Executive Summary / Key Takeaways

• Secular Growth Catalysts: TE Connectivity is strategically positioned to capitalize on high-growth secular trends in Artificial Intelligence (AI), vehicle electrification and electronification, and energy infrastructure hardening, driving robust organic growth, particularly in its Industrial Solutions segment.
• Record Financial Performance: The company delivered record Q3 2025 sales of $4.5 billion and adjusted EPS of $2.27, alongside record free cash flow generation of $1 billion, demonstrating strong operational execution and margin expansion across both segments.
• Operational Excellence & Localization: A global manufacturing strategy with over 70% localized production provides a significant competitive advantage, enabling efficient supply chain management, tariff mitigation, and superior customer service, contributing to consistent margin expansion.
• Disciplined Capital Deployment: With a healthy balance sheet and strong cash flow generation (over 100% free cash flow conversion expected in FY25), TE Connectivity is actively pursuing strategic bolt-on acquisitions like Richards Manufacturing and returning substantial capital to shareholders.
• Positive Outlook: Management projects continued double-digit sales and adjusted EPS growth for Q4 2025, with AI revenue expected to exceed $800 million in FY25 and $1 billion in FY26, underpinning confidence in high single-digit sales and double-digit adjusted EPS growth for the full fiscal year 2025.

Setting the Scene: A Global Industrial Powerhouse

TE Connectivity plc, founded in 1941, stands as a global industrial technology leader, dedicated to creating a safer, sustainable, productive, and connected future. The company's core business revolves around designing and manufacturing advanced connectivity and sensor solutions, essential components that enable the distribution of power, signal, and data across a vast array of industries. From next-generation transportation and energy networks to automated factories, data centers, and medical technology, TE's products are foundational to modern technological advancement.

The company's strategic evolution has been marked by a consistent focus on innovation, earning it recognition as a Clarivate (CLVT) Top 100 Global Innovator for 12 years. This commitment to innovation is deeply intertwined with its overarching strategy: aligning its portfolio with powerful secular growth trends, relentlessly driving operational efficiency for margin expansion, and maintaining a robust cash generation model for disciplined capital deployment. A pivotal aspect of this strategy is its global manufacturing footprint, with over 70% of production localized within each region. This localization is not merely a logistical choice but a strategic differentiator, enhancing customer responsiveness, mitigating geopolitical risks, and providing a competitive edge, particularly in navigating complex trade dynamics.

The global electronic components market, valued at $393.63 billion in 2024, is projected to grow to $847.88 billion by 2032, representing a compound annual growth rate (CAGR) of 10.3%. This expansive and growing market provides a fertile ground for TE Connectivity's specialized solutions. While the broader economic environment remains dynamic and uneven, TE's strategic positioning and operational discipline have enabled it to consistently deliver strong financial performance, including record operating margins, earnings per share, and free cash flow in fiscal year 2024.

Technological Edge: The Unseen Connectors of Progress

TE Connectivity's competitive moat is significantly fortified by its differentiated technology in connectivity and sensors. The company's core expertise lies in developing solutions that manage high-speed data, efficient power distribution, and precise sensing in demanding environments. This technological prowess translates into tangible benefits for its customers and, consequently, for its financial performance.

In the burgeoning field of Artificial Intelligence (AI), TE's high-speed connectivity solutions are critical. These products enable lower latency and improved power efficiency, directly supporting the increasing demands of hyperscale data centers. The company's Digital Data Networks (DDN) business, which houses its AI-related offerings, saw over 80% organic growth in Q3 2025, a testament to the efficacy and demand for its cutting-edge technology. This segment's success is a direct result of TE's ability to solve complex engineering problems related to data throughput and thermal management at the chip and server level.

Within the automotive sector, TE's technology is driving the twin trends of electrification and "electronification." While electrification (EV/HEV) brings significant content opportunities, electronification, encompassing advancements like 48-volt systems, enhanced safety features, autonomy, and software-defined vehicle architectures, is equally crucial. These advancements necessitate more complex, miniaturized interconnects and thinner wires, which present engineering challenges that TE's solutions are designed to overcome. The company's recent securing of over $1 billion in new design wins with a leading Chinese auto OEM for data connectivity in their next-generation platform underscores its leadership in this evolving space.

Furthermore, TE's solutions are vital for modernizing energy infrastructure. Its products for grid hardening and renewable energy applications, bolstered by acquisitions like Richards Manufacturing and Harger, provide essential components for overhead and underground electrical distribution, lightning protection, and grounding. These technologies enhance grid reliability and support the transition to renewable power sources, addressing critical infrastructure needs. In aerospace, defense, and marine (AD&M), TE's specialized high-speed, high-power, and ruggedized packaging solutions are crucial for demanding applications, including rapidly expanding space initiatives. The company's continuous investment in engineering skills and capacity, particularly for AI and EV ramps, ensures it remains at the forefront of these technological shifts, translating into higher average selling prices, lower manufacturing costs, and ultimately, stronger margins.

