Amphenol Corp

NYSE:APH

Earnings Call Transcript 2017-Q4

[Operator]

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. Following today's presentation, there will be a formal question-and-answer session. Until then, all lines will remain in a listen-only mode. At the request of the Company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to introduce today's conference host, Mr. Craig Lampo. Sir, you may begin.

[Craig Lampo, Chief Financial Officer]

Thank you. Good afternoon, everyone. This is Craig Lampo, Amphenol's CFO. And I'm here together with Adam Norwitt, our CEO. We would like to welcome you to our fourth quarter 2017 conference call. Our fourth quarter 2017 results were released this morning. I will provide some financial commentary on the quarter and then Adam will give an overview of the business, as well as current trends. Then we will take questions.

As a reminder, we may refer in this call to certain non-GAAP financial measures and may make certain forward-looking statements. So please refer to the relevant disclosures in our press release for further information.

The Company closed the fourth quarter with record sales of $1.944 billion exceeding the high end of the Company’s guidance for sales by approximately $145 million and achieving new records of performance.

Sales were up 18% in U.S. dollars and up 16% in local currencies compared to the fourth quarter of 2016. From an organic standpoint, excluding both acquisitions and currency, sales in the fourth quarter increased a very strong 13%. Sequentially, sales were up 6% in U.S. dollars and local currencies and organically. Breaking down sales into our two segments. Our Cable business, which comprises 5% of our sales, was down 5% from the fourth quarter of last year. The Interconnect business, which comprised 95% of our sales, was up 19% in U.S. dollars from last year, driven primarily by organic growth, as well as the impact of acquisitions.

For the full year of 2017, sales were a record $7.011 billion, up 12% in US dollars and in local currencies and up a very strong 8% organically compared to 2016, an excellent performance.

Adam will comment further on trends by market in a few minutes. Operating income was $399 million for the fourth quarter, up 18% from 2016 and operating margin was a strong 20.5% in the fourth quarter of 2017, equal to our record and comparable to both the fourth quarter of 2016 and the third quarter of 2017.

From a segment standpoint, in the Cable segment, margins were 11.2%, which is down compared to the fourth quarter of 2016 at 14.9%, primarily driven by an increase in certain commodity costs together with the lower volumes. In the Interconnect segment, margins were strong 22.4% in the fourth quarter of 2017, equal to the fourth quarter of last year.

For the full year of 2017, the company delivered $1.432 billion in adjusted operating income, up strong 15% from 2016.

We continued to be very pleased with the company's operating margin achievement. Both with the achievement of 20.4% on an adjusted basis for the full year which represents the first full year over 20% level, as well as the achievement of 20.5% operating margin in the fourth quarter which reflects a sixth consecutive quarter over 20%.

This excellent performance is a direct result of the strength and commitment of the Company's entrepreneurial management team, which continues to foster high performance action-oriented culture, in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in a challenging market environment.

Through the careful fostering of such a culture and the deployment of these strategies to both existing and acquired companies, our management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance in the future.

Interest expense for the quarter was $25 million compared to $18 million last year, reflecting the impact of the higher average interest rates, resulting from the senior notes issuance earlier in the year, as well as the higher average debt levels, primarily resulting from the Company's stock buyback program.

During the fourth quarter of 2017, the Company incurred one time tax related charge of approximately $400 million or $1.26 per share resulting from the enactment of the Tax Cuts and Jobs Act. This charge reflects a shift to a modified territorial tax regime and includes our current estimate of the U.S. toll charge related to the deemed repatriation of cumulative unremitted foreign earnings which will be paid over a period of eight years. Local taxes related to the cumulative unremitted foreign earnings due to our intention over time to repatriate our foreign cash which will be paid when those respective earnings are repatriated, partially offset by an adjustment of certain U.S. deferred tax balances due to the change in the tax rate.

These amounts are the company's best estimate based on the current information and guidance available at this time and represent provisional estimates of the one-time tax related charge associated with the Tax Act which will be finalized in 2018.

In addition to requiring the one-time charge just discussed, the Tax Act also reduces a substantial portion of the future tax benefits from our stock option program that we have called out during the prior 2017 earnings call. Because of these future tax benefits will be substantially reduced and the fact that 2017 was the first year that excess tax benefits were reflected in income under GAAP, we will exclude these benefits in our presentation of adjusted non-GAAP results for 2017 and onwards because we believe that it will provide a more helpful comparability of [period to period] [ph] results for investors. Please refer to the supplemental financial information in our earnings release for a reconciliation of GAAP to non-GAAP adjusted net income and the diluted EPS for all 2017 quarters which now excludes the excess tax benefits of stock option exercise as well as the other items already noted.

The Company's GAAP effective tax rate for the fourth quarter of 2017 including the one-time tax related charge partially offset by approximately 550 basis points excess tax benefit related to the exercise of stock options was approximately 127%. Excluding these items, the adjusted effective tax rate was approximately 26.7% for the fourth quarter which is consistent with effective tax rate in the fourth quarter of 2016.

For the full year, the adjusted effective tax rate was 26.5% for 2017 which excludes the excess tax benefits from option exercises and was consistent with 2016. On a GAAP basis, the Company's full year effective tax rate was approximately 51% and 27% for 2017 and 2016 respectively, reflecting that 2017 one-time charge and the tax effect of the acquisition related cost incurred during the respective years, partially offset by the approximate 490 basis points excess tax benefit of the exercise of stock option in 2017.

As indicated in earnings release, we are still evaluating the impact of the Tax Act on our going forward effective tax rate. As such based on the current information available we have estimated that the approximate benefit of the Tax Act on our tax rate will be at least one point. Accordingly we have included this approximate benefit in our 2018 guidance. We would like to note that the impact on our going forward effective tax rate are still be evaluated and the effective tax rate reflected in our guidance does not reflect any potential change due to the finalization in 2018 of the one-time tax related charge resulting from the Tax Act.

Adjusted net income was a strong 14% of sales in both fourth quarter of 2017 and for the full year of 2017. From an EPS perspective, on a GAAP basis including the impact of the Tax Act partially offset by the $0.07 fourth quarter and $0.21 full year excess tax benefit from stock option exercise, we reported diluted loss per share for the fourth quarter of $0.34 and diluted EPS of $2.06 for the full year of 2017. On an adjusted basis for the fourth quarter -- fourth quarter adjusted diluted EPS was a record $0.86 which is a 15% increase compared to $0.75 for the comparable in 2016 period. And compared to our adjusted EPS guidance in the fourth quarter at the high end of $0.80 excluding the $0.01 EPS benefit included in our guidance for the fourth quarter related to the expected excess tax benefit of stock option exercises.

For the full year of 2017, adjusted diluted EPS was a record $3.12, up 15% over 2016 at $2.72. A very strong performance and compares to our adjusted EPS guidance in the full year at the high end of $3.06 excluding the $0.15 EPS benefit included in our guidance for the fourth quarter related to the expected excess tax benefit of stock option exercises.

This strong growth was supported by excellent operating performance as demonstrated by the company's strong operating margins.

Orders for the quarter were record $2 billion, a 20% increase over the fourth quarter of 2016, resulting in a book-to-bill ratio of 1.03 to 1.

