Everyone, thank you for standing by, and welcome to the TE Connectivity Fourth Quarter and Final Year Fiscal 2024. At this time all lines are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I'd now like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah. You may now begin.

Good morning, and thank you for joining our conference call to discuss TE Connectivity's fourth quarter and full year 2024 results and outlook for our first quarter of fiscal 2025. 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. As you know, in September, we announced a reorganization into a 2-segment structure effective with the start of fiscal 2025. Our Transportation Solutions and now a larger Industrial Solutions segment, which adds the two businesses from Communications. Our Data and Devices business moves into the Industrial segment and is renamed Digital Data Networks. Our Appliances business will be combined with Industrial Equipment, and the new business is named Automation and Connected Living. As we talk about our results today, they will be discussed in the old 3-segment structure, and we will begin reporting our financial results in the new structure beginning in the first quarter of fiscal 2025, with an 8-K of recast financial information being issued before the end of our fiscal first quarter. [Operator Instructions] Now let me turn the call over to Terrence for opening comments.

Thank you, Sujal. And as always, we appreciate everyone joining us today. And before I get into the slides, let me just make some comments for our fourth quarter, I am pleased that we delivered revenue and adjusted earnings per share that was ahead of our guidance driven by continued solid execution across the segments. Our teams delivered consistently in 2024 on the operational levers to drive margin improvement, along with strong cash flow generation, which was our key focus that we discussed with you all throughout this year. We delivered strong margin expansion and double-digit growth in adjusted earnings per share in what continues to be a dynamic market backdrop. When we look at our results for fiscal 2024, we delivered record operating margins, earnings per share and free cash flow. And I guess a few things to highlight building on this. We generated over 200 basis points of adjusted operating margin expansion and double-digit earnings growth year-over-year against a flattish volume environment. We also continue to demonstrate the strategic positioning of our portfolio and alignment to secular trends as we benefit from the electrification and increased data connectivity adoption within the vehicle, growth in renewable energy and aerospace and defense markets, and accelerated momentum in artificial intelligence applications. And the content outperformance that we saw in these markets were offset by the softness we saw in the broader industrial markets. And lastly, we demonstrated the strength of our cash generation model with free cash flow of approximately $2.8 billion and disciplined capital deployment that included a strong return to shareholders. I'm also pleased today to announce that our Board authorized a $2.5 billion increase to our share repurchase program that reinforces our value creation model. Now let me share some of the market trends and what we're seeing…

Thank you, Terrence, and good morning, everyone. Before I get into the details of our financials, I want to reiterate something that Terrence said earlier. We are dealing with a dynamic market environment. So, our focus this past year has been on improving margins and earnings. I am pleased that we delivered record margin, EPS and free cash flow in fiscal '24. For the quarter, adjusted operating income was $755 million with an adjusted operating margin of 18.6%. GAAP operating income was $651 million and included $5 million of acquisition-related charges and $99 million of restructuring and other charges. For the full year, restructuring charges were $144 million, reflecting continuing footprint optimization efforts, and I expect restructuring charges in fiscal '25 to be at or below the $100 million level. Adjusted EPS was $1.95 and GAAP EPS was $0.90 for the quarter and included a tax charge of $0.78 related to the increase in the valuation allowance for deferred tax assets. Additionally, we had restructuring and acquisition and other charges of $0.26. For the fourth quarter and for the full year, the adjusted effective tax rate was approximately 22%, which was as we expected. As we move into fiscal '25, we expect our adjusted effective tax rate in Q1 to be approximately 23% with the full year 2025 being in the 23% to 24% range. The increase versus the prior year is primarily related to the impact of the Pillar two global minimum tax implementation. Importantly, our fiscal '24 cash tax rate was in the mid-teens, significantly below our adjusted effective tax rate. And you can continue to expect our cash tax rate to stay in the mid-teens longer term. Now turning to Slide 9 for additional information on full year performance. Fiscal '24 sales of $15.8 billion were flat…

Thank you, Heath. Eli, can you please give the instructions for the Q&A session?

