Good morning, and thank you for joining our conference call to discuss TE Connectivity's third quarter 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. Due to the large number of participants on the Q&A portion of today's call, we're asking everyone to limit themselves to one question to make sure we can give everyone an opportunity to ask questions, during the allotted time.

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

Thank you, Sujal. And also I appreciate everyone joining us today as we go through our third quarter results and our revised outlook for 2019.

Now, before I get into the slides, let me frame out a few key points that we’re going to talk about in today’s call. First off, I’m very pleased with our execution in the third quarter.

We delivered adjusted earnings per share $0.07 above the midpoint of guidance, despite sales being $60 million below the midpoint, in what continues to be an uncertain market backdrop that weakened since our call with you just 90 days ago. Despite this weaker market backdrop, I want to stress that we continue to be focused on executing our strategy, and the multiple leverage in our business model.

And as we’ve been sharing with you and started at our Investor Day, there is three areas of key focus within our business model, which include top-line growth, number one; secondly, margin expansion; and thirdly, capital deployment. And when we think about these three areas, and starting with the growth one, growth is around positioning our portfolio in markets with long-term secular trends that enable organic outperformance from content growth through the cycle, as well as expansion of our portfolio inorganically.

When we think about the second lever of margin, it is looking at structural cost improvement through both footprint rationalization, as well as selling, general and administrative expense initiatives that give us scale advantage. And on the third, when we think about capital deployment, it starts with our strong cash flow generation model, and how we balance the capital return, as well as expanding our portfolio that I think we've been pretty clear on in our experience that you've had with us, it has been pretty consistent.

When we think about this year, and really driven by the market environment backdrop, the organic growth lever has been challenged after two years where it was the key pillar of our performance. And in 2019, we have been focused on executing on the other levers to protect margin and earnings performance.

Now, as we look forward, we are reducing our full-year guidance for both sales and adjusted earnings per share due entirely to the incremental market weakness that we're experiencing. During last quarter’s earnings announcement, we indicated that we were seeing stabilization in key end markets, and that was reflected by sequential order growth that we were experiencing.

Now, since that time, we have seen this trend reverse and have seen a sequential decline in orders. Order patterns, when you take it into the two big buckets of this decline, the first one is a further drop in auto production in China and then, the second is broad inventory destocking of electronic components in the distribution channel.

And both of these are really why we've adjusted our outlook. The other thing that I want to stress before I get into slides is that, the proof on the execution against our leverage is our model in this challenging market.

It’s really illustrated not only by our third quarter performance where we grew earnings per share on a sales decline, but also the change in our guidance since the start of the year. Our original fiscal year guidance last November was for sales of $14.1 billion and adjusted earnings per share $5.70.

Our current guide is for sales of $13.4 billion and adjusted earnings per share $5.50. Current guidance represents a $700 million drop in sales but only a $0.20 drop in adjusted earnings per share versus our guidance at the start of the year.

And what I would tell you, I think this is proof of execution versus the levers in our model, as well as the improvement we've made in this portfolio to enable margin and earnings resiliency through a cycle. So, let me now get into the slides, and Heath and I'll go through them and get into more details.

And let's start with slide three. And I'll review the highlights in the quarter.

From a top-line perspective, sales were $3.4 billion, and this was down 5% year-over-year on a reported basis and down 3% organically. The difference between reported and organic is primarily due to a headwind of approximately $125 million, which is due to currency translation.

In our Transportation segment, our sales were down 4% organically due to a greater than expected decline in auto production that was at 10% globally, and this was driven by China. Our Industrial segment grew 2% organically, in line with our guidance, driven by strong performance and growth in our commercial aerospace, defense and medical markets.

And our Communication segment declined 11% on an organic basis, which was lower than we expected, due to inventory destocking and the distribution channel. From an earnings perspective, our third quarter adjusted operating margins were 17.6%, up 20 basis points year-over-year, as well as up 60 basis points sequentially.

This is really due to our team’s execution of the cost lever, as I mentioned earlier. And operating margins are up both year-over-year and sequentially, despite revenue declines.

From an earnings per share perspective, our adjusted earnings per share was a $1.50 and exceeded the high end of the guidance, despite the lower sales and was driven by the strong operational execution that I mentioned. In addition to the earnings, our strong cash generation is key enabler of our business model.

And our free cash flow was $515 million in the third quarter. Year-to-date, our free cash flow is $928 million and is up approximately 27% versus the prior year.

During the quarter, we returned $307 million to shareholders through buybacks and dividends. And in addition to return of capital, our capital deployment strategy continues to include building out our portfolio inorganically to further capitalize on the secular trends to drive future growth.

In the quarter, we completed bolt-on acquisitions of the Kissling Group that will benefit our commercial transportation business as well as Alpha Technics, a provider of temperature sensing technology into the medical market. In addition, we also announced our intent to acquire First Sensor, which is a German public sensor company that serves auto, industrial and medical markets, and just how that process works that will be further out and won’t close immediately.

So, now, let met talk more about the change in guidance. And as I mentioned earlier, it’s based solely upon the weaker market conditions.

