TE Connectivity plc (TEL) Earnings Call Transcript & Summary

Ladies and gentleman, TE Connectivity Vice President of Investor Relations, Sujal Shah.

Good morning. On behalf of the leadership team of TE, I'm happy to welcome you to our 2025 Investor Day. We're excited to have you here in Philadelphia, whether you arrived early and got to enjoy the product showcase or whether you came in this morning, we're pleased to have you with us. I also want to welcome all of those joining via our live webcast. So we're glad you're tuning in, and we hope you find today's presentation to be insightful. You see the agenda up on the screen. And what we're going to have is about 2 hours of prepared remarks, so you'll hear from our CEO, our segment presidents and our CFO, we'll take a short break, and then we're going to do Q&A. And we just ask that you hold your questions off until the formal Q&A session at the end. We're also going to have the product showcase that you enjoyed yesterday evening. We're going to run it again after the event. So that you have a chance to talk to our subject-matter experts and enjoy some of the products and technologies that are really going to be the basis of what you're going to hear today. And finally, I want to mention that we're going to be providing certain forward-looking information and using certain non-GAAP measures in our discussion today. We ask you to review the sections of our slide presentation on our website, that address the use of these items. Also, as a reminder, beginning this fiscal year, we're excluding amortization expense on intangible assets from certain of our non-GAAP financial measures. And this change is reflected in the slides that you see today. Thank you again for being here. We're proud of what we've built. We're excited about where we're headed and grateful to have you with us today. So let's get started with a short video. [Presentation]

And now TE Connectivity, Chief Executive Officer, Terrence Curtin.