[Operator Instructions] Your first question comes from Amit Daryanani from ISI Evercore.

Terrence, I'm hoping you can just perhaps expand more on the AI opportunity that you see unfolding going forward. There's been a lot of discussion around what's happening and some of the shifts here. So, would love to hear your perspective. What sort of customer diversity do you both have here? And some of the recent architectural changes that we're seeing has any impact to TE? And perhaps you can leave into this discussion, how should we think about this billion-dollar AI opportunity talked about longer term? Is that getting bigger or perhaps going to happen sooner?

Thanks, Amit. And obviously, you heard us talk about this for a number of quarters, and it's a great trend which also demands really excellent engineering and tough engineering problems we solve. It's about higher speed that all of our cloud customers need with lower latency as well, at the same time, really helping solve the power efficiency that's needed with what we provide from our product. So, it is something that we like, that engineering stickiness. I do think when you look at the trend, let's face at the baseline when we look at the growth is the design wins, we have as well as where cloud CapEx spending is going. And you can see from their reports, that just continues to increase and is expected to be up 20% again. And that's really what's really funding these programs and the designs that we're working on with our customers, and our position really built on what we did from our cloud penetration from them that we talked about a few years ago. So, when we look at the momentum, to get to the momentum that you talk about, let's face it, a few quarters back, we started with $200 million and we said $250 million. Now we ended the year at $300 million. So, we do continue to see increased momentum, things pulling in more than actually getting pushed out. And let's face it, our customers really are just asking for everything to be accelerated. And you see that in the order patterns that we had last quarter, where our orders were up almost 100% in our Communications segment and then this quarter being up 40%. So, we did talk about today in the prepared comments, we do still expect doubling of our $300 million to the $600 million…

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

Next question comes from the line of Wamsi Mohan from Bank of America. Your line is now open.

Yes, thank you so much. Terrence, I was hoping maybe you could unpack your comment on the content outgrowth in Asia. That sounded closer to 10 points of outgrowth. I was wondering, how much of that is coming from EV mix versus increased electronification in that region? And do you see those trends sustaining in fiscal '25 as well?

Yes. A couple of things. I think what's important is, first off, being -- when we sit here today and you think about Asia, Asia is very much -- it's our largest revenue region. It's also where the vast majority of the EVs are made. And if you look at just last year, Wamsi, there were four million more electric vehicles made last year. They were all made in Asia, while the West was sideways and slightly down from a production perspective. And when you look at overall Asia car production, it was up mid-single digits. Our revenue was up mid-double digit. So, really nice content outperformance. Certainly, it's the EV momentum. It is also data in the vehicles. A Chinese vehicle as well as any Asian vehicle, you look at the software that's getting put into them, that needs more data connectivity in the car as well as the architecture continue to evolve. So, the outperformance is both EV as well as everything we get from a content across all powertrains. And we do expect that you're going to continue to see EV production growth probably similar in the units that we had this year, around four million units. That's going to be mainly driven by Asia, and we feel very well positioned for that.

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

Question comes from Steven Fox of Fox Advisors. Your line is now open.

Hi, good morning everyone. I was wondering if you could help us maybe reset a little bit on the new segments that you're switching to this year in terms of just how to think about growth by the two segments, maybe margin expansion and how it maybe compares on a pro forma basis to what you just reported?

Yes. A couple of things. We will, as Sujal said in his premade remarks, we're going to give you all data through an 8-K later in the quarter, Steve. So, when you sit there and when you think about the growth, it's really combining the IS and the CS segment today together. And I think that will be a good baseline until we get that out. I do think when you look back at this year, you see a couple of things. The growth this year, places like AD&M, Energy and what we saw in the Communications segment, that growth is just going to continue as we go into next year. Auto, we're going to -- we feel good with the 4% to 6% outperformance over production. Even though auto production will be slightly down, we do think we can drive that. And I think the real question as we look ahead is going to be some of the areas where we've seen softness, whether it be Industrial Equipment, Commercial Transportation and also in our Sensors business, just where the industrial markets have been weak and have been impacting us. When does that relieve as we go in there and, yes, that becomes a lesser of a headwind as we go into '25. We do think that will happen through the year. We do expect growth to improve through the year. But that's how you should be thinking about '25 growth. And Heath, I don't know if you want to comment on the margin side?

