Ladies and gentlemen, thank you for standing by, and welcome to the TE Connectivity Fourth Quarter 2022 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 2022 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 website at te.com. I also want to remind you that our Q4 results include an extra week and we'll be discussing some of our results on both the 14-week and 13-week basis during the call. Please see the appendix in the slide presentation for the impact of the extra week in our results as well as the accompanying reconciliations. Finally, during the Q&A portion of today’s call, we are asking everyone to limit themselves to one question and you may re-join the queue if you have a second question. Now, let me turn the call over to Terrence for opening comments.

Thank you, Sujal and we appreciate everyone for joining us today. As I typically like to do at the beginning of these calls before we get into the slides, I'd like to spend some time discussing our performance, along with some of the developments that we're seeing since our call just 90 days ago. While there are a number of external data points showing crosscurrents from global economic uncertainty, we continue to perform well and you'll see this both in our fourth quarter and fiscal year 2022 results. Our performance came in ahead of our guidance and continues to demonstrate the benefits for how we strategically positioned our portfolio around secular growth trends as we continue to outperform our markets. We also were demonstrating operational performance in serving our customers and delivering strong financial results despite the broader macro challenges. Our backlog remains near all-time high levels and our overall order levels imply solid demand across the majority of the markets we serve. Within this backdrop, we have some markets that are growing, some that are still in recovery mode back to pre-pandemic levels, and others that are showing signs of moderation. At the same time, we're being negatively impacted by a stronger dollar, which will continue to be a significant headwind into 2023. I also want to highlight that our team continue to proactively implement price increases to keep up with ongoing inflationary pressure. I am confident in our ability to execute in the short-term as we navigate these challenges and I am excited about the long-term opportunities as we go forward. And Heath and I will go into more details on these moving pieces as we discuss our performance and outlook on the call. To summarize our financial performance, we delivered strong results again in the fourth quarter…

Thank you, Terrance and good morning everyone. I will now briefly discuss year-over-year second results in the quarter on slides five through seven. You can see the details on the slides and I will talk about organic sales performance on a 13-week basis. Slide five, transportation sales were up 13% organically year-over-year, our auto business grew 16% organically with growth across all regions. We continue to increase our content per vehicle through our global leadership in EV. Electric vehicles now account for nearly 20% of auto production with further increases in production expected in 2023. To provide context EV and HEV production has grown 3x from 2019 with 14 million units produced in 2022. And importantly, for 2023, we expect our market outperformance to be well above our stated 4% to 6% range and automotive. In commercial transportation, we saw 13% organic growth, driven by North America and Europe with significant market outperformance in all regions driven by content growth and share gains this year. In sensors, we declined 3% organically with our focus growth areas offset by continued portfolio optimization activities. At the transportation segment level adjusted operating margins were 16.6% and the margins reflect the short-term impact of our planned inventory reduction along with the timing of price actions to offset inflationary pressures which Terrance mentioned earlier. Moving to the next slide, the industrial segment, sales increased 16% organically year-over-year. Industrial equipment was up 20% organically with double-digit growth in all regions and continued benefits from factory automation applications. Aerospace and defense was also up 20% organically with growth driven primarily by ongoing market improvement and com air. In energy, we saw 16% organic growth driven by increased penetration and renewable applications. And our medical sales were up 3% organically with increases in interventional procedures as the medical…

Angela, can you please give the directions for the Q&A session?

[Operator Instructions] Your first question comes from the line of David Kelley with Jefferies. Your line is open.

Hi, good morning team. And thanks for taking my question. Number of moving parts in the quarter, the extra weeks and inventory reduction shifting in demand. So, I was just hoping to dig into maybe the earnings trajectory into 2023. So, could you walk us through or give us a sense of exit rate 2022 sales and margin levels?

