filings.toolsItem 1. Business
53K characters. Original on sec.gov · Markdown
Item 1. Business
General
Amphenol Corporation is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. The Company estimates, based on reports of industry analysts, that worldwide sales of interconnect and sensor-related products were approximately $215 billion in 2021.
Certain predecessor businesses of the Company were founded in 1932, and the Company was incorporated under the laws of the State of Delaware in 1986. The Company’s Class A Common Stock (“Common Stock”) began trading on the New York Stock Exchange in 1991.
The Company’s strategy is to provide our customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis, while maintaining continuing programs of productivity improvement and cost control. Through December 31, 2021, the Company operated through two reporting segments: (i) Interconnect Products and Assemblies and (ii) Cable Products and Solutions. The Interconnect Products and Assemblies segment primarily designed, manufactured and marketed a broad range of connector and connector systems, value-add products and other products, including antennas and sensors, used in a broad range of applications in a diverse set of end markets. Interconnect products include connectors which, when attached to an electrical, electronic or fiber optic cable, a printed circuit board or other device, facilitate transmission of power or signals. Value-add systems generally consist of a system of cable, flexible circuits or printed circuit boards and connectors, antennas or sensors for linking electronic equipment. The Cable Products and Solutions segment primarily designed, manufactured and marketed cable, value-add products and components for use primarily in the broadband communications and information technology markets, as well as certain applications in other markets.
The table below provides a summary of our reporting segments as of December 31, 2021, the 2021 net sales contribution of each segment, the primary end markets that we serviced and our key products in each segment:
| Reporting Segment | Interconnect Products and Assemblies | Cable Products and Solutions | ||
| | | | | |
| % of 2021 Net Sales: | | 96% | | 4% |
| | | | | |
| Primary End Markets | | ● Automotive ● Broadband Communications ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Devices ● Mobile Networks | | ● Automotive ● Broadband Communications ● Industrial ● Information Technology and Data Communications ● Mobile Networks |
| | | | | |
| Key Products | | Connector and Connector Systems: ● fiber optic interconnect products ● harsh environment interconnect products ● high-speed interconnect products ● power interconnect products, busbars and distribution systems ● radio frequency interconnect products and antennas ● other connectors Sensors and Sensor-based Products: ● gas and moisture ● level ● position ● pressure ● temperature ● vibration Value-Add Products: ● backplane interconnect systems ● cable assemblies and harnesses ● cable management products Other: ● antennas ● flexible and rigid printed circuit boards ● hinges ● molded parts ● production-related products | | Cable: ● coaxial cable ● power cable ● specialty cable Value-Add Products: ● cable assemblies Components: ● combiner/splitter products ● connector and connector systems ● fiber optic components |
Information regarding the Company’s operations and assets by reporting segment, as well as the Company’s net sales and long-lived assets by geographic area, appears in Note 14 of the Notes to Consolidated Financial Statements.
New Reportable Business Segments effective January 1, 2022
Effective January 1, 2022, the Company aligned its businesses into three newly formed reportable business segments: (i) Harsh Environment Solutions, (ii) Communications Solutions and (iii) Interconnect and Sensor Systems. This new alignment replaces our historic reportable business segments. All businesses previously reported in the Interconnect Products and Assemblies segment have now been aligned with one of the three newly formed segments. All businesses previously reported in the Cable Products and Solutions segment have now been aligned with our newly formed Communications Solutions segment. This new alignment reinforces the Company’s entrepreneurial culture and the clear accountability of each of our business unit general managers, while enhancing the scalability of
Amphenol’s business for the future. A description of each of our newly formed reportable business segments is as follows:
●Harsh Environment Solutions – the Harsh Environment Solutions segment designs, manufactures and markets a broad range of ruggedized interconnect products, including connectors and interconnect systems, printed circuits and printed circuit assemblies and other products.
●Communications Solutions – the Communications Solutions segment designs, manufactures and markets a broad range of connector and interconnect systems, including high speed, radio frequency, power, fiber optic and other products, together with antennas.
●Interconnect and Sensor Systems – the Interconnect and Sensor Systems segment designs, manufactures and markets a broad range of sensors, sensor-based systems, connectors and value-add interconnect systems.