Sure. Steve, as both Sujal and Terrence have commented, we will put out some pro forma backward looking here later in the quarter so you can update your modelling. But I'd say from -- there's not much change in Transportation at all. So, we kind of know what that stands. And then as you add the other two segments together, you can probably get pretty close doing your own math in terms of that. But it's fair to say that the new Industrial segment would have finished 2024 in the high teens and Transportation in our 20% range. As we look forward, Transportation is unchanged with the growth opportunities that Terrence just outlined and some of the investments that we're making. We feel comfortable with where we are with Transportation as we move into '25 with Transportation being a 20% or better as we move through the year. And then the biggest move opportunity for us is in the Industrial segment, and we'll see improvement there in the new Industrial segment in '25 versus '24 on the margin front, but moving them closer to 20% at the segment level for the total company to be at 20% is the goal over the midterm. So, we're working that and feel good about where we're going to go. The biggest move that you'll see is going to be in Industrial in FY '25.

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

Your next question comes from Scott Davis of Melius Research. Your line is now open.

Hey, good morning, guys. Terrence. Congrats on managing through a tough year as margins. Terrence, I wanted just to turn to Industrial a little bit, factory automation side. Is there any visibility on when that business stabilizes? It seems to be kind of your toughest one right now. And if we get a snapback on that in '25, that would be pretty helpful.

No. Thanks, Scott, for the question. And it's an area that, in many ways, we would have thought -- and as we commented, we would have expected a little bit of recovery this year. I would say the areas where we really see the weakness, just to make sure you hear where we're seeing it, it is in the factory -- discrete factory automation space, where we have a very nice position. It's also been around building automation. And the one thing I would say where -- while it feels it's bouncing around the bottom, I do want to make sure that that's clear. We do feel it's bouncing around the bottom. Europe got a little weaker. I would say Americas is stable. And we have seen in Asia a slight improvement. So, I do think we're dealing with some regional mixes as well, Scott. I do feel there is -- with some of our customers, they are still working off a little bit of inventory of what they have. So, there is a little bit of destocking in there. I do think we're probably going to have to get out into our calendar '25 until we see that improvement. But right now, it's sort of bounced around the bottom and it has been a big headwind this year. It's absorbed some of the growth we had in other areas. And we do think with the trends out there, it will improve, but I think we still need a little bit more time.

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

Question comes from Mark Delaney from Goldman Sachs. Your line is now open. .

Yes, good morning. Thanks for taking my question, you spoke about the success the company is having with content growth and the four to six points of outgrowth is something you think you can sustain. But as you think about auto content growth over the longer term, I'm hoping you may be able to share thoughts on the announcement from Tesla earlier this week around the plan to look to simplify their low voltage connector architecture and any implications for your company.

Sure. Thanks, Mark. And we don't comment on individual customers because we play with everyone, but I would just tell you, an announcement like that gets us excited because we do work with every car company in the world. And when you go into messing with the architecture and evolving the architecture, there are real challenges to that. And that can be whether it's you're trying to go and say, how do I go from 12-volt to 48-volt, how do I go from distributed compute to zonal compute or central compute. And these are things that have nothing to do with an electric vehicle. They are architecture changes that happen across all powertrains. And in each one of those you may be going, also trying to solve on how do you improve assembly efficiency, which certainly Tesla always does a great job on. So, in these cases, typically the interconnects get more complicated because you're combining things together. They typically get more miniaturized, especially when you're going from 12 to 48 volt, you're using thinner wires, which also create challenges in the assembly process. And what occurs as you get to these more complex problems and engineering problems, it typically increases the content for us. And that's when we use the word electronification versus electrification. As you have any change where you're trying to hang more electronics on an architecture in a car, you're trying to basically improve that, that creates content opportunity for us. And even when we talk about the four to 6, we have to realize, electronification is just as important as electrification of the powertrain and that happens across everything. So, those types of changes we're excited about. And we're fortunate that we can work with every car company in the world as they work on these next-gen architectures.

