Ladies and gentlemen, thank you for standing by, and welcome to the TE Connectivity Fourth Quarter and Final Fiscal 2021 Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah. Please go ahead..

Good morning. And thank you for joining our conference call to discuss TE Connectivity's fourth quarter and full-year 2021 results. With me today are Chief Executive Officer, Terrence Curtin; and Chief Financial Officer, Heath Mitts.

During this call, we will be providing certain forward-looking information, and we ask you to review the forward-looking cautionary statements included in today's press release.

In addition, we will use certain non-GAAP measures in our discussion this morning, and we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items.

The press release and related tables along with the slide presentation can be found on the Investor Relations portion of our Web site at te.com. Due to the large number of participants on the Q&A portion of today's call, we're asking everyone to limit themselves to one question.

We are willing to take follow-up questions, but ask that you rejoin the queue if you have a second question. Now let me turn the call over to Terrence for opening comments..

Thank you, Sujal, and I also appreciate everyone joining us [technical difficulty]….

Ladies and gentlemen, this is the Operator. We are currently having technical difficulties. Your call will resume shortly. Until that time, you will be placed on mute. Thank you for your patience. Ladies and gentlemen, thank you for standing by. We will now resume our call. Terrence, you may begin..

Thank you. And I apologize for that technical difficulty. And I'll start at the beginning again of my comments, just to make sure, where we broke off. But I'm going to talk about our results for the fourth quarter as well as fiscal 2021, as well as the outlook for the fiscal 2022 first quarter.

So, before Heath and I get into the slides, let me frame out the performance relative to the broader market environment that we're operating. I am pleased with our results in the fourth quarter, as well as the strong performance that we delivered for the full-year.

We continue to experience global GDP growth, with strong end market demand across most end markets that we're strategically positioned TE to focus on. And this broad growth that we're seeing is both in the consumer and capital spending areas, and let me bring some color to that and how that relates to TE.

On the consumer side, demand for autos and of sciences remains strong, and we continue to see increases in medical procedures that benefit medical device sales.

On the capital spending side, we see increased investments that relate to cloud and datacenters, factory automation, semiconductor capacity, as well as the need for more renewable energy sources.

And when you look at the results we're going to talk about today, you're going to see this broad strength reflected in our orders and our backlog that will benefit us as we go into 2022, as well as our results in 2021.

While certainly this demand environment is a positive, the balance of this is that the reality is we're still in a world that's dealing with COVID, and global supply chains that have not been able to keep up with these strong demand trends. Within this backdrop, we are continuing to capitalize on growth opportunities across our served markets.

In the fourth quarter, we delivered 16% organic growth despite auto production declines caused by our auto customer supply chain. This performance demonstrates the strength as well as the diversity of our portfolio.

We have strategically positioned TE around certain secular trends, and you're seeing the market outperformance in each of our segments as a result of this positioning. In Transportation, our leadership position is enabling us to deliver content growth from both electrification of the car, as well as increased adoption of electric vehicles globally.

In Industrial, we're benefiting from accelerated global capital spending around factories. And in Communications, we're driving content and share gain in cloud applications. In addition to the strong top line growth outperformance versus our markets this year, we have executed well to deliver market expansion in each of our three segments.

The last proof point that I think is important is, and shows the strength of the portfolio, is how our full-year results compare to pre-pandemic levels of 2019.

Both our sales and adjusted earnings per share in fiscal '21 were up double digits versus 2019, and we expanded adjusted operating margins by over 100 basis points by continuing the margin journey that we're on. More importantly, we also remain excited about the additional growth and margin opportunities that we still have ahead of us.

Now with that as a backdrop, let me get into the slides, and I'll discuss the highlights that we have listed on slide three. Our teams had strong execution results in the fourth quarter despite reductions in auto production and ongoing challenges in the broader global supply chain.

We generated sales of $3.8 billion, with 16% organic growth, and adjusted earnings per share ahead of guidance, at $1.69, which was up 46% year-over-year. Adjusted operating margins were 18.5% as a result of the increases across all three segments. And I'll share more details about segment results a little bit later.

When you look at the full-year, year-over-year sales were up 23%, adjusted operating margins expanded approximately 400 basis points, and adjusted earnings per share was up over 50%, to $6.51. Also as important as earnings is where we generated in free cash flow.

Our free cash flow was about $2 billion, with approximately 100% conversion to adjusted net income for the year, demonstrating our strong cash generation model.

We also continue to remain balanced in our capital deployment, with about three-quarters of our free cash flow returned to owners this past year, and the remainder used for M&A, including the ERNI acquisition, in the Industrial segment, that we mentioned last quarter.

When you look at our orders in the fourth quarter, they remain strong at $4.1 billion, with strength in each segment, and our book-to-bill was at 1.08.

With these orders and where we position TE, we do expect the strong performance of our portfolio to continue into the first quarter, with approximately $3.7 billion in sales, which will be up mid-single digits organically year-over-year despite a roughly 20% expected decline in year-over-year auto production.

We expect strong double-digit growth in both our Industrial and Communications segments, and I think this is another point that reinforces diversity of the markets that we serve. Adjusted earnings per share is expected to be approximately $1.60 in the first quarter, and this will be up 9% year-over-year.

Now, let me talk about the markets and frame it to where we were just 90 days ago, when we last spoke. In Transportation, consumer demand for autos remained robust, but clearly ongoing challenges with semiconductors and the broader supply chain continue to impact our auto OEM customers' ability to produce.

Global auto production came in lower than we expected just 90 days ago, as our customers reduced production to enable the supply chain to catch up. Auto production was approximately two million units lower than we anticipated in the fourth quarter. And we're expecting auto production to be in the 18 million unit range in our first quarter.

This first quarter production will be well below the, nearly, 23 million units made in the first quarter of 2021.

The key for us is that the trends around content growth for TE remains strong, and we expect content growth to be at the high end of the four to six-point range in fiscal '22, as we continue to benefit from increased electronification and higher production of electric vehicles.

