Eaton Corporation plc (ETN) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Eaton's 2021 investor conference. I'm Yan Jin, Eaton's Senior Vice President of Investor Relations. It's hard to believe it has been a year since we were together in New York City. In some ways, it feels just like yesterday. I can actually still see your smiling faces. But given 2020, it also feels like a lifetime ago. This year, we're doing things a little differently due to COVID-19, like taking COVID tests before this session. Luckily, we're all tested negative. Furthermore, we're not able to be in the same room during each other's presentation, but I hope you agree, we still have a good story to tell. To start, you will see today's agenda. We'll begin with a message from our Chairman and CEO, Craig Arnold. We have some remarks from Rick and Tom, and Aravind will present our Digital Strategy. After that, Uday and Heath will share our growth strategies in each sector. After the presentations, we'll take a 10-minute break and then come back for Q&A. Before I turn it over to Craig, I'd like to first draw your attention to our safe harbor statement and remind you that some of our material today will include forward-looking statements, and as such, are subject to uncertainties outlined in our statements here and in our 10-K. Second, you can access the materials for today's event, our website at www.eaton.com. Finally, if you have questions after this section, the whole IR team is available, feel free to e-mail or call us. With that, I will turn it over to Craig.

Thanks, Yan, and welcome to our 2020 Investor Meeting. Our goal for today is straightforward to convince you that there's never been a better time to be an investor in Eaton. And for some of you, we know this won't be an easy task, but we hope to convince you the facts are on our side, starting with how we've once again transformed the company to deliver higher growth, higher margins and more earnings consistency. I'll begin today's meeting by sharing some of our historical progress and our plans for the future, including our track record of margin expansion, attractive free cash flow and how we smartly deployed capital, the strategy and initiatives that we developed is working, and you can expect that these will not change. But we do intend to change the organic growth rate of the company. Aravind, Uday and Heath will share this part of our message. So let me begin with a summary of what we'd like you to conclude. First, we're an intelligent power management company, which means we're well positioned to take advantage of perhaps the most important secular growth trends that we'll experience in our lifetime; an energy transition driven by climate change, that's increasing the electrification of everything; and explosive growth into digitalization. It's also helpful that we've been a leader in ESG practices for some time, and they're now becoming increasingly important around the world. Sustainability is what's good for the planet and people, and it's also inherently good for Eaton. We're in the business of developing an environmentally friendly solutions. Our portfolio goals are also straightforward, to create a company that delivers higher growth, higher margins and earnings consistency. We've accomplished a lot, and we're pleased with our progress, but we're certainly not done. After we close Cobham, Tripp Lite and the divestiture of Hydraulics, 90% of our segment profits will come from electrical and aerospace. And the evidence of how much we've transformed the company clearly shows up in our improving segment margins. At the midpoint of our guidance for 2021, our margins will be 17.8%, an all-time record. Lastly, we expect to deliver 11% to 13% EPS growth over our 5-year planning horizon, including 14% in 2021. But before we turn our attention to our longer-term strategy and outlook, I'd like to take a minute and point out a few important highlights from 2020. First, while the pandemic caused unprecedented economic volatility, we remain focused on delivering for our stakeholders, keeping our employees safe, delivering for our customers every day and supporting our communities. We took the appropriate cost reduction measures to ensure decremental profit margins of 23%, segment margins of 16.4%, a significant accomplishment in the face of a large market decline and in fact, the largest that we've seen in the last 50 years. And our free cash flow was strong at $2.6 billion with free cash flow to sales of 14.3%. We also continue to transform our portfolio, announcing or completing divestitures valued at $4.7 billion occurring PDI, and we announced the intention to acquire 50% of HuanYu High Tech. In addition, we've returned a robust $2.8 billion to shareholders between share buyback and dividend payments. And lastly, we delivered very strong total shareholder returns of 31%, results that were 20 percentage points above the median of our peer group. Overall, I'm certainly very proud of our team performance but even more encouraged by our prospects for the future. So what else should you know about the company? Well, each of our businesses share a number of important characteristics, including being well aligned with secular growth trends. We do mission-critical work that makes power safe, reliable and efficient. Our products and solutions are also highly engineered. They're specified, they're difficult to replace. Post the divestiture of Hydraulics, the company's makeup will include 4 businesses with Electrical and Aerospace accounting for 90% of our profit. More importantly, our customers recognize the value we bring. We have trusted brands, strong legacy and a large installed base. We also have the necessary scale and global footprint to be competitive. And perhaps our greatest asset is our strong network of distributor partners. We have the right to win in our key markets. 5 years ago, we updated the mission of the company, defining just what we do and how we do it, to be a power management company that improves the quality of life in the environment for all of our stakeholders. This mission is rooted in the belief that the best way to serve shareholders is by ensuring that all of our stakeholders, specifically our customers, our employees and our communities are also well served. And in this context, our actions are guided by our aspirational goals that are noted here. And we begin with safety and the wellness of all of our employees. And this certainly took on a significance in the context of the COVID-19 environment that we're all experiencing. And beyond safety, we want to create an environment where employees have the passion for the work they do, because we know when they do, they will do their best work. We also want to be the first choice of our customers and channel partners to create a company culture that is a model of inclusion and diversity, a place where everyone feels welcomed, at home. We also understand that we have a responsibility for our communities and that we should give back, making them stronger. And lastly, our mission includes taking care of the environment, both in the way that we run our facilities, but also through the products and solutions that we create. This is how we'll deliver spirit returns to our shareholders. And it's through our mission statement and our aspirational goals that we define what we think is required to be a truly sustainable company. And with investors increasingly looking at how companies are performing across a broader set of responsibilities, including environmental, social and governance factors, we're proud of our ongoing leadership in this area. We publish our ESG report every year, and last year, announced plans to cut emissions from our operations by 50% by 2030. And we delivered a 19% reduction last year. And we had our best safety year ever on our traditional safety measures, continuing to perform at world class levels. Our total recordable rate was improved by more than 27%, and severe injuries were reduced by 33%. And 60% of our sites have already reached a goal of having 0 waste to landfill. Our goal is to be -- we have 100%. It also includes our actions to help create a better society by creating a culture where everyone feels valued and by being a good corporate citizen. We were once again recognized for our efforts, including being named to the list of 100 Best Corporate Citizens by CR Magazine. We made Fortune's list of World's Most Admired Companies and Ethisphere's list for the most ethical companies, to just to name a few. Last year was especially important in this regard as our employees also worked with caregivers by donating PPE and medical supplies and food and other essential items. And lastly, it includes our governance model to ensure that we always do business the right way. Here, we were once again named to FTSE4Good Index and have an industry-leading level of diversity on both our Board of Directors and in our senior management team. And I'll end the section by noting that what's good for the planet is also good for Eaton, because sustainable solutions generally create growth opportunities for our company. And as Chart 7 reflects, Eaton has been around for a long time, since 1911. And we're actually the 15th oldest listed company on the New York Stock Exchange. And I suggest that the only way a company can endure and thrive for over 110 years is because of its willingness to change. We are a very different company today than we were 50 years ago, 20 years ago or even 5 years ago. Through each one of these transformations, the company embraced realities of a changing world, and the necessity to change as well. And so we've been busy over the last few years with the likes of divesting lighting and soon hydraulics with the Tripp Lite and Cobham Mission Systems acquisitions. But we've actually completed over 120 transactions over the last 20 years, 76 acquisitions and 50 divestitures. With each transformation, we've become a stronger company. And I think we are in our most exciting transition yet as we continue to transform Eaton into an intelligent power management company. While we consider strategic factors, we have financial criteria that we use to evaluate all of our businesses, those that we're in today and those that we'll consider for acquisitions, beginning with being a leader in a large global market. The industry should have above-average growth rates, and our businesses need to deliver high margins, high returns that remain attractive even during a market contraction. This criteria has led to 100-plus -- 120-plus transactions that I've noted. Highlighted here are a number of those recent acquisitions and JVs in our Electrical business that bring higher growth and higher margins; 2 significant aerospace acquisitions that bring new technology, scale and higher earnings; and the exiting of 3 businesses that will be stronger as a part of other organizations while at the same time, enhancing Eaton's growth rate and our margin profile. It's certainly been a busy 3 years, and the outcome is once again a more attractive company with higher growth, higher earnings, and more consistent earnings. For those of you who haven't seen the details of our recent transactions, I'll summarize the financial highlights of the 2 deals, and then Uday and Heath will provide you with more details in their presentation. First, we announced the acquisition of Tripp Lite, a $430 million provider of single phase, power quality and connectivity solutions. We're paying $1.65 billion for the business which is 11x their 2021 EBITDA. So as you can see, a highly profitable business. And we think with the growth of 5G and edge computing, it's a business that will have very positive growth outlook. We expect the transaction to close in the early part of Q3. Next is Cobham Mission Systems, a supplier of refueling, oxygen and actuation systems to the defense industry. Cobham is a leader in the market and has a 90% sole source position on existing platforms. And in looking at newly won content, we expect this business to see significant growth over the next 5 years. We're paying $2.8 billion for the business, which is 13x their 2021 outlook, another business with very attractive margins. We expect this transaction to close in the early part of Q4. It's been smart capital deployment, along with our operational execution that has allowed us to deliver this impressive track record of margin expansion. This chart is a reflection of how our company has performed over time and within our 5-year planning periods. As you can see, the company has consistently improved, and has delivered a 560 basis points improvement in our average margins. This chart is a look at overall segment margins for the company, but you see the same pattern for every one of our businesses, and we're not done. We have plenty of opportunity to continue to expand margins as we look forward. And our free cash flow record has been equally impressive, as you can see on Page 11. It has steadily improved over the same 5-year planning horizons. Our average free cash flow between 2001 to 2005 was about $600 million. And it was $2.4 billion over the 2016 to 2020 time period, an increase of $1.8 billion when comparing these 2 periods. And once again, we'd expect our next 5-year period to see additional improvements. And as you would expect, our strong results have translated into very strong financial returns for our investors. Not just for 1 year, but for the last 20 years. And for the sake of comparison, we've charted total shareholder returns for 1 year, for 3 years and 20 years. And we compared our results to the S&P 500 to the median of our peer group and to the XLI industrial index. And in every case, Eaton has outperformed what we think are the appropriate benchmarks. And we think our best days are still in front of us. And while we report the company's results through 5 segments, what we're trying to get done across our businesses is really quite common. The initiatives are embedded in our corporate strategy, and they're built around doing 3 things well: first, delivering organic growth through technology partnerships and value creation for our customers; expanding our margins by deploying the Eaton Business System, driving operational excellence in our factories and functions and focusing our efforts on those things that deliver the best returns; and lastly, being very good at allocating capital, investing in our businesses, returning capital to shareholders and improving our portfolio through acquisitions and divestitures. All 3 elements of our strategy are enhanced by our digitalization initiatives that are taking place across the company. And as you'll see, digitalization impacts every part of the company and every element of our strategy. In looking at our company's performance over time, we have a lot to be proud of. We've expanded our margins, we've delivered strong free cash flow, and we've outperformed our peers in total shareholder returns. The one area where we have not lived up to our own expectations is inorganic growth. We expect all of our businesses to consistently grow faster than their end markets. That will require that we grow 4% to 6% a year over the next 5 years. It's a lofty ambition, but one that our teams are excited to take on. And so while Aravind and Uday and Heath will cover this topic in detail, I did want to set the stage by sharing a few key messages. As I noted, organic growth is the top priority for the company. And in this context, it's helpful to have a bit of wind in our sale in the form of secular growth trends. We think there are 3 trends that will play an important role in the growth of our businesses: sustainability, which means everything related to the environment, reduce CO2 emissions, safety and increasing regulations that come with it. And our businesses are really built for this challenge. Second, the increasing importance of things -- all things digital, how connectivity and insights from data will create new business models. And third, everything is becoming more electric. More electric content in cars, trucks, homes, buildings and in everything that moves. This third trend includes the energy transition that's taken place from new energy sources,to the required charging infrastructure to everything becoming an independent grid. We are uniquely positioned to benefit from these secular trends, and you'll hear a lot more about this in today's presentations. Given the secular growth trends, and our 3 presenters will take you through what they mean for Eaton, but more importantly, they'll take you through how we intend to get our fair share of growth from these opportunities. You'll hear from Aravind how we are capturing data from our large installed base of products, applying machine learning to create new insights that we then turn into software solutions or monetize the insights by selling them to third parties. Uday will take you through the energy transition that's taking place in every country around the world. He'll show you how it's creating in Everything as a Grid environment that's opening up new growth opportunities for Eaton, in both our traditional electrical business but also in newly created markets. And then Heath will share a broad rate on growth, but one of his key message is how the electrification of vehicles is creating a new market opportunity for yes, cars, but also electrical content in trucks, and at some point, airplanes. Each of these initiatives is important in how we're transforming the company, how we're delivering more sustainable solutions and why we expect future growth to far exceed our past performance. And digitalization is impacting every part of the company. You'll hear more about this topic from Aravind, our Chief Digital Officer, but let me just lay out the framework. As you can see from the chart, our team is organized around 4 key work streams: customer-facing processes, mostly how we transact and become easier to do business with Industry 4.0 and how we are digitizing our factories and supply chain; third, how we're leveraging digital technology to increase productivity, and effectiveness in our support functions; and lastly, and the topic that you'll hear a lot more about today, how we create new revenue sources from our intelligent and connected products. We're in the early innings of this initiative, and you can expect to see significant benefits over the next 5 years. Aravind did allow me to borrow one of his charts about a new platform that we launched at the end of 2020. We call it Brightlayer. And Brightlayer is, in simple terms, our market-facing platform that allows us to create value from our data. We see our most valuable asset as the data that comes from our products. This data is lifted into our digital platform, Brightlayer, where we apply machine learning and create new insights. From these insights, we can develop Eaton software solutions or sell our insights to others as a part of their software. We also have the option of selling access to our data to third parties as well. So it all comes back to how we monetize data. And lastly, Brightlayer is what will create a marketplace that will allow us to create an industry-wide collaboration platform. Many of you have asked in the past how our approach to data and software is different or the same as our competitors. I think this chart really captures what's different. And it really begins with the fact that we start with our proprietary data and our proprietary data is really what makes the primary difference in our approach. Next, allow me to turn your attention to how we intend to continue to expand margins, not because we don't make attractive margins today, but because we know we can be better. We see the remaining inefficiencies and waste, and we owe it to ourselves and to you to do better. We set a goal of improving margins by 400 to 500 basis points over the next 5 years. And we're confident in our plans. As we think about expanding margins, we begin with a belief that waste is not acceptable. And waste is anything that doesn't add value from the perspective of our stakeholders. We also believe that if you standardize what you do and what you measure, you'll be able to both identify and eliminate waste, but it requires a culture that's focused on relentless learning and getting better every day. And that's what the Eaton Business System is for us. It's the way we plan, execute, assess and document learning. It's also how we improve and it's built into everything what we do and across every function. It's simply the way we work at Eaton. Another important initiative for expanding our margins is operational excellence in our manufacturing sites and in all of our support functions. At manufacturing, it's all about creating world-class plants, which we define as excellence in 5 areas: in safety, quality, on-time delivery, productivity and inventory management. You'll see this metric in every Eaton plant and along with what they're committed to deliver for the year and with a reference to what world-class looks like. And we expect the same thing from our functions. Every one of our functions is tasked with leveraging scale across the company. Taking on those tasks that can be done better and more efficiently when centralized. And I'd say we've been at this for a few years, but I'm really excited about the next wave of improvements that will come as we drive these digital initiatives across the company. The next slide is a simple slide, but one that represents an important part of how we run the company. And it's perhaps my favorite chart in the entire presentation. The idea is simply to do more of high valued activities and less of lower value activities, what we call grow the head and fix the tail. The truth is every business, no matter how good or bad, has both a head and the tail. Every business is a normal distribution of returns on time invested. There are businesses where you have the right products, the right channel and high margins. You have the right to win, and you should do more of this. By contrast, every business has a tail. Low-margin businesses that consume more of your time than they should, given the returns. The idea is to do more of the good stuff and less of the marginal stuff. This is one of the reasons why I'm so optimistic about our ability to continue to expand our margins. The third leg of the strategy focus is on how we'll allocate capital. And as you can see, some $9 billion of capital we'll have to allocate over the next 5 years. And our top priority remains the same, investing first to deliver organic growth. Every business will get the capital it needs to be successful in their respective markets. Next, we'll continue to pay an attractive dividend, a dividend that's in the top third of our peer group, and we'll continue to pursue strategic and financially attractive acquisitions in our Electrical and Aerospace businesses. Lastly, we'll continue to report such shares you can count on us to buy back on average 1% to 2% share annually. In this context, let me begin with our top priority, organic growth. As noted, we expect each of our businesses to grow faster than their end markets and this will require that they have the capital that they need to succeed. I strongly believe that as long as you're in a business, you need to play to win, to invest to win, and to do so as if that was the only business that you had. There may come a time when a business is no longer attractive. While you're in it, you need to invest like you're going to be in it for the long haul. We started to put emphasis on organic growth a few years ago, and we invested $6 billion in R&D and CapEx over the last 5 years. And we expect to see our organic growth rate begin to accelerate as these initiatives begin to deliver. You'll also see it reflected in both Uday and Heath's presentations as their growth rate is in excess of what we built into the corporate model. Next, behind organic growth, we're committed to paying an attractive dividend. Eaton has a very long history of paying an attractive dividend. In fact, we've paid a dividend for the last 97 years. And our dividend yield has consistently been in the top 1/3 of our peer group, something that you can expect will continue. Our philosophy has been and will continue to be growing our dividend in line with our earnings. And over the last 10 years, our dividend has grown in average of 10% a year. And given our outlook for the next 5 years, you can count on this to continue into the future. And as we shared over the years, acquisitions are an important part of our capital allocation strategy. And as I noted earlier, we've done some 70 acquisitions over the last 20 years. And as you can see here, we've deployed some $20 billion of capital into acquisitions over the last 10 years, the principal beneficiaries being our Electrical and Aerospace businesses. In addition to our market focus, I've also shared the criteria that we've used earlier, a leader in large markets, high margins, high returns and limited cyclicality. And over the next 5 years, we'd expect to deploy some $5 billion to $7 billion towards acquisitions with once again an ongoing focus in Electrical and Aerospace. And finally, share repurchase will continue to be part of our capital allocation plan. Over the last 10 years, we spent some $7 billion to repurchase an average of 2.3% of our shares outstanding annually. As we go forward, we would expect to repurchase 1% to 2% of our shares on an annual basis at 1.5%, that would be some $3 billion over the next 5 years or 6.5% of our shares outstanding. We'd also like to take this opportunity to update our outlook for the year and really over the next 5 years. First, for this year, I'd say it's been a good news story in the fact that markets are recovering faster than what we expected. But with the recovery, we're certainly seeing, as you've heard, more inflation and some supply chain constraints that are in many of our markets. In fact, many of our markets are actually already back to pre-pandemic levels of activity. Overall, I would say here, we're on track for the year. We are reaffirming our full year and Q1 guidance. We've also updated our 5-year outlook, where we'd expect to see higher growth and higher margins into the future. As a quick reminder on our full year outlook, organic growth is expected to be between 4% and 6% with divestitures subtracting 8% and positive currency of $200 million. Segment margins will be between 17.6% and 18%. At the midpoint, 140 basis points improvement over 2020 and 20 basis points over pre-pandemic levels in 2019. Our adjusted free cash flow is projected to be between $1.8 billion and $2.2 billion with a midpoint of $2 billion. Here, we'd note that 2021 is a bit of a transition year with several unusual items impacting free cash flow, including the sale of the Hydraulics business, additional restructuring costs, and the CARES Act, payroll tax deferral. We're also increasing our capital spending by some $110 million. We expect full year adjusted EPS to be between $5.40 to $5.80, a 14% increase at the midpoint of our guidance. And lastly, our Q1 guidance is unchanged, with earnings expected to be between $1.17 and $1.27 a share with revenues down roughly 3% to 4% and segment margins coming in between 15.7% and 16.1%. And turning to our financial expectations over the next 5 years, we're forecasting organic growth to be between 4% and 6%. As I said earlier, you'll see some more exciting numbers in both Uday and Heath's presentations. Our segment margins to hit 21%, up 1 point from our prior targets. Our free cash flow margins to be at 14% and to deliver an 11% to 13% growth rate in our earnings per share. We also expect to see continued progress on segment margins, with Electrical Americas at 22%, up 1 point from the prior target; Electrical Global will be at 19%; for Aerospace, we expect them to get back to the prior peak of 24%; Vehicle to be at 18%, and our e-mobility goals have not changed at 15%. In closing, I'd like to summarize by saying that we're building an intelligent power management company. Our strong results in the midst of last year's recession were a good indication of how much the company has changed, but we're not done. We remain focused on building a company with higher growth, higher margins and more earnings consistency. And as we look forward, perhaps the biggest change you'll see from us is in our organic growth rate because there are 3 very powerful trends shaping the future of our industry: energy transition, digitalization and electrification, all of which are perfectly suited for Eaton. And we're proud of our ESG track record. It's the right thing to do, and we're a better company because of it, and it will allow us to grow even faster. Finally, we will continue to be one of your best investments. We intend to grow our earnings by 11% to 13% a year over the next 5 years, to pay an attractive dividend and to generate very attractive free cash flow returns of 14%. So that concludes the formal part of my presentation today. But as most of you know, Rick Fearon will reach management retirement age to 65 in March and will retire on March 31. I'd like to extend the sincere thanks to Rick for his 19 years of service to Eaton. Rick has played an integral role in shaping Eaton into the company that it is today. He's been a trusted partner to our senior leadership team, our Board and certainly to me personally. And looking back, Rick has participated in more than 19 investor meetings, and this will be his last one. And if I can put one number that summarizes Rick's contributions, it would be a 900% total shareholder return over his time at Eaton. We certainly wish him and his family well and the best for the future. So with that, let me turn the podium over to Rick for one last time.