And we’re reducing the full sales outlook by $250 million to $13.4 billion, and the midpoint of adjusted earnings per share guidance by $0.10 to $5.50. Of the $250 million reduction from our prior view, approximately two-thirds is in transportation, which is primarily driven by China -- China auto and approximately one-third is in communications, which is primarily driven by lower demand in the distribution channel, as a result of destocking by our partners.

As a result of market conditions, we are also further increasing the scope of our restructuring to $375 million this year, which is an increase of $125 million for our prior view, and Heath will get into more details later. So, I appreciate if you could turn to slide four and let me get into the order trends by our segments.

In the third quarter, our organic orders were down 10% year-over-year, 4% sequentially, reflecting end markets and inventory trends that I mentioned. Our book to bill was 0.98 and our orders declined in each region and in each segment.

By segment, Transportation was down 10% organically year-over-year, reflecting further declines in auto production, primarily in China. The sequential order increases we saw in China in the second quarter, reversed in the third quarter as both auto sales and production figures weakened further.

By region, we saw year-over-year declines in the double digits in China as well as in Europe and mid single digit decline in the Americas. In the Industrial segment, industrial orders were down 5% organically, driven by industrial equipment, partially offset by growth in aerospace and defense, as well as in energy.

I do want to highlight that in our Industrial Equipment business, it does have a high ratio of sales to the distribution channel. In our Communications segment, orders were down 17% organically year-over-year, driven by broad-based weaknesses across all regions.

So, let me talk a little bit about what we're seeing in the distribution channel. And as I mentioned earlier, we are being impacted by destocking by our partners.

Now, at the total TE level, this fiscal year, approximately 20% of our sales are through our distribution partners. And we have higher levels of concentration in the Industrial and Communications segments.

We've seen a large reduction in orders by our distributors as a result of broader inventory trends that go beyond our products, and it goes into other component areas. Based on the order patterns, we are expecting a substantial reduction in distribution revenue in our fourth quarter, which we have reflected in our guidance.

So, please turn to slide five and I'll discuss our segment results in the quarter. And as always, I'll start with Transportation.

Transportation sales were down 4% organically you-over-year. Our auto sales were down 4% organically versus auto production declines of 10% in the quarter that I mentioned earlier.

Our outperformance versus auto production continues to be driven by content growth from the secular trends we’ve positioned around, including electric vehicles and increased autonomous features. For the full-year, we continue to expect content growth to partially buffer auto production declines, consistent with the content growth targets we've laid out for you.

In commercial transportation, sales were down 5% organically, reflecting broad market weakness, both across markets and regions. And our sensors business grew 1% organically year-on-year with growth driven by industrial applications.

From an earnings perspective for the segment, adjusted operating margins were 18.6%, and they grew 110 basis points sequentially, as a result of the accelerated costs actions we’ve talked to you about. In light of market conditions, we expect to take additional cost actions, which is reflected in the increased restructuring charges I mentioned earlier.

So, please turn to slide six, and I'll discuss our Industrial Solutions segment. The segment sales grew 2% organically year-over-year, in line with our expectations with growth in aerospace, defense and medical really being the growth drivers.

Our aerospace, defense and marine business delivered a very strong quarter of 17% organic growth, driven by both, new program ramps and commercial aerospace, as well as the defense side. In industrial equipment, sales were down 6% organically, driven by inventory destocking, partially offset by strength in medical applications.

Also, our energy business was flat on an organic basis with growth in North America offsetting declines in Europe. From an earnings perspective, Industrial Solutions’ adjusted operating margins expanded 220 basis points over the prior year to 16.6%, driven by strong operational execution by our team.

I am pleased that we can still generate strong performance in this quarter, despite a challenging market environment. And our plans remain on track to expand adjusted operating margins into the high teens over time for this segment.

So, let me turn to Communications Solutions and flip to page seven, please. Communications sales were down 11% organically, well below our expectations, and it goes back to what I talked about earlier.

This segment has the highest percentage of business going through the distribution channel. So, there is a greater impact from inventory destocking in this segment.

Adjusted operating margins were 14.9%, they declined 70 basis points over the prior year due to volume. So, with that, I will turn it over to Heath to cover the financials for quarter three, and I will come back and cover guidance.

Thank you, Terrence, and good morning, everyone. Please turn to slide eight, where I’ll provide more details on the Q3 financials.

Adjusted operating income was $596 million with an adjusted operating margin of 17.6%. GAAP operating income was $520 million and included $67 million of restructuring and other charges and $9 million of acquisition charges.

Last quarter, we mentioned that we were broadening the scope of our cost initiatives to better align the cost structure of the organization with the market environment. Given the market conditions, we are taking further advantage of the current low in demands to reduce our fixed costs and better align our footprint with our customer supply chain.

Hence, we are increasing our estimate of restructuring charges to $375 million for the full year. This represents an increase of $125 million versus our prior view.

The additional actions are primarily in our Transportation and Communication segments. And I’m confident that the initiatives we've taken so far this year have enabled margin and EPS resiliency, despite weaker markets.