Now versus 90 days ago in our Industrial segment, the key is that we continue to see an improving backdrop which is benefiting our industrial equipment and energy businesses. And our medical business is growing year-over-year as interventional procedures increase.

The one area that we've not seen improve is the commercial aerospace business, it's sort of staying stable. And we've not seen an inflection point in that business yet to higher or lower growth.

In Communications, versus 90 days ago, we continue to see favorable end market trends with global growth in cloud capital expenditures and strength in residential demand benefiting our appliances business.

Now, while that's a view of what we've seen versus 90 days ago from a market perspective, I also believe in this environment it's important to tell you what we're seeing in our supply chain.

While challenges remain in the broader supply chain, we have seen some improvement in our availability of certain raw materials in our own supply chain versus 90 days ago. 90 days ago, we thought we were impacted by about $100 million of revenue due to us not having availability of supply, this quarter-end where only that's down to about $50 million.

And with this improvement, this will enable us increased production and inventory levels accordingly, to ensure we can meet demand as our customers resolve their supply issues. Now, before I move into orders, that'll start on slide four, I do want to take a moment to mention a few key highlights on the progress we made this on our ESG initiatives.

Earlier this year, we issued our 11th Corporate Responsibility Report, which discusses our One Connected World strategy which really encapsulates our ESG strategy.

And we hope that you've read this report which highlights the efforts that would drive and internally related to our impact on the planet, as well as the innovation our engineers bring to our customers to make sure we're enabling sustainable applications.

Some of the key highlights I want to mention is that on the environmental side we set up a new goal to decrease Scope 1 and Scope 2 greenhouse gas emissions by over 40% on an absolute basis by 2030. And this new goal is above and beyond the 35% reduction. We've already made an absolute greenhouse gas emission reduction over the past decade.

We also continue to make progress in sourcing renewable electricity. And today I'm happy to say over 20% of TE's production currently uses carbon free electricity. And also this past year, we began to report Scope 3 emissions back in July. If you look at social initiatives, we set a goal to increase women in leadership position by over 26% by 2025.

And I'm happy to say we continue to focus on employee safety and engagement throughout the pandemic. We've gotten good feedback from our employees how we've been there for them during this difficult time.

So, clearly, I'm pleased with the continued progress that we're making towards, what our purposes as a company, which is to create a safer, sustainable, productive, and connected future. So, now let me please get into the orders on slide four, and we'll go through it by the segments on both of them and also on a geographic basis.

For the fourth quarter, our orders were over $4 billion with year-over-year order growth in all regions. Our order trends and backlog remained strong in each segment and the order patterns we're seeing are as we expected.

As we've been mentioning through the year and as you've seen in our book-to-bill ratios, order levels have been elevated with customers placing orders for delivery beyond the current quarter due to the broader supply chain situation.

As a result, we're coming into fiscal 2022 with a strong backlog position that is higher than we typically see for our business. When we look at the order patterns at a segment level, industrial and communication orders are trending as expected with continued momentum in areas like factory automation and cloud applications.

I also want to highlight and remind you that in the industrial and communications segment, we have a relatively large portion of our business that goes through our channel partners. And we're seeing our booking patterns begin to align more closely to our settlement, which is a good sign.

The other key thing to highlight around our channel partners is that in 2021, we did not see inventory levels increase with them, even though they had a much higher level business levels that really they had a much higher turn in their inventory this year.

Looking at transportation, we are seeing order levels match the production dynamics that are aligned with our guidance. When you look beyond the near-term noise of auto supply chain pressure, it is important to remember that consumer demand for autos remained strong and dealer inventories remain extremely low.

So, we believe this was a very favorable setup for medium and longer term auto production growth. Now let me add some color on what we're seeing organically from a geographic perspective on a year-over-year basis. We continue to see growth in Asia where China orders were up 17% and growth across all three segments.

In Europe, orders were up 21% and North America orders were up 26%. On a sequential basis, we saw orders decline in each region that reflect the order patterns I just talked about in our segments. But the one key difference is we did see growth in our transportation segment orders in China sequentially where our auto orders were up 9%.

So, with that, with an order backdrop, let's get into the segment year-over-year results and they will be on your slides five through seven. So, starting with transportation, segment sales were up 16% organically year-over-year with growth in each of our businesses.

Our auto business grew 12% organically despite the declines on auto production that I mentioned. We continue to benefit from increased production of electric vehicles as our technology and products are enabling high voltage architectures and applications with every leading customer on the planet.

Hybrid and electric vehicle production grew 50% year-over-year, increasing from roughly 6 million units produced in 2020 to roughly 9 million units produced globally in 2021. We also continue to benefit from content growth to non-electric vehicles driven by ongoing safety, certainly data connectivity, comfort and autonomy features.

As a result of these content drivers, our content per vehicle has accelerated over the past couple of years from the -- in the low 60s per vehicle into the mid-70s this year. And we expect to continue to outperform auto production going forward as the content that we've setup and the wins we have continues to grow.

Turning to our commercial transportation business, we saw 38% of organic growth with increases across all submarket verticals. We are continuing to benefit from stricter emission standards and the increased operator adoption of Euro 6, which reinforces our solid position in China.

We're also pleased to announce that two leading heavy truck OEMs have awarded us the high voltage connectivity wins on their new electric vehicle platforms that they're rolling out. This will provide future content growth and reinforce our market leadership position in the commercial transportation market.

In our sensors business in the segment, we saw 15% organic growth driven by transportation applications with the new program ramps that we've talked to you about in the past few years. And for this segment, adjusted operating margins expanded nearly 500 basis points to 18% driven by higher volume and strong operational performance by our team.

Now, turning to the industrial segment, our sales increased 6% organically year-over-year.

Industrial equipment was up 32% organically with double-digit growth in all regions driven by momentum and factory automation applications, where we continue to see the benefit from accelerating capital expenditures in areas like semiconductor manufacturing as well as in the automotive space.