The Company continues to be an excellent generator of cash. Cash flow from operations was a record $428 million in the quarter and $1.1 billion for the full year, or approximately 156% and 116% of adjusted net income respectively.

From a working capital standpoint, inventory, accounts receivable and accounts payable were approximately $1.1 billion, $1.6 billion and $875 million respectively at the end of December. In inventory days, day sales outstanding and payables days excluding the impact of acquisition were 76, 73 and 60 days respectively, all within our normal range.

The cash flow from operations of $428 million along with the stock option proceeds of $50 million were used primarily to fund net capital expenditures of $69 million. The purchase approximately $62 million of the Company’s stock, to fund dividend payments of $58 million, to acquisitions of $22 million, and to repay $20 million under the commercial paper program, which resulted in an increase of cash, cash equivalents and short-term investments of approximately $264 million net of translation.

During the quarter, the Company repurchased 700,000 shares at an average price of approximately $89. These repurchases were made under the Company’s $1 billion two year stock repurchase program. And to-date, the Company has repurchased approximately 8.4 million shares or $618 million under the plan. And approximately $318 million of repurchase remain available under the program through January 2019.

At December 31, cash and short-term investments were approximately $1.8 billion, the majority of which is currently held outside the US. Given the flexibility introduced by the previously discussed Tax Act relative to repatriation of foreign earnings, the company is currently in a process of assessing repatriation opportunities in 2018 and accordance with its capital allocation strategy. We believe the ability to more freely move earnings under the new territorial system will provide additional support for the company's long-term capital allocation strategy which focuses on achieving a balance between organic business development, acquisition growth and shareholder returns including dividend and share buyback.

Also at the end of the quarter, the Company had issued approximately $1.2 billion under its commercial paper program. The Company's cash and availability under its credit facilities totaled approximately $2.6 billion. Total debt at December 31st was approximately $3.5 billion and net debt is approximately $1.8 billion. Fourth quarter 2017, EBITDA was approximately $469 million bring the Company's fully year EBITDA to a record $1.7 billion. From a financial perspective, this was an excellent quarter and year.

Before I turn the call over to Adam, I'd like to make a brief comment relative to our 2018 earnings guidance. As mentioned earlier, our 2018 diluted EPS guidance reflects an estimated one point benefit on our 2018 effective tax rate from the Tax Act or approximately 25.5%, which compares to our 2017 adjusted effective tax rate of 26.5%. On that basis, we anticipate diluted EPS of $0.78 to $0.80 for the first quarter of 2018 or 13% to 16% growth versus the first quarter of 2017 adjusted diluted EPS. For the full year 2018, we anticipate diluted EPS of $3.39 to $3.47 which represents a 9% to 11% growth versus full year of 2017 adjusted diluted EPS.

I'll now turn it over Adam who will provide an overview of the business and comment on current trends.

[Adam Norwitt, Chief Executive Officer]

Well, thank you very much Craig and thank you all for taking the time to listen in on our conference call today. And hope it's not too late to wish everybody a Happy New Year. As Craig mentioned, I am going to highlight some of our achievements here in the year both in fourth quarter and 2017. I'll discuss the trends and progress across our served market and then I'll make a few comments on our outlook for the first quarter and the full year of 2018.

With respect to the fourth quarter, I mean Craig went over many of these details but just to reiterate, our results in the fourth quarter was a substantially stronger than expected as we exceeded the high end of our guidance in sales and adjusted earnings, and reached new records in order sales and adjusted EPS. Sales grew by a very strong 18% in U.S. dollars and 16% in local currency reaching another new record of $1.944 billion. I'll just say that we are pleased in particular that we grew organically in the quarter by very strong 13%. Craig alluded to the company booked a new record $2 billion in orders and that not only represented an excellent book-to-bill of 1.03 to 1 but represent a 20% growth to prior year orders, a very, very strong finish from our booking.

Operating margins were again strong in the quarter equaling our highest ever level of 20.5% and cash flow in the quarter reached a new record $428 million which is just another a great confirmation of the company's financial strength. Just once again as I come out of the fourth quarter, I am just so proud of our team, our results this quarter once again reflects the true value of the discipline and agility of Amphenol's entrepreneurial organization as we continue to perform well amidst what is always a very dynamic electronics industry all well driving outstanding operating performance for the quarter.

We are very pleased to be able to announce two new acquisitions. One that was completed late in December and one that was completed here in January. First, Sunpool which we closed on late in the month of December, it's China based provider of high technology antennas for the Chinese automotive market with annual sales of approximately $30 million. Sunpool which is based in the industrial center of North East China is a leader in the Chinese automotive antenna market leveraging its advanced product design strength, together with outstanding vertically integrated and low cost manufacturing capabilities. The company represents another great compliment to both our broad and diversified antenna offering around the world, as well as the great compliment to our growing presence in the Chinese automotive market. CTI Industries which we closed on early here in January is a Canada based manufacture of high technology cable assemblies for a wide array of applications including embedded computing, industrial and automotive. The company which has revenues of approximately $60 million, manufactures its products in Canada, Mexico and China and serve the broad range of important and complimentary customers to our existing customer base. Company enhances our already industry leading value add interconnect capabilities across this really wide range of end markets and application.

So as we welcome these outstanding new teams to Amphenol, we remained very confident that our acquisition program will continue to create great value for the company. Our ability to identify and execute upon acquisition opportunities and then to successfully bring these new companies into the Amphenol family remains the core competitive advantage for the company. Now just to make a few comments on 2017. I think very clearly 2017 was another outstanding year for Amphenol. We expanded our position in the overall market growing sales by 12% in both U.S. dollars and local currencies reaching a new sales record of $7 billion and $11 million. Organically we grew by a very strong 8% which was significantly higher than we had expected coming into the year. Our full year adjusted operating margin also reached a new record of 20.4% and as Craig mentioned, this is the first time that we exceeded 20% return on sales for our full calendar year. And our strong profitability enabled us to generate adjusted diluted EPS of $3.12 growing also strong 15% from prior year. Operating cash flow and free cash flow also were both records in the year at a $1.144 billion and $921 million respectively and we continue to put that cash to work in our acquisition program, which once again contributed strongly to our performance here in 2017.

As you recall, we closed on the acquisitions earlier this year of Phitek,i2S, Telect, the 3 sensor businesses of Meggitt and then Sunpool in the fourth quarter and CTI here in January. All these acquisitions have already begun to create value for the company and most importantly we've now been joined by great range of talented individual which thereby deepens the bench of our already impressive management team. In addition to our acquisitions program, we also bought back this year 8.4 million shares under our $1 billion share buyback program and you'll recall increasing -- that we increased our quarterly dividend by 19% during the year.

The company is consistent and balanced approach to capital deployment, we believe will be further enhance to the increased flexibility afforded by the modified territorial tax system, that's implemented in the recently passed US Tax Cuts and Jobs Act. We believe the ability to more freely move the company's earnings under this new territorial system will provide additional support for our consistent, long-term capital allocation strategy, which focuses on achieving a balance between investing in organic business development, acquisition growth and delivering shareholder returns including our dividends and share buyback program.