Thanks, Craig. This is my 19th Eaton Analyst Day. And in some ways, the easiest, in other ways, the hardest of all of my Analyst days. The easiest in that I'm not going to give a detailed presentation today, leaving that to Craig and the team. I am sure you will enjoy what they have to say. And the hardest because I'm saying goodbye to you all, having worked with you for almost 2 decades through good times and bad. Reflecting on the journey we have been on at Eaton, I'm very proud of what our team has accomplished. We have dramatically transformed Eaton from our primarily North American vehicle component company in 2000 to a global intelligent power management company, with 90% of our profits from our Electrical and Aerospace businesses, a company which today is ideally positioned to benefit from the long-term societal focus on the transition to cleaner sources of power, electrification of all aspects of our lives and using digital capabilities to create better products and run our business better, all of which has created a company with higher organic growth potential, higher margins, high and stable cash flow and greater earnings consistency. And the results show. Since 2000, the cumulative annual growth of our TSR has been 14%. That's twice the TSR of the S&P 500 and about 70% higher than our peers. To put our performance into dollars and cents, if you had $1,000 invested in Eaton at the start of 2000, today, you would have more than $15,000. By any standard, an exceptional investment return. And as importantly, we have created that financial performance while running a company with values we can all be proud of, a company that treats every employee with respect, that cares about the communities where it's located and is working very hard to create a business that protects the environment for future generations. I have greatly enjoyed my 19 years as Chief Financial Officer and appreciate all the support I've received and the friendships I have made from the investor community. I am leaving my position in very capable hand. I know you will enjoy working with Thomas Okray. Tom is a seasoned CFO, who brings deep expertise in areas very valuable to Eaton. Let me turn things over to Tom now for him to say a few words.

Thanks, Rick. Appreciate the kind words. I've admired Eaton for quite some time. I've known the company since my automotive days, and it's truly remarkable how the company has transformed itself from an automobile supplier to a company with such a broad portfolio and such increasing margins. And I'm really excited when you combine the dynamic that I've seen in my first month at Eaton of the continuous improvement and the willingness to transform with the secular trends that Craig and Rick have talked about. So I couldn't be happier to be here and just really proud to be part of the team. And with that, I'll turn it over to Aravind.

