TE Connectivity plc (TEL) September 2026 Conference Transcript

My name is Alex Dwyer. I work with Jeffries. I'm an equity research associate covering machinery and multis. And I work with Steve Volkman. Today, we're joined by Terrence Curtin, the CEO of T Connectivity. uh so it's a yep it's a fireside chat format uh we take audience questions so if anyone has a question uh don't be afraid to raise your hand uh with that let's get started uh terrence thank you for coming no thanks alex and i appreciate everybody being here to learn more about te connectivity so let's get into it yep i guess i'll just start out with uh some q a and uh so So, I mean, you've raised your AI sales guidance a couple of times this year, though the growth rate, the year on your growth rate has come down from 70 percent to that 33 percent range or something. And I know like the market, nothing's really changed in the market. I know you're ramping a lot of capacity and there's been some program timing nuances. Can you just talk about how that kind of unfolds going forward over the next couple of quarters? Sure.

So first off, thank you. again. And, you know, just to frame, you know, where Alex was going, you know, when we look at TE, it's important to understand that we play at the intersection where you need data connectivity as well as power connectivity. And, you know, our biggest growth driver both this year and last year really has to do with where we work with semiconductor companies and hyperscalers on how you connect GPUs and all the connectivity that go in the rack. And it's been a really good growth driver for us and actually our expectations are higher than we just thought when we started the year and the momentum continues to be strong so yes we're gonna have times when programs change some programs come in come out but what's really good our position with our hyperscale customers really has set up nice momentum not only this year but in the next year so our orders are up about 70% this year in our AI space that's going to set up a really nice tailwind as we go into 27. And as we continue to help them solve the connectivity needs that happen both on the power and data side. The other thing about this year, just to build on maybe outside of our AI business is, you know, our AI business has been maybe about 40% of our growth this year. TE is going to grow about $2.5 billion this year. And that's really driven by our industrial segment, which includes what we do for our AI customers. But that breadth of growth that we have is really where we bring our connections, whether it be in the energy infrastructure, you know, across aerospace and defense, which are strong secular growth trends that aren't slowing down anytime soon, which contributed, you know, incremental growth on top of what we do in AI, as well as our legacy position in transportation, where we have a strong position that really our growth is being driven by content performance that's above market. And I know you're going to click down in all of these, Alex. But the element is the breadth of the growth that we have as data proliferates, as well as the power that's needed around that proliferation, I really think makes us a little bit unique as you look at opportunities for investment.

Yep. Okay. Got it. Thank you for that. And I know like earlier in the year, there was a lot of commotion about the optics and copper transition. I think you framed it as copper and optics. And I think it's become more apparent that copper is here to stay for longer. But I guess when you when you talk to customers, have you seen them like try to adopt like more optics racks or are you seeing them kind of push against that now? How is that played out as the year has gone on?

So we've always seen our customers obviously look at where optics play from a cost, from a power need, and really to get to the data speeds that is needed in AI. So, you know, it's not a new discussion, but it also sort of became a little bit of a versus discussion versus an end discussion and that was earlier in the year was a big discussion but what we see in our ddn business which serves our ai customers is and our large customers have said it publicly copper is going to be continuing to be the work horse that you see in the rack power connectivity which is about a third of our ddn business is always going to be copper when you look at transmitting data and signal you're going to to see areas where optics issues. You're also going to see areas where copper continues to be extended because of its scale, its lower cost, as well as lower power consumption. And what's nice about where we play is we get to work with our customers as they look at where do they want to experiment. And in our AI business, it is something that it's not going to be cookie cutter across the architectures. Some customers are going to push the limit. You will see how that comes into the switch in an optics perspective. You have other customers that say, no, I want to be at a lower cost for a lower cost per token. So we see a lot of experimentation across our customer base. But what we get excited about is that the copper TAM will continue to grow, that it is an and discussion, not a versus discussion. And we've also positioned ourselves where we would play sort of optics that comes into the switch because we really play in the scale up element. We do lessen the scale out. And certainly we're going to be part of that that will add TAM to us as we look forward. So lots of experimentation going on in any AI architecture, both on the power side and the data side. And they're both things that not only for the growth we've had this year and we expect next year, but also as we look at multiple years and as we work with our customers on those racks and those architectures. Yep.