The following table provides a summary of the end markets that we service and our key products within each of the three new reportable business segments:
| Reporting Segment | Harsh Environment Solutions | Communications Solutions | Interconnect and Sensor Systems | |||
|---|---|---|---|---|---|---|
| | | | | | | |
| End Markets | | ● Automotive ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Networks | | ● Automotive ● Broadband Communications ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Devices ● Mobile Networks | | ● Automotive ● Commercial Aerospace ● Industrial ● Information Technology and Data Communications ● Military ● Mobile Networks |
| | | | | | | |
| Key Products | | Connectors and Connector Systems: ● harsh environment data, power, fiber optic and radio frequency interconnect products ● other connectors Value-Add Products: ● backplane interconnect systems ● cable assemblies and harnesses ● cable management products Other: ● flexible and rigid printed circuit boards | | Connectors and Connector Systems: ● fiber optic interconnect products ● high-speed interconnect products ● radio frequency interconnect products ● other connectors Value-Add Products: ● cable assemblies and harnesses Antennas: ● consumer device antennas ● network infrastructure antennas ● other antennas Cable: ● coaxial, power and specialty cable Other: ● hinges and other mechanical products ● production-related products | | Connectors and Connector Systems: ● busbars and power distribution systems ● power interconnect products ● other connectors Value-Add Products: ● backplane interconnect systems ● cable assemblies and harnesses Sensors and Sensor-based Products: ● force ● gas and moisture ● level ● position ● pressure ● temperature ● vibration |
In conjunction with the new alignment of our business, the Company appointed three new segment managers to lead their respective reportable business segments, each reporting directly to the Company’s Chief Executive Officer. The Company will begin reporting its new reportable segments in connection with its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2022, including the recasting of relevant prior year period segment information for conformity of presentation. For further details related to the Company’s change in its reportable business segments effective in the first quarter of 2022, refer to Note 16 of the Notes to Consolidated Financial Statements, included in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report, which is incorporated herein by reference.
COVID-19 Pandemic
The COVID-19 pandemic has affected our offices and manufacturing facilities throughout the world, as well as the facilities of our suppliers, customers and our customers’ contract manufacturers. The COVID-19 pandemic caused widespread disruptions to our Company during the first half of 2020, and to a lesser extent, those disruptions continued during the second half of 2020 and throughout all of 2021. As of December 31, 2021, we continue to experience some disruptions, and at a minimum, particularly given the surge of cases resulting from the Omicron variant, we expect those disruptions to continue into 2022 and potentially beyond. These disruptions have included and may continue to include government regulations that inhibit our ability to operate certain of our facilities in the ordinary course, travel restrictions, supplier constraints, supply-chain interruptions, logistics challenges and limitations, labor disruptions and reduced demand from certain customers. During 2021 and into 2022, there have been resurgences in COVID-19 cases in several regions around the world, particularly related to new variant strains, including Delta and Omicron. The extent to which the COVID-19 pandemic will continue to impact our business and financial results going forward will be dependent on future developments such as the length and severity of the crisis, the impact of the recent resurgence of the crisis due to the Omicron variant, as well as any additional future resurgences from known or new variants, future government regulations and actions in response to the crisis, the timing, availability, effectiveness and adoption rates of vaccines and treatments, and the overall impact of the COVID-19 pandemic on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable. In addition, the COVID-19 pandemic could impact the health of our management team and other employees. Given these uncertainties, we expect the pandemic to continue to have an impact on our business, operations, financial condition, liquidity and results of operations in 2022 and potentially beyond. There can be no assurance that the COVID-19 pandemic will not have a material and adverse effect on our business, operations, financial condition, liquidity and results of operations in the future. For a discussion of certain risks related to the COVID-19 pandemic, refer to the risk factor titled “We face significant risks related to adverse public health developments, including epidemics and pandemics such as the COVID-19 pandemic” in Part I, Item 1A. Risk Factors herein. For a discussion of the financial impact of the COVID-19 pandemic on our business, operations, financial condition, liquidity and results of operations, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our Strategy
The Company’s overall strategy is to provide its customers with comprehensive design capabilities, a broad selection of products and a high level of service on a worldwide basis, while maintaining continuing programs of productivity improvement and cost control. Specifically, our business strategy is as follows:
| ● | Pursue broad market diversification - The Company constantly strives to increase the diversity of its markets, customers, applications and products. Due to the tremendous variety of opportunities in the electronics industry, management believes that it is important to ensure participation wherever significant growth opportunities are available. This diversification positions us to proliferate our technologies across the broadest array of opportunities and reduces our exposure to any particular market, thereby reducing the variability of our financial performance. An overview of the Company’s market and product participation is described under “Markets”. |
|---|
| ● | Develop high-technology performance-enhancing solutions - The Company seeks to expand the scope and number of its preferred supplier relationships with customers across its diverse end markets. The Company works closely with its customers at the design stage to create and manufacture innovative solutions. These products generally have higher value-added content than other interconnect, antenna and sensor products, and have been developed across the Company’s markets. The Company is focused on technology leadership in the interconnect areas of radio frequency, power, harsh environment, high-speed and fiber optics, as well as antennas and sensors, as it views these technology areas to be of particular importance to our global customer base. |
|---|
| ● | Expand global presence - The Company is continually expanding its global manufacturing, engineering, sales and service operations to better serve its existing customer base, penetrate developing markets and establish new customer relationships. As the Company’s global customers have grown their international operations to access developing world markets and lower manufacturing costs in certain regions, the Company is continuing to expand its international footprint in order to provide real-time capabilities to these customers. The majority of the Company’s international operations have broad capabilities, including new product development. The Company is also able to take advantage of the lower manufacturing costs in some regions, and has established low-cost manufacturing and assembly facilities around the world. |
|---|
| ● | Control costs - The Company recognizes the importance in today’s global marketplace of maintaining a competitive cost structure. Innovation, product quality and performance and comprehensive customer service |
|---|
| are not mutually exclusive with controlling costs. Controlling costs is part of a mindset. It is having the discipline to invest in programs that have a good return, maintaining a cost structure as flexible as possible to respond to changes in the marketplace, dealing with suppliers and vendors in a fair but prudent way to ensure a reasonable cost for materials and services and creating a mindset where managers manage the Company’s assets as if they were their own. This mindset was particularly important in 2021, as inflationary pressures and supply chain challenges accelerated. |
|---|
| ● | Pursue strategic acquisitions and investments - The Company believes that the industry in which it operates is highly fragmented and continues to provide significant opportunities for strategic acquisitions. Accordingly, we continue to pursue acquisitions of high potential companies with strong management teams that complement our existing business while further expanding our product lines, technological capabilities and geographic presence. Furthermore, we seek to enhance the performance of acquired companies by leveraging Amphenol’s position with customers across our diverse end markets, our leading technologies and our access to low-cost manufacturing around the world. In 2021, the Company invested approximately $1.5 billion (net of the proceeds received from the divestiture of MTS Systems Corporation’s (“MTS”) Test & Simulation business in December 2021) to fund seven acquisitions, including the acquisitions of MTS’s Sensors business in April 2021 and Halo Technology Limited (“Halo”) in December 2021. In 2020, the Company invested approximately $50 million to fund two acquisitions. Our acquisitions in 2021 and 2020 have strengthened our customer base and product offerings in many of our end markets. |
|---|
| ● | Foster collaborative, entrepreneurial management - Amphenol’s management system is designed to provide clear income statement and balance sheet responsibility in a flat organizational structure. Each general manager is incented to grow and develop his or her business and to think entrepreneurially in providing innovative, timely and cost-effective solutions to customer needs. In addition, Amphenol’s general managers have access to the resources of the larger organization and are encouraged to work collaboratively with their peers throughout the Company to meet the needs of the expanding marketplace and to achieve common goals. As the Company has grown, we have preserved this unique culture of entrepreneurship by ensuring that our executive organization can effectively drive the performance of and collaboration among our global general managers. The alignment of the Company’s businesses into three newly formed Divisions, which will represent the newly formed reportable segments effective January 1, 2022, is another step in enhancing the scalability of the Company’s entrepreneurial organization. |
|---|
Markets
The Company sells products to customers in a diversified set of end markets. For a discussion of certain risks related to the Company’s markets, refer to the subsection titled “Risks related to our end markets” included in Part I, Item 1A. Risk Factors herein.