Competitive Moats in a Dynamic Landscape

TE Connectivity operates within a competitive landscape populated by global leaders and specialized players. Key direct competitors include Amphenol Corporation (APH), CommScope Holding Company, Inc. (COMM), and MYR Group Inc. (MYRG). TE's competitive standing is primarily defined by its unique operational model, diversified portfolio, and deep customer relationships.

TE's global manufacturing strategy, with over 70% of its production localized within each region, is a significant differentiator. This approach allows for closer alignment with customer supply chains, enabling faster response times and mitigating the impact of trade tariffs. While some competitors, particularly smaller ones, may only manufacture in a single region, TE's localized footprint provides a distinct advantage in offering more flexible and resilient supply chain solutions. This operational strength is evident in its ability to largely mitigate tariff impacts through sourcing changes and pricing actions, as demonstrated in fiscal 2025.

In the AI market, TE's strategy of playing across the entire ecosystem—engaging with hyperscalers, semiconductor companies, and other key players—ensures a broad and diversified revenue stream, rather than reliance on a single customer. The company's stable AI market share of 30-35% of programs won, coupled with the rapid growth of the overall AI market, indicates a substantial and expanding opportunity. While Amphenol is a strong competitor, particularly in high-speed interconnects, TE's comprehensive approach to integrated connectivity and sensor solutions often provides a more holistic value proposition, especially in complex system designs.

In the automotive sector, TE's strong position with local Chinese OEMs is a critical competitive advantage. As multinational OEMs lose market share in China (now 2/3 local, 1/3 multinational), TE's ability to win business with both local and international players ensures continued content outperformance. This is supported by its expanding manufacturing presence in China, including a sixth automotive factory under development. Compared to CommScope, which is heavily focused on communications infrastructure, TE's diversified portfolio across transportation and industrial segments provides greater resilience against market-specific downturns. While MYR Group specializes in electrical infrastructure construction, TE's technological solutions offer deeper integration and intelligence, for instance, sensors that enable more efficient energy management in EV charging systems.

TE's competitive advantages are further bolstered by high barriers to entry in its industries, including substantial R&D requirements and stringent regulatory compliance. These factors favor established players with deep engineering expertise and global scale, reinforcing TE's market position and contributing to its sustained profitability. The company's consistent recognition for ethics and innovation further enhances its brand and customer trust.

Financial Fortitude: Performance and Profitability

TE Connectivity's financial performance in fiscal year 2025 has been robust, reflecting the successful execution of its strategic initiatives amidst a dynamic global environment. For the third quarter of fiscal 2025, the company reported record net sales of $4.534 billion, marking a 13.9% increase on a reported basis and 9.1% organically year-over-year. This strong top-line growth translated into record adjusted earnings per share (EPS) of $2.27, up 19% from the prior year. The adjusted operating margin reached a record 19.9%, expanding 60 basis points year-over-year, driven by strong operational performance and higher volumes.

The Industrial Solutions segment was a primary growth engine, with net sales increasing 30.0% (20.5% organically) in Q3 2025 to $2.116 billion. Its adjusted operating margin expanded nearly 400 basis points to over 20%, a testament to effective footprint consolidation and volume leverage. The Digital Data Networks business within this segment saw exceptional organic growth of over 80%, fueled by AI application ramps. The Energy business also demonstrated strong organic growth of 20%, benefiting from grid hardening and renewable applications, further bolstered by the Richards Manufacturing acquisition, which contributed $73 million in Q3 sales.

The Transportation Solutions segment, while facing uneven regional dynamics, delivered $2.418 billion in net sales, growing 2.8% (1.1% organically) in Q3 2025. Its adjusted operating margin remained strong at 19.1%. Despite a slight decline in global auto production, TE's automotive business achieved 2% organic growth, driven by 11% growth in Asia, showcasing its content outperformance and strong regional positioning.

From a liquidity perspective, TE Connectivity demonstrates significant financial strength. Net cash provided by operating activities increased by $283 million to $2.718 billion in the first nine months of fiscal 2025. The company generated a record $962 million in free cash flow in Q3 2025, bringing the year-to-date total to approximately $2.1 billion. Management expects free cash flow conversion to remain above 100% for fiscal 2025. This robust cash generation provides substantial optionality for capital deployment.

The company has actively returned capital to shareholders, paying $594 million in dividends in the first nine months of fiscal 2025 and repurchasing 6 million shares for $916 million. The board also authorized a $2.5 billion increase to its share repurchase program, signaling continued commitment to shareholder returns. Furthermore, TE has strategically deployed capital for acquisitions, including the $2.3 billion Richards Manufacturing acquisition, which was financed in part by new senior notes totaling $1.4 billion.

