Earnings Call Transcript
TE Connectivity plc (TEL)
Earnings Call Transcript - TEL Q4 2024
Operator, Operator
Everyone, thank you for standing by, and welcome to the TE Connectivity Fourth Quarter and Final Year Fiscal 2024. At this time all lines are in listen-only mode. Later we will conduct a question-and-answer session. As a reminder, today's call is being recorded. I'd now like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah. You may now begin.
Sujal Shah, Vice President of Investor Relations
Good morning, and thank you for joining our conference call to discuss TE Connectivity's fourth quarter and full year 2024 results and outlook for our first 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, and 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 on the Investor Relations portion of our website at te.com. As you know, in September, we announced a reorganization into a 2-segment structure effective with the start of fiscal 2025. Our Transportation Solutions and now a larger Industrial Solutions segment, which adds the two businesses from Communications. Our Data and Devices business moves into the Industrial segment and is renamed Digital Data Networks. Our Appliances business will be combined with Industrial Equipment, and the new business is named Automation and Connected Living. As we talk about our results today, they will be discussed in the old 3-segment structure, and we will begin reporting our financial results in the new structure beginning in the first quarter of fiscal 2025, with an 8-K of recast financial information being issued before the end of our fiscal first quarter.
Terrence Curtin, CEO
Thank you, Sujal. And as always, we appreciate everyone joining us today. And before I get into the slides, let me just make some comments for our fourth quarter. I am pleased that we delivered revenue and adjusted earnings per share that exceeded our guidance, driven by continued solid execution across the segments. Our teams delivered consistently in 2024 on the operational levers to drive margin improvement, along with strong cash flow generation, which was our key focus that we discussed with you all throughout this year. We delivered strong margin expansion and double-digit growth in adjusted earnings per share in what continues to be a dynamic market backdrop. When we look at our results for fiscal 2024, we delivered record operating margins, earnings per share, and free cash flow. A few things to highlight building on this: we generated over 200 basis points of adjusted operating margin expansion and double-digit earnings growth year-over-year against a flat volume environment. We also continue to demonstrate the strategic positioning of our portfolio and alignment to secular trends as we benefit from the electrification and increased data connectivity adoption within vehicles, growth in renewable energy and aerospace and defense markets, and accelerated momentum in artificial intelligence applications. The content outperformance that we saw in these markets was offset by the softness we observed in the broader industrial markets. Lastly, we demonstrated the strength of our cash generation model with free cash flow of approximately $2.8 billion and disciplined capital deployment that included a strong return to shareholders. I'm also pleased today to announce that our Board authorized a $2.5 billion increase to our share repurchase program that reinforces our value creation model. Now let me share some of the market trends and what we're seeing versus our earnings call that we conducted 90 days ago. We continue to have some markets that are accelerating, some that are stable, and some that are weak, still trying to gain traction. In our Transportation segment, global auto production was essentially flat in fiscal 2024, with growth in Asia offset by declines in production by Western OEMs. As we look forward, we expect a slight decline in global auto production in fiscal 2025. However, we anticipate continued growth in hybrid and electric vehicle production, with over 70% of that production occurring in Asia, which is our largest revenue region in auto and where we're extremely well positioned. We also expect further electrification in vehicles, which will benefit across all powertrains and will continue to drive content growth for us. In the commercial transportation markets, we continue to see end market decline, but there is some potential for improvement in the cycle later in 2025. In our Industrial segment, we continue to see strong growth in the aerospace and defense and energy markets, coupled with ongoing weakness in factory automation, particularly in Europe. In the Communications segment, growth trends that we've been discussing are continuing. In cloud data centers, we see momentum accelerating in artificial intelligence across our broad customer base. We had $300 million of sales for AI applications in fiscal 2024, which was higher than our expectations, and we anticipate these sales