Good morning, everybody, and we truly appreciate you coming into Pennsylvania. And for those that are here in the room, I really hope you liked the product showcase last night. It's going to bring out the innovation that we talk about in some of our bigger drivers. And certainly, I think you got a front-edge view with our general managers and our technical leaders around some of them of where you see where we take innovation and how we're going to benefit from it. I also want to welcome all of you online again. So thank you for joining us and making the commitment here to learn more about TE and where we're taking TE in the future. So thank you as well for being with us. And then one last thing just before I get started, I do want to make sure you all -- and highlight that we have 5 of our Board members here, including our Chairman, which I think also just shows the support our Board has and also to give you access to the Board for questions that you've had. And I know some of you talked to them this morning. So please take advantage of our Board members that are over here to the right. Now in getting started, I just want to start with, you all know we don't do Investor Days every day. We've always had a view at TE. We do Investor Days when there's a change or an inflection point. And honestly, what we're going to convey to you today is we do believe that there's a change in an inflection point. Inflection point about -- you all know over the past 5 years, it's not been a straight-line world, but we've accomplished a lot, and we've accomplished what we told you we were going to do. On top of that, we've invested in TE to build on the foundation that you saw -- for those of you here that saw the product showcase. And I'm going to talk about in the front where we've invested and why we feel the foundation around both what we do technically and operations is ready for this next stage of growth. And certainly, it doesn't go back to our customers where we have to create value for them every day. But guess what, when we get it right with them, we also get it right for you. And that's what we're going to talk about today when we think about this next chapter of value creation at TE that we're excited about, but we're also very confident about. And they are the things we're going to build on as we go through our next couple of hours together. Now how will we shape the next 2 hours? Sujal told you how we were going to present. I'm going to start with really talking about our co-creation model. And when you sit there, it can't be underestimated how sticky this is and also how focused we've been about how we make sure where we play and the broadening of the bets we've made that give us the confidence that we can grow TE over the next 5 years, 6% to 8%. And that's a significant step-up from where we've been running, and I'll talk about that. Then you're going to hear from Shad, our Industrial Solutions President. Our Industrial Solutions is going to be the larger of our growth drivers, and that's a big change from when we talked in the past. And he's going to get into product examples, case studies, no different than Aaron will do in transportation, but really to say where do we continue to build on where we've placed our bets to where to be from foundation, but also capitalize on the trends, which are very broad and in many ways, only going up to the right. Aaron will come up after Shad and talk about our Transportation segment and what's going to continue to be a 4% to 6% content outperformance that we believe in, in what -- in our automotive business is an absolutely unmatched position we have globally. And we can't lose sight of that global position that we get to build on the trends that are happening in next-generation vehicles that Aaron is going to take us through. And we're going to reinforce the 4% to 6% that we've continued to talk to you about. And then Heath will get up at the end and bring it all together from a financial perspective. Where does the growth come? How do we think about margin from here? Also, how do we think about the strong cash generation and the capital deployment from here. And then we'll get into Q&A, as Sujal said. So this is what we're going to work through today, and I hope you get excited about it, no different than we're really excited about it. So I know the people in the room go to investor presentations all the time, and we all have to have our company on a page for you all. And this is it. And I'm going to go through the numbers quickly because I want to spend more time, not on the numbers, the things I really want you to keep in front of your mind as we go through today. So yes, last year, we had over $17 billion of revenue, 21% operating income that's 25% EBITDA, really good cash flow performance, well over 100%, and that's where we believe we can keep it well over 100%. And these hit a lot of records, and you know that from the earnings. But the thing that's more important that I want you to get out of this page is, and it goes across the bottom, we're very focused in what we do. We only do connectivity. We don't do anything else. And we're also very focused in the markets where we play in. And I'm going to talk about the trends that transcend all the markets a little bit later. But it's very important when you sit there, we continue to think there's a lot of opportunity in the markets that we're in today. The other thing is, this is still a big market where we play those -- that row at the bottom is about $130 billion market where we pick the play. It still has fragmentation in it. It's what creates the organic and the inorganic opportunities we get excited about. And the last thing I want you to remember when you look at this slide, many times we get questions from investors of why is an interconnect important? Why is connectivity important? And I know you're all in your room with your PCs plugged in, and that's the connector you think about. But as we go through today, the connector you can't see is typically the one we're working on. It's in an absolutely an environment that's critical. It could be the connector that connects your airbag system into your analog brake system. It could be something in an interventional device that actually has a camera that one of your family members is actually having a procedure to help them have a better quality of life. And certainly, I know there's lots of joy around AI, and you're going to give us a lot of questions. But every one of those signals needs to move and not one connection can be off or brings down things like large language models. So this is a very technical business. We pick very hard problems that we're only going to work on. And I want you to remember that because I'm going to spend time on building why we believe this business is very sticky, it's a great business to be in and certainly a business that some of you have invested in for a long time. Also, we hope more of you invest in it. So I want to talk about -- we call it our moat, and it's something we think about every day when we think about where we place bets, where we create value for our customers. And at the end of the day, when you think about what we do, it's what's on the top of this slide. That's what we talk about in TE all the time. We create a more safe, sustainable, productive and connected world. But the important word in that phrase is the first word. It's we create. We engineer close to our customers, and I'm going to come back to that. But you have to realize when we engineer close to our customers, we bring that innovation, our customers' architectures are very different because they're trying to win versus each other. And you saw that for those of you that were here, you got to see it when you saw the product showcase. While we showed you probably 1,000 to 1,500 parts last night, we make over 0.5 million that we sell. And guess what, what we design and engineer, we got to bring to life in the back end at the quality and the service levels that our customers expect that never bring their manufacturing or their architecture down. That's the stickiness that we get and it's where we pick to play and we get excited about. Now I want to talk about the top part here from an engineering, and then I'll get into the back-end operations side. First off is, I want to start with the middle box, which is co-creation. A lot of companies say this, but the element is in TE, this is not a business where you build it centrally and customers come to you. Our customers expect us next to them as they're working on their architecture. They've made a semiconductor choice, a power supply choice, something to get their architecture or application to life. And we're helping them get there and work with them to say, how do you bring all the architecture together with the connectivity we do. We've earned it. It's positioned where our customers expect us to be next to them generation after generation, continuing to solve as they evolve their architecture. And when you look at the upper left, TE today has 10,000. It's actually 10,700 engineers. We've increased that 2,000 over the past 5 years. So we've increased our engineering capabilities by about 25% from the front end where we touch the customer all the way back through the process engineers that actually have to make things launch. And they're focused on those areas and those markets that we showed you last night for those of you here, but also focused on the areas that we're going to talk about that drive the outsized growth. The other thing I want to bring to life is this is not one program or project, this business. Those 10,000 engineers today are working on 5,000 projects around the architectures of our customers. We'll probably launch a 1,000 of them this year. That shows you the stickiness, the scaling as well as how deep we have to be in to solve the problems that our customers expect us to show up and help them with. And not to be lost, which is the far right-hand side of this slide, please realize all our systems -- our customer systems' architecture are getting more complex. And guess what, they're all designing them at a faster rate. So like our hyperscaled customers always tell us, we need you to continue to shift left in the design process. It needs to be shorter. And every one of our customers' markets that we're in continue to get shorter. And we need to arm our engineers with state-of-the-art simulation tools, things that allow AI to help them pick up as they're planning to really make sure we show up at the pace our customers expect, and that creates further stickiness in how we compete. Now I do want to jump to the bottom of the slide. Bottom of the slide is, it's great to say you can design a product and get it, but now you have to launch it at scale. And you've seen just this past year how some of our units have really ramped at scale at paces that other industries can't ramp at right now. And it does start with the investments we've made around where we've deployed our footprint. In this world, you need to be global. Our customers still expect us to be global. Not every customer we have is in the United States. But they also want local options in region so that they see the flexibility of their supply base. And we've invested in this. I know we've talked to this audience a lot about the footprint investment we need to do to take things offline and get into the right parts of the world. I'm happy to report we're 76% localized in region. But just as important, we're 90% with our supply chain in region. So where we get materials from is 90% in region. The other thing from an investment that we've done over the past 5 years, we have 20 more factories that we've added over the past 5 years, mainly organically. We've had some that come in with like the energy acquisitions we've done this year, but they really have flown into 3 buckets. One, places like the United States, where in aerospace and energy, there is an absolute buy American. We strengthened that here. In places where our customers want China plus one, which could be along Mexico, Southeast Asia, we've added a lot there. And certainly, our DDM business benefits from it. And then there's other markets where we've also added, where we said it is very important. We are local to win in the market directly with our customers. And that's places like Aaron is going to talk to you about in automotive in China as well as what we've done in India to expand our manufacturing footprint in that exciting market. So while we've made a lot of progress on where our footprint should be, I also want to make sure you're aware, both on the engineering and the footprint, we've also added capacity to really take advantage of the growth. And what's impressive is we've done it while we've improved margin over this time. So not only the financial foundation, but also the operation and innovation foundation that we're going to talk to you about today and bring to life, both are a lot stronger. Now the last thing I want to talk about here when I deal with operations is just talking about factories, they're buildings, but what happens in the buildings to get to the scale that you saw outside. We embrace customization because our customers need it in their architecture. TE has over 3,000 molding presses, over 1,200 stamping presses and 60,000 assembly cells. Let's be honest. We have a scale advantage, not just because of machines, but the process excellence we drive through our TEOA program. That is really a continuous improvement program that we measure every plan on, but also our COEs to really make sure we're coming out with the best practices that we can really deploy throughout our network, knowing we accept this customization. And you've seen the benefit of that. And like anybody who manufactures, there's always more opportunity to really continue to drive further improvement from here, and we're completely signed up for it and embraced in it. The last thing when you think about operations, not only from the innovation side, are you delivering at the quality and the service levels your customers expect? We do make 500,000 different salable parts. That's a lot. But when we do customer surveys, we are viewed as a quality leader in the world. We've improved quality 50% over the last 5 years. We're going to improve it again 50% over the next 5 years. And guess what, customers want it to be 0. So we're not done yet, but we have a great advantage here that really helps make sure our customers never worry about that. And on the service side, at TE, whether you want to say ship to request or ship to schedule, we're 90% plus on both metrics when we accept this complexity. And it's a real advantage to create stickiness as we win with our customers and continue to work on their projects over and over again, which creates the growth that we're going to talk to you about throughout today. So we are excited about the foundation we have. I do want to go back to the financial foundation, though. And let's face it, we have to win at the customer with the innovation and the operations. And I know many of you in this room are clearly aware of the slide, but we're going to talk a lot today about going back to 2019. And 2019, we believe, is the right way you should measure us through cycle because we think about the business through cycle. And we can also be very honest, there are some of our businesses are still -- production levels are below 2019 due to what we've all been through together. The key is if you look at the left, our sales growth was 4% over this period. It was all organic. And really, that's against a GDP backdrop of 2.5% is what really what GDP did even though it was up and down. We expect GDP as we talk today, to be sort of in that rate going forward. So we don't expect some economic pickup. We sort of expect it's going to stay the way it is. But we're taking our growth rate up to that 6% to 8%. That really is a different inflection point due to the broadening of the growth drivers and where we position TE, and that is a big change. In the middle, you see the margin. It's gone up 250 basis points. It's happened at the gross margin line, and it's been done with all these investments I've talked to you about. We've absorbed them. And it's really something we feel good about the foundation. And while we talked to you many times about 20% for a long time, we never view 20% to be a destination. With what we've done with operations, we sort of view that can continue to build from here, and Heath will talk about that. And then on the right, you see free cash flow. Being a former finance people, this is the one I always think should be first. But the thing that shows the quality of the earnings we've delivered for you is we doubled our free cash flow. And that shows the operational improvement we've had in TE that went from $1.6 billion to $3.2 billion, and it gives a lot of options. And certainly, we've done that with all of you as we've returned the bulk of it back to you over the past 5 years, and we'll talk about how we think about that going forward in a little bit. Now I've talked about the financial foundation. I've talked about what we've done around where we create value with the customers. This is a slide where I have an asset what we hope we get out of today. So being a transparent person, I also laid down how I think you thought about TE historically. But we're going to talk more about the right. And it's not lost on me when we talked about TE in the past, I'll acknowledge some of those things are the ways we ask you to think about us. But we're asking you to think about us more on how we think about the right as we go through today and we leave today. First thing comes into, I want you to be absolutely convinced that how important our products are and the innovation we bring to our customers. The moat, and I wish you all could be here for the product showcase, and I know that Shad and Aaron will bring it more to life in some of their case studies. But when you see the value we have to create and what gets relied on our products, this is a super sticky business that is engineering intense and is absolutely critical to our customers to bring their innovations to life. The growth has broadened. This is just not about where does electric vehicles go and what's the content growth there. You're going to see examples around where data speeds increase, where power is needed that have driven the growth rate up that we're talking to you about today. And also in transportation, it's not just about electrified powertrains. It's what's happening in data in the car. It's what happened to all the other features in the car that Aaron are going to talk about. Clearly, we expect to have fall-through in the volume from here, 30-plus percent based upon what we've done, and we're going to continue to drive a strong free cash flow engine, one that's going to be over 100% cash flow conversion. And then from a capital deployment, I want to make sure things are clear. Two things that will not change, and our Board is here, so you can ask some questions as well. First off being our absolute commitment to increase the dividend as we grow free cash flow. We've always done that. We're going to continue to do that, and that will be approximately 1/3 and absolutely committed to remain focused on ROIC. We do have an ROIC mindset in TE when we think about deployment of capital, whether it's organic, inorganic, we'll return to you. And that's going to continue. But there is an element with where we are. We do think it needs to be, hey, excess capital after the dividend after our organic investment, we're looking for the best use of cash. And while we've always done that, we probably haven't always articulated that to you. And clearly, we want to articulate that to you today. So I've talked to you about how I ask you to think about us. I also want to spend a little bit of time on why we have such conviction of taking our growth rate up. And one of the things I don't want to be lost as part of this conversation, yes, we're going to talk about AI today. We're going to talk about energy today. We're going to talk about next-generation vehicles today. But we have other areas where these trends that what we do in connectivity continue to proliferate through. And we really just don't have the time to talk about every market today. We're going to talk about the bigger growth opportunities. But I want us all from what you saw last night, there were some common themes that happened when you think about connectivity that we all have to realize are foundational when you think about our business. When you think about connectivity, you're typically thinking about connecting 3 things: trying to get data to move from point A to point B, trying to get power to move from point A to point B or a simple signal. That could just be a simple signal if something is on or off. But when you look at that, you have a compute some place that you're trying to move things through. And really, when you think about connectivity, the 3 blood lines of what you're thinking about really are data, power and signal. This is what we benefit from the natural trends. And it's not only the examples we have today, it's also our other units that we won't be diving deep in today. But this creates the stickiness. And I want to just dive into data and power a little bit because how it continues to proliferate, there will always be more applications coming that we're going to benefit from, not just the ones we talk about today. So let's talk about data for a little bit. A lot of people have a number of backgrounds in the room. So will share a quick fact with you. Every day, 3.5 quintillion bytes of data is created, not used, created. And I know people got excited with the AI rack that's outside, but let's face it. That technology that the silicon providers and the hyperscalers are driving is creating that trend. That guess what, it needs to move. It needs to move away from the GPU. It needs to go through a switch. It needs to get over to storage with no latency. And then are the things that our teams work on. And if you look here, and I'm not going to go through everything on the slide, we're at 224 gig today. We're working on 440 gig, and it's just going to keep on going and kind of drive that growth trend through a cycle. I also want to be honest, that drives things that happen out on the edge. So I know we've had lots of discussions around automotive and electrified powertrain. Think about what happens in the car when you get into zonal architecture, software-defined vehicles, autonomy, where all these cameras and that integration comes together. You need data and you need Ethernet in the car. And for when I was young, and I'm a lot older than most people in this room, we didn't have that, but these are trends that benefit growth that we're going to talk about today, and you're going from 10 meg to 20 meg, it's going to keep moving. And you're also in a different environment. You're not in an air conditioned environment like you have in a data center. You're in an environment that some of this has to be vibration, salt, other tests that really make what we do special and our customers rely on it. And other areas like you saw last night was factory automation, that goes out to the edge. So whether that's an AGV, a robot, anything that else happens on the factory floor, you need that data to come in to be more predictive, better quality, and that creates more need for what we do. So data is not going to end and -- just say, well, data plateaus and we don't need any more data. We're going to benefit for it. It's going to be up to the right over and over again. And what's really nice, we're right in the middle of it across the applications we play in. Let's talk power a little bit. I know some of you got to see some of our DDN team last night. I know there's this big recollection recently about, hey, data needs power. We've always known that. But where the power -- the data is accelerating to is creating power needs that we all know every day, and we're going to benefit from it. You saw that example on the sidecar power rack. That's going from 132 kilowatts today in Iraq going to be up to 1 meg in the next 5 years. It's an increase in power consumption in Iraq that we're going to be dealing with to really keep up with the data here. We're going to benefit from that. And as that data goes out to the edge, you're going to have other power needs. E-mobility, you saw examples where we have to get up to 1,000 volts to get to the range, to get to the fast charging to really make sure electric vehicles continue to increase. And we believe they're going to be up to about 50 million units at the end of year 5 coming out. It's going to be driven by Asia. We have a great position there, but it's not going to stop. And let's face it, power needs to come from some place. It's why we made our bets where we benefit from what we do in our energy business around where it comes from the generation into the transmission, into the distribution. And that's another area where the trends only go up from the CapEx that's going to be there that supports all the applications that we focus ourselves around. And I don't want to stop just there because when you think about aerospace, same trends in defense, aerospace, eVTOL, space applications, clearly, what happens in the interventional devices as they get more powered and more intelligence in them and certainly in next-gen heavy truck vehicles. When you have agriculture that actually has cameras out on the beam that's actually doing predictive software and bringing it back to a compute to say, how much should I apply into this field in an agricultural application. We benefit from all of that, and it's all due to data and power and where we put ourselves. So I wanted to make sure we were completely aligned around the trends that are important to us as we're going to drive and take our growth rate up to the 6% to 8% that we talked about. Now I also want to share where they provided benefits already. So if you look, you can see in certain of the categories we're going to talk today where our revenue was from a product and an application perspective back in 2019 and content has driven about $2.8 billion of our $4 billion of growth over the past 5 years. It's going to be well above that to get to our 6% to 8%, well above the $4 billion. And it's going to be in these categories as well as what we have in our other units that really drive it on the backbone of that data and power element. And these are the things that it isn't like we need to start getting traction today on these things. We have traction already. And these are just going to accelerate. And it's why Aaron and Shad, as I talk to you today, are going to click down on use case examples on these to really bring them to life to hope you get the same confidence as we think about looking forward. The other thing I would just really highlight here for you, this gives us the confidence that we will continue to scale and build upon the foundational investments we made in engineering and operations. And not all of this growth is driven in an up cycle. Automotive has not been in a production up cycle. Factory automation has not been in a production up cycle, and we'll get cycle benefits, but we think through our 6A through cycle. So let's take this a step further on how we think about growth. And when you look up on this chart and you look at the left-hand side, yes, that's for the analysts in the room, every one of you have this in your reports. every one of you. So if you want to yell at me that I stole it from you, you can yell at me, I stole it from you. But this is really our industry breakout today. But when we think there and we think about the discussion and the broadening of growth, where our growth drivers are going to come from over the next 5 years are on the right. Over 60% of our growth over the next 5 years will come out of our Industrial segment. That's going to be the bigger driver because of the broadening we've had and the trends that we've seen and the bets we've made. And so that we click it down to you, so as you work your models and think about it, we've laid out in the bottom how we think about growth through the different businesses. Now I want to make sure we're clear on how we've laid this out. This is really market growth and content. We're not trying to get into cycles here. We view -- we deliver through cycle. But clearly, in DDN and energy, we're going to see outsized growth. And you're going to hear that from Shad. He's going to talk about it. We continue to see outsized growth in aerospace, defense and what we do in space, but that also benefits from what's happening in data needed in these applications as well as high power needed in these applications. So it's another area you're going to continue to see outside growth. In automotive and commercial transportation, it's all about content. Aaron will talk about the markets there, but it's going to be about the content position, it is really going to drive the growth. In ACL, while we benefit from really good growth in automation, there are some other markets there that are general industrial that grows below GDP. And then as you know, we have 2 units, Medical and Sensors that we've been doing some self-help work on, they're going to return to growth. And we really -- when we think about our 6% to 8% that's how we think about how they fit in and how we invest. But all of them will grow, all of them will be contributors to TE, and it's why we feel so confident, and we hope you're as excited as we are about where we're going in this next phase of TE. So that I don't take up too much more time. I do want to get over to Shad and Aaron. This is going to be the slide Heath comes back in the end to talk about. We do believe this drives 6% to 8% growth. Double-digit EPS, good ROIC going to drive that cash model. But it's just as important of -- we're really excited about where we play. We're excited about what we accomplished, but we're more excited about the foundation we have and how we build from here. We've been investing in that front-end stickiness around that innovation we have to bring in our customer, also how the back end shows up to deliver what our front-end innovates. But also, you've seen increased accountability out of our teams as well, and we're also very confident in that as well. So what we want to do is to continue to click down on this. We're going to get into the segments, talk about the segments, but then we're also going to get into real use cases about problem solving of the bigger growth areas, and we're going to get started here with Shad from the Industrial Solutions segment. Come on up, Shad.

