Amphenol Corp Class A APH
Q2 2013 Earnings Call Transcript
Transcript Call Date 07/18/2013

Operator: Hello and welcome to the Second Quarter Earnings Conference Call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then, all lines will remain in a listen-only mode. At the request of the Company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to introduce today's conference host, Ms. Diana Reardon. Ma'am, you may begin.

Diana G. Reardon - EVP and CFO: Thank you. Good afternoon. My name is Diana Reardon. I am Amphenol's CFO. I am here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our second quarter call.

Q2 results were released this morning. I will provide some financial commentary on the quarter and Adam will give an overview of the business and current trends. We'll then have a question-and-answer session.

The Company closed the second quarter with sales of $1.136 billion and EPS of $0.95, meeting the high end of our guidance and achieving a new EPS record. Sales were up 7% in both U.S. dollars and local currencies compared to Q2 of 2012. From an organic standpoint, excluding both acquisitions and currency effects, sales in Q2 2013 were up 3% versus last year. Sequentially, sales were up 5%, both in U.S. dollars and organically from Q1.

Breaking down sales into our two major components, our Cable business, which comprised 8% of our sales in the quarter, was up 19% from last year as a result of a 2012 acquisition. The Interconnect business, which comprised 92% of our sales, was up 6% from last year as a result of both increased demand and prior year acquisitions. Adam will comment further on trends by market in a few minutes.

Operating income was $224 million in Q2. Operating margin was 19.7%, up from 19.4% last year and from 19.2% last quarter. A very good conversion margin on incremental sales of over 24% from last year and over 30% from last quarter.

From a segment standpoint, in the Cable segment, margins were 13.8% and comparable prior year levels. In the Interconnect business, margins were 22%, up from 21.6% last year. The year-over-year Interconnect operating margin improvement primarily reflects the positive impacts of higher volume and cost reduction actions.

We're very pleased with the Company's operating margin achievement of 19.7% and we continue to believe that the Company's entrepreneurial operating structure and culture of cost control allows us to react in a fast and flexible manner, thereby constantly adjusting the business to maximize profitability and will continue to be a very dynamic environment. Through the deployment of these strategies, the management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $15.6 million compared to $15.1 million last year, reflecting higher average debt levels from the Company's stock buyback program. Other income was $3 million, up from $2.6 million last year, primarily as a result of higher interest income on higher levels of cash and short-term cash investments.

The Company's effective tax rate was approximately 26.8% in the quarter, the same as last year. For the full year 2013, excluding the effect of one-time item, we currently expect the tax rate of approximately 26.3% compared to a full year effective tax rate of 26.6% in the year 2012.

Net income in the quarter was approximately 14% of sales and earnings per share increased 10% to $0.95 from $0.86 last year, a strong performance.

Orders for the quarter were $1.177 billion, resulting in a book-to-bill ratio in Q2 of approximately 1.04 to 1. The Company continues to be an excellent generator of cash. Cash flow from operations was a strong $180 million in Q2 or approximately 117% of net income and the Company continues to target and achieve cash flow from operations in excess of net income.

The Company had strong working capital performance in the quarter. Inventory declined 1% from March and was down 5 days to 81 days at the end of June. Accounts receivable was $906 million at the end of June and days sales outstanding declined 2 days to 71 days. Accounts payables stood at $447 million at the end of June and from a day's perspective, it was also down 2 days from last quarter.

Cash flow from operations of $180 million, along with option exercise proceeds of $41 million and borrowings under the Company's revolving credit facility of $95 million were used primarily for net capital expenditures of $36 million in the quarter, the purchase of 1.2 million shares of the Company's stock for $96 million, the acquisition of DC Electronics for $44 million, dividend payments of $17 million and an increase in cash and cash investments of $121 million in the quarter.

At the end of June, the Company had approximately 7.5 million shares remaining under its stock repurchase program, which expires in January of 2015.

At the end of June, cash and short-term investments were $1.143 billion, the majority of which is held outside the U.S. and debt at the end of June was $1.783 billion, leaving net debt at approximately $640 million at the end of the quarter.

Borrowings and availability under our revolving credit facility were $594 million and $406 million at the end of June respectively. The Company's leverage and interest coverage ratios remain very strong at 1.17 times and EBITDA in the quarter was $273 million.

On July 1, the Company amended and extended its revolving credit facility, increasing the size of the facility to $1.5 billion, extending the maturity date two years to July 2018, and lowering certain fees. The Company's current availability under the amended facility is approximately $906 million.

In addition, at the end of the quarter, the Company's Board of Directors has approved an increase in the quarterly dividend on the Company's common stock from $0.105 to $0.20 per share, increasing the yield to about 1%. The increase is effective for payments beginning in October. From a financial perspective, this was an excellent performance.

Before I turn the call over to Adam, I'd like to make a few comments relative to the assumption included in our guidance. The midpoint of our sales guidance has been revised down from $4.618 billion to $4.515 billion, a reduction of approximately $100 million or 2%. This reduction relates to a change in our expectation for demand in the wireless device market from a mid-single-digit growth in our prior guidance to a decline of just under 10% in our current guidance. This is partially offset by a contribution from the recent acquisition of about $20 million.