Outlook: Accelerating Growth and Strategic Execution

TE Connectivity's outlook for the remainder of fiscal year 2025 and into fiscal 2026 reflects confidence in its strategic positioning and operational execution. For the fourth quarter of fiscal 2025, management projects net sales of approximately $4.55 billion, representing a 12% reported increase and 6% organic growth year-over-year. Diluted earnings per share from continuing operations are expected to be around $2.18, a 16% increase year-over-year. This guidance implies strong full-year fiscal 2025 performance, with high single-digit sales growth and double-digit adjusted EPS growth.

A key driver of this optimistic outlook is the accelerating momentum in Artificial Intelligence applications. AI revenue, which stood at $300 million in fiscal 2024, is now expected to exceed $800 million in fiscal 2025 and is projected to surpass $1 billion in fiscal 2026. Management believes the company is still in the "early innings" of this growth cycle, with ongoing investments in engineering and capacity to support next-generation programs with hyperscalers and chipmakers.

While global auto production is expected to see a slight decline in fiscal 2025, TE anticipates its content growth to remain at the low end of its 4-6% long-term range, driven by continued growth in hybrid and electric vehicle production (80% of which is expected in Asia) and the increasing electronification of vehicles. The Industrial Solutions segment is expected to continue its strong performance, with all businesses projected to grow sequentially on an organic basis in Q2 2025. Management also anticipates a return to growth for sluggish industrial end markets, such as factory automation, later in fiscal 2025, with encouraging signs of order improvement already observed, particularly in Asia.

Operational efficiency remains a core focus. Restructuring charges for fiscal 2025 are expected to be around $100 million, contributing to an estimated $70 million in annualized cost savings fully realized by the end of fiscal 2026. This, combined with volume leverage, is expected to drive significant margin improvement, particularly in the Industrial Solutions segment, which is targeted to reach 20% adjusted operating margins over the midterm, aligning with the Transportation segment's consistent performance. The company also expects a 30% incremental flow-through on organic revenue growth in fiscal 2026, further supporting earnings expansion.

Navigating Headwinds: Risks and Resilience

Despite the positive outlook, TE Connectivity operates in a complex global environment that presents several risks and challenges. The implementation of the OECD's 15% global minimum tax (Pillar 2), effective for the company in Ireland in fiscal 2025, has already led to a significant $574 million income tax expense in the first nine months of fiscal 2025 due to a valuation allowance adjustment related to a Swiss tax credit. While the company anticipates further legislative and administrative guidance, this highlights the potential for volatility in tax expenses.

Geopolitical tensions and trade dynamics, including tariffs, remain a persistent concern. However, TE's highly localized manufacturing strategy and experience from the 2017 tariff cycle provide a robust playbook for mitigation, involving sourcing changes and pricing actions. Management has stated that currently enacted tariffs are largely being mitigated with minimal earnings impact. The company also faces ongoing market unevenness, with softness in Western auto markets, commercial transportation (especially North America), and certain industrial applications like sensors and factory automation in Europe. The medical business experienced a temporary reduction in demand due to inventory corrections, though sequential improvement is expected.

Compliance with antitrust and competition laws, as well as trade regulations, is a continuous operational imperative, with potential for penalties or limitations on import/export if not adhered to. Additionally, environmental remediation efforts carry an estimated cost range of $18 million to $44 million, with $21 million accrued. While these risks are present, TE Connectivity's management has demonstrated a proactive approach to addressing them through strategic investments, operational agility, and a focus on what they can control, reinforcing the company's resilience in a dynamic landscape.

Conclusion

TE Connectivity stands as a compelling investment proposition, firmly rooted in its strategic alignment with the most powerful secular growth trends of our time: Artificial Intelligence, vehicle electrification and electronification, and the modernization of energy infrastructure. The company's deep technological expertise in connectivity and sensor solutions provides a critical competitive moat, enabling it to solve complex engineering challenges and drive content growth across diverse, high-value applications. This is further amplified by its globally localized manufacturing footprint, a key operational differentiator that enhances customer responsiveness and mitigates external pressures.

The recent financial performance, marked by record sales, adjusted earnings, and free cash flow, underscores the effectiveness of TE's operational excellence and disciplined capital allocation. With a clear roadmap for continued double-digit growth in AI revenue, sustained content outperformance in automotive, and improving trends in industrial markets, TE Connectivity is poised for accelerated growth and margin expansion in fiscal 2025 and beyond. While macroeconomic uncertainties and regulatory shifts present ongoing challenges, the company's proven resilience, strategic investments, and robust cash generation position it favorably to deliver consistent value for discerning investors.