Amphenol Corporation (APH) Earnings Call Transcript

Hello, and welcome to the Third Quarter 2026 Earnings Conference Call for Amphenol Corporation. [Operator Instructions] At the request of the company, today's call is being recorded. If anyone have any objections, you may disconnect at this time. I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

Thank you very much. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our Chairman and CEO. We would like to welcome you to our third quarter 2026 conference call. Our third quarter 2026 results were released this morning. I will provide some financial commentary, and then Adam will give an overview of the business and current market trends. Then we will take your questions. As a reminder, during the call, we may refer to certain non-GAAP financial measures and make certain forward-looking statements, so please refer to the relevant disclosures in our press release for further information. In addition, as a result of our recently announced 2-for-1 stocks, but effective on September 30, 2026. All share and per share data discussed on this earnings call will reflect that split. The company closed the third quarter of 2026 with record sales of $10.2 billion and GAAP and adjusted diluted EPS of $0.79 and $0.80, respectively. Third quarter sales were up 65% in U.S. dollars and in local currencies and 37% organically compared to the third quarter of 2025. Sequentially, sales were up 17% in U.S. dollars and in local currencies and up 16% organically. Adam will comment further on trends by market in a few minutes. Orders in the quarter were a record $12.17 billion, up a strong 99% compared to the third quarter of [ 2025 ], up 13% sequentially, resulting in another very strong book-to-bill ratio of 1.19:1. This impressive book-to-bill was driven by robust bookings in most of our end markets with positive book-to-bill in all but 1 of our end markets this quarter. GAAP [indiscernible] were both approximately $3 billion in the quarter and GAAP and adjusted operating margin were 29.5% and 29.7%, respectively. On an adjusted basis, operating margin increased by a strong 220 basis points from the third -- from the prior year quarter and declined a modest 10 basis points sequentially. The year-over-year increase in adjusted operating margin was primarily driven by robust operating leverage on the significantly higher sales volumes, which more than offset the margin dilutive impact of recent acquisitions. On a sequential basis, the slight decrease in adjusted operating margin was driven by a meaningfully larger benefit from tariff recoveries in the second quarter. Excluding these benefits, our adjusted operating margin improved by approximately 70 basis points, reflecting strong conversion on higher sales levels as well as continued progress on profitability improvement at recent acquisitions and particularly CommScope. I am very proud of the company's operating margin performance in the third quarter, which reflects continued strong execution by our team. Bringing down third quarter results by segment compared to the third quarter of 2025, sales in the Communications Solutions segment were $6.6 billion and increased by 99% in U.S. dollars and 51% organically as segment operating margin was 33.1%. Sales in the Harsh Environment Solutions segment were $2 billion and increased by 35% in U.S. dollars and 29% organically and was 30.1%. Sales in the Interconnect and Sensor Systems segment were $1.6 billion, increased by 17% in U.S. dollars and 11% organically and segment operating margin was 20%. The company's GAAP effective tax rate for the third quarter was 27.4%, and the adjusted effective tax rate was 27%, which compared to 23.5% and 27% in the third quarter of 2025, respectively. As is our typical practice, our adjusted tax rate excludes the tax effect of acquisition-related costs and the excess tax benefit from stock option compensation as well as other discrete tax items. GAAP diluted EPS was a record $0.79 in the third quarter, up 61% compared to the prior -- and on an adjusted basis, diluted EPS was a record $0.80 and increased by 74% compared to $0.46 in the third quarter of 2025. This was an outstanding result. Operating cash flow in the third quarter was $2.1 billion or 102% of net income, and free cash flow was $1.6 billion or 80% of net income, an excellent result considering the growth we have experienced. From a working capital standpoint, inventory days, days sales outstanding and payable days were all within our normal ranges. During the quarter, the company repurchased 3 billion shares of common stock at an average price of [indiscernible] and when combined with our normal quarterly dividend, total capital returned to shareholders in the third quarter of 2026 was approximately $553 million. As noted in the earnings release, the Board of Directors approved an increase to the company's quarterly dividend by 20% to $0.15 per share, effective for payments beginning in January of 2027. As also noted in the earnings release, the company's Board of Directors approved a new 3-year $4 billion stock repurchase plan, which will become effective on January 1, 2027. The company expects to complete the remaining purchases under existing stock repurchase plan by December 31, 2026. Total debt at September 30 was $17.9 billion and net debt was $12.6 billion. Total liquidity at the end of the third quarter was $8.3 billion, which included cash and short-term investments on hand of $5.3 billion plus availability under existing credit facilities. Third quarter 2026 adjusted EBITDA was $3.4 billion and our net leverage ratio was 1.1x at the end of the quarter. We are very pleased with the company's robust financial position. I will now turn the call over to Adam, who will provide some commentary on current market trends.