will double in fiscal 2025. We are set up for strong performance in fiscal 2025, which will build upon the momentum we established in 2024. While we continue to work through sluggish industrial end markets, we expect them to return to growth in 2025. We are also continuing to invest in our engineering skills, technology, and operations capacity to support this growth. Key examples of larger investments we’re making include the further expansion of our Asian operations to capitalize on the ongoing growth in electric vehicles in that region, as well as our continued investment to expand our engineering capacity to support the ramps of design wins that we have in AI. With these investments and what we see in our end markets, we do expect an acceleration of growth as we move through this coming year. Finally, I want to reiterate that our long-term value creation model centers around having a portfolio aligned to secular growth trends, operational levers to drive further margin expansion, and a strong cash generation model to return capital to shareholders while investing in bolt-on M&A opportunities. Executing on these pillars will enable sales growth, margin and EPS expansion, and strong cash generation in fiscal 2025 and beyond. With that overview, let me delve into the presentation starting with Slide 3. I will jump into additional highlights and our guidance for the first quarter of fiscal 2025, and then Heath will go into more details in his section. Our fourth quarter sales were $4.1 billion, which was above our guidance, and up 2% organically year-over-year. The upside versus our expectations was driven by the Communications segment with higher sales from artificial intelligence applications. Adjusted earnings per share of $1.95 was ahead of our guidance and represents a quarterly record, up 10% versus the prior year. Our adjusted operating margins were 18.6%, up 130 basis points over last year. Our free cash flow generation was very strong at approximately $830 million in the fourth quarter. Now let me turn to the full year results. Full year sales were $15.8 billion with organic growth in Communications and Transportation segments, which was offset by weakness in our Industrial Equipment end markets and headwinds from a stronger dollar. Adjusted earnings per share was $7.56, up 12% versus the prior year. This included $0.39 of currency exchange and tax headwinds. Adjusted operating margins were 18.9% for the full year, expanding 220 basis points over 2023. The high quality of our earnings continues to be reflected in our cash generation model, and I am pleased with our record free cash flow of approximately $2.8 billion in 2024. As we look forward to the first quarter of 2025, we expect our sales to be $3.9 billion, up 2% year-over-year, reflecting the typical seasonality in our business. We expect adjusted earnings per share to be around $1.88, which includes a $0.04 tax rate headwind versus the prior year. If you could please turn to Slide 4, let me make some comments on the order trends highlighted there. Our orders were over $3.8 billion, reflecting typical seasonality along with ongoing momentum in AI programs and continued weakness in general industrial end markets. By region, our order patterns reflect strength in Asia with weakness in the West. In Transportation, sequential order patterns reflect stability in global auto production, along with ongoing market declines in commercial transport. In automotive, orders continue to reflect growth in Asia with weakness in Western markets. In the Industrial segment, we continue to see softness across factory automation and building automation, particularly in Europe. In our Communications segment, our order levels came in as we expected and increased nearly 40% year-over-year, in addition to the strong order growth we had last quarter. This supports the strong growth we expect in fiscal 2025 from artificial intelligence programs. The trends and innovations occurring in these applications present an exciting growth opportunity for both TE and our industry. With that backdrop about orders, let me move to the segment results, starting with our Transportation segment on Slide 5. Highlighting our ability to generate growth over the market, our auto business declined 1% organically against a global auto production decline of 5% in the fourth quarter. The 400 basis points of outperformance versus production was driven by double-digit organic growth in Asia, offset by mid-single-digit declines in the West. This continued the trends we've observed by region all year. Automotive production and car sales dynamics vary greatly by region. We expect content growth to be in the four to six point range long-term, supported by data connectivity and further electrification benefits across all powertrains, our leading global position in hybrid and electric vehicles, and our strong position in Asia. It is important to note that over 70% of electric vehicle and hybrid electric vehicle production