Thank you, Terrence. Good morning, everyone. Again, my name is Shad Kroeger. I'm President of Industrial Solutions. I've been with TE for 30 years. I started my career as an engineer. I've worked in most of our businesses. And for the last 5 years, I've been leading Industrial Solutions. Traditionally, as Terrence said, we positioned Industrial Solutions to grow at 4% to 6% in our portfolio. Last year, we grew the business $1 billion. 3 out of 5 of the businesses grew more than 10%. So I'm excited to be here with you today to explain how we're going to accelerate growth to 6% to 8%. The source of our growth and our momentum is really rooted in our customer relationships and our broad product portfolio with durable content drivers, where TE is uniquely positioned in markets with secular growth trends. It's the combination of those factors that gives me high confidence in our growth. Now I know in the product portfolio or the product showcases yesterday and today, you got to see a lot of the exciting work we're doing. I'm going to build on that today. So let me dive in to talk more about Industrial Solutions. I'll start with performance. As I said, we grew $1 billion. That was 24% growth to nearly $8 billion. We expanded margins 300 basis points last year to 21%. Our diverse portfolio of businesses has durable competitive advantage, and Terrence touched on those, but I want to go a little bit deeper. It really does start with customer intimacy. We create customer intimacy through engineer-to-engineer relationships at the architecture level with our customers. That allows us to leverage our deep technical expertise to co-create with our customers. And because we manufacture most everything that we build, as Terrence was talking about, that gives us the ability to simultaneously innovate our manufacturing processes while we're engineering the new designs with our customers. That gives us the capacity to build quality into our manufacturing process and our product, which is critical for our customers. And if you think about that value proposition, that's been our value proposition for years with our customers. It's earned us the strong reputation that Terrence talked about, a strong reputation for quality and innovation. Now if you look at the 5 businesses within IS, these are all important to our growth over the next 5 years. And each of these are uniquely positioned in the markets that they serve. We have been on a margin journey in IS over the last few years. And in that margin journey, we've addressed structural cost. We've addressed our product portfolio, and we've deployed a lean culture of continuous improvement across our organization. And while doing that, we have positioned our businesses in the highest growth parts of the markets that they serve. Again, this is a very broad portfolio. It's important that we focus on applications that have content growth opportunities where we will be differentiated with our customers. I want to dive into each of these businesses for you on this slide. I want to start with ACL, automation and connected living. This is a broad product portfolio, probably one of our broadest, certainly in my business. This business is focused on factory automation and building automation. Applications like robotics, you saw the robot arm in the showcase -- so certainly, robotics is important, but also things like machine connectivity, connecting machines together on the factory floor to move the data that Terrence talked about. It's also controlling those machines. They need high power, they need precise control and they have their own computing needs, and we're making the products that support that. And it's also about building control. So there's a wide range of applications here that offer opportunities for organic growth. But in this fragmented market, there's also opportunities for inorganic growth, like you saw us do adding ERNI and Schaffner into our portfolio to bolster our position with our customers and be more relevant and strategic for them. Next, I want to talk about Medical. Our Medical business is focused on minimally invasive procedures. We partner with the leading device makers to create and build for them complex steerable shafts that improve patient outcomes. These complex steerable shafts are focused on applications like structural heart and electrophysiology. Next, I want to talk about aerospace and defense. That business is almost split equally for us between defense and commercial air. We literally work on applications from the ocean floor to land, to air, to space. And the common thing about those applications, our customers need incredibly ruggedized solutions. They need us to move data flawlessly in those applications, and they need power to be uninterrupted. And they need to count on the signal when it's required at the right place for decades in some of these applications. That's how we differentiate with our customers in this market. And as Terrence said, it's an exciting market for us. So each of these 3 businesses is positioned to grow above the market through cycle because of the content opportunities that we have. The businesses on the right is where I'm going to spend my time talking to you today. These 2 businesses, Digital Data Networks and Energy are benefiting from massive CapEx spending. In addition to that, we have opportunities to drive content growth. And it's a combination of those factors that will drive outsized growth in these 2 businesses. And I will talk more about that as we go through my presentation. I want to start, though, with electronification of everything. It's a term you hear us talk about electronification. Here, everything, as Terrence said, is being electronified. And TE is uniquely positioned to really capitalize on this powerful trend. Just think about in Energy. But let me go back here a second. This whole -- I want to explain electronification maybe a bit more. We think about this as an always-on interconnected and intelligent systems. And that's something that's pervasive across most of our applications. And it's benefiting all of our businesses in different ways, but it is benefiting all of them. And they're at different stages of their cycles, as you see on the graph here at the bottom. But electronification is driving content. 2/3 of our growth will come from Energy and from Digital Data Networks from AI. In Energy, there is -- the demand today in energy is so different than where we've been, and it's being driven by some really unique factors. If you think about demand in Energy, it's coming from new sources. It's coming from sources like electric vehicles, from factory automation, from AI. Those things are straining our grid in ways like we've never seen before. And those innovations are outpacing our infrastructure. And we are at the cusp of decades-long of spending and capital in energy to keep up. And I'll come back to that later in my presentation. And AI is certainly unleashing a new era of computing, one that is fundamentally transforming our economy. And this is really a winner-take-all race with our customers. And they need to optimize compute power, and that's driving needs for data, speeds and for power, as Terrence said, and I'm going to explain that to you today. But I want to share this video with you to better illustrate what this looks like with our customers. [Presentation]

As you saw in that video, our customers are solving some incredibly hard problems. For them to win, -- they need to maximize the power, the compute power in the rack. The rack you see in that picture are the one that you saw in our product display. That's their mission, and that's the mission that we are on with them. In doing so, they need to increase the density of the compute, and that means they need to increase the speed of the data that's moving and increase the power to feed that and address complicated problems with thermal management. AI workloads require densely packed compute elements to get arranged in mesh-like configurations with ultra-low latency. Power and signal are now limiters. These are causing design trade-offs with our customers. Connectivity solutions like our connectors and cables are a forethought in this design cycle and are an integral part of the AI architecture. This architecture is becoming incredibly complicated, and it varies between our different customers. And because of that, they're coming to us early in this design cycle and we touch every part of the modern AI architecture. We are working with the hyperscalers and the silicon providers to address their issues with density, speed, heat and power. And our solutions touch every part of that architecture. That's what's driving content growth for us in this business. If you think about the need to win and what our customers are driving to win, they're spending a massive amount of CapEx to make that happen. This year, well over $400 billion will be invested in AI. That's a 3x increase from where we were 3 years ago. Over that period, we've seen an increase in the available connectivity per chip go up 5x. That's the content that has fueled our growth to $1.4 billion in AI and cloud. And it's the combination of the pace of CapEx spending with our unique ability to innovate and scale. With that, I'm confident we're going to more than double this business in the next 2 years. And I know you came to hear what were we going to say about AI and how are we going to grow? That's it. We will double this business, more than double this business in the next 2 years with the pace that we're on. And I'm going to tell you more how we're doing that with customers. Let me tell you what winning looks like for TE and AI. Our customers are transforming the way they build, design and operate. They need partners that can move with them. They need partners that can innovate and are agile at the pace that they are, and we are adjusting with them. We've evolved to anticipate their needs and move at their pace so we can help them win the AI race together. And I'm going to give you 3 examples of how we do that because these are the things that make us really stand out with our customer. The first vector is design complexity. Our customers are building AI clusters with unique architectures. These unique architectures have different GPU configured counts. They have different network configurations. They have specialized power needs. Their needs are driving different problems, and they need to partner with us early in the cycle to address those. Earlier, I said co-creation was a competitive advantage for TE. Here, it's next level. And I'll tell you why. Our customers don't come to us with the design spec because they don't have them. They only know how they need their system to operate. So they need a partner that can collaborate with them, and that's the adjustment that we've made. We collaborate with them. We offer design options. We offer them product options, and we help them architect their new solutions. And we work across their entire ecosystem to help them optimize their system performance. And we optimize that value chain in real time with them. The more uncertainty that they have about their architecture, the more we are iterating with them, and we're doing this faster than ever. And one really important part of what we do with our customers is that our partnership spans design, prototyping and manufacturing. This is a key differentiator for us in this market. Next, I want to talk about pace. Pace has shifted down, as Terrence said, to left by probably more than 50%. Things that used to be 3 years are now a year to 18 months in terms of these cycles with our customers. And the complexity has increased because of the need for higher speeds, faster compute. This means more connections, and this means more precision and tighter tolerances. And we have responded to that by doubling our engineering capacity in AI. That allows us to provide around-the-clock support to iterate with our customers. And we've also put tools in place to improve our efficiency and accelerate our responsiveness for our customers. The result of those investments that we've made is last year, we delivered 4x our product innovation velocity. Next, I want to talk about manufacturing. This is no longer an afterthought for our customers. They think about manufacturing at the beginning of their design cycle because their ramps are near vertical and their peaks are always changing. And they need partners that can move with them. To respond to their needs, we've doubled our manufacturing capacity. We placed it near where they need it to give them supply chain resiliency, whether that's in China, China Plus One in Southeast Asia or whether that's near where they need it in North America. We've deployed that scale and that capability. So we have proven this ability to simultaneously scale and adjust for our customers. And when you look at these 3 vectors, it's hard for a supplier to do any one of these, but we do all 3. And we are one of the very few in the entire world that's able to do all 3 of these in this market for these customers. And this is driving real impact for us. These aren't just words on Shad's slide. These have a financial impact. We delivered $900 million of growth from products that we didn't produce 2 years ago. That's the speed and pace that we ramp with our customers to support their needs. I want to wrap this up for you on AI by talking about a case study with a customer to bring this to life. We worked with the U.S. hyperscaler to redesign their rack to support an AI module. We won this program with them by working as an extension of their team. We helped them co-create this solution, and it was a connectorized solution for them. As they went down the road, they figured out that the solution wouldn't meet their compute performance needs that we're going to allow them to win. This meant they had to go -- they had to change their architecture and it reset the whole design process. Now in this market, customer-led iterations are quite common because I told you they don't really have specs. They know how they need their system to operate. So new architecture, completely changed the design, and that set off a cycle of 11 different customer iterations over 10 months. Just think about that, 11 iterations in 10 months of complete design changes that we're keeping up with this customer and working in partnership with them. And we were with them every step of the way through this process. And at the end, we helped them create a new unique cabled solution that allowed them to simultaneously connect and communicate between every one of their GPUs and TPUs in their system and gave them the performance that they needed. This system that we designed for them had a mesh network. The unique thing about that mesh network, it needs a high degree of precision. One single connection error in that mesh network can disrupt their model. And now I'm going to use a customer term that they use with us. They call that blast radius. This has a big blast radius if that doesn't work because it disrupts their model, it costs them weeks or months of compute time. So this precision is absolutely critical. And over the last 2 years, we have delivered over 60 million of those precise connections flawlessly for this customer. I think this example helps explain the kind of value that we bring to customers. It's delivered over $500 million in revenue for us, and it highlights our ability to co-architect with them, to be agile to adjust to their needs and then to scale when they're ready to go. So as I said, this race in AI is intense. And to win, customers can't win without suppliers that can do all 3 of those things. And that's why they're coming to TE for their solutions. So as you can tell, we are very excited about AI, and we're excited by the opportunities that AI presents for us, but there's more, okay? There's more. I want to talk about Energy. Just as we're in this new era of compute, we are fundamentally entering a new era for power. The first energy revolution was really probably kicked off more than 70 years ago with the invention of the transistor. Fast forward to where we are today, we're in the second energy revolution, and it's happening now. And it's happening because of electronification of everything that I talked about earlier and because of AI. In the next 3 decades, the world will need to replicate the energy capacity that we spent the last 70 years putting in place. And while doing so, we'll need to replace half of the aging energy assets. That is driving a multi-decade investment in energy capital. That's what's fueling the growth for grid hardening, the products that we support, the markets that we support. And in North America, energy CapEx is expected to grow more than 7% annually. And during that time, we expect our business will grow at double digits during that same period. Our innovative products improve grid reliability, they increase power generation efficiency and they simplify installation, reducing complexity for our technicians to install products, and these technicians are in short supply. And utility companies though don't just come to us for our innovative products. They come to us because of our -- the service we provide them and because of our partnership to work across their entire ecosystem of suppliers and their network. And we have bolstered this position with strategic acquisitions, like the Richards portfolio that provides -- that has a leading position in underground connectivity and network protection. These are allowing our customers to efficiently upgrade their networks. And then increase, we get smart grid monitoring capability that detects faults before they occur, allows our customers to pinpoint the exact location to reduce fault downtime. So as you can see, we have the solutions in energy, we have the scale, and we have the trust with our customers to lead in this energy transformation. And I'm going to close this out with another case study. I want to show you or tell you about an example here with Con Edison. Con Edison faced the challenge of needing to protect their grid against storms, against increases in power demand, and also just an aging infrastructure that they need to replace. And as they were doing that, what they found was they were having errors in those installations. They were taking a lot of time, and they were more complicated than they wanted. So we're looking at a way to simplify and improve this process. And they had worked with a competitive product that led to some high-profile outages. And after that, they came to us and asked us to help them engineer a different solution. We worked with them to engineer a new connectivity solution that's a cold shrink technology product that you saw in the product showcase if you were there last night or this morning. That product greatly increases their reliability. But most importantly, it reduces their installation time by 50%. And if you saw that connector, that's a big connector. This has to go underground in a cabinet, has to get connected with big cables together. This is not an easy installation. Reducing that by 50% is a game changer for our customers. And the result of that one product innovation has created a portfolio of products that are now the top choice at 8 out of 10 independent U.S. utilities. It's created $125 million of revenue for us. More importantly, it's unlocked a $1.5 billion market for us. So with our differentiated portfolio and innovations like this that deliver significant customer value, we're the trusted partner for our customers, enabling the second energy revolution. So as I wrap up, I want to reinforce a couple of points. Certainly, this is an exciting time for Industrial Solutions, and I want to remind you why. And if there's one thing that you take from today from what I told you, that one thing is that TE is uniquely positioned -- absolutely uniquely positioned to benefit from what's happening in AI and Energy. We are winning today, and we're going to continue to win because of our strong customer relationships. And across our portfolio, we have a broad portfolio across Industrial Solutions. In that portfolio, we have durable content drivers to drive growth above markets that we serve. So we are uniquely positioned across this portfolio. That gives me confidence in our ability to deliver mid- to high single-digit growth, drive the 30% fall-through margins that Terrence talked about, and we will bolster this position with strategic acquisitions. So I'm excited by what's to come. This isn't the end. This is the start for us. So stay tuned. This is really the start for growth for Industrial Solutions, and I'm really excited to be here with you today. So thank you. And with that, I want to introduce Aaron Stucki, President of Transportation Solutions.