Well, thank you very much, Craig, and I'd like to extend my welcome to everybody on the call here today. And I hope you're having an enjoyable fall so far, I have to tell you that here in Wallingford, Connecticut is a truly beautiful New England fall today. . As Craig mentioned, I'm going to highlight our third quarter achievements and include a few comments about the acquisitions that we announced today. I'll also discuss our trends and progress across our served markets, and I'll make some comments on our outlook for the fourth quarter and the full year 2026. And of course, we'll have time for questions thereafter. With respect to the third quarter, I'm just so proud of our team. They drove truly excellent performance once again in the third quarter. Our results were significantly stronger than expected, exceeding the high end of guidance in sales and adjusted diluted earnings per share. Our sales grew from prior year by 65% in U.S. dollars in local currencies, reaching a new record $10.2 billion. On an organic basis, our sales increased by 37% driven by strong organic growth of more than 20% in 5 of our 7 end markets, and I'll talk about each of those markets in a few moments. The company booked a record $12.2 billion in orders in the third quarter representing a book-to-bill of 1.19:1. Orders essentially doubled from prior year and were up 13% sequentially. And as Craig commented, our book-to-bill was positive in nearly all of our end markets. We're also very pleased to have delivered robust adjusted operating margins of 29.7% in the quarter, an increase of 220 basis points from prior year. This strong profitability is a direct result of the outstanding execution of the Amphenol team around the world, who continue to manage well in a challenging cost environment. Adjusted diluted EPS grew 74% from prior year, reaching a new record of $0.80 per share. And we generated record operating and free cash flow in the quarter, $2.1 billion and $1.6 billion, respectively, another clear demonstration of the quality of the company's earnings. Finally, I'm really pleased that our Board of Directors has approved a 20% increase in our quarterly dividend to $0.15 a share as well as a new $4 billion 3-year stock repurchase program. I just can't emphasize enough my pride in and my gratitude to the Amphenol team around the world. Our results this quarter once again reaffirm the value of the drive, discipline and agility of our entrepreneurial organization as we continue to perform well amidst a very dynamic environment. We're also very pleased that this quarter, we announced 4 acquisitions, 1 of which closed in the quarter and 3 of which we signed definitive agreements for and expect to close between now and the end of the first quarter. First, we closed on the acquisition of Empire Electronics at the beginning of September with 2026 full year revenue expected to reach approximately $320 million, Empire is the leading manufacturer of complex interconnect assemblies for the automotive market with a particular focus on automotive lighting applications. The company is headquartered in Michigan, with approximately 4,800 employees worldwide. This company is included in our Interconnect and Sensor Systems segment. We're also excited that we signed definitive agreements for the acquisition of AdvancedPCB, Dexgreen Limited and Humanetics Sensors. First, AdvancedPCB is a U.S.-based manufacturer of high-technology printed circuit boards for the defense and industrial markets. The company is headquartered in Colorado and expect full year sales of approximately $270 million this year. AdvancedPCB has approximately 800 employees across their 6 facilities in the U.S. and will be included in our Harsh Environment Solutions segment post closing. Next, Dexgreen is an Ireland-based provider of fiber optic connectivity products, primarily for the European fiber-to-home applications in the communications network market. With approximately 100 employees, Dexgreen is expected to generate full year 2026 sales of approximately $90 million and will be included in the Communications Solutions segment post closing. Finally, Humanetics Sensors is a leader of precision for centers, specialty fiber optic sensing products and micromachining solutions for the commercial air defense and industrial markets. The company has approximately 350 employees and expect full year 2026 sales of approximately $70 million. This company will be included in our Interconnect and Sensor Systems segment post closing. I just have to say, our team was very busy this quarter, but we remain confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute acquisitions, and then very importantly, to successfully bring these new companies into Amphenol remains a core competitive advantage for the company. Now turning to our served markets. I just want to reiterate how proud we are of Amphenol's broad and balanced end market exposure. Our diverse exposure across the electronics industry enables us to continue to participate across all areas of the global electronics industry, each of which represents significant future opportunities for expansion. We also remain committed to continuing to broaden our portfolio across markets, geographies, customers, applications and products as we build on the company's momentum to further strengthen Amphenol's position long into the future. So with that said, the defense market represented 8% of our sales in the quarter. Sales grew from prior year by a strong 42% in U.S. dollars and 30% organically