Our long-term mission remains the same and that is to be the enablers of the electronics revolution. And through the organic development efforts of our worldwide entrepreneurial organization together with the benefits from our acquisition program, we've expanded our partnerships with the broadening array of customers across all of our diversified end market. This has resulted in Amphenol strengthening our position across the many segments of the electronic industry.

While the overall market environment in 2017 was certainly very dynamic as we enter 2018 our agile entrepreneurial management team is highly confident that we've built a platform strength from which we can drive superior, long-term performance.

Now turning to the trends in our served markets and just reflecting back again on 2017, we were very pleased that our balanced and broad end market diversification is continue to create real value for the company. Once again, no end market represented more than 20% of our sales for the full year and we remain very steadfast on our belief that this diversification mitigates the impact of the volatility of individual end market while exposing us to leading technologies wherever they may arrive across the electronics industry.

So turning to those markets specifically starting with the military market. The military market represented 10% of our sales both in the fourth quarter and for 2017. Sales in the military market rose strongly in the fourth quarter rising by a greater than expected 11%, driven by growth in really most segment of the military market. And that included in particular aircraft, space, naval and communication application. Sequentially, our sales in military increased by a very robust 10%. And for the full year 2017, we were pleased that our military sales grew by very strong 13%, all organic reflecting broad based strength across virtually all segments of the market.

Our team working in this important market is continues to solidify our leadership position by leveraging our leading technology position amid the more favorable military expanding environment. The breadth of our position is even more important in this environment as we are able to participate on a wide array of next generation military hardware. Looking ahead, while we expect sales in the first quarter to moderate from this fourth quarter level, we do expect to achieve mid single digit sales growth in the military market for the full year 2018.

The commercial aerospace market represented 4% of sales both in the fourth quarter and for 2017. And sales in the fourth quarter increased from prior year by a robust 11% as aircraft manufactures increased their procurement after several quarters of moderate spending pattern. Sequentially, our sales increased by 7% from the third quarter. For the full year of 2017, our sales were up by 3% as the benefit of Phitek acquisition completed in the first quarter, as well as the strength in large passenger plane volume was offset by continued moderation in demand for both helicopters and business jets.

Looking into 2018, we now expect the slight moderation in sales from these levels in the first quarter and for the full year we expect the low single digit sales increase as helicopter and business jet procurement volume stabilize and as commercial jetliner production continues to grow moderately. We remain encouraged by the company's strong technology position across the wide array of aircraft platforms in next generation system. And we look forward very much to leveraging that position to expand our overall position in the exciting market for commercial aircraft electronic.

The industrial market represented 20% of our sales in the fourth quarter and 19% of our sales for the full year 2017. Sales in the fourth quarter grew by a stronger than expected 29% in U.S. dollars and 22% organically. As we benefited from robust organic growth across really nearly every segment of the industrial market but driven especially by strength in heavy equipment, oil and gas, alternative energy and instrumentation. Sequentially, our sales in the industrial market grew by a better than expected 7%.

For the full year of 2017, our sales in the industrial market grew by a very strong 22% in U.S. dollars and 15% organically. And this is driven in particular by outstanding performance again in heavy equipment and instrumentation, oil and gas and also factory automation, as well as like contributions from the acquisitions that we've made over the recent two years.

No doubt about it that 2017 was an excellent year for our teams that are working in the industrial market. Through both our successful execution program as well as our organic innovation, we've developed a very broad range of product across a diversified array of exciting segments within the global and industrial market. We are very proud of this success and look forward to realizing the benefits from our efforts in the industrial market for many years to come. And the addition this quarter of CTI and various value add products that come with that acquisition, further strengthens our already robust position in value add interconnect assemblies for a wide range of segments in the industrial market.

Looking to the first quarter of 2018, we anticipate a moderation of sales from current level but for the full year of 2018 we expect to realize mid-teens grown as we continue to benefit from our organic growth efforts together with the contributions from our recent acquisitions.

The automotive market represented 18% of our sales in the fourth quarter and 19% of our sales for the full year of 2017. Sales increased to very strong 22% in U.S. dollar, 16% in local currencies and 12% organically. As we continue to make great progress penetrating a wide array of applications and new electronic systems with car makers around the world. Sequentially, our automotive sales increased by 6%. For the full year of 2017, our sales in the automotive market grew by 16% in US dollars and 11% organically. Another clear reflection of the company's ongoing progress and expanding position across the global automotive market. We are pleased in particular that in 2017 we realized double digit growth in all regions, North America, Europe and Asia. We are continuing to benefit from our long term and consistent strategy in the automotive market of expanding range of interconnect sensor and antenna products both organically and through acquisition to enable wide array of onboard electronic across the diversified range of vehicle made by auto manufactures around the world. We are excited that the acquisitions of Sunpool expand our already growing position in the market for automotive antenna. An area where we can leverage of our industry leading RF technology position together with our broad and balance position with automotive manufactures around the world.

Looking ahead for the first quarter, we expect sales to increase from current level and for the full year of 2018, we expect to achieve sales growth in the high teens in the automotive. We look forward to continuing to realize the benefits from successful automotive business into the future.

Turning to the mobile devices market, the mobile devices market represented 18% of our sales in the quarter and 14% of our sales for the full year of 2017. Once again in the first quarter our team just did a great job and our performance in the mobile devices market was much stronger than expected. We grew by a very substantial 69% from prior year as we capitalized on higher volumes of new products in particular related to smartphones as well as accessories. On a sequential basis, our sales grew by a very robust 18% from the already very strong third quarter. For the full year of 2017, we were very pleased that our sales for the mobile devices market increases by 12% from prior year and as you all remember, this is significantly ahead of our expectations coming into the year and even out of the second quarter. Our growth for the year was also driven by growth in smartphones and accessories, offset by declines in the volumes of tablet.

I just cannot emphasis how proud I am of our team working in this important market. As we've discussed last quarter, they have been able to quickly capitalize on unexpected opportunities to expand our position on important new program. And reacting extremely quickly to be able to increase sales by this very significant amount. I can tell you one thing and that our customers remain extremely satisfied to call Amphenol their partner knowing that we are there for them no matter when they need us. The mobile devices market is of course an extremely dynamic and very exciting part of the overall electronics industry. Both the velocity of product introductions and the challenges of ramping the customer requirement creates opportunities for companies like Amphenol that can react with extreme agility to the ever changing environment. This agility coupled with our leading array of interconnect antenna, mechanical and production related products, positions us strongly for the future.

Looking to the first quarter not surprisingly we expect the sequential reduction in sales of approximately 20% due to the typical seasonality that we see in this market. For the full year of 2018, we currently expect to realize low single digit growth in the mobile devices market. However, we remain ever aware that this market will inevitably perform in unexpected ways and we'll just continue to reminder ourselves that the key to our success is the proven ability of our team to meet and capitalize on any expected opportunities and challenges that arise in this dynamic market.

The mobile networks market represented 7% of our sales in the quarter and 8% of our sales for the full year of 2017. Sales in mobile networks declined from prior year by a bit more than we had expected 7% in US dollars and 13% organically as mobile operators around the world continue to moderate their spending on network build out. Sequentially, our sales were down only slightly and what is normally is seasonally softer fourth quarter. For the full year of 2017, sales were down in low single digit as the overall spending environment for mobile operators remain muted. Looking ahead and given the uncertainty and the continued uncertainty I should say in the spending plans of wireless operators around the world, we expect sales in the first quarter to moderate from current level. And for the full year of 2018, we do not yet anticipate a recovery in the spending environment and accordingly we anticipate sales to remain roughly at 2017 levels.