Good morning. So as we heard from Terrence, we're talking about really this next chapter of value creation. And Transportation Solutions, we play an important part in that next chapter. When we think about this new phase of growth for transportation, we're talking about a solid foundation, managing market cycle resiliency that we've built across our business. We expect our segment to grow mid-single digits, and we expect our Automotive business to grow 4% to 6% faster than vehicle production, as Terrence highlighted. We're confident in this. We have key megatrends -- sorry, we have key megatrends that are positioned -- that we're very well positioned to take advantage of. And when we think about this outsized content opportunities, we're going to talk through some of those. We're advantaged in our markets with a broad differentiated set of solutions. And really, when we think about these customer relationships that we've created in all of our major markets, these are opportunities to capitalize on these key megatrends. So today, you're going to hear about our performance, and you're going to hear about what we're looking forward to over the next 5 years. Our segment delivered solid results, actually strong results in fiscal year '25, generating more than $9 billion of revenue and 21% operating margins. This combination of both revenue growth as well as a strong margin performance, this really shows just how resilient our portfolio has become. Now clearly, our automotive business is our largest business within the segment. But what stands out and what I want to highlight is the regional balance that we've created. So if you look, Asia Pacific now makes up more than 50% of our revenue. So 50% in Asia, the other half in the West. And this isn't by accident. Over the last decade, we've been very deliberate in where we invest and how we focused our growth efforts. Now what this means for us is that we are strong and a market leader in every major region around the world. And this is important. I'll give you an example. Take China. This is a fast-growing competitive market, but China sets the pace for global scale and global innovation. So being embedded deep with our Chinese customers actually gives us a front row seat to what's next in mobility. Now in all of our regions, there are 3 megatrends that are shaping the next phase of transportation's growth: data connectivity, electronification and e-mobility. All 3 of these megatrends are creating more content for us. We're seeing more content, more electronics, more sensors, more high-voltage content in every vehicle. Collectively, it's providing us $2 billion of new content growth over the next 5 years. Now we're going to spend the rest of this session walking through how each of these trends play out for TE and why we're confident about what's coming up. Now before we do that, let's step back. Over the past decade, we've outpaced the market. Since 2015, we've grown $3 billion, and this is on flat auto production. Now along the way, we've had to make some tough but smart decisions and smart choices as we've trimmed some of our lower-margin portfolio and reinvested in higher-growth platforms. And the reason we did this is to improve our margin profile, to get us healthier. And that's positioned us very well for today to be ready for this next phase of growth. Now as we look forward, we do expect mid-single-digit growth for this segment. We expect this 4% to 6% growth over market in our Automotive business. And this creates really for us a $25 increase in our content per vehicle in our Automotive business, and it creates a $75 content per vehicle increase in our Industrial and Commercial Transportation business. This performance gives us the confidence. It also gives us the resources and it sets us up nicely to keep investing where the industry is heading. Now let me take a moment to talk about how is this industry evolving. Technology is accelerating. This is driving vehicle evolution. What we're seeing is the vehicle is shifting to a software-defined set of platforms where software is both enabling and controlling almost every major function of the vehicle. We're -- really can think about this vehicle as more like a smartphone on wheels, except with apps that say, drive the car, adjust the AC or alert the owner that it's time for an oil change. This results in really a high velocity of features that are sent and introduced to the vehicle over the air through software updates and ultimately provide a technological shift in what we've seen previously. What we're also seeing is that the vehicle is becoming a connected node. It's connected and interacting with the cloud. It's interacting with infrastructure. It's interacting with other vehicles. And this is increasing the requirements for power delivery, for data throughput as well as for safety functionality. Now underlying all of these technological improvements are these 3 megatrends. These are very important to us as we think about content, data connectivity, electronification and e-mobility. Now I do think it's important that we take a little bit of time and maybe I share my definition of how we're thinking about these 3 megatrends. What do they mean and why are they important? And how do we capitalize on them for TE. First, data connectivity. Demand for infotainment and advanced driver assistance systems is increasing. It's driving an exponential increase in data volumes. And what this really does for us is that it's causing demand for this high-bandwidth connectivity within a vehicle and throughout the vehicle, where you need to transmit data from one controller to another, for example, from an ADAS control unit to a high-resolution camera or a LiDAR or a radar system. Even today, there are compelling content opportunities up to 20 gigabits per second as we think about this, 20,000x what we would traditionally see in a vehicle. Our high bandwidth, broad portfolio of data connectivity sets us up very nicely to capitalize on this. An example, when we think about -- and Terrence showed this, when we think about Level 2+ autonomy, we expect this to be deployed in about 70% of all vehicles by 2030. So that's pretty exciting for us. The second megatrend, electronification. Shad talked about this, Terrence talked about this, but I want to provide it in a little more of the context of what it means for Transportation because you're going to hear us talk about electrification and you're going to hear us talk about electronification. And I want to make sure we understand the difference. When we talk about electrification, we are talking about the electrified powertrain. This is e-mobility. Electronification refers to our low-voltage signal and power portfolio. It's powertrain agnostic. So if you have an ICE or an EV, what we're seeing is that electronics and software are becoming the muscles and the senses of the vehicle. This is replacing those traditional mechanical systems like braking and steering and some of the safety functions. So when we think what really comes next beyond that when we think of this electronification, there's a network of connections that happens and expands sort of like the nervous system of the vehicle. And this requires a central or zonal architecture with a central compute that manages the entire system like a brain. Our low-voltage power and signal portfolio connects these networks. They connect all these extra network points that need electrical power or signal control. Zonal architecture, we're going to continue to see that evolve. We expect 12 million -- or 15 million vehicles to be deployed with zonal architecture by 2030. And then finally, we have e-mobility. Here's the electrified powertrain. Following about 30% annual growth every year since 2019, xEV is anticipated to transition into a more steady expansion phase of about mid-single digit -- mid-teens rather. And this drives about a 60% adoption rate over the next 5 years. This is driven by policy support. It's driven by OEMs that provide improved model availability. It's driven by infrastructure improvements on charging stations, and it's driven by higher adoption in China. This means 4 million to 6 million additional electric vehicles every year will be on the streets, primarily driven by Asia and Europe. Now it won't be that evident if you're walking around the streets of Philadelphia. But if you're in Asia or certain parts of Europe, it's eye-opening to see how many of these electric vehicles are sort of silently creeping through those streets. So the high-voltage portfolio that TE has built over the last decade puts us in a very, very strong position to take advantage of this megatrend. So now I'd like to talk about how do each of these -- all 3 of these megatrends come together to really drive growth for TE and drive value creation. As we look ahead to 2030, we're excited about the balanced growth that we see. And not just balanced like I talked about relative to the regional balance, but also from a megatrend point of view. Each one of these megatrends is driving about 1/3 of our content growth over the next 5 years. Historically, we've talked primarily about e-mobility being that value driver. This is due to our strategic focus as we've invested in higher and accelerated growth areas such as data connectivity. We've also continued to invest in areas of traditional growth. This is our low-voltage portfolio. Together, we expect a 30% increase in content per vehicle in both Auto and ICT. For data connectivity and for e-mobility, in automotive, we expect 2x content growth. For our more mature low-voltage portfolio, we expect about 10% increase in content from electronification. We're fully harnessing these megatrends. When you add our innovation engine, our strong customer relationships, our global footprint, this is why we're confident about the growth that we've outlined. So let's take a deeper look in each of these megatrends and how does TE differentiate ourselves to create value? So the first megatrend we want to dive into is data connectivity. So we're hearing more and getting more requests for ADAS and infotainment solutions and data connectors that can reliably manage these data volumes. The examples of the applications that you see here, they're part of the broader infotainment and ADAS ecosystem. Each need data connectivity that meets leading-edge technology requirements where TE is the leader. The first of these requirements is ultrafast. Now historically, we would have said that 1 gigabit per second in a vehicle is fast. With the use of high-resolution cameras, with displays and sensors, this has increased to 10 to 20 gigabit per second. As autonomy becomes more deployed, 8K resolution cameras, in-vehicle computer networks, this shifts the speeds up to 50 gigabits per second. In addition to being fast, data connectors need to fit and fit physically into this vehicle where we're seeing increasingly more crowded content. So we're having to miniaturize. We're having to create solutions that can both be fast and fit. We've developed hybrid connectors that have both power and data in order to improve the form factor. Our holistic system expertise across all of our portfolio, along with our data performance in Asia, this gives us really the opportunity to tailor solutions for our customers to where we're meeting and even exceeding their expectations. To make this more real, let me show you an example of a recent program win that we had with BYD, one of the top OEMs in China. Before I talk about the value creation and the impact to TE, let's hear from the Chief Procurement Officer of BYD in this short video. [Presentation]