We are now further accelerating cost actions to ensure that we can preserve margin and EPS performance during this part of the cycle. As we have shown in the past, this will enable us to realize improved margin as demand returns.

Adjusted EPS was a $1.50, up 6% year-over-year. We were able to grow adjusted EPS year-over-year, despite a reduction of revenue, which demonstrates our ability to execute on multiple levers to drive earnings performance.

GAAP EPS was $2.24 for the quarter and included a $0.91 tax benefit, primarily related to Swiss tax reform. This benefit was partially offset by restructuring, acquisitions and other charges of $0.17.

The adjusted effective tax rate in Q3 was 13.6%; and for the full-year, we expect the adjusted effective tax rate to be roughly 16.5%. Swiss tax reform resulted in one-time tax benefit in Q3 but increases our effective tax rate going forward.

So, you should continue to expect the tax for TE to be in the high teens as we move beyond this year. However, importantly, we expect our cash tax rate to stay well below our reported ETR.

Now, if I can get you to turn to slide nine. Sales of $3.4 billion were down 5% year-over-year on a reported basis and down 3% organically.

Currency exchange rates negatively impacted sales by $123 million versus the prior year. Adjusted operating margins were 17.6%.

And our strong margin performance despite lower sales is a result of the benefits we're seeing from proactive cost actions we initiated earlier this year, as well as the progress we've made in profitability across all the segments, particularly the Industrial segment. In the quarter, cash from continuing operations was $692 million and our free cash flows was $515 million with $166 million of net capital expenditures.

We returned $307 million to shareholders through dividend and share repurchases in the quarter. And year-to-date 2019 free cash flow is $928 million, which is an increase of 27% versus the prior year.

We expect that our free cash flow will exceed the prior year, even with the increased level of restructuring investment related to our cost initiatives, so powerful story there. Our balance sheet is healthy, and we expect cash flow to remain strong, which provides us the flexibility to utilize cash for organic growth investments to drive long-term sustainable growth while also allowing us to return capital to shareholders and continue to pursue bolt-on acquisitions.

I'm pleased with our team reacting quickly to pull the levers in our business model earlier in the year to help mitigate the impacts of weaker sales on our margin and EPS performance. But as you should expect, we will continue to balance our structural cost actions with our long-term growth investments to ensure sustainability of our business model going forward.

So, with that, I'll turn it back over to Terrence to cover guidance before we get into questions.

Thanks, Heath. And, let me get into guidance, and I'll start with the fourth quarter, which is on slide 10.

Now, based on what we laid out and we’re seeing in the markets and the order trends, fourth quarter revenue is expected to be $3.2 billion to $3.3 billion with adjusted earnings per share of $1.27 to $1.33. At the midpoint, this represents lower year-over-year reported and organic sales of 7%.

Even with the sales decline, we’re only expecting year-over-year reduction of $0.05 in adjusted EPS on $250 million of lower revenue, which is evidence of the multiple levers we're pulling in our business model, including the accelerated cost actions Heath just talked about. Looking at it by segments, we expect Transportation Solutions to be down mid single digits organically.

And this is based upon a global auto production environment, which we expect to be down 6% in the quarter with our revenue being impacted by supply chain adjustments, in light of further weakening in production trends. In Industrial Solutions, we expect to be down low single digits organically with declines in industrial equipment from the inventory destocking being partially offset [technical difficulty] growth momentum in aerospace and defense and medical applications.

And in Communications, we expect to be down approximately in the high teens, as the inventory destocking, we've mentioned, works its way through, and it will impact that segment more than the others. Now, turn to slide 11, I'll get into the full year guidance for ‘19.

For the full year, we expect sales in the range of $13.35 billion to $13.45 billion. As I mentioned earlier, this is a reduction of $250 million from our prior view, due to lower auto production driven by China and inventory destocking in the distribution channel.

Our guidance represents declines of 2% on an organic basis and 4% on a reported basis with currency translation headwinds of $400 million on a full year basis. Adjusted earnings per share is expected to be in the range of $5.47 to $5.53.

And this is a $0.10 reduction from our prior view. On a year-over-year basis, we are expecting adjusted EPS to be up low single digits excluding currency exchange headwinds of $0.16.

Similar to quarter four, let me get into some color on the segments for the full year guide. We expect Transportation Solutions to be down low single digits organically.

And we now expect global auto production to be down approximately 7% versus our prior view of being down 5% with the reduction primarily driven by China, and certainly this is all on our fiscal period. Year-to-date today, our revenue growth has exceeded auto production by the content growth range that we told you that in the range of 4% to 6%.

So, our content position is very strong. In Industrial Solutions, we continue to expect sales to be up low single digits organically with growth driven by aerospace, defense as well as medical applications.

And lastly in Communications, we do expect to be down high single digits organically, driven by the Asia market weakness that we've been talking about before this quarter as well as the inventory destocking in the distribution channel that we’re seeing that’s impacting us here late in the year. So, with that, before we go into questions, let me just recap some key takeaways that I thought we convey during the call.

First, we’ve seen weakening in the market since the last call, and this is driving the reduction in our guidance. It’s driven by two main areas, drop in auto production in China, as well as what we are experiencing through our distribution partners as they are destocking their inventories.