occurs in Asia, where we are very well positioned, and we expect the adoption of these vehicles in Asia to maintain its current pace. Our differentiated position is evidenced by the fact that we grew sales in mid-teens in Asia this year in an environment where regional production was only up mid-single digits. Moving on to the Commercial Transportation business, we observed a 4% organic decline, primarily driven by weakness in Europe. We expect this business to decline again sequentially in the first quarter, with potential for improvement in the cycle as the year progresses. In our Sensors business, the sales decline continued due to market weakness in industrial applications as well as portfolio optimization efforts we've discussed. We expect to complete these exits in 2025. For the Transportation segment, adjusted operating margins were 19.3% in the fourth quarter. For the full year, we delivered 20% adjusted operating margins, which are up 300 basis points year-over-year due to strong operational performance. We anticipate our first quarter margins to be similar to fiscal year 2024 levels. Please turn to Slide 6, where I will discuss the Industrial Solutions segment. As seen on the slide, our AD&M sales were up 14% organically, driven by growth in the commercial aerospace and defense markets. In both markets, we continue to see favorable demand trends along with ongoing supply chain recovery. In our Energy business, sales grew 14% organically, driven by strength in the Americas and Europe. We continue to benefit from momentum in renewables as well as investments being made to support increased power generation needs. Our Medical business declined slightly in the quarter, while the Industrial Equipment business faced a 20% organic decline. For the full year, we noted growth in Aerospace, Defense, Energy, and Medical businesses. The Industrial segment margins were 15.6%, aligning with our expectations given current volume levels and business mix. Now, let me conclude the segment discussion with the Communications segment on Slide 7. Our Data & Devices business grew 35% organically, and our design wins reflect accelerating momentum. Our AI revenue totaled $300 million in fiscal 2024, with expectations to double in fiscal 2025 based on design wins across a broad customer base. Our Appliances business also showed double-digit growth for the second consecutive quarter, driven by strength in both the Americas and Asia. The segment adjusted operating margins were 21.7%, which aligned with our expectations and showed significant improvement over last year, driven by strong operating leverage from the higher sales volume in this segment. With that summary, I will turn it over to Heath, who will provide more detailed insights into the financials and expectations going forward.
Heath Mitts, CFO
Thank you, Terrence, and good morning, everyone. Before I get into the details of our financials, I want to reiterate something that Terrence said earlier. We are dealing with a dynamic market environment. So, our focus this past year has been on improving margins and earnings. I am pleased that we delivered record margin, EPS, and free cash flow in fiscal 2024. For the quarter, adjusted operating income was $755 million with an adjusted operating margin of 18.6%. GAAP operating income was $651 million, which included $5 million of acquisition-related charges and $99 million of restructuring and additional charges. For the full year, restructuring charges were $144 million, reflecting ongoing footprint optimization efforts, and I expect restructuring charges in fiscal 2025 to be at or below the $100 million level. Adjusted EPS was $1.95, and GAAP EPS was $0.90 for the quarter and included a tax charge of $0.78 related to the increase in the valuation allowance for deferred tax assets. Additionally, we had restructuring and acquisition charges of $0.26. For both the fourth quarter and the full year, the adjusted effective tax rate was approximately 22%, which was as we expected. Moving into fiscal 2025, we expect our adjusted effective tax rate in Q1 to be approximately 23%, with the full year 2025 in the 23% to 24% range. This increase versus the prior year is primarily related to the impact of the Pillar two global minimum tax implementation. Importantly, our fiscal 2024 cash tax rate was in the mid-teens, significantly below our adjusted effective tax rate, and you can expect our cash tax rate to remain in the mid-teens longer term. Now, turning to Slide 9 for additional information on full year performance, fiscal 2024 sales of $15.8 billion were flat on an organic basis. We did have organic growth in Communications and Transportation segments, which was offset by the Industrial segment. Adjusted operating margins were 18.9% for the full year, with margin expansion of 220 basis points year-over-year, driven by strong operational performance. At the segment level, we expanded margins by 300 basis points in Transportation and nearly 400 