TE Connectivity's Q4 2025: Contradictions Emerge on AI Growth, Industrial Market Share, Margins, Tariff Strategies, and Gross Margin Forecasts

Date of Call: October 29, 2025

Financials Results

• Revenue: Q4 sales $4.75B, up 17% reported and 11% organically YoY; FY2025 sales $17.3B, up 9% reported and 6% organic YoY
• EPS: Q4 adjusted EPS $2.44, up 25% YoY; FY2025 adjusted EPS $8.76, up 16% YoY (GAAP Q4 EPS $2.23 incl. charges)
• Gross Margin: About 35% in FY25 (recasted ~36% after removing amortization from non-GAAP; ~100 bps improvement from recast)
• Operating Margin: Adjusted operating margin ~20% in Q4 (up 130 bps YoY); FY2025 adjusted operating margin ~20%, expanded ~80 bps YoY

Guidance:

• Q1 FY2026 sales expected ~$4.5B, up 17% reported / 11% organic YoY
• Q1 FY2026 adjusted EPS expected ~ $2.53, up ~23% YoY
• Q1 adjusted effective tax rate ~22%; full-year adjusted ETR ~23% (cash tax rate expected well below adjusted ETR)
• Non-GAAP recast: amortization on intangibles excluded beginning FY2026 (impact ~ $0.15 per quarter)
• CapEx expected around TE average (a little over 5% of sales), with FY26 dollar increase likely modest vs FY25
• FY26 restructuring expected roughly ~$100M

Business Commentary:

• Revenue and Earnings Growth:
• TE Connectivity reported record sales of $4.75 billion for the fourth quarter, up 17% on a reported basis and 11% organically year-over-year.

• The growth was driven by strong momentum in both segments, with a focus on strategic positioning in businesses benefiting from secular growth trends.

• Digital Data Networks (DDN) and AI:

• The Digital Data Networks segment grew 80% year-over-year, with over $900 million in AI revenue, tripling from the previous year.

• This growth was supported by increasing ramps from hyperscaler platforms and strong design wins for AI products.

• Orders and Market Growth:

• TE Connectivity saw orders increase to $4.7 billion, reflecting a 22% year-over-year increase, with a 5% sequential growth.

• Order improvements were noted in automotive and digital data networks, indicating stability in general industrial end markets.

• Operational and Financial Performance:

• The company reported an operational margin expansion of 130 basis points to 20%, driven by strong execution and operational resilience.
• TE Connectivity maintained a high free cash flow performance, with $1.2 billion in the fourth quarter and over $3 billion for the full year.

Sentiment Analysis:

Overall Tone: Positive

• Company reported record FY25 sales ($17.3B), record adjusted EPS ($8.76, +16% YoY) and record free cash flow (> $3B) and Q4 results beat guide (Q4 sales $4.75B, adj. EPS $2.44). Management guided to double-digit Q1 growth and continued momentum into FY26; multiple comments highlight strong AI/DDN ramps and industrial momentum.

Q&A:

• Question from Scott Davis (Melius Research LLC): Congrats on a great year. I got to lead in on the AI stuff because it's just a giant tailwind for you, and you're doing a -- seem to be doing a great job of capturing those revenues. But last quarter, I think you were talking about $800 million. You did $900 million. I think last quarter, you said you thought maybe '26 was $1 billion. Can we mark-to-market that forecast? And just as importantly, where are you on kind of the scale impact there where you can get to or above kind of company average margins?
  Response: AI revenue ramped to >$900M in FY25 (from $300M in FY24); management expects continued significant dollar growth next year driven by hyperscaler program ramps and co-designs, and also substantial growth outside AI in cloud/non-AI (~$500M) and enterprise, supporting ongoing margin contribution.

