it used to, where we position ourselves both organically and inorganically. here in North America is our strongest position around grid hardening. It's also around making sure we get the power to the data centers. We benefit from that. About 30% of our business does come from that, which does drive the growth you've talked about, as well as what's happening with undergrounding and just protecting the network where there's deferred maintenance. So it's an area where no different than the data side, the power side has very long tailwinds on it. I know it's probably not a discussion as much here today in a tech conference as elsewhere, but it's something where we built a $2 billion business, you know, sort of wrapping up this year that's going to be growing double digits. And I actually think there's a lot more opportunity because I think we're very unique, not only what we do at the RAC, but also getting the power to the data center actually creates both growth vectors on the data and the power cell.

Speaker 2

And then you recently acquired Astrodyne, right? Right. And then how does that accelerate sort of the momentum you're seeing in energy?

Terrence Curtin, CEO

Actually, on the Astrodime, while it does relate to the power infrastructure, it's not really in our energy business. It's really going into power and power filtering that actually goes into specialized equipment for semiconductor manufacturing, goes into aerospace applications. And it's just another one of the things around the power theme we like. We've always done power filters to really make sure you get power quality going through. Astrodyn does some of that, as well as niche power supplies that we brought in. But it plays right into the power theme, but it doesn't go to the utility side, like our energy business.

Speaker 2

So it's more on the ACO. Same theme, but just a different end market. Which brings me to ACL, which also did grow double digits in Q3. You said now factory automation possibly has hit an inflection point here. Yes. So what's been behind that? And, you know, when you just think about AI and as it's kind of impacting various industries, including perhaps manufacturing, how do you think about that demand there for factory automation and ACL?

Terrence Curtin, CEO

One we get very excited about because I know when we talk about AI, we always talk about the data center. But let's realize when you're in a factory and you're trying to buy productivity, it's the data on the factory floor that makes that happen. So when you think about what we do here, this is where we're getting more devices connected and that's actually bringing that data that the central AI can do. And we've seen the inflection point be all around the world. You know, this is a space where general automation was slow for a couple of years post COVID. We've really seen every region of the world pick up. It is around the connectivity. For us, it's very much a data play on the hardware that we support the major automation players of the world. And it's something, back to the CapEx trend I talked early on, we're seeing that accelerate. And, you know, we get content on top of that due to what's happening with data and the connectivity solutions we provide our partners. So it's something that not only getting a content play, I would also say we're getting a cycle uplift now after a couple of years at the doldrums. Right, yeah.

Speaker 2

And then the acquisition that you talked about, just, you know, how does that, the acquired assets from AstroDyne fill up that portfolio for ACL?

Terrence Curtin, CEO

It rounds out our portfolio from a power filter globally. We had more of a European and Asia presence. They were North America, so it helps round it out. And it also gives us an entryway more into semiconductor manufacturing equipment, where we were not as strong. They were strong there. And it's just something where we see the trends around data and what our semiconductor customers have to do from an equipment side.

Speaker 2

It's something that's going to give us a new market entry the business that's going to grow double digits it's a creative to our earnings certainly will fit into our cash model as we go forward okay uh let me just ask the audience any questions okay let's talk about automotive you know transportation i mean that's a big within transportation automotive is one of the segments um you know that's a pretty meaningful portion of your portfolio and you know the unit production in autos is kind of more or less flattish maybe slightly down. You're still talking about content growth, outperformance relative to that. In any given quarter, though, sometimes it undershoots some of what your target model is. So just help us understand, like when you talk about 4% to 6%, what gives you confidence that you should be able to grow at that rate organically?

Terrence Curtin, CEO

Yeah. I mean, you said it well. Production environment and automotive globally is down a little bit all around the world, but we're growing four to six points above that. That is how we think about it in TE. We are very global. So what we're very fortunate about is we're not out of weight in any region. And our strength in Asia really has been helping offset some weakness in the Western world in prior years. When you think about how we drive content performance greater than production, it does come back to data and power again. What used to be the electrified vehicle was a bigger driver has absolutely flipped over to the data in the vehicle. So things that around autonomy in the vehicle, things that are software defined, there are things that are driving a bigger part of the four to six than we would have had three years ago, which we would have talked more electric vehicle. In addition, we continue to benefit from our strong position in Asia, which is still very high penetration of electrified. And then the last element is the other things that happened in the car architecture, zonal architectures. You come into any comfort or safety features that bring electronics, which just comes into what you need when you have a connectivity supplier. So all of that creates the four to six. And with some of the EV element behind us now, like North America was a tough EV environment this year. I actually feel very good about the four to six. We've been hanging at the low end of that range, hopefully being able to move it up here as we move forward in a flattish auto environment.

Speaker 2

All right. Defense. I think we heard from one of your peers as well that defense is a very, very strong market.

Terrence Curtin, CEO

Very strong. Yep.