Our AD&M business declined 18% organically year-over-year, driven by the continued market weakness I talked about earlier. And in our energy business, we saw 8% organic growth driven by increases in renewables, especially global solar applications.

And it was nice that our medical business grew 5% year-over-year and it's growing in line with the recovery that we're seeing in the interventional procedures. At a margin level, the segment expanded margin year-over-year by 200 basis points to 15.9% driven by strong operational performance. Now, let me turn to communications.

And clearly, our teams continue to demonstrate strong operational execution while capitalizing on the growth trends in the markets that we serve in this segment. Sales grew 36% organically year-over-year for the segment and in both businesses.

In data and devices, performance continues to be driven by the position we built in high speed solutions for cloud applications. We continue to see capital expenditures increasing by our cloud customers, and our content growth enable us to grow cloud related sales at double the market rate this year.

In our appliance business, we saw double-digit growth in all regions driven by both consumer demand as well as continued share gains. It's clear that our communications team continues to deliver at an outstanding performance with record adjusted operating margins of 24.7% and this was up 300 basis points versus a strong quarter in the prior year.

Overall, our segment teams are capitalizing on the growth trends in their end markets. That's demonstrating the diversity of our portfolio while delivering on strong operational execution in a challenging supply chain environment.

You're seeing this reflected on our results both for our fourth quarter as well as our full year and we expect this to continue into 2022. So, with that as a segment and a market overview, let me turn it on to Heath, who'll get into more details on the financials as well as our expectations going forward..

Thank you, Terrence, and good morning everyone. Please turn to slide eight, where I will provide more details on the Q4 financials. Sales of $3.8 billion were up 17% on a reported basis and 16% on an organic basis year-over-year. Currency exchange rates positively impacted sales by $51 million versus the prior year.

Adjusted operating income was $706 million with an adjusted operating margin of 18.5% with strong year-over-year fall-throughs. GAAP operating income was $660 million and included $38 million of restructuring and other charges and $8 million of acquisition related charges.

For the full year, restructuring charges were $208 million in line with expectations, and I expect restructuring charges to decline in fiscal '22 to approximately $150 million.

Adjusted EPS was $1.69 and GAAP EPS was $2.40 for the quarter, and included a tax related benefit of $0.92, primarily related to decreases in our valuation allowances associated with tax planning. We also had a charge of $0.07 related to the annuitization of the reapportion of our U.S. pension liabilities.

Additionally, we had restructuring, acquisition and other charges of $0.14. Free cash flow was approximately $535 million for the quarter. And during the quarter, we utilized approximately $300 million for acquisitions, including ERNI in our industrial segment, which Terrence mentioned earlier.

The adjusted effective tax rate in Q4 was 20% and approximately 19% for the full year. For 2022, we expect an adjusted effective tax rate around 19%, but continue to expect our cash tax rate to be in the mid-teens. So, turning to slide nine, this slide puts some perspective on our performance this year and shows how we perform from fiscal '19 to '21.

Over this time period, we had to overcome a challenge in operating environment and our performance is demonstrating the strength and diversity of our portfolio and the strong execution of our teams.

We are back above to the 2019 pre-COVID levels on every financial metric, with sales up 11%, adjusted operating margins expanding over a 100 basis points, adjusted earnings per share increasing by 17%, and free cash flow up 29%. I am pleased with how our teams perform to deliver the strong results through this cycle.

To provide some segment level examples, our transportation sales are up approximately 15% versus fiscal '19, despite auto production declining over 11% during that same timeframe. Similarly, in our communication segment, sales are up approximately 25% over this time period, significantly out of performing our end markets.

This also demonstrates some of the content benefits we are seeing across the portfolio. Turning to year-over-year comparisons, fiscal '21 sales of $14.9 billion were up 23% on a reported basis and 18% organically year-over-year. Currency exchange rates positively impacted sales by $444 million versus the prior year.

We would expect currency exchange rates to be a year-over-year headwind in our first quarter and could remain a headwind for fiscal '22, if the dollar remains at the current levels relative to other currencies. Adjusted operating margins of 18.1% and expanded by nearly 400 basis points year-over-year with expansion in every segment.

Our adjusted earnings per share expanded 53% year-over-year to $6.51. I'm pleased with our performance given the inflationary pressures we are experiencing. We have -- as we have discussed in prior quarters, we have implemented price increases across to our business in fiscal '21, and we expect further increases in fiscal '22.

Turning to cash flow, we generate approximately a 100% conversion to adjusted net income with record free cash of approximately $2.1 billion for the year.

As we go forward, we are confident that end demand will be robust for our products and given our strong balance sheet, we are in a position to do strategic inventory builds to meet anticipated customer demand, given the broader supply chain uncertainty.

In FY'21, we continue to maintain our balanced capital strategy, returning capital to shareholders and remaining active in M&A. During the year, we returned over $1.5 billion to shareholders and utilized over $400 million for acquisitions.

Going forward, we remain committed to our balanced capital deployment strategy and expect to return two-thirds of our free cash flow to shareholders, while supporting our inorganic growth initiatives through bolt-on acquisitions.

Before we go to questions, I want to reiterate that we are performing well in this environment, despite challenges in the broader supply chain. Our results for the quarter and for the year demonstrate the strength and diversity of our portfolio with contributions from each of our three segments.

Our first quarter guidance represents the continuation of our strong performance, and we are excited about the growth and margin expansion opportunities as we move forward. Now, let's open it up for question.

Emma, can you please give the instructions for the Q&A session?.

[Operator Instructions] Your first question comes from the line of Chris Snyder with UBS. Your line is open..

Thank you. In the prepared remarks, you guys said that you expect auto outgrowth to come in at the high end of the 4% to 6% guided range for fiscal '22.

So, just want to confirm that, a, I heard that right, and b, that includes any impacts from supply chain? And then what should we make of the company driving low double-digit outgrowth on a two-year stock? My math says you guys outperformed by mid-teens this year, just compared to the mid-single-digit guided range?.