Automotive - Amphenol is a leading supplier of advanced interconnect systems, sensors and antennas for a growing array of automotive applications. In addition, Amphenol has developed advanced technology solutions for hybrid and electric vehicles and is working with leading global customers to proliferate these advanced interconnect products into next-generation automobiles. Sales into the automotive market represented approximately 20% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | antennas |
|---|
| ● | charging stations |
|---|
| ● | electric vehicles |
|---|
| ● | engine management and control |
|---|
| ● | exhaust monitoring and cleaning |
|---|
| ● | hybrid vehicles |
|---|
| ● | infotainment and communications |
|---|
| ● | lighting |
|---|
| ● | passenger connectivity |
|---|
| ● | power management |
|---|
| ● | safety and security systems |
|---|
| ● | sensing systems |
|---|
| ● | telematics systems |
|---|
| ● | transmission systems |
|---|
Broadband Communications - Amphenol is a world leader in broadband communication products for cable, satellite and telecommunications-based video and data networks, with industry-leading engineering, design and manufacturing expertise. The Company offers a wide range of products to service the broadband market, including customer premises and distribution cable, connectors and value-add interconnect products, passive components, active and passive fiber optic interconnect components, as well as interconnect products integrated into headend equipment. Sales into the broadband communications market represented approximately 4% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | cable, satellite and telecommunications networks |
|---|
| ● | customer premises equipment |
|---|
| ● | high-speed internet hardware |
|---|
| ● | network switching equipment |
|---|
| ● | satellite interface devices |
|---|
| ● | set-top boxes |
|---|
Commercial Aerospace - Amphenol is a leading provider of high-performance interconnect systems and components to the commercial aerospace market. In addition to connector and interconnect assembly products, the Company also provides rigid and flexible printed circuits, high-technology cable management products as well as sensors. Our products are specifically designed to operate in the harsh environments of commercial aerospace, while also providing substantial weight reduction, simplified installation and/or minimal maintenance. Sales into the commercial aerospace market represented approximately 2% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | aircraft and airframe power distribution |
|---|
| ● | avionics |
|---|
| ● | controls and instrumentation |
|---|
| ● | engines |
|---|
| ● | in-flight entertainment |
|---|
| ● | in-flight internet connectivity |
|---|
| ● | lighting and control systems |
|---|
| ● | wire bundling and cable management |
|---|
Industrial - Amphenol is a technology leader in the design, manufacture and supply of high-performance interconnect systems, sensors and antennas for a broad range of industrial applications. Amphenol’s core competencies include application-specific industrial interconnect solutions utilizing integrated assemblies, including with both cable and flexible printed circuits, as well as high-power interconnects requiring advanced engineering and system integration. In particular, our innovative solutions facilitate the increasing demands of embedded computing, power distribution and electrification within industrial applications. Sales into the industrial market represented approximately 25% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | agriculture equipment |
|---|
| ● | alternative and traditional energy generation |
|---|
| ● | batteries and hybrid drive systems |
|---|
| ● | entertainment |
|---|
| ● | factory and machine tool automation |
|---|
| ● | heavy equipment |
|---|
| ● | instrumentation |
|---|
| ● | internet of things |
|---|
| ● | LED lighting |
|---|
| ● | marine |
|---|
| ● | medical equipment |
|---|
| ● | oil and gas |
|---|
| ● | power distribution |
|---|
| ● | public safety |
|---|
| ● | rail mass transit |
|---|
| ● | smart manufacturing |
|---|
| ● | transportation |
|---|
Information Technology and Data Communications - Amphenol is a global provider of interconnect solutions to designers, manufacturers and operators of internet-enabling systems. With our industry-leading high-speed, power and active and passive fiber optic interconnect technologies, together with superior simulation and testing capability and cost effectiveness, Amphenol is a market leader in interconnect development for the information technology (“IT”) and datacom market. Whether industry standard or application-specific designs are required, Amphenol provides customers with products that enable performance at the leading edge of next-generation, high-speed, power and fiber optic technologies. Sales into the IT and datacom market represented approximately 21% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | cloud computing and data centers |
|---|
| ● | gaming systems |
|---|
| ● | internet appliances |
|---|
| ● | networking equipment |
|---|
| ● | servers |
|---|
| ● | storage systems |
|---|
| ● | transmission |
|---|
| ● | web service providers |
|---|
Military - Amphenol is a world leader in the design, manufacture and supply of high-performance interconnect systems for harsh environment military applications. Such products require superior performance and reliability under conditions of stress and in hostile environments such as vibration, pressure, humidity, radiation and rapid and severe temperature changes. Amphenol provides an unparalleled product breadth, from military specification connectors to customized high-speed board level interconnects; from flexible to rigid printed circuit boards; from backplane systems to completely integrated assemblies; and from sensors to sensor-based systems. Amphenol is a technology leader, participating in major programs from the earliest inception across each phase of the production cycle. Sales into the military market represented approximately 11% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | avionics |
|---|
| ● | communications |
|---|
| ● | engines |
|---|
| ● | ground vehicles and tanks |
|---|
| ● | homeland security |
|---|
| ● | naval |
|---|
| ● | ordnance and missile systems |
|---|
| ● | radar systems |
|---|
| ● | rotorcraft |
|---|
| ● | satellite and space programs |
|---|
| ● | unmanned aerial vehicles |
|---|
