TE Connectivity (TEL) 2026 財年第四季法說會：隨著 AI 需求升溫，訂單成長 29%

重點摘要

• 2026 財年第四季銷售額達到 53 億美元，有機成長為 年增 13%。經調整後每股盈餘上升 21% 至 3.14 美元，而經調整後營業利益率擴增 100 個基點 至 22.1%。
• 單季訂單金額成長 29% 至 61 億美元，訂單出貨比 (B/B ratio) 為 1.14。泰科電子 (TE Connectivity) 邁入 2027 財年時擁有約 80 億美元 的在手訂單，年增約 30%。
• 全年銷售額逼近 200 億美元，呈報成長率為 15%，有機成長率則為 12%。經調整後每股盈餘成長 24% 至 11.52 美元，經調整後營業利益率達到 22%。
• 數位數據網路 (Digital Data Networks，簡稱 DDN) 仍為主要成長引擎。管理層預期該業務將增加 超過 10 億美元 的 2027 財年營收，其中大部分成長與 AI 應用相關，且超過一半將發生在下半年。
• 針對 2027 財年第一季，管理層給出的銷售額預測為 53.5 億美元，年增 15%，經調整後每股盈餘預估約為 3.30 美元，年增 21%。
• 管理層預估 2027 財年有機銷售額成長將維持雙位數，並與 2026 財年實現的 12% 相當。

關鍵財務數據

Business and Operating Performance

Digital Data Networks and AI infrastructure

DDN orders grew roughly 70% in fiscal 2026, driven by hyperscale customers. Management said the business has more than doubled over the past several years and expects it to grow by well over $1 billion annually over an extended period.

Power connectivity represents approximately 30% of DDN revenue. Management expects this portion to grow faster than the overall business as customers adopt higher-power architectures, including 800-volt direct current and liquid cooling.

TE Connectivity expects both copper and fiber to remain part of next-generation AI infrastructure. Management said its scenario analysis indicates that the copper addressable market could grow by more than 100%, while optical products add incremental opportunities in chip-to-fiber, fiber-to-fiber and high-density routing applications.

Industrial Solutions

Industrial Solutions sales increased 20% both as reported and organically in fiscal Q4. Orders rose 47%, with every business in the segment recording more than 20% order growth.

Energy delivered 12% organic growth in the quarter and 18% for the full year, supported by grid modernization and data-center power infrastructure. Automation and Connected Living grew 18% organically, while Aerospace and Defense increased 16%.

The segment’s adjusted operating margin exceeded 22%, up 40 basis points year over year.

Transportation Solutions

Transportation Solutions sales rose 8% as reported and 7%有機成長。汽車業務銷售額成長 6%（有機基準），儘管車輛產量下滑，但在亞洲單車內容價值成長與歐洲電動車業務改善的支撐下實現成長。

商用運輸業務銷售額成長 18%，所有區域均實現成長，且北美狀況有所改善。部門調整後營運利潤率達到 21%，上升 80 個基點。

管理層亦將人形機器人視為新興商機，估計潛在 TE 內容價值高達 每台機器人 500 美元。然而，管理層強調未來的生產規模仍存在高度不確定性。

管理層指引

第一財季指引包含預期 銷售額減少 5,000 萬美元，此與額外的 IEEPA 關稅退款有關。管理層亦預計 2027 財年將面臨輕微的年度匯率逆風。

風險與關注事項

• 管理層預計 2027 財年全球車輛產量將微幅下降，各區域市場疲軟，且北美地區持續面臨挑戰。
• 樹脂、金屬與貨運通膨仍居高不下。預期定價與生產力提高將抵銷這些成本，但管理層預計近期不會有顯著緩解。
• DDN 的成長集中在 2027 財年下半年，反映客戶專案放量的時程。
• 客戶對銅纜、光纖連接、800 伏特直流電與液冷技術的採用，將因架構與時程表而異。
• 人形機器人商機高度依賴未來產量與產品複雜度的不確定性。

分析師問答重點

• DDN 成長概況： 管理層預計 DDN 營收將從第四財季到第一財季微幅增加，在第二財季進一步上升，並在下半年更大幅度增長。在手訂單已延伸至 2027 財年全年在內，並部分延伸至下一年。
• 銅纜與光纖：TE Connectivity 預期這兩種技術將並存。銅纜在背板、板中連接、線纜與基於 CPU 的架構中依然重要，而光纖則擴大了該公司在晶片近端與晶片上的總可服務市場。
• 車用業務超越市場成長：管理階層將 2027 財年預計超越市場成長的 4 至 6 個百分點歸因於車輛數據傳輸連接、動力系統電動化及更廣泛的電子化，儘管全球產量略有下降。
• 利潤率：管理階層預計近期的利潤率年增趨勢將保持大致一致，這得益於生產力提升與選擇性定價策略，同時對產能與工程技術的投資仍將持續。
• 投入成本管理：TE Connectivity 透過包括金屬價格附加條款、客戶談判，以及在某些情況下對未交付訂單重新定價等機制來應對通膨。

法說會完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Everyone, thank you for standing by, and welcome to the TE Connectivity Fourth Quarter Earnings Call for Fiscal Year 2026. [Operator Instructions] As a reminder, today's call is being recorded.