Now, thanks, Chris. And you have a couple questions in the question, so thanks for it. And the first thing is you're right; just to confirm what you heard. When we're looking at the programs that we won and looking at into 2022, we do something at the high end of the content outperformance range we've given you, at that 6%.

And we do think that will include any noise around supply chain is included in that count and outperformance, because like we always say, be careful looking at CPV on a quarter basis or content growth on the quarter, there's supply chain dynamics. And I think what's important to us is, two years ago, we were in the slow 60s of content per vehicle.

We talked to you about the trends around electrification of the car, power train getting -- turning electric, as well as autonomy in the car. And what's nice is we sort of view this year, we're in the mid 70s of content, and we continue to feel very confident around getting up into that mid 80s range.

And we are benefiting from the electrical vehicle ramp that's happening around the world, that's grown 50% this year, like I said. Right now, people are saying, even in what IHS views on our basis to be a flat production environment, electric vehicles are going to grow another 50% next year.

And I feel we're going to capitalize on it with the program wins we have. And this year, about 20% of our automotive revenue is driven by electric vehicles, even though it's not 20% of the total cars made on the planet. So, just reinforces again the content that we've been driving, where we've positioned TE around.

And certainly there's supply chain that will make production a little lumpy, but when we look at 2022 and beyond, we think there's a pretty good setup where demand is, where inventory levels are for production as well, that at some point will also be a catalyst on top of the content that we tee up on.

So, hopefully, I touched upon all your questions there, Chris..

[Multiple speakers]….

All right, thank you, Chris. Thank you.

Can we have the next question, please?.

Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open..

Yes, good morning, and thanks very much for taking the question. A question on orders, the book-to-bill was positive but orders were down 9% sequentially. I was hoping you could speak to the linearity of the orders relative to typical trends. And then talk about how TE is interpreting what the order data is signaling? Thank you..

Sure, thanks for the question. Yes, I think we have to go back the past couple quarters, we told there was a lot of orders coming in as people were working with their supply chains.

But what we started to see is that, in this quarter, the scheduling out continues, which is a good sign, I think people are accepting the lead times they have throughout the components in their supply chain. Last time I read, I think semiconductors were about half-a-year lead time. So, we see customers looking at scheduling out.

So, while our backlog is stronger clearly in dollars, it's also scheduled out longer. And we're seeing customers adapting to that. The other thing is the end dynamics have been very strong. So, when you think about car demand you also see our auto customers also keeping them scheduled out, so, net-net, we actually think this trend is a positive sign.

We always said we thought our orders would get closer to billings than our billings getting closer to the orders we've had for the past couple of quarters, and actually that they're starting to get scheduled out more is a good sign.

I would say the only area that we see any end market softness right now is around auto production, but that's supply chain driven. And what we saw, how those orders moved out aligning to how our customers want to produce the order trend sort of mirrored exactly what's going on.

So, I think it's getting a little bit more predictable even though it's scheduled out a lot longer..

Okay, thank you, Mark.

Could we have the next question, please?.

Your next question comes from the line of Amit Daryanani with Evercore..

Perfect. Thanks a lot, and good morning, everyone..

Hey, Amit..

Hi.

First, I guess the question is for you, yes, as you reflect on your fiscal '21 results in aggregate, I was hoping you just talk about how do you think the supply chain pressures, component availability, inflation, all this stuff impacted fiscal '21 revenue and EPS, and then as I think about fiscal '22, do you think all of this becomes less of a headwind or stays about the same, and what would the ramification be in your P&L in [indiscernible] drivers?.

Sure, Amit. I'm going to let Heath take that because there's a lot of different parts to that..

Sure. Amit, thank you for the question. Certainly, as we progressed over the past 90 days since the last time we spoke, we have starting to see, from an availability standpoint things to improve, things have gotten a little bit better with some of our inputs, particularly with the resins side of things.

Now, we are still seeing inflationary pressures, particularly on metals, resins, and probably most pronounced on freight costs. And we do expect those inflationary pressures to continue into '22.

Now, on the flipside of that, as you're acutely aware, and normally we would see price pressures of somewhere 1% to 2% of erosion each year, in FY'21, that was largely neutral. We did not see those price pressures; we were more back at par.

And we actually expect, in '22, as we move forward, to see some price increases as we battle through some of these inflationary pressures, so a lot of moving parts there. Again, I think from an availability standpoint things are improving. And we're working through, using price as one of the levers that we have to combat the inflationary pressures..

All right, thank you, Amit.

Could we have the next question, please?.

Your next question comes from the line of Scott Davis with Melius. Your line is open..

Good morning, guys..

Hey, Scott, good morning..

Congrats on 2021, it was a great year for you guys, and good luck for '22..

Thank you, Scott..

And in that context, the incremental margins you put up, 42% I think it was in Q4, pretty big numbers. But if I kind of back into the guidance in 1Q it kind of implies a bit of a slowdown.

So, is there any color around that at all or just being a little bit extra conservative? And can we expect the type of incrementals that you've been putting up to be in the ballpark of sustainable?.

Scott, I appreciate the question. This is Heath. The -- you're right about the Q4 flow-through, and our flow-through for FY'21 in total was in that range of the 30% to 35% range, which is our expectation.

As we move into '22, just to highlight, we -- ERNI, the acquisition, layers in '22, and did not have any impact on our '21 numbers, again, based on the timing of the closure of that transaction.

In Q1 alone, if you were to adjust out for ERNI, which will come in at a couple $100 million of revenue, but, well, will not add much from an EPS perspective in our first year while we work through the integration and all the value levers that we're going to pull for ERNI, that alone bring our flow-through in the first quarter down to the level that you were referring to.

If you were to back that out you'd be up in the 30% range again. But, again, we feel very good about value-creating opportunities that ERNI brings to us. And we'll pound through the year to offset that pressure that it puts on our flow-through and margins..

Okay, thank you..

Okay, thank you, Scott. Thank you.

Could we have the next question, please?.

Your next question comes from the line of Wamsi Mohan with Bank of America..