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

Your next question comes from Christopher Glynn from Oppenheimer. Your line is now open.

Thanks. Good morning, Heath. You talked a little bit about capital allocation. I was noting the $2.5 billion repurchase. I think it's a little bigger than normal. So, I just wanted to go back to that discussion. Does that suggest any adaptations for your capital strategy?

Thanks, Chris, and I appreciate the follow-up question on this. No, I think when we sat with our Board and went through it, part of this announcement was taking into consideration the amount of cash flow that we've been generating as a company and where we need to be positioned to give us options. And we've used the word optionality a couple of times today and that seems to be the word that's resonating with us in terms of -- we do have a stronger M&A pipeline in front of us, but we've got to do deals that make sense for our owners and valuations and value creation opportunities. Having said that, we still have an ample excess cash flow and we have no intention of piling up on our balance sheet here. So, we never have and that's not our strategy. So, it gives us an opportunity to deploy capital via share buyback to our owners in addition to what we do with the dividend which will increase as our earnings and cash flow increases. So, it's just another mechanism. I suspect it will take us out over the next couple of years in terms of that authorization. But no change in that, just maybe a little bit more bullishness about our ability to continue to generate cash flow, utilize our balance sheet and stay balanced with what we're doing.

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

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

Great, thank you. Good morning. Thanks for taking the question, Terrence, it would be great to get your updated perspective on TE's automotive positioning in China. Specifically you've talked a lot about Asia this morning. But I want to zoom in on China and just some of the key achievements underpinning what's been seemingly a very strong year overall there. I guess I'm thinking about your positioning with current customers, turning on new customers maybe and especially leverage to locals and just what that might mean as we move into next year. And then simultaneously from a competitive standpoint, are you seeing any changes there, especially any local players making incremental incursions into the market in China?

No, fair. Thanks, Luke. And first off, you have to assume, when we talk about Asia, China plays a very big part in that. About half of Asia's vehicles are made in China. So, when you think about the world and we always talk about global auto production, while there's 87 million cars made in the world, 50 million of those are made in Asia. And of those 50 million, half of those are in China. And China is a very important position for us. And about $2 billion of our automotive revenue is China alone. And with that type of weighting, the trends that we talk about, relate about the growth outperformance I mentioned on Asia, you can assume the same type of growth outperformance in China. And one of the things that I think has always been a strength of ours is because we play with every OEM, not just multinationals, we would not be able to drive this content outperformance if we weren't with the local OEMs. It's not a secret. Multinationals are losing share in China and it's inverted. So, where you used to have multinationals have 2/3 of the share and local Chinese OEMs have 1/3. Today it's 2/3 Chinese OEMs, 1/3 multinationals and the growth that we've had just sort of proves that we are winning with the locals and winning with everybody. And our market share is similar between the two. It's something that I think our team has done a great job and something we've invested heavily in. And we're actually -- as I mentioned in my prepared remarks, we're actually opening our sixth automotive factory in China to support the growth that we have. So, we're continuing to expand with our local resources, local engineers, local capacity. Because that is served locally, which is very important. Competitively, we still have primarily Western competitors here. It is the other companies that you cover as well as Japanese competitors play there. And there are some traditional Chinese competitors that we've competed against for some time, that they are not new competitors. But there are also competitors that quality, cost and everything, that is important, we have to make sure we're winning with -- against them as well. So, I feel good about our position. It is going to be something as we look at '25, we expect Asia is going to be the driver of volume production on the world. It's going to be the driver EV. And our content outperformance that we saw in the second half, of these 5 points of outperformance we had in the second half, our content outperformance will be driven by Asia. And then we hope the Western trends pick up and that can also help us as well. But really, the Asia position is very important.

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

Your next question comes from Saree Boroditsky from Jefferies. Your line is now open.