Mobile Devices - Amphenol designs and manufactures an extensive range of interconnect products, antennas and electromechanical components found in a wide array of mobile computing devices. Amphenol’s capability for high-volume production of these technically demanding, miniaturized products, combined with our speed of new product introduction, are critical drivers of the Company’s long-term success in this market. Sales into the mobile devices market represented approximately 12% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | consumer electronics |
|---|
| ● | mobile and smart phones, including accessories |
|---|
| ● | mobile computing devices, including laptops, tablets and e-readers |
|---|
| ● | production-related products |
|---|
| ● | wearable and hearable devices |
|---|
Mobile Networks - Amphenol is a leading global interconnect solutions provider to the mobile networks market and offers a wide product portfolio, including antennas, connectors and interconnect systems. The Company’s products are used in current and next generation wireless communications standards, including in 5G networks. In addition, the Company works with service providers around the world to offer an array of antennas and installation-related site solution interconnect products. Sales into the mobile networks market represented approximately 5% of the Company’s net sales in 2021, with sales into the following primary end applications:
| ● | antenna systems |
|---|
| ● | base stations |
|---|
| ● | core network controllers |
|---|
| ● | distributed antenna systems (DAS) |
|---|
| ● | mobile switches |
|---|
| ● | radio links |
|---|
| ● | small cells |
|---|
Customers and Geographies
The Company manufactures and sells a broad portfolio of products on a global basis to customers in a wide variety of industries. Our customers include many of the leaders in their respective industries, and our relationships with them typically date back many years. We believe that our diversified customer base provides us with the opportunity to leverage our skills and experience across markets and reduces our exposure to particular end markets. Additionally, we believe that the diversity of our customer base is an important asset of the Company.
A trend among customers has been to consolidate their lists of qualified suppliers to companies that have the ability to meet certain technical, quality, delivery and other standards while maintaining competitive prices. The Company has positioned its global resources to compete effectively in this environment. As an industry leader, the Company has established close working relationships with many of its customers on a global basis. These relationships allow the Company to better anticipate and respond to these customer needs when designing new products and new technical solutions. By working with customers to develop new products and technologies, the Company is able to identify and act on trends and leverage knowledge about next-generation technology across our portfolio of products. In addition, the Company has concentrated its efforts on service, procurement and manufacturing improvements designed to increase product quality and performance and lower product lead-time and cost. For a discussion of certain risks related to the Company’s sales, refer to the subsection titled “Risks related to our end markets” included in Part I, Item 1A. Risk Factors herein.
The Company’s products are sold to thousands of original equipment manufacturers (“OEMs”) in numerous countries throughout the world. The Company’s products are also sold to electronic manufacturing services (“EMS”) companies, to original design manufacturers (“ODMs”) and to service providers, including telecommunications network service providers and web service providers. No single customer accounted for 10% or more of the Company’s net sales for the year ended December 31, 2021. During the year ended December 31, 2020, aggregate sales to the Company’s largest customer accounted for approximately 11% of our net sales.
The Company sells its products through its own global sales force, independent representatives and a global network of electronics distributors. The Company’s sales to distributors represented approximately 17% and 16% of the Company’s net sales in 2021 and 2020, respectively. In addition to product design teams and collaborative initiatives with customers, the Company uses key account managers to manage certain customer relationships on a global basis so that it can bring to bear its total resources to meet the worldwide needs of its multinational customers.
Manufacturing
The Company is a global manufacturer employing advanced manufacturing processes including molding, stamping, plating, turning, computer numerical control (“CNC”) machining, 3D printing, extruding, die casting and assembly operations and proprietary process technology for specialty and coaxial cable production, antenna and sensor fabrication. Outsourcing of certain manufacturing processes is used when cost-effective. Substantially all of the Company’s manufacturing facilities operate under certification to management system standards of globally recognized, industry certification organizations. Our facilities are primarily certified to quality management systems, primarily ISO9001, but also may include ISO13485, AS9100, and IATF16949. In addition, approximately half of our facilities are also certified to environmental or occupational health and safety management systems, including ISO14001 and ISO45001.
The Company’s manufacturing facilities are generally vertically integrated operations from the initial design stage through final design and manufacturing. The Company designs, manufactures and assembles its products at facilities in approximately 40 countries around the world. Our global coverage positions us near many of our customers’ locations and allows us to assist them in consolidating their supply base and lowering their production and logistics costs. In addition, the Company generally relies on local general management in every region, which we believe creates a strong degree of organizational stability and operational agility, as well as a deeper understanding of local markets. We believe our balanced geographic distribution lowers our exposure to particular geographies. In particular, during the COVID-19 pandemic, we were generally able to support our customers even if pandemic-related restrictions were adopted in any given country. The Company believes that its global presence is an important competitive advantage, as it allows the Company to provide quality products on a timely and worldwide basis to its multinational customers.