I would now like to turn the conference over to our host, Vice President of Investor Relations, Sujal Shah. Please go ahead.

Sujal Shah

Good morning, and thank you for joining our conference call to discuss TE Connectivity's fourth quarter and full year results for fiscal 2026 along with the outlook for our first quarter of fiscal 2027. With me today are Chief Executive Officer, Terrence Curtin; and Chief Financial Officer, Heath Mitts.

During this call, we will be providing certain forward-looking information, and we ask you to review the forward-looking cautionary statements included in today's press release. In addition, we will use certain non-GAAP measures in our discussion this morning. and we ask you to review the sections of our press release and the accompanying slide presentation that address the use of these items. The press release and related tables, along with the slide presentation, can be found on the Investor Relations portion of our website at te.com.

Finally, during the Q&A portion of today's call due to the number of participants, we're asking everyone to limit themselves to one question. and you may rejoin the queue if you have a second question.

Now let me turn the call over to Terrence for opening comments.

Terrence Curtin

Good morning, and thank you, everyone, for joining us. And before I get into the slides and the details of our results and expectations going forward, I do want to make some overall comments. TE is positioned around the accelerating data and power trends that are driving significant growth for us today and creating opportunities for strong growth in the years ahead. As I mentioned last quarter, our products and technology are at the intersection of some of the largest technology and infrastructure investments taking place around the world, and you'll see the benefits in our results and our outlook during this call.

Our fourth quarter performance above guidance was a good finish to the year. And full 2026 financial results demonstrate strong execution by our team in delivering $2.6 billion of sales growth, which is an increase of 15% year-over-year, along with adjusted earnings per share growth of 24%. The sales and earnings performance was coupled with another year of strong cash generation while continuing to invest in expanding capacity and engineering resources to support future growth. We also made bolt-on acquisitions that expand our addressable market in both optics as well as power filtering.

So let me click down on the trends and how these are shown up in our results. You are all familiar with the investments taking place in AI infrastructure. Our Digital Data Networks business is benefiting from increasing data and power connectivity requirements including growing networking demand as AI architectures evolve. At the same time, our Energy business supports the electrical infrastructure needed to power these data centers, and at TE our opportunity extends from the grid all the way to the chip. And together, DDN and Energy accounted for approximately half of our organic sales growth in fiscal 2026.

But AI is also moving beyond the data center into physical AI applications. As intelligence moves to the edge of the network, more machines and devices need increased computing. That in turn leads to more connectivity, so information can be processed and decisions can be made in real time. We're seeing this in factory automation, intelligent vehicles, battery electric storage and industrial and humanoid robots, and TE is well positioned to benefit from these emerging applications.

And just as importantly, the breadth of our growth extends well beyond AI. We're driving strong content growth in automotive and commercial transportation and benefiting from continued strength in commercial aerospace and defense as well as our other businesses. Across all of our markets, the need for increasing data and power requirements is creating opportunities for additional connectivity content, reinforcing growth across the portfolio. And while I'm excited about our positioning and opportunities tied directly to AI, we're also benefiting from broader trends outside of AI as they contributed the other half of our sales growth this past year.

So with that as a quick backdrop around trends, let's get into the presentation. And I'd ask you to go to Slide 3 and I'll get into fiscal fourth quarter results as well as the full year and our guidance for the first quarter of fiscal 2027. In the fourth quarter, we delivered another quarter of double-digit sales growth that was ahead of our guidance. Sales were $5.3 billion, and this was an increase of 13% organically year-over-year and both segments delivered strong growth. Orders were $6.1 billion, growing 29% versus the prior year, and I'll get into more details on both the sales and the orders on the next few slides. Against the sales growth, we delivered 21% EPS growth with adjusted earnings per share of $3.14 and adjusted margins expanded 100 basis points over the prior year. And we had strong free cash flow generation of $1.2 billion with approximately $800 million returned to our shareholders.

Now let me touch upon full year fiscal results quickly. And across the board, we achieved record sales orders, adjusted operating margins, EPS and free cash flow, so just a really strong year. For the full year, sales were nearly $20 billion, growing 15% on a reported basis and 12% on an organic basis. And we achieved order levels of over $22 billion and are entering fiscal 2027 with record backlog levels. Adjusted earnings per share increased 24% to $11.52 and adjusted operating margins expanded 120 basis points year-over-year to 22%. We continue to demonstrate the strength of our cash generation model, and Heath will get more into this in his section.