I appreciate the introduction. Good morning, ladies and gentlemen. Pleasure to be before you presenting the digital strategy for Eaton Corporation. By way of introduction, my name is Aravind Yarlagadda, Chief Digital Officer for Eaton, responsible for the digitalization initiatives at Eaton Corporation. My background is in industrial and energy automation for the past 12 years, and helping legacy industrials transform to software and digital industrials, with the optimal product development capabilities, right offering content, go-to-market strategies and revenue growth to help with the transformation journey. Prior to that, my experience was building enterprise systems that's focused on software content. So our digital story, our digital strategy. So what are our key messages? Eaton's digital transformation journey, the outcome of which is to become an intelligent power management company. We want to latch on to the opportunities offered by the latest industrial trends, with focus on data and insights for new value to customers and focus on our workforce productivity as well. We have invested in the build-out of our digital infrastructure for the last 3 years. And now we have new investment for digital solutions as well as go-to-market to reach new customers. Our transformational journey is fundamentally different. This will result in a company that has transformed from the ground up with the digital DNA as a fundamental theme across every region business of Eaton. The outcome is to have digitalization embedded in the fundamental rubric of how we do business with our customers and partners as opposed to creating monolithic software businesses. Eaton's transformational journey will focus on 4 overarching strategic initiatives: to deliver new incremental revenue through digital solutions, provide a new generation customer experience, improve manufacturing productivity using Industry 4.0 technology, and improve corporate function productivity. These details and goals that we'll talk about further in the upcoming slides. Our offering strategy is very differentiating, and we have a right to win in the marketplace to deliver value through data. We have introduced Brightlayer, our digital brand, our digital North Star. This is a digital foundation of solutions that stands for value deliver externally through data, through our asset data. We have examples of new value through Brightlayer that we're delivering in the industries that we serve and these are the new digital solutions I'll talk about in terms of examples. We have a strong, loyal base, loyal installed base of customers who have like Eaton assets that we can provide value on top of, and this value positions Eaton well for new opportunities. So we have a right to play in this market. We have a right to win in this marketplace through these new opportunities. So Eaton's transformation to an intelligent power management company, what does this exactly mean? So secular trends have dominated the industrial space for over a decade now. New generations of digital natives entering the workplace, the workplace becoming more fluid through digital tech, accelerated by the pandemic situation, aging capital assets that need to be squeezed for operational efficiency, new buying patterns mimicking how consumer software is purchased, and the need for automation of work process on a continual basis. To capitalize on these diverse trends, industrials will need to leverage the volumes of enterprise data through their assets, personnel and processes to deliver new value and find optimal ways of reaching and serving their customers. This is where digitalization comes into play, and there are 4 common overarching work streams that industrials use to transform into a fully digital business. Eaton's transformation an to intelligent power management company is based on 4 initiatives that I'll talk about. We will leverage the power of data and insights to deliver new value to our customers and partners and also optimize internal process to deliver more productivity, more functional productivity. So our 4 digital transformation initiatives. When we talk about each of these overarching work streams, if you will, what is the market saying, right? So new business models like as a service delivery of value are gaining new traction in the consumer and enterprise space. Artificial intelligence and machine learning technology is being used to deliver new value model for the data that is present. Industry 4.0 tech is becoming mainstream with industrials gaining more productivity and in turn profitability using data from machines, process and personnel. Remote training techniques, elimination of manual work processes is becoming mainstream through adoption of technologies like robotic process automation, augmented reality, virtual reality, et cetera. Pervasive digital content is available on the net now that allows for new customers to reach buying decisions before they even reach a sales guy, and the leverage of digital wire media and channels to reach vendors and partners is also so prevalent. So these are -- this is the voice of the market This is voice of the market that Eaton's heard. So what are we doing about it. So given this voice and Eaton's customer base transformation as well, our customers are also digitally transforming. So we have set goals through 2025 for our digital transformation journey. By 2025, we aim to deliver the following: we want to get to $500 million of incremental revenue run rate through digital and software solutions. We want to deliver 5% to 10% of productivity with our global manufacturing operations, our factories, basically; 10% of productivity within the scope of our functional digital transformation initiatives, this is our internal productivity initiatives, if you will; and 4% of productivity with our sales force with the measure being less cost and expense to deliver on the same volume of opportunities through new digital tools and optimization of sales process, and this is our digital customer experience initiative that I'll talk about. So in terms of our digital transformation strategy, as we embark on these goals, as we embark on this overall initiatives, so what are we trying to do here? Our strategic initiatives are pervasive across all of Eaton. We have set aside investment for human capital, product development and the go-to-market capabilities required, and we have initially showcased examples that we are building momentum with. I will start on explaining some of these internal digital transformation initiatives like digital customer experience, functional productivity and Factory 4.0. And then we'll go to the exciting piece with the business models for new generation, new revenue generation and new value creation. So starting with digital customer experience. What this actually really stands for is, through the combination of integration of our internal IT systems, a modern user interface for our customers and partners, we will leverage front end digital tools to deliver the next-generation of the user experience or digital customer experience. We have major projects across the globe that target e-commerce transactions, streamlined enrollment of our channel and technology partners, provision of tool for service delivery efficiency and more digital content for lead generation, improving the productivity of our sales force. One of these major projects is basically sales force productivity. More productivity per sales head through digital tools and channel adoption, we have set a target goal of 4% globally. So that's of the initiatives. There are other 4 subinitiatives that we have within digital customer experience that we're slowly rolling out through 2025. So factory of the future, this is basically digitalization of factories using Industry 4.0 technologies. But we have to start with the basics first. For our factory digitalization initiative, this is about improving the productivity of our factory personnel, our manufacturing processes and equipment maintenance. We have started with a baseline of factory automation. We have model line templates being adopted. We are moving forward with selective adoption of Industry 4.0 technologies, with a firm baseline of data from personnel, processes and equipment. The most impact we are seeing is with augmented reality based strain, collaborative robots, additive manufacturing and also predictive maintenance from our equipment. So the 5% to 10% of factory productivity goals that we've identified is an aggregate number, considering our global footprint with varying degrees of results for each region. So that's our Factory of the Future initiative. In terms of functional productivity, this strategic initiative is about continuously automating the manual steps in our corporate functional process and to drive out cost every year. We have some initial successes with deployment of robotic process automation in corporate functions like finance. We will be expanding this technology to other functions as well as rolling out digital tools like virtual agents for customer service teams and service delivery, augmented reality training for our new employees to meet the 10% improvement target over 5 years or in aggregate that is. So those are our internal digital transformation initiatives. Now to the fun part. So what are the new business models, right? How do we create new value for our customers and partners? So taking a hard look at our installed base today, we have 6 billion assets deployed across the globe, our customers, that is, of which 1.7 million are cloud connected and volumes and volumes of data that need to be made sense of. This provides a significant starting opportunity for us to engage, and we have a right to play with our digital solutions. With that backdrop, our costive connected offering strategy provides us opportunities and a right to win and expand with certain installed base. Number one, we'll make our devices and assets intelligent, compute power, storage, connectivity, embedded business logic, so that's how we'll make our devices more smarter. With that native intelligence, we will leverage the asset data, extract power management centric insights. That's what we are good at, that's what we've been doing for the last 100-plus years. We will deliver these power management insights to operation software applications to make actionable decisions. Actionable decisions that our customers take in their operational environments. Our domain expertise and operational value is across all these areas. And the combination of all of these former digital thread of solutions, smart assets, data and insights and then software solutions. So this is the digital thread of solutions that I'd like for you to keep in mind as we move forward. So individual data insights and these software applications are monetized through a few business models. One could be offering unique data and processed insight as subscriptions; delivering outcomes periodically and getting paid for it through SLAs, service level agreements; or offering implementation, configuration, managed services around data. That's what we call data oriented services. So these are the business models that we have associated with our digital solutions. Now enter Brightlayer, right, our digital foundation of solutions that provides incremental value through data. Brightlayer, as I indicated earlier, in the opening slide, is our digital North Star. It's our digital brand. It stands for a digital foundation solutions that provide incremental value through data, through asset data primarily. So what does Brightlayer really stand for? So in the previous section, we talked about smart assets, the insights from these assets, and the software that consumes these insights for new value. Eaton's Brightlayer is our digital brand, our North Star that represents 3 fundamental components of a digital solution with emphasis on value through data. Number one, a digital platform of reusable building blocks that process asset data, deliver insights and a set of software suites, whether they're Eaton or third party solutions, that consumes such insights to deliver industry-specific value propositions. And third, a marketplace which we call the experience hub, facilitating e-commerce, collaboration for developers, partners and our customers. Our emphasis on differentiation is from the ground up. So we start from data and go all the way up the value chain, from data to insights, to knowledge, to institutional wisdom. That is the core of what Brightlayer does with the data as we move up the value chain. Assets are our core strength, we understand it. We understand power management. That is our expertise. And we process such data, and we scale up the value chain based on the thread of asset data. So that is what Brightlayer is about. So now expanding on the various layers of Brightlayer that I just talked about. So one of the core aspects of Brightlayer is our digital platform that is foundational. This is based on open architecture. It can be used by Eaton developers as well as third party developers, provides reusable components to connect devices and assets to the cloud, enables processing power for edge computing, enables multiple layers of security for our devices as well as our applications, whether they're Eaton software applications or third-party software applications, and the most important crown jewel, our power management domain expertise that is encapsulated in insights and analytics, also enabled by our machine learning and data science algorithms. One key thing to note here is this -- such a digital platform will allow for future technology partner products to be integrated as well as tuck-in acquisition products to be integrated that will do for operation software as we move forward. The next piece of Brightlayer or the next foundational aspect of Brightlayer is the software suite that provide industry-specific value propositions, whether they are Eaton offerings or whether third-party offerings. Here, we'll talk about Eaton Software Suites. So using building blocks from the digital platform mentioned prior, new software solutions that deliver industry centric value propositions can be built. These solutions could be built by Eaton or they could be built by third-party partners. The examples here are proprietary Brightlayer branded industry solutions. We have these solutions available now. We are providing value to customers, and we'll talk about a few examples in the upcoming slides. Now to the third piece of Brightlayer or the third layer of Brightlayer, if you will. So later this year, we'll also be introducing an experience hub, a digital marketplace, if you will. Also branded Brightlayer, such an experience hub or a marketplace will allow our industrial end users to discover and buy digital solutions based on their need, it will allow partners and Eaton to collaborate through online digital forums and for software developers and engineers, whether they're Eaton developers or third-party developers to build new applications using our digital propositions. These are the showcased examples that we are building momentum with, and provide proof points of a right to play and right to win in these target industry segments. And we have specific customer examples. I may not be able to talk about those specific customer names, but you will see the value, in terms of how it goes from data to insights to actually solving it through a solution -- software solution, which is the point of consumption by the customer. So the first example with data centers, solution here is Brightlayer data center suite, that's our offering. So what is the problem statement? A leading health care provider has 11 campuses, very distributed. It has distributed IT and electrical power assets and its own data center to manage. Given the distributed nature of operations management, there are severe challenges here like IT asset downtime, maintenance and repair that are pretty expensive. What is our solution? So starting with the data, right? So using value-added telemetry data from our UPS systems, racks, servers, battery systems in the data center and individual facility network closets at the edge, predictive insights about equipment downtime are provided to a central system of monitoring to enable proactive, remote monitoring and maintenance. So basically, it's a central system of monitoring, and we are actually providing all the telemetry data. This leads to a reduction in IT asset downtime and reduction in cost to service repairs on planned truck rolls. Those are pretty expensive. As you can see the numbers here, I think it requires a lot of -- if you do it manually, I think, there's a lot of repair expense and manual work time that goes in. So this is pretty significant in terms of what we did for this customer. The next example, Brightlayer industrial suite is our offering here. So by industrial, we actually mean harsh and hazardous industrial environment, examples being air separation facilities, paper and pulp plants, chemical plants, et cetera. So these environments, industrial environments have critical electrical equipment like motors. They have insulation equipment on top of motors. They have power protection equipment on top of motors like relays. If this equipment or the insulation or the protective equipment goes down, it fails. Downtime for such industrial facilities is very expensive. So what is the solution? Starting with the data again, right? Value-adding data like power feed, voltage and frequency, asset uptime and maintenance history, the relay is basically the protective equipment. Those power factor settings are used to derive insights about failure conditions of the electrical assets, and insights basically like alarms and notifications through our electrical power monitoring system. They are actually sent to make proactive decisions on maintenance, repair and downtime scheduling. The results are significant reduction in isolation of the root cause of failures and reduction in unplanned downtime of the assets and in turn facility operations. So that's our industrial example. So the last example here, not the least, but last example, is Brightlayer building suite. So the problem statement. Commercial building owners face high penalties insurance premiums if their electrical and HVAC equipment is a target of a security threat or unplanned downtime. So what is the solution? Starting with the data again, value-adding data like electrical asset voltage, frequency levels, prior downtime and asset maintenance history, potential access threats are used to derive proactive cybersecurity threat insights and predictive equipment failure insights that could be fed to a central monitoring system. That central monitoring system that has HVAC monitoring as well as electrical equipment monitoring. So that -- those insights actually result in actionable decisions to protect the infrastructure, and also proactively prevent any equipment failure. The outcomes are a reduction in equipment downtime and reduction in loss of data, given the cybersecurity threat was prevented. So those are 3 examples in the data centers area, buildings area, in the industrial area. So we have more solutions coming up. Some of these solutions may be third-party components that we include in our Brightlayer software suites. But ultimately, we may not have the solution to every problem out there. That is the reason why we're building a partner ecosystem through Brightlayer. So wrapping this up in terms of key messages: Number one, I think our key message is to become an intelligent power management company. We want to latch on to the latest industrial trends. We want to focus on data and insights for new value to customers and focus on workforce productivity as well, given the data and insights from our internal systems. And those are our internal digital transformation initiatives. We have invested in the build-out of our digital infrastructure for the last 3 years. We have new investments for digital solutions as well as our go-to-market to reach new customers. So we are building out these go-to-market capabilities. Our transformation journey will result in a company that has transformed from the ground up. The rubric of how we do business with our customers and partners is going to change. It's going to come from the ground up, called cultural transformation, human capital transformation. It's going to happen from the ground up. So offerings, people, process, technology, et cetera. So everything is from the ground up in terms of transformation. 4 initiatives are what we're going to focus on: digital customer experience; internal productivity or functional productivity; factory productivity through digitalization; and most importantly, revenue generation or value creation through new business models. We have a differentiating offering strategy. We have a right to play and right to win in this marketplace to deliver value through data. Brightlayer is going to be our digital brand. Brightlayer is our digital foundation of solutions that stands for value through new data or new value through data. We have examples of value through Brightlayer that we're delivering in the industries we serve. We have industry-specific software suites that we've introduced in the marketplace now. We have a very strong installed base of loyal customers with a lot of assets out there in the field that we can provide value on top of, given the data that comes out from these assets. This value positions Eaton really well for new opportunities. And that's the reason we have a right to win in this marketplace. That, ladies and gentlemen, is our digital story, our digital strategy. And I'd like to tell the story more. Thank you very much for the opportunity. Now I'm going to call on stage, Uday Yadav, Chief Operating Officer of the electrical sector. Thank you very much.