I guess to stay on the optics piece, you guys made that Ram Photonics acquisition earlier in the year. And it didn't seem like there was a lot of revenue attached to that, more like a technology idea. Can you kind of talk about how you see that playing into, like, the optics adoption? And I know they come with, like, a fiber array unit. Can you just talk about what that is and how that speeds up the manufacturing issues that the optics supply chain is going through?

So as we look at where optics would play on our roadmap, we really view from a connectivity perspective in the rack. That happens at the switch, and what you would have, whether you have co-package optics or near-package optics, how do you bring the signal off of that with the density? But also, you have to have the scale to manufacture at very high rates, and that's where we've been very focused on our development. To your point, we made a technology acquisition earlier this year called Ram Photonics, which really has some very high density as well as good automation that goes with it. it doesn't have revenue attached with it at all. It's really part of our technology roadmap from a product perspective. And it really sets us up to where we think we should play in the optical space. We're not somebody who's going to be doing lasers and active optics. So there's a lot of companies that have capabilities in it. But when you think about connectivity and the passive connectivity that we do on the electrical side, which is copper, as you call it, we really feel that the fiber attach unit is an area where there needs to be scaling brought to. It ties in with our roadmap and also the discussions we have with our customers and as we go through engineering qualifications. So I view that as part of that TAM expansion that we talked about. It's something that, you know, we didn't have at our investor day earlier in this year, but it's something that provides a future growth opportunity no matter where optics comes in, whether it's CPO or NPO.

And what do you think about timeline on revenue generating for that asset? Do you think it's kind of a couple of years away?

Yeah, so the question, I was at another conference yesterday that was a technology conference, this question I got every minute. But the element that you have is it's really going to come down to where our customers see scalability of where this can be that really doesn't change their roadmaps. And, you know, right now we're in a lot of engineering qualifications. I don't think you get into meaningful revenue into 28, 29, depending upon where our customers have it in, as well as where does the broader ecosystem support optics adoptions in the switch.

Okay. And I guess the power connector opportunity, I think, is that 25% of your DDN business?

It's actually larger. So when you think about our DDM business, which is about $3 billion of our $20 billion this year, about a third of it is a little bit higher than what you said, Alex. About a third of it is actually around power connections. And one of the things that creates future growth opportunity is as you bring more compute and more optics and other things in, the power consumption that you need increases the content significantly. You know, certainly there's some customers that are looking at 800 volt sidecar power racks that support the GPU racks. That's where the power is going. There are types of things that can create a 50 percent increase in our content on a rack. So when you think about the growth we're delivering this year, around a billion dollars, those types of architectural changes continue to help us look at a roadmap on growth that's just going to continue to build as AI architecture evolves. Yeah.

So, I mean, I guess, can you talk about, like, what the last three years looked like from the power connector, like, growth story and how that can differ from, like, as we think about the next three years and whether 800 volt comes or doesn't come? Like, is it just denser connectors or more volume or higher pricing? Yes.

So when you go into there, typically when you think about density, you think about density more in the data side. But on the power side, what you're dealing with is you're dealing with voltages that are much greater to bring over. You're dealing with bigger interconnects, not typically smaller interconnects, as well as a lot of the materials and electromechanical elements that go with it. So when you think about probably three years ago, power connectivity was probably 25 percent of our DDN business. is up to 30%, about a third. And I think you're going to continue to see that go up as the power architectures evolve versus the standard architectures we've had historically. So when we look at this space, I know you asked about optics and copper. You know, there's elements that relate to what's happening on the data side that we're going to benefit from, both in copper and optics. But then there's the power element. And the power element, you know, we have some customers that are looking at 800 volt some are looking at 400 volt steps you're going to see a lot of different architectures that our customers are experimenting with and we get to work with them which is a very important part of our note our moat with our system architects and our customer system architects and it goes back to anything that te does i know when we're talking right now about our ddn business but whether it's in our energy business or automotive business our factory automation business it really always starts with you have a semiconductor and you have a power supply and you need connectivity that brings that architecture together and they're the things that we focus on it and depending upon how hard the technical challenge is that drives a bigger content opportunity so we always embrace architectural changes there are things where our customers need our expertise it's where our engineers excel and then certainly we have to make it for a life of any program, but there are things that we get excited about all the time.