As we look ahead to fiscal 2027 and our outlook. For the first quarter of 2027, we are expecting sales of $5.35 billion and this is an increase of 15% year-over-year on both the reported and an organic basis. And the growth, again, will be broad-based. We expect adjusted earnings per share to be around $3.30, and this will be growing 21% over last year's levels. The other thing I want to highlight is that when we look at the trends in our markets and customer programs and backlog, we are expecting another year of double-digit organic sales growth in fiscal 2027 and we expect that will be similar to the 12% organic growth levels we had in 2026.

So at this point, I'd like to talk about orders, and I'd ask you to turn to Slide 4, where you can see the details on the slide. Order momentum remained strong and increased 6% sequentially and nearly $1.4 billion year-over-year to $6.1 billion in the quarter, with orders increasing double digits in both segments. The Industrial segment continued its momentum with orders increasing 47% versus the prior year. While the strongest growth was in DDN, every business had over 20% order growth year-over-year in the fourth quarter in the segment. In our Transportation segment, orders increased 13% versus the prior year, and this reflects continued content growth in both automotive and commercial transportation along with the continued improvement in the commercial transportation end market in North America. Our book-to-bill of 1.14, along with our backlog position are strong indicators of growth as we start our new fiscal year.

Now let me get into the segment results, and I'll start with the Industrial segment, which is on Slide 5. In our fourth quarter, our Industrial Solutions sales grew 20% on both a reported and on an organic basis year-over-year, with ongoing momentum and broad-based growth across the segment. Sequentially, segment sales increased close to 10%, with growth in all of our businesses, including 17% sequential growth in DDN. In digital data networks, we delivered another strong year of performance in fiscal 2026 with orders growing by roughly 70% for the full year, driven by our strong position with our hyperscale customers. We expect this strong performance to continue into fiscal 2027 as well as longer term. In 2027, we expect to add over $1 billion of DDN revenue with the vast majority of that from AI applications. And looking at our backlog aging and timing of customer program ramps, we expect that over half of that growth will be in the second half of our fiscal year.

I do want to take a moment to talk about AI technology and architecture evolution and how we think about our DDN growth longer term. I can say with confidence that this business will be significantly larger in the next 4 to 5 years and beyond than it is today. Our DDN business more than doubled in size the past couple of years. And based upon our momentum that we have with our customers, our product and technology road maps and our design and manufacturing capabilities, we expect to grow well over $1 billion per year over an extended time horizon, implying that this business will double again in the next few years. And we've been increasing our capacity in engineering as well as manufacturing to support the design wins and our expected growth. We still believe we're in the early stages of the AI infrastructure buildout, but it's clear that future architectures will require both copper and fiber connectivity.

On data connectivity, the shift towards inference and agentic AI is expanding demand for CPUs and networking connectivity. And as workloads evolve, we're seeing intelligence move closer to where the data is generated and decisions are made at the edge of the network, and these trends will enable continued TAM expansion. As we talked to you before, when it comes to power connectivity needed, that's architecture agnostic. And our leadership position allows us to capture additional content as data centers transition to 800-volt direct current as well as liquid cooling. At the same time, optical increases our addressable market and adds another significant growth opportunity for our DDN business.

A great example I want to share with you in our role of next-generation connectivity is the recent NVIDIA and Cisco announcement of a new industry specification and next-generation high-speed optical transceiver technology. It shows how TE is providing key enabling technology to deliver significantly greater performance to 12.8 terabits per second and 4 times the bandwidth density. This is a hybrid solution that combines both optical technology with a copper interconnect. And I feel it's a good leading indicator of how our customers are using multiple technologies to get to the best engineering solution for the architectures of the future. These types of solutions, combined with our RAM photonics technology that is focused on addressing CPO fiber attach density and scalability expands our addressable market for optics on or near the chip. These examples demonstrate the strength of our engineering capabilities, our portfolio and our customer relationships in next-generation AI infrastructure.

So at this point, still staying in Industrial Solutions, I do want to turn to our Energy business. And once again, our team delivered another strong quarter and it had organic sales growth increasing 12% in the quarter, and this resulted in 18% organic sales growth for the year. As we've talked to you before, the growth that we're seeing is driven by the continued investment across grid hardening, where utilities continue to modernize aging infrastructure for increased power needs as well as data center build-outs, which I discussed earlier. We provide the connectivity solutions that enable generation, transmission and distribution infrastructure, which gives us a unique position.

Turning to our Automation and Connected Living business. Our sales increased 18% organically in the fourth quarter, with growth across every region. We continue to see indicators of both cyclical growth as well as content outperformance, particularly on the factory automation and battery electric storage applications. And in our Aerospace and Defense business, we grew 16% organically in the quarter, reflecting ongoing strength in both the commercial aerospace and defense markets, where our data connectivity and power products are essential to next-generation platforms. Looking at margins in this segment. The segment's adjusted operating margins expanded 40 basis points to over 22%, reflecting continued strong execution of our teams while delivering on the growth for our customers.