Our previous guidance anticipated for the mobile device market a significant increase in demand in the second half of 2013 relating both to new product introductions and higher production forecast for certain mobile computing platforms, some of which were introduced to the market in late 2012. Current customer forecast indicate lower demand levels than previously expected in the second half of 2013 resulting in minimal lift in demand in the second half over first half levels.

In comparing demand to prior year levels, we now see lower demand from new product launches as well as some impact of a further acceleration in the shift in mobile computing products towards Wi-Fi only enabled devices.

Our guidance also reflects a reduction in our 2013 full year effective tax rate from 26.8% to 26.3%. This compares to a full year tax in 2012 of 26.6%. We anticipate the rate reduction will be effective in the third quarter and therefore reflected the lower rate in our guidance.

The adjustment to sales and the adjustment to the tax rate result in a change in the midpoint for 2013 EPS guidance from $3.81 to $3.76 for 2013, a reduction of about 1.5%.

Adam will now provide an overview of the business and current trends.

Richard Adam Norwitt - President and CEO: Well, thank you very much, Diana, and I'd like to add my welcome to all of you on the phone today. As Diana mentioned I am going to highlight some of our achievements in the second quarter and then discuss the trends and progress that we've had in our served markets. Finally, I'll make a few comments on our outlook for the third quarter and the full year and then we'll have time at the end for questions and answers.

With respect to the second quarter, we achieved record earnings per share at the high end of our guidance with revenues increasing a strong 7% from prior year and 5% sequentially. We're very pleased with these results, especially given the significant market uncertainties that are still present in the global economy.

Diana mentioned orders reached $1.177 billion, representing a book-to-bill of 1.04 to 1 and supporting our higher expected sales levels in the second half. Profitability was also strong in the quarter as we generated higher than normal sequential conversion margins, leading to a further expansion of our industry-leading operating margins to 19.7%.

I continue to be very proud of our agile entrepreneurial organization as we continue to capitalize on the many opportunities that are created by the electronics revolution and continue, most importantly, to demonstrate the discipline and drive necessary to drive strong operating performance for the Company.

We are also very pleased that in the quarter, we've made further progress in our acquisition program, with the addition of DC Electronics at the end of June. DC Electronics is U.S. based manufacturers of harsh environment interconnect assemblies for the industrial market with annual sales of approximately $40 million. This excellent acquisition builds upon our leading offering of high-technology Interconnect products to the many diverse segments of the industrial market, including in particular the heavy equipment, medical and semiconductor test areas.

Very importantly, this acquisition is also consistent with our long-standing strategy to find and acquire complementary companies with strong management, leading technology and excellent market presence. And as we welcome this outstanding new team to Amphenol, we remain very confident and committed that our acquisition program will continue to create significant value for the Company in the future.

Turning to the trends and progress in our served markets, I just want to say first that our market diversity remains a significant asset for the Company, and the Amphenol management team continues to devote tremendous efforts towards our ongoing market, customer, application and product diversification.

Turning to the individual markets, the military market represented 13% of our sales in the quarter. Sales in this market were down slightly from both prior year and prior quarter as growth in airframe, communications and ordinance-related applications was offset by an overall reduced demand environment in other segments of the military market. We continue to see significant conservatism in the purchasing behavior of defense equipment makers, due largely to budgetary restrictions in many countries. Nevertheless, there continues to be a very high level of design activity, targeted at creating new electronic functionalities in military equipment, combined with continued growth opportunities in developing geographies. We expect demand in the military market to remain at or slightly below these levels in the third quarter. Nevertheless, we believe our technology leadership and broad program participation positions us to benefit long-term from the expanding adoption of electronics in military hardware.

The commercial aviation market represented 6% of our sales in the quarter. Sales in this market increased a very strong 23% from prior year and 4% sequentially on increased jetliner production as well as due to our expanded content on new airplane platforms. We continue to expand our participation in these next-generation airliners which are requiring ever higher technology solutions to enhance fuel efficiency, drive better performance and improve overall passenger experience. In fact, we have stronger position across this range of applications than ever before, as our new interconnect technologies are resolving a wide variety of challenges that are faced by customers designing and building these next-generation platforms.

While we would normally expect a seasonal moderation of demand in the third quarter, we actually expect sales to increase in the next quarter and we continue to have a very positive outlook for the commercial air market in 2013 and beyond.

The diversified industrial market represented 13% of our sales in the quarter. Sales decreased approximately 6% from prior year as growth in factory automation, heavy equipment, medical and rail mass transit was offset by reduced demand from customers in the energy-related segments. Sales did increase 5% sequentially with growth in virtually all of our segments.

We believe that the second quarter moderation of demand in the energy related products, represents only a pause in activity, and we continue to look forward to strong momentum in that important segment in which we have an expansive and truly leading position.

Overall, we expect the industrial market to strengthen in the third quarter from these levels as we benefit from the new acquisition of DC Electronics and as we continue to make excellent progress broadening our technology offering while increasing our penetration of the many exciting growth areas of this industrial market.

