Seth Sherwood: TE Connectivity is a leading supplier of interconnect and sensor products for the broad industrial sector, with significant market share in the automotive, commercial transportation, industrial equipment, and aerospace markets. We believe that TE's competitive position is stable and that customers face significant switching costs in attempting to go for competitors' products. Thus, we are raising TE Connectivity's moat rating to narrow.
Similar to other component companies, TE Connectivity works closely with customers to design components into "mission critical" systems. This necessitates close collaboration between the local engineering team and the OEM, and both make significant investments in selecting and integrating as part of their product development. Since switching requires potentially retraining, retooling, and even relocating manufacturing, the cost of switching to marginally cheaper products that meet a similar reliability standard is extremely high for these customers. Thus, once a company's product has been designed in, it is likely to remain in for the duration of the design life cycle. For some products, this is five to seven years, but for others, like those in commercial aviation, it is much longer. This results in high switching costs for the majority of TE Connectivity's diversified customer base.
We believe the secular trends toward electrification and efficiency will continue to favor the firm's top-line prospects. Stricter safety and emissions regulations in China and Europe are also increasing the need for more sensors and connectors, and we expect the company to make significant content gains in the automotive, commercial transportation, and industrial end markets.
Despite ongoing competition, the content growth story and the firm's switching costs should result in mid-single-digit revenue growth and increased profitability for TE Connectivity over our explicit forecast. In sum, we believe the firm's moat and global technological tailwinds will enable it to generate returns above the cost of capital over the next decade.