While this year's positive spending was no doubt a challenge for our team to manage, we are very pleased that we have continued to focus on our efforts to designing new products for a broad range of next generation networks including all important 5G network. Thereby positioned the company to benefit when operators' spending does return to growth. Our unique position with both equipment manufactures and mobile service providers create significant long-term potential for the company.

The information technology and data communication networks represented 18% of our sales in the fourth quarter and 20% of sales for the full year of 2017. As we had anticipated coming into the fourth quarter, our sales were slightly down from prior year as stronger sales of products used in servers were more than offset by a moderation of demand in both networking and storage relating equipment. Sequentially, sales were only slightly down from the third quarter which was actually a bit better than we had expected coming into the quarter. For the full year of 2017, our sales in IT datacom grew by strong 9% US dollars and 6% organically which is really great performance given the overall spending environment, as well as the significant strength that you all recall we had realized in 2016. Our organic growth in IT datacom is a real testament to our team's effort to develop leading technologies while rapidly pivoting for the opportunities for growth created by new customers in this important market.

Looking into 2018, while we anticipate a normal seasonal moderation of sales in the first quarter, we do expect to achieve low to mid single digit sales growth for the full year. The IT datacom market remains a very exciting place with both traditional and new customers constantly striving to upgrade their equipment to manage the immense expansion of data traffic. This traffic growth continues to be driven by in particular the expansion of video, as well as the broadening of cloud based services. Our team remains at the forefront of efforts to enable this revolution in the IT datacom market. Through their ongoing development of next generation, leading high speed power and fiber optic technologies.

Finally, the broadband market represented 5% of our sales in the fourth quarter and 6% of sales in the full year 2017. Sales decrease by 8% in the quarter as operators paused their spending on network build out. On a sequential basis, our sales were down a bit more than expected 14% from the third quarter. While we did realize growth of 5% in the broadband market in 2017 with the contributions from our acquisition, organically our sales were down mid single digit by about 5% in the face of a challenging demand year. Operating spending this year was impacted a number of external factors including in particular the various strategic combinations being considered among customers. Nevertheless, we come out of 2017 very pleased that our product diversification efforts in the broadband market have positioned us very well for the future.

Looking into the first quarter, we expect sales to moderate from these levels and for the full year of 2018, we currently expect sales in the broadband market to remain at 2017 level.

So, in summary with respect to 2017, I am just extremely proud of our performance this year. While there remain very dynamics in the global market the Amphenol organization has continued to execute extraordinarily well. In particular, our dual-pronged approach of growing both organically and through our acquisition program has resulted in the company expanding our market positioning while strengthening our financial performance. Amphenol's superior performance is a direct reflection of our distinct competitive advantages. Our leading technology, our increasing position with customers in diverse market, a worldwide present, a lean and flexible cost structure, a highly effective acquisition program and all of that with the underpinnings of our agile entrepreneurial management team.

Now turning to our outlook. As Craig mentioned in his remarks as a result of the changes in the US tax law, we currently expect the reduction in our adjusted effective tax rate of at least 100 basis points and we are going to continue to refine this expectation as further implementation guidance is released. On this base and based on continuation of the current market environment, as well as constant exchange rate, we now expect for the first quarter and full year 2018 the following results. For the first quarter we expect sales in the range of $1.780 billion to $1.820 billion and diluted EPS in the range of $0.78 to $0.80 respectively. And again that represents sales increase versus prior year of 14% to 17% in US dollars and 10% to 13% in local currency and an increase versus prior year adjusted diluted EPS of 13% to 16%.

For the full year of 2018, we expect sales in the range of $7.440 billion to $7.600 billion and diluted EPS in the range of $3.39 to $3.47 respectively. For the full year this represents sales and diluted EPS growth of 6% to 8% and 9% to 11% over 2017 sales and adjusted diluted EPS level.

We are very encouraged by the continued strong performance of Amphenol in 2017 and we look forward to driving further strength going forward even given the many dynamics across electronics industry. I am confident in the ability of our outstanding management team to build upon these new record levels of revenues and earnings and to continue to capitalize on the many future opportunities to grow our market position while expanding our profitability.

And with that operator, we will be very happy to take any questions that there maybe.

[Operator]

[Operator Instructions]

Our first question comes from the line of Shawn Harrison of Longbow Research. Your line is now open.

[Shawn Harrison, Longbow Research]

Hi, good afternoon, everyone. Congrats on the strong finish to 2017. The mobile devices business obviously it looks like you gained significant shares, you are able to out execute your peers during the latter half of this year. Are you seeing any expectation that you would see back some of that market share in 2018 or is your expectation that you would more follow kind of market growth of smartphones?

[Adam Norwitt, Chief Executive Officer]

Well, I think to answer a little bit in reverse. I mean market growth for smartphones is not always a great predictor of our performance, as you know there are lots of different factors that go into that market growth. But in terms of our position with our customers, I think we really confirmed to our customers that Amphenol is a very important partner to have and customers are not going to forget that very easily. So I believe that we have really created for ourselves a very resilient position but resilient with the caveat that you are in a market where everything can change all the time. And so I think we've done ourselves a great service. Our customers have recognized that. I believe that we'll continue to have a very strong position but what volumes ultimately will be and how new platforms ultimately gets designed that's always very difficult to predict in this market.

[Shawn Harrison, Longbow Research]

And then as a follow up. I don't know maybe the word dour is too negative but your view on the mobile networks business seems that way to me. Is there any geographic region that is more negative in 2018 versus 2017? Are you just seeing all global regions challenged?

[Adam Norwitt, Chief Executive Officer]

Yes. I mean I think dour is maybe a little strong word for the guidance. I think we expect it to be for the year kind of flattish for the year which is not quite dour but certainly our performance in 2017 was not what we would have want to come into the year. I wouldn't say that there is in particular one or another geography that sticks out, I think what we see in the mobile networks market is that -- is the dynamic that we have seen many times before when you have both generational changes as well as various corporate goings and coming across the industry which is that -- there is a little bit of a pause and that is the pause that we saw this year. And you'll recall 2016 was a very strong year for us in mobile network, Shawn. And I think this year we saw a pull back in that and we expect that kind of a pause to continue into 2018 in particular as the 5G network as the planning goes on for those. If there is ever an acceleration overall in the plans about various operators or pulling forward in the plans of when to ultimately install next generation network. Well, I can assure you is our team has just done fabulous job of making sure that we are broadly positioned in all geographies. And that's how we've always dealt with this. We've always think about this market as a market where you get sometimes this kind of pent-up demand that materializes over a certain time period, obviously data traffic is not changing, it continues to grow unabated but ultimately when operators choose to make the investments in those next generation network, number one depends on the availability of the actual hardware to enable those networks. Number two, it depends on what's happening with the various corporate ownership of those operators. And number three, it depends on their ability to monetize the increase in the data traffic. I think over the years the operators have gotten better at that last piece which is the monetization of the data traffic but still there is much work still to be done on finalizing these next generation network. Regardless of how it comes out, we've always been there and been ready as to waiting to capitalize on that pent-up demand when it eventually does get satisfied. And I believe long term it will.