So as you heard from Mr. Wang, BYD's Chief Procurement Officer, the dedication of our China team and their close partnership with this customer really enabled us to reduce their sourcing complexity, but also solved their technical challenges. We were able to provide both a holistic solution, but also in just 4 months, ramp manufacturing, which when you think about China speeds, that's even impressive under their definition. The results are a tremendous CPV growth of 10x with BYD to $50 per vehicle. And not only did we demonstrate this capability and generate over almost $1 billion of revenue from this program, we've also created a stronger partnership. They trust us. They understand the capabilities of TE. And that sets us -- as Mr. Wang talked about, that positions us for the next phase of growth opportunities with BYD. Now let's talk about electronification. So this is which grows those intelligent -- number of intelligent electronic systems that need connectivity. OEMs are pushing for innovation in architecture in the electronification of systems because it enables a variety of updates or additions to features, functions or business models that circumvent the 6-plus year development cycle. This proliferates low-voltage signal and power contact points throughout the vehicle, makes them more complex. It requires innovations to -- for weight and size reductions for more functionality and even to improve how the automated assembly process is for our OEMs. TE has an industry-leading portfolio in this low-voltage space, and we've developed new products, 48-volt that improves energy efficiency, hybrid connectors that provide both low power and low-signal connectivity, again, to consolidate and be able to fit inside the vehicle. Signal and Power is our most mature business. This is where we do about 70% of our revenue. It's an established market where we lead share, but it's still growing. This is where we do expect about 10% increase in content per vehicle. Let me show you how we've materialized this or improved -- provided an opportunity to demonstrate a win with a key customer on their next-generation vehicle. So let's talk about zonal architecture in this context because this is where the win came from. The zonal architecture, the OEMs are using this because they're looking to fit more into a smaller space. These connections in these smaller spaces become more complex. Each connector needs to perform more activities. They need to have and meet higher requirements and they need to do it in a compact solution. Customers value suppliers that have the design expertise across the entire system. They have a comprehensive portfolio that can provide signal integrity throughout the vehicle, and they have a global footprint that can support regional demand. TE offers signal, power, hybrid and a press-fit pin portfolio as a single supplier. And this is unique. Not many other competitors have this opportunity and this breadth of this portfolio. In one specific instance, the comprehensive offering of our 48-volt connectors, our mixed and hybrid connectors as well as a high pin board connector allowed us to win an entire platform of connectivity that drove our bill of material on the connectivity platform from 40% to 90%. And working with this OEM that innovates, it's given us the opportunity to work with other OEMs and provide support to their architectural development. This is the real opportunity for us to proliferate our electronification of connections throughout these vehicles, leveraging our Power and Signal portfolio. Now the last trend I want to talk about is e-mobility, specifically EVs, plug-in hybrids, standard hybrids. These continue to be a real growth opportunity for us. Each of the applications in the vehicle from e-drive propulsion, the battery, the fast charging and the auxiliaries, they require high-voltage transfer of power protection and control. Our holistic solutions for our customers help them manage safely, reliably and efficiently this electronic path -- this electrical path through the powertrain. We will continue to retain our market leadership in e-mobility, leveraging a very strong and broad portfolio of high-voltage connectors. We expect to see robust content per vehicle growth here, 2x in our Automotive business and 7x for our ICT business. Let me give you an example of a European OEM where we were able to provide solutions for them to extract growth. So there's a major OEM that they were looking to upgrade their entire platform of vehicles. They needed high-voltage connectivity that supported the e-powertrain that supported every end-to-end high-voltage connectivity requirement. Our broad portfolio allowed us to participate across all of these, provide them that high-voltage solution that they needed and ultimately gain share on every high-voltage piece of their platform. And this was across their entire portfolio of electric vehicles. That allowed us to grow content with this customer by 3.5x. It's a significant program lifetime revenue. It's a significant opportunity to demonstrate the strength of our EV portfolio and the opportunities that we have in front of us. Now before wrapping up, I want to highlight some points that I talked about kind of throughout this. When we think about China, this is an extremely important market for us. This is the market that's been growing. As I talked about earlier, they set the pace for global innovation, and we're deeply embedded here. They do -- about 1/3 of our revenue comes out of China. Our CPV has grown from $50 in 2019 to $87 today. And we see further opportunities here. We are considered a local competitor in China. We have local manufacturing. We have local innovation. We have local sales office. We have our team embedded at the customer around the customer. And this allows us to not just be a supplier, but be the supplier of choice. And what excites us as we look forward beyond the continued growth that we see in China and the competitive position that we have there, these Chinese OEMs are starting to expand outside of China. And when you think of our unique position globally, we're able to take advantage of our global scale to support that growth. We expect outside China vehicles to be sold -- to grow from 3 million to 9 million vehicles. Outside China market share for the Chinese OEMs to grow from 3% to 13%. We have an absolutely unique opportunity to participate with that growth, even enable it. So China continues to be an exciting opportunity for us, and we expect to continue to be able to grow as we continue to strengthen our relationships with these customers. Now as I conclude, let me remind you of a few things. We are excited about what's next in our chapter of connectivity and of value creation. We have 3 key megatrends that are going to drive growth for us, 4% to 6% growth over market in our automotive business, mid-single digits for our segment, data connectivity, electronification and e-mobility. 3 vectors not just the one that we used to have with e-mobility. This is a big deal for us. It allows us to differentiate ourselves in our market and continue to deliver this growth that I've outlined. So thank you for listening to me today. And with that, I'm going to turn the time over to Chief Financial Officer, Heath Mitts.

First of all, thank you for allowing me to help wrap up this session today. I'm sure when you guys have got your books, when you hand them out, you guys all flip to the back to see how many slides I had, right? Well, the answer is 6 slides. So I'm not going to keep you waiting too long, and Terrence will come up and then we'll get into some Q&A. But there are a few things I do want to hit on, and I think it's important that as we thought about putting this day together, the last one we had was 8 years ago, 2017. I've been here for about a year, and we had a lot of interesting things to talk about. And as part of this process over the last several months, we actually pulled out that investor presentation from 2017, and Terrence even went further back into his desk and found some presentations from early days of the spin of TE out of Tyco back in 2007 and so forth. And my has our message changed as the world has changed, our customers have changed, the opportunity sets in front of us have changed. But there is a reason we don't do this every year and that we have had a journey that we've been on, and I'll show you some numbers here in a moment. You have them in front of you. But we have been on this journey. And this journey is around getting the portfolio where we wanted, getting certain financial metrics where we wanted, certain return horizons where we wanted and be able to talk confidently about the growth looking forward and how we're going to also use levers that we have available to us, inclusive of our cash flows. So as we sit here and think about it, we highlighted just a few of the exciting platforms today, but ones that we know are top of mind for people around AI, around the grid hardening with Energy, certainly what's going on in Aaron's business with the different mechanisms he has for growth within Automotive and its close cousin Commercial Transportation. And we thought it was a good idea to get into that today to be able to talk about kind of our pivot forward around growth and our ability to commit to a 6% to 8% growth rate moving forward, which is a tick up from where we historically have been. But we talk about this word, and Terrence used it earlier, through cycle. And I think that's important. We talk about things through cycle because we do have businesses that cycle at different times for different reasons. As we sit here today, there's a lot of things in the portfolio we didn't talk about. Our aerospace and defense business can ship everything it can get out the door, cycle good. Our industrial equipment business, [indiscernible] business that you met last night, he's still kind of waiting for that inflection point to come back up. That's an important around factory automation and some of those things. Same with heavy truck, still waiting for a little bit of inflection. And those are global cycles that change in different regions at different times. So we're always going to have things that cycle in different form and fashion. But we feel confident when you add all that up and you layer in where we have some of the super cycles, things around AI and all the great things we're seeing in Energy that we can commit to these types of numbers going forward and the levers we have to enhance it. So we're excited about this pivot more towards growth. We have done some things in the portfolio from a cost perspective. You've seen that and many of you have been along that journey with us for a long time around some of the things we've done to harmonize our footprint out there. A lot of that has been done to shift where our resources -- where we produce and where our resources are closer to our customers as they have shifted to lower-cost regions and so forth. We will continue that, but a lot of that heavy lifting, particularly in Western Europe, is behind us, and we've been able to hit certain margin targets for both segments, and we're confident to be able to talk about the incremental margins moving forward and very importantly, consistent double-digit earnings growth through cycle. We've shown that the last few years, but even through when we see some things coming the other direction with the -- cyclical wise, which we won't be immune to, we're confident to be able to put that forward in front of you today. The balance sheet gives us a lot of flexibility. Our cash flow, we've had 3 or 4 years in a row of record free cash flow for the corporation. I would expect that to continue. We've got a good handle on what we do with working capital. We invest in the business through CapEx. We know what our other levers are in terms of generation of cash flow. And that's an important lever that we have, not just to return capital back to this crew, the owners of the company who are sitting in front of us today or who are watching on video, but also to give us optionality around what we want to do to deploy it, and I'll talk a little bit about that. So let's do a little bit of rearview looking in the mirror, right? I joined in 2016, so right kind of between those left 2 bars. This was well underway when I started, Terrence, Tom and some of the others, Shad and Aaron were both there -- ahead of me working through this journey, okay? We've tripled what we've done -- a significant increase in margins. We've tripled our EPS over this time horizon, which is about 12 years. We've almost tripled our cash flow and certainly our dividends are returning capital back to our owners. So I think there's a lot there, but I know that's not why you guys all showed up today because you already had that baked into your models. Let's look forward. Looking forward, we are investing for growth. So while we talk about 30% plus, and that plus is important on incremental margins, we are investing for growth. It's not lost on us that some of the things that our customers are asking us to do, whether it's everything that Shad and Aaron just talked about or some of their other businesses, there are investments that we need to make or trade-offs is probably a better term. And we do make those active trade-offs. We do that on a very regular basis in the businesses that we don't see as much growth potential in aren't getting fed quite as much, whereas the ones that are growing much higher are getting fed a lot higher. So I would say those trade-offs are happening, but we are investing net-net, and you also see it in our capital and some of our CapEx investments where we've shifted where that's going. But the absolute number, we've had to keep up with some of these major programs with very good returns. Some of the shift in our operating footprint has been getting our manufacturing in the right place. We don't move things across the globe nearly as often as we did 10 years ago. So we make largely manufactured, Terrence rattled up 76% in region. And where we don't, it's generally something that is higher mix, lower volume where it doesn't make sense to do it in multiple factories. But for the most part, our high-running products, we manufacture in region for our customers, and we source material in region for those things. And that has grown of significant importance with everything that we've dealt with in the last 9 months around tariffs. I don't know where they're going. I'm guessing nobody in this room really knows where the long-term story is on that. But there is a geopolitical world that we live in where there's rules put into place. Sometimes they're more shortsighted. Sometimes you see that they're going to have longer legs. We've had to react to that. And having the nimbleness of where we operate and where we can source things in different parts of the world to keep our customers happy has been critical. You've heard us talk about, we've kind of quantified what the impact is to us, but you haven't heard us say it's impacting our EPS. You haven't said it, it's got a tremendous amount of leakage to us. And that's because of our footprint and our team's ability to react. Now while we are local for local with a lot of our manufacturing and sourcing, we have invested a significant amount internally on our global planning and logistics teams. And a lot of that is teams that we've built over in Southeast Asia. And those teams are bringing world-class expertise together, things that we can scale locally. And that's driving -- although we source locally, that's driving a lot of material cost savings in our material productivity model and a lot more efficiencies in terms of how we move goods even within regions by having those experts rather than having a more decentralized model. We're driven and are compensated the entire 80-plus thousand people at TE on our productivity model and what's going through with our flow-through math, and that's what we really look at for businesses. So there's a lot of good things -- a lot of things I'm pleased with here. I would say we talk a lot about consistency and maintaining the nimbleness and agility that even as a large organization, one of the things we need to be able to do is react quickly. And we've thrown a lot of curveballs just like a lot of other companies over the last year on how do we operate and where do we make things. And I suspect that will continue. I think we're very well positioned for that through cycle resiliency. Now I'm going to get into a little bit around how we deploy some of the capital. And this is largely unchanged, okay? I think I showed a similar slide to this actually back in 2017. But it's a pretty simple -- we get thrown a lot of ideas, and some of them are better ideas than others. But we get brought a lot of opportunities and to acquire and add to the TE portfolio. And it's a pretty simple process. And Terrence and I sit next door to each other, and we're in regular contact with our Board as well. And we try to keep it simple, which is do we even like this market? Are we buying something because we can? Or do we even like this market? Is it adding to our addressable end markets, meaning does it open up a market that we can either sell the potential acquired businesses, but also our existing products into. So pretty simple questions that we have to ask is do we even like the market meaningful enough? Is it just a GDP kind of market grower trenching along? That's less exciting to us. However, if we said, yes, we like that market, we know that market well. We already play in that market, then we look at the actual target itself. And it's a very simple question we ask, which is, are we good owners for this business? Is TE the right owner for this particular asset? And sometimes we look at that and go, wow, we really like this business, but you know what, there's 5 other companies where it fits in their portfolio better. And so let's be realistic about what we can really afford to pay versus what somebody else could pay. And in some cases, this says, do we waste our time on this process? Or no, you know what, we are the best owner for it. And there's a reason we're the best owner for it is because it fits really nicely. It fills in a niche, it fills in a regional gap, and it certainly starts to bring things home in terms of strategically what we can do with the broader TE environment. But are we the right owner for it? And do we have the talent to run the business? Sometimes we inherit great talent. Some of you met Zach Bier last night. He came in with the Richards acquisition, tremendous talent, helping us with that business. Not every deal that we get to inherit a lot of great talent. Sometimes we do, sometimes we don't. Most cases, we have to have TE people ready to go run those businesses, either in general management form or certainly certain functions and the technical skills. So you have to be realistic about that is if we're going to buy this, particularly if it comes out of private equity, which most deals do, do we have the talent to run this business? If we answer those questions is we like the markets, we like this. We think we're a good owner. We have the right people to run this business. Now let's talk about financial returns. Our financial return horizon has not changed. It's a cash-on-cash return. We do take advantage of tax attribute savings and some of the things that save our actual cash, but we expect to be in the mid-teens ROIC by year 5. and it can't all come in year 5. It needs to have kind of a linear approach to that. So we look at that. We stress test it. We do a fair amount of keeping ourselves honest in that process. We don't give ourselves a lot of credit for revenue synergies out of the gate because they take longer, cost synergies, which we get our hands around quickly, let's talk about. And we look at other things we can do, particularly on the tax cash side. So there are some things, but this is really the process we go through. And after 30 years of doing this, I can tell you, we can identify things pretty quickly or things that are going -- this is going to require a lot of work or this is going to trade somewhere that's going to be well north of our return horizons. And you pretty quickly can filter where your focus is. Now I'm going to give you a couple of examples. Richards, which you're all familiar with, which we just acquired in last spring. It was a large transaction for us. We -- Shad talked a lot about the underground grid hardening business that this brings into us. You have to keep in mind, we already had going into this -- as part of our Energy business, which is about $1 billion before Richards, we had already had half of that business was in North America. So we were servicing some of these same customers. We knew some of the same people, even if our products played a little bit different place. So we know we like the grid hardening business for all the reasons that it's been underinvested in, needs a lot of capital. I think most of you, particularly those who are in the -- from the Northeast here, understand the aging infrastructure. And then obviously, with the data center coming online and the need to expand overall energy consumption, that is a sweet spot for us. And we really like the space. We're benefiting from our own business, and we've seen that business go up well -- CAGRs well over double digits. You bring Richards into the fold, now you can double down, and there was a lot of things that we liked with it. The Target aligned well. We were good owners for it. We hope we continue to be good owners for it, right? We've had good talent that came in with the business. How do we then add value without slowing the business down. And I think that is something that we have to be honest about. There were also some tax savings with this business. So there are some things that we're fortunate to be able to take advantage of. And the financial returns, I'm very confident we're already well ahead of our expectations on that. And although we're only 7, 8 months into this transaction, I feel very good about it. I'm going to pivot to another business, ERNI. ERNI reports into our Industrial Equipment business. You probably saw Vish and Thomas presenting last night. This fits in with their business. And so we bought this a few years ago, it was about a USD 400 million transaction, a German-based business that sold a product to fit a product -- filled a product gap for us. So in this case, it was a proprietary relationship we had with the sellers. We knew we liked this business. We really liked the product and the technology and the customers liked it. But man, when we looked at that, we said, we liked the market, we liked this target. What's going on with their financials. They don't make any money. So that's a big red flag, right? Well, instead of peeling it apart, you start doing things in connectors. There's some core processes. You do molding, you do plating -- I'm sorry, you do molding, stamping, plating, assembling. In this case, they were subbing out all their plating. They weren't doing any plating in-house. So they were basically having a third party do their plating. In that case, you were giving away all your margins. And we do plating. We know how to do it. We have some of the best plating people in the world. It's a very hard-to-do process. But the day we bought this business, we announced a $20 million investment in this business to build out a plating line right there on site. We brought in experts to how to do this. And all of a sudden, the margins in this business start to do this in a market that we liked. So there were some real operational synergies there. So we took it from a very low-margin business back and it's heading towards where we need it to be from a segment average and the returns are off the charts. So there's different form and fashion for opportunity to create value in all of these things. The other thing I would say, in both of these cases, Richards is in the energy business, ERNI in our Industrial Equipment business, some of the other things you heard last night when we had some of our All-Star team out talking to you last night, right, [indiscernible], and I mentioned Richard and Zach and Vish and Thomas and Jean-Michel and Isaac and I got them all. Those obviously were very impressive presentations, and I commend the team for doing that. We bet on our teams as well. And you only saw a small group of our teams. We have a lot of talent just like that, that is around our organization. And we're fortunate that those are the teams we bet on. So when you buy an acquisition, it's not just these 3 things we look at. We look at, is this business in a position to absorb an acquisition? Or does it have operational challenge that it's already working through. Some of our businesses are dealing with different types of supply chain challenges or different type of customer challenges, right, at different given times. Are they fully ready to absorb this and the work involved not just to figure out what level of integration it gets. Some are get heavily integrated. Like in ERNI, we had to be hands on very quickly. Richards is more of a hands off. But there's still elements of things that we have to figure out where we can play, and we have to bet on our teams. If I'm being honest, Terrence and I, Shad and Aaron, our job is to enable them. If we start getting into their trousers every day on what they're working on, we're going to grind them to a halt. So we're betting on those teams. And I'm very proud when I was walking through last night to be able to see the quality and you saw -- you got to see firsthand what I get to see every day. And we're fortunate to have that across many of our businesses. So these are a couple of examples of things that I wanted to highlight. My last slide. It's a slide that Terrence showed as well, but let's talk about it for a second. 6% to 8% growth. That's through cycle growth. There will be years where we're going to be above that. So I know you guys are all going to run off and try to work your models and figure out what the next 5 years look like. This is a step up from the 4% to 6% that we historically have said in our business model. We're up a couple of points. It's not dependent upon price or anything. This is because we're very confident in the high single-digit growth coming out of industrial and the mid-single-digit growth we're going to be able to see through cycle through transportation. There will be times when industrial as we've run this year, will be higher than high single digits, but I feel good about being able to say, high single digits. Our operating margins, 30-plus percent flow-through margins. You can do the math on whatever you assume the growth rate is going to be, and it equates to 50, 60 basis points of your margin improvement. I think it's what's important here is what's allowing us opportunity to invest back into the businesses. And that's important, but where they're making the trade-offs, not every business has fed the same rate. The double-digit earnings expansion is very important to us. You've seen us do that consistency over the last few years. Consistency is something we talk a lot about internally. Are we consistently doing these things? Have we earned the right to come to our owners, people in this room largely and to say, we've done what we've said we're going to do. Can you rely on us to continue to do that? That consistency of message is something that's really pounded on for us. And then you get into capital strategy, the 1/3, 2/3 kind of conversation. Now this isn't really a pivot. I think it's just how we're articulating it. We've always kind of said about 1/3 of our free cash flow is going to go to dividends, and we've grown that over time. I think you saw it over the last 12 years, it's tripled. About 2/3 of our free cash flow, we've always looked at as kind of fungible between excess cash towards share repurchases or towards M&A. And M&A is not linear. There are times when the M&A markets kind of sink they're up a little bit, and there's not very much attractive assets coming. And there are times when it's -- there's a flood of activity. And so -- but again, we have to go through our own filter. And there's times when we know we're going to be more active because we see more things. And there's times when we say cash is building up, it's time to up our share repurchase. So we're in the market every day doing share repurchases, and we adjust that every quarter. But this isn't really a pivot away from that to think, well, you're going to go full on an M&A. This is just really more coming -- formalizing what we actually do. And then the mid-teens, we are an ROIC-focused company. We are a cyclical company, right? So we don't play the game of covering acquisitions, just trying to get above WACC or something. We really focus in on how do we extend mid-teens. So we, as a company, have an ROIC clearly in the mid-teens, if not higher right now. We want to stay there. And so when we do acquisitions, we are looking at things, how do you get to the mid-teens by year 5. Internally, I'd tell you, it also has a little hurdle of how do you get to 10% by year 3, okay? So we're not cheating and saying, well, all this miracle is going to happen towards the end. So how do we do that? How do we bring it all together? And I'm confident that we can stand here today after 8 -- you guys have been waiting anxiously for 8 years for our next Analyst Day. I know we've been calling and bugging Sujal about it. Every year, you having when you having one? No. I mean, you got like 6 of them out there this week, right? So we're confident. If we wouldn't, we wouldn't be inviting you to Philadelphia today. So with that, I'm going to turn it over to Terrence, and then he'll wrap up some slides, and then we'll get into some Q&A. Thank you.