The automotive market represented 12% of our sales in the quarter. Sales in the automotive market increased a very strong 20% from prior year and 7% sequentially. As we participated strongly in the increase in production volumes of vehicles which are incorporating a wide variety of new electronics while also realizing further benefits from our unique new design wins.

We're excited to see the results of our continued expansion into new high technology automotive applications, which has been really the result of our several acquisitions completed over the last two years, together with our long-term efforts at internal product development. We see automakers continuing to incorporate electronics into new and expanding areas of performance management, fuel efficiency and passenger infotainment, all of which serve to create excellent growth opportunities for Amphenol.

We expect sales in the automotive market to remain essentially at these levels in the third quarter as our continued progress on new platforms offsets what would otherwise be traditional summertime technology and we look forward to continued long-term progress in this very exciting market.

The mobile devices markets represented 17% of our sales. Sales increased 4% from prior year as lower sales of products incorporated into mobile computing devices was offset by slightly higher sales on to new smartphones and some ultrabooks.

Sales declined slightly from Q1 levels as overall customer demand did not reach the levels that we had expected. While our mobile device customers had previously anticipated a significant increase in demand in the second half of this year, current customer forecast indicate lower than expected demand levels and thus, a minimal increase in our sales for the second half compared to the first half.

Diana has already mentioned several of the near-term dynamics that we're seeing in this market. While these factors are certainly having a significant impact on our 2013 growth, we continue to see good long-term future growth opportunities for Amphenol due to our very strong and diversified technology position in this important and no doubt, extremely dynamic end market.

The mobile networks market represented 11% of our sales in the quarter. Sales in that market increased a very robust 12% from prior year and 9% sequentially, primarily due to stronger sales of our broad array of interconnect and antenna products for cell site installations. We are very encouraged to have now realized three consecutive quarters of year-over-year growth in the mobile infrastructure market, as operators in many geographies have increased their spending on LTE and other next-generation networks.

More importantly, our team has been very successful at expanding and upgrading our range of high-technology products for the mobile networks market with the result that we are now better positioned than ever before with the diverse set of wireless OEMs and operators around the globe.

Although, we expect sales in the third quarter to moderate seasonally on a typical pause and build-out activities, we expect a further ramp-up of activities later in the year as operators continue to upgrade their networks and add more capacity and accordingly, we now expect to achieve growth in this market for the full year 2013, something that we haven't seen for a couple of years.

The information technology and data communications market represented 20% of our sales in the quarter. Sales increased 6% from prior year, led by growth in our products incorporated into servers, but with strength as well in storage-related products. Sequentially, our sales increased a greater than expected 15% as we gained further momentum within an array of our high-technology new products, mostly notably, our leading-edge suite of high speed products.

As our customers are continuing to strive for new levels of equipment performance, in order to handle a dramatic expanse of data traffic our pipeline of new designs opportunities with our next-generation high-speed products continues to strengthen. We are working intensively with many customers to help them design their new systems that can handle the big data revolution together with the tremendous expansion of video traffic that they're facing, all while at the same time reducing power consumption of those devices. We expect demands to remain at these higher levels in the third quarter and we continue to have a positive long-term outlook for the IT data comm market.

The broadband communications market represented 8% of our sales in the quarter. Sales increased very strong 24% from prior year as we benefited further from last year's acquisition of Holland Electronics. Sales increased 7% from the prior quarter on increased demand from both domestic and international cable operators. We continue to be very encouraged to see the emerging benefits of our product and customer diversification, which when combined with the Holland acquisition, have enabled us to grow our range of broadband customers while offering a more complete interconnect product offering.

Despite some enhanced price competition that we are seeing in bulk cable, we are seeing further opportunities to sell a more diversified portfolio of products to our cable television, satellite and telco customers. We expect a slight increase in sales in the third quarter and we look forward to continued positive momentum in the broadband market.

So, in summary, with respect to the second quarter, I'm extremely proud of the Amphenol organization as we continue to execute well in what is, no doubt, a very challenging and dynamic market environment. Our superior performance is a direct reflection of the Company's distinct competitive advantages. Our leading technology, our growing and broad position with customers across a diverse range of marketplaces, our presence around the globe, a lean and very flexible cost structure, and most importantly, an agile entrepreneurial management team who react quickly to whatever changes arise in the marketplace.

Now, turning to our outlook; as we've mentioned, there continue to be significant market uncertainties in the global economy, in particular within the mobile devices market, which both Diana and I highlighted earlier. Accordingly, and based on constant exchange rates and normal seasonal patterns, we now expect for the third quarter and for the full year 2013 the following results.

We expect sales in the range of $1.120 billion to $1.145 million and $4.490 billion to $4.540 billion respectively. And we expect earnings per share in the range of $0.95 to $0.98 and $3.73 to $3.79 respectively. For the full year, this outlook represents sales and earnings per share growth of 5% to 6% and 7% to 9% respectively. While these expected full year sales levels are certainly lower than our prior guidance, we are very pleased to have an outlook that reflects both the step-up in sales in the second half as well as a strong continuation of our industry-leading profitability.