Secondly, we have positioned TE to benefit from secular trends such as electric vehicles, autonomous driving, next generation airframes as well as interventional medical applications and cloud infrastructure growth, which are enabling us to outperform weaker markets. Thirdly, despite this market backdrop, we are successfully executing on our strategy, driving the multiple levers that we have in our business model to protect our margin and earnings performance through the cycle.

And lastly, goes without saying, I think we’ve proven this, when we've seen markets that were weaker in the past, we're going to take advantage of these lows as an opportunity to aggressively go after cost reduction and footprint consolidation activities, and we're following the same approach and expect to emerge with increased earnings power when these markets return to growth. So, before I close, I do want to also thank our employees across the world for their execution in quarter three and what continues to be a mixed market backdrop and as well as their commitment to our customers and a future that is safer, sustainable, productive and connected.

So, with that, Sujal, let's open it up for questions.

All right. Thank you, Lisa, can you please give the instructions for the Q&A session?

Yes. Thank you.

Question to Terrance, just given the backdrop that we’re in, just wanted to get your thoughts, kind of as you manage internally, you have a number of restructuring programs going on, but also externally you are still looking to kind of pursue and execute on M&A. And then, how you kind of balance those things in what's kind of a difficult cycle?

I mean, couple of things. I think, first off, it goes back to we're very fortunate that we have a very strong cash generation model that you see it with the free cash flow we generated.

So, I don't think, as we manage through both of these as well as we return capital to owners, I don't think it's one versus the other. I think, what's really nice about what we've done with our portfolio, you see how the content trends where we position ourselves well, you see it even how automotive content’s buffering, recession and automotive production that we got a little bit of head take last quarter in China that made it a little bit worse here.

But I do think, when we look at what sensors and medical which are platforms that we want to build on, as well as areas like Kissling that we talked about, that’s an area where electric and how do we get into high power and commercial transportation. We're going to continue to look for M&A opportunities that continue to build on where we have a very strong position.

So, I don't think it’s one versus the other. And I also believe when we get into our cost structure, I'm pretty pleased that we’ve got after it early in the year.

We've been sort of -- auto production has gotten worse. So, we had to expand some things to make sure we take the cost out during the low.

And even with what Heath talked about, what we're talking about in some of the expanded is also making sure we're looking at maybe some opportunities in Communications at higher volumes we probably couldn't take advantage of. The only other thing I would add is I'm also very pleased that when you think about the adjustments, we're making to market, there's also things we teed up last year and the year before that we talked about, about the Industrial segment.

And you're really seeing how we continue to improve the performance of that segment, how it’s contributing. And there's still things that aren't -- some of the investments we've made aren't having a payback yet.

So, I think it provides future leverage as we fix the fixed cost structure TE, and get better aligned, and also a little bit more agile. So, I think, you're going to continue to see us balancing both of them.

And I think, this quarter is a great example of it.

I wanted to dig through a little bit about some of these headwinds you're seeing in the channel. It seems to be impacting you a little bit later than some other people.

I want to understand, if we can, how your business going through that channel is different than other people? And how long for your products -- as we go through those corrections in that channel, how long does it last for you to kind of work through that?

Thanks.

Okay. So, David, I don't know what other products that you’re talking about.

When you think through us, of our $13.4 billion of revenue, there's a little bit over $2 billion that goes through channel partners. And it's really around the medium to small customers that we can't serve directly and we do leverage our channel partners for that.

When you look at and you sort of take that $2 billion, our transportation business is a very direct business. So, the channel impact is pretty small when it deals with our Transportation segment.

As you deal with the markets that have more fragmented customer basis, you get that in our industrial equipment area that's been impacted by it, you're also seeing it in our Communications segment. And, what we were seeing was actually our business through our channel partners have been staying pretty stable at around -- the orders were running around $500 million per quarter, about the last six quarters.

And this past quarter and the June quarter, it's stepped down, and we expect it to step down even further, and there's been some announcements out there. Typically, that's getting aligned more with the slowness of the market, as well as I think we're also being impacted that some of the channel partners due to lead times and other product categories and certain semi categories and passives probably got a little bit ahead of themselves in making sure they had enough supply.

That all being said, these types of supply chain adjustments, while a headwind now, typically take four to six months to sort of work through. Clearly, we're in the middle of it and I think they are temporary effects.

So, they are something we're going to have to work through here over the next couple of quarters. And, that'll be a tailwind at some point, depending upon where markets are.

And we're in the middle of it. So, while it may be later versus other categories, it is -- we start to see it in the orders from quarter three.

It will be with us for a little bit. And then, it will be a tailwind at some point when it corrects and gets normalized.

The auto sector in terms of the step-down here, particularly lead by China, are there any leading indicators that you’re looking to track the inventory, the other factors within China or globally that will tell you we’ve reached the bottom? And I’m now looking for you to guide the December quarter but just to speak about it in some sense of whether we could reach the bottom in the December quarter, and calendar ‘20 could represent a more positive environment.

