TEL
#I'm going to let <UNK> handle that one.
He was just with that group.
Hey, <UNK>.
Good morning.
A couple of insights.
I think when you look at it, one of the things that was weaker, we actually saw the inventory come down as expected with our partners, but sell-through was a little weaker than we expected, which is why we see supply chain correction happening, impacting our channel partners.
So, the inventory bring-down in the first quarter on what they had was there but the sell-through was weaker.
What we look at is also the direct order patterns that we see.
And what we see with direct order patterns that have turned, that <UNK> talked about, as well as what we're seeing elsewhere, it does look like it's going to be another quarter or so where we're going to have our partners and expect that sell-through to improve.
When you look at this quarter, we still expect it to be a weak sell-through quarter.
I think when you take our segments like industrial, I think what we talked about this quarter we'll expect the same sort of next quarter from the channel element of it.
They're still being worked through and sell-through was a little bit worse than we thought.
No, <UNK>, you stated it well.
It's much more around product line exits now.
We feel the portfolio's really strong with the 90% sensors and connectors, 80% harsh.
And even within the data and devices piece that I alluded to on the prior question, the products that are in there are very good products, solidly profitable.
Circuit protection was more of a standalone business, which was primarily in the consumer space.
I'd never say never because the world's always changing but I'd say the heavy lifting is behind us.
A couple of things.
What our customers are telling us certainly we've seen via their orders with that increase.
As <UNK> highlighted, both in transportation and industrial we saw sequential order increases and that was driven by direct activity.
When it comes into the actual destocking amount, we did think that was around $20 million in the quarter of actual inventory but the sell-through was a little bit worse than we expected, which is why we think it's going to work through in this quarter as we try to look at our channel partners do have to get back to OEM demand.
They have to come back into parity at some point.
What I would add to that, <UNK>, is our actual orders from the channel partners were flat this quarter and they had been declining for three quarters.
It's one data point.
And as <UNK> said earlier, we've got to see the sell-through pick up.
But we feel like, when you look at the direct business, still growing, albeit low growth, that over time the channel will converge with that.
We're projecting it will converge into low growth with that based on the trends we're seeing.
In distribution it's pretty broad based.
So, the trends that we've actually seen have been broad based and that's why you see both the impact in the industrial segment and the communications segment.
When you look at the direct business, it varies by end market dynamics.
So, certainly things like commercial air are very strong, oil and gas weak.
But on the channel side it's pretty broad-based.
I'd say, <UNK>, a couple different ways to think about it.
And you really got to do it almost by region because Europe has still not got quite back to pre financial crisis demand levels.
The US, while calendar 2015 was a record level, is still slightly ---+ the average age of a vehicle is slightly higher than normal.
If that would change dramatically might get worried.
And, of course, China is naturally slowing down but still going to be a pretty nice growth business, 5% or 6% long term.
And if you just look at the emerging markets and how many people are coming into the middle class, the trends show get a nicer place to live and buy a car.
So, we think those trends are pretty good.
Auto production last year slowed a little bit from the prior year.
This year it's in the 2% range.
It feels very hot when you're in the US but globally it's still a little bit below ---+ the FY16 production rate is a little bit below its historical growth rate.
And then on top of that, to your other point, the content growth is just consistent in every part of the vehicle.
And we don't see that slowing.
And then on top of that, the point I made in the comments about this integration, it doesn't happen overnight but it's real.
We are being pulled into dozens of opportunities to do this and this broad product range of ours enables that.
There's multiple drivers.
And then, of course, if the push stays on green, which I think it will, even though oil prices are very low right now, the content in a hybrid vehicle or electric vehicle is a multiple of an internal combustion engine.
I think the positive drivers far outweigh the negative drivers.
There will be cycles but it's not like we've been in a boom cycle.
It's been, over the last five years, a little bit higher than normal coming off the prior five years being lower than normal.
A couple of things, <UNK>.
I do think you're a little bit high on an organic basis when you take currency out, when you do look at it.
We also were impacted in our fourth quarter on the channel effect, as well, so there is a little bit of a favorable compare.
But we do expect the overall direct business to be about plus 3%.
We'll get some of the anniversary effects.