[Operator]

Our next question comes from the line of Amit Daryanani from RBC Capital Markets.

[Amit Daryanani, RBC Capital Markets.]

Thanks a lot. Good afternoon, guys. Two questions for me as well I guess. Maybe to start off on the tax rate. Craig, you're talking about I think 25.5% tax rate right now but doesn't sound like it's all finalized. So what are the factors that you’re waiting for to get more clarity if you could just maybe call out a couple of those? And then do you think 25.5% is the right tax rate or does it go down from there as you go into calendar 2019 as some of these things get sorted out?

[Craig Lampo, Chief Financial Officer]

Sure. Thanks, Amit. As I mentioned in my prepared remarks Amit and with the current information and guidance available to us, create our best estimate and kind of what we have today. There is a lot of moving part as it relate to the Tax Act. It was just passed 30 days ago, a little over 30 days ago. So there is still a significant amount of interpretations and guidance coming out. I mean there is guidance that came out just Friday of last week that we had to process. So that's kind of what we are referring to in terms of we are still evaluating. I wouldn't point out any one particular thing. There are certain provisions in that that are certainly have some impact on us and other multinational companies. But the one point that's kind of our best guess today based on what we know and we did say at least one point I wouldn't expect less than that. So let's see what happens in going forward as we have more clarity on all of these things that we are expecting hopefully will come out from guidance interpretation perspective. So I'd tell you that I think 25.5% is the right rate to use as kind of we look forward here and I am certainly not going to guess in 2019 and beyond with what might happen there.

[Amit Daryanani, RBC Capital Markets.]

Got it. And I guess Adam just on mobile devices, I think last year maybe prior to that as well when you start off the year and give annual guide, you always kind of start off with a flat expectations for that segment, saying it's volatile to be kind of predictive, which makes sense. What do you see better today that, again, you're not dramatically more positive in that, but you're talking about low single digit growth. So I guess versus the last few years, what do you see sort of different in mobile devices that makes you take a more positive stance and more sort of flat number you typically talked about?

[Adam Norwitt, Chief Executive Officer]

Well, I think if you with Shawn's question I think there is something related to that which is we clearly had a very significant over achievement here in the second half. When we think about our mobile devices business, in the mobile devices market for us second half to first half was up by nearly 90%, I mean that was very, very strong performance by our team and I cannot just emphasize enough how much hard work goes in for that. And through that demonstration of being there for our customers and really supporting them when they needed that support, I think that does create some little bit more favorable view going into the year in terms of where we will be with those customers going forward. Again, with the caveat that I always make that you never know in the mobile devices market. We just felt that coming into this year on the basis of all that we know from our customers that it's a little bit obviously a little bit more favorable outlook than what we've seen over the prior three years. Now, I am not going to tell you I am any more dependable on our outlook on mobile devices. I have been for three years running very undependable in those same three years that you correctly point out, we guided it flat. I was wrong all three years. Fortunately, I was wrong to the upside two out of the three years. And I was wrong to the downside one or other. But-- and we've always tried to guide on the basis of what we see at the beginning of the year, that's the best that we can do here. And I think just this time what we see today sitting here in January is a little bit more favorable than what we've seen in the prior three January.

[Operator]

Speakers our next question comes from Mark Delaney from Goldman Sachs. Your line is now open.

[Mark Delaney, Goldman Sachs]

Yes, it's Mark Delaney from Goldman. Thanks very much for taking the question. Congratulations on the strong fourth quarter. As a follow up on mobile devices if I could and certainly understanding there is lot of volatility in that market but generally normal seasonality has sales rise in 2Q and again in 3Q off of a lower March quarter and as you guys are thinking about planning in the year, is your expectation that the build is different than normal seasonality this year?

[Adam Norwitt, Chief Executive Officer]

Yes. I mean it's hard for us to guide for the full year and to guide for our first quarter let alone to give any kind of intelligent and helpful guidance in terms of cadence over the course of those quarters. As you know, we are not very good at that. It's a very difficult market to forecast. I wouldn't say that there is anything terribly abnormal from what we see today but I would be hard pressed to try to paint for you a good picture of what each quarter is going to be sitting where we sit today.

[Mark Delaney, Goldman Sachs]

Okay, got it. And then a follow up question on the military segment which I know you did well in the fourth quarter. Given some uncertainty around the US budget and government funding, when you talk to your customers how important is it to get a full year budget in order to achieve that outlook for the full year military revenue growth that the company guided to and is it something that can turn into any of your customer?

[Adam Norwitt, Chief Executive Officer]

Yes. I mean I think it's really important to have a government that operate effectively and has budget, that's the time that those governments need budget. I remember there was lot of pain that everybody in the military industry went through a time when we were dealing with this bad word, sequestration which you all remember very well. I wouldn’t' say that the current environment is anything like that sequestration. We've been very favorable overall demand in the military market. I think we've done even a little bit better than that when you look at our performance. I think for a full year performance growing 13% organically and not forgetting that the prior year we grew 4% organically and that was including the DLA issue which is year and half ago. Does not having a budget is jumping from CR to CR to CR in the budgeting process; put a damper on the demand for our products. I don't know that we have seen that. I have certainly heard some of our customers in the media talking about how for them it is concerning that there is not a real permanent budget and we would applaud any effort to get a budget done and little back as the military -- military certainly does not like to operate in time of uncertainty. So what is very clear and I think if we look at the change over the recent several years is there is clearly the shift towards the strategic posturing of the military which has more of -- towards building of next generation electronic system to enable our military hardware, both in the US and around the world. And we've seen that just very broadly next generation system new product, a lot of new innovation, upgrades to existing products. I mentioned that we've seen growth in the military market this year really very broadly. If I look at all the little segment that we track in the military market essentially all but maybe one or two of them are up and are up in double digit on a full year basis. And that's everything from communication to ordinance application to vehicles to airframe to naval to space. So we are really pleased that it appears that sort of tilting of the balance maybe away from supporting day to day operating expenses in military and more towards the advanced electronics and advance capabilities that ultimately can be enabled by electronics. I think that's the real favorable environment that our team has been able to capitalize upon. And we are able to capitalize upon that because we've got such a breadth of product and a depth of technologies across the company and across the region in which we operate. So regardless of whether the US kind of hopscotches between these continue resolution, I think we have a good outlook and I don't think that our outlook for the military market is anyway really based on those political soap opera in Washington.

[Operator]

And our next question comes from the line of Sherri Scribner from Deutsche Bank. Your line is now open.

[Sherri Scribner, Deutsche Bank]

Hi, thank you. It seems like the outlook in industrial and auto sort of those industrial focused market continues to be very strong. You guys have seen excellent growth in those two end markets. And you are guiding to mid-teen to high teens growth in those two segments in 2018. I was hoping if you could give us a little more detail on what you are seeing from an end market perspective? And is that driven by a better economic outlook across the different geographies? And how much of that is coming from organic growth versus non organic growth?