and this was driven by robust growth across virtually all segments of the defense market. Sequentially, our sales grew by 12%, which was largely in line with our expectations coming into the quarter. As we head into the fourth quarter, we expect a mid-single-digit increase in sales from these third quarter levels. And for the full year 2026, we anticipate sales to increase by more than 35% and primarily driven by strong organic growth as well as the benefit of acquisitions. We remain very encouraged by the company's leading position in the defense interconnect market, where we offer the industry's widest range of high-technology products to both traditional and new defense equipment manufacturers. Amidst the current dynamic geopolitical environment, countries around the world are increasing their investments into both current and next-generation defense technologies. With our expanded product offering as well as the significant capacity expansions we have made in recent years, we are positioned better than ever to capitalize upon this long-term demand trends. The commercial air market represented 3% of our sales in the quarter. Sales increased by 23% from prior year and 22% organically as we benefited from increasing aircraft production volumes, coupled with continued progress in expanding our content on next-generation commercial aircraft. Sequentially, our sales grew by 9% from the second quarter, which was much better than our expectations coming into the quarter. Looking into the fourth quarter, we expect sales to remain at these strong third quarter levels. And for the full year 2026, we anticipate sales to increase by approximately 20%. I am truly proud of our team working in the commercial air market. With the ongoing growth in demand for next-generation aircraft, our efforts to expand our product offering, both organically and through our acquisition program continued to pay real dividends. We look forward to further capitalizing on our expanded range of product solutions for the commercial air market long into the future. The industrial market represented 18% of our sales in the quarter. Our sales in this market grew by 60% in U.S. dollars and 25% organically as we saw continued strong demand across the diversified industrial market and as we benefited from the addition of CommScope's building connectivity business. On an organic basis, virtually all of our industrial submarkets grew in the quarter with all 3 geographies also showing strong growth. On a sequential basis, sales grew by 7% from the second quarter, which was much better than our expectations. As we look into the fourth quarter, we do expect sales to moderate somewhat from these robust third quarter levels. For the full year 2026, we now expect sales growth of more than 50%, reflecting both strong organic growth as well as the benefit of acquisitions. We're very excited by the company's strength across the many diversified segments of this important market. I remain confident in our strategy to expand our high-technology interconnect antenna and sensor offerings, both organically and through complementary acquisitions. This strategy has enabled Amphenol to capitalize on the many electronic revolutions that continue to occur across the diversified industrial market, thereby creating further opportunities for our outstanding team. The automotive market represented 10% of our sales in the quarter and grew 13% in U.S. dollars and 9% organically. This was driven really by strength in electric vehicles as we once again drove growth in all regions. Sequentially, our sales grew by 12% from the second quarter, which was much better than our expectations reflecting the ability of our team to quickly execute on a range of opportunities together with some impact from the addition of Empire late in the quarter. For the fourth quarter, we do expect a slight sales moderation from these third quarter levels. And for the full year 2026, we anticipate that sales will increase in the 10% range from prior year. I remain very proud of our team working in the global automotive market. With the acquisition now of Empire, we have broadened our portfolio once again, in particular, around value-add interconnect products to this important market. While there are no doubt pockets of demand uncertainty across the automotive market, our team continues to be focused on driving new design wins with customers who are increasing the content of new electronics being integrated into their next-generation vehicles. We look forward to benefiting from our strength and position in the automotive market for many years to come. The communications networks market represented 8% of our sales in the quarter. Sales grew from prior year by 25% in U.S. dollars, driven by the addition of CommScope. On an organic basis, though, sales did decline by 28% from prior year, due in particular to moderations in demand from the broadband market as well as from other communication network operators. On a sequential basis, our sales declined by 13%, which was in line with our expectations. Looking to the fourth quarter, we expect a further decline in sales from these third quarter levels on continued softness in spending, particularly in broadband. For the full year 2026, we expect sales growth of more than 40%, driven by the CommScope acquisition, partially offset by some organic decline. With our expanded range of technology offerings following the acquisitions of both CommScope and [ Andrew ], there's no doubt that we are well positioned