Hi, yes, thank you. Good morning. Terrence, I know you're not guiding fiscal '22 explicitly, but how are you thinking about the growth in the end markets? And I just want to ask a clarification around the ASB comment that was made earlier on the fall.

So, some of this outperformance, the magnitude of this right mid-teens for the year or mid-20s for the quarter is well about that 4% to 6% range. Some of that is supply chain dynamics, some of it is ASB, some of it is mix. Anything you can do to help parse those different things would be super helpful. Thank you..

Yes, so let me get in the markets there, Wamsi. And when we sit there, I do want to go back to what I said in the script, that we do have a constructive demand environment across when you get out to the end applications that we're in.

And the only place that we haven't seen a constructive market is certainly around the aerospace side, and that will come at some point, I'm not sure that'll be in 2022 for us, but that will come at some point. Just to break it down by the segments a little bit, in Transportation, and like you said, Wamsi, we didn't guide that.

I'll give you how we sort of see the external data points around markets. In automotive, right now, people in IHS are saying it's going to be around 77 million cars made next year globally, that's pretty flat. That has supply chain constraints in it in the semi side continuing.

Could there be upside to that, the supply chain [gets fork out] [Ph], potentially, but I would also say the content that we talked about at the -- being at the high end of the 4% to 6% inclusive of any supply chain noise, we feel pretty good about. In the commercial transportation space, this year was a great year by our team. We grew 2X to market.

It demonstrates our leading position, also the content that we're getting around emissions that are all over heavy trucks, as well as the data connectivity on heavy trucks. Next year, we're going to have a slowdown in China in the market, I think that's very well known.

But on a flattish environment to slightly down environment in commercial -- broader commercial vehicles, we think content will -- could create growth there. And I talked about the new EV wins that we have on the heavy truck, that won't benefit '22, it'll be further out. In the industrial space, the recovery feels like it's just getting started.

And we're starting to see improvements in medical. Our industrial and factory automation side is very strong. Energy has stayed strong throughout the entire '19 forward.

We see that continuing, especially with the benefits from renewable sources, and we're in the mid teens of our revenue, we think that can move up in our energy business around solar, and certainly wind. And in the communication segment what I would tell you as we look forward is, you have cloud CapEx is going to increase another 10% next year.

And when you think about we've grown 2X to market here over the past three years, our cloud revenue has doubled since 2019, and we're going to have growth on top of that with that cloud CapEx picture. And then in appliances, the consumer is strong; certainly we have to watch that.

If the consumer slows down a little bit there could be a little bit of a headwind. But right now, we're sort of assuming that's a flattish market globally. So, we believe it's a pretty constructive setup, certainly supply chain [blinks] [Ph] a big piece of it. We hope our supply chain continues to improve, like we saw over the past 90 days.

And we'll take advantage of that as we build a little bit of inventory, early in the year, to make sure we capitalize on the setup. On the pieces around the second part of your question, when you look at this year, other than the market, the bigger piece of our growth is really around content.

So, any way you want to parcel it, I think Heath framed the price side. Normally, we have 1% to 2% negative price last year or basically flat. That shows the pricing that we've been pushing through, that we started in January, in the distribution area. And we're in the middle of automotive contractual negotiations as we speak.

So, I think there's more to come there. But, clearly, the bigger piece last year has to do marketing content, and that's what we get excited about as we go forward, and I gave you that -- a couple examples there between auto and also on the cloud side..

Okay, thank you, Wamsi.

Could we have the next question, please?.

Your next question comes from the line of David Kelley with Jefferies. Your line is open..

Hi, good morning. Thanks for taking my question. Maybe to follow up on the 20% EV sales mix in automotive, Terrence, I think you made that comment, the prepared remarks. Just wanted to confirm that, a, that is EVs, and doesn't include hybrids? And then just curious, your EV sales have begun to scale.

Is the content per vehicle tracking at that two times relative to internal combustion that you have expected and just curious if you're thinking about any potential upside from there going forward..

Thanks, David. So, first of all, from a clarification, thank you for asking it. When we talk EV, we do include hybrid, we include both elements of them. So, when you take that and even the numbers I quote about the 9 million units made globally that are electric that includes hybrids and plug-in hybrids.

So, that's totally the area we get the bigger content as you bring in the electric powertrain in both areas. So, if you take our automotive revenue this year with what you would add on electric vehicle, both on the high voltage content and low voltage together, that's a little bit above 20%.

And the content sort of run in the 2x and it's right on top of it. And like we've always said, when you think about TE, there isn't things that get cannibalized on our product, the low voltage things come over. When you start putting in that electric powertrain, you have charger inlets, you actually have to get the power into the battery.

We play along those connectivity, certainly how it comes into the sell-side. And also some of the things we do from a switching of power as you bring the power back and forth, and that creates the content above the low voltage position. So, it is important there.

The other thing I would just don't want to lose sight on, and I said in my script was as you get into the heavy truck, I know we've given examples, but I did mention in the prepared remarks, we want two programs with two of the top five truck manufacturers world. And these are turning from prototypes into real platforms.

And when you look at that in our commercial transportation business, that I talked about a little bit earlier, the content on those high voltage architectures can be over $1,000 per vehicle. And that's just on the high voltage architecture that doesn't even include some of the other elements that we would have one data.

And I'm really excited about those wins because they also truly show our leadership position there in commercial transportation. When it comes to connectivity, we have a leading share by quite some distance.

And our global customers are looking about how -- when they get to more electrified powertrains across their fleets and their offerings, they come to us and let's face it.

You're dealing with voltages that are at a thousand versus what you would have in a car, you're dealing with vibration and certain durability, which we've talked about harsh environments.

That's what we love and our engineers like to tackle those challenges and that we want to with the top five on their initial platforms, I see that continuing just to go across the other players and reinforcing our great commercial transportation business..

Okay. Thank you, David.

Can we have the next question, please?.

Your next question comes from the line of Joe Giordano with Cowen. Your line is open..

Hi, guys. Good morning..

Hi, Joe..