basis points in Communications, resulting in roughly 20% adjusted operating margins for both segments in 2024. Adjusted earnings per share were $7.56, up 12% year-over-year, driven by margin expansion and including headwinds of $0.39 from currency exchange and a higher tax rate. Given the flat market environment, double-digit EPS growth in this context is something I'm very proud of. On the cash flow front, we generated record free cash flow of approximately $2.4 billion in fiscal 2023. I’m pleased to share we exceeded this by $400 million to a new record of $2.8 billion in fiscal 2024, which was up 17% year-over-year. Our free cash flow reflects 120% conversion to adjusted net income and was in the high teens as a percentage of sales, demonstrating the high quality of our earnings. Looking ahead, we expect free cash flow conversion to remain above 100%. In fiscal 2024, we returned roughly $2.8 billion to shareholders through share buybacks and dividends, and deployed approximately $340 million aligned with our bolt-on acquisition strategy. Our cash generation and healthy balance sheet provide us with more flexibility regarding capital usage. We will continue to prioritize strong returns of capital to shareholders, and as you saw today, we announced an additional $2.5 billion repurchase authorization to support this optionality. We are also looking to pursue more bolt-on acquisition opportunities at attractive valuations, and we are observing a more favorable deal environment than in previous years, so we are increasingly optimistic about our inorganic opportunities. Before we turn to questions, let me reinforce our expectation to build upon our prior performance in 2024 to deliver even stronger financial results in 2025. We anticipate a return to growth this fiscal year, with investments in markets aligned with secular trends expected to accelerate as we progress through the year. In addition, we expect to achieve margin and EPS expansion along with strong free cash flow generation. Now, with that, let’s open it up to questions.
Sujal Shah, Vice President of Investor Relations
Thank you, Heath. Eli, can you please give the instructions for the Q&A session?
Operator, Operator
Your first question comes from Amit Daryanani from ISI Evercore.
Amit Daryanani, Analyst
Terrence, I'm hoping you can just perhaps expand more on the AI opportunity that you see unfolding going forward. There's been a lot of discussion around what's happening and some of the shifts here. So, I would love to hear your perspective. What sort of customer diversity do you both have here? And some of the recent architectural changes that we're seeing have any impact on TE? Perhaps you could lead into this discussion about the billion-dollar AI opportunity discussed longer term. Is that getting bigger or could it happen sooner?
Terrence Curtin, CEO
Thanks, Amit. We've discussed this for several quarters, and it represents a significant trend that requires exceptional engineering and solving complex problems. It's about achieving higher speeds that all our cloud customers demand with lower latency, while also addressing the power efficiency that our products contribute. Importantly, when evaluating the growth, we look at things like our design wins and the trajectory of cloud capital expenditure. Reports indicate a 20% increase in cloud spend, which supports these programs and designs we're developing with customers. Our momentum is evident; several quarters back, we estimated $200 million for AI-related sales, then $250 million, and now we've concluded at $300 million. Our expectation is to double that to $600 million in fiscal 2025. The billion-dollar target we mentioned seems to be approaching sooner than anticipated as we execute on these programs. We engage a diverse array of customers, including hyperscalers and semiconductor companies, indicating it is a broad-based engagement similar to our approach in the cloud sector. It's important to encourage collaboration within the ecosystem, including other players involved in architecture, acceleration chips, and various silicon solutions. We do not focus on a single customer; rather, we engage across the entire ecosystem, making me proud of our team’s accomplishments. I believe you will continue to see growth in this revenue area. As I mentioned in the prepared remarks, we are investing in engineering skills to adequately support the increasing demands.
Sujal Shah, Vice President of Investor Relations
Thank you, Amit. Can we have the next question please?
Operator, Operator
Next question comes from the line of Wamsi Mohan from Bank of America. Your line is now open.
Wamsi Mohan, Analyst
Yes, thank you so much. Terrence, I was hoping you could unpack your comment on the content outgrowth in Asia. That sounded closer to 10 points of outgrowth. I was wondering how much of that is coming from the EV mix versus increased electrification in that region. And do you see those trends sustaining in fiscal 2025 as well?