Speaker 2

What's going on there? I mean, obviously, there is a lot of spending that's being directed to defense. But as it relates to your content, you know, what's driving and how should we think about that growth in that end market?

Terrence Curtin, CEO

So a couple of things, you know, in aerospace and defense, which is a couple billion dollars for us, first off being it's the same themes elsewhere. How are you getting compute more distributed? Certainly, it's in drones. You're also getting into power in them. So you get that across all the applications that, unfortunately, we see every day. But that is just continuing to build momentum. And once again, a market that was probably a 3%-ish market has inflected up in Europe as well as the United States. So we're across a broad base of programs, which is very good. And you're going to continue to see not only in defense, but also what we're seeing from space applications. Anything around a low-Earth satellite, certainly the things that SpaceX does, Blue Origin does. We also have content on those, which once again comes into data, compute and power connectivity that you need in those applications. That is also an increased content provider. And then we have the traditional commercial aerospace that has actually gotten healthy again from a stability perspective. So our aerospace and defense, we expect to be double digit as we move forward. We're trying to add capacity to make sure we can keep up with the needs of our customers. And that's what we're in the middle of now. But that's another one that, Back to your first question, what continues to have stronger momentum, certainly, the aerospace.

Speaker 2

Are there aspects of, like, when a defense is, like, pretty broad. Yeah, exactly. So are there aspects of that that, you know, maybe TE is more over-indexed to?

Terrence Curtin, CEO

We're very broad. Very broad-based. All right.

Speaker 2

Okay. Margins. I know he's not here, but I'm sure he'd love to talk about margin expansion.

Terrence Curtin, CEO

I typically hand it off to him.

Terrence Curtin, CEO

Yes, exactly. So just on margin expansion, right? I mean, what are you thinking about content growth, which generally, yeah, that, you know, just given if units are not growing, but content that should hopefully drive margin expansion here. At the same time, you're also investing in capacity that also takes a hit on your cost through higher depreciation. Just help us understand when you think about the margin expansion, and you guys have already expanded margins, what's the runway there? Should investors be expecting more margin expansion opportunities?

Terrence Curtin, CEO

I think they should. With the volume that we're seeing, as well as the level we're running at, with both of our segments being around 22% margin, we do expect that we're able to expand margin from here while investing. We did a lot of structural work a handful of years ago that we're really seeing the benefit of today. Footprints in really good shape globally while it's localized. and you're going to see that we continue to move the margin up 30, 50 basis points a year, probably about 30% flow through on the revenue while we continue to invest in the programs we talked about in those growth areas. But net net, I think you can continue to see the margin move up because of the level we're executing.

Speaker 2

Right.

Terrence Curtin, CEO

And if you were to double click on those margin expansion drivers, you already talked about volume, but, you know, is there pricing that plays or is there higher cost declines that are coming into play as well productivity programs and executing on the volume pricing i would say you will see pricing as we do it to offset inflationary cost but then we do have efficiency and productivity programs that we have to drive to make sure we continue to invest in the business while expanding the margins and i think the momentum we have there has been very strong and proven the past few years and we'll keep that up which will continue to expand while we can also reinvest.

Speaker 2

Anything on the mixed side between the various segments that investors should think about from a margin?

Terrence Curtin, CEO

Well, first of all, I do think you're going to see greater margin expansion in our industrial segment than our transportation segment. We sort of say 30% plus overall, but with the volume that we'll see in the industrial segment, I think that is one that you'll see faster expansion there. otherwise it would just be inner unit mix which turns like you said one quarter into another I think it's anything else structural but the industrial market is pretty big right your industrial segment I mean obviously it has DDN in there as well and then you have our industrial segment is just as big transportation right so within that anything on mix that we should think about if aerospace is stronger or ACL is stronger they're all very healthy we talked a little bit about competitive dynamics, but just like you, you know, there's your competitors are chasing sort of the

Speaker 2

growth that they're seeing in all these end markets, right? So, you know, how do you prioritize? Do you love all your children here or some children much nicer? So they get a little bit more spending here. Like as we think about, you know, I'm sure like, you know, it's capital allocation, right? Where do I invest R&D? Where do I invest factories? When you think about all these growth drivers, where should investors see TE's moat getting stronger, perhaps, in some of these end markets? Because they all seem to be growing quite nicely.

Terrence Curtin, CEO

Not every child gets treated the same. And even if you went back five years ago, we would have said, hey, we're going to invest in EV in Asia to really take advantage of that. Right now, you're seeing us take that return to we're getting out of our automotive business and investing it in DDN, into energy, both organically and inorganically. So really comes to the return profile that we see, as well as strengthening ourselves competitively. And you have seen us move up our investment rates, both in engineering, as well as CapEx. And that's been really in our industrial segment. We've also seen our acquisitions during the industrial segment. And you're going to continue to see, you know, increase investment there versus other areas, as we talked about the growth today. So you're going to see that follow that growth as we build out that mode and make it stronger. In some cases, that may be engineering. Some cases, it may be footprint. In some cases, it may be an acquisition that helps strengthen it. But I think you'll continue to see that overinvestment in the industry.