Does anyone in the audience have a question? Or I can keep going if not. All right, keep going. I guess I'm going to move on from a DDN segment and go into energy. I guess you've added Richards and you're 70% more, you're 70% exposed to North America now, the growth rates come up because of that and i think you even raised it again uh to mid-teens last quarter um can you talk about like what drove that revision and like what gives you the confidence to uh think mid-teens organic growth is the right uh growth rate going forward and talk about that yeah so when we sit there and we talk about our industrial segment We talked about our DDM business, which is a chunk of it.

But the other chunk we have, we have a bunch of businesses that are $2 billion. Our DDM business is $3 billion. And once again, it's doing connection. But this is in the power space where we support our utility customers from medium voltage in the grid all the way down to stepping down to a data center, stepping down to a renewable farm. And it's an area where we spend a lot of time focusing on where do we play from a go-to-market. And we've also done a couple acquisitions that have helped support where we want to play, including Richards and Harger. But when we look at this space, it's a space that, you know, these are power connections. 800 volt is low voltage in a utility. I mean, that's low voltage. But when you think about where we're helping our customers here, it is as the energy capacity has increased this market. This was a market five years ago that was a 1% to 2% market. We view it's growing 6% to 7% today. And depending where you play, you have growth rates much higher than that. We excel in medium voltage. We also excel in undergrounding. So when you get into grid hardening, you also get into highly dense areas like we are here in Manhattan. And you really get into opportunities as the grid needs to be upgraded. Certainly, there's deferred maintenance. We feel what we're playing actually gets us into that double-digit rate that you talked about, and it's why we upgraded it. We continue to add capacity, both in our facility here in New Jersey. We're near here in New Jersey as well as out in Ohio. And 70% of our business is U.S.-focused. It is an area where we pick to play stronger in the U.S. Clearly, TE, you typically think about TE being very global. Actually, in energy, it's very much U.S. first, a little bit smaller, and Europe is really our position. And as we sit there and think about how you get power distribution, where we serve our utility customers, but just as importantly, how we serve what we call industrial power, the EPCs that help do moving the power from the utility to the step down into the data centers, To step down into semiconductor manufacturing sites, there are other areas that we were very strong at and you use our medium voltage products on. So we get very excited about the growth trends here. I know everybody likes to talk about AI, but there's an element here with where the energy infrastructure is at and the growth rate we see there. We really like where we position ourselves. It's a nice double-digit grower. It's going to be mid-teens this year. I think you can have that expectation as we go forward in this 6% to 7% market. We continue to have opportunities, and it's also an area we'll probably continue to look at across our industrial segment for places that can have inorganic opportunity.

I was going to ask, as you look at this business over the next three to five years, are there any immediate gaps you see in the business that you would like to add organically or inorganically? I assume you probably want to keep building out the North America presence. Are there any regions in the country you're underexposed to? Or you mentioned strong and undergrounding. Would you like maybe get like build up capabilities and like the above the ground utility? How are you thinking about that?

So certainly we're very focused on medium voltage and we like that. And it builds on what we've done organically and what we've done inorganically. I think if we could find things that would help in the overhead, because a lot of the United States is overhead when you go to the middle of the country. But there'll be opportunities and they have to be on the right returns and growth profiles for us. So I do think the energy space is always a fragmented space. We like the base that we have. We also think there's opportunities to continue to expand it with the relationships we have with our utility customers, as well as in the industrial power side. So we'll continue to look at components that could fit in to our suite and that we can add value to both for us, as well as the customers, as well as owners.

Okay. And then I guess on the lower growing parts of the energy business, the traditional Europe business, and then the clean energy renewables piece, are you seeing any signs of pickup there? And can you just like kind of refresh on what are the main like renewable clean energy applications you sell into?