Sure, David. This is Heath, I'll take it. We just laid out a lot of moving parts for you. And as I appreciate the opportunity to clarify anything that may come across this is as confusing. As we exited the year, certainly, we enjoyed good order volume and we saw that reflected in our sales. And you saw that and certainly we benefit from the flow through some of that. But we still are dealing with a lot of pressures. We have our inventory that we've elected to take down in the quarter, it was over 10% of our overall inventory balance, it was 350 million. And that does have a natural impact on margins in the flow through accordingly. But importantly, we did bring our days on hand of inventory metric, more back in line with where we would see a healthy ending balance script as volume level. So, we feel good about that. And obviously it has the benefit of the cash flow, which was a record in the quarter of nearly $750 million. So, we're going to keep our foot on that in terms of making sure that that stays in check as we move forward. But it does have a negative near-term impact on the P&L. The other piece is we still are seeing a lot of heightened price pressures, particularly in transportation around inflation, and where we buy resins and so forth that are oil-based driven cost structures is still hitting us. So, we do have planned increases that have already been agreed upon and will go into effect and more or less the January timeframe and other parts of Q2, that will have a nice uptick for us as we move from the first half to the second half of the year. And we…

Thank you, David. Can we have next question, please?

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

Yes, thank you. Good morning. I was wondering if you can talk a little more about the order and backlog trends and comps, if you could share some color on that? And maybe the magnitude of the inventory adjustment, potentially the GRC being at these ODM suppliers to hyperscalers. And if I could, I was also wondering if you could comment on how TE's performance was an outgrowth versus production and in fiscal 2022 for transport and how much of that was inventory adjustments in 2022 as well? Thank you so much.

Sure, Wamsi, I'll take that and good morning. And let me talk about orders a little bit. Because I know you talked about comps, I want to talk about what we're seeing in orders again across and then I'll talk about content outperformance. First off, I just want to be honest that having a book-to-bill below one with where our bookings have been in building a backlog, that's not surprising to us. And as supply chains around the world improve and we would continue to expect to see book-to-bill dipped below one. So, I just really want to make sure as supply chains improve, including our own, we would expect our customers to work down our backlogs that we have -- that they have with us. So, I really want to make sure that people don't read into this, that demand is dropping off across our markets, because we're not seeing that. And as I said in the script, we aren't seeing cancellations or push outs in any meaningful way. I think if you look by segment, TS and IS, I think those backlogs are getting -- book-to-bills are getting more normalized. And I think it shows resiliency. In communications, I think what's important is we've had CapEx growth with our cloud customers that have been 20%, 30% cloud CapEx and we've outperformed that. Clearly, you can see it in the growth rates. But as you see the cloud CapEx moderating well off those levels, the ODM supply chain does have excess inventory in it that's been worked off. And I think that could impact us for a couple of quarters. But it's probably to that magnitude that you'll see it in our D&D business. And then the other areas in comps and we've always talked to you about is the appliance market was one that benefited from the trends during COVID. And we're seeing that moderation that we've already always expected. So, we're getting both of those in those order patterns. Now, let me turn to your second part of your question around content outperformance. I think what's very important is, as Sujal -- also and I said earlier, was we aren't -- from how much our revenue has been impacted anymore from supply chain disruptions, it's only about $50 million of revenue that we haven't built. That used to be about $100 million. And content outperformance was at the high end of our range, and we told you a 4% to 6%. When we look at the auto supply chain, I can't tell you what the impact of that growth is in there. We actually feel very good that it's at the high end of the range for 2022. And we expect for 2023 will be above the high end of the range. So, we don't see any major inventory impacts in the auto supply chain from what we're seeing. Certainly we've seen orders moderate and people getting more comfortable with were working off the backlog.

Okay, thank you, Wamsi. Can we have the next question, please?

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

Hi, good morning. I was just wondering since you're not providing a full fiscal year guidance for the new fiscal year, if you could maybe walk through what you're thinking about your end markets at this point in time? Thank you.

Yes, thanks, Steve and we got it for the first quarter, so there is volatility in the macro, I don't think that's a surprise. And the color I'm providing is on what we're seeing today and how we're planning the business and certainly there can be changes here, depending upon how the global macro moves. But let me do it by segment. First of all, transportation, the transportation environment has been a challenging environment for the past couple of years. Auto production has really been sort of stuck around 76 million, 77 million units, due it all the things that we talked about whether it's supply constraints, the war in Europe, certainly extended lockdowns in China around COVID. And I still think where you get -- and it's nice to see some of our customers talking about semi supply improving, it's going to be really about how can they ramp production to still keep up with demand that is greater than what they can produce. So, we still see end demand for auto being above the production environment. So, we still see that as a nice setup, as we go into next year. We do also expect, as I just said, to Wamsi's question that we're going to have outperformance versus market above the 4% to 6% this year. And this is really going to be driven by the global leadership position we have where we position ourselves in electric vehicles and certainly the penetration of electric vehicles continuing to increase as a percentage of total production. The other key market that's in transportation, which is commercial transportation, it's a market that decreased double-digits this year, really around China, and some of the emissions standards, that we're putting the fact that you're before. And we would expect that China could…

All right. Thank you, Steve. Can we have the next question, please?