Can you hear me? Hi. Okay. Heath, I just wanted to kind of clarify a couple things here. With the orders running arguably a little bit hot and out far and Terrence's commentary about there's still $50 million of stuff that you would have liked to have shipped out but couldn't, it was 100 last quarter.

I'm just curious on the inventory bill, because it was pretty substantial in the quarter. And I get why you'd want to have some protection there, but just want to square like the ability to build that kind of inventory with also the inability to get things off the door and high orders.

So, can you kind of -- just kind of square that for me?.

Sure, Joe. I mean, first of all, as diverse as our portfolio is as many different products you can imagine the complexity of our manufacturing environment and our supply chain, right. So, it's not just one part and it's not as simple as just saying what we can and can't produce, right.

So, our availability of materials has largely been resins and metals. As I mentioned earlier, resins particularly are improving and metals we're working our way through.

So, as we look forward and we continue to anticipate resolution of some of those input challenges that we have, it does give us the ability to start having a little bit more foresight into what we wanted to do strategic build heads for, right.

I mean, if you think about where we're sitting here, right, we're not going to sit here and predict when some of the semicon challenges for our auto customers specifically get resolved, you should ask them or the semicon companies, right. But what we do know is that there's really, really strong demand out there for automobiles.

And that's not just the U.S. comment, that's really globally. And the shortage of those vehicles on dealer lots give us a lot of ability to play offense here in terms of being bullish about when that demand comes back. We want to make sure that we are ready for our customers and not going to be holding up any kind of ramp that they may have.

Now, when that ramp happens is still TBD, but -- and I'm not going to signal that this number inventory build is going to be massive, but we are going to take advantage of a little bit of a slowdown in the auto production world and get ahead of it, so we're ready..

Okay. Thank you, Joe.

Can we have the next question, please?.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open..

Hi, thanks for taking the question. Good morning..

Hi, Chris. Good morning..

I am curious about margin outlook generally and CS. Do you expect some margin progress at each segment at -- in fiscal 2022? And for communications in particular comments maybe flattish appliance markets, but the second half comps are kind off the charts.

How should we think about the leverage to the -- decremental margins for the CS segment?.

Well, I think it's a good question, Chris.

And it's one that we've talked to you about the -- the 30% flow through is still what we're gearing up for, for the year in terms of that now see within that -- I think you'll see that the strength more out of the industrial and out of the transportation businesses, the communication side as we've talked about has been running fairly hot, but it has now for several quarters in a row.

And it really shows that these volume levels, what it looks like particularly out of appliances. Terrence mentioned that we're anticipating a flatter appliance market as we work our way through the year.

I'm not suggesting that's all going to happen here in the first quarter, but we're probably taking on an approach there where we see a little bit of contraction in the margins albeit more to come as we able to see what volume levels end up looking like.

So, in terms of the decrementals on that, I think you could roll it through roughly the same kind of math, but we target about 30% flow through on the organic side. And that's really where our focus continues to be as part of our business model for FY 2022..

All right. Thank you, Chris.

Can we have the next question, please?.

Your next question comes from the line of Samik Chatterjee with J.P. Morgan. Your line is now open..

Yes. Thanks for taking my question..

Hi, Samik..

A couple of clarifications, hi, on auto trends communications seem like it moderated quarter-over-quarter the auto trends a bit more than the other two segments. So, is there something going on there? I know you spoke about strong demand from the cloud customers.

And then similarly, I think you mentioned in your prepared remarks, China automotive orders being up. Is that EV or is that still like an inventory bill, just if you can clarify those two auto trends. Thank you..

Yes, I would say CS other than just things getting a little bit more normalized and scheduled out. There's nothing unique in there, Samik. In regard to the auto, I think, one of the things just to highlight, you know, it's nice to see the China auto go up.

Certainly, they're being impacted as well by some of the supply elements that are happening on the world. And this is traditionally the strong China build quarter. And we're not getting a strong China build quarter because of the supply chain issues that's going through. So, I would say you should read into there's more EV or less EV in there.

I think it's pretty much in line with what we said on a global basis because Asia still is the predominant largest region of electric vehicles compared to the other two regions. So, we were pleased to see that trend in China continuing to stay up and grow.

Certainly, the supply chain continues to need to help us there because it is an important market for us..

Okay. Thank you, Samik.

Can we have the next question, please?.

Your next question comes from the line of Joseph Spak with RBC Capital Markets. Your line is open..

Thanks. Good morning. First just a tough clarification, I don't know if I heard this, but how much are you assuming global production for auto is up, down or maybe flat quarter-over-quarter. And then if you could just talk a little bit about how or receptivity to recovering pricing for commodities maybe by end market how that's going for you..

Yes. So, first off, on auto production; auto production was about 2 million units light in our quarter we just had versus where we guided. In the first quarter, we're assuming 18 million unit range for auto production in our first quarter, which is compared to $23 million last year's first quarter. So, that's how 20% down I mentioned on the line.

And certainly, we're not guiding for the year, but I believe IHS has [indiscernible] fiscal period around 77 million units for the year, which will be flat year-over-year. In regard to pricing, pricing is very different by our end markets. When you say receptivity, I wouldn't say anybody likes pricing.

So, I wouldn't say people are saying, I'm happy about it. But I would say, we're pulling the different levers as Heath said, some we can pull quicker in places where like, we go through our channel partners, smaller customers in places like auto, it's more contractual agreements and that's -- we're in the middle of those.

And that'll continue to be a recovery point throughout this year. So, it is very different. And I think the stats that Heath laid out sort of frames it nicely at what the benefit we'd gotten as well as how we're thinking about it into 2022..

Okay. Thank you, Joe. We have the next question, please..

Your next question comes from the line of William Stein with Truist Securities. Your line is open..

Great. Thank you for taking my question.

I have -- I have a question about the communications end market that's been doing very well the last few quarters, all segment really, but in particular, the comms end market, to what degree is the upside we're seeing there related specifically, in cloud service providers upgrading to 200 in one case, and I think 400 gigabit per second, intra data center comms, which we think has been going on for a while versus sort of more broad-based CapEx exposure.