Sure. So, as everybody heard us talk last quarter, we sort of knew we were getting the stabilization in auto production.

And I think I’ve been said on this call or at some conversations, at conferences, we sort of thought we were running around 22 million units of cars being produced per quarter and we thought we were stabilizing. And to the comments I made on the call, what we actually saw in sort of after our earnings, you saw China car sales were down mid teens, and certainly that has impacted China auto production.

And I would tell you right now, global automotives running around 21 million unites versus 22 million units. So, that's impacted us by about of 2 million units coming out.

That all being said, we are looking at inventories in China, inventory days on hand in China in addition to the sales. They are around 59 days on hand.

That’s a little heavy. I wouldn’t say it’s horribly heavy.

But, they are the types of things both on the car sales as well as the inventories we're looking at. And right now, I would tell you, we’re sort of assuming that we’re running around that 21 million unit rate.

China typically has a step up in the first quarter in production. I guess, that’s the real uncertainty.

I would say, we have to continue to walk for the car sales and inventory levels are before we would tell you where we should be. But right now, our model is sort of thinking, they’re saying how do we plan the business around 21 million units globally per quarter in automotives, how we're thinking about it and also how we're adjusting our cost structure and some of the things Heath talked about.

Terrance, you opened the call talking about revenue growth and sort of some of the headwinds here in 2019. As we think about adjusting to these lower organic growth levels in fiscal ‘19, can you maybe give us some sense of how we should think about heading into fiscal ‘20 first quarter, how we should think about seasonality and also these lower fiscal 4Q levels?

And how do you view the odds of continued headwinds going into fiscal ‘20?

Thank you for the question, Wamsi. There is part of this as you know, I’m going to not answer because we're really not guiding to ‘20 here, and certainly, as we get more intelligence, we will.

I think, there are some things that I would highlight though to your question. I think, there will be things like auto production that has been fluid.

I think, we have to continue to keep fluid. But, I would also say, when you also think about that, of this point, actually we’ve talked around 21 million units is, we're still positioning ourselves around that 4% to 6% content element.

So, you've seen it this year, even at while the market’s been worse. I think, you're going to continue to see that.

So, as we pick production points and you do your analysis, I do think you're going to see those benefits around transportation. Certainly, you're going to see it in aerospace, you’re seeing it in medical.

So, I think that's, that's first up, I would say, as you work your analysis is important. I'll go -- second thing is, probably going back to what David said.

Channel destocking is a temporary item. And I think there's going to be a lot of data points, not only by us, but there's some out there.

This will normalize. So, what is the headwind that we have in quarter four that will go into early next year, certainly that will turn like it typically does.

And the other thing I would just say, as we go into next year, and as well as revenue is, there's lots of levers that we're pulling. And where they hit in the year from a cost perspective will be at different points, depending upon we initiated.

But I do think, as we try to manage through this, we have many cost levers that we're working that I think no different as we displayed in quarter three and quarter four. We're going to continue to be working from an earnings perspective.

Now, that being said, there is a sub point in your question around how do we see seasonality? Let's face it, this year, seasonality was not normal.

Quarter three and quarter four typically are strongest quarters of the year, and quarter four is already going to be our weakest. So, I don't think you can take the normal seasonal patterns that we have and say, hey, quarter one is going to be down mid to high single digits in the quarter four.

I think, you have to adjust for some of these facts, as you look at that. And certainly, we’ll guide more as we talk to you in 90 days.

But we just not say go blind seasonality, because these markets aren’t typical either. So, a longer answer than probably wanted, but hopefully that gives you some insights, as you think about things.

And we’ll give you more input in 90 days.

I know this might be hard to answer and I know you're not giving 2020 guidance. But, can you help us give a little granularity on the restructuring, as far as kind of payback is -- sometimes you do restructuring in Europe and it takes a few years to see an impact but you do in the U.S.

and it’s immediate. Could you just help us understand either directionally or an actual kind of tailwind for 2020 would be helpful, or at least some color around where the restructuring is?

Scott, I think, you're right on in terms of that some of non-U.S. restructuring does have a longer cash on cash return in addition to the just the length of time to when you're taking factories offline, to -- from the point of initiation until you when you realize the savings.

I think, it's fair to say, of that 375, there's a blend that on average it’s about three to four-year payback. So, that would kind of steer you towards a number of annualized savings as part of that and steer you towards jurisdictionally where all this activity is taking place.

I was hoping you could got a little bit more into China region specifically, with the decline in orders that you saw there and the reversal compared to what you’ve been seen last quarter, is that all just macro and weakness or do you think any of this is due to the trade environment and potentially a more difficult region for U.S. companies to do business now?

Thanks.

So, a couple of things. Certainly, the global trade environment, I think, just creates an overlay around economic conditions period.

I don't think it’s only one or two countries, it impacts everything. So, I do think that has some impact on the slower economic conditions because places like Europe ships into China and so forth, and that impacts us in many places.

And, Mark, back to the question that you had, when we were sitting here last quarter, we saw nice increase in our China business totally. Our orders went up, almost 10% going from our first quarter to second quarter, and it was primarily driven by transportation and it did revert back.