So, you know, our growth rate, you know, renewables, we typically sell into utility scale solar. So when you look at that here in North America, it's we are not as wind exposed, but, you know, that's been slower. And even in the growth rate that you talked about in mid-teens, we're absorbing a slower environment and some of that's due to regulation. But that is really where we play in renewables. And that's really here in the United States. In Europe, Europe is traditionally a slower grower than where I talked about from the growth rate. We are actually seeing step up from an investment from our European customers. So it also gives us confidence that we'll be able to be in that double digit as those investment levels come in, where they're actually putting in LNG facilities actually has a lot of power that needs to come to it. It's very important to our growth profile. Yeah.

Okay, cool. I think I'll stop there on the energy business and then move over to the ACL segment, which is more of like your traditional general engineering industrial business. I mean, the double digit growth started coming before the PMIs started inflecting in January, and it's been eight months in a row of expansion there. I know you serve a lot of different end markets in that business. Are there any, like, one to two, like, major geographies that have been driving it or any, like, specific industry? I know factory automation has been strong.

Yeah, so when you look at what we call ACL, it's automation is how you should think about it. And this is a business that I just, when we say the growth rates, I do have to be transparent. It's been a market that's been very slow for a couple of years. So we're finally seeing a cyclical inflection. And to your geography question, Alex, it's broad. We're seeing it in all three regions of the world. And to your point, you look at ISM, PMI, you really see that momentum going because it is so broad. Where we play is very much in discrete manufacturing in the automation space, in the factory automation space. And we're seeing our customers probably get back to more of a mid-single digit to higher single digit. growth rate in their business. A lot of it comes back to the data that you need on the factory floor. When you look at what we do, and I know we started with AI, the data that's actually needed to make things more efficient actually starts with the productivity that you need to collect the data to make the machine more intelligent. And one of the things, yes, we have a cyclical pickup that's early. I would tell you, even when we look at TE, where we're investing and how we think about how we use AI internally. It's on the engineering side, and it's in our factories. And that comes with getting the data off the machines. How do you make the machines more intelligent to have that compute using the models? So it's one of the things that not only have the cyclical pickup, we typically have a content above sort of an industrial CapEx number. That's a couple hundred basis points ahead. And when I see how we're investing and what we're seeing in the trends, it sort of makes sense that they're dovetailing, and it's across our global network. It is not around, hey, growth is good in one region or another. It's really around how we're driving the efficiency that we need to drive the next level of productivity using the tools that we didn't have before that some of the LLMs provide us. So I think we're so early in that cycle that's just picking up. And, you know, it's nice to see the trends our customers are seeing in their businesses. But it's once again comes back to data connectivity you need that we connected our machines years ago to really get to this point. And then we're just accelerating it to use the models as they become more relative to drive next level efficiency.

And how do you compare this industrial recovery to like different industrial recoveries that have happened over the last decade or so? I guess there's a debate on how long people think this like an industrial recovery could last and like what would be the biggest risks to kind of derailing this?

It's a really good question. And, you know, probably the hardest part is typically when we think about industrial recoveries, in many cases, it's start about automotive cycles. You know, automotive is a big capital driver. And let's face it, automotive is a very flat environment right now. from a production perspective it's being driven in a different way and I think in many ways what makes it very different is that it's an efficiency cycle certainly there's areas that have a lot of investment like semiconductor manufacturing and and so forth around some of the localization that's occurred but it does have a feel of a very different cycle because the drivers are different and I do think it comes more to a core efficiency cycle in addition to some of those big mega programs that we all read about but it has a very different feel of a cycle i hope that helps the duration be longer um but it is a different cycle than what we're used to seeing yep okay and is is the human humanoid robot is that an opportunity you're seeing or would want to pursue ultimately or is that something you would no fair um it's a great question so you know with what we do on data and power, they're the types of things, you know, we're going to have content opportunities on. I know if I talk to all of you out there, some of you will say it's not real. Some of you will tell me it'll be infinity. What's really cool is when you look at what the architecture will be, it has a compute element. And obviously you have to move signal and data around as well as it's something you're going to have to recharge and power. We have automotive customers that are actually experimenting very highly using a lot of automotive type product that we'll work with them on. Certainly, we have our robotic customers that have views on what the architecture would look like. You know, it's one of those things that I'm sure we'll be talking more about in three to five years, but it's the types of things when you think about what TE does from a data and a power connection, we'll be right in the center of it and we'll help people solve that, but it's still very nascent when you think about the revenue element.