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

Yes, thanks. Good morning. I wanted to circle back to the gross margin and specifically, the impact of that inventory reduction, that $350 million. How much -- I mean it looks like in Q4, you were down with 220 basis points in gross margin year-over-year. And it looks like you're guiding roughly 200 basis points down in Q1. So, how much of that is related to that inventory reduction? And is that one quarter issue or does that carry through to Q2 of 2023? Thanks.

Hey Matt its Terrence. So, I'll take that. And you're right, I want to be clear, this was our inventory that we took out. So, I know we -- I talked a lot about D&D supply chain with cloud customers, this is our inventory. And as Heath sort of said, our inventories back in days on hand in the mid-80s, it was running in the 90s, as we were working through supply chain. And we made the proactive action to bring inventory down and as you have factories that have cost of x, you have less units running through it, you have higher costs inventory have to work off, we had a partial impact in our fourth quarter and you'll have a bigger impact on our first quarter, that'll be about 100 basis points in the first quarter. And it'll be a little bit in the second quarter as it works off, but then that'll be a temporary issue. The other thing is what why did we do it, I do think it's important. The why, it is something we made choices to carry more inventory during the year. But as our supply chain got better and we saw more normal flow coming in, it was something we said, hey, let's make sure we get our inventory more back in line. And we're serving our customers consistently. And it's just something we thought was prudent from a cash generation as well as the uncertainty in the macro. The only area we're seeing really supply chain impacts will be in some niche materials, as well as those markets that are really still in recovery mode back to pre-pandemic, medical, as well as commercial aerospace, which I don't think is a surprise to anybody. So, it is something that it was to get inventory back in line and TE and that always kind of a gross margin impact that will be with us here early in 2023. But that was a proactive action on our part.

Okay. Thank you, Matt. Can we have the next question, please?

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

Thanks a lot. Terrence, I think there's going to be a lot of focus on operating margin trajectory in fiscal 2023 beyond the mid-16% I think we're going to do in December. I was wondering if you could provide some clarity on how do you think margins stack up in 2023 qualitatively across segments? And really specifically on transport, reviewing the back half, recovery looks better versus the first half. And then CIS, do you think we end up dipping below 20 over there. Just any breakdown on margin trajectory going forward would be really helpful? Thank you.

Thanks, Amit. This is Heath. I appreciate the question. No, listen, I think it's certainly on point. As we think about transportation margins and some of the things we've already discussed this morning, a couple of things that are pressuring transportation margins. One is we talked about the price cost differential and what we're looking forward to in terms of seeing higher prices go into effect that we've already got agreement on later in the first half of our fiscal year that will have a benefit as we move into the second half on transportation margins. The other thing that, Terrence just walked Matt through was on the inventory side. As you can imagine, we did take out $350 million of inventory as we burn through the accounting element of that and the pressure it puts on margins, there is a disproportionate amount of that that hits transportation. So again, as we just talked about, that will have a benefit as we think about our second half versus our first half. So, transportation margin is definitely a second half improvement based on a couple of things we talked about. Industrial is honestly performing very well. And we've been pretty vocal and transparent with you about our journey on transportation and the restructuring journey in terms of rooftop consolidations that we've taken on. The business has done that well and has absorbed some acquisitions in the middle of this journey that are going to be very good returns for the company and for the shareholders. So, we're looking forward to those. At any given time, there might be a quarter pressure here or there but we are making strong progress towards our journey towards high-teens margins even while absorbing some of the dilutive impact on acquisitions. So stay tuned on industrial, but we feel good about our trajectory there in 2023. And then the last part of your question, Amit, was around transfer and communications margins and being able to stay north of 20%. Listen, we've never advertised it as a high 20% business. We've enjoyed a couple of years and we basically have said as a reminder that at those volume levels, it just shows what kind of margins that we can generate at those volumes. Now that we're seeing volumes come back down, Terrence mentioned earlier on a question that we do expect Communications to be down modestly year-over-year on the top line, we would expect that the margins would moderate. I still think they'll be a little above 20% for the full year, but there's some pieces there that, in any given quarter that might dip below. But generally, I feel like we'll be above 20% for the year there, which still shows the resiliency of that even at lower volume.