We continue to see tremendous opportunities for Amphenol as a result of the ongoing revolution in electronics and I remain extremely confident in the ability of our outstanding management team to continue to capitalize on these opportunities to grow our market position and to expand our profitability and thereby to drive continued superior performance for Amphenol.

With that operator, we'd be very happy to take any questions that there may be.

Transcript Call Date 07/18/2013

Operator: Amit Daryanani, RBC Capital Markets.

Amit Daryanani - RBC Capital Markets: Just a question and a follow-up from me. When I think about the reduction of the 2013 forecast of about $120 million on organic basis, I just want to make sure it's all – the entire $120 million softness is coming from the wireless devices segment or is it more broad-based and maybe if you could just talk about organic trends excluding wireless devices, do you think that's getting better over the last 90 days from your perspective or more of a steady state?

Richard Adam Norwitt - President and CEO: Yeah, indeed, that number that you quoted, the $120 million organically is really all a credit to the wireless devices market. We would normally see a very significant step-up in the second half and that's just not what we see today based on all what Diana and I have said. Relative to the organic trends in the other markets, we don't see any dramatic changes in those organic trends. I think I have mentioned, relative to each of the markets what we're seeing going forward and we feel that our position in all those markets is extremely strong and we see continued potential across all those markets.

Amit Daryanani - RBC Capital Markets: Then if I could maybe just follow-up, in the devices market, it sounds like your issues maybe more tablet-centric when you talk about Wi-Fi devices versus 3G and 4G devices I assume. Is the issue more related to one customer or is it fairly broad-based across the multiple customers you guys have there and is there any program losses I think that you walked away from that makes the back half guidance come lower?

Richard Adam Norwitt - President and CEO: Let me just first reflect on our strategy, which is a very consistent strategy in that market. We have always said and I have always that that is a market where we will participate when there's value and we continue to operate that same way. We have very high technology products and we operate in really the high technology part of that marketplace. So, as we've seen the shifts which certainly are shifts that came a little bit faster than we expected towards these Wi-Fi only devices, those no doubt is more a tablet-related phenomenon where we have participated in a wide range of tablets. It is not a single customer phenomenon, far from it. But at the same time, we don't participate necessarily in the low end of the market. When you look at the dynamics in that market, there has been more growth related to smaller form factor tablets, white box related tablets, these kind of no-name products where by virtue of the price that those products are sold, naturally the content available in those products is less. I think this dynamic also with Wi-Fi and 3G; it is a dynamic that is related also to the fact that Wi-Fi networks become more prevalent. People are replacing their desktop computers sometimes with the tablet where they don't really need that 3G functionality. That being said, there is always a demand and will be continually a demand for products that have that functionality that we can offer with our high technology products. We see tremendous opportunities still for the future. We believe we have good growth potential in that market for the future as we look forward to it. It is a market that has always changed, and we have seen always change in that market; short lifecycles, new consumer preferences. What we are so proud of in that market is that we have an organization who is extremely nimble. And you look that, you look at the margins that we have at the total Company, you look at the confirmation that we have of those margins going forward. This is not a question where that change has a kind of a cataclysmic impact on the performance of Amphenol. Rather, our organization is out there hunting with all customers in the market whether it is the value for us with our high-technology antenna products, our interconnect products, our mechanism products whatever they may be, and we continue to see good opportunities there. The fact is this is something that is happening this year. It is what it is in many respects, but we believe there is strong potential going forward in that marketplace.

Operator: Wamsi Mohan, Bank of America-Merrill Lynch.

Wamsi Mohan - Bank of America Merrill Lynch: Adam, we've seen organic growth rates moderate across the industry. Arguably you guys have done a better job than others. But are we hitting some level of technology maturation such that the organic growth rates over the next five years are going to be significantly different maybe mid-single-digit versus the double-digit over the past decade? Thanks.

Richard Adam Norwitt - President and CEO: Wamsi, thank you very much for the question. Look, let me just say this. We continue to believe Amphenol has a strong, strong position in this market and we continue to target growth far in excess of the market. And we believe that we have done that and will continue to do that, so global economy is continuing to be a very uncertain environment. Do I believe that that is an environment that is going to perpetuate over the long-term? Personally, I don't. But I am not an economist. I'm not here to prognosticate about the next five years. What I will tell you is that we continue to see a tremendous array of opportunities for electronics and to what extent does the overall economy drives spending patterns, whether with operators, with enterprises, with governments, whatever, that is a different question. But relative to the expanse of electronics in all of the markets that we serve, we certainly do not believe that that kind of recent lower growth macro environment is one that should continue or would necessarily continue. We see a lot of opportunities, Wamsi, for that. The fact is when you have all the uncertainties in the world today, discussions about Europe, discussions about America whatever, I think that has impacted a lot of the buying patterns, whether that is operators, whether that is enterprises, governments and whatnot, but I believe that there is still tremendous pent-up demand. I mean look only at the IT market, where data rates are expanding so dramatically; you hear numbers 50%, 60% increase on an annual basis of the amount of data that is coursing through that networks while meanwhile IT budgets are up 1%, 2% and it's rare to find an IT hardware OEM that is growing and there are recent results that have confirmed that. Well, we are growing in that market and we are growing in that market because we have new technologies that are allowing our customers to continue to make more with less, allow them to process more data through systems with the same costs, allow them to reduce their operating expenses because of lower power consumption. And I think so long as we can continue to have that focus, which we have across the Company on driving enabling technologies, we will be able to drive superior growth for the Company.