• Question from Joseph Spak (UBS Investment Bank, Research Division): Maybe just to follow on, I mean, you talked about some of the high-speed interconnect and data center. I was wondering if there's also a power element related to AI that's going to help you in '26. And then just for CapEx in '26, like you've been close to mid-5 sales this year to help build out that support. Should we expect similar levels next year to help support that continued growth? Or has most of that investment already been made?
  Response: Power interconnects (e.g., liquid busbars, rack cabling) complement high-speed growth; FY25 capex rose a few hundred million for AI/cloud programs and FY26 capex will likely be similar or a bit lower in incremental dollars, roughly a little over 5% of sales on average.

• Question from Mark Delaney (Goldman Sachs Group, Inc., Research Division): I was hoping you can help us better understand trends by end market beyond DDN, including how demand trends have changed over the last 90 days? And any early views you can share for fiscal '26?
  Response: Orders improved sequentially and YoY across both segments; Industrial shows consistent strong momentum (notably Energy and AD&M), DDN extremely strong, Transportation is stabilizing with expected 4–6% content growth over market, while some North American commercial transportation and consumer-facing ACL remains uneven.

• Question from Wamsi Mohan (BofA Securities, Research Division): I was wondering if you could talk a little bit about margins in 2 ways. One is when you look at gross margins, just a few years ago, you were in the low 30s, you're squarely in the mid-30s now. How should we think about the potential for gross margins for you and for this industry to actually expand further from here? And if you could comment just on the new basis of accounting, how should we think about the adjusted operating margins for both your segments? And sorry, if I could, does this change in accounting imply any increased appetite around rate and pace of M&A as well?
  Response: Gross margin recast adds ~100 bps (FY25 ~35% recast to ~36%); both segments run near 20% adjusted operating margin with further expansion expected as volumes grow; organic growth flows through roughly 30% to margins; company remains opportunistic on bolt‑on M&A but selective despite strong cash optionality.

• Question from Amit Daryanani (Evercore ISI Institutional Equities, Research Division): I just had a couple of questions just on the DDN segment broadly. Terrence, on the AI side, it sounds like $1.5 billion revenue run rate is sort of what you're comfortable with. I'd love to understand, do you see this growth coming more from end demand end units? Or is there a share gain narrative as well as some of these programs are starting to mature, perhaps the share is getting more in your favor? I'd love to just kind of understand the levers behind the growth you see. And then on DDN ex AI, your growth over there actually has been really impressive, north of 40%, I think, in fiscal '25, which is much better than what the end markets are there. So what's driving this growth on DDN ex AI as well?
  Response: DDN growth primarily from hyperscaler program ramps and co‑design wins (share stable but benefited by ramps); non‑AI DDN and cloud/enterprise/edge also growing strongly as cloud infra upgrades cascade down, contributing material incremental growth.

• Question from Luke Junk (Robert W. Baird & Co. Incorporated, Research Division): Terrence, I wanted to circle back to Transportation and the orders in particular. You had mentioned that you had seen order growth in all regions this quarter. I'm just wondering relative to auto outgrowth, especially that has been more weighted to Asia and China recently, would you say this might portend to more balanced outgrowth algorithm? And I think you spoke to production being more balanced in the West, but what about some TE-specific dynamics as well?
  Response: We expect regional mix to normalize—Western declines should flatten—leading to more balanced content growth across regions; content per vehicle remains higher in the West, so normalization should support TE's 4–6% content outgrowth over market.

• Question from Unknown Analyst (on behalf of Samik Chatterjee, JPMorgan): This is [indiscernible] on for Samik Chatterjee. So I just wanted to ask on implied margin guidance for F 1Q. So based on my calculation, even after adjusting for the change in non-GAAP calculations, the implied margins are close to 21%, which is a robust expansion relative to F 4Q. Can you please highlight the drivers which are driving that margin expansion there?
  Response: Management won't give a specific margin number but expects modest sequential margin improvement into Q1, driven mainly by Transportation (higher production seasonality), with Industrial roughly neutral to flat sequentially.