All right. Thank you, Amit. Can we have the next question, please?

Your next question comes from the line of Chris Snyder with UBS.

Thank you. So I wanted to talk about more the margin outlook for Transport Solutions, but maybe more so focusing on price cost. Prior commentary from the company has said that you're recovering about two-thirds of cost inflation and it translates to more than $200 million loss at the EBIT line based on my math. Presumably, the high majority of all of that is transport. So I guess, as we look into the back half of next year, and we see pricing going higher in cost maybe flat to down, at least with metal, how should we think about that 200-plus kind of EBIT loss? Could that get to neutral? Is there any scope for that getting beyond neutral? Any color there would be helpful. Thank you.

Thanks, Chris. I'll take that. First of all, I think your math is pretty close, okay? So I'll give you the props for that, because certainly, that is not an easy way to back into, but your math is pretty close. Listen, our inflationary pressures really come from four main places. It's metals, right. It's resins, right, that we use for our molds. It's freight cost and its just overall utility costs that we've seen spike, particularly in Europe to run our factories. Some of those things, we have started to see moderation on in terms of being able to as capacity has come back online and so forth. We are still feeling inflationary pressure on resins and on utilities, which are both energy driven prices. So we are going to -- we anticipate that to continue even as we have certain buckets that will begin to moderate and potentially lower year-over-year in terms of any incremental pressure. Throughout the year, as you mentioned, we have recovered on the TE basis about two-thirds of that inflationary pressure through price. So that still leaves us, as you mentioned, a couple of hundred-million-dollar gap. When you break it into our segments, it's a little bit different. So while it maybe two-thirds for the company, it's -- we're covering much more in FY 2022 in both industrial and in communications. And the nuance there is that we do -- in both of those segments, we do more through our distribution channel partners. And it's simply easier to pass along price more efficiently and more timely when you're going through distribution partners because you can go out with more regular increases and they're less about reopening contractual negotiations. So, those have both been recovering more price. We permit more inflation through price as we work through both not just last year, but the prior year. Transportation is where it gets tougher because you've got more direct to OEM contracts and those contracts are tied to platforms and so forth. And so many times when you're recovering inflation, which everyone is trying to do, you are discussing things that won't go into effect for some times six or nine months out. And that's really what we're feeling in the transportation world now. Fortunately, we're coming up on those price increases later in the second half of this fiscal year. And I do feel that as we do that, we'll start to see that two-thirds of pricing coverage certainly will improve. Now as we get to the back half of our year, where we go above the inflationary pressures, I would say stay tuned. But we -- that ratio will improve as we work our way from the first half to the second half sure. And that gives us more confidence as we move into -- as we move and make our plans for the rest of the fiscal year.

Okay. Thank you, Chris. Can we have the next question, please?

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

Thanks so much. Heath, you mentioned some higher restructuring. I was wondering if you could give a little bit more details on that stepped-up level in the fourth quarter. It looks like it was really in the transportation business. And I think on your guidance, it looks like restructuring is still going to be a healthier level in the first quarter. So maybe just a little bit more on those actions, what you're looking for in terms of a payback. And when can restructuring return to more normalized levels?

Yeah. Joe, thanks for the question. Listen, as we noted in the prepared comments, we did do a little more than 80 -- of the $150 million and change that we took charges for in FY 2022, little over $80 million of that was in the fourth quarter. And a lot of it was geared towards transportation. Now we have been working our way through restructuring programs, which has been very focused on factory footprint consolidations. I think we've been pretty clear that we had some European footprint in Western Europe that we've been in the process of taking off line. Most of that is in transportation and, to a lesser extent, in our Industrial segment. Those are either finished, on track or certainly underway versus when those charges were taken and the payback for those continues to be in line with what you would expect for us and when you start talking about European footprint consolidations, you're somewhere in that two to three-year payback period. The charges that we took in the fourth quarter and that I anticipate taking in the first quarter, certainly are more geared towards a bit more of a somber view of the macroeconomic view, and we want to make sure that we are getting ahead of that. Now, we're not going to do anything to pinch capacity, to a point that we can't deal with a rebound in certain markets, and it won't be universally applied across TE, but it will be disproportionate in our Transportation segment, both in auto and then a couple of other selected places. So, this will be more focused on cost reduction, and we want those costs to come out. We want to come up with our structural cost, and I think importantly, lowering our fixed cost structure as we move forward here to maintain some nimbleness on the margin front.