So as we promised you, I know we've had you sitting here for 2 hours. We are going to give you a break, but I just want to do a couple of comments around what you heard to reinforce what we talked about. Heath talked to you about the numbers. But it is important what we've talked about today is the broadening of the growth and the confidence that we have in that 6% to 8%. And it is important, it's through cycle. He said it very well. There'll be times we'll be above. There'll be times we're below. But what's really nice, that confidence around it is driven by the content of where we positioned ourselves. And I'm sure you have a lot of questions on different parts of the applications as we get into questions. The other thing I hope that came through today, both from what I talked about and what Shad and Aaron talked about, why do we win, why when we do the right things with customers that those of you who are fortunate enough here to see, not only creates value for the customer and where they're going, but also creates value for you, and it's going to continue to do. It's a very sticky business, and we've invested both in the engineering and the manufacturing that our customers expect to drive the model we talked about today. And honestly, we're going to continue to drive that value as we go forward. It is about driving earnings growth, driving the free cash flow growth, and that creates the optionality around how we deploy capital that we believe creates the value creation from here for you. So with that, I'm going to stop. I'm going to let you take a 10-minute break. And then we get to hear from you with questions that we can drill into with the questions that you have. So if we could try to stay on time, especially for the people that are online, we're going to have a 10-minute break. Thank you, everybody. [Break]

Can we ask everyone to please take their seats so we can begin the Q&A portion. Thank you.

So we've got different folks with microphones, whoever would like to be the brave one and start. Go ahead, Jake.

Jale Levinson from Melius Research. You would be glad to know I'm not going to ask about data center. We'll just leave that to the others. But you mentioned you've got 20 new factories. You've been doing a lot of restructuring in your footprint. Can you just help us understand is the bulk of their work done today? Do you feel like you have that footprint where you want it and you're able to maximize the operating leverage that's coming with this growth for one? And just relatedly, does it allow you to -- does it open possibilities with M&A and actually being able to plug in assets into your infrastructure more easily?

So let me take that, and I think you had two questions there. The first one is, yes, there was an element we did a lot of self-help around our footprint, really things that were out of balance. That work is, like Heath said, essentially behind us. We'll always challenge ourselves how to improve the cost base. It is really around process optimization, scale optimization in our plants and really making sure our plants can keep up with the speed of the end markets we're in. Those design cycles, those launch cycles are really -- you've heard example over example today. And we had about 1,000 launches this year. So how do we make sure the technical scale and that launch scale comes together? When it comes to M&A, I think Heath said it right. It's never linear, and it really depends upon the asset. Some could be a consolidation play. Some are, hey, it's different. And I think with the example you actually gave between Richards and Ernie, it's going to depend upon the opportunity, where do we get scale advantage. And we do look for scale advantage every time when it comes to the ROIC model when it comes to M&A. So I think you'll continue to see that be a mix on the M&A. I think it's always been that way. But the footprint, I feel very good about. It will continue to evolve, especially as we grow. But I really wanted to share what we did over the past 5 years because we talked a lot about how we moved it. We didn't always talk much about what do we put in place to support the growth we talked about today, and our teams have done a really good job on it.

Wamsi, go ahead.

Wamsi Mohan, Bank of America. Great to see you again, and thanks for putting this together. It feels a little over to you 8 years. But great messaging here, so appreciate it and all the details from outside as well. Maybe to clarify on the industrial growth rate side. It seems as though the growth rate looks awfully conservative in what you've baked into your model. For example, you're saying, in 2 years, your AI business can double that alone gets you to close to 10% growth in 2 years out. So how should we think about these industrial growth rate numbers when you have such strong secular tailwinds, both in the two fastest growing pieces of the industrial DDN and energy, maybe that first. And if I could, I'd like to ask about cap allocation, too. In terms of the DDN side, it seems like the innovation cycle is extremely fast. And so as you're allocating capital to support some of these hyperscaler projects, what safeguards are you putting in place as you're deploying capital for maybe large projects that might have very short duration and how fungible is the equipment that goes with that.

So let me take the first, and I'll ask Heath to take the second. So on the first one, the growth rate we're talking about is through cycle. It's not just everything goes up to the right forever. And when you look at -- we like the trends we position ourselves around. But when I really think about the 6% to 8% and even when we think about both segments, we think of that as through cycle. And yes, I think Heath said it well when it's, hey, there'll be times we're ahead. And certainly, in the AI cycle, we're ahead. But those growth rates just also law of large numbers. are going to be reality. The other thing is when I think about the slide I showed that was about -- we showed two pie charts. We do expect that right side of that pie chart is the growth contribution that we're going to have going forward. So over 60% of our growth will come out of Shad's businesses, and it's going to be around those momentum drivers we talked about and what you saw at the bottom of that chart. So we're planning on what we see real time. You can see when Shad presented, he went out a couple of years and then sort of showed an NOL. We view it's up to the right, but it is a through cycle number. And our teams are trying to win share every day on programs, and we hope we overachieve. Why don't you take the return on capital?