Now if you could, I'd ask you to turn to Slide 6, and let me get into Transportation Solutions performance. In the fourth quarter, our Transportation Solutions sales grew 8% on a reported basis and 7% organically year-over-year. In Automotive, sales increased 6% organically despite a decline in vehicle production. Due to our content drivers, we delivered strong growth above the market in the fourth quarter, which was above our expectations and driven by ongoing strength out of Asia from a content perspective as well as improvement in Europe. The auto growth was also driven by our global leading position in our customer co-creation model.

As we look forward, we do expect global vehicle production to be down slightly in fiscal 2027, continuing the production trends that we saw this past year. We do expect our growth of our market in fiscal 2027 to be in our 4- to 6-point range, driven by the 3 pillars of content growth for us, which is data connectivity in the vehicle, electrification of the powertrain as well as electronification of the vehicle.

The other thing I want to highlight that goes beyond auto applications is we continue to see an exciting opportunity in humanoid robots. And this is where our Automotive business is really well positioned to lead and will be supported by capabilities across TE. And when you think about it, our Transportation segment provides power and signal connectivity, things needed to charge a robot like charging inlets, while our other businesses, Industrial contributes high-speed data as well as connectivity needed for motors and actuation solutions and really the whole basket sets us up well to take advantage of this emerging application. We view these technologies represent up to $500 of potential TE content per humanoid robot. We're also working closely with leading OEMs on next-generation designs, positioning us to benefit as this emerging market scales. And I think this is just another great example of how the need for power and data connectivity, combined with our broad capabilities, enables TE to build additional future growth drivers.

Let me turn over to our Commercial Transportation business, which had very strong sales growth, which increased 18% and this growth was across all regions, including improving trends in North America. Our team is delivering significant content growth above market through new program wins, further electrification of trucks in Asia and strong execution across all regions. For the segment on the margin side, the team delivered adjusted operating margins of 21% in the quarter and this is an increase of 80 basis points versus the prior year and demonstrates the resiliency and the execution of our transportation team.

So with that as a wrap-up of the segments, let me turn it over to Heath, who will get into more details on the financials and expectations going forward.

Heath Mitts

Thank you, Terrence, and good morning, everyone. Please turn to Slide 7. Our fourth quarter sales were $5.3 billion, which included IEEPA tariff refunds that resulted in a reduction in sales of $87 million. Going forward, we expect an additional $50 million of tariff refunds in the first quarter, and that reduction in sales is included in our guidance.

For the quarter, we achieved adjusted operating income of nearly $1.2 billion and adjusted operating margins of 22.1%. GAAP operating income was approximately $1.1 billion and included $12 million of acquisition-related charges, $14 million of restructuring and other charges and $57 million of amortization expense. For the full year, restructuring charges were $110 million, and I expect restructuring charges in fiscal '27 to be below the $100 million level. Adjusted EPS was $3.14 and GAAP EPS was $3.10 for the quarter and included restructuring, acquisition and other charges of $0.08 as well as amortization expense of $0.16. Additionally, we had a tax benefit of $0.20 related to the decrease in the valuation allowance for deferred tax assets.

The adjusted effective tax rate was 21% in our fourth quarter, and we expect 21% in the first quarter as well. For fiscal '27, we expect our adjusted effective tax rate to be 22%, similar to last year's rate. Currency exchange rates provided a year-over-year tailwind in fiscal '26 as noted in the attached bridge schedules. However, based on current exchange rates, we anticipate a slight year-over-year headwind on in fiscal '27.

Turning to Slide 8 for fiscal '26 full year performance. This slide lays out the strong performance across the key financial metrics that both Terrence and I talked about. These are all records, and we are confident that this momentum will continue into fiscal '27. Let me spend a minute on cash flow. Cash from operations was approximately $4.5 billion and free cash flow was $3.4 billion in fiscal '26, which was up $200 million year-over-year. We achieved 100% free cash flow conversion of adjusted net income, while increasing capital expenditures to support growth in our Industrial segment. Our strong cash generation and healthy balance sheet provide continued flexibility in how we deploy capital. In fiscal '26, we returned approximately $2.8 billion to shareholders through share repurchases and dividends while committing approximately $1.6 billion to bolt-on acquisitions in our Industrial segment. We expect the pending Astrodyne TDI acquisition to close by the end of our fiscal first quarter.

Before I turn it over to questions, let me reinforce that our performance in fiscal '26 reinforces our positioning to benefit from the largest technology infrastructure investments taking place globally. Our strong orders and backlog position support our outlook for double-digit sales growth this year, '27. We are investing in both capacity and engineering to ensure that we capitalize on these opportunities, we will continue to perform ahead of our through-cycle business model, generating strong margins, earnings growth and cash flow.

Now let's open it up for questions.

Sujal Shah

Thank you, Heath. [indiscernible], please give instructions for Q&A session.

Operator

[Operator Instructions] Your first question comes from the line of Scott Davis with Melius Research.