Okay. Thank you, Joe. 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. Thank you very much for taking the question. I want to understand what's making the company take the view that 2023 content growth will be higher than the 4% to 6% target? And do you think there will be any inventory reductions that your customers could be making and that perhaps could offset some of the underlying content growth this coming year? Thank you.

Hey, Mark, thanks for the question. And really, when you look at it, I think it just has to do with -- when we look at the setup of electric vehicle penetration and you see -- and I know Heath talked about where electric vehicles have grown from and to, and the broad global acceptance of them, which is exciting to us, it's very exciting to us that we still continue to see that being a big driver of our content growth. And with the mix that we would expect, we do expect that we would be above the high end of the 4% to 6% range. That also has a view when we make that comment and as I sort of said, production is stable. And we do view, we'll drive that off of stable production. We don't assume major supply chain excesses in the supply chain when we say that, and it's what we're seeing, especially as you look at our orders and where our book-to-bill has gotten to in auto, it's more back to more traditional levels. So net-net, we actually feel pretty good If production was to change meaningfully, maybe that could create a little bit of supply chain. But right now, we're not expecting that.

Okay. Thank you, Mark. Can we have the next question, please?

Your next question comes from the line of Samik Chatterjee with JPMorgan. Your line is open.

Hi. This is Sumeet [ph] on for Samik Chatterjee. Thanks for taking my question. I just wanted to ask on transportation relative to the underlying market, like what are your expectations for auto production growth for 2023? Like IHS is currently forecasting a 4% growth, like amounting to nearly 85 million vehicles produced. What's your take on that? Thanks.

Thank you for the question. And I think what's important and I know at times, we don't include light vehicles, so it might be a little bit different on how we talk number and how you talk. We saw about 20 million units made in the fourth quarter of 2022. And we also expect 20 million units to be made in the first quarter and there will be seasonality in it. And we think production can be a little up. But net-net, we don't see it's going to be a rocket ship of production increases. We sort of view it will be up low single-digits, which I don't think is far off of what you say. So net-net, I think that's how we see production right now as the OEMs try to make sure they fulfill the demand that's in excess of production.

Okay. Thank you, Sumeet. Can we have the next question, please?

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

Thank you. Heath and Terrence, at this time of year, you typically give a little bit more on the 2023 or the next year outlook. I know I think I heard Terrence talk a little bit about the end markets. But then with the moving parts of inventory digestion, book-to-bill and all that, I was thinking and restructuring, I was thinking on the company totality level, any preliminary thoughts on either sales or margins or cost structure or cash flow for kind of the full years as we look out because there are a lot of moving parts?

Hey, Jim, this is Heath. Well, certainly, we've got to be careful in terms of what we say, because we have not provided FY 2023 guidance other than a few buckets like where current -- foreign currency -- excuse me, currently stands as well as what we're anticipating for restructuring. Those were full year numbers. I think as we sum up a lot of things here, we've talked a little bit today about the first half versus second half. And hopefully, that provides a little bit of color for you and our expectation is that margins will improve and you can kind of cascade that way down through the P&L. From a cash flow perspective, listen, we finished very strong and had record free cash flow in the quarter and that was largely attributable to our inventory reduction. We do expect to have a strong cash year in FY 2023. We will fund all the organic opportunities that are in front of us, because we still are in a lot of markets and applications where we can outgrow our markets. That should give you some confidence that we feel pretty good about the revenue line. And in general, I feel good about that cash opportunity, not just return money back to shareholders, but to fund the CapEx and the investments we need and still deliver a very strong cash flow year above where we are in FY 2022. So I know that's probably more vague than you wanted, but that's about all I can give you at this point.

All right. Thank you, Jim. Can we have the next question, please?

