TE Connectivity Fourth Quarter and Final Year Earnings Webcast - TE CONNECTIVITY PLC

Financial Performance:

• Revenue: Q4 FY26 sales were $5.3B (13% organic growth, ahead of guidance); Full Year FY26 sales reached record $19.8B (15% reported, 12% organic).
• Earnings: Q4 FY26 Adjusted EPS was $3.14 (21% YoY growth); Full Year FY26 Adjusted EPS reached $11.52 (24% YoY growth).
• Margins: Q4 FY26 Adjusted operating margins expanded 100 bps to 22.1%; Full Year FY26 adjusted operating margins expanded 120 bps to 22.0%.
• Cash Flow: Q4 FY26 Free Cash Flow (FCF) was $1.2B; Full Year FY26 FCF was $3.4B (100% FCF conversion of adjusted net income).
• Backlog & Orders: FY26 full-year orders exceeded $22B; Q4 FY26 orders were $6.1B (29% YoY growth), resulting in a record backlog of ~$8B (30% YoY increase).
• Balance Sheet & Capital: Returned $2.8B to shareholders in FY26 via dividends and buybacks; $1.6B committed to bolt-on acquisitions; pending Astrodyn TDI acquisition expected to close by Q1 FY27 end.

Guidance and Future Outlook:

• Q1 FY27 Guidance: Sales expected at $5.35B (15% organic growth); Adjusted EPS anticipated at ~$3.30 (21% YoY growth).
• FY27 Full Year Outlook: Projecting double-digit organic sales growth (~12%), similar to FY26 levels, driven by broad-based growth across segments.
• DDN Growth Specifics: Digital Data Networks (DDN) expected to add over $1B in revenue in FY27, with >50% of this growth realized in the second half of the year.
• Long-term Goals: Management expects DDN revenue to grow by >$1B annually over an extended horizon, implying a doubling of the segment in the next few years.
• Market Trends: Growth supported by AI infrastructure build-outs, grid hardening, and the transition to edge computing, autonomous vehicles, and humanoids.

Business Segments and Product Lines:

• Industrial Solutions: Q4 sales grew 20% organically; Digital Data Networks (DDN) saw orders grow ~70% in FY26; Energy business grew 18% organically in FY26 driven by grid and data center investment; Automation and Connected Living grew 18% organically; Aerospace & Defense grew 16% organically.
• Transportation Solutions: Q4 sales grew 7% organically; Automotive grew 6% organically despite flat vehicle production; Commercial Transportation grew 18% organically.
• New Product/Customer Wins: Secured position in NVIDIA/Cisco next-gen optical transceiver specification (12.8 Tbps); RamPhotonics technology validation ongoing for chip-to-fiber connectivity; Targeting up to $500 content potential per humanoid robot.
• AI & Edge: Expanding content in factory automation, battery electric storage, and intelligent vehicles as intelligence moves to the network edge.

Market and Competitive Landscape:

• AI Infrastructure: TE is positioned at the intersection of data and power connectivity, capturing value from both copper and fiber architectures as data centers transition to 800V DC and liquid cooling.
• Hyperscalers: DDN growth is heavily driven by design wins and capacity reservations with hyperscale customers.
• Automotive Markets: Asia showing double-digit content growth; Europe recovering with EV traction; North America facing challenges but expected to stabilize.
• Humanoid Robots: Emerging market with significant growth potential; leveraging automotive and industrial capabilities to supply power, signal, motor, and actuation connectivity.

Risks and Challenges:

• Inflation: Continued pressure on input costs (resins, metals, freight) with limited expectation of relief in FY27; productivity and selective pricing used as offsets.
• Capital Intensity: High capital expenditures required to expand capacity and engineering resources for DDN and industrial growth.
• Production Volumes: Global vehicle production expected to be slightly down in FY27, though content growth is anticipated to outpace volume declines.
• Supply Chain/Execution: Risk associated with scaling new capacity and validating next-gen technologies (e.g., chip-attached optics) within tight customer timelines.

Management Commentary and Tone:

• Tone: Highly confident and optimistic, characterized by "strong execution" and a "very strong" backlog.
• Strategic Focus: Emphasizes the dual opportunity of power and data connectivity, asserting that power content is architecture-agnostic and growing faster than general DDN.
• Innovation: Highlighted as a key differentiator, with significant investments in engineering and manufacturing to support future design wins.
• Confidence: Management expressed strong belief in the long-term expansion of the Total Addressable Market (TAM) due to AI evolution and edge computing trends.

Analyst Questions and Answers:

• DDN Architecture (Copper vs. Fiber): Management clarified that both copper and optical will coexist; copper TAM expected to double as AI moves to inference/edge, while power connectivity remains a stable, high-growth component.
• Backlog Conversion & Seasonality: Backlog growth (30% YoY) is concentrated in DDN and Aerospace/Defense; FY27 growth is expected to be front-loaded in the second half of the year as program ramps occur.
• Humanoid Robot Scaling: Confirmed content potential (up to $500/robot) but noted the "wild card" is the ultimate scale of unit production; leveraging automotive and industrial supply chains.
• Margins: Margins expected to remain consistent with recent performance; inflationary headwinds will persist, mitigated by pricing actions and productivity, though no major year-over-year incremental margin expansion is forecasted solely from cost relief.
• Pricing Levers: Utilization of metal riders and resin price adjustments to pass through costs; occasional backlog repricing for long-duration orders.
• Optics/CPO: RamPhotonics validation is ongoing with select hyperscalers; expected to capture market share in chip-to-fiber connectivity as density requirements increase.

Other Key Points:

• Tax Rate: Adjusted effective tax rate of 21% in Q4 FY26 and Q1 FY27; expected to be 22% for full FY27.
• Restructuring: FY26 restructuring charges were $110M; FY27 charges expected to be below $100M.
• Currency: FY26 benefited from favorable FX rates; FY27 expected to face a slight headwind.
• Acquisition: The Astrodyn TDI acquisition is pending, expected to close by the end of Q1 FY27 to expand market addressability in power filtering.
• Telephony: Note that the call utilized AI agents for management, a first mentioned by an analyst and confirmed by management contextually.