分析師問答

Scott Davis

Congrats on wrapping up a great year. Despite the stock having fits and starts, you guys did your job. So Look, I wanted to kind of get into the horse that's going to be ridden today, obviously, around DDN. Can you guys talk a little bit about how your content changes or content intensity value map, what however you want to talk about it as we move into more architectures, 800 BDC, liquid cooling kind of next-generation stuff. I'm thinking solid-state transformers as well because feels like there's going to be a fair amount of connectors in there as well. But maybe if you guys can talk a little bit about that, if possible, size it, that would be wonderful. But if not, just give us some subjective color on that pathway.

Terrence Curtin

Thanks, Scott. And I appreciate the question and comments. So the first thing that you come into is the architecture is changing significantly. And one of the things that's truly great where we play is we're right at the center of those trade-offs that our customers are making. The data trade-off as well as the power trade-off, and you mentioned a lot of the power trade-offs. The one thing, while there's questions of where does the data path and signal path go between where copper used and fiber when it comes to power, that's agnostic. And the only thing that's happening is that content is going up. So we do see customers that clearly are experimenting with 800-volt DC liquid cooling, but you do have customers that are different spots in there.

Now when you look at our DDN revenue, our DDN revenue is approximately 30% power connectivity. And with that being agnostic, with all those trends you're talking about, whether it's a sidecar, whether it's liquid cooling, all of those things our content goes up. And even in the guide we talk about for 2027 in our DDN growth, we expect the power connectivity part of our portfolio to grow faster than overall DD. And I think that's a trend that you're going to continue to see build because like you just talked about all those technology you bring to drive increased power needs, increased power needs means more difficult power connectivity and let's face it, different materials, different challenges. And Power Connectivity has been a strong grower in our DDN business and is going to continue to be because we have a very strong position there. So you're going to continue to see it. I would say, like I talked about with data and fiber, I mean, copper and fiber, you have people experimenting to get to the best cost, best performance and it won't be a complete straight line across the customer base, but it's good content growth for us regardless as it evolves.

Sujal Shah

Can we have the next question.

Operator

Your next question comes from the line of Wamsi Mohan with Bank of America.

Wamsi Mohan

So you're entering fiscal '27 with a very strong backlog and you noted sort of preliminary outlook of similar growth as fiscal '26 on an organic basis. Terrence, can you share some color on both the trends across the segments? And any seasonality that you would call out that's important for us to think through?

Terrence Curtin

Thanks, Wamsi. So let me talk a bit about the backlog and yes, it is strong. And it's up about 30% year-over-year. and the $22 billion of orders versus the revenue, you see we grew $2 billion of backlog. So our backlog is about $8 billion. I think it's important for everybody that when you look at that backlog growth, the biggest chunks of that backlog growth are DDN as well as our Aerospace and Defense business. Both of those combined are probably 60% of our backlog growth. And in DDN's case, you're building out backlog where our customers want to make sure the capacity is in place, and that's a very strong indicator. And in AD&M, it's the trends that relate to AD&M, and also AD&M is typically longer lead time. So the biggest growth are in those 2 businesses. And clearly, that ties into in DDN, the 70% order growth we had and what I said in the call that we expect our revenue to be up over $1 billion this year in 2027, driven by our hyperscaler customers.

In AD&M, I would say energy and ACL, all of them have very strong trends. You're looking at double-digit growth in those businesses based upon the momentum that we're seeing next year. We really don't see that slowing down with the indicators we're getting. And clearly, our Industrial segment will be the big driver of our growth again that we teed up for '27. I think the thing that's interesting is in Transportation, while the market looks similar in Automotive, our content is driving the order growth. As I said, Asia continues to be very strong content performance. Europe, we're actually seeing an improvement in electric vehicle, which we're benefiting from and you saw that in our quarter 4 results. And then we're finally get North American industrial transportation to come back, which has been slow, and that's good for us. So when you think about all the things that are in the backlog as well as the momentum, it's what gets us to, "Hey, this '27 growth looking similar to the 12% we just delivered organic growth this past year."

And then lastly, on your shape, we will be above seasonal in our first quarter and that's really driven by the strength we have in the Industrial segment, which typically is down a little bit seasonally. You won't see that this year. It will be only down slightly. So that's just one thing to your seasonal element I'd highlight.

Sujal Shah

All right. Can we have the next question, please?

Operator

Your next question comes from the line of Amit Daryanani with Evercore.

Amit Daryanani

Terrence, I wanted to ask you around the speed side of your DDN revenues. Does this internal investor worry around copper versus fiber when it comes to your AI revenues and really the industry broadly, I would say. You spent a lot of time with your customers. I'm wondering, is this sort of the debate you see customers having as they design next-gen solutions? And maybe you can just talk about what do you retain versus what do you potentially lose and gain as we go from copper to pluggable optics and eventually I think everyone would sort of love to understand how do we think about the revenue opportunity across the AI stack as we start to see optics move inside the rack?