• Question from Guy Drummond Hardwick (Barclays Bank PLC, Research Division): Terrence, I know you kind of answered the question about the growth in DDN ex AI. But I think I heard you say the cloud business doubled to $500 million. Can you tell me what's driving that? I assume it's cloud companies pushing their on-premise customers to the cloud, and they seem to be growing at 20%. So just wondering how much visibility you have in this business because it potentially could be a multiyear runway. What sort of kind of growth assumption should we assume sort of medium term?
  Response: Cloud (non‑AI) revenue doubled to ~$500M driven by infrastructure upgrades; management sees continued multi‑year opportunity though content per install is lower than AI—still expects attractive growth from this expanding addressable market.

• Question from Colin Langan (Wells Fargo Securities, LLC, Research Division): Just a follow-up on the outlook in auto to grow 4% to 6% over market. I mean any way to frame the challenge from EV adoption slowing down in developed markets? Is that sort of going to keep you at the lower end of that range or even below that range given some of the pushbacks in some of those products? Or is that kind of offset by other factors?
  Response: EV adoption is strongest in Asia; slower EV uptake elsewhere is offset by hybrids and substantial content growth from connectivity (Ethernet), autonomy, safety and comfort features—supporting the 4–6% content outgrowth target.

• Question from Asiya Merchant (Citigroup Inc., Research Division): Can you just talk a little bit about the book-to-bill, specifically, I think, in Industrial, given the strong momentum you have, DDN as well as some of the other segments that you talked about, is book-to-bill below 1 here? I think I calculated it to be 0.96. Is that a metric that investors should focus on? And how we should think about that relative to your guide?
  Response: Book‑to‑bill appears <1 due to normal Q4→Q1 seasonality (holiday shutdowns); $4.7B orders in Q4 vs $4.5B Q1 guide is healthy—investors should consider seasonality and order trends rather than point-in-time book‑to‑bill.

• Question from William Stein (Truist Securities, Inc., Research Division): I want to first recognize very good results on revenue and earnings and the outlook in the same regard. So the question I'm going to ask is maybe is not quite as optimistic, but I do want to recognize the great results and outlook. On the margins, however, I have this lingering question. You're, again, beating on revenue. You're beating in this new -- partly from this new category of AI, which I would expect carries better margins. The conversion margins are not bad, but I think they were a little bit below consensus. And if you look to the out quarter, if you don't make that amort adjustment, I think it's the same story. Revenue beat and earnings beat, but margins are a little bit disappointing from a [indiscernible] perspective. Is there something dragging on profitability today that you could clarify for us?
  Response: No fundamental margin drag; management expects ~30% flow‑through on growth over time; quarter-to-quarter noise from mix, tariff pass-throughs (revenue with little margin), and accounting recast—underlying operational performance intact.

• Question from Shreyas Patil (Wolfe Research, LLC): On the AI piece, you're growing very rapidly, run rating at about $1.2 billion. You've talked in the past about this being a 3-player market. One of your competitors appears to be quite a bit ahead on revenue, maybe 3x the revenues that you're doing at the moment. So I guess, as we think ahead, how do you think about the market share dynamics in this space? Do you see an -- should we be thinking over the long run that this will eventually become a more balanced market share across the 3 big players? Or do you see TEL as sort of a firm #2 over time?
  Response: Market is concentrated; share shifts will come from technology inflections and ramp execution—TE competes on co‑design, technology and operational ramp to win share and expects to continue competing to increase position.

• Question from Michael Elias (TD Cowen, Research Division): This is Michael on for Joe. So previously, you mentioned strong content in busbars and cabling and also previously other quarters, backplane content in particular. Are there any recent order wins you'd like to highlight there specifically? And then what types of customers are you seeing the most order activity with right now between GPUs, custom ASICs, hyperscaleers, stuff of that nature?
  Response: Wins span the product set (busbars, cabling, backplane) and vary by customer/product; the revenue ramps are primarily driven by hyperscalers (and some semiconductor customers), which are the main contributors to current DDN growth.