The Company employs a global manufacturing strategy to ensure proximity and reliable service to customers, while also lowering production and logistics costs. The Company’s strategy is to maintain strong cost controls in its manufacturing and assembly operations. The Company is continually evaluating and adjusting its expense levels and workforce to reflect current business conditions and attempting to maximize operating profitability as well as the return on capital investments. The Company sources its products on a worldwide basis. To better serve certain high-volume customers, the Company has established certain facilities near these major customers. The Company seeks to position its manufacturing and assembly facilities in order to serve local markets while coordinating, as appropriate, product design and manufacturing responsibility with the Company’s other operations around the world. For a discussion of certain risks related to the Company’s foreign operations, refer to the subsection titled “Risks related to our global operations” included in Part I, Item 1A. Risk Factors herein.
Research and Development
The Company’s product development strategy is to rely on product design teams at each of our operating units around the world working collaboratively with customers, which often results in the Company obtaining approved vendor status for its customers’ new products and programs. The Company generally focuses its research and development efforts primarily on those product areas that it believes have the potential for broad market applications and significant sales within a one- to three-year period. The Company seeks to have its products become widely accepted within the industry for similar applications and products manufactured by other potential customers, which the Company believes will provide additional sources of future revenue. At the end of 2021, our research, development, and engineering efforts, which relate to the creation of new and improved products and processes, were supported by approximately 3,500 of our employees and were performed primarily by individual operating units focused on specific markets and product technologies.
Intellectual Property
Patents and other proprietary rights are important to our business. We own a significant portfolio of patents that principally relate to mechanical, electrical, optical and electronic features of connector, antenna and sensor products. We also own a portfolio of trademarks and are a licensee of various patents and trademarks. Patents for individual products extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. Trademark rights may potentially extend for longer periods of time and are dependent upon the laws of various jurisdictions and the use of the trademarks.
We also rely upon trade secrets, manufacturing know-how, continuing technological innovations and licensing opportunities to maintain and improve our competitive position. We review third-party proprietary rights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property claims of others.
From time to time, the Company is involved in disputes with third parties regarding the Company’s or such third party’s intellectual property assets, particularly patents. While we consider our patents and trademarks to be valuable assets, we do not believe that our competitive position or our operations are dependent upon or would be materially impacted by the loss of any single patent or group of related patents, or by a third party’s successful enforcement of its patents against us or any of our products. For a discussion of certain risks related to the Company’s intellectual property, refer to the risk factor titled “We may experience difficulties in enforcing our intellectual property rights, which could result in loss of market share, and we may be subject to claims of infringement of the intellectual property rights of others” in Part I, Item 1A. Risk Factors herein.
Raw Materials
The Company purchases a wide variety of raw materials for the manufacture of its products, including (i) precious metals such as gold, silver and palladium, (ii) aluminum, steel, copper, titanium and metal alloy products and (iii) plastic materials. The Company also purchases a wide variety of mechanical and electronic components for the manufacturing of its products. Such raw materials and components are generally available throughout the world and are purchased locally from a variety of suppliers. The Company is generally not dependent upon any one source for raw materials or components or, if one source is used, the Company generally attempts to protect itself through long-term supply agreements. From time to time, the Company may encounter difficulties in obtaining certain raw materials or components necessary for production due to supply chain constraints and logistical challenges, which may also negatively impact the pricing of materials and components sourced or used by the Company. While the Company does not currently anticipate any significant, broad-based difficulties in obtaining raw materials or components necessary for production, beginning in 2021 and into 2022, there have been supply chain and logistical challenges that have impacted the global economy, including our Company, and have caused supply constraints and commodity price increases on certain raw materials and components used by the Company in production, as well as lower availability of, and increased prices for, freight and logistics, including air, sea and ground freight. Consequently, the Company may experience supply shortages for discrete raw materials or components in the future, which could be further exacerbated by increased commodity prices and additional inflation. For a discussion of certain risks related to the availability of and dependence on raw materials and components, refer to the risk factor titled “The Company and certain of its suppliers and customers are experiencing difficulties obtaining certain raw materials and components, and the cost of most of the Company’s raw materials and components is increasing” in Part I, Item 1A. Risk Factors herein. Information regarding our obligations related to commitments to purchase certain goods and services is disclosed in Note 15 of the Notes to Consolidated Financial Statements.