Wamsi Mohan - Bank of America Merrill Lynch: As a quick follow-up, what percentages of revenues within mobile devices come from mono tablets versus ultrabooks?

Diana G. Reardon - EVP and CFO: Yeah, I don't think we would give a specific percentage Wamsi. I think that from a tablet perspective, it's certainly an important part of the market as still are phones and those would be bigger probably than the (old looks) would be, but that's probably as much detail as we would like to give.

Operator: Jim Suva, Citigroup.

Jim Suva - Citigroup: When we start thinking about – you made a couple of changes here with – you're now increasing your dividend and I think it's been about a year-and-a-half since you did that. Your cash flow was at all-time high cash levels. You extended your line of credit. Is Amphenol kind of thinking about potentially digesting some larger acquisitions or it seems like acquisitions (indiscernible) a little bit slower than normal, yet you're kind of increasing your dividends, so I wonder if there is something to be inferred upon that signal as far as capital deployment or how should we think about capital deployment for Amphenol?

Richard Adam Norwitt - President and CEO: Jim, let me just say relative to the question on the acquisition program, we continue to have a very, very strong focus on this acquisition program. We believe that there are opportunities and whether those are larger or small, we don't confine ourselves to those. I think to say that the acquisition program has flown down. I mean, we had five acquisitions last year. It's true, Q1 we did not. We did announce a fine acquisition this quarter and we continue to have a very robust pipeline. You should not read anything extra into that dividend increase except that we have always talked that we wanted to have our dividend roughly at a 1% level and this brings it right up to that level and there's nothing more that should be read into that except that our traditional balanced approach to capital management and to return to shareholders is something that we continue to have a lot of conviction to. It has no other read. We continue to believe the Company has a strong growth potential. We continue to believe that there are excellent acquisitions to be had and we continue to approach that in a very balanced fashion.

Jim Suva - Citigroup: And as a quick follow-up regarding the size, Adam and Diana, of potential acquisitions. Amphenol is a much larger Company than say five years ago and shareholders are very appreciative of that. Does that mean that the acquisition sizes need to – you need to open up the eyes to little bit bigger acquisitions or more frequent? Traditionally it's kind of been one-third organic acquisition growth and two-thirds organic growth. I just wondering if any of that changes or how should we think of it?

Richard Adam Norwitt - President and CEO: Again, I don't think, Jim, that this is a categorical change, but obviously the mathematics of the fact that we are a $4.5 billion roughly Company means that (you add a) third of our growth, which is still the throughout that we believe is an appropriate one for the Company, means, you either have to buy more smaller deals or do bigger deals. And I think I would expect over long-term that there would be some combination of that. Last year with the five acquisitions that was a very substantial addition to Amphenol on an inorganic basis of five excellent companies in five unique markets, and really, not only supported our acquisition program, but supported our technology development and supported our diversification initiatives in the Company. We continue to look at our acquisition program in that very same way. We will be very aggressive in the hunt for acquisitions. We will also be, as we always have been, very prudent in prices that we pay and in our kind of testing of all those companies that we want to acquire and ultimately, the criteria that we have for acquisitions has not changed. We look for companies with excellent technology, with excellent people in whom we can really put confidence and which are complementary to the Company, and that really has nothing to do with size. We will acquire small companies and we will acquire big companies and we continue to believe that the industry, the interconnect industry and all the related areas to that creates still tremendous opportunities of those companies to arise. We have great relationships with many and many and many companies around the world and as we drive and incubate that pipeline, it will have good results for us in the future. Obviously, the timing is something that we have never been able to control and it's something that we will not be able to control. But the fact that our Company has positioned itself has really, in this industry, the acquirer of choice, puts us in a very strong and competitive position, when there is competition for acquisitions. We may not pay ultimately the highest price, but we are a very compelling home for companies when they are looking to have a significant change like the sales of the company.

Operator: Matt Sheerin, Stifel.

Matthew Sheerin - Stifel Nicolaus: Just another question, Adam, if I can on the wireless commentary. I know that you've talked in the past about the opportunities in ultrabooks, and is it your sense that that's kind of stalled here with the PC upgrade cycle and that's just been pushed out? And then also a follow-up on the Wi-Fi commentary, is your content in those devices, because I guess the more commoditization of those components in those products, is it just less and that's why the shift is hurting you?

Richard Adam Norwitt - President and CEO: I mean, we have not seen necessarily a big drop-off in the ultrabooks. I think we continue to see new devices come out and new technologies be embedded in them. So I wouldn't say that there's necessarily a huge change in that. Relative to the Wi-Fi comment, it's actually quite simple. The comparison between a 3G or a multi-network device and a Wi-Fi only device is very simply that you have fewer content, in particular with the antennas and the various interconnects that are related to the antennas. So, you go from potentially having upwards of five signal paths on a device that has 3G LTE multi-frequency to a single signal path the Wi-Fi and that is just very simple. It's not necessarily that it is just commoditized. You can have high technology Wi-Fi antennas, but you're going to have fewer of them. And I think it's a pretty straight forward how that evolution has happened.