Hi. Thanks for taking the question. I know you're going to some new segments. But just given the strong growth expected in Communication for 2025, are you still looking for 25% to 30% incremental margin on that growth specifically? Are there additional investments needed that we should think about?

Sure. I'll take that. As you would expect with the type of growth that we're seeing, there are investments that we are making in that space both on the capital front to increase capacity for production to handle that type of uplift as well as engineering investments that we're making. Now those have been underway and some of those are already embedded in our run rate for our 2024. So, I'm not here to suggest that it's going to be a massive uptick as we go into '25 because some of these programs have been underway for a while. But as we move forward, you should expect us to continue to. From a -- at the segment level, from an incremental flow-through perspective, which I think you were asking, we need to dial that in a little tighter. And we can give you a little more color when we come back out in the January time frame, which will be when we first report on the new segments. But having said that, I think 30% is probably a decent number. But that's not just coming from this AI side. That's also coming from some cost actions and other things that we're doing in the rest of that segment. So, I think you can be dialed in somewhere in that ballpark, and we'll tighten it up for you.

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

Your next question comes from Joe Spak of UBS. Your line is now open.

Thanks. Heath, you converted over 100% of free cash flow this year. I was wondering if you could just give us a little bit of color on CapEx plans for next year and whether free cash flow conversion could be similar. And then just to follow up on the earlier question, like if that M&A pipeline doesn't materialize, should we still expect about 100% of free cash flow to be distributed via dividends and the new buyback?

Joe, a couple of things there. First, I think -- and I know we may sound like a broken record, but from a modeling perspective, I would still assume roughly 5% revenue towards CapEx as a modeling. We came a little under that this year, but there's always timing elements and things. I do expect our CapEx in '25 versus '24 to probably be about $100 million higher. Most all of that is to support the AI program growth and some of the capacity we need to bring online from that. So, if you're looking to dial in your model, it kind of feels like it's in that ballpark. And we'll continue to update you, but nothing outsized relative to that from a CapEx perspective. From a conversion perspective, we certainly have benefited from the fact that -- from a cash conversion perspective that we've been able to manage working capital in a manner that you would expect in a flat growth environment. And when you're in a flat growth environment and the number of widgets that we're making is largely flat, we can go after things like inventory pretty aggressively. The other thing that's worked in our favor is we've been able to, as the world is finally from a supply chain perspective recovered more coming out of the COVID swings over the past four or 5 years, one of the things we're able to do is just plan a little bit better and have more trust in our suppliers as well as the order patterns from our customers as we sit in the middle of everything. Now as we move into '25, we are expecting to grow, and we are expecting our volumes to be up in '25. And so that will have a natural impact of putting a little bit of pressure on working capital, both on receivables as well as on inventory. So, I think that math would tell you that I don't -- we're not going to be at 120% again. But I still feel confident that we're going to be over 100%. And we'll continue to update as that moves forward. But I appreciate the question and stay tuned.

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

Your next question comes from Joe Giordano from TD Cowen. Your line is now open.

Hey, guys. Good morning. I appreciate that this is kind of happening in real time, but you're getting a lot of announcements in Germany about workers at auto facilities joining nationwide strikes. And so when you think about your auto guidance and specifically how you're dialing in the next quarter, how do you feel that kind of situation is handicapped?

Well, when we guide, Joe, everything we know is in our guidance. And certainly, we have customers in many of our business units that are going through unique things. And we do -- one thing when we think about the first quarter, we do expect global auto production to be down similar to what it was in fourth quarter year-on-year. So, I do think we are going to be seeing -- in the West, you're going to have that weakness at some of the things you've talked about. But Asia is going to be the real driver of growth and then in the production as we look at next year. So, next year, we do expect overall global production to be down slightly. And certainly, the decline in auto production, the mid-single digits we talked in quarter 1, Europe is going to be a big chunk of that.

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

Next question comes from Colin Langan from Wells Fargo. Your line is now open.

Hey guys, this is Kosta Tasoulis filling in for Colin. I just wanted to place more focus on the commercial vehicle market. Can you just offer some color on how the business will impact your Transportation segment margins and full year '25?