Terrence Curtin, CEO
Yes, a couple of points here. Firstly, when we talk about Asia, it is our largest revenue region, where a significant majority of EVs are produced. Last year, there were 4 million additional electric vehicles produced, all within Asia, while production in Western regions remained flat or declined. Overall, Asia’s car production saw mid-single-digit growth, while our revenue grew in mid-double digits. This outperformance is largely attributable to the EV trend and the increase in data connectivity within vehicles. Chinese as well as other Asian vehicles require more data connectivity as their software architecture evolves. So, it's a combination of both EV contributions and overall content growth across all powertrains. We expect to see electric vehicle production growth to maintain similar levels to this year, around 4 million units, primarily driven by Asia, and we're well-positioned for this growth.
Sujal Shah, Vice President of Investor Relations
Thank you, Wamsi. Can we have the next question please?
Operator, Operator
Question comes from Steven Fox of Fox Advisors. Your line is now open.
Steven Fox, Analyst
Hi, good morning everyone. I was wondering if you could help us maybe reset a little bit on the new segments that you're switching to this year in terms of just how to think about growth by the two segments, perhaps margin expansion and how it compares on a pro forma basis to what you just reported?
Terrence Curtin, CEO
Yes. A couple of things: as Sujal mentioned, we’ll provide data through an 8-K later this quarter. When considering growth, you can think of combining the existing segments, IS and CS. The growth experienced this year, particularly in AD&M, Energy, and Communications, is expected to continue into next year. We anticipate a 4% to 6% outperformance over production in auto, even though auto production may see a slight dip. The focal point for us is observing some areas of weakness, particularly in Industrial Equipment, Commercial Transportation, and our Sensors business, particularly affected by soft industrial markets—where and when we see improvement will be key as we head into 2025. We do expect growth to improve over the year.
Heath Mitts, CFO
Sure. Steven, as both Sujal and Terrence have commented, we'll provide some pro forma information later this quarter to assist you in updating your modeling. In terms of margins, there isn't much change anticipated for Transportation; we have a solid understanding of where we stand. For the new Industrial segment, it would have finished 2024 in the high teens. As we move forward, we expect Transportation to continue performing well in the 20% range, while we anticipate seeing improvements in the new Industrial segment in fiscal 2025, moving closer to 20%. Ultimately, we're focused on achieving a total company margin of around 20% over the midterm.
Sujal Shah, Vice President of Investor Relations
Thank you, Steve. Can we have the next question please?
Operator, Operator
Your next question comes from Scott Davis of Melius Research. Your line is now open.
Scott Davis, Analyst
Hey, good morning, guys. Terrence. Congrats on managing through a tough year as margins. I wanted to turn focus to Industrial a little bit, specifically the factory automation side. Is there any visibility on when that business stabilizes? It seems to be your toughest one right now. If we see a snapback in 2025, that would be quite helpful.
Terrence Curtin, CEO
Thanks, Scott, for the question. In several ways, we'd anticipate some recovery this year. The key areas of weakness are in discrete factory automation and building automation. While the situation appears to be stabilizing, I want to stress that we're bouncing around the bottom. We've noticed a slight dip in Europe while the Americas remain steady and we've experienced a slight uptick in Asia. We believe our customers may still be working off inventory, leading to some destocking effects. I think we might need to get into calendar 2025 before we witness clear improvements. For now, we're in a precarious position, with this area acting as a significant headwind this year.
Sujal Shah, Vice President of Investor Relations
Thank you, Scott. Can we have the next question please?
Operator, Operator
Question comes from Mark Delaney from Goldman Sachs. Your line is now open.
Mark Delaney, Analyst
Yes, good morning. Thanks for taking my question. You spoke about the success the company is having with content growth, and the four to six points of outgrowth is something you think you can sustain. However, regarding auto content growth over the longer term, I'm hoping you can share thoughts on Tesla's recent announcement about simplifying their low voltage connector architecture and any implications for your company.