Terrence Curtin

Sure. So let's face it. And I know you've done some work on this. As you see our customers, our customers are working constraints constantly on the power side, the data side and when we see that and what we're working on, it goes back to what we've said that you're going to see both copper and optical connectivity in next-generation racks. And that's a constant discussion and it builds on even Scott's question. And when we look at that evolution of the architecture, including the adoption of optical at the switch level in the rack, it's an opportunity that we see our addressable market continuing to expand. When you think about the traditional copper connectivity that you have in the rack, we go through and we pressure test scenarios and where optical reach different levels, 3, 4, 5 years out and what we know about our customers' road map and where they're experimenting and they experiment and they don't just have one line of sight. And when we look at these scenarios, we see the copper addressable market growing over 100%. So we expect that to double where the copper will be used. And you look at it, and that's going to be the drivers that you see about the continued expansion of AI in the infrastructure. When you get into inference endogenic you get increasing demand at CPUs, which is copper-based as well as dedicated inference architecture. So we see copper still playing a pretty big role.

As I said to Scott, you got to remember, 30% of the connectivity we have is power connectivity. It's agnostic. And when you bring optics in, it only goes up more. And we talked about 800-volt direct current already. So that we see growing faster than our overall DDN business. And then where we've been placing our bets in optical is another growth opportunity. this is additional TAM, and we're building a portfolio that's shipped to fiber, fiber to fiber and high-density fiber routings. And we're in the middle of validation with our customers as they're looking at their next-gen on where these products play as they solve the fiber connectivity problem at the densities they need, and that's a key vector. I did mention the program today, and I think it sort of shows what we work on. This I/O, which has optical on a copper interconnect on it that was announced recently, that's a hybrid solution. It has both in it. And they are the types of things that our customers are trying to figure out how they maximize the architecture as they move forward. And we do expect where we play in the TAM in that optical connectivity, it will be shared similar to what we have elsewhere in the copper connectivity. So we get excited about where we're at. It's certainly going to evolve, but we see a TAM that's going to grow in both sectors. And it's why we laid out in the script. We view our DDN business is going to continue to grow by $1 billion a year and continue to compound based around where we're positioned.

Operator

Your next question comes from the line of Will Stein with Truist Securities.

William Stein

I want to congratulate you both on the fundamental work and your leadership in that. I think you're the first company I've seen as an AI agent to manage the call. But I'd like to ask about auto end markets for you. The indicators for semis and components through calendar Q3 earnings have seemed to be pretty dispersed. Foundry data points were surprisingly positive, but most of the semi companies that have a lot of exposure to automotive haven't been as optimistic. You're coming in on the more optimistic side of those, but not quite as much as foundry. So we're trying to put these together. Maybe you can help us understand what's driving the outgrowth currently in September and December? And what gives you the confidence that you're going to have outgrowth and in fact, growth at all in that end market in fiscal '27 as we consider rates elevated and gas prices rising. It's just a little bit confusing.

Terrence Curtin

Sure. Thanks, Will, and you had a lot of elements to that. So let me tell you how we see production because I think we always have a start on that. And we expect production to be slightly down again with everything you've talked about. And it's going to be slightly down pretty much in every region of the world. There isn't like one region that has great production and the other 2 are down. You do have to go back to our global positioning, which is very unique across our China position, our European position and where it is around the world.

And when you really look at the strong performance in the fourth quarter, throughout this year, we've been talking about how Asia has been overperforming from a content pretty consistently. We talked to you about, "Hey, EV traction in Europe and North America was not great." I think what you're really starting to see in Europe now, and it does come into some of your element of the macro, we've seen EVs pick up in Europe, and we're seeing that momentum continue as we work with our customers in Europe into next year. And our content performance in Asia was double digit in the fourth quarter.

In Europe, it was slightly above the high end of the range and North America was still sort of not contributing within the range. So we still continue to see a North American environment that is going to be challenged into next year. But I would say Europe with the EV content has -- that driver, which was really our biggest driver years ago is actually going to be contributing more consistently that gives us the confidence.

The other 2 drivers we talked to you about data connectivity in the vehicle continues to march. It was strong all year this year. We don't see anything slowing that down. And then electronification, which is around, "Hey, 48-volt zonal and all of those things that also get in the safety future." That's been steady. So this year, we were at the lower end of our range for the year, ending very strong. It's really the ending strong is really due to EV in Europe coming back and what's still going to be a slightly sideways environment in Europe next year. So we do see the 4% to 6%. We have confidence in that with the programs that we sort of said and certainly, I think, the fourth quarter shows the momentum as we're exiting this year going into next year.

Sujal Shah

Can we have the next question, please?

Operator

Your next question comes from the line of Joe Giordano with TD Cowen.

Joseph Giordano

I want to switch over to humanoid. I mean, we mentioned a $500 potential per robot. Obviously, the scale of robots, depending on what company we're talking about is dramatically different size and complexity. But just curious like where you are in terms of discussions with the like the leading manufacturers who appear poised to be at least at the forefront of putting out real like scale volumes of these things.