[Adam Norwitt, Chief Executive Officer]

Yes. So I think just on your -- reverse the question a little bit, both markets we would expect to be kind of high single digit organic growth for the year. And it's very, very strong outlook. I would separate the two in terms of the dynamic in the industrial and the automotive market. I think the industrial market certainly does not have some broad economic tailwind behind it. Even if some of our performance in areas of that market are clearly are outperforming any trends that you see overall. Our strength in areas like heavy equipment and oil and gas, we are happy to have kind of rebounding at this point and things like instrumentation and medical, factory automation. I think not all of those trends are just pure rising tide of GOP lift all the industrial boats kind of trend and if you look at something like factory automation I think here you have a trend that is beyond GDP which is really a shift in places like China and other low cost countries towards automation in order to deal with either lack of availability of labor which we see in many places or increasing cost of that same laboring. Our products are used on a wide array of everything from robots to automation machine that go into this new factories and that's been a real favorable segment for us. I would say that automotive is much more a content growth story of electronics applications continuing to expand in the car. And not necessarily so much just an overall economic trend of automotive. I mean you all know better than I do the general automotive number whether that flat or low single digit or whatever forecast would come. I think for us is less important than the fact that we continue to see just a great proliferation of electronics across car line .And the includes everything from hybrids and electric drive train to next generation emission control to onboard electronics to even kind of autonomous liked application that are going into cars and again creating just great new functionality into demand for new electronic systems which ultimately create a really nice opportunity for our team to work with customers to design in our next generation product. So I'd say that less of a broad GDP economy trend and maybe industrial has a bit more of component of that.

[Sherri Scribner, Deutsche Bank]

Okay. That's really helpful. Thanks Adam. And then just looking at the IT and datacom, it seems like your growth outlook for the year is relatively strong considering people's general view of that market low to mid single digit. What's driving that? Is that again from the service side where you commented in some of the cloud business? Do you still see the storage market and the networking market as challenge maybe some more detail on that I think would be helpful? Thank you.

[Adam Norwitt, Chief Executive Officer]

Well, thank you, Sherri. No, I think we've just established ourselves in the IT market as really the leader in the high technology product for this market and so I think our team with their combination of truly advanced technologies whether that's in high speed and power and fiber optics or the other relevant technologies, together with the dynamics that I have described now here for several years of that quick ability to pivot towards where the new opportunities will be, I think that has given us a really great platform from which we can have this favorable view for the future. It's more of that growth coming from servers or storage or networking or cloud service, I don't know that I would break it down so specifically but I think the trends that we've seen over the recent two years, and we don't see a big change in those trends. Whether is a bit more growth coming out of some of these next generation cloud companies and maybe a little bit less coming out of the more traditional OEMs that building the boxes.

[Operator]

And our next question comes from the line of Craig Hettenbach from Morgan Stanley. Your line is now open.

[Craig Hettenbach, Morgan Stanley]

Thanks. Adam, just question on mobile networks and just the transition to 5G. Just curious kind of what typically your visibility would be into that transition and then once that happened even if it later this year early next year, is there anything to keep in mind from a content perspective or opportunity set for Amphenol?

[Adam Norwitt, Chief Executive Officer]

Yes. I mean I don't know that we would necessarily have dramatically better visibility than what get publicly announced about who is going to build what network when. I think you've started to hear some prognosis about when certain networks are going to be built. Some of them around Olympic Games, some of them around other events and timing. The question is not when the first network gets build. The real question is when they really start to get build in true volume. And I mean you will remember certainly Craig when 3G, there were plenty of 3G trial network built or certain cities that were built, before you really started to see material levels of demand that were representing significant network build out for that equipment. And so when-- sometime you will see announcement, you will see announcements about certain things being built but that won't necessarily be the real volume increases that could ultimately satisfy this pent-up demand that I spoke off earlier. With respect to the content on 5G, every generation has different architectures, has different content, every vendor who makes this equipment has slightly different approaches to how they design things. I wouldn't characterize 5G is having necessarily different content and what we've seen in 4G or 3G. what I would characterize though very clearly is that the performance requirement of what goes into 5G cell site whatever that is either in the base station or across the site, those performance requirements are clearly going to be higher than what we've seen in 4G. Whether that's the speed or late fee or power consumption and those all areas where we have a really great track record of helping our customers to tackle the thorny problems that come as they are trying to break beyond prior levels of performance. And so does it end up having more or less connectors on one or more or less cable or bigger or smaller antennas that is for us a little bit less important than the degree of technology that's getting embedded into next generation system. And we have no reason to believe that won't be a very advanced technology going into these side pieces.

[Craig Hettenbach, Morgan Stanley]

Got it. And then just a quick follow up for Craig. Gross margins down slightly year-on-year, I know you mentioned kind of the cable weakness and that's an element. Anything to keep in mind for a full year 2018 in terms of commodity input cost and how you are thinking about gross margin?

[Craig Lampo, Chief Financial Officer]

Yes, sure. Thanks, Craig. I think that's right in regard to the full year 2018 in the first quarter. I think that certainly commodities do have some level of impact specifically regarding to the cable segment. We've talked about this when I talked about the reason for the reduction in the profitability in that segment. I mean another thing that actually does have a little bit of impact in the short term but over time we would expect to improve upon it is the impact of our acquisitions that have been done recently over the course of the year. And the acquisitions while they are accretive from an EPS perspective do sometimes have some operating profitability level that are a little bit less than or in some cases some significantly less than our corporate average. And one this is usually happens before we've been able to have them adopt kind of Amphenol operating principle and then get them up to a level. And we saw this in 2016 in a magnified effect when we looked at the full year piece of FCI which we were able to get much quicker than we expected. And that's a little bit what you are seeing in 2018 as you compared to 2017. And over time we would expect to get those acquisitions up to the average of the company and but from a long-term perspective at this 25% conversion margin that we talked about consistently I think that some years could be a little up, sometimes little bit down from that but I think that's still a long -term target that we believe is very achievable.

[Operator]

Speakers our next question comes from Will Stein from SunTrust. Your line is now open.

[Will Stein, SunTrust Robinson Humphrey, Inc]

Great. Thanks for taking my question. Congrats on the good quarter and outlook. I'd like to ask about capital allocation in particular the buyback slowed a little bit in the quarter relative to where it's been recently. Is that related more to the acquisitions that you did in the quarter or is there anything else going on there? Thank you.

[Craig Lampo, Chief Financial Officer]

Sure. Thanks for the question. As it relate to the buyback, I mean every quarter is a little different in terms of how we allocate capital and I wouldn't say that. I think we actually had a lot of buybacks happening in the first half of the year and first three quarters of the year. And but every single -- 8.4 million shares for the year so I think that and if you look at the whole year I think that's kind of the context I would put it in. I don't think any one particular quarter. I would really focus on from a buyback perspective or nor I would focus on from an M&A perspective piece. That also has certainly its puts and takes from a quarter perspectives. So overall from a capital allocation perspective I wouldn't take that I guess used amount in the first quarter as any change. I think as it relates to the new Tax Act, we really truly believe that the new territorial regime that is now in place under the new Tax Act really provides us with or further enhances our flexibility that we really think is a cornerstone, one of the cornerstones of our capital deployment strategy. We really think balance flexibility and consistency are really the cornerstone of our strategy and we do think the Tax Act really helps with that and supporting that and the ability to more freely move cash as myself and Adam mentioned in our prepared remarks really additionally supports that as well. So in the short term from a capital deployment perspective I think that the flexibility introduced by act will ultimately help us in the long term. It really isn’t going to have so much of an impact I think on our overall deployment strategy giving 50% of our return of capital for M&A with the other 50% going to return of capital to shareholders and any one quarter maybe different.