Thanks, Aravind. I really appreciate it. Hope you're all well and staying safe. And by the way, before I get started here, let me also add my congratulations to Rick on his retirement. Rick and I have known each other for 18 years. He's been a wonderful colleague and a good friend. And it's been a great innings. We wish him and Robin, the very best in the next phase of their journey. You know it's staggering to think how much has changed in our lives since we were last physically together in New York, just as that pandemic was breaking. And it was certainly an extraordinary year and took leading an uncertainty to a whole new level. And the good news is that our team emerged stronger, more energized and on the front foot, as we say in England, and hugely optimistic about our prospects, for 3 main reasons. First, our business proved to be resilient. Our teams around the world quickly pivoted, executed well and delivered positive financial and market results. Second, our base electrical business has strong momentum. It's poised to benefit from the market recovery, secular tailwinds and the recent Tripp Lite acquisition that you're all aware of. All of these will lead to high margin growth. And today, I'll share our growth expectations for these market segments. And then third, energy transition has accelerated, confirming the Everything as a Grid future that we shared with you last year. And I'll provide more specifics on our progress, the growth targets and where we're winning. So just a quick reminder. Today, the electrical sector reports in 2 external segments: the Americas and Global, and both ensure the safe, reliable and efficient delivery of electrical power to customers in 6 end market segments. Now we performed well in these end markets in 2020. We continued our market share gains and the margin expansion. Our U.S. market share actually had the largest year-over-year increase in 4 years. And this isn't on the slide, but our global segments also did well. We benefited from the rapid response of our teams around the world and having less relative geographic exposure to economies hit hard by COVID. And moving to the right, we also expanded our margins to record levels despite revenue declining by almost $2 billion. And this, as you probably know, was driven by the favorable mix we had from the portfolio actions that were taken, with the lighting divestiture and strong execution by our teams in 2020. And as we look ahead, I would say, we see further margin expansion while continuing to invest in the business to support future growth. And that's because we see a future where electrical power becomes a dominant feature of the global landscape. This is a massive shift as the globe moves to a net-zero carbon energy system, where the sources of power become more renewable and the uses of power become more electric. The electrical industry's role will expand to become the central switchboard for energy transition to power the future. In fact, a new world where the majority of power routes through the electrical system connecting the sources of power to the users of power. Renewable electricity replaces gasoline in cars and renewable electricity replaces gas in buildings. Now several factors are driving this transition. First, government net-zero pledges now cover 50% of GDP, and this actually excludes the United States today. And over the next 30 years, 3/4 of global additions in power generation will be renewable, and this will attract $1.5 trillion of investment. Second, the increasing electrification of cars and buildings. And just for example, EV chargers will increase almost tenfold by 2030. And then third, outages due to wildfires, natural disasters and weather events, as we recently saw in Texas, are on the rise. The need for grid resiliency couldn't be more stock today. So energy transition driven by shifts in the sources of power, the uses of power, electrical power, and the need for resilience is driving dramatic changes in the electrical power value chain, leading to what we describe as an Everything as a Grid environment that you see on the right. A world where electrical power is no longer just generated centrally, but locally. You produce your own energy, you consume your energy, and if you want, you sell your own energy back to the grid. Your home becomes a grid, your office becomes a grid and your data center becomes a grid. This environment is -- this creates, frankly, a much more complex environment because power is now flowing 2 ways, safety must be managed very differently, demand and supply need to be balanced with multiple sources, energy is now stored locally and sold to the grid at an optimal price at the right time, the usage of electrical power now needs to be monitored to improve efficiency and then drive changes in behavior, and software plays a critical role and that's why Brightlayer is so important. So the distribution side of the electrical power value chain is Eaton's primary area of focus, and it's where the industry is actually investing. In fact, 1/3 of the additional $1.2 trillion I talked about of renewable investment is targeted at distributed generation or Everything as a Grid. This plays to even strengths and where we have an absolute right to win. So our capabilities are essential to simplify the safe transition to a sustainable, resilient digital electrical future. We have decades of technology innovation linked to what you see in the center of the chart. This is the foundation of our business. ARC Science is as important today as it was when Electricity was invented, and Power Electronics is changing the future. And as one of our utility customers told me, data and data science will be as crucial as electrons. So just think about that and what that means for digital. But product capabilities are not enough. It's how we leverage them. So starting at the top left, we bring regional application expertise for local speed, digital solutions driven by Brightlayer that Aravind outlined, our strong network of channel partners, the real secret sauce behind our ability to win and our end-to-end services business supporting life cycle management. And this is how we deliver value to our core market segments on the right, where electrical power dominates the landscape and will fuel our future growth. So we're committed to our 2025 organic growth target of $15 billion. And this is based on a strong market recovery this year and next, favorable secular tailwinds in our base electrical business and growth in energy transition and digital solutions. And we're also targeting $3 billion of acquisitions. And obviously, Tripp Lite made a small but decent dent in that number. So let's dive a little deeper into what's driving our Electrical segment growth. This is traditionally the heartbeat of our business, which is accelerating our strength and position in the market. Now this slide shows this year's market growth, our 5-year CAGR and our outgrowth by market segment, our outgrowth ambitions by market segment, I should say. Now our focus today is on the 3 market segments in dark blue on the left side of this chart, representing just over half of our 2020 revenue. And as you can see in the first column, data centers and distributed IT, this segment is very hot with strong growth in 2021 and a healthy 5-year CAGR. Next, Commercial and Institutional. We see these as flat in 2021, but the strongest 5-year outgrowth, driven, I have to say, by energy transition, and then Residential is very strong this year and has a decent 5-year CAGR. So let's zoom in now and take a look at these one by one. So starting with data centers and distributed IT. Distributed -- sorry, data center growth is driven by these massive changes in society accelerated by COVID. We see this in our daily lives, increasing use of social media, online shopping, online gaming, Zoom calls and search engine personalization. This all drives the need for more data, more storage and more data centers. In fact, 176 hyperscale data centers are being planned or under construction around the world, and this is a 30% increase on the current installed base. This means more potential business for Eaton. Now let's move to the right. Distributed IT growth is being driven by the advent of a much more IT intensive environment in hospitals, schools, factories and stores, where critical information is held on an edge device, that means mobile phones, ICU monitoring equipment, security cameras, iWatches, handheld devices in the store, and surgery robots. So a lots of power can cause anything from a customer inconvenience to a critical operation or medical intervention going wrong. This drives the need clearly for sophisticated IT support and backup power that we provide. All that information needs to be processed in real time, shared and stored locally. So as 5G adoption grows, more devices can now be used on the edge. These devices will process more data, they need more connectivity and more backup power and support. All of this is creating a sophisticated, very sophisticated micro data center environment. And this creates more demand for Eaton and is why one of the reasons we acquired Tripp Lite. So here's how we're winning, starting with data centers. We have a strong global position with 4 major hyperscale customers. This allows us to participate in their expansion around the world. And we are privileged to be participating in 30% of new builds, a demonstration of our pedigree, positioning us well for the future. And our products are tailored to the current designs of multi-tenant data centers. These customers expect speed and flexibility as they configure their data centers for new tenants. In 2020, we grew 40% year-over-year as our customers fill their capacity due to a large surge in demand. Now moving to the distributed IT on the right of the chart. To win in this segment, a strong IT channel and position with IT resellers is essential. And we have successfully improved our single phase UPS share around the world. And we have a broad, differentiated product powered by Brightlayer. The acquisition of Tripp Lite will strengthen our position further in this channel and broaden that portfolio even further. So Tripp Lite is a real crown jewel in this segment of the market. It's a $430 million leading supplier of power quality and connectivity products. It has a strong track record of growth and best-in-class margins. And this acquisition creates $1 billion distributed power quality business for Eaton, a 70% increase on our current base, now serving a $15 billion global market. The timing of this acquisition is extremely good. It couldn't have been better timing. We expect favorable tailwinds in this segment, as I said, driven by 5G and edge computing. And here's our rationale. It builds a stronger, more viable channel position in North America with a leading brand; it expands our addressable market by giving us access to new high-margin connectivity products that we don't have today and we inherit a low capital intensity business model. So this acquisition will further turbocharge our growth in this segment. What does that growth look like? Well, we're targeting $3.4 billion of revenue in this segment by 2025, adding $1.5 billion of revenue from our current base. In fact, it almost doubles our current base, around 80% increase. 2/3 of that growth is going to come from the current business driven by strong market and the outgrowth expectations. And 1/3 of that growth, 1/3 of it comes from the acquired Tripp Lite revenue and Tripp Lite's growth over the next 5 years. So now let's move to the all-important building segment. This represents 40% of our revenue. On the left, Commercial and Institutional. So just a quick reminder, 2/3 of our revenue is Commercial and 1/3 is Institutional, meaning government, health care, infrastructure, schools, et cetera; and 1/3 of commercial is upgrades and retrofits. I think Craig shared with that -- with you several times. Now there are a number of growth drivers. First, within the EU, the COVID recovery budget has allocated EUR 275 billion to green buildings and EV charging. Second, the EU plans to improve energy efficiency of 35 million existing buildings by doubling the renovation rate from 1% to 2%, and obviously, creating many jobs. And the pandemic has accelerated e-commerce, driving that need for more distribution hubs and warehouses. In fact, digital e-commerce is expected to double in the U.S. by 2025 to about $1.5 trillion, and this is leading to 1 billion square feet of increased warehousing space needs. And a lot of capital is flowing. And many property investors are moving into this type of real estate and who would have thought that a few years ago. All these trends require more electrical gear and opportunities for Eaton to grow. Now moving to the right, Residential. Future growth here is driven by several factors: an energy performance directive in the EU for new buildings to be nearly 0 energy, starting this year; in the U.S., changing safety codes will drive an increase of $175 million in annual market opportunity, and we expect to see a 6% annual growth in U.S. home improvement sales. Okay. So here's how we're winning. In commercial, we have strong orders from a leading e-commerce provider for warehouses. And we are benefiting from our strong 30% U.S. Healthcare position where we saw mid-teen level growth in 2020. This included a signature wins at 6 mega hospitals and field hospitals during COVID. From Washington to Wuhan, our teams moved very quickly to provide support with our channel partners. Our recent HuanYu tech JV in China brings us good channel and builder relationships in this -- in a segment of this market. So real strong performance to build on. And on the right, we have, again, a strong position and presence in every stage of the construction cycle. This is driving high-quality growth. We are winning at each stage of the value chain. Our relationships with homebuilders are driving preference for our differentiated products, and we have agreements with 7 of the top 10 builders in the U.S., for example. Our leadership in safety and our installed base creates tremendous contractor confidence, and our U.S. share continues to expand with good momentum. And finally, distribution and retail partnerships are driving conversions, highlighted by $100 million annual win with Lowe's for 5 years. So what does this all mean for Eaton's growth? Well, we're targeting a combined revenue of $5.7 billion by 2025, that's a 30% increase from 2020. And 2 highlights to note: residential outgrowth of 33%, and then Commercial and Institutional are growing at double the market. And this -- the Commercial and Institutional outgrowth is strongly linked to adding more products, content and services linked to energy transition. And this is where we're heading now. So energy transition. This is one of the largest transformations the world is experiencing and it's gaining momentum. Energy transition really does create new business models and opportunities across the entire value chain. All these resources on the right that you see from renewable distributed power generation to energy storage, to EV charging, to microgrid controls are part of our Everything as a Grid approach. And we are implementing these Everything as a Grid resources that you see shown in the blue throughout the project life cycle along the top of this chart. And we're doing everything from providing enabling components on the bottom left, all the way to turnkey implementations on the right, top right. But what's most important is that we are winning at multiple points in the energy transition project life cycle. And today, we're going to share 4 examples, 4 different examples, highlighted in the boxes outlined in green. So EV charging in buildings working with our partner, Green Motion; EV charging support for high-voltage DC charging; energy storage in data centers, driving incremental revenue; and then microgrid implementation, working with our partner Enel X. So before diving into these examples, I wanted to bring you up to speed or bring us all up to speed on the size of this opportunity. First, the EV charging linked to buildings as a grid. The EV charging infrastructure market will grow to $30 billion by 2030, a 30% CAGR with a faster rate of growth between now and 2025. Second, energy storage in data centers as a grid. These customers are looking to generate recurring revenue by selling underutilized energy storage capacity back to the grid. And these numbers represent the potential life cycle value for our customers. Third, microgrids. This embodies our Everything is a Grid approach. It combines local generation, storage and microgrid control. It's a $40 billion market in 2030, up from $9 billion today, driven by a sevenfold increase in capacity, and we estimate Eaton's addressable market to be closer to our $8 billion in 2030. So back to EV charging linked to buildings as a grid. We've partnered with Green Motion, a Swiss-based company, to deliver turnkey EV charging infrastructure solutions for all types of building that you see on the left, from small deployments to supporting fleets. And our established incumbency and relationships in the Building segment allows us to really take advantage of the $12 billion market in Europe and North America. Now on the right, who brings what to the partnership. Well Green Motion brings EV chargers and software, and we bring storage, power distribution, hardware, more software and design installation services. And together, we provide a powerful, integrated solution to building customers. So this is a strong combination to win in the marketplace. And we estimate Eaton's revenue at between $0.7 billion and $1.2 billion by 2030. That's about a 5% to 10% share of the European and North American market. And to reach this, we're targeting 12,000 to 20,000 projects by 2030. And you can see the value of the breakdown on the right. Now we're also winning content on large scale, high-voltage EV projects. We're winning in China, the U.S. and in Canada. In China, we're providing power distribution equipment for 400 charges in a parking garage, significant size. In the U.S., we've won a highly complex project for 50 sites for a fast charging network rollout. And for this win, we are providing turnkey management for design and installation services, for storage to mitigate peak demand pricing. Remote monitoring of the storage using Brightlayer and the participation in a demand response program with the utility. And in Canada, another big win by our team. This one is on the Trans-Canada Highway, supporting 59 sites and retrofitting gas stations with customized switchboards to satisfy their power needs. These exciting wins really create additional market opportunity in EV charging, and our teams are all fired up to win out there in the marketplace. So now let's move to the example of a data center as a grid. We're supporting major data center providers to achieve their ESG targets. This application, frankly, has gained momentum over the last year, resulting in an improving order book. So we're helping to address 2 major needs: data center providers, in fact, need to reduce their carbon footprint; and utilities need to improve the resiliency of the grid. And just to give you quick context. On the one hand, data centers are extremely energy intensive. They have critical backup power that we provide in the event of an outage and the catch is that 99% of the time, the backup power has not been utilized and is, in fact, is sitting idle. On the other hand, in a large renewable grid environment, frequency drops or power sags are common. We have renewable power at my home in Ohio, and we frequently see these power drops, and you might see lights being dimmed or power being cut. But when this happens, a simple, small boost of power is needed at short notice for a very limited time, and this is known as frequency response. So our UPS, EnergyAware, helps provide this frequency response. It enables our customers to sell that unused capacity to the grid. So this will create a new revenue stream for our customers. So what does this really mean for us? So our EnergyAware software delivers about $50 million to $100 million of incremental annual revenue. And we expect a 25% increase in revenue opportunity from the typical large UPS content. This share -- this will drive, in fact, market share for our critical power quality business, and then more excitingly, provide a recurring revenue stream to support this business model as we participate in the revenue stream. And now moving to our final example. This addresses carbon footprint reduction, grid resiliency and delivers attractive customer economics. This project really does embody all of the elements of Everything as a Grid. We're collaborating with Enel X, a leading player in the energy -- global energy market. And together, we'll deliver an 18-megawatt solar-powered microgrid in Puerto Rico. I'm sure you recall that in 2017, Puerto Rico took a one-two punch from the hurricanes Irma and Maria. I remember it well. They knocked out 80% of the island's transmission, poles and lines, and caused almost 3.5 billion hours of lost electricity. So as a result, the governor of Puerto Rico signed a mandate approving an integrated resource plan, and it calls for 100% renewables by 2050, 40% renewables by 2025, about 3,500 megawatts of solar capacity, and most importantly, implementing local generation in homes and buildings. So this is a great example of how microgrids can improve resiliency. They enable local generation during grid outages, and they support a carbon footprint reduction. So this solution will create between $0.4 billion to $0.7 billion in business for Eaton by 2030. And in this partnership, Enel X brings, what do they bring? They bring capital investment, installation and operation of the solar generation. We bring the design, upgrade and installation of electrical infrastructure and the microgrid controls. This is a really great example of Everything as a Grid, as I said before. The project will reduce GHG emissions by 50%, switching from fossil fuels to solar. It will prevent the loss of $1 million per day of production when the next major weather event happens, and it reduces electricity costs, in this case, by 12% to 15%. So we saw a similar example of this over the last few weeks with the collapse of the power grid in Texas. It's very fresh in our minds. Weather disasters like these are pushing governments, the private sector and homeowners to really rethink their investments in the energy infrastructure. I would say our strong pedigree and participation in over 600 microgrid projects positions us very well to win in this $8 billion addressable market by 2030. So our business was really resilient in 2020. We have strong momentum in our base electrical segments, as you've seen. We've positioned ourselves to win in energy transition and digital, as you heard from Aravind. And our team couldn't be more energized and optimistic about our position in the industry and our growth prospects. So in closing, I'm confident that we have the right people, a great team and the right partnerships to really drive us forward. So thank you for listening. I look forward to answering any questions you may have during our Q&A. It's been bizarre to deliver like this remotely, but I look forward to the questions. And next up is Heath.