Matthew Sheerin - Stifel Nicolaus: And Diana, just a quick question on the gross margin. You had really strong gross margin in the quarter relative to last few quarters. Was that a combination of higher volumes and mix and did you also see benefits from the declining raw materials like gold and copper?

Diana G. Reardon - EVP and CFO: Sure. I think we feel very good about the profitability we achieved in Q2, both at the gross margin and at the operating income margin level. And I think that it's always hard to pinpoint, Matt, exactly each point that sort of adds up to the margin improvement we achieved. Certainly higher volume and good operational execution are two very important factors. But I would say that particularly in certain parts of the business where we do have higher metal use, I would say that there probably is some impact coming from the fact that those commodities in particular are certainly at a better place than they were in the past. By the same token we have certain parts of the business where plastics is more important, particularly on the Cable part of the business where we actually didn't see margin improvements because there we've got some cost trends that are going in the other direction. But on balance, I think we were able to achieve the strongest conversion margins we've seen in a number of quarters and I think that there were some impacts that we do see there from the better cost environment.

Operator: Amitabh Passi, UBS.

Amitabh Passi - UBS: Amitabh from UBS. Adam, just wanted to follow up on mobile devices. You spoke quite a bit on tablets, just wondering can you just update us on the dynamics you are seeing in the smartphone market. Is that a market that simply becomes too competitive for you guys, just any update because we are hearing new product introductions later this year and going into next?

Richard Adam Norwitt - President and CEO: Sure. Mobile devices, as we have said in the past, we continue to have a strong mobile device business. It has not been for us the contributor of the growth in the recent kind of year or two, but it doesn't mean we still don't have a strong business in that market. We participated in that market again consistent with our overall strategy on mobile devices in those areas where there is a value placed on the technology. And I will tell you that we continue to see that. And in fact, as you mentioned there are devices which – there are so many devices being released by companies that we're not even necessarily thought of in the past as the big marquee players. You are seeing a real range of smartphones being developed and some of those have in fact some new technology requirements in them, whether they are (thin) or whether they are LTE whatever, where there can be opportunities for us to participate and to realize the value that we have. So, I think that on that basis, we will continue to devote resources to that market, it's significant for us and we will continue to participate to the extent that there is real engineering technology value in the products, and personally, I think there will be still a great deal, a great range of products where there is that premium put on the technology.

Amitabh Passi - UBS: Then maybe just as a follow-up. On the mobile infrastructure market, you talked about strength in North America, are there any other geographies that you're starting to see show some incremental life? We are also starting to hear some rumblings about a potential big build in China later this year, would love to get your updated thoughts.

Richard Adam Norwitt - President and CEO: Obviously, I mentioned in my earlier remarks that we are very pleased in the wireless infrastructure market to see the third consecutive quarter of growth and actually, this quarter double-digit growth that was both on a sequential as well as on a year-over-year basis. I think that North America has clearly been a strength and you see that in some of the earnings that were just released this morning from some of the OEMs in that segment. Relative to where strength is going to come from, I believe that you can see in the latter half of the year and particularly towards the end of year towards the fourth quarter, some potential for a build-out or an acceleration of a build-out, in particular in China. I mean again I am never going to bet on the timing of Chinese wireless build-out. The Chinese operators tend to be very shrewd about how they time that. We should all not forget that Q1 2009 was a very opportune time to buy base station equipment and that was when they chose to build the first phase of the 3G network. So, I wouldn't say that you can kind of take it to the bank that they are going to have this big build-out in the latter part of the year. But on the contrary or by the same token, we have heard from customers that there is a lot of talk and there is a lot of talk that some of these operators in China may indeed be preparing for that, that there may be some significance to the build. I think how that build is going to go, who the equipment manufacturers are going to participate or what equipment manufacturers are going to participate at what allocations, that all remains to be seen. But what is clear is that we have positioned ourselves very well. I think some of the growth that we have seen here in the recent couple of quarters. This is clearly not market-based growth, but rather it has been the result of efforts that we have been making over the last couple of years to both position ourselves on this new generation of base stations on the integrated equipment, but also very importantly, to position ourselves with operators on the full suite of interconnect and antenna products that we can offers. And so, to the extent that that spending cycle accelerates or continues in the latter half of the year, we would be hopeful to have a good participation in that.

Operator: Mark Delaney, Goldman Sachs.

Mark Delaney - Goldman Sachs: Adam, I was hoping you could help me understand a little bit better your outlook for flattish revenue growth sequentially in the third quarter with the fact that your orders increased by about 5% quarter-on-quarter and the book-to-bill was 1.04.