[Will Stein, SunTrust Robinson Humphrey, Inc]

Thanks for that. One follow up if I can. It relates to supply chain let say performance or a constraints on the other hand this affects you both I think from a sourcing perspective and also potential from the perspective of your customers and their inventory management. We've heard so much about tightness in the supply chain as it relate mostly to passes but also discrete and then to a lesser degree but more sort of concentrated basis in some ICs. I am wondering what you are seeing in this regard? Any sort of characterization of our current environment would help. Thank you.

[Adam Norwitt, Chief Executive Officer]

Yes. Well, I think relative to supply chain, number one is our team just done a fabulous job and are there certain constraint, we certainly hear about the passes and discrete and some ICs, I wouldn't say that in our company and our universe and our industry we have seen those broad based constraints. There have been some discussions about certain materials like copper and other things like that but obviously our team was able to drive just outstanding results here regardless of any minor constraints that maybe there. Craig mentioned that we have seen some increased cost of certain commodities, and that was reflected most prominently in the margin that we saw in our cable business this quarter. But broadly I would not point to any supply chain constraints and I think certainly none that we are causing and again go back to the ramp up that we were able to drive in our mobile devices market. You look at some of the sequential growth that we are able to achieve also in over the course of this year in our industrial market in mil-aero. So no question that our team was able to deal in that environment regardless whether there were constraints or not. And so I don't think it's impacting Amphenol and it's certainly not impacting our outlook for 2018.

[Operator]

Our next question comes from line of Jim Suva from Citi. Your line is now open.

[Jim Suva, Citi]

Thank you very much and congratulations to you and your team at Amphenol. I have two questions are little bit related so I just asked about the same time. Adam on your outlook for 2018, if you look at it percent basis about the growth of 2018 versus 2017 and you consider that some of the acquisitions were recently announced today so they will help boost the growth rate as well as some of the acquisitions announced previously during 2017 haven't had the full year. It just seems like the growth rate is kind of down shifted from what it has been in the past few years organically. Am I right on that or off on that? Maybe you correct me or help me find logic. And then underscoring that I think Adam you had mentioned mobile devices for Q1 is typically down about 20% and that's what you are guiding too, it looks like in the past was down much more or maybe just kind of close to rounding numbers. Thanks very much.

[Adam Norwitt, Chief Executive Officer]

Thank you very much, Jim and thanks for your kind word. I mean relative to the outlook and I think specifically you are getting to the organic outlook for the year. I mean we are coming -- our outlook here represents organic growth of 2% to 4% for the year and an overall growth of 6% to 8% for the year. If I just go back in time last January, I think our outlook was 0% to 2% organic growth for the year. And if I look at our organic over last three years and in fact in 2017 we accelerated our organic growth. We had 8% organic growth and in the prior two years our organic growth was a bit more muted but we complimented that with outstanding acquisitions in the year. So I would actually say that our guidance here for 2018 is a very, very robust guidance and it's a great blend in fact of both organic and acquisition contributions and represents a more favorable outlook than we've had really organically for the last three years. So I think that's -- we feel very good about the guidance and about how we are looking into 2018. And relative to mobile, I think, you know that mobile some years Q4 is very strong relative to Q3, other years it's more balanced across the quarter. And so we've seen reductions sometimes of more than 30% in the first quarter for mobile and we've seen other quarter's growth more like this 20%. Is this 20% a little bit on the lower end? It's certainly lower than the 30% we've seen in some other years but it's not uniquely low. I think we've had other years where mobile is down roughly about 20%. But we talked earlier with one of your peer's questions I think we do have a slightly more favorable view of the mobile market sitting where we sit today and maybe part of that is associated with that little bit lower sequentially we find the first quarter.

[Operator]

Our next question comes from the line of Deepa Raghavan from Wells Fargo Securities. Your line is now open.

[Deepa Raghavan, Wells Fargo Securities]

Good afternoon. Hope you are doing well. Adam, question for you on M&A within the industry. Can you comment on how the tax windfall for some US based companies can or cannot change the M&A landscape within the connector space? Also within your M&A pipeline could you talk about a larger -- a potential for larger acquisitions not that FCI is completed integrated?

[Adam Norwitt, Chief Executive Officer]

Well, thank you very much, Deepa for the question. I mean relative to the overall M&A landscape and the cash that is maybe available to some companies, I personally would not expect that would have a significant change. And for one reason. It's not that we are now that we have availability and a flexibility that the Craig talked about so eloquently here from the tax reform, it's not that we are going just go change how we think about pricing on acquisition. I believe very much that one should pay reasonable prices for acquisition regardless of what the cost of capital of the moment is because when we make these acquisitions, we are acquiring them for life. At an Amphenol we are not -- we don't view ourselves as a portfolio or manager per se where we buy things and then some day we sell them and we try to market time to buying and the selling of them. We are buying companies on a permanent basis and we know that we are going to be living with the earnings of that company on a permanent basis when the rate environment or the various cost of capital may have changed. And so we are going to remain very disciplined on price. We are very happy to pay good prices for great companies and we are going to continue to take that same approach. And I think as really the acquire of choice in our industry we would maybe set a little bit the trend there as it were. As it relates to our overall M&A pipeline, we continue to have a very robust pipeline. And we are very pleased to have closed on the two deals that we announced yesterday. We have still many more companies that we pursue and follow and stay in touch with and have it various stages of the life of an acquisition if you will. It is there another FCI kind of near and on the horizon that is not something that I would necessarily comment on today. Except to say that we have never had as criteria for our acquisition program size. And so if the right company does come along and clearly there are companies that are of certain sizes in our industry, and if that opportunity were to present itself, we would not be scared away by size. I think that what we look for an acquisition is people number one. We look for great management teams and we've been so successful in accomplishing that goal. We look for fantastic, innovative and enabling technology. And we look for companies with complimentary market position to Amphenol. And if we can fit -- if we can check those three boxes very importantly, whether that is a big company or small company we are going to put our best effort forward in terms of bringing that into the Amphenol family. So we'll continue to work hard at our acquisition program. I think the balance of capital deployment at fragmented acquisition remain really a very high priority if not our highest priority together with investing in our organic growth. And we are going to continue to deploy that capital which as we said has a more flexible availability to it than it had in the past and I am very confident long term we will have great success. We remain unable to predict when those acquisitions will close and when we will get them but I am confident long term there will be good ones ahead.

[Deepa Raghavan, Wells Fargo Securities]

Thank you. That's helpful. Craig, I have one for you. Is it fair to assume SPC-related tax doesn't impact 2018 or going forward? And the reason I asked is your EPS growth guidance is pretty strong at 9% to 11% compared to your historical guide.