Competition
The Company encounters competition in substantially all areas of its business. The Company competes primarily on the basis of technology innovation, product quality and performance, price, customer service and delivery time. Primary competitors include Aptiv, Belden, Carlisle, Commscope, Eaton, Foxconn, Hirose, HUBER+SUHNER, ICT Luxshare, JAE, Jonhon, JST, Molex, Radiall, Rosenberger, Sensata, TE Connectivity, Yazaki and 3M, among others. In addition, the Company competes with a large number of smaller companies who compete in specific geographies, markets or products. For a discussion of certain risks related to competition, refer to the risk factor titled “The Company encounters competition in substantially all areas of our business” in Part I, Item 1A. Risk Factors herein.
Backlog and Seasonality
The Company estimates that its backlog of unfilled firm orders as of December 31, 2021 was approximately $3.809 billion compared with backlog of approximately $2.380 billion as of December 31, 2020. The increase in the Company’s backlog was related to the significant sales increase, the addition of seven acquired companies, as well as the impact of certain customers placing longer lead-time orders due to the wide array of supply chain constraints occurring in many industries in 2021. Orders typically fluctuate from quarter to quarter based on customer demand and general business conditions. Unfilled orders may generally be cancelled prior to shipment of goods. It is expected that all or a substantial portion of the backlog will be filled within the next 12 months. Significant elements of the Company’s business, such as sales to the communications-related markets (including wireless communications, information technology and data communications and broadband communications) and sales to distributors, generally have short lead times. Therefore, backlog may not be indicative of future demand. Generally, the Company does not experience significant seasonality in its business, although historically, the strongest quarters have typically been the last two quarters of our fiscal year.
Sustainability
At Amphenol, we believe that making sustainable business choices, building strong relationships with our stakeholders and engaging in good corporate governance create long-term value for our Company. Whether through minimizing our and our partners’ environmental footprint, following humane labor practices, supporting the development and diversity of our global team, ensuring the strength and integrity of our supply chain or giving back to our communities, we have always believed that it is not just good stewardship, but good business to focus on the long-term sustainability of Amphenol. Throughout Amphenol, we have a shared commitment to create life-changing innovations and products which enable technologies that improve the lives of people around the world, all while
supporting the well-being of our employees and communities and doing our part to sustain the precious health of our planet.
Our latest 2020 Sustainability Report is available at https://amphenol.com/sustainability. This report discusses our approach and progress on the environmental, social and governance (“ESG”) issues most significant to our business, including ESG-related strategies, programs, goals and metrics that demonstrate our commitment to all of our stakeholders. Information included in our 2020 Sustainability Report is not incorporated by reference in, and does not form part of, this Annual Report. Our 2021 Sustainability Report is expected to be released during the second quarter of 2022.
Human Capital Management and Our Culture
The Company’s success is closely tied to the capability, adaptability and accountability of our diverse, global organization. One of the key components of our business strategy is the fostering of a collaborative and entrepreneurial management culture. Each of our general managers operates in a flat organizational structure and is incented to grow and develop their business, with the support of the resources of the larger organization. We believe this structure, with approximately 130 general managers running unique, independent businesses, creates an environment and culture where each of our general managers has a more direct link to the success of their individual businesses and a more personal connection to the employees they oversee and the communities in which they operate.
As of December 31, 2021, the Company had approximately 90,000 employees worldwide, of which approximately 10,000 are located in the United States. Approximately 10% of Amphenol’s U.S. workforce is represented by an independent trade union or covered by collective bargaining. The Company believes that it has a good relationship with both its unionized and non-unionized employees.
Governance and Culture – Our Board of Directors (the “Board”) is actively involved in overseeing the Company’s employee-related strategies and practices as well as the Company’s culture and ESG initiatives. This oversight is conducted both directly and through certain of the Board’s committees. At each of its regularly scheduled quarterly meetings, the Board reviews changes in key personnel and, multiple times a year, meets with management to discuss various human resources related topics, including talent development, succession planning, diversity, equity and inclusion initiatives, compensation and culture. We believe the Company’s culture has been a critical component of the Company’s success and reinforcing that culture is a key responsibility of our executive management.
Diversity, Equity and Inclusion – Amphenol is committed to workplace diversity and fostering a culture of equity, inclusion and belonging across our organization. Our business spans the globe and the employees in our facilities reflect the diversity of our geographic footprint. At Amphenol, we promote and maintain a culture of respect and appreciation of differences in our employees. The Company generally relies on local general management in every region, which we believe creates a strong degree of organizational stability and a deep commitment to our people and the local community. A key hallmark of our structure is our entrepreneurial culture that creates clear accountability for each of our general managers, who are our key business leaders. Our core management team is comprised of these general managers, as well as their controllers and our executive team. Women represented 28% of this core management team at the end of 2021. Of our total employees worldwide, approximately half are women.