Obviously, you are correct. The programs, particularly in the AI space with the hyperscalers. They tend to be shorter duration because the product cycle is shorter duration than anything else we have in our portfolio. They require a lot of capital -- custom capital fit up quickly. There are a lot of protections for us in that. Now there are certain volume and commitments that are made. There are certain capital outlays that we have, in some cases, depending upon the commercial arrangement. We might share some of that capital cost with the customer. In other cases, we absorbed the capital cost, but then we had specific pricing recovery for the first however many thousand units. So that we're protected. And if they pivot direction, we were fortunate that most of their volume pivots have been shipped more. But if there was a pivot to the way down, there's a make they -- they're required to take their inventory. So we're -- it's less to us around the risk of asset deployment -- and it's really the team ramping quickly to quality level, the specs that the customers need that is driving that more than us having to put a lot of risk from our balance sheet out there.

Go ahead, Mark.

Mark Delaney with Goldman Sachs. Really appreciate you guys putting this event on and also all the product showcases it was really insightful to see it all in-person. So thanks very much. I had a question that I think is on the mind of a lot of investors. How are you guys thinking about the outlook for your AI and cloud revenue? You talked about that doubling over the course of 2 years. Can you talk a little bit more of what's feeding into that forecast? What are you seeing in terms of end market trends? Because some of the numbers in terms of AI infrastructure build-outs, hyperscale CapEx might suggest you'd get there faster. And then just the exit rate that you guys are coming out of fiscal '25 is already annualizing at a pretty robust level. So just talk a little bit more about why you think doubling in a couple of years and why it couldn't be somewhat faster than that.

It could be faster than that. Let's just be honest. This is what we see out of the programs we're working on, no different than we have. We're going to continue to keep you updated, no different than we have been doing. But it is an element of when we think about the curve that we have. It's a curve that's going up. And the program ramps are existing. We've been investing, no different than the example Shad said, but you're going to continue to have program ramps that are supporting where we are. And if it's sooner, it's sooner. But net-net, the position that we have is really good with our customers. We're doing the co-creation that we expect, and we'll keep you updated.

Asiya, go ahead.

Thank you, and thank you for doing all the subject matter experts outside, I've learned a lot. If I could just ask about the incremental operating margins that you talked about. And I think the comment that was made was -- it's not dependent on pricing. It's really just driven by volume growth. Just help us understand why pricing doesn't play -- pricing power doesn't play. All I heard was there was a lot of complexity you guys are co-creating. And so one would think that there is some pricing power built into that especially as you continue to strengthen your moat. So just help us understand that 30% plus incremental operating margins, how we should think about perhaps pricing power playing into that? And what could those incremental margins then look like?

Maybe I'll clarify my comments. Our pricing, it doesn't suggest it's any different than our current model. So we currently operate in environments where we do get price -- positive price, particularly on most of the Shad's businesses. There's a little bit more pressure in the automotive side through contractual volume price declines. But -- and then anything that's tariff related is just passed through at cost, not with a markup. So that plays into some of that as well. So you might get some revenue, but you're not getting margin on any of the tariff piece of it. So my point wasn't we're not propping up our -- this is because we're gouging price. It's really similar to how we've always run the business. And where we have areas that we can pass along price increases, we do, particularly in areas that go through distribution channels and so forth. And then when you get into discussions with OEM direct conversations, those are a bit more of an arm wrestling match, and they're tied more to volume commitments and so forth. So my comment was more intended for us not to be, hey, we're -- this is something that's all pricing related that we're getting disproportionate amount. It's consistent with our model.

Will, why don't we go to you?

It's Will Stein from Truist Securities. Thanks for hosting this, informative. Two, about AI, the topic that we'll keep hanging on. One is, I think the company -- there's an expectation. I don't know if it's exactly from TE or if it's from the market that eventually you track to about a 30% share in that market. I believe you're below that currently. Can you talk about the pacing to close that and to potentially reach 30%. And then...

We're actually at 30% right now today, we are. So from that viewpoint, when we view share, that's where it is today.

Great. The other question is about a couple of technical changes that I understand are happening at least among some of the chip suppliers in that market. One is the elimination of these overboard or Flyover cables in NVIDIA's next-gen platform. And the other is the incremental adoption of optical connections. And I wonder how each of these might affect your position in that market.

You want to take that?

Yes. Listen, I think as you saw in our -- that we laid out in the way we work with customers, every one of these customers have a different architecture, depending on their GPU configuration, what they're trying to get done, the speeds that they're trying to drive, they all have unique architectures. So this is a changing topic for us on a pretty regular occurrence with our customers. We're typically working out 2 to 3 generations with those customers on co-creating what that architecture looks like and being able to respond to that. So yes, there will be changes in the architecture on the next gen and the next one after that will be different as well. What I feel good about is the way we're positioned with our portfolio of products, both at the signal side, at the power side and what we're doing around the thermals that give us a lot of opportunity to add content in that rack. When you think about the optics piece, we're playing -- we're working with them today on optics solutions. So I think no matter which way it goes, we will be there with them. one of the drivers with our customers that you should realize staying with copper is more advantageous for them because it's more cost effective. We're working really hard with them to continue to extend the life of copper through a lot of mechanisms around the architecture and making it more efficient. So I would say this is an architecture from an optics that feels like it's moving more to the right than it's -- while other things are moving more to the left to optimize their solution. But either way it goes, I'm confident we have our teams positioned and working with them to capture that share and maintain or grow our share from there.

Go ahead, Joe.

Joe Spak from UBS. Two questions. One, maybe just some housekeeping. Any material difference in the incremental margin guidance between the two segments? And then the second is just on the M&A front. You just mentioned, for instance, on the IR front, working with customers two, three generations out. How does that inform what you look for from either build versus buy decision on things maybe like optical or liquid cooling? How do you think about that? And I guess also in the Investor Day, 8 years ago, you were generous enough to sort of say, over time, M&A would add about a point to the top line. Is that still roughly the same framework you think about it? Or does that get a little bit tougher given the size?

Well, let me tackle question 1 and question 3. And then you think about future technologies as available through M&A, how about that. Flow-through math is quite simple. It's very similar between the two. So no material difference between the two. Obviously, volumes are going to impact. You've got much higher organic out of one versus the other in different quarters, you're going to have much more scale flow-through. So you might -- in a different quarter, you might say, well, why is industrial 35% and transportation is at 29% or something, but not in a meaningful way when we look at it in total, both are about from the same starting point. When we talk about what M&A is going to add and your memory does serve you correct, so I congratulate you because it was 8 years ago. M&A is just not linear. So when you start to try to lay out to a broader audience what you think the total growth is going to be, it's hard to say, add 1 point a year to this. And we've kind of learned our lesson that way. This year, because of the addition of Harger and the addition of Richards, we add an annualized revenue of about $500 million. So okay, that adds a couple of points. But I can't tell you exactly what next year is going to be. So I would just tell you that we feel good about the 6% to 8%. We think about that more in an organic model. There's going to be times where we stretch above that because where we are with maybe inflection points in the next couple of years with where AI is or we do an acquisition, then all of a sudden you say, well, we're at 10% or 11%. Well, that could be. But we're trying to just kind of give some -- people some baseline numbers. Hopefully, that helps. And then your question...

Yes, I will tackle this right now. I would say in pretty much all of our businesses within IS. We have a robust scanning that we're looking out at what future TAM we want, how we want to add to our portfolio strategically for our customers. I gave you examples of how we've done that. In the AI space, we're scanning there as well along really several vectors that you heard from the team last night as they were describing it in the showcase, is around the signal chain and driving speeds faster there. It's also around the power cycle, and it's around thermals. So we are looking at all of those to understand how technologies are out there that we don't have, that we would need to add. I would say probably in our businesses are more fragmented. It's probably a richer opportunity space for us. Inorganically, it doesn't mean that we're not looking in at all.

Why don't we go to Steve?

Thanks for having me in some great detail today. Steve Fox, Fox Advisors. I guess I was curious about some of these really quick ramps that you described during the presentation. Can you just maybe give us a little more view under the covers on how much was related to just increasing your automation in the factories, how you got through some of these iterations so quickly. And then how much does that automation play into sort of like incremental margins that maybe are more on the plus side of the 30% going forward?

I would say in these ramps, this was not, hey, we made a product today, and we just automated it and that's what drove the volumes. We didn't make these products 2 years ago. These were new inventions, new product, complete designs think about a 250,000 square foot factory completely outfitted with new equipment to ramp these volumes to deliver the volumes that we laid out. We do have a strong capacity for developing highly automated manufacturing cells across all of our businesses, and this one being no different. And it was the only way to ramp to support the volume that was needed. There was -- you couldn't have done this manually or semiautomatically. It had to be highly automated systems to put those in. So that's really the moat behind our ability to do that. And let's lay that out. There's really -- there's a small number of players that can do all three of those things. And we feel really strongly about our ability to scale and ramp and support our customers, and we have a great technology lens as well that gets us architecting with our customers. Combination of those two things are giving us our growth and fuel and content for us.

I'd say the flow-through element to your question, Steve, is it's a scale thing. So -- when we're at full -- when you go to the Philippines or one of the sites in Thailand or Malaysia, where we're manufacturing or China, it's -- when there's full scale, you're blowing past your fixed costs and you start to get better flow-through. When you're at a point where you're doing changeovers and you've got fixed assets who are waiting to come online because you're changing programs and so forth. You go through periods that you suffer. The team has done a tremendous job of showing the agility there.

Shreyas, why don't you go ahead.

Maybe two questions. One, if we look at the industrial business and if we just put the AI part to the side. It looks like the rest of it, you guys are kind of indicating could be maybe low single-digit growth for the next few years. And I'm curious if you could break that down a bit. I mean, I think there's like $400 million of factory automation, which sounded like there's some real growth opportunities there. So maybe curious there. And then also, are there hurdles to consider for divestitures? Because there's a number of businesses that are, as you're talking about kind of low growth for the next few years, sensors, maybe even medical. So I'm just curious what would be the considerations that you would apply towards maybe even thinking about divestitures there?

So let me take the second one first. And Shad, I'll ask you to take the growth one on industrial. First of all, portfolio action we take is, is it going to create value for you? So I think a lot of the things that Heath talked about on the M&A front, are we the best owner? Would it create value for you? And we always have that lens. And I think if you look at what we've done over our history, we've always had that lens. So that hasn't changed. When you look at the business that we have, just because some are in a down cycle, like you take our ACL business, it's been in a down cycle. Our sensors business, we did a lot of self-help work on it. We think these are things that are going to continue to contribute. So we feel good about the portfolio. But if there's another avenue to create value for you, we would have to consider it, and we will always do that. But I don't think it's different than how Heath laid out the M&A model. Are we the right owner? Does it create value for you? And where we think we are with the portfolio, we feel very good about the portfolio. And it's more about playing offense and figuring out what pieces come out. That was 15, 20 years ago when I had his job. So -- and why don't you take the growth...

So if you look across the 5 businesses and you take out the AI piece, I think I laid out for you, we had 3 businesses that grew double digits last year, right? So Energy and Aerospace and Defense grew double digits. I'd say both of those are outgrowing the markets that they're in. And if you think about that spread of that mosaic, you had sort of medical at a point where, hey, as Terrence said, we've gone through self-help. We feel like we're positioned to grow at that market as we're going forward. ACL coming through a cycle with a broad portfolio, nearly half that portfolio is uniquely positioned to be a leader -- have leader products that are going to outgrow the market. So I think it's just, hey, how do you think about the markets that we're in, but your takeaway should be, hey, TE is positioned to drive content growth that will outgrow each of these markets through the cycle that they're in. That gets you to mid-single digits or high, that's what you should be thinking about it.

And I would ask the through cycle, I know I said it Shad said it, Heath has said it, it's a through cycle over 5 years. And we're not talking about 1 year. We're talking about, hey, what is it over 5 years from a through cycle when you do your models.

Colin Langan, Wells Fargo. What are the differences between you and your top AI competitors? It sounds from the displays that it has to do with the speed and the scale that you have. What makes sort of -- as those sort of top 3, I believe there are in the AI space, what is the differentiator in your tech? And where do you think you're stronger? And then also, as you look at the other segments, I know you mentioned in the slides like Auto is seeing more sort of data speed needs. Is that an edge? Does that sort of beyond the capability sets of other competitors in those spaces and that maybe?