Terrence Curtin, CEO
Sure. Thanks, Mark. While we typically avoid commenting on individual customers, an announcement like that excites us because we work with every car manufacturer worldwide. Changes within the architecture can introduce significant challenges, whether it's transitioning from 12-volt to 48-volt systems or shifting from distributed compute to zonal compute or centralized systems. These architecture changes span all powertrains, not just electric vehicles. When such changes occur, it often complicates interconnectivity as you're merging various elements, and they tend to become miniaturized, particularly with the 12 to 48-volt transitions, leading to assembly challenges. Typically, the introduction of more complex engineering problems increases the content that we can provide. As we discuss the four to six points, it's essential to recognize that electronification is as vital as electrification, and that trend occurs across all aspects.
Sujal Shah, Vice President of Investor Relations
Thank you, Mark. Can we have the next question please?
Operator, Operator
Your next question comes from Christopher Glynn from Oppenheimer. Your line is now open.
Christopher Glynn, Analyst
Thanks. Good morning, Heath. You talked a bit about capital allocation. I noted the $2.5 billion buyback is a bit larger than normal. Could you discuss if this suggests adaptations to your capital strategy?
Heath Mitts, CFO
Thanks, Chris. I appreciate your follow-up question on this. No, when we discussed this with our Board, we considered the amount of cash flow we are generating as a company and how we should position ourselves for optionality. We have a stronger M&A pipeline currently, but we must ensure that any deals we pursue are sensible for our shareholders and add value. We still have ample excess cash flow and do not intend to amass excessive cash on our balance sheet. Our strategy remains to deploy capital through share buybacks, which will be complemented by increasing dividends in line with our rising earnings and cash flow. The $2.5 billion repurchase authoritation will likely be utilized over the next couple of years, but there is no change in our overall approach, just a bit more optimism about our ability to continuously generate cash flow and effectively use our balance sheet.
Sujal Shah, Vice President of Investor Relations
Thank you, Chris. Can we have the next question please?
Operator, Operator
Your next question comes from Luke Junk from Baird. Your line is now open.
Luke Junk, Analyst
Great, thank you. Good morning. Terrence, I'd like to get your updated perspective on TE's automotive positioning specifically in China. You've talked a lot about Asia overall, but I want to zoom in on China and discuss key achievements that contribute to what appears to be a strong year overall there. I'm considering your positioning with current customers, onboarding new clients, and your leverage of local players as we move into next year. Concurrently, from a competitive standpoint, are you seeing any changes, particularly with local players encroaching on the market in China?
Terrence Curtin, CEO
Thank you, Luke. You must keep in mind that when discussing Asia, China plays a significant role. About half of Asia's vehicles are made in China, which is crucial for us. TE has approximately $2 billion in automotive revenue from China alone. The growing trends we discussed are directly related to our growth outperformance in the region. Our diverse portfolio enables us to work with multinationals, but it's crucial to win with local OEMs; they are gaining significant market share within China. We’ve seen a shift where local Chinese players have increased their share to 2/3 while multinationals are down to 1/3. Our continued growth validates our strategy to engage with local OEMs. We're investing heavily in China, opening our sixth automotive factory there. This demonstrates our commitment to local resources, engineers, and capacity, which is important for leveraging our market presence. From a competitive standpoint, primarily Western and Japanese contenders still dominate the market, and while there are known Chinese competitors, our longstanding experience allows us to navigate this environment effectively. We are excited about the upcoming year; we firmly believe Asia will drive volume production growth globally.
Sujal Shah, Vice President of Investor Relations
Thank you, Luke. Can we have the next question please?
Operator, Operator
Your next question comes from Saree Boroditsky from Jefferies. Your line is now open.
Saree Boroditsky, Analyst
Hi. Thanks for taking the question. Given the strong growth expected in Communication for 2025, are you still looking for 25% to 30% incremental margin on that growth specifically? Are there additional investments needed that we should consider?