I would say, in our industrial businesses, it has stayed steady at a constant rate. I wouldn’t say, it’s accelerating, but it’s sideways.

So, in those, our Industrial businesses, it’s staying steady. And it was flat year-over-year.

But auto has been the bigger piece for us as that production has declined. I don’t think when it comes to automotive and our position we have in automotive, I don’t think it is impacted by our U.S.

attachment. The other thing I would say, the places that I would say have gotten little bit weaker is around the communication equipment.

That’s an area, and also in appliances and CS, we’ve been talking about that all year, they’ve been environments where they have been slow. So, in the industrial space, it’s been more a stable and sideways.

But really, the slowing we saw versus last quarter is really in our Transportation and Communications segments, not as much our Industrial space.

I know, it’s hard to do for you guys, but is there any way to kind of at least triangulate how much you think on the Communications jam-up on the supply side is due to like very specific temporary issues, that like Huawei and restrictions on certain entities?

I would tell you, when we think about the supply side of that, I don’t think channel has anything to do with that. Our channel business, large customers, we service directly.

So, when you sit there, and the portfolio set in our Communications segment is a portfolio set that goes into a lot of different applications, not just high speed, and it’s why it does have a big part that goes to the channel. They are in both our appliance business and our D&D business.

They are basic building blocks that can be used in a lot of different areas. So, when -- to try tie what's going on with the channel to telecom China, I think that would be a leap too far.

We are also seeing it in Industrial -- our Industrial markets as well. I’m sorry, Joe.

Yes. So, obviously, it’s like an indirect route.

I was just curious if there was any way to kind of like close that loop there.

No. I mean, I think, the other thing that you have, I don’t think you can close that loop there.

There has been some slowness by certain other telecom equipment makers and certainly cloud spending, which was very strong growth last year, so growing that at a lower rate. There's lots of those other factors that I would also say impact that.

But I wouldn’t tie it completely back to Huawei.

The headline China numbers are one story, but maybe electric vehicles little different story, I think it’s up about 50% year to date. Just wondering if that aligns with your thinking.

Do you expect that penetration to accelerate? What are your learnings along that curve from your kind of specification cycles with the customers there?

Certainly, while China auto production is down, electrical vehicle penetration, you're exactly right. If you look at it, if you take full electric plus any hybrid, it continues to accelerate, even though China car production is down.

So, that is not changing. Certainly, it's growing, while overall production is down.

And our design wins around those electric vehicles continue to be very strong. And let's face, it is something when we think about electric vehicles.

Electric vehicles are going to be driven in the world by both, China and Asia, as well as the CO2 requirements that you have in Europe as well. So, when we think about electric vehicles, the place you need to be positioned and we are positioned very strongly is in Europe, it is in China, as well as in Japan.

And what's really good is, we're positioned well with our customers. And the one thing that we always watch in slow markets is where is our project momentum, do we see project momentum slowing?

We are not seeing any change in the number of projects we have with our customers in any of our businesses. And certainly, in the automotive space, there continues to be the march between electric vehicles and autonomous features by all our customers that serve those markets.

So, we don't see any change in that. Certainly, the global production is impacted.

That's more impacting combustion engines.

Thank you very much. You’ve been very clear on the automotive side, which is good, but the communications side, I have a few questions.

And when we think about that, if my memory is correct, you're really not a smartphone supplier or component to smartphone. So, I assume this is more like on base stations, routers or switches, those type of bigger box figure devices.

And with 5G buildout, I got a little surprised to see this type of slowdown. So, can you help us -- can we see an order build-up like last quarter and excess of end demand, or is it a trade war where people overstock, and now they're destocking or was it truly an end-market demand slowdown in the Communications segment?

Thanks.

Hey, Jim, twofold, and you're breaking up a little bit on yourself. So, first off, I would say, when you think about our Communications segments, there's a chunk of it, which is data and devices, and then there's another chunk that appliance.

So, certainly, we need to look at, to your question at data and devices. You're right.

We do not plan smartphones. So, our products go into base station equipment, goes into traditional switches, like you mentioned.

And when you look at it, what we've seen is, we have seen some of the cloud spending not growing as fast as rate as it grew last year. So, when you are talking about something that grew 20%, 30% of spending and as grows 10, you will have adjustments in supply chain.

I do think that is working through. On 5G, 5G, when you think about it, certainly we’re designed in.

And China is granting licenses, and we're positioned very well there. But that is still early stages of how much does that contribute to TE’s revenue.

So, their typical growth drivers we're going to get the benefit from. So, those around cloud and 5G were in good shape.

The other thing I would just say around our D&D and it goes back to the channel comment I made. Typically, our products in D&D are very much next to semiconductors and passives.

I do think some of our partners and also other tier 1s in the supply chain probably got a little bit ahead of themselves, as you said, and they are correcting to get to more normalized to end demand. This is not a content or share element, it’s more of we're going to get hurt here a little bit with the inventory destocking but that will normalize.

And I feel very good about where we're positioning cloud and 5G. But certainly we don’t plan the cell phones.