Well, first off, let me talk about the market a little bit and then I'll let Heath talk about the margins. When you look out there, impact of financing rates, certainly a little bit of inventory, you do sort of see globally heavy truck market, which also includes in our world ag and construction has weakened. And we've experienced that. What's been nice is that our team has grown probably 200 basis points better than the decline. So, I think as we work through this cycle, which these are common here, we will get some outperformance as we're in a negative environment. And there are some things that are in '26 that on the emissions front in certain parts of the world that we do think could spark demand and improve later next year. But Heath, why don't you talk about the margin side of it?

Well, it's a good question because sometimes the mix within the segment can impact the Transportation segment margins there, and we've been pretty public that our Commercial Transportation business is a very profitable business for TE and for that segment obviously. Now, the softness that we're seeing does put pressure on the margins. However, it put pressure on the margins in 2024 as well. So, it's kind of in our run rate. As we move into '25, while we do expect things to improve as we work our way through the year from a market and demand perspective, we are not -- our assumptions on Transportation margins and holding their head at 20% or better are not contingent upon our Commercial Transportation business seeing some big uptick. So, our Auto business has performed very well and has been able to handle the headwinds that's come out of other parts of the segment.

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

Your next question comes from Matt Sheerin from Stifel. Your line is now open.

Good morning, this is Victor on for Matt Sheerin. I was hoping to get some color on your Data & Devices business ex the AI opportunity. How is that recovery for traditional datacom applications been tracking? And how do you view the business going into 2025?

Sure. Let me get into that. And we do talk a lot about AI. First off, we're seeing -- when you take outside of AI, and it is always difficult to try to parse between AI and true cloud. But as we parse it, we do actually see the cloud element returning to growth. We do see that being probably a mid-single-digit growth next year after we had a shift that really went from up to AI dollars versus nothing being invested elsewhere. So, it's nice to actually see that we do see more cloud programs coming back up. Enterprise continues to be sideways. This is the way I would look at it as we look at next year. And then we don't play largely in telecom networks. But I do think it's nice to see the cloud recovering spend that's outside of AI going into next year.

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

Your next question comes from William Stein from Truist Securities. Your line is now open.

Great. Thanks for taking my question. Good morning. I'm hoping, hey, I'm hoping you can comment on two things, first, the sequential decline in comms orders despite the strong results and the comments about growth next year. Perhaps this is just anticipated lumpiness, but it's been a little bit surprising to investors this morning, I think. And then also, if you could elaborate on the product exits that you mentioned. I think in the slides, you talked about this in Sensors, but maybe just give us a little more color.

Yes, sure, Will. So, first off, on the sequential decline in orders in D&D, I think you have to realize, our orders grew 100% last quarter, 40% this quarter year-on-year. And you nailed it. Well, they're going to be lumpy based upon when the programs are in, based upon when we get to agreements with our customers. And so I think you're going to continue to see that lumpiness. I think the real punchline to keep in front of you is collectively in D&D, we had $1 billion of orders in the past two quarters combined. So, that's very strong. And I would really be careful in taking one quarter versus another, what's accumulative. And what we're seeing really supports that guidance we gave you in the doubling of our AI revenue and even the cloud trends I just talked about, the non-AI cloud trends. In Sensors -- let me switch to the second question you had. In Sensors, we've been talking about pruning we've been doing to be focused and make sure we get to basically four markets that are important to us as we reposition ourselves in Sensors. It was automotive, it was heavy vehicle, it was medical and factory automation. And they're the areas that we really challenged ourselves a few years back to say, look, it's in our way to winning in those four markets. And we've been doing 80/20 work, that has been exits. This coming year coming up, it will be about $50 million of exits that we're doing to really end this program. And you can put that in as a headwind for next year, but 2025, they'll be done.

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

Your next question comes from Shreyas Patil from Wolfe Research. Your line is now open.