Okay. And then I guess maybe switching over to automation at your investor day in November, you provided a target for four to 6% content gains, I think.

You mean automotive.

Sorry. Oh, automotive.

Did I say automation? Yeah. Okay.

I guess a lot of people, investors typically associate the content gains with evs which i think had had double the content versus an ice i think you laid out like three different uh content drivers can you talk about should we be thinking about content gains in a different lens than historically and and what what the main drivers are like that you've seen since that investor day so first off being you know i i know we all know the automotive production environment is flat at best.

And, you know, it's minus one. When you think about TE, I think there's a couple of things that are very important that you think about. First off, of how global that we are. And we have content on essentially every vehicle on the planet. The second thing is, it goes back to the data and power I talked about a couple of times. You know, three to five years ago, we would have discussions at this type of conference where we would say, hey, we can grow outside production by four to six points and probably 60 percent two-thirds would be around electric vehicle adoption driven by Asia certainly driven by Europe followed by North America similar to the rest of TE our growth profile has broadened in automotive too so when you think about that four to six while that number is the same the complexion of what drives that content opportunity for TE is very different. There's probably about 40% of the four to six that gets driven by data connectivity in the vehicle. That is both what happens with ADAS. It's also what happens when you basically have over-the-air software updates. That's about 40% of that four to six. We still also have, you know, a part that's EV, and it's really due to our strong presence in Asia. You know, Asia EV adoption is full steam ahead. It's not stopping. And I know many of us here live in the United States. You know, EV does not give a lot of content opportunity in North America. The last piece that you have, which is pretty balanced with EV, is really what happens in features in the vehicle that we benefit from. And, you know, if you're in China, those vehicles have microphones all over them because you talk to the car. The comfort's very different. You have refrigerators that are in those vehicles. Here in North America, you may have cooled seats. All of that creates electronics. Any electronics you get in the car, sometimes they need data. Certainly they're going to need to be powered. And that's the last element of what creates content opportunity for us. So one of the things that we really like is you have this data element. And the other thing around that data element, you have to realize it's the edge compute that's happening. So no different than how I talked about factory automation, where you have data that's needed for efficiency in the car. It's also creating another element of edge that all feeds off the AI trend that you have up top. And it's driving that content, which is very different than if we just talked three, four years ago.

Okay. Got it. That's helpful. And I guess negative one to flat automotive global production. I think you even gave that like expectation to think about fiscal 27 to next year uh the flattest range is there anything that you are tracking or like could kind of drive more upside to auto production over the next three to five years um like would it be autonomous vehicles or is there anything that could happen that could stimulate that to growth when we plan and we work with our customers we basically sit there and say, we're going to sue flat.

Now, regions can have different things going on. We're also benefiting from our strong China position where our Chinese customers export. So, you know, sometimes people view that as a risk. That's actually something our strong position, both with locals as well as multinationals in China. Actually, we don't have any negative exposure to that. That actually, you know, we're very strong with both. But when you look at car production we really don't think that's going to move you need something economically to make it move and we really focus on the innovation that how we bring innovation to drive the content growth so we view it's more in our hands to drive that content growth like we have been doing and we feel good in that four to six environment we're going to continue to drive growth in our business like we've done this year and like even just saw last quarter where we had out performance um in the content yeah okay and then i guess staying in the your transportation segment and and shifting over to commercial uh vehicles um it seems like the growth rates come up a lot this

year i know like the comps are easier and we're coming off uh like a like a trough of a cycle um i guess how much is like how much of the growth is the cycle and versus like you've just won a lot more programs recently versus you have a lot more content gains um like how do we think about that and certainly so first off i think i'm going to sound a little bit like our automation discussion you know the heavy truck market in the united states has been weak for a few years um certainly outside the united states has actually been constructive it's actually been growing outside the united states with the united states and the heavy truck market has been tough