Diana G. Reardon - EVP and CFO: Sure. Maybe I can just give you some information on the orders in Q2 and then Adam can comment on the markets if he would like to do that. I think that the business, just the first thing is that our book-to-bill and bookings in the prior quarter isn't necessarily indicative of sales in the next quarter given the nature of how customers and markets place orders these days. The vast majority of orders in the communications related markets are more forecast sharing type arrangements and (helpful) type of things. But that being said, I think that the order level that we achieved in the second quarter certainly was strong. It was up about 5% I think on a sequential basis, up about 12% on a year-over-year basis and for us to have a 1.04 to 1 book-to-bill ratio in Q2 certainly is stronger than we would typically experience from a seasonality perspective. A lot of those orders and that strings related to some of the non-communications related markets that are performing quite well on a year-over-year basis, markets like the automotive market, the commercial air market. In addition to that we saw some good demand for certain value-added products and some of the installation market that tend to have longer lead-times. So those order levels really relate more to shipments that customers would be expecting in the fourth quarter and really do support the step-up that we see from a demand perspective when we look at our expectation for fourth quarter sales. So there's no question that it is a positive that we saw such strong demand in the quarter. We're glad to see those markets performing at a high-level from a bookings expectation and that gives us good confidence in the step-up and sales that we see in Q4, but Q3, really from a sequential standpoint will have kind of those normal seasonal soft points in some of the markets like defense, industrial, automotive and so on. And so we won't see that sequential uptick until we move into Q4. I don't know Adam if you can add anything to that.

Richard Adam Norwitt - President and CEO: The only other thing that I would add is that you should also look at that in the context that normally we would have, in the second half starting in the third quarter, some step-up in the mobile devices market where there is not a relationship quarter-to-quarter in bookings. It books when it's shipped and that doesn't necessarily have a book-to-bill relationship. So, we would normally expect some step-up related to that and we don't have that.. I think this positive book-to-bill, as Diana mentioned, is really a good reflection of those longer lead time segments that we have and it's very supportive of what is still a second half step-up in overall demand for the Company from sort of low to mid-single digit based on our current guidance from first half to second half.

Mark Delaney - Goldman Sachs: Then Diana, I understand you made some comments on the margin strength in the quarter. When you look out for the rest of the year or longer-term, I mean, do you think there is more room for your margins to move up?

Diana G. Reardon - EVP and CFO: Yeah. I think that the guidance at this point, reflects year-over-year conversion margin that's very, very close to our 25% goal. And so, I think that during 2013, we expect to see a margin expansion. We achieve margin expansion in 2012. So we still do see that potential to achieve the higher conversion margin in those quarters where we are seeing incremental sales growth. So, in Q3, I wouldn't necessarily expect to see margin expansions, but Q4 would.

Operator: Shawn Harrison, Longbow Research

Shawn Harrison - Longbow Research: Two questions. Just first off, on commodities being down so much. Do you think you've realized kind of the full benefit of deflation or would you see more of a tailwind into the third and fourth quarters? And then second, as I was listening the call, obviously, the mobile devices are down, but it seems as if, I was listening correctly, the infrastructure, your IT data comm, maybe your auto and your aerospace forecast, those from customers actually picked up for the second half relative to maybe your earlier expectations, if you could just provide some clarification on that aspect too?

Diana G. Reardon - EVP and CFO: Sure. I think on the first question from a margin perspective, I think when there was a question earlier asked about the strong margin performance in Q2 and I think we said that there are many things that certainly go into margin, both cost and price dynamics, volume and so on, but I think that we have probably seen some impact in our Q2 operating income performance from that better balance between cost and price. I think it's always a little bit hard to predict exactly where all of those dynamics are going to go when you look out. I think we've given good guidance on profitability. I think the year-over-year conversion margin, as I said, is very close to our 25% goal and we'll achieve margin and come up with margin expansion and that's what we see as we look at things today. What the ultimate impact will be from commodity trends really depends very much on where demand goes, where pricing dynamics go and so on. So, I don't think at this point we would be comfortable talking about further margin expansion than we already have in the guidance that we've given. But I think as we said to these questions in the past, you can be certainly sure that the management team will do the upmost to be able to keep and capture any such benefits that would present themselves as we look through the balance of that pricing and cost profile going forward.

Richard Adam Norwitt - President and CEO: Yeah. And I think, Shawn, relative to your second point about these markets, do we feel incrementally more positive about a few of these markets. You mentioned the first aerospace and I would say that we do feel a little bit incrementally more positive about aerospace. Normally, we would expect the commercial air market to be down seasonally. They tend to have shutdowns. They tend to obviously have some European component to it. And at this point, we would see that there would be actually a slight uptick in sales in the third quarter in the commercial aviation market. We're just doing a great job in that market. I mean, in the second quarter up 23% we feel that there has still strong double-digit year-over-year growth in the third quarter and for the full year. And it is obviously helped by the volumes and I think this last quarter, if you look at the order backlog and the orders for the major players in that commercial aviation market, their booking order is at a tremendous rate right now. But in addition to that, we continue to gain presence on new platforms. As new planes are being designed and developed it's no secret to anybody that there are a lot of challenges that the airplane manufacturers are facing. They are putting new materials into these planes or trying to get new features embedded into these planes, and a lot of the time they are really pushing the envelope in terms of embedding these new technologies into planes. We have had in some instances customers come to us on the basis of a schedule that normally should have been something was designed in years ago and they come to us say, hey, we have that new challenge, is that something that you can help us with. So our engineering team is extremely busy still working with those companies as they seek to embed all these new technologies into the plane. I think that, combined with the volume is something that makes us feel incrementally more positive about the commercial aviation market. You mentioned also was infrastructure, and I think I'd spoke about that earlier. I would say that, yes, we feel a little bit more incrementally positive on that market. I commented already on the fact that we would hope to see some uptick especially later in the fourth quarter. Then automotive market is another one where we just feel very good about the strength. I think we will see some sort of seasonal flat-to-slightly down performance. In other years you could have in the automotive market a seasonal decline in kind of the mid-single digits in the third quarter and we would be hopeful that maybe it would be a little bit less than that here because of our increasing position and because the volumes in that market are doing very well. So, I think those markets, in particular, we would feel a little bit incrementally more positive about.