with both service provider and OEM customers across the communications networks market. Our deep and broad range of products, coupled with our global manufacturing footprint, have positioned us well to support customers around the world whenever they choose to expand their networks. The mobile devices market represented 5% of our sales in the quarter, and we were very pleased that our sales grew by a strong 31% in U.S. dollars and 29% organically. This is really driven by growth in wearables, handsets, laptops and accessories, which more than offset some modest decline in sales related to tablets. Sequentially, our sales grew by 32%, which was much better than our expectations coming into the quarter as we were able to react quickly to support incremental demand from a number of customers. Looking to the fourth quarter, we now expect our sales to increase by approximately 35% from these third quarter levels. And for the full year 2026, we anticipate robust sales growth of more than 30% compared to prior year. I'm extremely proud of our team working in the always dynamic mobile devices market as their agility and reactivity has once again enabled us to outperform expectations in the quarter and to capitalize on the opportunity of increased demand from our customers. I'm confident that with our leading array of antennas, interconnect products and advanced mechanisms, including hinges, designed in across a broad range of next-generation mobile devices, we are well positioned for the long term. The IT datacom market represented 48% of our sales in the third quarter. Sales in this important market grew by a very strong 117% in U.S. dollars and 77% organically. This was driven by continued acceleration in demand for our products used in artificial intelligence applications, together with continued strong demand in our base IT datacom business. On a sequential basis, sales increased by 30% from the second quarter, which was substantially better than our expectation for a mid-teens increase. I would say that the vast majority of our sequential growth was related to AI, which now does represent approximately 3/4 of our IT datacom sales. As we look towards the fourth quarter, we expect sales to increase again in the mid-single digits from these very strong third quarter levels. For the full year 2026, we expect our sales to more than double compared to prior year, driven primarily by strong organic growth as well as the benefit of acquisitions, including CommScope. We are more encouraged than ever by the company's position in the global IT datacom market. Our team has done an outstanding job of both securing future business on next-generation systems with a broad array of customers, but also on executing on these exciting programs. In addition, I just want to note that the team at CommScope continues to make great progress in further penetrating the IT datacom market with their advanced optical interconnect solutions. Accordingly, we now expect CommScope sales in the IT datacom market to more than double for the full year 2026, and we expect that those sales should represent roughly half of their sales for the full year and that compares to around 1/3 of their sales last year. The revolution in AI has created a unique opportunity for Amphenol, given our leading high-speed fiber optic and power interconnect solutions. All of these high-technology products are critical components in our customers' next-generation systems. This creates a continued long-term growth opportunity for our company. Turning to our outlook. And obviously, assuming the continuation of current market conditions as well as constant exchange rates, for the fourth quarter, we expect sales in the range of $10.3 billion to $10.5 billion and adjusted diluted EPS in the range of $0.81 to $0.83. This would represent a year-over-year sales increase of 60% to 63% and an adjusted diluted EPS increase of 65% to 69% compared to prior year quarter. I would just note that this guidance does not reflect any acquisitions that have not yet closed and therefore, does not include AdvancedPCB, Dexgreen Limited or Humanetics Sensors. Our fourth quarter guidance represents also an expectation for full year sales of $36.9 billion to $37.1 billion and full year adjusted diluted EPS of $2.82 to $2.84. This outlook represents a full year sales increase of approximately 60% and an adjusted EPS increase of approximately 70%, very strong performance. I would also note that we have upgraded our outlook for CommScope, which is included in this full year guidance. We now expect CommScope to achieve $5.1 billion in sales and to contribute $0.18 to our 2026 adjusted earnings per share. I just can't express enough how grateful I am to the entire CommScope team for their amazing work as part of the Amphenol family. There's no doubt that 2026 has been a very special year for Amphenol thus far. I remain confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current environment and to thereby continue to grow our market position while driving sustainable and strong profitability through this year and into the long term. Finally, I'd just like to take this opportunity to express my gratitude and thanks to our entire global team for their truly outstanding efforts here in the third quarter. You should know that they worked unbelievably hard to deliver this level of growth and profitability, and I am grateful to each and every 1 of them around the world. With that, operator, we'd be very happy to take any questions that there may be.