And does your growth here reflect more of broader end market growth or broader or narrow end market growth or share gains from either new or approved products? Thank you. .

Thanks. Well, couple of things, if the market and the growth we're benefiting overall from high-speed applications. So, when you look at D&D overall, it is anywhere where you're having high-speed, getting put in and then that can be anywhere in the network.

Certainly, the bigger growth lever is with the cloud providers and our position across those five providers, as I think I've mentioned in other calls, has really been pretty even as we gained share. And we aren't weighted to one of the cloud providers globally versus another, but we are benefiting from their capital spending trends.

And that capital spending trend is they're very much focused, not only on speed. They're also focusing on how they continue and implement AI to make sure that how do they get more specific compute and scaling computing power, and also helps them get to their cost of total ownership, including their impact on energy usage down.

And what we've continued to see, as they're making their investments, which are aligned with what you said, we're seeing them wanting to spend another 10% around their cloud and data center going into next year. And the content that we're getting is very strong with the share gains as well.

That is why you saw us out of -- in that specific product niche we grew about 65% this year, where their CapEx went up 30%. And these are things being deployed real time as they're trying to keep up their cloud offerings. And we've become a very good partner, technical as well as service partner form.

And we've actually strengthened during the COVID time..

Okay. Thank you, Will.

Can we have the next question, please?.

Your next question comes from the line of Matthew Sheerin with Stifel. Your line is now open..

Yes. Thanks. Good morning. I wanted to ask a follow-up on the inventory issues.

First, looking at your customer base, are you seeing any pockets of inventory build it, we're seeing that from some of your peers from their auto customers? And also if you look at your channel partners, particularly, proclivity industrial markets, which have been strong, any signs of build there? And from your own perspective, Heath, he talked about, building inventory as you get into fiscal '22.

Can you tell us how that impacts your free cash flow and the conversion rate, which is typically around the 100%?.

Yes. So, Matt, let me take the part around what we see out in inventory in the world. And then, we'll get to -- Heath will talk about our inventory. First of all, for the channel partners, I would tell you, our channel partner orders have accelerated over the past three quarters, but they have leveled out now.

So, similar to the other work comments I've made, we have seen leveling, we've been able to service more to them as our supplies improve, but we have not seen their inventory increase on our product side. So, their turn levels have accelerated here, and they're touching product more to get it out because of how quick they're turning it.

So, inventory levels in '21 have remained relatively flat while they've had significant as they're trying to help the customers and their supply chain solutions to those. When it comes to our customers, we do see customers holding more inventory, some customers have scheduled out further.

But we also have customers that in some areas are still very low in certain inventory pockets. So, certainly the supply chain is trying to get to a normalized, I would say, on both sides of the equation you see it. And it's also what's happening in auto land. You need about 30,000 parts to make a car.

If one of them isn't there in one [plant] [Ph] the car is not being made. So, when we look at it, we're always going to have supply chain noise whether it's building or coming down a little bit, but we do view that noise.

And it's back to the comments we said about content, we feel good about the 6% content growth over production next year, including any supply chain noise..

And, Matt, on the question about our inventory bill, I think it gets down to relative to our cash conversion rate, and I think it gets down to the timing.

The way we're looking at it now is it's probably more of a first-half issue where some inventory builds, and then as we can bleed that off, we're taking -- basically taking advantage of some slow auto production here in the earlier part of the year. So, as part of that, I think that just gets into the timing.

It could put a little bit of pressure on that, 100%. But we have other levers as well that we're looking at, and will continue to assess that. And I think we'll be able to give you a better update on that answer here a quarter or two from now..

Okay, thank you, Matt.

Could we have the next question, please?.

Your next question comes from the line of Steven Fox with Fox Advisors. Your line is now open..

Hi, good morning. Just on the 110 basis points improvement, since '19, on the operating margins. I was wondering if you could break down sort of how you got there between volumes, restructuring, and maybe some of the offsets, and any implications for the risks of achieving 30% incremental margins this year? Thanks..

Sure, Steve. Yes, listen, I mean you're -- you've been covering us for a long time, and you're well aware of the restructuring endeavors that we've undertaken.

And we've been very focused in on particular areas around Industrial this year, around some things that we did on a footprint basis, in Europe, that we're continuing to execute on within Transportation. And then we're benefiting greatly from the Communications side with a lot of that heavy lifting done several years ago on the footprint side.

So, as we look forward, there's no doubt that as we think about that, that ability to grow over 100 basis points from '19 to '20, restructuring played meaningful part of that.

But I would also tell you that some of the things that we were able to do around holding off in 2021, the price erosion through some of the actions that we undertook, as well as the ability to offset some of the inflationary pressures with productivity were a meaningful part. And then volume goes a low way.

As you know, this is a scaled business, and having volume means a lot. So, I don't know if we've ever actually broke down, externally, what percentage of that increase is in certain buckets, but you can imagine there was contributions across the board on that side of things.

In terms of, as I mentioned earlier, listen, as we sit here, and although we're not guiding for the full-year, we feel good about our ability to hold to our business model of margin expansion through -- even if it's modest this year, through the flow-through of that 30%..

Okay, thank you, Steve.

Could we have the next question, please?.

Your next question comes from the line of Jim Suva with Citigroup. Your line is open..

Thank you so much for the details..

Hey, Jim.

It's great to see that your restructuring costs are going lower. Just kind of curious, that would to me imply that your operating margin track continues to remain where your -- well, at this 30% margin growth or even better.

And with this recent acquisition or ERNI, should we think about there may have to be a little bit step up in restructuring? Or I'm just trying to get at kind of your goals for restructuring. It sounds like a lot of the heavy work is behind us, but then again, it could be timing, and there was a pandemic, and all these type of other things.

So, if you could talk to us about restructuring that would be great..

Sure, Jim. And I you and I have had a lot of discussions about this over the last few years, I appreciate the question. Honestly, as I sit there and look at where the buckets are, the bigger item -- the bigger projects that we have underway in terms of rightsizing the footprint.