Thank you, Uday, and good morning. On behalf of the Eaton team, I am really excited to discuss the near-term and long-term future of the industrial sector. I think you will find that the growth story for the industrial sector fits very nicely with the perspective shared by Craig and Uday. And allow me to personally thank Rick Fearon. He's obviously made a phenomenal contribution to Eaton, but he's also been a great mentor and friend. Coming off a tumultuous year for our markets, we feel very optimistic. Markets are recovering, and we made and intend to make some great additions to our portfolio. And sustainable solutions are front and center with electrification of our markets gaining even more momentum. As you all know, this plays right into our sweet spot at Eaton. When you think about the electrification of the world and when you think about everything as a grid and you think about where the mobile markets are heading long term, you can't help but get excited. I'm going to walk you through several topics today, but there are some key messages I want to share. First, our portfolio transformation continues. The recently announced agreement to acquire Cobham Mission Systems is a strategic move that complements our current Aerospace portfolio. Second, electrification continues to gain traction, especially in the mobile markets, and we are well positioned to be a leader in this space across all platforms. Today, we will also revisit the electrical power chain and describe how that technology is converging around all of our markets. And last, emission regulations continue to drive the demand for sustainable vehicle solutions. And it is quite clear that customers value our ability to offer solutions in internal combustion engine applications, battery electric applications and everything in between. We need to do it all, and our customers value it. Our industrial sector portfolio will be comprised of Aerospace, Vehicle and eMobility after we close the Hydraulics divestiture. Each of these businesses meet our evaluation criteria. They have high returns on assets, they have high-margin potential, and they have big-time growth opportunities. And of course, they give us a chance to grow and win in large global markets. We expect to deliver healthy margins in our Aerospace and Vehicle businesses, with eMobility still in a heavy investment phase as we build out our suite of products and solutions. No surprise there, but once this business is to scale in roughly 2030, we expect our margins to be in the 15% plus range. As you can see on the slide, organic growth across the entire portfolio continues to be a top priority for us. And as we've demonstrated, we absolutely will be opportunistic on the M&A front. Given the volatile year we just experienced, I thought it made some sense to give just a quick perspective on how we are thinking about the Vehicle and Aerospace markets over the next few years. Starting with light vehicles. As you can see, the global light vehicle market was impacted significantly in 2020. However, we expect to see continuous growth from here, and the markets are back to 2019 levels by, say, 2023. And in commercial vehicle, where the pandemic didn't reap nearly as much havoc, we are expecting to be back to 2019 levels later this year. And of course, in both markets, we are seeing growth in electrification trends across the board, which brings me to our next slide. To discuss electrification, I think it's useful to think about adoption rates over the next 10 years. And as we look how electrical vehicles will emerge during that span, there are a couple of important takeaways for us. On one hand, you see growth in the battery electric market, as shown here in dark blue. Electric vehicles will continue to grow share over 20%, say, by 2030, which is great for our eMobility business. And also, if you look at the light blue or aqua color there, you can see the growing market for hybrid vehicles in both light vehicle and commercial vehicle segments, which will create significant new opportunities for us. There's been much written about hybrid applications in light vehicle markets, but even in commercial vehicles, more systems and subsystems will shift to being driven by 48-volt electrical power. And there, there will be significant opportunities. I'll discuss some more of that later. Keep in mind that the light blue or the aqua color here, hybrid applications, there are combustion engines. And that's what the orange numbers here represent. We still expect internal combustion engines to be approximately 79% of the light vehicle market and 90% of the commercial vehicle market by 2030. And as a result, we expect modest growth in the number of vehicles that actually have an internal combustion engine. There's capital, of course, flowing fast into the EV space, but the world needs sustainable solutions in the EV space and in the combustion engine world because the transition will take a decade-plus even in vehicle markets and longer than that in commercial vehicle markets, we intend to leverage our skill set across multiple platforms such that we can balance investment with attractive profit margins on existing expertise and capital. I want to switch to our Aerospace markets over the next few years. And our Aerospace business on the defense side is obviously tied to platform build rates. We will discuss these platforms in some more detail when we discuss the Cobham acquisition. But overall, we expect defense spending to be flat, not grow. But even so, we don't expect these build rates to be impacted. If anything, we see the rising international tensions, defense readiness, global force, projection needs continuing to support these forecasted build rates for these Aerospace platforms. And on the -- I'm sorry, on the commercial side, I don't think that this is new news. We are seeing slow air traffic recovery. You see the same information I do. We expect it to return to pre-crisis levels in the 2023, 2024 time frame. That said, as we also have seen commercial aircraft backlog remains strong, with Boeing and Airbus maintaining healthy backlogs totaling around 13,000 aircraft. In that context, we expect significant growth over the next 5 years in the sector. Here's just a quick snapshot that we shared last year of our combined organic growth targets for our industrial businesses. We've tasked them with this growth, and we have plans to back it up. We have also set an inorganic target of adding $2 billion of revenue by 2025. And of course, we have line of sight to 1/2 this goal with the announced acquisition of Cobham Mission Systems. As I will explain, we expect that to be a $1 billion business by 2025. Before we dive deeper into Cobham and the electrification growth story, I'd like to highlight a few of the team's accomplishments through the lens of our broader Eaton-wide initiatives, as communicated by Craig. When I think about organic growth, we've made some real progress on partnerships. For example, we expanded our Aerospace maintenance and repair presence in China, leveraging our existing JV to serve Chinese airlines. We can now repair fuel and hydraulics products in country. We expect to grow this business aggressively over the coming years, along with the fast-growing Asia Pacific aerospace market. We also continue to push the technology front here even beyond electrification. Some of you may remember the additive manufacturing demonstration during the tech day we held back in 2019. Well, we had our first successful flight of an Eaton additive product on a Taiwanese T-5 trainer plane. And we have many more similar projects in the pipeline. We also invested in production quality equipment and intend to leverage that technology to pursue aftermarket and defense business. And on margin improvement, we, of course, announced several actions in 2020 to improve our structural costs, resulting in cost savings across all businesses for years to come. And as for the capital allocation, we remain really disciplined. We continue to exit smaller, lower-margin businesses in accord with the fix the tail initiative, as communicated by Craig. And of course, we are close to completing the sale of the entire Hydraulics business. And finally, we've recently acquired Souriau and announced the acquisition of Cobham Mission Systems, 2 industry-leading aerospace businesses with attractive financial profiles and growth outlooks. Let me spend some time on the Cobham Mission Systems business. We are very excited about bringing Cobham into the Eaton family. It has an incredible portfolio of products and services. As we've described many times, we love to play where there's significant intellectual property tied to mission-critical expertise, Cobham embodies that. Its portfolio dovetails well into Eaton's existing businesses, particularly in fuels and motion control. This portfolio consists of highly differentiated products with long life cycles of 40 years or more, high switching costs, high barriers to entry, and thus, it has a very similar profile as the rest of Eaton's Aerospace business. And after the acquisition, the combined business will provide greater balance between commercial and defense, and it absolutely gives us greater aftermarket and retrofit capabilities. This is a good slide that gives an overall perspective on Eaton's business, and it gives you a snapshot of all the major segments that we address. And Eaton is a leader in each of them, from hydraulics, to fuel, to motion control, to electrical connectors. You will recall that we acquired Souriau at the tail end of 2019. That integration is going very well. And we continue to see opportunities for scaling Souriau's electrification expertise. We will continue to grow in that space. Cobham, on the other hand, allows us to serve the aircraft fuel market, where large commercial and military aircraft will use current engine technology for the next several decades. Like our Vehicle business, our balanced portfolio allows us to serve multiple systems, many of which aren't going away, again, for decades. I'd like to share a little bit more about the rationale of the transaction. Obviously, it's a global leader in aerial refueling technology, and it has strong capability and fuel inerting. This expertise will certainly enhance our position in fuel systems. We also intend to use the inerting technology to expand into the commercial aerospace markets. Cobham is very well positioned on key defense platforms that are in earlier phases of their production, like the KC-46 and the F-35, and it continues to win new content on mid-cycle upgrades to platforms. That's not surprising. Cobham's expertise, its key technology in the defense market, has been built over decades. They are often sought by customers to address service issues when aircraft capability needs to expand, which also turns into retrofit or aftermarket campaigns. And of course, the programs that Cobham is on will be in operation for decades, as we saw with the KC-135 or the F-16. The platform longevity will create long runways for aftermarket opportunities for spares, repairs and upgrades. Now let's talk about each of these technologies in a little more detail. The air-to-air refueling, Cobham is the #1 player. And it has strong controls capability to make that refueling process easier and safer. The environmental systems business provides life-critical oxygen systems for the pilots. And as I mentioned before, they also have strong capability in the military aircraft fuel inerting market, which we can expand into the commercial fuel energy market by leveraging Cobham's air separation technology, which unquestionably has superior performance relative to peers. And lastly, they have an emerging cryogenic cooling business, which is important for high-performance electronic systems, a key technology for the future. They have strong actuation capabilities, especially in pneumatic and electromechanical actuation, the propulsion capability and cryogenic fuel system positions them well for the growing commercial space market. Cobham has a robust backlog and strong opportunities pipeline that gives us line of sight to about $1 billion in revenue by 2025. Specifically, we are expecting over $100 million of growth in tankers, over $80 million of growth in the fighter segment. And we're expecting nearly $100 million of growth from various other platforms, including space propulsion on satellites, oxygen systems and commercial fuel inerting systems. We are very excited by this kind of growth. And again, we do not see a flat defense budget impacting this growth because it is tied to specific programs and specific orders on aircraft that will be around for decades. And on these aircraft, we have growing content. As shown here, with the acquisition of Souriau and after the acquisition of Cobham, the combined business has greatly increased our content on key defense platforms. You can see here ranging from 1.5x to 7x on the 3 examples shown on these slides. These platforms are critical to long-term defense readiness and global force projection needs and have strong budgetary support in Congress. Overall, this acquisition fits very nicely into our Aerospace product portfolio with a 50-50 commercial and defense split after our commercial markets recover. It absolutely puts us on fast-growing, long-life cycle platforms and mission-critical applications, and it's as simple as that. I'd like to change gears here. And while we've been discussing Cobham and how it fits perfectly into the current Eaton Aerospace portfolio and provides great near-term growth, we also have our eye on the trends that will provide growth for decades to come. And if you believe in the electrification of everything, everything is a grid, and if you believe that companies investing in sustainable solutions will create long-lasting value, then you have to pay attention to this part of Eaton story. And it starts with electrification. As I hope to show over the next several slides, and perhaps you will recall during last year's presentation, Eaton is uniquely positioned because of its expertise in electrification and by its application knowledge in passenger vehicles, commercial vehicles, off-road vehicles and airplanes. Our eMobility business is front and center with cars and trucks, and we intend to build scale in those markets as a result. But the story is broader than that, and it is deeper than that. Let me begin with Eaton's unique portfolio. Yes, we are a global leading electrical franchise, but we are also a global solution provider in the mobile markets. Those same mobile markets are subject to regulatory change and a drive towards sustainability. And of course, it drives the need for electrical propulsion and electrification of subsystems. That's a risk and a problem for many, but for Eaton is an advantage, and it's one we intend to press. At Eaton, we are uniquely positioned to capitalize on these opportunities because we can leverage new technology, but we can also leverage core technology and leverage the scale of our electrical franchise, shown here in blue. The end market applications vary. But at a high level, what we are solving for customers is the same. It's safe, reliable solutions that enable sustainable and intelligent power management. Our mobile applications vary across the various end markets ranging from aircraft to passenger cars and off-highway equipment, markets that we have been serving for literally decades. As these market segments adopt electrification, whether hybrid or electric, the electrical power chain will be fundamentally similar. And as we show here, the energy power is stored, the electrical power is stored, and it's sourced. The power is then managed safely and distributed in a custom-tailored way to fit the needs of that specific application. It is then transmitted to the location of use with high reliability and minimal loss, and then that energy is used to drive efficient propulsion or -- and this is the important point, it can be used to actuate systems, subsystems on that platform. So maybe the electrical power is not used for propulsion, but other systems will need to be electrified if we are going to meet society's sustainability targets. As I mentioned earlier, the core technology for electrification can be leveraged across multiple electrical and industrial markets, but given the high cost of failure in our work, we believe our track record of success and reputation for safety and quality in our markets is critically important. Therefore, we think it's important to have deep domain expertise in this specific industry. While they may share a common technology platform, an inverter for a car will have significantly different requirements than one on an aircraft or utility vehicle. You have baseline technology, but it needs custom-tailored for the application. That's key. Having the core electrical technology, combined with that deep domain expertise at scale, sets Eaton apart from our peers. I want to spend a little more time on this point I made regarding the fact that electrification story is not just propulsion. We see the electrification of everything over time, sometimes before propulsion. Indeed, the shift to electrification in our markets will be steady migration with different industries and platforms having varying adoption needs and rates depending on the system or subsystem you're talking about. This isn't surprising. If you think about it, there is some degree of electric actuation present on most vehicles and aircraft today from the starter on a vehicle to the secondary flight controls on some aircraft. As the power density of electrical systems increases, however, we can expect to see other functions, say, a full system like a cooling system, it could go electric. Propulsion, the system that requires the most power, will have the widest range of adoption rates from a timing perspective. We already have full-battery electric cars on the road today. But probably we'll not see an all-electric transcontinental aircraft for decades. On a single-aisle commercial aircraft, there are experts thinking about clean hydrogen-driven propulsion to support sustainability targets. But again, that will take decades of development, testing and certification. But that doesn't mean smaller subsystems on the aircraft couldn't electrify as they have and will and passenger cars in commercial vehicles. On this slide, we show the electric power ranges from actuation through systems and propulsion for the various market segments we serve. You can see that the power to propel a light vehicle is around 100 kilowatts versus the power to propel a commercial aircraft, which is 40,000 kilowatts. What you can also see here is the power requirements for electrification overlap between platforms and across different industries, vehicles and aerospace. This allows us to leverage base technology broadly, while also addressing our customers' needs across the spectrum of actuation, systems and propulsion. The key point on this slide is that Eaton's portfolio makes all the sense in the world. But it does more than that. It is unique. The unique portfolio itself allows us to build and scale our electrical expertise by leveraging each market on top of the other. So having explained this portfolio strategy, I'm not going to go deeper. I'm going to explain how Eaton's portfolio not only allows us to build expertise across these businesses but now even within specific applications, businesses and markets, we are seeing that our high-voltage expertise allows us to scale and compete in electrified subsystems that need more sustainable solutions or are themselves becoming electrified. All of these dynamics really come together in the vehicle market, where multiple solutions are needed at the same time. Change is happening first and it's fast in this market. And of course, our eMobility business addresses electrification of propulsion ground vehicles, but we are also finding increasing opportunities in electrification of other systems within those vehicles. In commercial vehicles, for example, you may electrify a catalytic system for nitrogen oxide control or run cabin cooling without running the engine and hence, reduce both carbon dioxide and nitrogen oxide. More on that coming up. Let me set the stage though. Here we are showing a snapshot of the targeted reductions for carbon dioxide and nitrogen oxide emissions across all major regions. These regulations are likely to get even more stringent with the proposals being considered by various governments. These targets have been a huge driver for OEMs, our customers to look for a continuum of solutions from better combustion engine technology to more electrified systems. And as Craig mentioned, our products and services focus on providing solutions that help our customers meet those sustainability challenges. And this need cannot be overstated. It's massive, and it's moving quickly. We need more technology, we need advanced combustion engines, more hybridization, and we need better power electronics and safe electrical distribution. Again, I think it's important to point out that we expect internal combustion engines to still be 79% of global light vehicles, and they will still be in 90% of commercial vehicles by 2030. We are fully committed to EV growth through our eMobility business, but I'd like to remind you that we are seeing profitable lower investment opportunities during this extended transition phase. When looking at the combined portfolios of vehicle and eMobility businesses, you can see that our products span the entire propulsion spectrum from internal combustion engines through to battery electric vehicles. Our end markets also span a range of platforms from light vehicles to off-road vehicles. And this broad portfolio enables us to provide a range of solutions to OEMs as the architecture mix shifts over the next several decades or more. You could see a diesel engine-powered commercial vehicle needing, both a 48-volt electrification expertise for systems, along with advanced valve technology on the diesel engine. You need both to meet the regulatory requirements I described earlier. Let's start with the combustion engine technology. We enable OEMs to optimize internal combustion engine designs. One way this can be done is by precisely controlling the engine air volume and temperature. Our new hollow head valves enable engines to run at higher temperatures, enabling fuel economy and catalytic converter efficiency. Our exhaust gas recirculation pump, which I described last year, is a great example, where we've leveraged our precise air metering technologies from passenger car and applied it to commercial vehicle applications. We can very precisely pump the right amount of air to create the most efficient combustion within the engine. And our advanced valve train technologies have enabled various applications ranging from engine break to variable valve actuation, again, very precise technology that allows OEMs to optimize performance. These technologies are not going away, far from it, they are in high demand from OEMs, who need them to compete and to meet the sustainability requirements we've discussed. Let's now talk about the electrification of our vehicle markets by turning to our eMobility business. As a reminder, we launched this business in 2018 when we formed a new business to bring to life our vehicle domain expertise with our electrical capabilities. Yes, we are competing first in vehicle markets because that's where we can gain scale, but this is also where our learning lives. It's where we can build technology breakthroughs and scale them for future generations of electrification of all mobile markets. Our portfolio is currently built around 3 product families: power electronics, power distribution and protection and power systems. We serve both light vehicle and commercial vehicle applications. And since launching, we have secured approximately $500 million in mature year wins and continue to have an extremely strong pipeline. We are laser-focused on execution as some of the larger platforms we won ramp up mostly in the 2023, 2024 time frame. Our obligation in this business is being smart about deploying capital and investments in those areas most strategic to us and not simply going after every opportunity out there, and there are many. And one of those opportunities is in the electrified systems, not just propulsion but also the other systems within the vehicle. Specifically, we are seeing increasing demand for 48-volt electrical systems, which have a higher power than the traditional 12 volt. Customers can use the 48 volts to drive higher power consumers like HVAC systems or an air circulation pump for the engine, which in turn will drive efficiency and reduce emissions. Integration of these accessories within the new 48-volt architecture will require both power electronics expertise and deep knowledge of all the other vehicle system, which again plays right into Eaton's sweet spot. This slide shows a visual representation of some of the things I just mentioned and puts into the context of a power chain within a Class 8 truck. Looking at the power source, most 48-volt systems will have one 48-volt generator, which itself will be powered by the diesel engine inside this truck. Power management devices convert, control, condition and protect the power as it moves from the generator to the batteries and then to the devices on both the 48-volt and 12-volt power systems. This kind of power electronics and control is a core competency for Eaton. Inverters, converters, power distribution modules, that's what we do in eMobility. And then you think about the consumers of this power. In this application, you think about air conditioners, you could put fans on these electrified systems. You think about powering fuel heaters to drive efficiency. Those kind of power consumers used to be mechanically powered. As higher voltages are adopted, they can be driven electrically, which can improve efficiency and reduce emissions. We don't need to compete by manufacturing fans or fuel heaters, but we can bring the electrical controls to this solution. And again, this isn't propulsion we're talking about, which gets all the headlines. This is electrification of a subsystem within a diesel engine application. We are working directly with OEMs and have open bids in this space. It's a new space for us, and that has a large addressable market of roughly $10 billion between both commercial and light vehicles. Now turning to our higher-voltage breakthrough technology. I'd like to discuss breakthrough, our product shown here, our power protection technology that is gaining significant traction with customers. We're thinking about safe and convenient architectures of their electrified systems. As the power levels increase, there are important safety implications that need to be considered. Electric vehicles must safely and reliably protect people and components during all the different vehicle scenarios from normal driving to collision events and everything in between, like short circuits, overload conditions and fast charging. And I don't want to get too technical, but it needs to safely and reliably operate under all of these conditions. And conventional vehicles, conventional electric vehicles systems rely on a combination of fuses and contactors with each product providing a different function and each with contradicting design requirements and coordination challenges. By leveraging our electrical sector knowledge, we've developed an innovative solution called Breaktor that provides all the switching and protection functions in a single, resettable product. This reduces the chance for damage to onboard electronics and avoids inconvenient service center visits by the drivers. With this product, we are leveraging our 70 years plus of electrical franchise experience and circuit breaker and relay technology to bring breakthrough technologies to new markets. The OEMs and vehicle and even aerospace, for that matter, are very interested in this product. With our broad portfolio of solutions spanning the entire propulsion spectrum, it is easy to see that we are well positioned to increase our content per vehicle as the architecture changes over the next 10 to 15 years. In this chart, we are using our content per vehicle on a traditional internal combustion engine platform as the baseline and comparing it to our expected future content per vehicle once our eMobility business is at scale, and you can see 10x, 12x content. We are certainly excited as we are very well positioned to generate great returns in combustion engine applications and take advantage of the transition to greater electrical content. I'll close here. What I hope that you will take away from my time with you today is that, one, we are taking deliberate actions to streamline and fortify our portfolio; two, our franchises are stronger than ever, Aerospace is very well positioned, industry-leading margins despite the pandemic-related slowdown, and a new, more balanced portfolio with great growth prospects, vehicle and eMobility are well positioned to provide our customers with sustainable solutions across the spectrum of traditional, hybrid and all-electric platforms; and three, our portfolio strategy allows us to build expertise and then scale that expertise across multiple platforms to compete and win. So let me thank you for your time and attention, and I will turn it back over to Yan, who will handle our transition to the Q&A. Thank you.