[Operator Instructions] We have a question from Luke Junk with Baird.

I wanted to start with CommScope. Adam, maybe if you could just give us some insight into the guidance raise this quarter and then bigger picture, I'd be really interested in your thinking on the virtues of their business on the current tight supply chain environment. And maybe within that, if you could also just comment on the work you're doing to secure fiber supply and your flexibility in that respect?

Yes. Thanks very much, Luke. Well, again, I just want to commend the team at CommScope. Obviously, when we announced the deal, we talked about this company at signing as a $3.6 billion company. And here we are now $1.5 billion more than that this year. And I think when we closed, we said we thought it would be $4.1 billion, so $1 billion more than at the beginning of this year. And that is just a direct reflection of the team's ability to execute in the face of the demand opportunity that is there. And that demand opportunity for sure is very strong in the data center market, AI and related. They also see strength in their industrial market. And even if the communications network, as I mentioned, we've seen a little bit of softness in the demand there, I think the CommScope team is executing extremely, extremely well. And when I say executing, I really mean not just doing the things in the factory to make it happen, but also facing up to whatever challenges they may see in the marketplace, challenges around getting enough people in the right places, challenging around getting materials of all sorts, including glass and other things. I mean there are lots of constraints that are there in the world. And I think the team has done a fabulous job to diversify their supply base, to secure supply of everything that they need, including glass, and to make sure that the company is positioned to support their customers, not just here in the third quarter and the fourth quarter of 2026, but for the long term. And as part of the Amphenol family, they have the wherewithal to do that because rather than being in a company that was naturally constrained from a capital perspective and the scale, but in particular, given the financial condition of their prior parent, I would tell you that CommScope is taking full advantage of being part of Amphenol, investing in new technology development, developing a multiplicity of options for all the things that they need across the board as a manufacturer. And I think that long-term positions them very, very well for the future.

Your next question comes from the line of Varun Govindaraj with Bernstein.

Congratulations on the strong quarter. I had a question related to NVIDIA architectures. So as we shift from over on to [ Ciber ], theoretically in 2028, we lose the backplane and then move into that PCB mid-plan structure. How do you think about that from an Amphenol content standpoint? And have you been having any conversations around this? Would love to get any qualitative color you can share it? I know it's still early.