Heath Mitts, CFO
Sure, I'll take that. As expected with the growth we're seeing, there are investments we are making to support it, primarily capital investments for production capacity. We’ve been advancing some of these draw from a long-term perspective, which has been embedded into our 2024 run rate, so the changes aren’t excessively large heading into 2025. You can anticipate that incremental flow-through margin will remain relatively robust but would need to be dialed in tighter. More detailed insights will be shared in January when we report on our new segments. Overall, 30% remains a reasonable outlook, though it's not solely driven by AI; there are also cost actions being addressed across the broader segment.
Sujal Shah, Vice President of Investor Relations
Thank you, Saree. Can we have the next question please?
Operator, Operator
Your next question comes from Joe Spak of UBS. Your line is now open.
Joseph Spak, Analyst
Thanks. Heath, you converted over 100% of free cash flow this year. Could you give us a bit of color on CapEx plans for next year and whether free cash flow conversion could remain similar? Additionally, if that M&A pipeline does not materialize, should we still expect about 100% of free cash flow to be distributed via dividends and the new buyback?
Heath Mitts, CFO
Joe, regarding CapEx, I recommend modeling roughly 5% of revenue for CapEx as a baseline. This year, we fell slightly short of that due to timing elements, but I expect our 2025 CapEx to be around $100 million higher than 2024, primarily to support growth in AI. As for free cash flow conversion, we’ve successfully managed our working capital in a flat growth environment, which positively impacted our cash generation. As we transition to growth in 2025, while some pressure will be placed on working capital, I don't believe we will drop below 100% free cash flow conversion. We'll keep you updated on this as we progress.
Sujal Shah, Vice President of Investor Relations
Thank you, Joe. Can we have the next question please?
Operator, Operator
Your next question comes from Joe Giordano from TD Cowen. Your line is now open.
Joseph Giordano, Analyst
Hey, guys. Good morning. I appreciate this is happening in real time, but there have been a lot of announcements from Germany regarding workers at auto facilities joining nationwide strikes. Considering this, how do you feel this situation is affecting your auto guidance for the next quarter?
Terrence Curtin, CEO
Well, Joe, our guidance encompasses all that we know. We have customers in several business segments undergoing unique challenges. For the first quarter, we do expect global auto production to decline compared to the previous year's fourth quarter. The West will see declines primarily, driven by the situation you mentioned. On the other hand, Asia is expected to be the main driver of growth moving forward.
Sujal Shah, Vice President of Investor Relations
Thank you, Joe. Can we have the next question please?
Operator, Operator
Next question comes from Colin Langan from Wells Fargo. Your line is now open.
Konstandinos Tasoulis, Analyst
Hey guys, this is Kosta Tasoulis filling in for Colin. I just wanted to place focus on the commercial vehicle market. Can you offer some color on how the business will impact your Transportation segment margins and full year 2025?
Terrence Curtin, CEO
To start, we must acknowledge the impact of financing rates and inventory levels; we've seen the heavy truck market weaken, including agriculture and construction. However, we've experienced growth nearly 200 basis points better than the overall decline. As we navigate through this cycle, which is common, we expect to outperform in a declining environment. Regulatory changes concerning emissions in specific regions present potential demand sparks later next year. As for margins, Heath, would you like to elaborate?
Heath Mitts, CFO
It's a great point concerning the impact of market mix on Transportation segment margins. Our Commercial Transportation business typically generates favorable margins. However, ongoing softness in the market has put some pressure on those margins, which we experienced in 2024. As we transition into 2025, we expect incremental improvements in market conditions, but our margin expectations for the Transportation segment remain firmly above 20%. Our Auto business's strong performance helps mitigate challenges faced from other segment aspects.
Sujal Shah, Vice President of Investor Relations
Thank you, Kosta. Can we get the next question please?
Operator, Operator
Your next question comes from Matt Sheerin from Stifel. Your line is now open.
Victor Santiago, Analyst
Good morning, this is Victor Santiago filling in for Matt Sheerin. I would love to get some insights into your Data & Devices business, excluding the AI opportunity. How is recovery tracking for traditional data communication applications? What are your views of the business as we approach 2025?