Hey, thanks, Heath. We'll take a 10 minutes' break for now. [Operator Instructions] See you a little bit. [Break]

Welcome back to the Q&A section of today's event. Yan Jin will now say a few words.

Hey, guys, welcome back. As we have done in our past years, we will try to answer all of your questions. [Operator Instructions] With that, I will turn it back to the operators.

And our first question will go to the line of Joe Ritchie from Goldman Sachs.

And again, my congratulations and best wishes to Rick.

Thanks.

Maybe just kind of starting out, my first question is for Aravind. So I wanted to just dig into Brightlayer a little bit because over the last few years, we've had several industrial companies roll out their digital IoT strategy. And I guess I just wanted to get a sense from on a couple of things. One, can you talk about this installed base of 6 billion assets? What percentage of the assets today of your installed base are intelligent? And then secondly, if you could provide maybe some more details around how you plan to scale this business to the $500 million, that would be helpful?

Absolutely, Joe. Thanks for the question. We appreciate it. So in terms of the connected asset base that you had asked the question about, we have a rough number of 1.7 million out of 6 billion that are connected assets, connected in the context of Internet connectivity, in the context of network connectivity that are doing data today, that is of value to customers, that is of value to us. So in terms of how we want to scale the business here, it is not just with purely these connected assets. But the data that actually connect -- the data that actually comes out from the variety of assets that are out there, connected or non-connected, there are data-oriented services that we can provide as a starting point, data-oriented service like migration of data, merging of data, cleansing of data, archiving it that IT and OT department need to collaborate on. So we first start with that. We establish an incremental base. And then we build on top of it through data and insights. The first year is primarily just understanding the kinds of data and the kinds of services that we can provide and then scaling up to be repeatable offering in the next couple of years. So more details to come on this in the next 6 to 12 months.

Got it. That's helpful. And then maybe my second question, just turning over to Uday. Yes clearly, you outlined a lot of interesting things in terms of potential secular trends for the business going forward. I just want to focus on the grid resilience component for a second because, obviously, it's been super top of mind. I guess it's no -- everybody knows like our infrastructure has been aging for a long period of time. I guess I'd love to get your thoughts on the impetus now and the funding to start modernizing the grid. And then specifically, as it relates to your offering today, how do you think you're going to benefit from increased investment in the grid in future years?

Great. Yes, it's good. Thanks for the question, Joe. I'll approach it in couple of ways. First of all, just to give you some broader context and a reminder that today, some 16% of our electrical business is focused on utility, just to give context. And obviously, the aging grid, like you referred to, needs a lot of -- a massive overhaul. And I think we benefit in 3 ways. First of all, in the very short term, unfortunately, a disaster creates opportunity for many of our products to be deployed right away. And our teams are already, right now, working in Texas, for example, providing equipment. And then more midterm, we'd expect more political and regulatory pressures to increase the investments. So the products then specifically to talk about within our utility franchise, our line protection equipment, this is overhead chains, fuses, arresters. The software we have that helps plan energy consumption and way to add capacity. And then the other piece of equipment that we have is if you recall from last year, we talked about reclosers, this helps to isolate faults in the grid to a smaller community and minimize the widespread impact of an outage. So we think that our product portfolio, short and medium term, is very well positioned for any regulatory changes that start to occur in the grid. And then finally, what I would say is kind of aligned to the example that I gave around Puerto Rico, increasingly now, there will be investment in the grid that supports the move to more a microgrid environment where you create much more self-sufficiency and, therefore, create redundancy in the system. I mean if you talk to people in Texas or California, they're all -- in the U.S., they're all very aggressive about getting their own generators, solar generation, to become independent, and we see that trend continuing, and that's right in Eaton sweet spot. So more broadly, we have a great product portfolio in the utility market to take advantage of in the short and medium term, and I think well positioned for the move to Everything as a Grid.

Our next question is from the line of Jeff Sprague with Vertical Research.

Yes. I had maybe 2 kind of specific questions or asking for a little bit more detail on what Uday presented today. First, on the data center example, Uday, the comp -- so on Slide 26, the -- you kind of outlined the EnergyAware offering potential. And then there's also this comment about 25% content gain in typical UPS. I think what you're telling us here is you see upside in the base business as we know and understand it today. And then EnergyAware is a software offering on top of that. Can you just elaborate on that? And what drives that?

Absolutely, yes. Absolutely. So the way to think about it is -- so thanks for the question, Jeff. The way to think about it is that the standard UPS product because of the EnergyAware capability creates a -- sort of almost a 25% onetime gain on the UPS products, right? So you're gaining increasing content. And then the second piece is because of that added capability, we believe we can take market share as well with that combined value. And then the third piece of it is we expect to participate in some form of the recurring revenue that occurs sharing some of that with our customers. Obviously, they have a large portion of it. We'll participate in the recurring revenue piece as well. So all of that combined creates that sort of $50 million to $100 million of incremental value, if that makes sense?

It doesn't. They don't need the backup power, but when they need it, they really need it. Is there any issue with them just being so conservative, they don't even really want to jeopardize the availability of that backup source?

Well, that's a great question, and that's really the secret sauce of the software, right, because it's the software that allows us to monitor, help them monitor all of their backup power. What stays the battery is that in terms of the recharging. To think -- make sure that whenever power is provided for that short frequency to the utility that it doesn't compromise the primary purpose of what the back-up is for and that's giving them -- and giving them confidence that we can do that with their support. And I think that's really the sophistication of the software that allows us to do that. And I would say more broadly, there's tremendous interest starting with the hyperscale players who, as I said, have their own sort of GHG reduction targets as part of the ESG goals, and they see this as a huge sort of game changer to support their direction around where they're going with these energy-intensive data centers. I would say the colos are moving in that direction, but a lot of our energy and intensity has been around the hyperscale players as they have these large company-wide initiatives and us being part of that.

And then just -- I'm sorry, on the EV, I had a question. Just trying to understand your content opportunity. You gave this slide on Page 23. But this comment about $700 million to $1.2 billion of business, what is that actually predicated on? I think you may have said -- I think I missed part of it. What...

Yes. I think if I'm correct, your question is why is there a range? Is that right?

Yes. And really, yes, what's the range derived from? Through what product?

Sure. Sure. Absolutely, yes. So it's a combination of things here as you think about the range, this is going quite far out. So we've made assumptions around adoption rates. We made assumptions around win rates for where we're targeted. And there's a range. And then I would say that the piece that's -- the reason they're such a range is it very much depends on the end mix of decision-making that takes place around who's procuring and making the decision. So we are very well positioned, as you know, with consulting engineers, contractors, distributors, who -- when they make those decisions, we think we're well -- very well positioned. There are other bodies involved as well with EV charging. And so that piece of it is where we have presence, but less certain, and that gives us a range of value, and we have to work on that to move to the higher end of the range. That makes sense.

Our next question will come from the line of Nicole DeBlase with Deutsche Bank.

Can we just talk a little bit about the portfolio. So clearly, you guys have made a ton of changes over the past several years, focusing a lot more on electrical aerospace. I guess when you step back and think about the portfolio today, do you feel like your work is broadly done, and this is the right Eaton to take into the next decade? Or is there still ongoing pruning that we should expect over the next several years?

Thanks, Nicole. I mean to your point, we have done a lot of work over the years to transform the company into the company we are today. And I'd say in simple terms and straightforward, yes, we like the portfolio in it's current form. I mean, having said that, the way we think about portfolio management is perhaps differently than perhaps the way many of our investors think about it. We really do think about it at a point where we can make a discrete decision. So it's not in and around these 5 or 6 reported segments. It's around product lines, in markets and customers. And so I would tell you that a part of the ongoing work that we do every day inside of our company is portfolio management. Every business needs to be a portfolio manager. Every business has a head and a tail. Every business has an opportunity to differentiate where they invest their time and their resources to grow faster and prune on the tail end. And so we will constantly be involved in the process of evolving our portfolio, pruning the tail, growing the head, and that will be an ongoing part of what we do. In terms of the big strategic moves, we think once we get past the sale of hydraulics, we like where we sit. And I think the story that was told by both Uday and Heath around the business today, I think, lays out the compelling case for why these are good businesses for Eaton. But once again, having said that, nothing isn't necessarily going to be the same forever. And the criteria that we laid out that says, every business has to be a leader in their markets. Every business has to deliver high margins and high returns and consistent earnings. Those criteria will continue to be the criteria through which we evaluate businesses. And if something graze away and there's a reason why we feel like the future opportunities of our business are no longer attractive, we'll be willing to step out like we've done in the past.

Understood. And then for my second question, totally under all of the puts and takes around free cash this year and some of the onetime items that are impacting conversion. As you guys look out over the 5-year planning horizon, is the expectation that you can get back to your typical 100% or so free cash conversion over time? And how much of that comes from net working capital opportunity?

Yes. I mean, to your point around free cash flow, we do see '21 is a bit of a transition year. As we talked about with the sale of hydraulics, with the dollars that we're putting into CapEx, with the restructuring spending and with the CARES Act timing issue, free cash flow at $2 billion at the midpoint of our guidance this year will be below our historical performance levels, still above 100%, by the way, it's not below 100%, but still above 100%. But certainly, as we look forward to '22, you can expect that our free cash flow will return to kind of these more historical levels, very much consistent with what you saw from the organization in 2020. In terms of the composition where it's going to come from, it's obviously going to come from growing earnings for sure. It is going to also come from, to your point, around working capital improvement and efficiency. We've done a lot of great work over the last number of years. But quite frankly, we still have opportunity. We still have opportunity in inventory, getting our inventory and our days on hand back down to the levels that we used to run at, quite frankly, some 5 years ago. So combination of growth in the company, driving a growth in earnings, but also clearly some work still to be done in and around working capital, specifically in inventory.

Our next question is from Ann Duignan from JPMorgan.

I just wanted to take a step back and look strategically at your portfolio, Craig. And just -- I'm just wondering, aerospace, we look at aerospace and probability of that industry going electric is probably 0, at least maybe internally, there's increased electrification. But it's more likely to be a change in fuel, maybe hydrogen, maybe biodiesel or something. So could you talk about how aerospace really fits in long-term to your pieces that we're looking at greater sustainability, greater connectivity and greater electrification?

Yes. Those are certainly important growth trends that are helping the company grow and to accelerate our rate of growth. But I'd really take you back in to the broader strategy of the company. And the broader strategy of the company is that we want to improve our rate of growth. Overall, we want to expand our margins, and we want to continue to be smart in the way we redeploy capital. And that's the strategic framework that we use to make decisions around the portfolio. Now we are certainly benefiting at this point in time, and we're absolutely thrilled by these trends of energy transition, electrification, sustainability, those are really helping the growth rate, but the strategy is much broader, much bigger than just those particular trends. And so how does Aerospace fit, how does Cobham fit, those businesses have all the right characteristics for the kinds of businesses we like. They're high-margin businesses. They are highly-engineered solutions. They have a wide moat. They're very profitable. They have an enormous aftermarket. And so the fundamental characteristics of those businesses are very attractive and that's why we think that's the way we think about the Aerospace business in the context of the overall company strategy. Not a play on sustainability, but really a play on growth, a play on margins and a play on how we very effectively redeploy capital.

Got it. And I should have probably talked through that. And then just on the notion that you're including acquisitions in your longer-term outlook for revenue, does that put pressure on the organization to do more M&A upfront just to ensure you reach those targets? Or is there any risk that if acquisitions slip and the risk is you pay up for acquisitions later in order to meet the target?