So let me take the second question first, and I'll ask you to take the first question. So on the second question, it's an absolute edge because we have some competitors that only do power. And when you're thinking about a signal chain, and I know a lot of people spend time on the AI rack, the signal chain, the signal chain and the power chain are different, and we have customers that expect them both to be together. And that's really hard engineering problems to come work out. Aaron talked about it a lot about hybrid connectors. It's when you're bringing all that together really close in electronics environment or electrical environment, there's a bunch of things that don't like being near each other. And that's where our subject matter experts did a great job explaining it. Some of our competitors don't play in data. They might be only signal, they may be only power in different applications. So one of the things that we always do to the trends I laid out, and I don't want to go through that slide because we would have spent an hour on it, is really about we get to serve both of those problems. And that is something that is advantaged. And even in a place like energy, where we showed you examples of what do we do around power connectivity, some of the examples we showed you around distribution line monitoring outside, that has a data element to it. Most of our competitors don't do as much there. So it does create content uplift as we look forward. There are some areas might be an inorganic opportunity that we need to say how we bring more capability in to scale it in a certain area or another. But when you think about what we do, it's data and power coming together is very special. And each one of our markets, our competitors are different. I can't stress that enough. So our competitive set in automotive is different than DDN is different than AD&M, different than medical. And when you sit there, it's how do we compete and also get that customer mind share. We can solve more problems for that customer in those markets that we say we really like, that's what's special. And so I think that is a competitive advantage in some markets, but it's also the way we think about the portfolio all the time, and it's what the innovation we bring in.

Yes. If you think about high speed and maybe to add on what Terrence said, in aerospace and defense, our capabilities that we have invented in the DDM business have translated for us into aerospace business. We're absolutely a leader in high-speed backplane connectivity for applications like low earth orbit satellites or even the whole infrastructure of thinking about inside of a plane or inside of a shift inside of a mobile vehicle that needs data to communicate between different machines. And there's a standard there, and we've been inventing that standard. So we're leading that space. If you think about on the AI side, again, I think there's 3 factors that you have to have to differentiate in this space. When you think about the competitive set, and it's a narrow competitive set. You have to have the technology, you have to have the agility to adjust with your customer and you have to have the ability to scale. I actually think those last 2 are becoming more important for our customers than just the technology. I think technology was the leader. But if you can't do all 3 of those, you're not going to grow with these customers. And I think we're still early days in AI with the invention of what's happening. There's a pretty narrow customer set that is leading the way. That is getting broader. And when I talked about working across the ecosystem, working with the hyperscalers and the silicon providers on all their unique designs, one thing that they are really gravitating towards with TE is our demonstrated ability to scale and work with them on their architecture and be agile. So I think it continues -- it's a differentiator. It has been. It will continue to be a differentiator as we're going forward.

Guy Hardwick from Barclays Capital. You certainly sound more confident on incremental margins than I can remember historically. Not to flog the dead horse too much, but on the Transportation Solutions side, are you saying that you're pretty confident of 30% incrementals there, assuming you're doing the 4% to 6% outgrowth?

We are. We are. I mean it's going to -- we're not expecting a ton of market support in terms of the number of vehicles built globally every year. So it really comes to our outgrowth and our content kicking in, which we have a lot of confidence in. You heard Aaron talk about the 3 drivers of that today. But from an incremental margin perspective, we're confident in that. And we've built our business model internally around that, our compensation structures around that and so forth, and that's consistent across both segments.

And just a follow-up on DDN, it looks like if you double the revenues in AI and cloud, assuming enterprise and telecom grows kind of maybe low double digits, it could be at least a $4 billion business in 2027. Is my math roughly correct?

I didn't bring my calculator, but it's a fast-growing business, and it has grown a lot. I'm not going to sit here and tell you exactly what all the different components of DDN are expected to grow. But there's some -- there's not very much left in that business that's slow growth. There's a piece that's telecom equipment and so forth that's not as growthy as the others. But I would say the business has a fighting chance to get to those types of numbers over I think I would ask you to appreciate, and I've had this conversation with a few others last night and even today that the things from the time that we put this presentation together a couple of weeks ago, put pencils down more or less to even conversations we're having yesterday on opportunity sets that are coming at us, it's dynamic, and it's going in the right direction. So I know that doesn't help you put your model together as well, but I hope you can appreciate that there is a lot of moving parts very quickly, and it's all trending the right way.

This is [ MP ] on behalf of Samik Chatterjee from JPMorgan. I just wanted to double-click on the energy business. You highlighted 12% growth outlook for North America. Can you please give us some color around growth across -- growth outlook across other regions?

Yes. So you think about the energy business, one of the reasons we highlight the America region is it's our biggest part of our business. That's well over $1 billion business today. And certainly, the investment growing in the U.S. is outpacing what we see investment going in elsewhere around the globe. So we do consider that to be our biggest opportunity and our biggest driver of growth. I will remind you though, we have a really strong position in Europe in underground connectivity, and you saw some of that underground here for North America. And on top of that, we have opportunity in wind and offshore wind, which is another strong growth driver for us. And we've been performing well in those markets through this cycle that's helped contribute to the growth that you saw over the last couple of quarters. It was nearly 20%. You should really think about that as being pretty well balanced across those markets that we're serving.

[ Ravi Singh ] from Clearbridge Investments. I have 2, one for Heath and one for Aaron, who's been a little quiet over there. For Heath, I wanted to ask about the bear case modeling. So essentially decremental margins. Should we be assuming those are also roughly 30% or some of the footprint actions you've done maybe allowed you guys to potentially protect a little bit more in the downturns? And then for Aaron, on China, you guys have done an amazing job of being really strongly positioned in that market with the local OEMs. That's not true for a lot of other auto exposed suppliers. N+ 2 strategy has worked really well. But as innovation cycles accelerate there, is that enough? Do you have to go to N+ 3?

I'll take the decremental margins. And I think -- I didn't think you're going to take the second one. I'll give Aaron a chance to wake up over there. The decremental margins, a lot of it depends on the severity of what we're talking about here. If you're down 1 point versus down 10 points, right? And that has a big difference in how you -- where the assets, the fixed costs obviously get levered the other direction. But in general, the footprint consolidation has created some nimbleness there. Now I think the thing that you have to keep in mind is we do take a long view. And one of the things I want to talk about because sometimes we say, why aren't your incrementals a little bit higher than 30% is we are reinvesting in the businesses. We are investing in some of these business to enable some of the good growth rates in some of the other places. So those investments, we make trade-offs every day. But those investments are long-term investments that we make over -- that we're committed to. So we have to be careful that we're not going to just pull back on every little -- every investment every time we see a cyclical downturn in the business, we just make a little bit different trade-offs. So that could put a little bit more pressure on a higher decremental. But for the most part, getting our fixed cost footprint better, it's not perfect, but getting that better has helped us a lot, a little more variable on our workforce as well.

Yes, let me help you out, Heath. So here's what's happening in China. No, the innovation cycle there is going fast. What I'd say is the N+ 2, and this effectively says that we're -- we've got a current generation. We've got an optimized generation, and then we're strategizing on what comes after that. I think what happens is it just compresses a little bit more. We have 1,100 engineers in China that are focused on this all day every day. We have our engineers embedded with these Chinese OEMs. They're close. And so they're following along this innovation, even influencing it in some places. So I think the speed might go, but I don't know what comes after strategizing for that, that open one but it's an element of maybe a compression. But I think the team, if anybody is going to be able to do that, it's that team in China that has demonstrated over this past decade, this growth from a $50 million business 20 years ago to $2.5 billion.

It's Michael Anastasiou from TD Cowen on for Joe Giordano. I just wanted to, I guess, triple-click now on the digital data network side. It seems some of your peers have focused on building these high-density fiber management platforms, committed significant capital towards that. How do these fiber capabilities compared to what you have internally today? And then do you need to gain content in these areas to get other content opportunities in the white space of the data center?

The technology you're talking about is at a different part of the interconnect in the data center than where we highlighted inside the rack. But when we look forward, our ability to drive 30% content share and grow from here doesn't require us to have to step into that white space. We feel like within the rack today with what's there, the opportunities that we laid out around the power chain, what's happening on the signal to make it faster and more -- and lower latency. And then with what's happened around the thermal, there's plenty of opportunities to continue to increase content, and that's where the team is focused.

I have a couple more for Aaron. So thanks for the details you did. I wanted to double-click on Slide 35, you have the case study with BYD. You talked about your content going from $5 to $50. I wanted to clarify, is that $50, is that entirely from data connectivity? Or is there some contribution from things like signal and power and other connector types?

Small contributions. I would say our -- the primary content comes from data, but we're working with BYD on multiple programs.

Okay. And as you think about -- I mean, that was a very significant step-up that you detailed. What's the potential to take that sort of result and do that with other customers? You talk about the ability to sell these high-speed data connectivity into other customers, including Western customers, where do you stand? If you could talk about traction, market share, any more details on that would be very helpful.

Yes. So if we think about the content growth overall from data, you can anticipate about 1/3 of that content comes from data globally. So that's going to be across multiple customers. We're going to see it in the West. We're going to see it in the Americas. So I would say what it's doing is demonstrating our capabilities. It's creating also with BYD as they expand more confidence in Chinese solutions. So as we think about the strength of our data business that's coming out of Asia, that's certainly influenced in a very positive way the rest of the world.

I mean are you already getting the design wins and engagements with the Western OEMs...

Absolutely. So when we use one example of an important opportunity, recognizing the size. But again, when we think about that, you're going to see design wins across all regions for sure.

Just a couple of questions. Shad, on the energy side of the portfolio, I guess we've commonly understood TE's position there historically being more leveraged to grid hardening. There's an obvious opportunity on a go-forward basis as we just add more capacity to the system. Can you just talk about the relative opportunity as we add new capacity? Is that similar to grid hardening? Or is there some nuance there? And then, Aaron, in terms of automotive outgrowth, if we look backwards, it's been at that 4-ish kind of level over the last 6 or 7 years or so. Just as you look into the backlog and that 4% to 6% commitment going forward, sort of how much of that mid-single-digit sort of level is already in the backlog versus being contingent on additional wins from here?

I think on the energy side, think about the grid connect -- the grid hardening piece, I would say new generation, if it's coming from renewable sources is an incremental gain for us above just what other power generation would be. Some of the growth that you've seen in the last couple of quarters from us have been because of our solar in North America, where we have a differentiated position that is making installations faster and cheaper for customers to do. And you have to remember, solar energy is the cheapest energy in the world to produce, and it's also energy that can get online the fastest. So there's a tremendous push still in North America here around solar, and it's happened in other places in the world. So we're continuing to be very active on the renewable side. And then on the grid, certainly, as they have to expand the network that I described to get more power online, that can be, hey, they just have to run completely new lines or they're reconductoring lines to bring larger wires in that can handle more power. Those are going to require all new connectivity when they do that. So if they reconductor it or put new, it doesn't really matter to us. It sort of ends up being net new for us. So that's how we think about how this CapEx translates into the growth that I described.

I think on the auto side, what's important for us to understand is thinking about all 3 of these vectors and all contributing directionally equally. And this gives us certainly more opportunities within each of these to find additional growth elements within it. Take electronification, for example. This is one -- as that proliferates connectivity throughout the vehicle, there's identified areas for growth and there's new opportunities. Take, for example, prior to the need to connect a headlight to a camera, that was a more commoditized opportunity for us, not exciting. Today, that's a new opportunity that creates content is an exciting profitable element for us. And those are the things that we're starting to see as this proliferates. So when you talk about the 4% versus 6%, it's really thinking about what comes on top of what we've identified today within the architecture. And as these architectures evolve, remember, we're assuming 15 million zonal in 5 years. We're assuming 70% autonomous in 5 years. As those adjust and quite frankly, potentially accelerate, you're going to see the upper end of that 6%. I think we've been recognizing on the e-mobility side, we assume 60% adoption. As those opportunities continue to evolve also, that's a mid-teens growth rate. That's opportunity above that. So when I think about this, it's an element of each of these have potential upside, quite frankly, to them as I think about the next 5 years.

Any other questions? All right. Well, we certainly want to thank everybody for joining us today. We're going to run the product showcase for another hour after this event. And we want to thank all the folks that tuned in on the live webcast. And thanks, any other questions, please contact Investor Relations at TE. We hope you enjoyed the event and look forward to talking with you soon.

Super. Thank you, everybody.