Published
# TE Connectivity plc (TEL): Business, Risks and Management's Discussion TE Connectivity reports in US dollars, and every amount below comes straight from its filings. The company's fiscal year ends on the last Friday of September. Fiscal 2025 ended September 26, 2025, and fiscal 2026 ends September 25, 2026. The third quarter of fiscal 2026 ended June 26, 2026. ## Business *From the fiscal 2025 Form 10-K, accession 0001104659-25-109150.* TE Connectivity designs and manufactures connectors, terminals, sensors, relays, heat-shrink tubing, wire and cable, filters and related components that carry power, signal and data. Its customers are mostly manufacturers: automakers and truck makers, data-center and networking equipment builders, factory-automation and appliance makers, aerospace and defense contractors, electric utilities and medical-device companies. It sells into about 130 countries. About 75% of fiscal 2025 net sales were made directly to manufacturers, and the rest went through third-party distributors. No single customer was significant. Fiscal 2025 net sales were $17,262 million, split across two reportable segments, which have been in place since a reorganization effective for fiscal 2025. The company puts the combined market these segments serve at about $200 billion. - **Transportation Solutions** ($9,388 million, 54% of fiscal 2025 net sales) sells terminals and connector systems, sensors, heat-shrink tubing, relays and application tooling built for harsh conditions. Automotive is 75% of the segment. It covers body, chassis, powertrain, infotainment and safety systems, plus hybrid and electric-vehicle content such as battery technologies and charging. Commercial transportation (heavy trucks, construction, agriculture, buses) is 15%, and sensors is 10%. Competitors include Yazaki, Aptiv, Sumitomo, Sensata, Honeywell, Molex and Amphenol. - **Industrial Solutions** ($7,874 million, 46%) sells products that connect and distribute power, data and signals. Its end markets are digital data networks (28% of the segment: data-center, networking, wireless and AI/machine-learning equipment), automation and connected living (27%: factory automation, building automation, rail, home appliances), aerospace, defense and marine (19%), energy (17%: utilities and grid, renewables, and since April 2025 Richards Manufacturing's overhead and underground distribution products) and medical (9%: interventional and surgical device components). Competitors include Amphenol, Hubbell, Carlisle Companies, Integer Holdings, Molex, Omron, JST and Korea Electric Terminal. Across the whole company, automotive was about 41% of fiscal 2025 net sales. Digital data networks was about 13%, automation and connected living about 12%, and aerospace, defense and marine about 9%. By region, fiscal 2025 sales were 38% Asia–Pacific, 33% EMEA and 29% Americas. About 25% of net sales went to customers in China, where TE has 19 principal manufacturing sites. About 60% of sales are invoiced in currencies other than the US dollar: euro 27%, renminbi 20% and yen 4%, against 43% in dollars. The company does not hedge this revenue exposure. At fiscal year-end 2025 TE had about 93,000 employees, including 13,000 contract workers, of whom about 55,000 worked in manufacturing. It ran 105 principal manufacturing facilities: 39 in Transportation and 66 in Industrial. Its main processes are stamping, plating, molding, extrusion and assembly. Backlog was $6,188 million, against $6,039 million a year earlier. Industrial's backlog rose to $3,910 million while Transportation's fell to $2,278 million. The main raw materials are plastic resins, copper, aluminum, brass and steel, plus gold, silver and palladium for plating. The third and fourth fiscal quarters are usually the strongest. TE moved its place of incorporation from Switzerland to Ireland on September 30, 2024, and its principal executive office is in Galway. Its debt is issued by its Luxembourg subsidiary, Tyco Electronics Group S.A. (TEGSA). The company closed its largest recent acquisition, Richards Manufacturing, on April 1, 2025, paying about $2.3 billion in cash, net of cash acquired. ## Risk factors *From the fiscal 2025 Form 10-K, accession 0001104659-25-109150. The fiscal 2026 third-quarter Form 10-Q (accession 0001104659-26-086509) reports no material changes.* - **Automotive concentration and cyclical end markets.** About 41% of sales go to automotive customers. These are large manufacturers that can push hard on supplier prices, and the industry has fallen sharply in past downturns. Demand in digital data networks can also swing widely with networking, data-center and wireless spending. So far, AI and cloud build-outs have helped it. - **Tariffs, trade and China.** Rising tariffs and trade tensions among the US, China and the EU can hurt both customer demand and TE's costs. The China exposure is large: about a quarter of sales and 19 principal plants. That leaves results open to changes in Chinese market conditions, regulation and US–China relations. - **Currency.