I just have a quick follow-up on earlier comments on China vehicle inventory levels. If we were to see some hypothetical vehicle demand injection in China, can you talk about your ability to ramp back up to support production growth, given your presumably running leaner with ongoing cost actions?

I think, clearly, no one is ready to call for rebound yet, but we're just trying to get a feel for it. There might be an operational lag and impact on short-term margins when production does ultimately rebound.

Clearly, as we do the actions as Heath talked about, we are also being very-focused on how in those core areas that we keep production flexibility. And what we had was in some cases, we were playing catch-up as the volume was growing very strong, we talked about last year, we feel we have enough capacity if we do get a jump back in there.

It might be a little bit of a lag but we feel very good with how not only what we do but also our extended supply chain can do. So, that is not something we worry about.

And certainly, if it came back stronger than we thought, we would also have to look at how we time some of those restructuring actions that Heath talked about.

I think, it’s a question for you, how do we think about contribution margins, given that weakness in end markets will be offset by some of the cost actions? You seem to be taking new actions every few quarters now.

What should we expect the average contribution margin to net out on the corporate average line, broadly, and how does it compare across segments like above, below, corporate average? I think that will help us reset some of our expectations.

Thank you.

Well, thanks for the question, Deepa. Let’s take a bigger view of this first, right?

We’ve seen demand tick down pretty considerably throughout the year on auto production. And Terrence said, it kind of settles in around 21 million vehicles a quarter, which is a run rate that’s pretty significantly less than what we’ve been around prior years.

That avails us the opportunity to get after some things on the cost structure for transportation, maybe in jurisdictions that we can better align with new locations, lower cost locations, and so forth, closer to where our customer supply chain exists. So, that's a real opportunity for us on that front.

And then, Communications is the other area that we have, again, to do some restructuring in. As you’ll recall, Transportation for the first half of our fiscal year was running quite strong.

We've seen, based on all the comments made earlier in this call, as that's ticked down, it’s pulled forward some things that we would have done maybe in future years anyway. And so, as we're starting to look at those types of actions, you'll start to see margin flow through.

Our normal margin flow through is between 25% and 30%. I will tell you that when you see the types of numbers, specifically within Communications drop at that rate, it's going to take a little while to get back to those types of contribution margins I just mentioned, because you are still having to cover fixed costs and so forth.

Having said that, I don't want to get too hung up on percentages here, because being CS being our smallest segment, we could be talking about a few million dollars can swing a percentage more dramatically than really the total -- what the real material impact is to TE. So, I think we’ve got to be careful with that.

Now, Industrial is -- and we've talked pretty openly about Industrial being on a multiyear journey to come out of this, to work its way towards the high teens. I would tell you that we're probably a little ahead of plan than what we went into the year with.

We went into the year assuming that our Industrial margins would be roughly flat while we execute on some footprint moves that have been announced, and we're actively working through. But the team has done a really good job of getting some of those savings out a little bit faster than planned, in addition to just kind of normal belt tightening.

And so, I feel good about that. In terms of that, I’d say, Industrial is still got -- still has a couple of years left of things, of activity that's doing based on the timing of footprint.

And so, we're continuing on that on that journey, in terms of that. So, I mean, if you kind of back up from all of that, we're really using this opportunity in this part of the cycle to get out fixed costs.

That's why we’ve lowered the overall restructuring, and come out of this when market demand does improve, we’ll have a linear structure. And obviously, it's harder to do this when time -- when we’re in periods of higher growth.

So, hopefully that answers your questions, but happy to take any follow-up.

I'd like to follow-up. I guess, the confusion I have in terms of all the charges you've taken, say over the even year -- last year or two, last five years, it is trying to discern tactical from strategic.

You made a good case for why Industrial is strategic. But, in the case of some of these latest charges, how do we know that you're not sort of cutting into the bone a little bit too much as opposed to fat?

And how do we see an end to sort of the charges, if demand stays sort of at these levels? Thanks.

I think, Steven, first of all, I think it's a fair question. And we have -- as the business has evolved, we have continued the journey on the footprint side of things.

As you mentioned, I think Industrial’s pretty clear in terms of what we laid out here in the last 18 to 24 months and where we are in that journey. You've seen those in the numbers.

Certainly, there's some tactical things that we will be doing within the CS business, but again, it’s the smaller segment. And I don’t want to get too hung up on a margin rate there in terms of what the target is.

We’ve performed very well in that segment. But a couple of million dollars of can swing you from mid teens to low teens or the other direction to high teens.

So, I want to be careful in terms of that. What we're doing on the Transportation side, it more mirrors what we're looking at from Industrial, which is taking advantage of this.

These are locations that on a clean piece of paper we would probably not have in those jurisdictions anyway. So, this is more of a couple of year journey in terms of that process to get the operating footprint where it needs to be.

I’m not worried about cutting into the bone, and I say that because the long-term business model of all the trends that we enjoy, whether it's on the auto side with hybrid and electric or the overall factory automation side, with an industrial, and everything that -- all the great stuff that’s going on in medical or aerospace and defense, there's nothing that we’re going into in terms of cutting that we don’t have redundant capabilities or opportunities to move into existing locations. We're not having to go do a bunch of Greenfield to do this, and we’re not taken a lot of cost out of higher growth areas through a cycle, like places in Asia and so forth were we do expect, for instance hybrid and electric to be a more prominent piece there.