We do assume that our channel business will get back to parity where it ran last year in the latter half.
So, there is a little bit of a restock that happens in quarter 4 due to quarter 4 being very weak that we talked about last fourth quarter.
So there is a little bit of that effect that helps you get closer to flat.
We do have comm-air programs that are launching, which is an uptick, as well as some things in medical that are launches due to the medical side and the program wins there.
So, there are some things that are a little bit uppers in medical and comm-air that help make it a little bit rich, as well as the distribution channel getting back to a more normalized level, more like it was in the middle of last year than where it was in the quarter 4 time, quarter 1 time, certainly the quarter 2 time that we're in right now.
It's a combination, Will.
Where we're seeing the most opportunity now is in the powertrain as customers evolve their powertrain, and the ability to integrate in a subsystem ---+ sensors, connectors, [rounding,] sealing, et cetera.
That's where a couple of our more exciting opportunities have been.
But where you have larger, more complex content, that's where the biggest opportunities are.
It moves slowly, Will.
No, it's not in our sales yet.
We're selling.
We're selling at a high single-digit growth rate the products we have in sensors, so that is playing out very nicely according to plan.
I would say the design rate in some of the applications that we're penetrating is playing out ahead of plan, some of the more rich applications in the auto space.
But it will take some time.
But you're right, significant connector share.
But, by the way, we feel the opportunity to continue gaining, as we've been, with the new applications we're bringing, and very small sensor share because we didn't really have much of a sensor platform.
But now with the acquisition we have pressure, position, humidity, et cetera, things we didn't have much of before.
And we're getting design-ins across all of those in the auto space and the industrial transportation space.
We expect that transaction to complete in the latter part of Q2.
So, in part of Q2.
It is out for the second half of the year, essentially the drive of the reduced guidance on a full-year basis.
Let me take the industrial question on oil and gas and <UNK> will take the share repo question.
On oil and gas, one of the things that we have seen, certainly the program element of the oil and gas market we've seen in our stepdown of revenue.
So, like I said, last year early in the year, as well as the year before, we would run about [$60 million] a quarter.
Our business as it's come down and oil has been impacted, we're seeing a lot of large projects obviously not happening, and there's not being a lot of large projects being bid.
The $30 million per quarter level that we have right now is a maintenance type revenue level for us.
It's not big projects.
Whether it's $25 million, $35 million, $40 million, I do actually think that's a floor that we're going to be pretty close to plus or minus a little bit.
I do think that element that we have in our forecast reflects current oil prices.
<UNK>, on the share repurchase, our intention remains we expect to be completed with the return of the proceeds from the BNS transaction in third quarter.
As you know, we looked at a variety of different mechanisms to return that cash as we transitioned between announcement and actual closure, and came to the conclusion that the best answer was an open market transaction.
There's a lot of reasons why an accelerated share buyback doesn't work for us.
The easiest one to understand is we're a Swiss company and rules are different for Swiss companies, even though we're registered on the New York Stock Exchange, and that's make an accelerated very difficult to do.
<UNK>, hi, it's <UNK>.
Clearly size of engine does impact it and it's just not that meaningful.
I think when you take the penetration that we've done in China, both with the local OEMs and the multinational OEMs, the mix effect isn't what it used to be.
And it is reflected in our guidance, certainly.
It's focused at 1.6-liter engines and below the stimulus.
What's good is we cover every OEM there.
We have content on it.
It is in our guidance but it's pretty minor.
As you might guess, <UNK>, that gets really convoluted really quick.
I think the most straightforward answer to give you is the settlement is not yet final.
It's proposed.
The two sides are largely agreed.
We're working through a lot of nuances within the IRS to get that finalized and at this point anything I'd give you would be speculation and hypothesis.
We are very comfortable and, as was stated in the 8-K, we are very comfortable that we are adequately reserved and so there won't be an additional charge.
And then going forward, once the settlement is actually finalized, we'll give some detailed guidance on the implication of other income and the go forward effective tax rate.
Thank you, <UNK>.
It looks like we have no further questions so we thank you for joining us today.
If you do have further questions please contact Investor Relations at TE.
We hope you all have a great day.