Operator: Mike Wood, Macquarie.

Michael Wood - Macquarie Capital: Can you talk about your visibility on the upcoming product introductions in mobile devices and smart computing, and how this impacts that mix that you were talking about between lower-end and value-added products that Amphenol provides?

Richard Adam Norwitt - President and CEO: Obviously, I'm not going to talk about specific programs. We have very strong NDAs in place with all of our customers on that, but what we have seen is there were certain new products and this was not confined to one customer – I mean, there were several customers – where there were new product launches end of last year or early this year, which didn't really realize the volume potential that the customers had originally expected, and that they had expected really throughout the year. Relative to the new programs, we certainly are participating in a lot of new programs. I think if you look, in particular, at the tablet market, there is a lot of growth in overall units in the tablet market. But where that growth is, tends to be in the smaller tablets and tends to be at the lower end of the market where you are talking about ASPs of $180, $200 instead of $500, $600. And as the overall products that are being released and driving growth, have lower value to them. There is sometimes an inherent value that – value opportunity to us that is less. At the same time, we also are participating in high technology releases that are happening during the course of the third and fourth quarter. But net-net in that market, that the change that we've talked about earlier in the call, combined with the new programs that were on, not necessarily having the volumes that we originally expected of them, that results in the guidance that we have given here.

Michael Wood - Macquarie Capital: Also on the factory automation strength you had called out, can you talk about any specific regions or pockets of strength there? A lot of the factory automation industrial companies haven't been reporting growth there.

Richard Adam Norwitt - President and CEO: Factory automation is an important part of our diversified industrial business. I think where we've seen the strength is not necessarily confined to one or another region. There is a lot of automation happening, of course, in China where you see labor costs going up and companies like us, of course, reacting by putting in place semi and full automation in certain cases, but you see also automation being related to the auto industry. We have a tremendous array of products that go into very heavy-duty, factory automation that's used in auto plant upgrades, new model upgrades and we have certainly seen some strength there. Then the general European, which is really a German factory automation world, we have also seen some strength in that area as well. So I think it's a very broad. I wouldn't draw a specific regional conclusion about it. The only thing that I would say specific to Amphenol is that we continue to expand our product offering here, and so I wouldn't necessarily say that we are a clear read through to the whole factory automation world. We have a position that is a growing position where we are really expanding the range of technologies; both interconnect components as well as value-added assemblies whereby we can have a stronger position in that market going forward.

Operator: Steven Fox, Cross Research.

Steven Fox - Cross Research: I'll keep it brief, but just to summarize some of the puts and takes on the wireless market. Can you talk about how much is related just to sort how the product mix has shifted away from you versus end demand, which is a greater factor. And is there anything, Adam, that you guys are doing in terms of changing your strategy into that marketplace to maybe capture more of the TAM or is it sort of you just have to find you are right niches going forward?

Richard Adam Norwitt - President and CEO: Look, I think it's very clear that what has driven this change in our guidance, as I've explained during the call is a real change in the nature of some of the products that we're working on whereby there is this kind of – I would almost call it a one-time shift in the content opportunity on certain of those devices. We think that that is not necessarily a shift that's going to continue and continue and continue. It seems to be something that is a kind of a more than expected, more dramatic than expected one-time shift there. Relative to end demand, as I mentioned, the tablet market overall is growing. The opportunity in certain of these products, that has created that change in the demand. Our strategy does not change. We are going to continue chase after low margin products. We are not going to chase after products where there's not the opportunity for us to inject technology. We believe that there's still an outstanding opportunity going forward for us to find places in the market, broad places in the market, not just niches, but broad places in the market where our technology can serve ultimately the purpose of helping our customers sell more of their products. And when you can do that, ultimately you can make the value that we want to make as a Company and the margins and ultimately you can growth in the business and we still have a strong conviction that that opportunity is still ahead of us.

Richard Adam Norwitt - President and CEO: Well, if there is no further question at this time, once again, we appreciate all of your interest in the Company and your attention and I hope that you all have an excellent summer. Thank you very much.

Diana G. Reardon - EVP and CFO: Thank you.

Operator: Thank you for attending today's conference. Have a nice day.