Speaker 2

And does that, you know, when you talk about engineering capacity, because you talked a lot about customer co-creation, right? Being right there with the customers, deep in design. Any areas, geographic areas or regions that we should see, okay, these were investments that TE is making ahead of the growth that they see?

Terrence Curtin, CEO

Actually, we already have a good foundation. At Investor Day, we talked about we've increased our engineering by about 2,500 people. We went from 7,500 to about 10,000 over the past three years. I actually feel the actual geographic footprint's good, especially with the geopolitics we have, really deepening them. And certainly, as our customers get deeper, we need to be there with them from an engineering perspective.

Speaker 2

Any questions from the audience? I wonder. Can you just say?

Operator

Annual basis, how do you think about price and to Class 8 truck exposure, which on your industrial business?

Terrence Curtin, CEO

Sure, sure. So two very different questions. First off on price, price in our world is slight positive. Certainly our industrial business is a little bit more positive on that than our transportation business. But our transportation business has been relatively flat. So when you sit there, that's where it's been. And any of that price has been very much offsetting inflation, we felt. So that's how I think you should think about it. If we have inflation on tariffs, if we have inflation on material, we're going to get it back on price. And that's how we've been managing it. So on your second question on Class 8 trucks, we do do a little bit shy of $2 billion globally in heavy truck. Class 8, ag, as well as construction, honestly, it's finally hit an inflection point of a pickup. We've been seeing a lot of strength in Europe and Asia the past few years, North America being very weak. We're seeing that inflection point the past three, six months here. Feels like it's a cyclical pickup. And not only on top of the cyclical pickup, the other element that we get, we get about four to six points of content outperformance in Class A trucks. Not only due to emissions, we're strong in Asia as well, where, believe it or not, electric trucks are a real deal. I know it's far for us to think about here in the United States, but it is big in Asia, as well as what's happening in data connectivity in a truck. They create the same content opportunities that we would have in a car. You see those coming into a truck. So just this last quarter, we grew double digits in our industrial and commercial transportation business. But it's nice to see North America finally showing back up here and getting a little bit of a cyclical pickup with content pickup. So thank you for your question.

Speaker 2

A little bit on the sort of the growth algorithm as you think about free cash flow conversion, right? How much, how should we think about, or how should investors think about allocation towards, you know, acquisitions from that free cash flow conversions? Because you guys obviously have very strong free cash flow there from earnings. But how should we think about acquisitions versus, you know, how you prioritize buybacks or dividends?

Terrence Curtin, CEO

So first off being, you know, free cash flow conversion, one of the things that I also think to the operating execution, or free cash flow conversion, even with the increased investments running about 100% of net income. And, you know, that's where it all starts. You have to do that first. We think about about 30% free cash flow yield on the dividend is how we think about it. And we take our dividend up for that. The other 70% is really best use, you know, with where the stock's trading or M&A opportunities. And I do think we have the opportunity to both, certainly with the strong cash flow we have. Clearly, with where the stock's trading now, we are, you know, buying back stock. We did that last quarter, even with the Astrodine deal, and you would expect us to do it as well. But we have choices with the strong free cash flow that we have.

Speaker 2

At the analyst day, you talked about, you know, 6% to 8% sort of kind of your long, I mean, I guess, through cycle framework that we should be clearly seeing a lot of momentum, right? I mean, you talked about double-digit growth across a bunch of segments. Maybe just as we round up here, what part of the tea story maybe investors don't fully appreciate?

Terrence Curtin, CEO

No, I think, you know, to your question, first off, investors are the ones that are the judge at the end of the day. So just things I would stress personally is, you know, I know I'm at a tech conference and everybody wants to talk about AI. But I also think the broadness of the growth we have and the fundamentals that we've driven to improve them, you know, I do think is a little bit underappreciated right now. I think when you think about both data and power across our portfolio, certainly AI is the area to think about data. But when I think about our $2.5 billion of growth this year, we would have been in our target growth range even without AI. And I think that shows where we position the portfolio as we move forward. I also believe with the margin improvement that you've seen, it's pretty broad. It's not one unit that's driving the margin, and it's not one unit that's driving the growth. It's pretty broad. That's delivered 15% plus growth this year. And the cash flow model always gives us options, options of whether we return to you and we always will give the dividend, but certainly how we add to it and like we've been doing the past couple of years of adding to the portfolio in the power side, certainly what we've added in the optic side, that creates future growth momentum as we go forward. So there's just some things I would highlight that I would stress to you all. as you look at us.

Speaker 2

Great. I'm going to wrap it here. Thank you.

Terrence Curtin, CEO

I also thank you all for being here. Appreciate it.

Speaker 2

Thank you.