Yes. I think we have a pretty strong track record in this area and in our company process and the discipline that we've shown over many, many years around M&A, that will remain in place. We try to deliver at least 200 to 300 basis points over the cost of capital. That's got to be a strategic fit as well. And I'd say that our company's track record around things that we sell and things that we buy has actually been pretty good to the point where we've never had a write-off historically or write-down, quite frankly, on any of the acquisitions that we've done historically. And that discipline will stay in place. One of the things that you saw in the presentations were both Uday and Heath, good news, they are chasing much bigger numbers with their teams, and we have reflected in the corporate model. We think it's perfectly appropriate for them to chase bigger numbers. And we are cheering them on, but we figured it's probably also prudent to hedge that back a little bit in terms of the corporate model. And so it really isn't a lot of, let's call it, acquisition-related growth built into the assumptions that we couldn't replace in other words. And in other words, we could -- if we don't do an acquisition, we could go back and we buyback shares and essentially deliver almost the equivalent of EPS growth that we've laid out in the range of EPS growth over this period of time. So no, I don't think it's going to drive the wrong behavior at all.

Our next question is from Nigel Coe from Wolfe Research.

So I want to go back to the EV charging initiative with Green Motion. Just curious why you chose them as your technology partner? What -- how do they differentiate? And then how do you plan to go-to-market with them? And why not do yourself?

Okay. Thanks for the question, Nigel. So I mean, the reason we -- first of all, they have fairly, we would say, unique technology. And the reason we chose them as a partner is we found ourselves working closely with them in the marketplace quite naturally. As they brought their EV charging solutions, we brought our storage, winning together and had a lot of traction working that way, just naturally coming together. And so that just led to a more formalization of the relationship. But in essence, give you a -- of these commercial, this is commercially sensitive. But what I would say is that we have -- they are providing the expertise in the design of the charging capability. We have our contract manufacturing capability to support that. We'll be branding charging with Eaton powered by Green Motion. We're also working with them in our different channels -- with our different channel partners. So we're the front end of the relationship as we have the relationships in the channel. And pull -- we'll be pulling through a lot of their charging equipment, and most importantly, the CPO software that they have that is very unique to the application. And so we think it's a good, solid relationship, has huge potential for us. It's a company that we've built a relationship with over a number of years, and the nature of that relationship will continue to evolve.

My follow-up question is, I think, again for you. The distributor IT opportunity within your data center. I think most of us we call that edge. And if I'm wrong there, please correct me. But is 5G sort of a key precursor for that -- those investments to really take off? And when you think about the 8% to 9% growth you're targeting within the data center, core growth, that is, how much of that do you think comes from distributed IT stroke edge?

So just -- broke up a little bit at the end with the -- on the line, so I may come back to the last part of the question. But yes, essentially, we think about the distributed IT environment, it's as more edge devices come online, these edge devices, more of them coming online is driven by 5G. It makes more of those devices, more accessible, allows you to process data more quickly. So there is a linkage between more edge and 5G coming on board. So there's no question about that. And I missed the last part of the question actually around the data centers.

Yes, I'm not sure if it's telephone line or my accent. But when we think about the 8% to 9% data center growth you're targeting, would you say that distributed IT would be the key driver of that 8% to 9%?

Got it. Got it. Yes, the 8% to 9%. So the -- I would say that the -- it depends on the 5-year period. I'd say in the early part of the cycle of the 5-year cycle. So this year, for example, and next year is largely driven by -- this year, it was driven by pent-up demand in the data center and the hyperscale because of the build-out that didn't happen last year. And so that's affecting us in the early part of the cycle. As we move to the mid and latter part of the cycle, very much on the edge computing starts to take over and we see explosion. And I'd say, if you think about the numbers overall, 1/3 of the growth that we're seeing between now and 2025 is coming from Tripp Lite and the associated growth from Tripp Lite, and you add our existing business onto that, I'd say a good portion of the growth, 1/3 of it or so is going to come from the edge computing and distributed IT.

That's great. And then can I just clarify on Green Motion, is that an exclusive agreement or could you form other agreements...

It's a commercial -- it's a very tight commercial arrangement.

Our next question is from the line of John Inch from Gordon Haskett.

I'd like to start with just what are the margin profiles of these new revenue opportunities. So Uday, you've got buildings as grid, EV charging, micro grids and Aravind, you've got the $500 million digitalization. And just as a sort of a follow-up to that, I think Uday, didn't you mention that you're assuming 5% to 10% addressable market penetration as part of the walk? But of course, Eaton got almost 31% market share. So is that just -- is there a natural capping because these markets are more competitive? Or do you see that actually trending over time? It just takes a while to build up the share.

Okay. Yes. So those -- that's a good question. There's several pieces of that question. Let me talk about sort of pricing, first of all, at a high level, which is in the -- we're being very specific and choosy about where we decide to penetrate, where we can get value. So -- and I'll talk a bit more about that in a minute. So I think that the way to describe it is that we would expect to get very decent margins because we're choosing the high value-added services as part of a core, overall core solution. Having said that, in the early stages for some of these applications, it takes the time to build a critical mass and so early stage, some of these areas, the margins might be not as high as they will be later on in the cycle. So the question around the 5% to 10% market share in both is a -- it's a little bit of a complicated answer, but essentially, when you think about the EV charging market, for example, it's in a very dynamic period of growth with many roads to market. And so as I said before, you have different people playing in this space who are making decisions from solar companies to automotive OEMs, to our own channel, and so we've been very targeted around, say, we think we can get a 6% to 10% share as opposed to 30% share we have in North America. And it's similar on the Microgrid sky side. When you think about that $40 billion market, that's the total market available. And when you break that market down, we say we're going to go up to $8 billion of that market. We aren't going to be the complete turnkey provider for every Microgrid -- all the Microgrid projects. We may be for a portion of it, but we'll be a partner to someone else who is providing the capital and the investment and our content of that $40 billion target is around the 20% level, and we're going to get 10% of that share, if that makes sense. So we're being very thoughtful, I think, around where we focus, where we target, where we think we can add value, both in EV charging and in the whole Microgrid space.

And John, the only thing I would add to what Uday said in terms of the margins is that growth profile on those margins are built into our corporate assumptions for margin expansion as well as the assumptions for the electrical sector. So Electrical Products getting to 22% factors in the margin assumption on those businesses.

Yes. No, that makes sense. Maybe just as a follow-up here, the software target of the $500 million visualization, and I know you guys package other software. This may be a question for you, Craig, or it could be for Aravind. I mean what role do you see distribution playing? Because obviously, distribution doesn't really -- correct me if I'm wrong, but they don't really distribute some of the digital stuff through -- maybe it's not more of a direct sale. So how do you work with your formidable distribution partners, right? That's one of Eaton's key strength as end markets and revenue markets shift so that they don't basically become, I don't know, circumvented or whatever?

Aravind, do you want to take it?

Absolutely. Thanks for the question. So as far as the distribution channel goes, I think we have about like 60% of our revenue coming from our distribution channel. Here, I think it's multi-pronged in terms of our strategy here. We want to train our channel and have them be part of our digital strategy. There's a few things that we're doing here. Number one, in terms of the left into the buildings market, I think Uday articulated earlier that about 2/3 of our revenue comes in through buildings, and that's where our distributors play. So what is the reach to the market? What are the digital tools that we can actually provide them through as an example or Brightlayer marketplace as with eaton.com? Selling the core products to begin with that is and charging a base fee for it on a recurring basis. So that's how we want to have -- that's the first prong of our strategy. The second is digital solutions, I mean, if you take buildings as an example, these digital solutions that we want to lift into the market, we want distributors to be a part of that. It is not that we just give subscriptions on which we cut the distributors out. No, that is not our approach. There will be a part to play in terms of how do we have these distributors actually give us that customer feedback help us develop the new solutions and also play a part in our marketplace as we lifted solutions to market. Training and enablement of our distributors is a fundamental aspect of our digital strategy going forward so that they can lift their digital solutions into the market. So net-net, they are a part of our digital strategy. They are a part of our commercial approach to our end users.

Our next question is from the line of Scott Davis from Melius.

Thanks for the detail and such. Anyways, I wanted to back up a little bit. I don't think you guys mentioned the change in compensation plan, but I did see an 8-K come through. Is there -- perhaps, Craig, what was the catalyst to the change? Or maybe you can walk through the changes a bit?

Appreciate the question on that, Scott. It's being great to history that you're reading that stuff and you're down into the details. But the change that we made is fundamentally, in our short-term executive incentive compensation plan. We made a change in terms of -- earnings per share continues to account for 50% of the payout and then the goal for the corporation. But then we went to a relatively simple metric of operating cash flow. And it's -- once again, it's -- as we talked about over the years, we really want to ensure that the organization and all of our businesses are really focused on working capital improvement. And so we made that change to ensure that the organization is really focusing on this issue of cash. And we have opportunities, clearly, as I mentioned, in inventory we talked about. And so this is really about getting the whole organization aligned and focused on this core metric of cash and ensuring that we're taking the steps that we need to take to continue to improve into the future.

Okay. Makes sense. And then, Craig, while I have you on the line, I mean, the footprint rationalization that you've talked about in the past, I think you said something like 250 factories, if memory serves me right. But is there any update to that effort? Is there any tangible kind of square footage reduction that you can talk to?

Yes. Scott, I don't have any numbers at hand to share with you. But I mean, one of the things that you'll recall is that we did take a $280 million restructuring charge. Last year, we committed to $200 million of full year benefits, and embedded in those numbers is partly an ongoing process of continuing to optimize our footprint. We have actually, I guess, the number is more than 300 factories today. That number will go down naturally with the divestiture of Hydraulics. But no, I mean I think the broader message that I shared that's still true today is that we have just a plethora of opportunities to continue to deliver margin expansion, efficiency improvements by consolidating some of the excesses in our manufacturing footprint around the world. We will continue to be focused on manufacturing in zone of currency. So we're going to be local and regional, but we clearly have opportunities to continue to be more efficient in our manufacturing footprint, and that's one of the reasons why we undertook this restructuring program.

Our next question is from David Raso from Evercore.

Questions for Heath. On the $1 billion of acquired sales that you expect to execute on the next 5 years, where are those areas of focus? I know the prior slide highlighted the aerospace and eMobility. But can you just give us some broad terms sort of how you're thinking about the portfolio needs?

Sure. Good question, David. I think what we'd like to do is build on our portfolio strategy at this point. As Craig mentioned, in aerospace, it's a great business, core technology, mission-critical applications. And we're going to intend to continue to build scale in that business and then take advantage of the long-term trends as they come. And that's true of vehicle with our eMobility business as well. And so as we think about aerospace, in particular, the Cabu gives us a nice fuels -- additional fuels expertise, but it gives us oxygen expertise. It gives us thermal cooling expertise. And we can build on that scale going forward that with the sustainability efforts worldwide, the Paris Climate Accord there's clearly capital flowing, customers needing solutions where buyers that can provide expertise across a multi range of technologies from fuels to electrification is needed. And so we're going to continue to look for those bolt-on opportunities that deliver great returns and then fit that profile of a transition and then because of the way the portfolio works uniquely at Eaton, you buy a connector business like Souriau, that technology benefits eMobility and vehicle or it benefits Uday's electrical sector. Thermal cooling will benefit eMobility, aerospace and the electrical sector, contactor is the same. So have this great set of platform businesses now that we can really look at bolt-on acquisitions that kind of tie it all together.

Okay. And Uday, just to clarify, on your Slide 8 about the growth of the acquisitions of $3 billion. You didn't put Tripp Lite on the slide, but I assume Tripp Lite's already in the $3 billion? Or is...

Yes, yes, yes, absolutely. It's a small -- I think I said in the page, it's a small dent in the number.

Okay. I just wanted to clarify, sorry about that. And then lastly, Aravind, the 4 digital transformation goals, just -- if I could just push a little bit on -- of those 4, how would you rank the achievability to 4, 1 through 4, just so we can kind of level set and maybe I missed it, I'm curious the quantification, if you really could get 5% to 10% factor productivity. So what does that mean in dollar terms?

I think we started the baseline exercise last year, towards the end of last year. So my apologies, I don't have the numbers in terms of what it translate to dollars yet. But as we -- we are including measurability, in terms of the base metrics that we're attaching from each of these back to digitalization initiatives. We'll have those more in the upcoming months. But you asked a good question around what's the achievability of each of these things. I do think and believe that from a factory productivity and internal productivity, these are the low-hanging fruit that we can capitalize on right away, starting 2021. And I think we should be able to report out some initial estimates, if you will. And then the next is basically our e-commerce and digital customer experience. That's the other aspect of achievability in terms of rank. And last, probably, but the most important revenue generation, we've started on it with our software offerings and with our data oriented services. So that is the next grade in terms of achievability. So that's how I rank these initiatives.

Would you care to say of the $500 million target where are we roughly today for the sort of new business model?

From a revenue capture standpoint, I think the numbers are a bit blurry as of now. Overall, I think publicly, Eaton, we've kind of published a services number and it's softer number of $1 billion externally. I think we are on the lower end. To start with from a pure-play software offering standpoint, we are on the lower end.

But I think maybe are, maybe the right way to answer the question is that the $500 million is over the next 5 years. And so it's 0, right. In terms of what's built into that $500 million we're starting with '21, so it's $500 million between now and 2025.

It's on there. I wasn't sure if there was a...

It's on there. Yes.

[indiscernible] 2025, you're building on. It truly is, as we sit here today, 0.

I think I would just add on the margin expansion, the 400 to 500 basis points margin improvement that we've laid out over the next 5 years, those benefits that we're assuming are going to come from the digital initiatives are also built into that model.

The next question comes from the line of Julian Mitchell, from Barclays.

Maybe a question for Uday first. So on your Slide 10, kind of summarizing the organic growth outlook. You've got that kind of, I suppose, 6% CAGR with the 4% market growth and then 2% outgrowth. That's a high number, I suppose, when we look historically, I think the Eaton electrical sector grew closer to 2% in the 5 years pre-COVID. So maybe help us understand bridging from that sort of 2 to the 6, how much is a different view of Eaton's market outgrowth? And how much is a different view of the market growth rate itself?

Yes. Good question, Julian. So let me kind of give you a little bit of perspective around -- answer in two ways. First of all, in terms of the underlying market growth, given the 2020 base, we think the underlying market grows at a much faster rate than it has historically. That's the first kind of baseline answer. The second piece is, yes, if you look at the numbers overall, it represents a 50% outgrowth. And here's why we have good confidence around the approach and how aggressive we're going to be. First of all, if you look at the track record, and you pick it in pieces, if you just look at the North American market, for example, where we have a very strong presence. I think for -- these are always hard because if you look at publicly available data, you will see that we have grown our share significantly in the NEMA measured market. And that's the strong brand, the application we see that continuing. The second piece is that during this downturn, as has happened in '08, '09 and happened this time, this is a time where you get really close to customers. You get -- you work with them very closely when they're in challenging times and then you double down on conversion rates. And I would say that behind the scenes, many of our teams have been working across different segments to convert business and do that very effectively. So that's the core base business. And I can't obviously talk about which businesses and which segments, but our teams have done a nice job so when markets come back, we get our unfair share of that growth coming through the outgrowth. The second thing I'd say is that -- the final thing I'd say is that the outgrowth is very strongly linked with this move to energy transition and digital that Aravind outlined. We think that additional content, additional products and services that are now wrapped around. That didn't exist in the prior period. Plus, I'd say there's an absolute relenting focus internally around delivering this. We have regular monthly reviews on where we are against each of these growth, which as you would expect, there's an accountability aspect of performance here that's cascading throughout the electrical sector to deliver on these numbers. And yes, it's a stretch goal, but we are on it. We're investing as well to support that growth. Investing $100 million of a new factory in North America to support the upcoming growth in the residential, in the market. Look, hey, it's absolutely an aggressive growth. I think your question is spotter in terms of versus what we've done in the past. I think we're increasing our product vitality as well. Stepping up our NPI efforts. And I think we're going to be thoughtful around business that we win and looking at high-value wins. For example, the Lowe's business that we -- the $100 million win that we had is significant. It's a 5-year contract, the margins may have not been as high as our high end, but we were still going to help us with our growth. So that's the other areas that we need to trim on. We've done a great job of expanding margins, and we'll continue to do that. But just like Craig talked about, grow the head and fix the tail we're going to be looking at the growing the head side of it and looking at where there are opportunities, where we may take business at slightly lower margins.