Some of the things that we talked historically about, getting right-sized in Industrial and getting to the right places of manufacturing for automotive, particularly in Europe. A lot of those things are underway, those charges have been taken, and we're working through those.

What we're seeing more of now, Jim, is the impact of some of the more recent acquisitions. And when acquisitions come into our portfolio, inevitably, they come in as multiple sites. And in some cases we do need to go and collapse those into our existing footprint.

Or in some cases they avail opportunities to take legacy TE locations and move into the acquired site.

So, some of the things that we're now seeing, whether that's with ERNI or with some of the sensors activities that we acquired here in the last few years all -- is driving some of those restructuring efforts, and plays into the overall return and valuation considerations for the acquisitions that we do in terms of the return and value creation opportunities.

So, we're starting to make that move. We're not quite there in terms of cleaning up some of the legacy locations, but we're getting closer..

Okay, thank you, Jim.

Could we have the next question, please?.

Your next question comes from the line of Luke Junk from Baird. Your line is open..

Good morning. Thanks for taking the question.

A lot of near-term focus here, I wanted to ask more of a strategic question, and that is, Terrence, how do you play offense or position TE to grow above market in areas that have lagged in the recovery, specifically thinking about areas like medical, which is, encouragingly, just starting to come back right now or something like [COMAIR] [Ph] continue to become a better position on the backend given the size and scale of your organization versus, say, small competitors in those markets?.

I think during this time, certainly I think our customers have looked for and seen stress around the supply chain from the smaller competitors. So, I do think any of us that are larger will benefit during this time. So, that that is something I think is a benefit for the larger companies in our space.

When you talk about those two areas; medical, we haven't talked about for the past couple of years due to the impact that we did have on procedures. But when you look at how procedures are increasing, the innovation that we've been doing with our customers has not slowed down during this time.

But, certainly, the levels of procedures went way down due to COVID dynamics. So, I do think you'll see us talking more about medical again, from a growth perspective, more like we had historically than you've experienced the past couple of years. In COMAIR it's a little bit different. I think medical had a temporary pause due to procedures.

COMAIR is one that, you know, has been hit hard. It's been hit hard. Certainly you're starting to see some discussion around single-aisle aircraft, you get into dual-aisle aircraft, dual-aisle aircraft is probably further away.

And in those cases, I'm not sure you're going to have as much new innovation happening, even though we do have wins on what's happening in space, certainly low-earth satellite. As well as we're also working with some of the newer EV OTL providers, depending upon what ramp that goes.

So, I think net-net, certainly a much more bullish tone around medical. I think in COMAIR, because that -- how it really got hit as the overall market and our customers also got disorientated, that they had to reposition, really is the one that's going to be a little bit longer out.

I feel we have a very good position there, certainly a leading position. But I'm not sure we're going to be able to talk to that to work out on what the growth trajectory is longer-term based upon what our customers do..

Okay, thank you, Luke.

Could we have the next question, please?.

Your next question comes from the line of Nik Todorov with Longbow Research..

Yes, thanks, and good morning, everyone. When you look at your auto sales growth, whether it's fiscal year '21 or calendar year '21, it looks like sales will outgrow production by more than 20%. So, can you help us understand the components within that? I think you touched on this.

How much is content versus pricing, how much if FX, and how much is driven by some inventory build that you talked about the -- that customer? Thanks..

Sure. Hey, Nik, we did not grow 20% above production, so we didn't. We did have content outperformance. The market was up about double-digit this year.

And if you take the real element we were in double digits of content outperformance, a very strong 50% increase in EV, certainly continued growth in traditional cars, ICE engines, we saw content growth, price was only a little bit. So, net-net, I would just ask you maybe to look at your math; it wasn't 20% by any means.

And once again, that content momentum, we're on the mid-70s, we've shared with you our path to get up to mid-80s based upon the trends around powertrain, trends around data connectivity, certainly traditional safety features. And we feel very good about where we're positioned and also how well we're positioned globally with every [OEA] [Ph].

That's one of the specialties about TE; we're essentially on every car in the planet..

Okay, thank you, Nik.

Could we have the next question, please?.

[Operator Instructions] Your next question comes from the line of Rod Lache with Wolfe Research..

Hey, this is Shreyas on for Rod. I just wanted to come back to the question around orders, and specifically within the automotive segment. And I guess what I'm trying to think through, and as I look at 2021, how much of a benefit there was from kind of unusual order activity from OEM customers, just so that we can think about that going forward.

I know you're talking about six points of outgrowth excluding that, but I just wondered if you could size that. And then on the EV side, I know you've talked about $120 of content per vehicle, so that's on average. But given the growth that you're seeing, do you see -- and some of the wins that you've had, which I think have exceeded $120 of content.

Do you see an opportunity for that to maybe increase faster over time, and maybe even be higher than that $120? Thanks..

Well, I think a couple of things there. When you look at production next year, the 6% that we said is content above production, we said includes any supply chain noise. So, you said excluded, and my comment said include -- include any of that noise that you have on supply chain that we had every year.

In regard to content, the comments that I made earlier about the 2X, we are running 2X, that would be both on all electric vehicles, including hybrids. And I think that penetration is continually going to play out. I think the one thing that's important, certainly we share things around vehicle content that are very specific models.

But you also have to remember, there's also the models that are more mainline, traditional, average median income type cars that are in that content as well. So, net-net, I like where we're gaining our share, continue the traction we have on content. And if electric vehicles go faster and we win more programs we can maybe be above that.

But right now, we expect, next year, we'll be at that 6% high end of the range..

All right, thank you, Shreyas. I want to thank everybody for joining us this morning. And if you have more questions, please contact Investor Relations at TE. Thank you, and have a nice morning..

Thank you, everybody..

-- conference will be made available for replay beginning at 11:30 AM Eastern Time today, October 27, on the Investor Relations portion of TE Connectivity's Web site. That will conclude your conference for today..