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

Hey, thanks. I was just maybe on automotive. You talked about content outgrowth this year. It sounds like it was around six points. And I'm just curious what that would be if you stripped out some of the price recoveries just to kind of get a sense of the underlying content growth? And then I think as we look ahead, how are you thinking about the ability to sustain that six points of growth over market or potentially even do better than that? And as you look at your position amongst some of the big OEMs that are poised to be the largest players in EV, what gives you confidence that you're seeing content expansion, especially with those OEMs?

Yes, sure. So couple of things, and I missed it on my answer earlier, so I apologize to the earlier question. One of the things as we get into and being above the 6% this year is not only content, but we will have price benefit for the costs that we've talked about. So I missed that on the 2023 element as we get in there and those numbers were framed out earlier. When we look at the program wins and this year alone, our electric vehicle revenue of our Automotive and Transportation segment is $1 billion. So if you take what we have today in our revenue, it's $1 billion today. And when we look at the momentum that we have, which are by platform wins, guess what, that's how we build capacity, we know those wins. And really, the bigger wildcard is what cars get made, how the -- what consumers the cars -- the consumers -- the cars consumers want, sorry, I said the backwards. And really, that's the bigger variable. So net-net, when we look at the programs that we've won, we feel very good about the content momentum as well as where we're positioned globally. And let's face it, it's not only the OEMs we know here in the US, you take places like China, which is about a third of the global electric vehicle cars made in the world. So the 14 million that Heath talked about, 4 million to 5 million of them are made in China. And that position is very important as well as elsewhere with our European customers, our Japanese customers and our Korean customer. So, we feel very good about the content and it shows the demonstration of our global position as well as, I think, the $1 billion of revenue we have already in 2022 really shows how deep our penetration is already in EV, that's EV revenue.

All right. Thank you, Shreyas. Can we have the next question, please?

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

Great. Thanks for taking the question. Terrence, regarding the outlook for communications normalization, clearly, there's been a lot of data center capacity put into places since COVID hit in 2020, and that's, of course, benefited data in devices. What I'm wondering is, as you look forward, do you think there are opportunities to go back and strengthen the system after what at times has seen like a very frantic piece of investment in the past three years? Any near-term changes in channel inventory side, of course? Thanks.

Yes. So, hey, Luke, one of the things is, I think, there were elements that were certainly around COVID from an investment. But I also think it really supports their core business models. It could be around gaming elements and so forth where people want to have service, it's not just about COVID, but it's also about how the network that we've all used has had to get strengthened, and I also think there's a big element about refresh that you're always going to have around the energy efficiency of the cloud infrastructure and the data centers that go into it. So, when we look out, there will always be steps around how the technology improves to make them more efficient. Certainly, the speeds in the data center are always very important, and some of that will come in as chipsets come out for the data center. You will continue to see a refresh element of the cycle. I'm not sure you're going to have the 20%, 30% growth we've had from the past couple of years. So, when we talk about it, we really view it's a moderation off of two very strong CapEx years by the cloud customers. But I think when you think about efficiency, AI, how they continue to improve the compute, the move in the store element of everything that a data center and a cloud needs to do that all plays into content growth for us. So, we're very excited about that trend long term. Certainly, we think as we're starting 2023, we have a little bit of moderation on the CapEx side, as well as the supply chain getting in live, like you said, from a channel perspective.

Okay. Thank you, Luke. Can we have the next question, please?

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

Hey, guys. Good morning. This is Tristan in for Joe. Thanks for squeezing me in here. Just wanted to double click on your industrial orders, which I believe was down sequentially despite that extra week? Like any reason for that, anything you can highlight?

No. As I said on the call a little bit, in industrial equipment, we have seen a moderation a little bit, but off a very high level. And I wouldn't use the word moderation, like we've been talking about in communications. Our Industrial Equipment business has had very strong growth. It does look like the orders are moving more a little bit sideways, and actually coming down, and that's what you're really reflecting in our orders. And also realized orders do also represent, they do have currency effects in them as well. So you'll also see that sequentially have an impact to what Heath and I talked about from a sales element also does affect our orders.

Okay. Thank you, Tristan. And I'd like to thank everybody for joining us on the call this morning. If you have any more questions, please contact Investor Relations at TE. Thank you and have a nice morning.

Ladies and gentlemen, today's conference will be available for replay beginning at 11:30 A.M. Eastern Time, today, November 2nd, on the Investor Relations portion of TE Connectivity's website. That will conclude the conference for today.