** About 60% of sales are invoiced outside the US dollar, and that exposure is unhedged. A stronger dollar directly reduces reported revenue and income. - **Price erosion and competition.** TE has historically lost 1% to 2% of price a year and must cut costs by about as much to protect margins. Pricing actions in recent years have offset this. Customers and suppliers keep consolidating, which strengthens their bargaining power. - **Raw materials.** Results depend on the price and supply of resins, copper, gold, silver, palladium and other metals, many of which come from only a few countries or suppliers. Cost increases that productivity or pricing cannot recover reduce margins. Commodity hedges work only if consumption forecasts are accurate. Conflict-minerals rules can also narrow the supplier base. - **Technology change and AI.** TE has to keep designing new products as fast as its customers' technology changes, and its product life cycles can be short, which brings the risk of inventory and equipment write-offs. AI also brings competition, including from customers building their own capabilities, along with legal and reputational risks. - **Tax.** The OECD's 15% global minimum tax, which Ireland has applied to TE since fiscal 2025, and other initiatives against companies in lower-tax jurisdictions could raise TE's effective tax rate and cash taxes. US attribution rules can make a US holder of 10% or more of TE's shares report income from TE's subsidiaries. Recently enacted legislation ends that treatment from TE's tax year beginning September 26, 2026. Separately, US federal and state proposals to deny government contracts to companies that moved to lower-tax countries could reduce sales. - **Acquisitions and leverage.** Acquisitions may not perform or integrate as expected, and large cash deals may need debt or equity financing. The revolving credit facility caps consolidated total debt at 3.75 times consolidated EBITDA, or temporarily 4.25 times after a qualifying acquisition. A breach could accelerate repayment of the debt. Noteholders can require TE to buy back its notes at 101% of principal after a change-of-control triggering event. - **Litigation, compliance and environment.** The electronics industry sees heavy patent litigation. TE faces product-liability, warranty and recall claims, antitrust and anti-bribery rules, and export and import licensing for defense products. It also faces strict, retroactive environmental cleanup liability at current and former sites, and growing rules on chemicals, product content and recycling (EU RoHS, REACH, End-of-Life Vehicle and WEEE, and China RoHS). - **Cybersecurity and data privacy.** Attacks on TE's systems or those of its suppliers could disrupt operations, expose data and create liability under GDPR, the California Consumer Privacy Act and China's Personal Information Protection Law. TE says no attack so far has had a material impact. - **Business interruption and climate.** Natural disasters, which climate change may make worse, as well as war, pandemics and system failures could disrupt plants and supply chains. Climate regulation and customer emissions demands could raise TE's costs. - **Irish incorporation.** US court judgments may not be enforceable in Ireland, and shareholders have narrower rights to sue directors than under US law. Dividends and buybacks can be paid only from distributable profits. Some share transfers outside DTC can incur 1% Irish stamp duty, and dividends can be subject to 25% Irish withholding tax unless the shareholder is exempt. Irish takeover rules and TE's articles could also deter a bid. - **Other exposures.** Falling pension-asset values could force larger contributions. Credit-market disruption could limit access to funding. TE also depends on keeping its experienced management team and on third-party suppliers delivering quality parts. ## Management's discussion: fiscal 2025 *From the fiscal 2025 Form 10-K, accession 0001104659-25-109150.* Fiscal 2025 split TE in two. Industrial Solutions grew strongly on AI-driven data-center demand and power-grid spending, while Transportation Solutions shrank slightly. Net sales rose $1,417 million, or 8.9%, to $17,262 million. Organic growth was 6.4%, and acquisitions net of a divestiture added 2.2%. Richards Manufacturing contributed $179 million after it was acquired on April 1, 2025, and net pricing added $51 million. - **Industrial Solutions** net sales rose 23.7% to $7,874 million, or 17.6% organically. Digital data networks grew 73.3% to $2,208 million (72.6% organic) on AI and cloud applications. Energy grew 46.2% to $1,344 million, helped by Richards, with organic growth of 15.0% led by renewables in the Americas. Aerospace, defense and marine grew 10.3%, and automation and connected living 7.7%. Medical fell 16.9% as the supply chain worked down inventory. Segment operating income rose $477 million to $1,393 million, and the operating margin rose from 14.4% to 17.7% on higher volume and pricing. - **Transportation Solutions** net sales fell 1.0% to $9,388 million. Automotive was flat organically: growth of 11.3% in