TE Connectivity plc at BAIRD 2026 Global Industrial Conference - TE CONNECTIVITY PLC

Explicit Guidance:

• Fiscal 2027 Organic Revenue Growth: Expecting approximately 12% organic growth, driven by breadth across the portfolio; no formal range update, but management is confident in achieving or exceeding the high end of previous Investor Day targets.
• Digital Data Network (DDN) Growth: Projected to grow by over $1 billion in fiscal 2027 specifically from AI-related connectivity.
• Long-Term DDN Trajectory: Management anticipates the ability to add $1 billion in revenue per year from the AI/hyperscale space over an extended horizon.
• Capex Outlook: Expecting capital expenditures to increase by approximately $200 million in the current year (following a ~$200 million increase last year) to fund capacity and engineering resources.
• Astrodine Acquisition Impact: Expected to close by end of current calendar quarter (December) and contribute over $200 million to revenue in the current fiscal year.
• Marginal Margin Guidance: Target 30% margin at the company level remains the baseline, despite near-term investment lumpiness; pricing power is expected to continue offsetting inflationary inputs.
• Share Capital: Targeting mid-teen returns on invested capital (ROIC) by year five for M&A, with current ROIC above 20%.

Business-Segment Outlook:

• Digital Data Network (DDN):
  • AI & Hyperscalers: Core growth driver; TAM expanding in copper, fiber, and hybrid solutions (CPO/NPO, FAU).
  • Optics: Currently in engineering, prototype, and design validation phases (post-Ram Photonics acquisition); revenue recognition pending winning specific programs.
  • Power Connectivity: Growing faster than the DDN average; currently 30% of $3B DDN revenue; expected to grow significantly due to higher power density in racks, 800-volt adoption (content +1.5x), and inference architecture changes.
  • Copper Innovation: Continued runway via Active Copper (ACC/AEC), co-packaged copper, and hybrid copper-fiber solutions; copper remains the "workhorse" within the rack.
• Energy:
  • Growth Rate: Expects double-digit organic growth (projecting into the teens, outpacing the 7–8% utility investment growth).
  • Mix: ~60% Grid Hardening (US-focused), ~20% Industrial Power (Data Center hookups, fastest growing), and utility-scale solar.
  • Backlog: Backlog growing due to defense and AI customer program security; no slowdown observed.
• Aerospace & Defense (A&D):
  • Growth: Anticipating another double-digit growth year; backlog supported by defense and commercial aerospace recovery.
  • Drivers: Next-gen weapons requiring higher compute/power; commercial aerospace supply chain healing.
• Industrial Solutions:
  • Automation & Connected Living (ACL): Expects double-digit growth for the year; secular trends in battery storage, factory automation, and robotics (AI-driven visual inspection) accelerating cyclical recovery.
  • Astrodine Synergy: Adds power filtering for semiconductor capital equipment, targeting increased content in the ACL portfolio.
• Transportation Solutions:
  • China: Expecting environment similar to prior year (weak local production but outperformance via EV/data content); China is the largest regional position.
  • Europe: Expects EV growth to be stronger in Europe than Asia this year; content performance over production remains strong.
  • Content Growth: Content outperforming production by ~5 points (vs. 4 points above last year); 48-volt architecture and data proliferation driving content per vehicle.

Market and Competitive Outlook:

• AI Demand: Customers described as "full steam ahead" with no signs of architectural change or slowdown despite regulatory headlines; increased demand for capacity and speed to address shortages.
• Architecture Shifts: Transitioning from pure training to inference, which shifts architecture to more CPU support and copper interconnects (incremental content opportunity).
• Pricing Environment: Chronic inflation in metals and tariffs is expected to continue; company successfully passing costs via "metal riders" and price increases, with no observed "pricing fatigue."
• Supply Chain: Capacity ramping and engineering resource allocation identified as the primary constraints to growing faster; no material supply constraints currently.
• Competitive Position: Strong penetration with hyperscale customers; expanding TAM in CPO/NPO and FAU (fiber array units) areas.

Macro / Industry Outlook:

• Infrastructure Investment: Expecting utility-scale investments to grow at 7–8% annually; TE positioning to grow ahead of this into the teens.
• Geopolitical/Regulatory: No change in customer posture regarding AI regulation; current market volatility viewed as an opportunity to take market share.
• Inflation: Continued upward pressure on commodity costs (copper, oil) and tariff impacts; expected to persist through the forecast period.
• EV Adoption: Europe EV adoption expected to accelerate; China's local market remains weak but content growth persists.

Strategic Initiatives:

• M&A Strategy: Disciplinary approach focused on "bolt-on" industrial assets with mid-teen returns by year 5 and complementary product portfolios (e.g., Astrodyne for power filtering, Richards for underground grid).
• Capacity Expansion: Significant capex investment in new facilities for DDN and energy to support doubling of the DDN business and grid hardening demand.
• Engineering Investment: Increasing R&D/engineering spend by ~$200 million annually to secure design wins and manage rapid customer ramp requirements.
• Product Development: Co-engineering with hyperscalers on next-gen architecture (optics at switch level, FAU); expanding active copper technology (ACC/AEC).
• Acquisition Timing: Astrodine deal expected to close by end of calendar year (December).

Risks and Headwinds to Outlook:

• Supply Constraints: Potential for supply chain issues to hold back growth in aerospace/defense and capacity ramping in DDN.
• Investment Lumpiness: Capex and R&D spending may create temporary margin pressure or earnings variability despite long-term margin target of 30%.
• Cyclicality: Industrial equipment (ACL) and auto sectors remain subject to global economic cycles, though secular trends are cited as a buffer.
• Customer Architecture Variance: Not all customers are adopting optics or 800-volt standards at the same pace; some are prioritizing cost/token over state-of-the-art speed, creating uneven demand realization.
• Raw Material Costs: Continued inflation on metals and energy inputs requires constant price pass-through to maintain margins.

Management Tone on the Future:

• Confidence Level: High confidence; CEO describes growth momentum as "very impressive," notes "no slowdown," and states they are "solidly above" prior targets.
• Strategic Clarity: Clear view on AI as the "largest growth driver" and energy/grid hardening as a consistent double-digit engine.
• Discipline: Emphasis on "disciplined" M&A and return-focused investment (ROIC > 20%) despite high growth opportunities.
• Resilience: Tone suggests confidence in the company's ability to navigate inflation and supply chain stress through operational excellence and pricing power.