So, as I look at it, I’m not worried about cutting into that. I view this as more of an opportunity to get some things done that will be harder to do, if we are in a higher growth environment because in those cases you are just trying to keep up with customer demand.

If we think about the below seasonal trends that we’re seeing guided for in Q3 overall, I wonder if we could hear your take on the trends, if you were to allocate them to the direct business versus the channel. How much of the weakness in the channel -- how much of the direct business might have been much closer to seasonal, if we were to look at it carved up that way?

Thank you.

Let me talk directionally. So, couple of things.

I highlighted our book to bill overall of the Company was 0.98, and our channel was 0.85. So, I do think channel has been a steeper impact and we’ve talked about it.

But you do sit there, and there has been slowness, auto production slowness has nothing to do with channel. So, I think when we talk about how we frame the reduction in guidance, two-thirds was driven by Transportation and the slower China and certainly seasonal I do think that’s normal that china would have weakened in the quarter we’re in.

But the other one third is truly the channel; that 250 decline. So, it’s different by markets.

But I would say, channel correction happens due to them adjusting to end markets that are happening. And clearly, they’re seeing some slowness.

So, it is deeper in the channel. Certainly that’s an impact we're going to have here, like I said, not only into quarter four but probably can go into early next year.

But, certainly we’ve seen a slowness in our direct customers as well but not to the extent as channel.

Yes. Thank you.

I had another question on the Industrial Solutions segment, specifically, the strong growth that you're seeing in the military, aerospace, marine sector, which has been up double digits. What are the drivers there, Terrence?

And what's the outlook? I know, we've heard some other suppliers that the defense and aerospace market continues to be strong.

I know, there's also some distribution exposure there too. It doesn't sound like there's inventory issues there.

And then, just on the margins, Heath, you did talk about the drivers of that really strong margin expansion year-over-year, but given -- and so I guess one question is, the mix of business, the stronger MIL-Arrow, is that a contributor to margins, or is it mostly the cost cutting actions that you talked about?

So, let me take the first half, and I'll let Heath take second half. So, one of the things that we talked to you all about for a long time is how we position ourselves very well from our commercial aerospace, and certainly the content opportunity we have there.

And we've laid that out for you both on defense [ph] and dual aisle, single aisles and also regional jet. And, while airframe production has been pretty steady and up a little bit, I think you're really seeing the benefit in the commercial aerospace side from this content momentum that we've had, very broadly across the industry.

And it's really credit to our team. That's really long cycle.

In addition, this year, we're getting the kicker about defense spend. And I think similarly, while defense -- and I think it's pretty obvious when you look at defense companies, they are in a good cycle.

But, it's also an area that we do have a nice position, our position between commercial aerospace and defense is pretty balanced. And we're getting the benefit on both sides.

And defense is also driven by government spending, and we're benefiting from that. But that is also a content play, as well.

When you think about communications, you think about power distribution and all, the next generation hardware that's going on defense, we benefit from that as well. And that's a content play.

So, those two are very important. To your point, Matt, part of that business does go through the channel that is not saying destocking.

That is a market that's still staying good there. And, there's one of the things that's buffering in the Industrial segment, the slowness that we have due to the destocking in our Industrial Equipment business in the channel.

So, I’ll let Heath talk about the margin side of it.

Yes. Matt, I appreciate the question.

So, on the margin side, when I think about Industrial and when we're internally going through our processes, there's not a tremendous amount of mix that plays into it. There's certainly some pieces that have, a little bit better flow through in terms of particular product lines and so forth with any individual business unit.

But, I think it's pretty well balanced in terms of we make a little bit more money in certain areas, a little bit less in others. But, it's not a wide swing there.

In terms of, as you can imagine, obviously, I think part of your question was, the aerospace and defense. We're obviously -- when you're growing the type of organic numbers that we're seeing out of our aerospace and defense business, you expect nice flow through, and we are certainly seeing that.

And the businesses is converting the revenue into profits nicely, as you would expect, and as they blow past some of their fixed cost base. But there's other areas as well that are showing some resiliency on the margins, particularly our energy business as they have initiated and nearly concluded some facility restructuring.

So, there's a lot of different moving parts there. It’s a balance between where the growth is as well as some of the footprint consolidations.

We had talked some earlier in the year about this being a year where they’re not going to be as much. I would say, we are little ahead of ourselves, as I mentioned earlier in the call.

And we will still see some periods from time to time a quarter or two where you will see a jump down a little bit as you have duplicative costs meaning you are moving out of one facility into another and you might have duplicative cost for a period of a quarter or so during any particular facility rationalization. So, that will happen from time to time.

But, we're very pleased with the progress that the team is doing and what their current outlook is as they move forward.

Okay. Thank you, Matt.

And I would like to thank everybody for joining us this morning for our call. If you have any additional questions, please contact Investor relations at TE.

Thank you and have a nice day.