Asia–Pacific, from higher content per vehicle and production gains, offset declines of 10.5% in EMEA and 5.0% in the Americas. Commercial transportation fell 2.3% organically, and sensors fell 8.0% on weakness in both transportation and industrial applications. Segment operating income fell $62 million to $1,818 million, and the margin slipped from 19.8% to 19.4%, mainly on net price erosion. Gross margin rose to 35.2% of sales from 34.4%, on higher volume and better manufacturing productivity. Operating income rose $415 million to $3,211 million, and the operating margin rose from 17.6% to 18.6%. Operating income was after $126 million of restructuring and other charges and $47 million of acquisition and integration costs, $28 million of which related to Richards. Restructuring programs started in fiscal 2025 were expected to save about $80 million a year by the end of fiscal 2026. The bottom line moved the other way because of tax. Income tax expense was $1,361 million, an effective rate of 42.5%. That included $574 million from a higher valuation allowance against deferred tax assets tied to a ten-year tax credit a Swiss subsidiary obtained in fiscal 2024. OECD guidance issued in January 2025 had reduced how much of that credit TE expected to realize. In fiscal 2024, by contrast, TE recorded a net tax benefit of $397 million. Net income was therefore $1,842 million, against $3,193 million, and diluted EPS was $6.16, against $10.33. Operating cash flow rose $662 million to $4,139 million, helped by lower tax payments ($276 million against $475 million). Capital spending rose to $936 million from $680 million. TE spent about $2.3 billion on Richards and $321 million on two other businesses. It returned $803 million in dividends ($2.72 per share paid in the year) and repurchased about 8 million shares for $1,356 million. Total debt rose to $5,694 million from $4,203 million. In fiscal 2025 TEGSA issued €500 million of 2.50% notes due 2028, $450 million of 4.50% notes due 2031, €750 million of 3.25% notes due 2033 and $450 million of 5.00% notes due 2035. ## Current quarter: third quarter of fiscal 2026 (ended June 26, 2026) *From the fiscal 2026 third-quarter Form 10-Q, accession 0001104659-26-086509, and the July 22, 2026 earnings release (Form 8-K, accession 0001104659-26-085589, Exhibit 99.1), which is the source of the non-GAAP and orders figures.* Third-quarter growth was broad, but most of it came from Industrial Solutions. That segment now matches Transportation in size: each had $2,580 million of net sales in the quarter, or 50% of the total, against a 47%/53% split a year earlier. Total net sales rose $626 million, or 13.8%, to a record $5,160 million. Organic growth was 12.2% and currency added 1.6%. The earnings release reported record orders of $5.7 billion, up 27%, with double-digit order growth in every business. - **Industrial Solutions** net sales rose 21.9%, or 21.0% organically. Digital data networks grew 34.2% to $813 million on AI applications. Energy grew 34.4% to $516 million (32.7% organic) on grid-hardening and data-center demand. Automation and connected living grew 16.3% on factory automation, and aerospace, defense and marine grew 12.0% on defense and commercial aerospace. Medical fell 7.2%. Segment operating income rose $142 million to $537 million, and the margin rose from 18.7% to 20.8% on higher volume. - **Transportation Solutions** net sales rose 6.7% to $2,580 million, or 4.5% organically, despite $12 million of net price erosion. Automotive grew 2.9% organically: Asia–Pacific rose 5.6% and EMEA 2.6%, while the Americas fell 3.8%. Higher content per vehicle more than offset lower global vehicle production. Commercial transportation grew 17.8% organically, and sensors fell 2.8%. Segment operating income fell $18 million to $444 million, and the margin fell from 19.1% to 17.2%. The decline reflects higher special items, mainly $79 million of restructuring and other charges against $7 million a year earlier. Excluding those items, segment operating income rose on better manufacturing productivity. From this quarter, a product line moved from commercial transportation to automotive within the segment, and prior periods were recast. Gross margin was 35.6%, against 35.3%, on higher volume and better manufacturing productivity, even as metal costs rose sharply. TE's average silver cost was $50.46 per troy ounce, against $29.80 a year earlier, gold was $3,682 against $2,715, and copper was $5.00 per pound against $4.32. Operating income rose $124 million to $981 million, a 19.0% margin, after $83 million of restructuring and other charges, against $14 million. The release put the adjusted operating margin at 22%, up 90 basis points. The tax rate was 23.0%. Net income was $748 million, against $638 million, and diluted EPS was $2.55, against $2.14, up 19%. Adjusted EPS was a record $2.94, up 22%. **First nine months of fiscal 2026.