TE Connectivity Plc Q4 FY2026 earnings call

• Strong Fiscal 2026 Finish: Delivered $2.6 billion of sales growth (15% YoY) and 24% EPS growth, with record sales orders exceeding $22 billion.
• AI Infrastructure Leadership: DDN is a primary growth driver, benefiting from evolving AI architectures requiring both copper and fiber connectivity. Expecting over $1 billion in additional DDN revenue in FY2027, largely from AI applications.
• Hybrid Connectivity Strategy: Customers are adopting hybrid solutions combining optical and copper (e.g., NVIDIA/Cisco specification). TE provides enabling technologies for high-speed transceivers and RAM Photonics for chip-to-fiber density.
• Emerging Markets: Positioned to benefit from Humanoid Robots, leveraging automotive power/signal expertise and industrial automation capabilities. Potential content value estimated at up to $500 per robot.
• Broad-Based Growth: Growth extends beyond AI into factory automation, commercial aerospace & defense, and electrification in automotive/commercial transport.
• Capacity Investment: Actively expanding engineering and manufacturing capacity to support expected doubling of the DDM business size over the next few years.

Industrial Solutions: Sales grew 20% organically in Q4, driven by Digital Data Networks (DDN) which saw record order growth (~70% YoY for the full year) and Energy business growth (18% organic for the year). Adjusted operating margins expanded 40 basis points to over 22%. Transportation Solutions: Sales grew 7% organically in Q4. Automotive sales increased 6% organically despite lower vehicle production, supported by content growth in Asia and Europe. Commercial transportation sales surged 18% organically. Segment adjusted operating margins reached 21%, an 80 basis point expansion.

• Q1 FY2027 Sales: Expected to be $5.35 billion, representing 15% year-over-year growth on both reported and organic bases.
• Q1 FY2027 EPS: Expected to be approximately $3.30, reflecting 21% growth over prior year levels.
• FY2027 Outlook: Management expects another year of double-digit organic sales growth, similar to the 12% achieved in FY2026.
• Tax Rate: Adjusted effective tax rate expected to be 21% in Q1 FY2027 and 22% for the full fiscal year.
• Currency Impact: Anticipates a slight year-over-year headwind from currency exchange rates in FY2027 due to current rates.

• Inflationary Pressures: Continued heightened inflation in resins, metals, and freight costs, with no immediate relief expected.
• Macro Uncertainty: North American commercial transportation remains challenged; global vehicle production expected to decline slightly in FY2027.
• Technology Evolution Risks: While managing copper vs. fiber mix, rapid shifts in AI architecture could impact specific product demands, though TE's broad portfolio mitigates this.
• Integration Execution: Pending acquisition of Astrodyn TDI requires successful integration to close benefits.

Q: How does the shift toward 800V DC liquid cooling and next-gen architectures impact content intensity?

A: Terrence Curtin explained that power connectivity is architecture-agnostic, meaning increased power needs drive higher content regardless of the data path (copper vs. fiber). He noted that power connectivity currently comprises ~30% of DDN revenue and is expected to grow faster than overall DDN as infrastructure transitions to higher voltage and liquid cooling. The company sees continued growth in both copper and optical solutions as customers optimize for cost and performance.

Q: What is the shape of DDN revenue growth in FY2027 given the strong backlog?

A: Management clarified that while total DDN revenue growth is expected to exceed $1 billion, it will be back-half weighted. Revenue will see modest sequential increases from Q4 to Q1 and Q2, followed by a significant step-up in the second half of the year as major hyperscaler programs ramp. This timing reflects the lag between winning orders and revenue recognition.

Q: What drives confidence in automotive growth despite declining global vehicle production?

A: Terrence Curtin attributed confidence to three pillars: data connectivity in vehicles, powertrain electrification, and vehicle electronification. Specifically, EV traction is improving in Europe, and Asia continues to show double-digit content growth. Although North America remains challenged, the combination of regional improvements and steady content drivers supports expected market share gains of 4-6%.

Q: How is TE positioned in the emerging humanoid robot market?

A: Management views humanoid robots as a significant future opportunity, estimating potential content of up to $500 per unit. TE leverages its automotive expertise for charging/power and industrial automation capabilities for motors/actuators. While volume uncertainty remains high (estimates range from 1M to 10M units over five years), TE has existing content on early platforms and strong relationships with key manufacturers in China and North America.

Q: What levers exist to offset rising input costs like resins and metals?

A: Heath Mitts and Terrence Curtin highlighted that productivity improvements and selective pricing actions help manage inflation. The company utilizes metal riders in some segments and engages in real-time discussions for resin-based products. Additionally, TE occasionally reprices backlog items when long lead times expose them to excessive inflation risk, viewing price adjustments primarily as an offsetter rather than a profit driver.