Health, Safety and Well-being – We believe that the protection of our employees is a moral obligation. In addition, the safety and well-being of our employees is critical to the successful operation of our business. Our health and safety activities are overseen by our corporate environmental, health, safety and sustainability leadership team and are managed by our local teams, who coordinate on-site safety programs, resources, reporting and training in our facilities. We believe that this model of coaching and tracking at the corporate level, but administering at the facility level, has allowed us to provide training and supervision that better fits the local needs of each of our workforces. Throughout the ongoing COVID-19 pandemic, we have taken significant actions to protect the physical and mental health and well-being of our employees throughout the world, including, in particular, those employees who work in our factories. These actions have included adopting mask requirements, creating social distancing in our factories, upgrading air handling systems to install anti-viral filtration systems, as well as encouraging, enabling and, in certain geographies, requiring employees to be vaccinated against COVID-19. During more significant localized outbreaks of COVID-19, we have also enabled and encouraged certain employees to work from home, when possible and appropriate, and have taken an integrated approach to helping our employees optimally manage their work and personal responsibilities.
Compensation and Benefits – The Company is focused on providing our employees around the world equitable and competitive compensation and benefits. In the U.S., in addition to competitive compensation, the Company maintains
various employee benefits such as health and related insurance, retirement savings programs and health savings and flexible spending accounts. Outside the U.S., we maintain compensation and other benefits competitive with local market conditions.
Community and Social Impact – Amphenol recognizes that we have a responsibility to be a positive influence in the communities in which we operate around the world. Most of our community outreach is organized by our local management teams, which helps ensure that our efforts are working in support of the local communities in which our employees live and work. Our local teams are actively supporting their communities in a variety of ways including: school supply drives, local blood drives, mentoring of at-risk students, community clean-up events, local tree planting, holiday-giving events and food delivery services to immobile individuals. Throughout the COVID-19 pandemic, many of our local teams have worked to support their communities through the purchase and donation of supplies and equipment, as well as financial support of local health care institutions.
Cybersecurity
In an effort to reduce the likelihood and severity of cyber intrusions, the Company has a comprehensive and evolving cybersecurity program designed to protect and preserve the confidentiality, integrity and availability of our data and systems. We regularly perform risk assessments and penetration tests relating to cybersecurity and technology risks. We also conduct regular workforce training to instruct employees how to better identify cybersecurity concerns and to avoid actions that might inadvertently allow outsiders to access our systems. We install and regularly update our next-generation end point protection software on our company-managed systems and workstations in an effort to detect and prevent malicious code from impacting our systems. The Company’s annual internal audits also include procedures performed on our control environment including our information security systems. Our Board of Directors maintains oversight responsibility relating to our information security and cybersecurity program, with assistance from the Audit Committee of the Board. At least annually, our senior leadership team (including the leaders of our Information Technology and Internal Audit teams) provides an overview of our information security and cybersecurity program to the full Board. In addition, the Company maintains standard cybersecurity insurance. During the last three years, we have not experienced a material security breach and, as a result, we have not incurred any material expenses from such a breach. Furthermore, during such time, we have not been penalized or paid any amount under any information security breach settlement.
Environmental Matters
Certain operations of the Company are subject to environmental laws and regulations that govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. For more information on certain environmental matters, refer to Note 15 of the Notes to Consolidated Financial Statements. For a discussion of certain risks related to environmental matters, refer to the risk factor titled “The Company is subject to environmental laws and regulations that could adversely affect our business” in Part I, Item 1A. Risk Factors herein.
Available Information
The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers, including Amphenol, that file with the SEC. Any such documents that the Company files with the SEC can be obtained by the public on the SEC’s website at http://www.sec.gov. This Annual Report and all of the Company’s other filings with the SEC, such as quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), are also available to view, free of charge, on the Company’s website, www.amphenol.com, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Also included on the Company’s website are press releases and other information about the Company’s financial results and performance, and information regarding environmental, social and corporate governance matters, among other information. Copies of this Annual Report are also available without charge, from Amphenol Corporation, Investor Relations, 358 Hall Avenue, Wallingford, CT 06492. The information on our website is not incorporated by reference in this Annual Report.
Previous: Cover and table of contents · Next: Item 1A. Risk Factors