Terrence Curtin, CEO
Certainly. We often highlight AI, but it’s critical to recognize that traditional cloud elements are also witnessing a return to growth. The cloud aspect is projected to achieve mid-single-digit growth next year, which is a positive trend following a shift where investment priorities transitioned towards AI. While enterprise sectors remain stable, we aren't heavily involved in telecom networks. However, the outlook for cloud spending is promising, moving into next year, indicating a recovery beyond AI-focused initiatives.
Sujal Shah, Vice President of Investor Relations
Thank you, Victor. Can we have the next question please?
Operator, Operator
Your next question comes from William Stein from Truist Securities. Your line is now open.
William Stein, Analyst
Thanks for taking my question. Good morning. Could you comment on the sequential decline in communications orders despite the strong results and the comments about growth next year? This has caught investors off guard, given the recent momentum.
Terrence Curtin, CEO
Certainly, Will. It's important to consider our cumulative orders. We observed year-over-year growth of 40% this quarter, building upon strong performance from last quarter. Given prior growth rates, you'll see some typical lumpiness. Our cumulative orders have amounted to just shy of $1 billion over the last two quarters. While they may fluctuate from quarter to quarter, the overall trend supports our guidance of continued growth for AI revenue and the strengthening of cloud trends.
Sujal Shah, Vice President of Investor Relations
Thank you, Will. Can we have the next question please?
Operator, Operator
Your next question comes from Shreyas Patil from Wolfe Research. Your line is now open.
Shreyas Patil, Analyst
Thanks for taking my question. Heath, you mentioned earlier that the goal is to reach 20% operating margins. Can you expand on that? It seems that the underlying margins are currently close to this level if we adjust for cyclical hurdles in Industrial and Commercial. I'm also interested in your thoughts on the $600 million revenue guidance for AI next year, especially considering last two quarters where orders seemed clustered between $400 million to $500 million.
Heath Mitts, CFO
Absolutely. We have not released formal margin guidance thus far. My previous remarks aimed to clarify our expectations and direction of several segments moving forward. Transportation margins are holding at approximately 20%, and fluctuations occur in quarters due to various factors. The new Industrial segment, as noted, should land in the high teens but should improve progressively in fiscal 2025. We're optimistic in that regard. Overall, we aim for our total operating margin to hit 20% in the coming years. As for AI orders, while they drive our growth projections, it's crucial to factor in broader aspects such as non-cloud AI and general enterprise needs when making your assumptions about our revenue guidance for next year.
Sujal Shah, Vice President of Investor Relations
Thank you, Shreyas. Can we have one more question please?
Operator, Operator
Last question comes from Guy Hardwick from Freedom Capital Markets. Your line is now open.
Guy Hardwick, Analyst
Hi, good morning. I appreciate the guidance provided for Transportation. While it seems we’re at a peak margin of around 20%, could you clarify dynamics influencing margins for next year, especially the potential recovery in Commercial Transportation and the impact of the Sensors business restructuring for the overall mix?
Heath Mitts, CFO
You captured many aspects there, but I don't view the 19.3% margin from the fourth quarter as a concern. Our margins fluctuate; we’ve seen as much as 21% in certain quarters. The smaller volatility certainly owes something to our investment approaches and mix adjustments. For the coming year, while the Transportation segment is expected to maintain margins above 20%, we can expect incremental improvements, particularly from the recovery in Commercial Transportation, which we anticipate happening later in the year.
Sujal Shah, Vice President of Investor Relations
Thank you, Guy. If there are no further questions, I want to thank everybody for joining our call this morning. If you have further inquiries, please contact Investor Relations at TE. Thanks, everyone, and have a great day.
Operator, Operator
Today's conference call will be available for replay beginning at 11:30 a.m. Eastern Time today, October 30, on the Investor Relations portion of TE Connectivity's website. That will conclude the conference for today.