Hey, thanks so much for taking my question. Heath, you mentioned a little earlier that the goal is to get to 20% operating margins. Wondering if you can expand on that a little bit. It would appear that the underlying margin is probably pretty close to that level if we were to adjust out some of the cyclical challenges in Industrial and Commercial. But just curious on your thoughts. And then on AI, just how to interpret the revenue guidance of around $600 million for next year with what appears to be two straight quarters where orders are probably close to somewhere around $400 million to $500 million per quarter.

Yes. I'll take the margin question. We haven't gone out with formal margin guidance in terms of that. But what I was trying to do was provide a little color earlier that if you think about the new segment structure, our Transportation margins are already at 20% and will continue running at that. There's always a little bit of quarter volatility either direction on that side of 20%. But we feel good about where we are, particularly in light of the softness in the commercial transportation market which is a bit of a headwind on that front. As we think about the new Industrial segment, which combines our traditional Communications and Industrial segments together, it's a blended rate now that's going to be somewhere in the high teens. It does provide us with that opportunity. And given both some of the opportunities on the growth side as well as some cost things that we've done to get that segment over -- the next couple of years up over to 20%, which in total, for TE, would obviously put us at 20%. So, my comments were not intended to be entirely a 2025 versus '24. It was meant to be where we see this thing going and getting more comfort around. This year, we ended up close to 19%. We see over the next couple of years to get closer to that 20%. But volume is going to help in that formula as well. And then Terrence, do you want to...

Yes. Shreyas, just one thing, just to clarify, the orders we talk about of this $1 billion, while the increases are driven by AI, there are the other parts of the business in non-cloud AI enterprise. So, all I would say is I do think the momentum that we have is there to support it. It's just there is a difference between that order level versus the AI only doubling. So, I do just think as you put those together, as you get into '25 and '26.

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

Comes from Guy Hardwick from Freedom Capital Markets. Your line is now open.

Hi, good morning. Good morning. Hi gentlemen. I appreciate the guidance you gave for Transportation. I think you said it will be -- for Q1 it will be equivalent to FY '24 level. So, that's kind of around 20%, but not equivalent too much. But in Q4, the Transportation margin was a little bit below consensus expectations, and I understand it's due to investment. But given you're at 20% now, it begs the question, how much high can it go given that's kind of close to peak levels. But you are talking about 30% incrementals. So, what's the kind of -- I know you don't want to give specific guidance for next year yet, but what are the kind of dynamics for the margin for Transportation for next year, given maybe a back-end recovery in Commercial Transportation, the Sensors business getting through the restructuring and exits and then what you said about outlook for production and mix? Heath Mitts CFO, Executive VP & Executive Director Well, Guy, I think you nailed all the various moving parts there. I'm not worried about the 19.3% and change that we did in the fourth quarter. We've also had quarters where we were 21%, right? So, in a given quarter, there can be noise. It could be mix. In this quarter, we did have some heightened investments and some timing of things that we maybe thought would have layered in over a couple of quarters. So, these things happen. I don't get hung up on one quarter particularly with the foresight that we have looking into not just our Q1 but our FY '25 for that segment. In terms of moving past that 20%, the incrementals would suggest that the natural growth in that business would drive to that. Now we have not seen a ton of volume growth because we're -- the market out growth we've had in Auto and so forth has been offset by pressures that we've seen on the top line in both Commercial Transportation and Sensors. Now we do expect both of those -- Sensors won't necessarily return to growth because the product exits in FY '25. But we do expect the Sensors -- the Commercial Transportation business to continue to improve as we move through the year, albeit we're not calling it right now in terms of a time frame for when that could happen, and it's probably in the second half of the year. When that business returns to growth in conjunction with the strong Auto business, I do think you'll see some support there on the incrementals, but we're not ready to call that or put a number out there. And we feel good about where we've been able to hold our head right now.

All right. Thank you, Guy. If there's no further questions, I just want to thank everybody for joining our call this morning. If you have further questions, please contact Investor Relations at TE. Thanks, everyone, and have a great day.

Today's conference call will be available for replay beginning at 11:30 a.m. Eastern Time today, October 30, on the Investor Relations portion of the TE Connectivity's website. That will conclude the conference for today.