And when we say commercial vehicles, that does also, we not only include Class A trucks, we also include ag and construction equipment. We've actually seen the United States pick up over the past couple of quarters that, you know, is early into a cycle. Now, certainly there's regulation and interest rates that play into this a little bit more than some of the other markets we play into. too. But in addition to where the cycle is picking up, we have the same content opportunity in commercial vehicles that we do in a car. You know, in Asia, about a third of commercial vehicles are electrified powertrains. I know that doesn't sound natural here in the U.S., but that's true. Also, you have data, which not only helps the trucker be more efficient and more productive, you know it comes throughout also from a safety perspective so some of those trends we talk about in auto and a lot of other features do carry over right now we're growing very strongly as the cycle has picked up yeah but there is content in there that it will get down to maybe a lower single digit market at some point but we'll be able to drive out performance due to those vectors around content similar to what we have in automotive and it's you know we're globally balanced in this business. So, you know, it's about a third in Asia, third in Europe, third in North America. So that element, we also really like that position as we drive innovation around the world.

And I guess, do you have a view on, I guess, I don't know how your business is split between construction equipment and heavy truck, but I guess, do you have a view on like how long the cycle could be for this? And if like interest rates creeping back up could be something to worry about?

Yeah, clearly this is a big purchase. So interest rates do impact this. And that's probably the one caveat why I said it to really be honest, where interest rates go could make this a little bit more of a muted cycle. I think we have to see how that plays out. I think it's a little bit different than a cycle than where we see factory automation, like we talked about from that efficiency, where you have really efficiency that you can drive off of the predictability we all want in our processes and our manufacturing with certainly the tools we have at us. So I just think it's a watch out as we go into next year. But we will have content out performance.

Yep. Okay. And then I guess you have got like the investor day targets are for 30% incremental margins. And I think it's the same for transportation and for industrial. um like is this is that the right like is that the right way to think about that for next year are there any like puts and takes on like uh price cost or um any segment where um there's there there's been like more footprint optimization done that you could leverage now well first off you know a lot of our footprint optimization is in the rear view mirror we've invested heavily to be localized and i think you're seeing that in our margin performance you know both of our segments run around 22% operating income.

And you've even seen in a lower production environment, you know, our transportation performance team did a really good job. And it is an inflationary environment. And we've been passing on prices in both segments to really offset whether it's metal inflation, certain areas where we have tariff. I think our teams have done a nice job in working the price lever while staying competitive. As we look forward, I think the other thing you have to realize, we are adding capacity and investment, you know, more in our industrial segment, you know, whether it's DDN, which we talked about first, our energy business to really make sure we capture the growth opportunities. So I do think you're going to see higher fall through and higher growing units. But we also are making real time investments. And you've seen nice margin expansion this year as we're making those. And I think it proves how our operations have improved from an execution perspective. And I think there'll be times that one segment may be a little bit higher due to higher volume, but a lot of the footprint things that we used to talk about, you know, or in the rearview mirror. Yep. Okay.

I guess, uh, just, just to wrap it up. Um, I mean, I feel like we've discussed a lot of things and, um, I think we hit on most of the segments hopefully. Um, but like, is, is there, is there something you think that is underappreciated about your, your stock or your story or your growth drivers or anything Any message on what's underappreciated about TE?

Yeah, so first off, let's face it, you're all very bright people, so I'm not going to say what you don't understand. But I do think there's an element when you think about TE, historically people would say, hey, think about TE from an automotive perspective. currently over the past few years with the momentum we've had in AI and our DDN business and even how we started the discussion, you know, it was a lot of DDN discussion. I think there's a broadness to our growth around data and power that shouldn't be underappreciated. And I would just ask you all to really make sure, you know, when you think about what we talked in our energy business, the secular trends that we also have in aerospace and defense, which we didn't even talk about, which is going to be double digit growth or very powerful growth drivers and you know when we look at this year and while there's a lot of times automotive and ddn discussion which are important we're growing two and a half billion dollars this year and a lot of those other businesses which we worked very hard to broaden that growth being focused where we add connectivity solutions both on the data and the power side i guess that's the one that i think sometimes we all go to the discussion how we did it And those other ones are driving. These are $2 billion businesses that are driving double D growth are really driving the breadth of growth and also how we execute to pull it through, drive cash flow. And certainly whether we return it to you or we actually add to the portfolio inorganically, I really think the business model is working well. So I want to thank you for being here this afternoon. I know it's probably the last meeting of the day for many of you. I appreciate you.

Thank you all for joining.

Thank you everybody. Thanks for coming.