And the only thing I would add to that, Julie, I mean, the team has built a very robust plan. It was built bottoms up. And as Uday said, it came from the organization. It wasn't a top-down number in any way, and it's what they're committed to deliver. We hedged getting that number back by a couple of basis points, if you think about on average, what Heath rolls up to and what eMobility rolls up to, we hedge those numbers back by a couple of points of growth a year. Still deliver 11% to 13% EPS growth over this period of time. And so we think we have an attractive base case and an upside if Heath and Uday are able to deliver what their teams are running after.

And maybe one quicker follow-up for Heath. You stuck with that sort of mid-teens margin aspiration for eMobility. This year, I think the guide is minus 4%. So maybe help us understand how fast do we see that swing on profitability in the next few years?

Sure. As you can imagine, Julian, it's going to be lumpy during this investment phase. As you win programs, you have to invest and execution of those programs and then invest and going to get more growth. And so that's why you're seeing the margins the way they are. And we're just projecting a scale-up to that 15%. So as you think about 2025, I think it's -- I think about high single digits to low in double digits in terms of profitability as we bring platforms, our bigger platforms start to come on. I think, as I mentioned during the presentation, late '23, '24 time frame. So now you're starting to get some scale that you need to drive that profitability. So it's not going to be a cliff event. It's going to be a gradual build with the caveat that maybe there's even more growth opportunities out there and more growth to go get. But that's how I would think about it, Julian.

And Julian, if you recall, when we launched eMobility as an initiative, we said it's $2 billion to $4 billion by 2030 and 15% by 2030. So we're very much on path and on target, but it was really a 2030 goal with respect to getting to 15% in eMobility, recognizing that we're going to be going through quite a number of years of heavy upfront investment. And once again, that's built into our model.

Our next question is from the line of Josh Pokrzywinski, Morgan Stanley.

So first question. Uday, you gave a lot of rich detail in your presentation about this kind of 2 way flow of electricity and data that's going to come upon us here in the next few years. How should we think about kind of the drivers of that tipping point? I guess the context of the question is utilities don't really seem like they do a very good job of anticipating need so much as thinking in terms of incrementality. So what causes them to change that mindset? Is it a certain level of EV's adoption or kind of fill in the blank there, if you wouldn't mind for the first question?

That's a really good question. We saw a tipping point, and we clearly have a point of view around tipping point on EV. EV cars and so on. I think this is -- it's a complex equation that everyone is trying to solve. And frankly, no one has the exact right answer on what's going to happen. There's so much this is contingent on regulation. If you think about the U.S., for example, half of the states have targets around decarbonization to varying degrees, the other half, not so. There is the need for investment and incentives to move in that direction. But I think that there's going to be a -- let me take a step back. And I think personally, this whole -- the grid environment that we face today should be treated as a sort of a national emergency and on a government, federal eye level and the state level to really drive change to achieve these targets that need to be put out there. So that's a macro answer. But I would say what's going to happen, and it's really hard to define the actual tipping point. But what's really happening in some of these states is you think California, parts of the Northeast, state governments, local authorities are on their own, making investments, putting in directives. And I think there's going to be a bottom-up sort of tsunami that's taking place, particularly with all these weather events. Particularly in California, we'll see what happens in Texas. We're starting to see this movement take place from the bottom up. That needs to be supported by legislation and regulatory moves to accelerate this. Look, if you -- everyone's assessments vary, but if you are going to move to a completely renewable grid air in the U.S. and what that takes culturally to do with the utilities, you're talking potentially anything else to $4 trillion of investment. Now a portion of that is potentially going to come through the President's plan if that gets enacted and some portion of that. But all of these different levers have to be pulled. And it's very hard to say this is exactly where the inflection point is going to be frank.

I'd say, maybe I could just add to it, I completely agree. I mean if you'd have to pick one, you probably would say it is the adoption of electric vehicles. And the example that I'd love to use with respect to what has to change. And we're sitting in our corporate office building here today, and we probably have infrastructure in place today to charge maybe 6 or 8 electric vehicles. And the electrical infrastructure is perfectly fine to support 6 to 8 electric vehicles. As soon as you go to 25 or 30 or 50, the electrical infrastructure supporting this building has to change. It's just no longer capable of dealing with a bunch of employees coming in at 8:00 in the morning and plugging in all at the same time. So that same thing will take place in communities where the transformers that support neighborhoods, will have to change. And all of these things will force the utilities to make changes to upgrade their infrastructure to support the change in the electrification of the economy and the tip of that spear will be light commercial vehicles.

No, I agree that. Great. That's great. Maybe the other one is how utilities are measured, right? And so their business models are changing as well. So as they set up independent arms, they also are looking at, to Craig's point, really charging and how to create new business models that are outside the regular sort of regulatory framework that they have to operate within a can be constraining for them. So there's so many dynamics here, I guess we can spend an hour discussing the subject because it's a fun one to try and figure out.

That's very helpful context. I think especially Craig your your answer on the -- kind of the local Eaton headquarters and what that means for the grid. I guess that actually is a good segue to the next one and that when they have to be more thoughtful about everyone's spiking the grid 6 A.M. when they get in or whatever that hour is that Brightlayer can play a nice role in that and helping maybe level out the loan. Who are the competitors there? Because I think everyone in the kind of cap goods space talks about some domain expertise enabled software solution where, hey, we have the hardware, we have the software. We're the right provider. Clearly, there's software pure plays that went in on this, too. But in electrical, I -- it seems like there's maybe some software folks and maybe some edge folks in addition to you guys. But how would you describe kind of the competitive landscape as it sits today? Obviously, still pretty nascent. So maybe things could change.

Yes. I can take the first part of that, and then I'll pull in my friend here, Aravind, who's a lot more depth. But look, what I would -- what our experience has been right now, as I shared with you, that whole sort of behind-the-meter space, if you think about it, where we describe everything as a grid, that is, right now, it's quite fragmented. Everyone's trying to get a piece of that pie in terms of optimization of electrical power, aggregators coming in to aggregate power, the virtual power plant players are obviously our core electrical capability in the place that we play. So a lot of difference types of players are coming in to try and take a piece of this market. And the question is who is ultimately going to be the winner here? And I would contend that companies like Eaton who have a strong tradition of being -- providing the primary switchgear or panels behind the meter, the front of the meter as well, but we work with utilities, are just well positioned because we actually have the control point for all of the electricity that's being generated, all the power and the signatures. So when you think about control, try to manage the control point, we are uniquely qualified. And so we think it will all play out. There will be consolidation. And we want to put ourselves in a position, obviously, to be one of the prime recipients of long-term growth here. And -- but they're right, it's fragmented. I'll -- I know you want to add a little bit around the competitive space.

Absolutely. Thanks, Uday. I think it's a brilliant question, though. So from a competitive standpoint, address that question, who are our competitors in that space. The normal industrial players who play in utilities data center, it depends by industry. If you take utilities, as an example, the electrical players out there, the traditional industrial players who have electrical care and software. I think they are our primary competitor. That is our area of expertise. And as we scale up with some nascent examples that I provided in my presentation, we are beginning to find opportunities with those specific data signatures and build the value up the chain. And that is where I think we can take our competitors head on because we've already built that expertise. We already built that installed base. We've built that credibility with our customers is our domain expertise. Yes, there are players out there who play in domain expertise, but not in a way that we are building up our value through data, through insights, through software. So I think with utilities, the other point is we also have a point of contention with the IT departments and OT departments and utilities. When I say point of contention, I think it's healthy. In terms of how can we complement value, how can we add additional value to them instead of them developing their own data plants or their own software offerings. That's where having Eaton comes into picture and complements their work.

I'll just add one example that might help as well in terms of domain expertise without talking about the different players involved. But one of the pieces of business that we won in the in the EV charging space, right, is when you put in EV charging and storage and the gear, you may have a storage solution, but how do you integrate that with the grid, do you have the right code, do you have the right understanding of how to work and get permits, how is that integrated? All of that expertise is with a few players and that's where -- what we're finding is we're actually coming in later into these projects and winning business because those players that don't have the domain expertise are struggling with that integration. And so we think there's it's right for us to win and then move further up the value chain as well.

Aravind, Uday and Craig, thanks for all the great color on that. And Rick, best of luck in retirement, all the best.

Our next question is from the line of John Walsh from Crédit Suisse.

Wanted to actually continue that conversation. And one of the things we're trying to get a bigger picture of is the degree of difficulty to really enable some of this building electrification. I mean, in your answers, it was from anything needing codes to transformers on the front end of the meter. But if you think about a corporate park that wants to expand now for EV charging, to use your example, Craig, are you -- are your customers going to have to go into their existing infrastructure and find space and rip and replace equipment? Or are they going to be building almost new electrical capacity adjacent to where the building might be. And I would suspect that, that's very different in urban versus suburban area, but would just love to get any context around that?

And maybe I'll go first and then you guys can. When I say it will depend. Like the answer for all of these things are really, it really depends upon what the demand is going to be. If you -- going back to the example of an Eaton center, how many electric vehicles are you trying to support coming in and you get back to what the penetration of electric vehicles in society, you're going to come in in the morning, many of them are going to want to plug in. And so it really becomes a function of what's the demand pattern look like for electricity. And I'd say that you could have solutions that would be -- I can solve it at the level of the building in every case, changes will be required. You'll have to put in charging stations, you'll have to go into the electrical infrastructure, the core electrical switch gear in the building will have to be upgraded. So in every case, there'll need to be changes, whether or not you'll have to go beyond the building to the transformer. Once again, it depends upon how much additional power is required. But in every case, there will be significant opportunity for additional content for Eaton. Uday, do you want to add anything?

So I think you got it perfectly. I would just add. What I would add to that as well is that, obviously, we gave you some average numbers around relative content for EV charging, with the charges, the storage PD and then software and services, clearly, to Craig's point, as you put in more charges, the storage requirements, the power distribution requirements and then the services and software components start to increase. And so it's really -- as power increases, there'll be more disproportionate content to pull-through.

Great. And then just one here on Tripp Lite. You touched on it in your prepared remarks, but I think part of the reason for their kind of attractive margin profiles, this reseller network and IT distribution channel versus maybe electrical one, I don't know if that's -- if I'm correct on that. And then two, is there more product that you guys can start really using this IT distributor channel to your advantage?

Yes. So let me answer the 3 parts to the answer here. One is absolutely, they have a very strong channel and a presence. And you go -- you take a step back and think about an IT reseller and what they're doing. They're pulling together PC and server, a whole bunch of different equipment and the UPS and the connectivity product, the Tripp Lite we're in are part of that. And so the margin profile is very high as part of the overall package, right? The second piece is the business model they have is not just the channel but also the light asset intensity of the model and the supply chain that they have is extremely attractive and something that we're going to leverage. And then the third piece was -- on what was the third part of the question? For the third piece -- the other piece of your question.

Just if you can bring more of your existing products through that.

Sure. Yes, yes, sorry, yes. Sorry, I kind of little zombied out with all the questions here. But yes, absolutely. The -- if you think about Tripp Lite, they provide essentially 2 high level products. There's the single phase UPS that we also provide. So they bring a bunch of connectivity products that are very high-margin and very complementary to the overall IT reseller package. We don't have that business today. It's about 60% of the business that will now be leveraged in our channel actually around the world, and that's one of our sort of sales synergies as well. So that would be the final piece of the answer.

And our final question for today's call is from Deane Dray from RBC Capital Markets.

First question for Aravind and more of a clarification on Brightlayer, and I might have missed this, but there's always this question about who owns the data. And so how do you explain being able to monetize the data if it's the customer's data. And I know at one point in your prepared remarks, you talked about internal systems. So maybe part of the explanation is there. But can we just start? And if the customer owns the data, how are you able to monetize that?

Yes. Great question, and I appreciate the question here. So I think we start with the premise that the customer always owns the data. I think they have the first ride of ownership of the data because they're buying the equipment, they're actually manipulating the data there. We serve as stewards when it comes to services around the data. In one of my business models, I talked about data-oriented services. That is the lowest hanging fruit in terms of how we can monetize the data, or monetize the services around the data. Examples could be in electrical building. I mean there is, obviously, integration of HVAC data, integration of electrical gale data that -- we can partake in. Second is merging, cleansing archiving of data. Or homogenizing data sets that actually coming from multiple other sources. I mean, they could be ERP data, CRM data that comes in, in conjunction with the care data as well data. So these data oriented services are where I think we can add value. We can add it at -- we can be the stewards of that particular data. And then as we develop these repeated offerings, if you will, or repeated customizations over time, I think we'll bring that back into the product, and we'll scale the business. So that's the approach we're taking.

That's helpful. I appreciate the clarification. And then for Uday, since Texas was such an event, I know we touched on it earlier in Q&A. Can you size for us what the opportunity is on 2 levels. One, just the immediate storm damage and maybe Craig is going to step in here because it does reflect on the quarter, but just fixing the damage. And then secondly, the whole upgrade of the Texas grid, both winter rising, hardening it. That's another opportunity. So could you size for us both and maybe the time frame?

Sure. So first of all, in terms of the short-term 2 issues really. I mean, the last time I checked with Brian, who runs the Americas business, we had a couple of million dollars of orders really directly to this situation with our gear being locally being leveraged. And we have a whole disaster response team that's been on the ground, working with local authorities and utilities. So that's very minor. I would say there has been disruption in general, we should still be more than fine for the quarter, but certainly, we saw a challenge last month with supply. But overall, we should be fine. And then the overall sort of winter rising of the grid in Texas, the harding to the grid more broadly. All of that, I think, we're somewhat dependent on state and local government coming up with decisions. But what I would say is this is that there's definitely a bottom-up desire to create more micro grids, whether it's solar or it's the diesel generators, that whole piece of people taking control of their own communities, we're starting to see a lot of inquiries in that regard as well.

Great. Thanks, guys, for all the wonderful questions. I think, as always, Chip and I will be available for any follow-up questions. Thanks for joining us today, and have a great day. Thanks, guys.

Thank you, and that does conclude our conference for today. Thank you for your participation and for using AT&T event conferencing. You may now disconnect.