** Net sales rose 16.5% to $14,573 million: 11.4% organic, 2.9% from currency and 2.2% from acquisitions. Industrial grew 28.3%, with digital data networks up 48.8%, and Transportation grew 7.1%. Operating income rose $603 million to $2,898 million, a margin of 19.9% against 18.3%. Net income doubled to $2,353 million from $1,179 million, and diluted EPS was $7.98, against $3.93. Tax explains much of the jump. The nine-month rate was 18.1%, including a $114 million net benefit mainly from settling prior-period tax matters. The prior-year rate was 48.9%, including the $574 million Swiss valuation-allowance charge. **Restructuring.** TE started a fiscal 2026 program to optimize its manufacturing footprint, focused on Transportation Solutions. It recorded $86 million of charges in the first nine months and expects about $20 million more, with annual savings of about $58 million fully realized by the end of fiscal 2029. For all of fiscal 2026, the company expects about $100 million of restructuring charges and about $110 million of cash spending. **Cash, capital and returns.** Nine-month operating cash flow rose $279 million to $2,997 million, even though income tax payments rose to $353 million from $184 million. The release reported free cash flow of $883 million for the quarter and $2.2 billion for the year to date. Capital spending was $832 million, and TE now expects fiscal 2026 capital spending of about 6% of net sales, up from the 5% it guided in the 10-K. It bought one business for $200 million, net of cash acquired, plus earn-out provisions with an estimated fair value of about $150 million. That business is reported in Industrial Solutions, and TE has not named it. TE also finalized the purchase-price allocation for Richards Manufacturing this quarter. TE refinanced its February 2026 maturities. On February 9, 2026, TEGSA issued $200 million of additional 4.50% notes due 2031, bringing that series to $650 million, and $550 million of 4.875% notes due 2036. Net proceeds of about $745.5 million were earmarked for repaying outstanding debt, including the $500 million of 4.50% notes and $350 million of 3.70% notes due February 2026. TEGSA repaid both at maturity. On February 13, 2026, it replaced its $1.5 billion revolving credit facility with a new $3.0 billion five-year facility maturing February 13, 2031, with an option for up to $1.0 billion more. Nothing was drawn on it at quarter-end. Total debt was $5,632 million at June 26, 2026, including $100 million of commercial paper at 3.95%. In the first nine months TE paid $643 million of dividends and repurchased 6 million shares for $1,350 million. In the third quarter alone it bought 2,523,840 shares at an average price of $210.67. The board added $3.0 billion to the buyback authorization, leaving $3.0 billion available at June 26, 2026. In March 2026 it cancelled about 8.3 million treasury shares bought in fiscal 2025. In June 2026 the board approved an interim dividend of $0.78 per share, paid September 11, 2026 to holders of record on August 21, 2026. **Compliance.** During the quarter, TE filed a perfected prior disclosure with US Customs and Border Protection on unpaid Section 301 duties for certain imports and paid $14 million to resolve the matter. CBP's review is not complete, and TE does not expect a material effect. Accrued environmental remediation was $27 million, within a reasonably possible range of $20 million to $53 million. **Outlook for the fourth quarter of fiscal 2026.** TE expects net sales of about $5.25 billion, against $4.75 billion a year earlier. It expects GAAP diluted EPS from continuing operations of about $2.84 and adjusted EPS of about $3.05, which the release describes as increases of 27% and 18%. The outlook includes a currency headwind of about $10 million to sales. It assumes current exchange rates and commodity prices and excludes the pending Astrodyne TDI acquisition. ## Subsequent events *From the fiscal 2026 third-quarter Form 10-Q (Note 17, Subsequent Event, and the MD&A), accession 0001104659-26-086509; the July 22, 2026 earnings release (accession 0001104659-26-085589, Exhibit 99.1); and the Form 8-K filed October 7, 2026, accession 0001104659-26-114188.* - **Agreement to acquire Astrodyne TDI (July 22, 2026).** TE agreed to buy Astrodyne TDI, a maker of power and filter solutions, for about $1.4 billion in cash. The release describes the business as a provider of advanced power-management and filtering solutions for mission-critical industrial applications, says the seller is Tinicum L.P., and says it is expected to add more than $250 million of annual sales. The business will be reported in Industrial Solutions. The deal needs customary regulatory approvals and other closing conditions and is expected to close by the end of calendar 2026. TE plans to pay with available cash and commercial paper, plus its credit facility or new debt if needed. As of the latest filings, the deal had not closed, and the fourth-quarter outlook excludes it. - **Board change (October 6, 2026).** Director William A. Jeffrey told the company he will retire from the board and will not stand for re-election at the 2027 annual general meeting in March 2027. He said his decision did not involve any disagreement with the company.