Terrence Curtin

Yes. I mean, I think the real wildcard is where you sort of went, which is, "Hey, there's a lot of people have them." And one of the things that I think is unique for us is you take our strong automotive position. Both here in North America as well as China, many of our automotive customers are trying to take their capabilities. Let's face it, something that has wheels something that needs a battery. Something that needs a controller and data going through it in actuators and motors, guess what? That's a car in some cases. So they've leaned into it. As well as there's independent companies that have done it. Certainly, the China momentum is strong. And let's face it. We have a very strong position in China.

So when we look at it, we do have content on those platforms. The wildcard is the units. I'm just going to be honest with you, Joe. You go out 5 years, you have some people. I think there's 1 million humanoid robots being made. You have some people thinking 10 million humanoid robots made. But when you think about where we play, you're going to have traditional things that our automotive team would supply. You're going to have a lot of connectivity that needs to be harsh. You have a lot of movement. You're going to have a power supply that needs to be charged. Our automotive team does a great job with that. We leveraged some of the things in DDN when you think about the data connectivity needed, depending upon the compute in the robot. And then there's a whole bunch of motors and actuators that are in a robot that really our ACL unit in Industrial has a complete suite that we provide to our automation customers.

Each one of those is going to depend upon the type of robot. I know I said up to $500. That would be a robot with some pretty heavy compute in it, but it's a content opportunity. And whether it ends as a content similar to a car or higher, we'll see. But it's just one of those things where data and power go, that's where we play. And I think you've seen us continue to take advantage of those opportunities when that occurs.

Sujal Shah

Can we have the next question, please?

Operator

Your next question comes from the line of Joe Spak with UBS.

Joseph Spak

Terrence, I just wanted to go back to maybe pull together some of the comments you made about DDN and the shape of the year because you said over $1 billion for the year, second half weighted. But even if we assume like pretty flattish or very modest sort of quarter-over-quarter first quarter growth, that would be $300 million. So that's like a $1.2 billion pace. And I know the comps get tougher, but then you did also say like more of the growth teams back half weighted. So can you just Help me understand that again? Or if I'm wrong, like why wouldn't it be like significantly stronger than that $1 billion?

Terrence Curtin

Well, I did say over $1 billion. So I want to make sure that first element was clarified. I know that was in the script, Joe. And when you look at the shape, I think how you all should think about the shape as we go through this year is, that's all based upon programs we want. And as you look at it, we do expect our DDN sales to be up slightly from quarter 4 to quarter 1, and we'll expect it to be up a little bit higher in quarter 2 and then we'll have a bigger step-up in the second half. So I think that's the way you should frame it as you model it from a shape and interpreting more than half in the script. But I do think you're going to have a build from quarter 4 to quarter 1 to quarter 2, and then you're going to get the bigger element in the second half, just how our programs are rolling in from our customers that we've won.

Sujal Shah

Can we have the next question, please?

Operator

Your next question comes from Asiya Merchant with Citi.

Asiya Merchant

Can I just double click a little bit on margins. You guys had pretty good incrementals here in the fourth quarter that you reported. Just based on the guide, incrementals are going to be strong again in the December quarter. Just should [indiscernible] sustain throughout the year. And if you can just talk a little bit about the drivers here for continued incremental margin expansion.

Heath Mitts

Thank you, Asiya. This is Heath. Certainly, we're balancing a lot of balls in the air right now from a margin perspective relative to how much is making it to the bottom line versus the reinvestment levels in the business, particularly in the areas that Terrence has spent the last 15 or so minutes talking about in the segments.

So in the quarter, certainly, margins came in plus or minus where we expected and have a decent jumping off spot as we go into the first quarter. I would expect that to continue. There will be some quarter noise from time to time where we're making certain investments and dealing with some things. There is also no relief coming in our expectations on the inflationary front. We're still feeling heightened inflationary pressures, particularly on resins, metals and certainly freight costs with where prices are right now. So those are not markedly different as we enter '27 versus what we felt throughout 26. So I'm not flagging incremental year-over-year, but those are real, and we don't see a lot of relief coming from those. And so the productivity machine is humming pretty well right now and where we can. We've got a little bit of pricing opportunity, but that's not a big instrument for us to use. But yes, I think from a modeling perspective, you can assume that it looks consistent year-over-year with how we've been trending.

Sujal Shah

Can we have the next question, please?

Operator

Your next question comes from the line of Mark Delaney with Goldman Sachs.

Mark Delaney

Yes. Appreciate all the helpful conference comments the company already gave on the outlook for the DDN business as well as your thoughts on both copper and fiber I was hoping you could double-click on the fiber traction and in particular with the RAM Photonics acquisition. Can you share more around how the engagements with ran Photonics are going with hyperscalers and what your outlook is for the fiber attached technology?