Yes. Well, Varun, first of all, let me welcome you to our call. And second of all, I think you'll learn in the years to come that I don't discuss specific customers, and I'm not going to delve into specific customer-specific architectures. But what I will say is this, I mean, I personally meet with customers all the time. I was meeting with a lot of customers even just in the last few days who are involved in lots of future architectures and what we hear from all of our customers across the board, who are designing these next-generation architectures for AI, for whatever you call it, AI or SI or accelerated compute. You name them however you want to call it. They need more interconnect period. And that more interconnect means more copper, high-speed interconnect. It means more optical interconnect. It means more power interconnect. And it is really our ability to bring to them the breadth of those opportunities, the breadth of those products, the depth and the new developments that we're offering, the capacity, the capability to scale with them that regardless of what individual 1 program or another designs or doesn't design, we hear from all of our customers, a continuity of the intensity of the Interconnect architecture that we can bring to them.

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

Adam, if I think about the IT datacom segment growing 30% sequentially, I think it's 2x which you had initially expected. And I think you said most of this came from AI on the prepared comments. I'm just wondering the upside and strength that you're seeing over here, is that coming from customers essentially increasing their demand to you? Or was it more driven by your ability to fulfill existing demand faster than you had expected? And maybe you could just connect that upside to the fact that you're guiding December quarter up mid-single digits for IT datacom broadly. Is that, again, the underlying deployment cadence? Is that more a function of what you think you could deliver?

Well, thanks so much, Amit. Look, 30% sequential demand on the market of this size is an enormous, enormous achievement for our team. So I want to say that first and foremost, I think also there is traditionally a little bit of seasonality that comes in certain markets. Hard to say what the seasonality of AI will be. We are still guiding to a growth in the fourth quarter from these very high levels. So I think it's very substantial. I don't think that it's gated -- to say that it's gated by demand or our abilities. I mean we've been executing really, really well for our customers on their demand. And I think the strength in the third quarter, it wasn't that anything was pulled in. It was just we satisfied our customer demand, and we were able to execute upon it. And right now, what we see in the fourth quarter is this kind of mid-single-digit increase from already very, very high levels. So I don't think there's any sign of anything there, except that the fact that they're still procuring at these high levels and that we're able to meet the moment of the demand from the customers is a really positive thing from my perspective.

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

Congratulations on the strong results. I wanted to talk about EBIT margins, if you could please. Overall non-GAAP EBIT margins are nearly 30%, and that's actually the incremental conversion margin the company has historically targeted. I'm sure you'd like to profitability higher going forward. But maybe talk a little bit about the ability for the company to take up its view around incremental margins north of the historical 30% target, especially in light of some of the input cost dynamics that are at work in the industry?

Yes. Thanks for the question, Mark. Yes. No, listen, first off, you commented on the 29.7% operating margins we had in the quarter. And certainly, we're extremely proud of achieving kind of those high levels of operating margins that we certainly think is deserved given the technology and the value we're bringing to our customers, not just in IT datacom, but honestly in all of our markets. But that's being driven by a few things. Number one is, obviously, we have significant technology, which I just mentioned and the value being added to our customers. I think, it's just driving kind of those margins higher, we're able to share some of those margins with our customers. But you can't do that without strong execution, strong cost discipline by our general managers. And they've just done an outstanding job of leveraging kind of the obviously, the volumes that they have and these really complex products that are really hard to make, but do it in a way that ultimately is able to drive margin for the business. We talked about this 30% conversion margin kind of, we increased this a little over a year ago now. And clearly, we've already started to kind of approach those levels. So I don't think we would really change our, first thing long-term target yet. I'm not saying that won't happen kind of in the future here. But there's no doubt, I think as we continue to grow certainly, organically, and certainly, the acquisitions will have some you're going to have some compression on margins as we go forward because typically, those are not the levels of profitability that the company is at. But certainly, our organic growth as we go forward, I would expect to continue to increase our margins to some degree. And I certainly don't think this 29.7% is kind of the bottom in terms of where we are today. I think that ultimately, as we grow as our revenue continues to grow, we should be able to expand those margins. So -- and we'll talk about longer-term targets in terms of conversion from there. But I get -- essentially, we'd certainly expect to continue to be able to expand those margins.