[Craig Lampo, Chief Financial Officer]

Yes. So, Deepa, I think it is fair to assume that we don't have that included in our guidance. We haven't guided to any of this excess tax benefit on our stock based compensation. And the reason for that I mentioned in my prepared remarks and we do really believe that the availability to be able to compare our results especially since the tax benefit is going to be significantly reduced under this new Tax Act is important. There will certainly be some benefit in 2018 based on some level of stock option exercises but the same level of stock option exercise will create significantly reduced benefit because of the new tax regime. So we are certainly not guiding to that and we are not included that in our adjusted guidance, adjusted EPS guidance for specifically that reason.

[Operator]

And our next question is from Steven Fox from Cross Research. Your line is now open.

[Steven Fox, Cross Research]

Hi, good afternoon. Two questions for me please. First just circling back to the acquisition. Adam you highlighted a bunch of attributes for why you bought these two businesses. I was curious from a technology standpoint if there is anything specific you would highlight that brings to portfolio or is this more customer supply chain related? And then I had a follow up.

[Adam Norwitt, Chief Executive Officer]

Yes. I think with the two acquisitions, they are obviously very different. One is value add interconnect assembly company, cable assemblies is the CTI and we obviously know how to do cable assemblies. We have plenty of them across Amphenol. And often times with the cable assembly business you are really looking for different customer channels, different markets, and different presence but at the same time they have fantastic manufacturing technology and really great high value component. And so that's with CTI. I think with Sunpool, we are just really pleased that we get here not only in automotive antenna company, it's very, very important arguably the most important automotive market where the most cars are sold, sold and made. But also a truly vertically integrated automotive antenna capability and that is additive to what we have had in the past. You know that we've been developing organically our own automotive antenna business and we've been very successful with that. But I'd say this really give us a turbo boost in terms of our overall capabilities on automotive antennas from a design perspective of validation, assessing and all the kind of component of making those products, some of which we were able to do before and some of which we are only now able to do with the additional of Sunpool.

[Steven Fox, Cross Research]

Great, that's really helpful. And then just on the operating margin. So as you highlighted you create the 20% threshold pretty consistently recently. And given the volume outlook you providing, I was curious like how you would sort of quantify that chances of continuing to produce that type of level of margin if you are hitting those volumes. Like what else would hold you back? Whether it's acquisition or raw materials or just seasonality as we think about modeling efforts here. Thanks.

[Craig Lampo, Chief Financial Officer]

Sure, thanks. As I mentioned before I mean 2018 is certainly there is some impact from commodities and the cable segment as I mentioned. There is certainly an impact as it relates to the acquisitions that we've done 2017 and we don't project in 2018 for them to be quite up to the level of Amphenol yet. But over time I don't think there is anything that's holding us back since we are at 20% that wasn't holding us back or helping us before we are at 20% level. There is nothing from a leverage perspective that changes anything right now. I think we continue to have a great management team that does a really great job of making sure that their cost in the business are as low as possible given and as flexible as possible in regard to their everyday operation. And these general managers do a fantastic job as they have done before the company was overall at 20% in regards to maximizing the profitability and whether or not they do it out of SG&A or whether or not they do it in the factory or whatever else. We are not really so concerned about that. I think this is an area that we believe that long term we should be able to continue to have that leverage. But in any one year there will be things that will impact it such as the commodities that have had some impact in 2017 in the cable segment and into 2019. And in the shorter term the acquisition that are having some impact which we would expect as we acquire companies that are at lower profitability will have some impact in the future and until we are able to get them up to the Amphenol operating level which we do believe as the management team is clearly possible and certainly targeted.

[Operator]

Speakers our last question from the line of Joe Giordano from Cowen. Your line is now open.

[Joe Giordano, Cowen and Company]

Hey, guys. Thanks for taking my questions here. Most of -- what I want to ask has been asked but I just wanted to square some of the guides on like mobile network kind of what some of the news flow that you are seeing about post merger kind of just illusion, better CapEx estimate or something, is your guide kind of like what's actually been like were there actual actively procuring right now or is this kind of very short focused on what you are seeing right now or just kind of taking into consideration kind of longer term plans and maybe you are not seeing active in the market quite yet.

[Adam Norwitt, Chief Executive Officer]

Yes. I mean the way that we build our guidance is really through our internal forecasting process which is based ultimately and what we hear from our customers talking to our sales people. And what we don't do is we don't read the paper and say, well, we think there is a certain trends that maybe coming and we should adjust our guidance accordingly. And if the overall market changes then we would be very happy to be there to enable that higher level of spending. It's not something that we've seen from customers and so our guide in corporate executive what we hear from the customers. We are as helpful as anybody and things like US tax reform or stimuli or overall economic growth around the world can ultimately drive things like infrastructure spending or investments in network or whatever that maybe that can ultimately have a favorable effect on demand for our product. But today what we see and what we hear from our customers is embedded here and what we guided to.

[Joe Giordano, Cowen and Company]

Okay. And then similar on data and devices, I think the plans out of like the hyper scale like the Web 2.0 Company seems to be pretty good as far as datacenter into next year. And how big of a piece of the business is that portion of the market for you guys now?

[Adam Norwitt, Chief Executive Officer]

Well, I am not going to quantify it but what I said consistently is we've seen just outstanding performance from that. And I think ultimately if you think about the driver of why this demand is increasing. I mean you see just so many opportunities coming the demand for video and the internet, the demand for consumers consuming things in the mobility that they won't otherwise consuming, I mean crazy things I mean now that it appears that there is video game league that are popular than natural sports leagues and people are watching these on their mobile devices, they are streaming them, they are doing all of these. These are all the kinds of drivers that are ultimately create, putting, forcing the data through the network. And as we've seen that shift towards these new web service providers, a lot of the backbone for these new consumption of video is happening through this web service providers, and so we've just -- that has been a real driver of growth and we would anticipate it to continue to be. I will say that as you migrate towards a service provider in terms of their proportion of the market, service providers buy in a very different cadence than do equipment manufacture. And so ultimately that can lead sometime to more volatility. And we saw this quarter in our IT datacom market where in fact in the fourth quarter our sales were slightly down and that's despite having an excellent year going 9% for the full year. But we had had a year before an outstanding finish to the year where we've seen really significant investment in particular in web service providers. So I wouldn't be surprised if there is a little bit more of that kind of operator type service provider type volatility in the IT market for some portion of it. Is it today the dominant part of our IT datacom market? No, it's not. But has it been a real significant driver of growth for that? Yes, no question about it, it has and we would anticipate that going forward.

[Joe Giordano, Cowen and Company]

Just so I understand is the difference in the procurement is one more just like are the cloud guys more willing to do just more in time and hold us inventory than the equipment guys that would lead to that volatility?

[Adam Norwitt, Chief Executive Officer]

Well, I mean ultimately you are talking about someone who is worrying about running a factory versus someone who is just building thing, building datacenters, getting work crews in the field. And anybody who is involved in actually building network, so whether that's mobile service providers, whether that's broadband service providers, whether that's a internet service providers, the cadence of when you build things is very different than if you are operating factories and you are paying for factory overhead and you want to kind of level low those factories over a certain time period. I mean workers and construction project happen at a very different type of timing than do just factory consumption. Very good. Well, I think that is our final question and again we very much appreciate everybody's attention to us here. And look forward to talking to you all here in three months and again Happy New Year and great continuation here in the first quarter. Thank you very much.

[Operator]

Thank you for attending today's conference. Have a nice day.