Terrence Curtin

Yes. No. So Mark, where we are with that, clearly, this is cutting edge technology, which is fiber attached. It's very high density and we are in the middle of engineering validation with certain customers. I would also say building on the comments I made earlier, not every customer is looking at fiber to the chip in the road maps near term. So our engagement is with the customers you would expect it to be with. And we'll continue to keep you updated. There's not much more I can say on that. But it will be something that we're very pleased on the validation we do have going on from an engineering. And then as we always have to do with these programs, you always have to scale it, which I think we've shown a propensity that we can do when you see the growth of DDN. And this is a hard challenge to solve as you bring signals onto the chip. How do you get the density of the fibers coming off, and that's what we have here from the fiber-to-the-chip connectivity that I talked about a little bit earlier.

Sujal Shah

All right. Can we have the next question, please?

Operator

Your next question comes from the line of Manmohanpreet Singh from JPMorgan.

Manmohanpreet Singh

I just wanted to double-click on DDN from a slightly different perspective, maybe the orders for the segment tracked at almost 70% growth through fiscal '26, while revenues were, I think, closer to 44%, 43%. Maybe -- and it's kind of in line with the backlog build commentary, which you have highlighted earlier, but I just wanted to double click on what is the actual timing related to conversion of the backlog into revenues and maybe like should that, at some point, drive an inflection in DDN revenues?

Terrence Curtin

No. Thank you. And I'll just build on some of the other answers I said. First off being, those orders are from our hyperscale customers. We continue to think that growth will be driven though different than it was this year from the hyperscalers. And then the shape that you do think how that converts is, do think about the revenue back to Joe's question that going from quarter 4 to quarter 1, it's going to be -- our DDN revenue will be a little bit up, increase a little bit up into quarter 2. And then certainly, you'll see a bigger step up in the second half, which gets into that over $1 billion of growth. And that backlog is spread out over next year and a little bit into the year after, which is really good because their program wins and really locking in with the customers.

Sujal Shah

Can we have the next question, please?

Operator

Your next question comes from the line of Varun Govindaraj with Bernstein.

Varun Govindaraj

I just had a follow-up on the price cost that you touched upon a little bit earlier. Naturally, we're in this environment where input costs are going up a ton from the time something enters your backlog to the time it's delivered outside of the internal actions that you're taking, what other levers do you have to pass price on? Like can you also go talk to customers and increase it when the orders come in earlier? Or is that really not as much on the table? Specifically interested on the DDN side.

Terrence Curtin

Yes. So a couple of things. First of all, I do want to thank you for picking up coverage on us. So I appreciate that and I appreciate the question. when we look there, pricing is across our business units that does relate to how it happens in markets. In some cases, we have metal writers. And metal riders are very common. We put them in over the years. certainly, you see the benefit of that in our transportation margin that we don't have to chase or get into negotiations and they're sort of real-time things. And things like resin and stuff, that is a little bit more real-time discussions because the resins that we use don't have core indicators, but our teams have done a good job, and you've seen that in our results. I would also say when we have seen an acceleration there's even times we've repriced backlog in areas where we see backlog going out that we don't believe we should take the risk of inflation, and we do have those customer discussions. So while he said very correctly, we're price positive, we really view price in our business to be an offsetter of these inflationary costs with our productivity tools. And I think our teams have been doing a really good job with it in this environment.

Sujal Shah

Can we have the next question, Please?

Operator

Your next question comes from the line of Shreyas Patil with Wolfe Research.

Shreyas Patil

Terrence, I'm curious if you could help us unpack your AI business a little bit. You've mentioned about 30% is tied to power. I believe, around 10% or so is tied to optical. So clearly, you're seeing very good growth on the power side. Market factors are supporting optical growth. But as we think about that remaining piece, I suspect investors are just assuming that's all scale up copper, which is almost certainly wrong. But curious if you could help unpack that and then the factors that support scale up copper in the rack going forward?

Terrence Curtin

Yes. No, it's a mix of many products. So when you look at it, clearly, the power is there. There's also elements that we get into edge and IoT that is further away from the rack, which is the percentage that's not directly AI. But when you get into what we would call computer [indiscernible] fabric, this can be copper backplane. This will be things that are mid-bore, and some of these things will not disappear in an optical infrastructure. Certainly, you also get into cables that actually jump as well from a data side that's similar to what I talked about earlier.

So the complexity of the interconnects, there isn't just one, it's similar to all of our units. It's much more complex. But when you think about it, about 30% is power. The rest is both between what's happening in the back plane, what's happening in the middle, what's flow over cables as well as IOs on the front end. And all of those are things that we have to design with our customers on that create a lot of stickiness. And actually, they're experimenting with different things. So there will still be, as I sort of say, it's a fiber and copper. There were things that will remain copper for a long time even in an optical as it comes into the red.

Sujal Shah

All right. Thank you, Shreyas. I'd like to thank everybody for joining us this morning. And if you have any additional questions, please contact Investor Relations at TE. Thanks, everyone, and have a nice day.

Operator

Today's conference call will be available for replay beginning at 11:30 a.m. Eastern Time today on the Investor Relations portion of TE Connectivity's website. That will conclude the conference for today.