Your next question comes from the line of Shreyas Patil with Wolfe Research.

Congratulations on the strong quarter. Maybe -- wanted to maybe hone in on the power portion of the datacom business. The broad trends that are driving up a rack power needs towards 800-volt architectures with higher bandwidth and lower latency demand. I'm curious how sizable power is now relative to your overall AI business? And how fast are you seeing that transition to higher voltage designs?

Yes. Well, thank you very much, and I'd like to also extend my welcome to you for the first time on our call. Look, we've talked for a long time about the sort of triumvirate of technologies in data center for us, high-speed optics and power and how those are all very, very important to the data center, to the people who are constructing these data centers, who are architecting them, but also very important to Amphenol. They each represent real pillar technologies inside our company. And we continue to double down on those pillar technologies. And if you drill down into power, we've been involved in power interconnect for nearly the entire modern history of Amphenol going all the way back to our defense business, high-voltage industrial business. So we've been working with extremely high power interconnect knowing how you package that interconnect for efficiency and safety, which are really the 2 greatest considerations that you have in a power connector. At the end of the day, and I think I've said this before, like these data centers are basically trying to do a simple thing, which just turn electrons into tokens. And if we can help our customers use less of those electrons through the efficiency of the power ending everything is safe and secure, which you need to do, especially as you reach to these very high voltage and power levels, that creates an enormous amount of value for our customer. In terms of the scale of our power business, and we have a very significant offering in power, I would tell you that across our AI business, without giving specific decimal level numbers, I mean, it's a very meaningful portion of the business that we sell even if I would say high speed and optics is a little bit -- is certainly more in that order. But it's -- we have a very, very strong leadership position in ensuring that our customers get the right power into their data center. And we see this as a high-growth opportunity as the chips -- as the chip architectures consume more power and as our customers drive into new power -- into new power formats like 800-volt and beyond.

Your next question comes from the line of Will Stein with Truist Securities.

Congrats on the great results and outlook. I wonder if you could talk to us a bit about capital intensity. Company's, I think historical target was 3% to 4%. The last couple of quarters have been a little bit higher. I'm surprised you've been able to keep it this low, frankly, given the growth. I know a lot of the growth comes from M&A, but still, I wonder if it's time to rethink how we model CapEx over the next few quarters or couple of years, should we expect above that 3% to 4% historical range?

Yes. Thanks, Will. I appreciate the question. I think this 3% to 4% historical range, honestly, probably isn't so different as we move forward. I mean, clearly, as we're growing at this level, we'll have certain quarters where we will exceed kind of that 4% range and maybe even slightly exceed it for the year, certainly with the growth we have seen, which obviously has been extraordinary. But long term, certainly, as we kind of come down to more normal growth levels over the future, I wouldn't expect certainly much more in that 3%, 4% range. I think at the end of the day, I think that we the general capital structure in terms of the capital intensity of our business certainly has grown a little bit. And certainly, we have more automation, I would say that we have. We've talked about the value that automation provides to the company, which has, I guess, increased -- has increased modestly kind of towards the upper the 4%. But I would say the overall range of 3% to 4% is still probably what I would think about with maybe slightly higher than 4% and certainly times we were growing pretty quickly.

Your next question comes from the line of Andrew Buscaglia with BNP Paribas.

Maybe I wanted to switch gears and then just talk about industrial for a second, which growth surprised me how strong it was. And you made the comment it's broad-based, but I'm wondering if you could talk about, are there like 2 or 3 underlying subverticals? I know it's kind of a hodgepodge, but maybe you can talk to specifically what's driving it and why it's starting to pick up just this year and just now?