Contradiction Point 1

AI Revenue Growth and Market Share

It involves differing statements about the growth trajectory and market share opportunities in the AI segment, which are crucial for investor expectations and strategic positioning.

Are TE Connectivity's AI revenues marked to market? How will TE achieve average margins in this segment? - Scott Davis (Melius Research LLC)

2025Q4: TE Connectivity generated over $900 million in AI sales in 2025, tripling from 2024. - Terrence Curtin(CEO & Executive Director)

Is the AI business fully ramped, scaled, and profitable at company levels? How will it contribute to future growth? - Scott Reed Davis (Melius Research)

2025Q3: TE's AI business revenue is expected to exceed $800 million this year, from $300 million last year. - Terrence R. Curtin(CEO & Executive Director)

Contradiction Point 2

Industrial Segment Market Share and Growth Opportunities

It highlights differing perspectives on the growth drivers and market share opportunities in the Industrial segment, which are critical for strategic assessments and financial forecasting.

What is the significance of the Industrial book-to-bill ratio for investors? - Asiya Merchant (Citigroup Inc., Research Division)

2025Q4: Order levels are robust, supporting future growth. - Terrence Curtin(CEO & Executive Director)

Are there any timing impacts on the industrial book-to-bill due to AI, and what is the outlook for AI awards in 2026? - Luke L. Junk (Robert W. Baird & Co Incorporated)

2025Q3: TE's Industrial segment shows broad-based improvement in orders, driven by AI momentum across multiple markets. - Terrence R. Curtin(CEO & Executive Director)

Contradiction Point 3

AI Margins and Profitability

It involves differing statements about the profitability of the AI segment, which are crucial for financial forecasting and investor expectations.

Can TE Connectivity's AI revenues be marked to market? How does TE plan to achieve average margins in this segment? - Scott Davis (Melius Research LLC)

2025Q4: AI hyperscale CapEx is expected to grow about 20%, providing a baseline for future growth. - Terrence Curtin(CEO & Executive Director)

Has the AI business fully scaled and achieved profitability at or above company levels? How do you expect it to contribute to future growth? - Scott Reed Davis (Melius Research)

2025Q3: The growth is on ramps, and margins are slightly above the Industrial segment. - Terrence R. Curtin(CEO & Executive Director)

Contradiction Point 4

Tariff Impact and Localization Strategy

It involves the company's strategy to mitigate the impact of tariffs and the effectiveness of their localization strategy, which are critical for financial planning and operational efficiency.

Are TE Connectivity's AI revenues marketable? And how does TE plan to achieve average margins in this segment? - Scott Davis (Melius Research LLC)

2025Q4: Most impacts are in the Industrial segment, not Transportation. Mitigation actions include sourcing changes and price actions. - Terrence Curtin(CEO)

Is your localization strategy a competitive advantage in tariffs? - Colin Langan (Wells Fargo Securities, LLC, Research Division)

2025Q2: Indeed, our localization provides options. Advantage in mitigation strategies and more localized footprint. Competitors vary in their footprint. - Terrence Curtin(CEO)

Contradiction Point 5

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What are the growth drivers for the AI segment, and why is non-AI DDN growing faster than the underlying markets? - Amit Daryanani (Evercore ISI Institutional Equities, Research Division)

2025Q4: We continue to expect to see a 100 basis point increase in gross margin on our prior year based on the amortization change, resulting in a gross margin of approximately 36%. - Heath Mitts(CFO)

Can margin expansion and EPS growth be sustained in a challenging market? What drives margin expansion? - Amit Daryanani (Evercore ISI)

2025Q2: Industrial margins improve to 22.4% from 21.6%. Transportation gross margin is 24.2% due to higher production levels in Asia. - Heath Mitts(CFO)